Please standby, we are about to begin. Good day, and welcome to the Progress Software Corporation Q4 2018 Investor Relations Call. At this time, I would like to turn the conference over to Brian Flanagan. Please go ahead, sir.

Thank you, Melissa. Good afternoon everyone, and thanks for joining us for Progress Software's fiscal fourth quarter 2018 earnings call. With me today is Yogesh Gupta, President, Chief Executive Officer; and Paul Jalbert, our Chief Financial Officer. Before we get started, I'd like to remind you that during this call we may discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, or other information that might be considered forward-looking. This forward-looking information represents Progress Software's outlook and guidance only as of today, and is subject to risks and uncertainties. Please review our Safe Harbor statement regarding this information, which is available both in today's press release, as well as in the Investor Relations section of our Web site at progress.com. Progress Software assumes no obligation to update the forward-looking statements included in this call, whether as a result of new developments or otherwise. Additionally, on this call, the revenue, operating margin, diluted earnings per share, and adjusted free cash flow amounts we refer to are on a non-GAAP basis. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers in our earnings release issued today. Today we published our financial press release on our Web site. This document contains the full details of our financial results for the fiscal fourth quarter and full-year 2018, and I recommend you reference it for specific details. Today's conference call will be recorded in its entirety and will be available via replay on our Web site in the Investor Relations section. And with that, I will now turn it over to Yogesh.

Thank you, Brian, and good afternoon everyone. Welcome to our fourth quarter conference call. I want to first walk you through the highlights of our financial results for the quarter and the full-year 2018, and then provide an update on our business and goals for fiscal 2019. Our revenue and earnings per share for Q4 were both above the high-end of our guidance range, providing a strong finish to a solid financial year. The overperformance was driven by our OpenEdge segment with both our ISVs and direct end-users delivering higher-than-anticipated license sales during the quarter. Earnings per share grew by 13% year-over-year in Q4 and by 30% for the full-year. Operating margins were 40% for our typically strong fourth quarter and 38% for the year as we remain focused on running our operations efficiently. We accomplished this while at the same time making the investments needed to take advantage of the longer term growth opportunities we see in modern application development. We continue to generate strong cash flows, which is further evidence of our disciplined operating approach. Our ability to produce consistent cash flows enables us to invest in further strengthening our business, while still returning meaningful amounts of capital to our shareholders. With our dividend increase in Q3, we returned over $16 million to shareholders during Q4, and almost $150 million for the full-year through the combination of dividends and share repurchases. Let's now take a look at each of our businesses, starting with our OpenEdge segment. I'm pleased with the level of OpenEdge license sales in Q4. The better-than-expected performance during the quarter from both our ISV partners and direct enterprises enabled us to achieve flat revenues for the full-year on a constant currency basis, consistent with our goal of keeping our flagship business healthy. License sales to…

Thank you, Yogesh, and good afternoon everyone. As a reminder, all the numbers I'll be referring to in my remarks are on a non-GAAP basis. For our fourth quarter, total revenues was $111.5 million, $1.5 million above the high-end of our guidance range primarily due to higher than anticipated license sales to both OpenEdge ISV partners, and direct enterprise customers. Our earnings per share of $0.76 for the quarter grew 13% year-over-year, it was $0.02 above the high-end of our guidance range, primarily due to a lower tax rate. For the full-year, total revenue was $397.7 million flat compared to a year ago. Earnings per share was $2.49, up 30% from $1.91 in fiscal 2017. Looking at a consolidated revenue for the quarter, as compared to Q4 of last year, as expected revenue for Q4 decreased from last year. Total revenue of $111.5 million was 4% lower at actual exchange rates and 3% lower on a constant currency basis. The year-over-year impact of exchange rates on our fourth-quarter revenue was a negative $1.5 million. License revenue of $43.2 million decreased by 6% from a year ago at actual exchange rates and 5% on a constant currency basis. Within our segments, solid growth from our OpenEdge ISVs was more than offset by a decline in license revenue from direct enterprises. And as expected, license revenue increased slightly year-over-year in our DCI segment offsetting a small decrease in our AD&D segment. Maintenance and services revenue was $68.3 million, a decrease of 3% year-over-year of actual exchange rates and 1% on a constant currency basis. Maintenance revenue of $60.5 million was down 1% compared to last year on a constant currency basis. Professional services revenue was $7.9 million, down 7% on a constant currency basis due to lower services revenue from our AD&D…

Thank you, Paul. That concludes our formal remarks for today. And I'd now like to open up the call to your questions. I ask that you keep your remarks to your primary question and one follow-up. I'll now hand over to the operator to conduct the Q&A session.

Thank you. [Operator Instructions] And our first question will come from Steven Koenig with Wedbush Securities.

Great. Thanks very much, gentlemen. You may be repeating yourself on this, but could you just go over again or give more color on the Q1 guide being down and particularly on OpenEdge there, and if I could, on my initial question I'd also like to ask just on AppDev licenses for this quarter just ended for Q4, why were they down, and to what extent was that expected? And then I do have one quick follow-up, if you don't mind.

Sure. Steve, this is Paul. Thanks for the question. So, for Q1, right, our revenue is expected to be down on DCI, AppDev is expected to be fairly flat, on the OpenEdge, keep in mind that I mentioned there is a $2.4 million FX, and then on top of that there are, in Q1 of '18, we had some larger license sales in Q1 of '18 that we're not able to lap in Q1 of '19.

Got you. And the Q4 AppDev, a little color on why was that, what caused that to be lower year-on-year and why was that -- and was that expected? And then I did -- if I could add one more, guys, and then I'll turn it over, the stock buybacks were lighter this quarter, I think you had anticipated that going in to the quarter per your guide, but the stock is way down from prior level. So, why not buyback at a higher rate when the stock is lower, and then are you still committed to -- I'd say then you're committed, I think you did say 100 million in repurchases this year, correct?

Yes.

Yes. So, Steve, so let me hit the buybacks first. So, we had committed in '18 that we would repurchase 150 million in the first tranche, 30 million that was done previously, and then 120 million that we did in '18, so that $10 million tranche was really the completion of that tranche. We had committed that we would do $100 million going into 2019. And I'm sorry, Steve, can you repeat what your first question was again?

Yes. Thanks, Paul, for your patience. I know I…

Yes. So, I mean I have to add that was somewhat expected, so it's not a big surprise to us there. So, it was really the result of lower bookings, right, so all of that gets taken ratably, so we had lower bookings than what we had expected at the beginning of the quarter.

Okay, gentlemen, thank you very much.

[Operator Instructions] Our next question will come from Mark Schappel with Benchmark.

Hi, guys. Thanks for taking my call…

Hey, Mark.

Hey, Mark.

So, Yogesh, the OpenEdge business outperformance in the quarter was a pleasant surprise, especially since OpenEdge was the contributor to taking your guidance last quarter, but could you just discuss what happened in the quarter with respect to OpenEdge that drove the outperformance?

So, you know, we had -- thank you, Mark, we had a few OpenEdge deals in our Q4 business that came in a bit larger than expected, and these weren't the deals that we had thought, you know, weren't going to be there. So those deals weren't part of it, they were different deals. So that's what made it happen in Q4. So, as you might recall that our lower guidance for Q4 was partially due to a negative FX impact of $1.3 million as well, but there were few customer-specific ones on OpenEdge that those didn't happen but we actually got additional license revenue from other, both direct and ISVs.

Okay, great. Thanks. And then, Paul, a question for you, free cash flow came in much lower than expected this quarter, I was wondering if you could just go through the puts and takes for why that was?

Yes, so, we had guided -- oh, for the quarter, right, so we had guided for the full-year, Mark, $120 million to $125 million, came in just at the low-end of the range there. So, we had some lower collections, plus we also had some additional tax payments for -- of the transfer of some IP from a foreign jurisdiction back to the U.S., which is contributing to, or part of that is the result of the lower tax rate going into 2019 as well. So, for 2019, if you look at our tax rate going into 2019, we're going to benefit from the next provision of the Tax Act that was enacted earlier this year. So, we did take advantage of taking some of the IP and bringing that back to the U.S. So there were some additional tax payments there.

Great, thank you.

[Operator Instructions] Our next question will come from Glenn Mattson with Ladenburg…

Hi, guys. Thanks for taking the questions. So, I'm just trying to get the timing right on the OpenEdge. So, first I'd like -- so maybe Paul can remind us what OpenEdge growth was for the year, and then -- because I think it was positive, but just slightly positive, and then -- yes, go ahead.

So, it was essentially flat, Glenn, the OpenEdge.

Okay. So, it's flat in '18, but you benefited from some large deals in Q1, and then in the Q3 call you were talking about kind of a lighter Q4, which some deals came in better than expected, but Yogesh just mentioned that some deals that you had pushed out in Q3 guidance are now -- didn't close yet, so you should benefit from those in '19. So, I'm just trying to get the sense of kind of, you know, is this business really shrinking but there's a couple bit of lumpiness that occurred that helped in, or just exactly a better sense of what kind of [indiscernible] about.

Yes, so Glenn, I wouldn't say that it's shrinking, right. So, it's really -- as you cited some of the lumpiness, right. So, on the direct enterprises, right, that is somewhat lumpy. We do have certain term arrangements in our OpenEdge with our partners, right, that get recognized in a particular quarter that don't repeat, but in terms of where we ended up at the end of Q3, we did take down our full-year guidance. And some of those, not the specific deals that we had called out, some additional -- the partner channel deals came through, that was the cause of the overachievement in Q4.

Right, I guess to understand [indiscernible] in Q3, those should benefit you in '19, right, so…

No, Glenn, I think we talked about a particular renewal that we were expecting, or that did not come in 2018. We now know that renewal is not coming into 2019 as well, but we still have again with -- this is maintenance renewal with a direct end-user, even what that maintenance renewals rates are well over 90%.

Right.

And Glenn, from characterizing the business perspective, I actually see the OpenEdge business to be very, very strong, and I actually don't see anything secularly different with it. I think there will be a little bit more lumpiness showing up maybe because of a term licenses that we didn't previously have, but in general, you know, maintenance remain high in general across the board, both direct and indirect business well into the 90%. And just from a color perspective, I really don't see this business at any significant risk at all.

Is the new release a catalyst at all for better results, or is that business kind of standard…

Well, to us, Glenn, the goal is to continually keep providing our existing customers and partners to technologies and additional capabilities that keep them with us longer and extend continually the lifetime of those customers and partners. Additionally, we have released 12 with the three times performance improvement and throughput of the database that actually significantly lowers the infrastructure cost for our partners and customers that they need to drive the same level of activity. So, we see that as making it more sticky. We also see the modernization capabilities with even better integration than before with Kinvey has impressed [ph], and actually I talked about the fact that we have a healthcare partner ISV, who decided in Q4 to use Kinvey and our progress health cloud offering to build on top of OpenEdge, there are mobile apps using that. So I think all these things in my mind are signals that I believe that this is a tremendously strong business.

Okay, great. I will pass it on, and thanks for the clarity.

Thanks, Glenn.

Our next question will come from Matthew Galinko with National Securities.

Hey, good afternoon.

Hey, Mattt. Good afternoon.

Good afternoon.

So, maybe firstly, you guys -- can you comment on how significantly healthcare deals are represented in the pipeline, and how important that sort of HIPAA compliance into the pipeline build for Kinvey?

Yes. So, it is a significant percentage of our overall Kinvey, both deals that happened in last year as well as in the pipeline today. I believe it is one of the top three verticals for Kinvey; again, both for 2018 and our current pipeline, as it stands. In addition to that, Matt, the other compliance capabilities and security capabilities help us with verticals, where compliance is needed as well, which includes financial and others. So, we are actually seeing compliance as a very strong differentiator for us, but there are several differentiators. I mean, one of the fascinating things is that the capabilities of the front-end, which is native apps and native experiences across all kinds of channels, the capabilities of the back-end, which makes the back-end developer productivity dramatically higher because of single-click integrations with data sources, single-click integrations with security systems, single-click performance characteristics, you know, I want type performance syncing -- you know, offline activity and sync, all those things are differentiators as well. In addition to being able to use, as I said, both the data connectivity through DCI to a very, very large number of data sources to a single-click. So, all those things are differentiators, but I think compliance right now is a tremendously useful and important differentiator for us.

Got it, thank you, and I guess my follow-up in, it sounds like you do factor some of the new app development tools into your guidance, like particularly Kinvey. So, can you talk about maybe your -- how you go about constructing that guidance considering, you know, I guess that there is more in the pipeline than there is in sort of current revenue and in bookings. So, how do you factor that in and what gives you confidence to build that?

So, as Paul said in his commentary, right, that our revenue guidance for 2019 has a -- the increase of zero to 2% growth projection at actual rate, and 2% to 3% growth projections at constant currency has a modest contribution from our Kinvey new offerings. The way, you know, obviously you go about doing that is, you know, the revenue that was last year, the bookings that we are expecting based on the pipeline, and so on. You are actually correct, and it's a ratable recognition. So, as bookings grow, the revenue will get recognized over the period of a contract. So, the earlier year bookings will show up more, the later year -- second-half year bookings will show up less. I mean, it's basically straightforward based on our business projections today.

Got it. All right, thank you.

And this concludes our question-and-answer session today. I would like to turn the conference back over to management for any additional or closing remarks.

Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal first quarter of 2019 on Thursday, March 28, 2019, after the financial markets close, and holding the conference call the same day at 5:00 PM Eastern Time. I will now turn the call over to Yogesh for his closing remarks.

Thank you, Brian. We remain committed to building a strong sustainable business for the benefit of all our shareholders, and I believe we have made good progress towards that goal in 2018. The future is bright for progress, and with continued execution of our strategy, I look forward to a very successful 2019. Thank you again for your support and for joining us on today's call.

That does conclude our conference for today. Thank you for your participation.