Good day, and welcome to the Progress Software Corporation Fourth Quarter 2019 Investor Relations Conference Call. At this time, I would like to turn the conference over to Mr. Brian Flanagan. Please go ahead, sir.

Thank you, Cathy. Good afternoon, everyone, and thanks for joining us for Progress Software's fiscal fourth quarter 2019 earnings call. With me today are Yogesh Gupta, President and 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 will discuss our outlook for our future financial and operating performance, corporate strategies, product plans, cost initiatives and 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 in today's earnings release, as well as well as in the Investor Relations section of our website 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. Also, please note that all 2018 amounts have been adjusted to reflect ASC 606, which we adopted effective December 01, 2018, using the full retrospective method.Today, we published our financial press release on our website. This document contains the full details of our financial results for the fiscal fourth quarter 2019, 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 website in the Investor Relations section.And with that, I'll now turn it over to Yogesh.

Thank you, Brian. Good afternoon everyone, and thank you for attending our fourth quarter earnings call. As you've seen in this afternoon's press release, our Q4 performance was even better than expected, closing out a very strong 2019. Revenue, EPS and operating margin were all well above the high end of our guidance, and we achieved record free cash flow as well. I'm very pleased with the operational and financial performance of all three of our business segments.Revenue grew 26% for Q4 and 14% for the year. EPS grew 46% for Q4 and 23% for the full year, and 2019 operating margins ended at 38%. These are very impressive results, and I'm extremely proud of the hard work it took to achieve that. The success we're seeing with IPswitch is a large part of the reason we were able to raise and then beat our EPS and margin guidance twice in the second half of the year, demonstrating our ability to create value through acquisition.Our free cash flow grew by $9 million, year-over-year to an all-time high $129 million, and we're expecting 2020 to increase by another $16 million to $21 million. Again, an impressive performance that illustrates our ability to run a highly profitable business with excellent cash conversion. We also returned over $50 million to shareholders in 2019, including another quarterly dividend increase.This was the third year in a row that we have increased our dividend since establishing it in 2016, which is another reflection of the confidence we have in our ongoing cash generation. Overall, our businesses performed at or above expectations throughout the year and with Ipswitch continuing to exceed our revenue projections, I'm very pleased with the momentum that we've built.Let's spend a few minutes reviewing our impressive fourth quarter and full year performance by…

Thank you for your fine overview 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. We're very pleased with our fourth quarter and full year financial performance. For our fourth quarter, total revenue was $123.4 million, $4.4 million above the high end of our guidance rage, primarily due to the higher than anticipated IP sales of OpenEdge, Ipswitch and DCI. Our earnings per share of $0.79 for the quarter grew 46% year-over-year. It was $0.04 above the high end of the guidance range.For the full year, total revenue was $432 million, an increase of 14% compared to 2018. Earnings per share was $2.69, up $0.50 or 22% for the fiscal 2018. Working out the consolidated revenue for the quarter as compared to Q4 of last year, Q4 revenue of $123.4 million increased 26% from last year and 27% on a constant currency basis. The year-over-year impact of exchange rates on our fourth quarter revenue was a negative $1.2 million.License revenue of $39.4 million, increased by 39% from a year ago at actual exchange rates, and by 40% on a constant currency basis. The increase was due to the license revenue from Ipswich, as well as a renewal of higher number of multiyear-term OEM contracts within our DCI segment as compared to last year. Maintenance and services revenue was $84 million, an increase of 20% year-over-year at actual exchange rates and 21% at constant currency basis. This increase was primarily due to the addition of Ipswitch.Turning to our full year revenue compared to prior year. Total revenue of $432 million was up 14% versus last year, at actual exchange rates and 16% on a constant currency basis. A year-over-year impact of exchange rates on our full year…

Thank you, Paul. That concludes our formal remarks for today. I'd now like to open up the call to your questions. And 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 we will take our first question from Steve Koenig with Wedbush Securities.

Hi. Great. Hey, thanks very much guys. Hey -- with congrats to Paul for a great tenure at Progress and best wishes in your retirement. I hope you get one of those little drinks with the umbrella floating around. That sounds like it would be in runway.

Thank you, Steve.

Yeah. So yeah, so I want to ask Yogesh. The -- Yogesh, you made a remark about the upgrades to OpenEdge 12, providing good customer retention, seat expansion opportunities, and additional functionality. Is there monetization upside in terms of functionality expansion from those upgrades or is it more about seat expansions?

Steve, in general, it is about capacity expansion as needed, and it is about retention. Right, I actually want to talk about retention first, because as you know, keeping that core business stable and keeping them with us and keeping our renewal rates as high as they have been, is really the primary goal of doing what we've been doing on the product side and customer -- customer support side. So, that really is the primary function. Yes, you know it does create the opportunity to potentially get additional revenue opportunities, but primarily through seat expansions.

Got it, got it. Okay. And then on the M&A, we know, kind of we have a good idea of what the criteria are, you had a home run with Ipswitch. We know you…

Thank you.

…have a good pipeline ahead. If you -- kind of looking at the state of your progress towards the next deal, do you feel like there's -- is there a material change from 90 days ago, is it still fairly formative? Your remarks sounded like you are confident you'll do a deal this year, maybe just any additional color there you can give us?

So Steve, as first of all, thank you for your kind remarks about Ipswitch. We -- our goal is to continue to target acquisitions like Ipswitch going forward, which we can then get greater scale and increased cash flow. Our pipeline continues to strengthen. We see potential opportunities for future transactions within the software infrastructure space. Even with the current market conditions, we are so confident that we can execute on this M&A strategy and double our business.As you know, with any deal, I don't want to put a specific timeline down, because that always then creates not a realistic pressure, because it suddenly becomes, are you going to relax your criteria to meet that deadline. So to us the criteria are sacrosanct and so we will stick to our criteria. But despite saying that, I'm confident that we can actually execute on this. So I feel good.

We'll take our next question…

Steve.

Hello.

Yeah, Steve, are you still there?

Yeah. Okay. I'm back.

So okay. Thanks.

Yeah. Thanks, guys. Yeah, thanks Yogesh. And congrats to you again Paul. Best wishes.

All right, thanks Steve.

Next question?

The next is from Matthew Galinko with National Securities.

Hey, guys congrats on the quarter. Congrats Paul.

Thank you, Matt.

Sure. I think you mentioned in the prepared remarks Paul, maybe you invested a little bit in products Ipswitch as they came in or at least you launched a new version of their -- maybe a couple of the products that you highlighted and maybe part of the reason for the outperformance on that side of the business this quarter. So I'm curious how you think about whether you'll continue to invest in Ipswitch? Or are there opportunities to continue driving organic growth in that business?

So Matt, really good question. There is a little bit of organic growth in that business. The business is ahead of projections that we had. But from our perspective, the investment that we're making is very similar to what we're doing with all of our other products, right which is to make sure that, that business stays strong. We don't see materially growing organically with that product portfolio.So it is truly more about again retention keeping it solid, keeping the momentum going, which we believe we can do. I actually see top line growth primarily coming back from acquisitions. The biggest component of our FY20 guidance in terms of top line revenue growth is the full year's contribution of Ipswitch right, which is offered by DCI, as Paul said, because the timing of OEM deal. So that really is really what is driving it. I -- we continue to invest in it to make sure that the customer stay with us. We keep a competitive product and the business momentum continued.

Okay, thanks. And I guess my follow-up with respect to the large direct DCI deal, can you point out any key factor or factor that got you over the finish line? I think you mentioned that was competitive. So I guess how did you get there? And do you see -- and I guess should we see that as a one off or is that -- which we see that this was maybe a bit of an expansion of the DCI TAM into more direct customers.

So right now, Matt I don't have enough of a trend to call it a trend. I mean, we don't have enough data point right. But that said, we have the best offering. What won this deal for us was a combination of factors. It was a combination of the depth of the capability of our connectivity. So not just the fact that we have broad connectivity to a very large number of data sources, but the level of connectivity and the depth of that connectivity and capabilities are high. The scalability, performance and security are really the key differentiators there. And really they continue to be why direct as well as the OEM customers continue to use this technology over and over and over again. But I don't see this as a big a change -- driver in changing the trajectory on DCI at this point.

Great. Thank you.

Okay. Thanks, Matt.

[Operator Instructions] We will take our next question from Mark Schappel with Benchmark.

Hi. Good evening. Let me just start off by saying nice job on the quarter. And Paul, congratulations on your retirement.

Thank you, Mark.

Thank you, Mark.

Just a couple of questions here, just going back to DCI. Yogesh, in your prepared remarks, you called out a handful positive developments in that business. And that's a business you typically don't see too many of those. And I was just wondering if you could -- it strikes me that something has changed there. I was wondering if you could maybe address any internal changes you've made at the company in your DCI business?

I think, Mark we have a continued focus on our core businesses that is DCI or any others. And it is that continued focus. We continue to also come out with new capabilities and invest in those technologies, so all those things help. That said, I do want to be careful and not say suddenly we're going to -- we are seeing a great trend among direct customers. If and when we do, we will share that. But we feel good about the DCI business. It is truly a solid business.As you know, Mark, the direct part of that business is really quite small. So in terms of the overall business, it is a really tiny part of the business. So that would have to move meaningfully for us to then start seeing something that is meaningful to progress as a whole.

Great, thank you. And then last quarter, you announced that your operations on Kinvey business were being scaled pretty meaningfully. I was wondering if all the scale back activities have actually taken place yet?

Yes, they have. We completed those changes. And we still have some investment in that area, Mark, because we do see some opportunities there. But it has been scaled back significantly and our 2020 guidance includes the scale back investment in that area. And so -- yes, all that was completed.

Okay, great. And then finally, you called out in your prepared remarks. Your direct OE -- excuse me direct to OpenEdge deal, I was wondering if you just give us some additional color and just maybe repeat your prepared remarks around that deal?

Yes, so the one that I highlighted was a large mortgage company, financial company that does mortgages. The key there was really -- the large part of the deal was more in the expansion side, because their business is growing. They need more licenses to cover the bigger footprint that they need of the product. There was also a component to it which was related to additional technologies from within the OEC, so that they could get ready to upgrade to OpenEdge 12.As you know, OpenEdge 12 has some not just performance and security, but some additional capabilities and characteristics as well, and so to get full use and full advantage of those, they need to sometimes buy additional products within that suite. So that was an additional sort of cherry on top that we were working in that deal.We also saw some deals with direct customers which were around compliance and those were good deals as well. So OE had a -- OpenEdge had a -- had a good solid Q4 in the direct business. Again as Mark you're well aware that direct business for OE is quite lumpy. It depends on when these customers run into their thresholds and feelings on their capacity and so on and so forth. And so it isn't something that is a steadily repeatable all the time type of things, but we are really happy that whenever it happens, it helps us make sure that it offsets the little bit of churn that happens in inside the OE direct business.

Okay. Great, thank you. And Paul, congratulations again on your retirement. That's all for me.

Thank you, Mark.

We'll take our last question from Anja Soderstrom with Sidoti.

Hi, everyone, and congratulations on a great quarter and good outlook for 2020 and Paul, good luck with your retirement. There's been a lot of good questions asked already. But I just want to know if you had anything that you could call out the sort of on a geographic basis, if there is anything to call out?

Anja, thank you very much for your compliments regarding the quarter and the performance. For a overall geographic perspective, as you might be aware, Ipswitch is predominantly a North American business. And so the North America performance and year-over-year growth in Q4 was significantly higher because of that, compared to other regions. Overall, it was a good performance across the board across all regions. We had a solid performance across EMEA, LATAM and APJ as well.

Okay, thank you. That was all for me.

Thanks again, Anja.

If there are no further questions at this time, I'd like to turn the conference back to Mr. Flanagan, for additional remarks.

Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal first quarter of 2020 on Thursday, March 26, 2020 after the financial markets close, and holding the conference call at the same day at 5:00 PM Eastern Time. And I'll now turn the call -- turn the call over to Yogesh for his closing remarks.

Thanks, Brian. An excellent 2019 is behind us and we're well positioned for success going forward with continued strong execution and a focus on repeatable accretive M&A. The company is as strong as it has ever been financially and Anthony Folger brings a wealth of knowledge and experience as he moves into the CFO role. He is committed to our strategy and I'm confident he shares our focus on guiding long-term shareholder value.I look forward to introducing him to our investors once he starts out with us in February. And thank you again for joining us today, and I look forward to speaking with you -- the next quarter conference call. Thanks and bye.

This concludes today's presentation. Thank you for your participation. You may now disconnect.