Good day, ladies and gentlemen. And welcome to the Progress Software Corporation Q1 2020 Investor Relations Call. At this time, I'd like to turn the conference over to Brian Flanagan. Please go ahead, sir.

Thank you, Keith. Good afternoon, everyone, and thanks for joining us for Progress Software's fiscal first quarter 2020 earnings call. With me today is Yogesh Gupta, President and Chief Executive Officer; and Anthony Folger, our Chief Financial Officer.Before we get started, I'd like to remind you that during this call, we will discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, the impact of the COVID-19 crisis on our business 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 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.Today, we published our financial press release on our website. This document contains the full details of our financial results for the fiscal first quarter 2020, 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.With that, I'll now turn it over to Yogesh.

Thank you, Brian. Good afternoon, everyone, and thank you for attending our first quarter earnings call. Let me start off by saying a few words about the impact of the COVID-19 coronavirus. The global spread of this virus has created a health crisis that has disrupted the lives of billions of people, and what’s more, the situation continues to evolve daily.In response to this public health crisis, our priorities are clear. Number one, we have a responsibility to keep our employees healthy and safe. Number two, we must continue to provide the products and services our customers and partners need and rely upon. And last but not least, we must do our part in preventing the spread of the virus in the communities where we live and work.The macroeconomic impact of the virus has been widely discussed, but is still largely unknown. For Progress, we did not see any specific impact on our business in Q1. And the feedback from recent customer and partner conversations leaves us cautiously optimistic that we are well positioned to weather this potential impact in Q2 and beyond.However, given the current level of global uncertainty, it will be shortsighted to expect that we're completely immune. And this is reflected in our updated 2020 expectations for revenue, EPS and free cash flow. Anthony will provide more details on these revised expectations, which also include a significant negative FX impact, due to the recent strengthening of the U.S. dollar.That said, I remain bullish on our long-term strategy and prospects for delivering meaningful shareholder value.Turning to our Q1 results. As you've seen in this afternoon’s press release, we delivered a strong first quarter with year-over-year revenue growth of 27% and year-over-year growth in earnings per share of more than 50%, both ahead of our internal plans and above…

Thanks, Yogesh. Thanks, Brian. Good afternoon, everyone, and thanks for joining us. I'd like to start by saying that I'm thrilled to be joining the Progress team at such an important time for the company. Progress has embarked on an exciting evolution, shifting focus to improved M&A in order to drive growth and scale. And I'm confident in this team's ability to successfully execute and capture the market opportunity that Yogesh described earlier. I look forward to speaking with Progress investor community personally in the coming quarters. And I'm certain we’ll share more level of excitement about the opportunity in front of us.Turning now to our first quarter results. Total revenue was $113.8 million, well above the high end of the guidance range we provided back in January. This overperformance was driven by higher than anticipated revenue from our DCI, MOVEit and Sitefinity products. We continue to be pleased with the performance of Ipswitch with Q1 revenues from our Ipswitch products slightly ahead of our expectations. We also saw stability in our OpenEdge partner channel with another solid quarter of SaaS related billings from our ISVs, who have deployed their applications in the cloud.In addition, maintenance renewal rates for both our ISV partners and direct customers continued to be strong coming in at well over 90% again this quarter. On a year-over-year basis, total revenue increased 27%, driven by the acquisition of Ipswitch and the timing of DCI contract renewals with certain OEM partners. The year-over-year impact of exchange rates on our first quarter revenue was negative $700,000 generally in line with our expectations.I'd like to take a moment now to discuss how the timing of DCI contract renewals with certain OEM partners impacts our top-line. As we've mentioned on previous calls, ASC 606 generally requires immediate revenue recognition of…

Thank you. [Operator Instructions]. We'll take our first question from Steve Koenig, Wedbush. Please go ahead.

Welcome, Anthony. One to you and then a follow up for Yogesh. So -- and then also a housekeeping -- the 60 million share purchases, does that include the Q1? And then I want to ask you, Anthony, in terms of your guidance here on COVID-19 impact, how -- the environment is pretty uncertain. So, it’s clearly difficult to make adjustments and now with uncertainty what they're going to do. How did you go about adjusting the timing of deals, as well as kind of the seasonality in the year? How does how that get impacted year-over-year and kind of what assumptions you can make to arrive at the new guidance?

To answer your first question, the share repurchase of $60 million includes the repurchase activity from Q1, so all in that would be 50 million for the year. And then on the guidance question, yes, you're right. I mean it's a really uncertain environment right now. We went through all the leading indicators that we had in the business and we’re really not seeing much impact. And so we basically went product-by-product. And we looked at the different revenue streams in terms of where the likely impact would show up from a meaningful slowdown in activity and we looked at new customer acquisition, we looked at expansion and we looked at maintenance renewal, with each of them down, but I would say that the priority order and the magnitude of the impact, because of the size of the maintenance base, there’s probably maintenance number one, and then expansion and new customer acquisition. And it was going product-by-product transaction types we have to consider and we have to look at each of our products quarterly, and adjust the existing forecast that we have.Now, there's more art and science unfortunately to how we're putting the outlook together right now just due to evolving uncertainty, but one thing is for sure that the economic activity is slowing down. It's a global issue. We expect our business to be impacted. I think this is our best view into that right now.

I will leave that question there and then move on to Yogesh. Any commentary on, how does the current environment impact your ability to get deals done, whether it's availability of deals, whether it's their willingness to sell to you, whether it's valuations and/or ability to execute on the transaction? How do those factors roll in when you're thinking about getting the M&A, speaking of M&A on track with the plan?

So, from a Progress operational perspective, we are actually in good shape, right. We do -- most of our marketing activity is electronic and it's virtual. Most of our conversations are virtual, most of our new sales -- new license sales in the business happens with products like Sitefinity and Ipswitch products, which as you're aware are lower end prices and therefore significant amounts of those happen through a lot of online engagement. So, our ability on our side to execute transaction I don't believe is being hampered. What we do believe is this happening and what we expect to happen is, is that customers basically not being able to transact because their businesses are impacted. Their decision making is delayed, their ability to collect and pay, get deferred, those kinds of things, right. So, Steve, really from our perspective, we really see more direct impact from our internal execution perspective, it really is the demand side.And on the demand side again, as I said, it is more about delays with people, if they may decide to not do something for two months, three months, six months. One of the challenges, Steve, in terms of this uncertainty also is the level of timing and we're all hoping that this will be short in terms of the disruption, but at the same time we also know that it can be quite long. So that is also a challenge in trying to figure out what. But on an execution side, we are very comfortable with the fact that we can do the deals, we can execute, we can connect with our customers, we can basically make this happen.

And Yogesh, how do you prepare a deal? By the way that’s very helpful color on your execution. I'm also wondering about your ability to conduct M&A in this environment and the availability of targets that sell themselves to you, any color on that?

Yes, so on the M&A side, again, we don't really see challenges for us to be able to do deals from again our perspective, our deal execution side, we have a strong team. We have the financial wherewithal and the ability to execute those deals from a financial perspective. We have a -- both an unpacked revolver as well as an expansion facility, so $100 million of unpacked revolver; revolver plus a $125 million expansion in our current debt itself. Plus as you know, we have a strong balance sheet to begin with today. So, from a financial perspective, we don't see real challenges. It will make some of the due diligence work, might be a little more difficult since we can't travel and then they can't travel as much. But I think in today's day and age there’s a lot of data that’s shared electronically anyway. And really from a plus positive side perspective, the valuations today are different than they were four weeks ago, right. It's kind of interesting. And by the way, they’re evaluating right. So I don't think -- I think, however, no matter where they end up, I do believe that there's opportunity for valuations to be less than what they were before. And that creates opportunities as well. I also think Steve that there will be companies out there who otherwise were getting funded well or thought they could survive a bit longer than they will basically look at this and they'll see challenges in their business and maybe they were thinking they could grow 10% and do well but instead of that they're going to come in flat this year or approximately flat and making them again more likely to be open to conversations with us. So I see this as really an opportunity on the deal making side.

We'll take our next question for Mark Schappel with Benchmark.

Yogesh, starting with you, given the uncertainty in the marketplace here, why not suspend your guidance as few of the other software vendors have done?

Hey Mark. Good to speak with you as well. And appreciate the question. So, we wanted to make sure that we provided the level of visibility we have today, right. I mean I've been always a transparent -- I've always taken a transparent approach, right, and you know that.And so we want to share some level of knowledge we have. We know the significant FX impact already because of the way the dollar has moved against both the euro and the pound. And at the same time, we see that there are early signs that, that some of the new business would get delayed or extended beyond the timeframes that we're talking about. So that's on that side.On the other side, we have a very strong recurring revenue business, and we have really strong customer retention. And so when you think of it that way, right, we felt that it was important to highlight the fact that we feel confident that the range of impact even though there's uncertainty, even though there's unknowns related to this, that the range is in our view, right, rather limited. And again from a impact of this crisis perspective, in terms of it impacting our revenues, that impact for the year is between $10 million and $13 million, which is whatever right between 2% to 3% of our top-line expectation.So, that to us is actually one of our strengths that we have a business that is quite stable. And because of how efficiently we run, we're still able to reiterate that we will make 39% operating margin, which is 100% basis points greater than last year and 400 basis points greater than two years ago. So, I think all those things were part of the rationale to share information with folks like yourselves and our shareholders as to what we see in our business.

Great, thank you. And then, there is a question here, could you just give us an idea of how your -- how you see the professional services business holding up and how the company just plans to manage the business [often]?

Yes Mark. So it's actually interesting. Even before the coronavirus impacted the way people do business, the vast majority of Progress professional services are being delivered remotely. We have rather limited set of people that use to go to on-prem anyway. Of course this -- 100% of it is being delivered remotely. We have seen no disruption in the project. And as far as we are seeing, we're not seeing delays in ongoing projects either. So at least from -- I know that some other companies that have seen different things in their business. But from our perspective and from our professional services business, we are not seeing a project impact at least today.

And then finally here on the M&A front with respect to the 50 or so companies that you see each quarter, what percentage of those would you say are marginally profitable or might have some cash issues?

Well, I think, it may be, right? I think probably I would have to sort of go back and look, but -- so I believe that probably in the 20% to 30% maybe even a bit more, maybe even up to a half. But what really we see across the board, I mean we actually see companies that are extremely profitable that are being run really well to companies that are actually quite significantly burning cash. It's a fascinating world out there Mark. And I don't know whether this change in the economic environment will change, sort of where -- how that shakes out, but -- whether companies will focus differently, but we see across the board. And I think there's a significant number of them that are actually maybe breakeven or negative.

We'll take our next question from Anja Soderstrom with Sidoti & Company.

And welcome aboard Anthony. Looking forward to working with you. So just on the M&A, you said you do look at 50 companies each quarter. So what you’d be looking at, maybe -- so you walked away for something that you guys weren’t looking, just passing down that might be more interesting now that would be easier for you to execute on without maybe doing a whole lot more …?

Sorry. Anja, I'm having a very hard time hearing your question. I know it was about M&A. And I know it was about some companies we are seeing. But I -- really I am sorry. Could you please repeat?

Sorry, so there are other companies that you may have been walking away from those companies because that’s too expensive, that might have come down but you already made a lot of due diligence on, so it was easier for you to execute on that in this kind of environment?

I think you -- let me make sure that I heard your question. I think you've asked whether there were companies that we walked away from, because they were so expensive, that now the valuations might have come down and we could potentially participate in it. And they become more attractive now. So, to answer that question, a lot -- all along right in these processes that are companies that we walk away from.I do believe that the timing is still too early to see whether there is a meaningful change in valuation. So I don't think that this is something that in the last three weeks, we can suddenly say, now valuations are less. Public company valuations are well known. Private company valuations, as you can imagine, right folks -- the fellows have to come to realize that they need to reset their expectations. We are expecting that, anecdotally we are seeing that, but I wouldn't say that there are opportunities that we walk away from that now we can suddenly be engaged on that.

And then also you mentioned hiring in the first quarter was slower than anticipated. Talk a little bit about that and are you still trying to hire in this environment or how is that going to impact?

Yes. So regarding hiring, in Q1, we had an aggressive plan to hire and it has been difficult to hire before this. And so, we're in competitive location as you know, such as Boston and India and so on. So we were not able to get through our hiring targets. We are continuing to hire where needed. But obviously we're also looking at things very carefully as to where those real needs are. So we are being prudent but we're not really changing in any meaningful way, how we operate, right? There is -- there are cost savings from things like no travel, and then there are cost savings from less events and those kinds of things. But overall, we are continuing to run our business, we are delivering products on time, we're supporting our customers, just as well as we were doing before, around the globe, 24x7. We are servicing our customers in terms of professional services engagements. We are communicating with them from a sales and marketing perspective as much as we were doing before. So I actually, -- the work hasn't changed, we are focused on running the company well, and we will continue to do so.

We'll take our next question from Matthew Galinko with National Securities.

So we are seeing some positive comments from companies that are able to lead other -- that have products that enable secure remote work, given this environment. And so I'm curious if there's anything particular with Ipswitch’s portfolio that are -- maybe seeing a little bit more sell through or interest, that might be a counterbalance a little bit to the headwinds that you expect to see in this environment?

So Matt, as we've looked at each product, as Anthony mentioned, right, where we -- and analyze these products and we looked at and said, are there some products that might get a little bit of a benefit? Clearly, IT infrastructure availability and performance management becomes even more critical in today's day and age and then in this environment than it was even a month ago. So, obviously the Whatsup Gold product addresses that need. And -- but overall -- and secure data transfer is potentially another area that can benefit. But clearly, there a couple of challenges that I want to point out, right. Those products also have along with the Dev Tools products, right, new business acquisition and the new business acquisition is where we expect to see a significant impact from what we are trying to do right. That we’re expecting have a slow down and extension of timeframes.We also have, Matt to be honest, right $7 million of FX headwind on the top line. It is dramatically different than it was four weeks ago, right. And so when you look at it from that perspective, we actually have a rather muted impact on our revenue numbers that we are contemplating and that we are envisioning at this point given the uncertainty in the market.

And then maybe follow up with respect to capital allocation. I know you talked about your target buyback allocation for fiscal '20. But just in light of the market volatility we've seen and some of the declines in your share price, fairly steep, do you think about -- just walk us back through how you think about leading a little bit more heavily into the buyback versus M&A and sort of how you feel that opportunistically compared to opportunistic M&A?

Yes. So, a great question Matt. Obviously, we had our strong cash flow, the opportunity to really allocate our capital in the most shareholder friendly way is what we focus on all the time. So our first priority of course is our dividend, right. We pay approximately 25% of our annual free cash flow to shareholders in the form of dividends, which as you know, in September, we increased by $0.04. And so -- and the Board reviews that every quarter and so the dividend is of course number one.The second thing from our perspective really is now should we apply the capital towards buybacks versus M&A. And reality is even though share purchases provide a solid low risk return, accretive M&A that meets our discipline criteria provides a much better return. And so we look at it from the perspective of what is best for our shareholders, what is the best place to apply capital.And so, we of course have the flexibility to increase or change or suspend our buybacks based on whether or not we're able to do M&A and what we're doing from an M&A perspective. So our Board reviews that every quarter. We make sure that, that we look at the trade-off between possible M&A and buybacks. And again, if we can find the right M&A deals, we believe that, that is even at the current valuations that, that Progress is at, it really does offer a much better return for our shareholders.

Ladies and gentlemen, this will conclude today's question-and-answer session. At this time, I would like to turn the conference back to Brian Flanagan for additional remarks.

Great. Thank you all for joining the call today. As a reminder we plan on releasing financial results for our fiscal second quarter of 2020 on Thursday, June 25, 2020, after the financial markets close and holding the conference call the same day at 5:00 PM Eastern time. And I'll now turn the call over to Yogesh for his closing remarks.

Hey, thanks, again, Brian. Given this time of uncertainty, we, as a business will always do what we've always done before, which is to continue to provide great products and high levels of support to our longstanding customers and partner base. The company is financially really strong and healthy. And while our 2020 results may be impacted by this crisis, we will continue to be focused on the long term opportunity we have to create value through accretive M&A.I want to thank all of you for joining us today. And I look forward to speaking with you again during the next quarter's conference call. Stay safe, everyone.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.