Good day. And welcome to the Progress Software Corporation Q4 Earnings Release Conference Call. At this time, I would like to turn the conference over to Brian Flanagan, Senior Director, Investor Relations. Please go ahead, sir.

Thank you, Blend. Good afternoon, everyone. And thanks for joining us for Progress Software’s fiscal fourth quarter 2014 earnings call. With me today is Phil Pead, President and Chief Executive Officer; and Chris Perkins, 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 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, we may refer to certain non-GAAP financial measures such as operating margin and diluted earnings per share. 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 and also furnished the information to the SEC in an 8-K filing. These documents contain the full details of our financial results for the fiscal fourth quarter 2014 and I recommend you reference these documents 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 Phil.

Thank you, Brian. Good afternoon, everyone. And thank you for attending our fourth quarter earnings call. I am very pleased with our fourth quarter performance. As a result of our considered execution, we achieved strong growth over the prior quarter in each category of our business. Moreover, the momentum we have built as a result of this effort will benefit us going into our new fiscal year. We entered 2015 with a suite of strategic solutions that offer an unrivaled choice to application developers. I know this is often said by CEOs, but I couldn’t be more excited about future. With our accomplishments over the last two years, we are now even closer to achieving our vision of becoming the preferred destination for application developers. Just to put this into greater perspective, Progress now has one of the largest developer communities in our industry, with a broad range of platforms and languages from .NET to HTML5 to Node.js. This provides us the opportunity to further broaden those communities by offering them great user experiences, as well as the potential increase the breath of solutions they use from us. I will provide more detail about the strength of our application development and deployment segment in a moment. Focusing on our OpenEdge segment, over the last two years we have completely reinvigorated our OpenEdge business. As a result of these efforts over that period we have grown license revenue by more than 23%. Part of that license growth has come from ISVs selling more of their solutions as software-as-a-service. This is an exciting development for our OpenEdge business as even more of our revenues become recurring. Our customers and partners are not only excited about the direction we have taken and the enhancements we have made to the OpenEdge technology with the…

Thank you Phil and good afternoon everyone. As a reminder and consistent with our previous earnings calls, all the financial metrics I will talk about today are related to our continuing operations and exclude results from product lines that were divested in prior years, which are reflected in the press release as discontinued operations for all periods presented. Total revenue for the quarter was $98 million compared to $91 million in Q4 2013, an increase of 8% at actual exchange rates and 10% on a constant currency basis. Our fourth quarter non-GAAP EPS was $0.47 compared to $0.43 in the fourth quarter of 2013, an increase of 9%. This was at the high end of our guidance range of $0.44 to $0.47. Fourth quarter revenues include a negative impact from currency translation of approximately $900,000 as the U.S. dollar strengthened significantly during the fourth quarter compared to other currencies and also includes incremental revenue of approximately $3 million associated with the acquisition of BravePoint, the professional services firm we acquired in October. Excluding the negative impact of currency translation and the incremental revenue associated with BravePoint, revenue would've been approximately $96 million which was at the low end of our guidance range. For the full year, total revenue was $333 million flat to last year on both an actual and constant currency basis. Full year non-GAAP EPS was $1.51 per share compared to $1.19 for 2013, an increase of 27%. This was above our guidance range of $1.47 to a $1.50. The year-over-year revenue increased in the fourth quarter was due to growth in both license and maintenance and services revenue. License revenue was $41 million in the fourth quarter, up 10% from Q4 2013 at actual exchange rates and up 12% on a constant currency basis. License revenue increase…

Thank you, Chris. That concludes our formal remarks for today. 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 will now hand over to the operator to conduct the Q&A session.

Thank you. [Operator Instructions] And we’ll go first to Steve Koenig with Wedbush Securities.

Thanks guys for taking my question.

Hi, Steve.

You’ve given plenty of clues. We can probably puzzle together some of the revenue contribution assumption from the acquisitions for ‘15. I am curious about margins, I guess not only because of the acquisitions but also you are investing in the base business, the guide on margins is down and currency is a bit of an impact there. So my question is a, how should we think about Telerik’s margins in fiscal ‘15 and then where they will go? And then secondly, how should we think about the potential and the timeframe for getting back to 30% and then potentially even mid-30s in terms of operating margin?

Well, this is Chris, Steve. I'll comment a little bit on the impact of the acquisitions. As I mentioned, both acquisitions will contribute positively to your EPS in 2015. The operating margins of BravePoint, being a service business are generally lower. Those operating margins are above 10%. And I would say that I expect we can potentially get some expansion as we grow that business, but being a service business not a significant expansion. The Telerik business again is positive and it generates operating margin also in excess of 10%. I think we’ve got some opportunities as we move forward through the integration work that we're doing, as well as we experience growth and leverage in the Telerik revenue model. I think we’ve got an opportunity to expand those margins. We haven't given any outlook on how that will progress. But I think that as we get towards the later part of the year, we’ll see an improvement in the operating margin from those businesses. As we grow and as we continue to generate revenue from the investments we are making in the app dev business, again just to remind, most of the app dev investments are related to revenue that’s recognized on a ratable or subscription basis. So the revenue contribution is lagging the time of the investments. I think we have an opportunity to continue to show improved margins through the year and improve those as we go forward. But we are not in a position to give an expectation of how they will progress longer-term until we see how our traction goes in those businesses.

Okay. Great. And for my follow-up, I would just like to ask Phil, what is the -- you now have a lot of a pretty broad set of tools for different styles of applications and different languages and different phases of development lifecycle. Where you see as being the biggest synergy opportunities in the various tools that you have?

Synergies in what respect, Steve?

And really from a revenue perspective and a market -- really from a product perspective in terms of having solutions that could be sold together.

Oh! Yeah. I see what you are saying. There are a number of areas that we see between the various solutions that we have that would pull-through some of the other solutions we’ve got. For example, we've always talked about application developers needing data to be included obviously in every application that they build and the opportunity that we have for example with data solutions and our Modulus Deployment platform is an opportunity right there. In the Sitefinity Web Content Management Solution getting access to data for your intuitive intelligent analytical websites is also another area. I could go down a long list on the data side or Corticon has a rules engine, using rules and calling rules through our Rollbase application for example is another synergy, using rules along with Sitefinity. So you can have an intelligent website, a website that enables somebody who is looking for a mortgage to qualify themselves requires some pretty intricate rules. You can combine the Sitefinity solution with our Corticon rules and allow prospective mortgage applicants to qualify themselves and then build in workflow behind that so that it goes to a mortgage processor. On the mobile side, again, data access is critical, mobile -- building mobile applications requires highly intuitive user interfaces. So there is another area that I could build on. It's really exciting for us to bring our engineers together to look at all the different solutions we have, look at the market demand and the needs that they have and I’m pretty excited about what the opportunities are in 2015. Having said all that, it’s really critical that we focus on continuing the momentum in each of these point solutions. I don't want to just say, hey, the future looks bright. We got to build all this stuff or integrate this stuff. We have an enormous amount that's available to sell today, a large percentage of which as I mentioned in my prepared remarks are being sold with no touch. We’ll continue that momentum. We’ll continue those growth rates. But at the same time, the opportunity for us to accelerate those growth rates by the synergies that I just described, I think, will add to our opportunity as we look towards the latter part of 2015 going into ‘16.

Great. Thank you very much, gentlemen.

You’re welcome, Steve.

We’ll go next to Mark Schappel with Benchmark.

Hi. Good evening. And thanks for taking my call. Phil, I was wondering if you could provide a little bit more color around the large deal that you signed an APJ?

Yeah. This is a long time customer of ours that is expanding, they are in a growth business in APJ and we've been working with them for well over a year, and it all came together for us in the fourth quarter. So it’s a nice relationship as we go into 2015. We think we are going to be able to expand it into other solutions.

So it’s not an ISV deal it’s a direct deal.

Yeah. It was a direct deal.

Okay. And then since you gave us a little bit here, I was just wondering you talk a little bit about what we can expect in the marketing front here, now that you have product under your belt?

Oh! Mark, we have a lot of stuff going on in marketing. Again, as I mentioned, I think, when we announced the acquisition of Telerik. They really have an incredible machine on the digital marketing side. And we are leveraging as much of that infrastructure as we possibly can. We are leveraging their leadership, their knowledge, the analytics tools that they have in the way in which they deploy their content, the way in which they manage search. So we're very fortunate, I think, to be able to take advantage of that, because that's an area that, as I’ve said, I mentioned before, is something we had to build internally on the Progress side because that's not the way we were doing business. So we are definitely leveraging that. I’m thrilled that we have a new Chief Marketing Officer. She is I think in her fourth month of being on the team and the teams come together, we have got opportunity to now incorporate a lot of the Telerik folks into our marketing organizations. So look for great stuff from us in ’15.

Great. Thank you.

You’re welcome.

We will go next to Greg McDowell with JMP Securities.

Great. Thank you very much. Hi, gentlemen. Happy New Year. My first question and maybe this relates to the question about Asia from before? But, I guess, I don't understand what an affiliated OpenEdge end-user is? Could you just help clarify what that means?

Yeah.

I think what we're saying is, they are not affiliated with us. They were two affiliated entities that actually were part of the transaction. So it was just they were affiliated.

Yeah.

.. and they are direct end users and they have been long-time customers.

So both of them were customers, I think it's a confusing -- confusing phrase. Just put it this way, Greg, they are both customers that are long time users of OpenEdge and we now have an opportunity with this agreement in place to help them expand into new markets that they're looking to expand into and also to add additional solutions to them. It was a very nice opportunity for us to close in the fourth quarter.

I see. Does it imply that there is some sort of like prepayment or they essentially brought or bought rights to embed OpenEdge in their solutions they are selling or is there some component like that or is something like that?

No, no. This is -- it is a direct end-user. So they are not selling application, so...

Okay.

It’s based on use.

It’s based on their…

Got it. Got it.

… growth.

Okay. Thank you. I will move.

Sure.

And maybe this is sort of a longer term question but taking step back four a minute, Phil, I was wondering now that, you have three business units and then three different heads running those business units? Just how you're thinking about the sort of the incentive structure for those three managers and whether or not you're driving them to optimize their unit for growth versus profitability? And just how we should think about sort of their marching orders they have for the next 18, 24 months?

Right. So, let's just talk about the characteristics of each of these units. OpenEdge is going to absolutely be focused on driving more revenue from the OpenEdge Solutions. So, Jerry Rulli, who is the President of that division and all his team are focused on continuing to expand and build on the momentum that we have generated in OpenEdge. So as I mentioned again in my prepared remarks over the last two years, growing license revenue by 23%, ostensibly in a business that everybody thought was in maintenance mode, we are really excited about the reinvigorated base of customers that we have and the partners and the -- and an incredible work that they're doing with their own applications becoming more competitive in their markets. Having said that, the OpenEdge business unit is also an opportunity to include other technologies for our OpenEdge ISVs, as I mentioned again, they are beginning to build Node applications which they are deploying on Modulus. They are building Rollbase applications. They are adding Corticon to externalize their rules. So, Jerry and his team now have an opportunity to add to their individual sales opportunities the additional solutions and technologies that we have. And plus as I mentioned also, we have a lot of OpenEdge customers that are already Telerik users. They use the UI tools to improve the user experience on our application. So there is a lot of activity going on in our OpenEdge base, not just because we are adding new technologies like. We just released the new version of OpenEdge 11.5. But all the other technologies that Jerry and his sales teams can now include as part of their value offering to our OpenEdge customers and partners. On Karen Padir, who is President of the App Dev division, obviously, we've got…

Great. Thank you.

You’re welcome.

We will go next to Glenn Mattson with Ladenburg Thalmann.

Hi. Good afternoon, everyone. Thanks for taking the call. The, I guess, kind of we are going to offer you just, we are talking about, Phil, are you seeing better success in kind of just going back to Pacific or going, are you seeing better success up-selling OpenEdge user on the Pacific or with net new customers?

It’s actually both. I think that our primary goal was to first of all enable our OpenEdge customers to begin to expand on their application using Rollbase and it’s -- that is being a really positive result in 2014, as we introduced Rollbase to more and more of our OpenEdge customers. And they started building out new applications to generate new lines of revenue for them. At the same time, the digital strategy that we need, that we had to build as part of our infrastructure to manage people looking for productivity platform, to be able to influence the searches for people looking for those kinds of platforms. That's an area that I think we can benefit from the Telerik infrastructure and we've already begun to leverage the marketing capabilities of Telerik to expand our Rollbase reach. We are adding what we call sales pods to that, so that we can engage on people that are coming to our website that are seeking a trial, that are trying to build an eval so that we don't lose them. There is a whole bunch of things that we're doing on the net new side. So the two together, I think in 2015 is where I think we are going to -- I hope to be able to share with you in future quarters how we're doing in that particular area because we see it -- we see the signs as being very positive as a result of the work we did in ‘14.

Okay. That’s encouraging. And then the -- on the DataDirect, there has been somewhat lumpy historically but do you envision that being, this reemergence of growth being more sustainable now that DataDirect cloud has kind of taken the reins?

We had a really good fourth quarter and the team did a fantastic job. I think going into 2015, pipelines are being strengthen to the point that the coverage is now at the level that we need in order for us to meet our numbers. If you remember, we had to fix a bunch of stuff on the marketing side. I won’t dredge up that in Q1 that caused us to have the miss. But as we go into ’15, I really love the focus of the team, having a separate business unit. They are very motivated with the opportunities they have in front of them. DataDirect Cloud is really a superstar in the making here. Now it does obviously take our revenue ratable when we add it to our perpetual license revenue, which does have an impact that Chris mentioned earlier. But to me that's an accounting issue. We now are building great visibility in this business. That recurring revenue will pay dividends for us in future periods and actually should reduce the volatility in this business because as you know, we do sign very large contracts, which influences the quarter and then on a comparative basis, we see the lumpiness. So, I think that this will help us in the future by having more of this revenue become subscription, we will get greater visibility to it and the stability within each quarters I think will improve.

Okay. Great. Thanks. Good luck in ’15.

Thank you.

And with five minutes remaining in today’s conference, let’s take our last question from Scott Zeller with Needham & Company.

Hi. Thank you. I just wanted to go through some of the math possibly around the contributed revenue from acquisitions. So if I use your year ending fiscal revenue and growing up by 6% or 7% for the out year, as you were suggesting guidance. It seems as if you're contributing about $75 million being contributed by acquisitions, is that roughly accurate?

Yeah. I think that’s right. It’s probably a little bit higher than that if you include -- again, we had the $3 million of revenue in 2014 from BravePoint. So there will be incremental revenue from BravePoint year-over-year but then Telerik as well. So, I think it would be a little bit higher if you use those -- higher than the figures that you just said.

Okay. And the growth -- I believe the growth rate from Telerik, when it was announced was roughly a 20% annual growth rate. Is that -- should we think of the business running at roughly that same growth rate going forward?

That's correct. That’s correct. And our guidance for this year does include that growth trajectory continuing.

Okay. Thank you very much.

Okay.

And that does conclude our question-and-answer session. I’d like to turn things back to our speakers for any 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 2015 on Wednesday, April 1, 2015, after the financial markets close and holding the conference call the same day at 5 p.m. Eastern time. We look forward to speaking with you again soon. Have a good day.