Good day and welcome to the Progress Software Corporation Q2 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 Rachel. Good afternoon everyone and thanks for joining us for Progress Software's fiscal second quarter 2016 earnings call. With me today is Phil Pead, President and Chief Executive Officer; Jerry Rulli, our Chief Operating 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, all of the revenue, operating margin and diluted earnings per share 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 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 second quarter 2016 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 second quarter earnings call. I'm pleased to report that we had a strong second quarter, with revenue at the top end of our guidance range, over-achievement in earnings per share, and strong cash flows. Our OpenEdge partners had another solid quarter and OpenEdge maintenance renewals were once again well above 90%. Sales of Sitefinity and Telerik platform grew rapidly and we had a very strong quarter in our data business. I'm also pleased with the progress we are making in the areas I mentioned on our first quarter earnings call. As I outlined at that time, our Telerik bookings were not meeting our expectations. As we continued our review of the bookings issues, we confirmed our initial assessment that this was an execution issue, not a market or product competitiveness issue. During the second quarter we made additional adjustments, particularly in the dev tools area. We made some additional hires to meet our target headcount and improve some of our processes to support our renewals teams. The result was a better bookings performance in our second quarter, with 18% sequential growth versus Q1. We still have work to do but the results have the right trajectory. Turning to our OpenEdge Direct enterprises, as we've discussed in the past, license sales to these customers often tend to include larger deals, resulting in a lumpier business when compared to the steady quarter-to-quarter performance of our ISP partner base. These larger deals are inherently more difficult to forecast and predict and some of the opportunities we had expected to close during Q1 did not materialize. As previously discussed, we reduced our outlook for license sales for these customers for the rest of this year and also took a more cautious view…

Thank you, Phil. Good afternoon everyone. Overall I'm pleased with our revenue performance for the second quarter. We had a very strong quarter from our data business, improved bookings from our Telerik products, and our OpenEdge partners contributed another solid quarter. Let's review each of our segments all on a constant currency basis. OpenEdge segment revenue was $68 million, down 6% for the quarter compared to last year, while revenue from our ISV partners again showed steady growth. Sales to our OpenEdge Direct enterprise customers were significantly lower year over year, but in line with the expectations we set during our Q1 call. As still noted, a large direct enterprise license deals we've been working on are progressing well as we move into the second half. Based on our current pipeline, we're confident that some of the large opportunities we've been working on will close during the remainder of FY16. We continue to grow our SaaS-related revenue for OpenEdge with revenues of approximately $5 million for the quarter. We expect this trend to continue throughout FY16, further increasing the percentage of revenue that is recurring in nature. The license decline in the OpenEdge segment was partially offset by an increase in maintenance revenue, driven by a renewal rate that was once again well over 90% for the quarter. Our OpenEdge renewal rate continues on its improved trend, evidence of our partners' and customers' overall continuing satisfaction with their relationship with Progress. They are also pleased with the new technology and support we offer, including our modernization framework. As I mentioned before, modernization is an ongoing process and provides a technological path, a path that includes many of our Telerik products for our partners to follow to ensure their applications remain up to date and competitive in their markets. A great…

Thank you, Jerry, and good afternoon everyone. All of the revenue, operating income and earnings per share amounts I'll be referring to in my remarks are on a non-GAAP basis. For our GAAP results, please refer to the earnings release. As Phil and Jerry both noted in their remarks, we had a solid performance in our second quarter. We reported total revenue that was slightly above the high end of our guidance range for the quarter, EPS that was well above our expectations, and strong free cash flow. Revenue was $97 million for the third quarter, compared to $101 million in Q2 2015, a decrease of 4%. Revenue decreased by 3% on a constant currency basis, with a negative year-over-year impact from foreign currency translation of $700,000 due to the strengthening of the U.S. dollar. Our second quarter earnings per share was $0.33, down $0.02 when compared to Q2 of 2015. In addition to lower year-over-year revenue, the decrease was also due to a $0.01 negative impact from currency translation. We over-achieved versus our guidance range of $0.26 to $0.29, primarily driven by lower operating expenses during the quarter as well as our slightly above guidance revenue performance. Revenue includes acquisition-related revenue adjustments for Telerik totaling $600,000 in the quarter. As I discussed in our March guidance call and consistent with previous quarters, GAAP rules require us to eliminate certain pre-acquisition revenue classified by Telerik as deferred revenue. But we include this revenue on our non-GAAP quarterly reporting to better reflect our true business performance on a normalized basis. The year-over-year revenue decrease was primarily due to license revenue, which was $29 million for the quarter. This represents a decrease of 9% at actual exchange rates and 8% on a constant currency basis. The license revenue decline was primarily due…

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'll now hand over to the operator to conduct the Q&A session.

Thank you. [Operator Instructions] Our first question comes from Steve Koenig with Wedbush Securities.

Hi, gentlemen. Thanks for taking my questions. Let's see. So, yeah, the first one, I'd like to ask about the OpenEdge Direct deals. So, first of all, your guidance for flat year-on-year revenue makes me assume that you're looking for positive year-on-year growth out of OpenEdge in both Q3 and Q4. I'm wondering if you can comment on that. And maybe a related question about the OED deals, as you've reviewed those deals, what are the primary causes you're seeing of the flippage? And also, who are you seeing competitively in those deals?

I'll just make a quick first comment, that yes, our outlook does include positive performance year over year for OpenEdge, and both quarters in the second half. And Jerry, I'll turn it over to you.

Yeah, I think, Steve, yeah, this is Jerry, I think there is, on some of the larger transactions, they are obviously seven figures plus, and we're engaged in multiple areas of a company, including services. Some of these are modernization efforts which also include services. So you obviously are dealing with committees and so on and so forth. And it's -- and while I would say it's competitive, it's not competitive with an outside vendors. It's competitive with companies' budgets, so to say. In other words, people are committing to these projects, Steve, but it's a timeline thing, versus whether they're going to do it, if that makes sense. So there's two things we look at. It's scope and size of transactions and length of time getting it through their decision-making. It's not a decision of doing it or not, it's a timeline of them doing it. Did that answer your question?

Yeah, it does. So, Jerry, I'm assuming then that these are, you know, these are really primarily expansion deals at existing customers, would that be fair? And then I do have one follow-up if that's okay.

Yeah, that's a very fair assessment. Correct.

Okay, great. And then in the dev tools area, who -- you know, I know there's a wide range of players, but who would you say Telerik is seeing most across its dev tools? Who's the most prevalent competition there?

Hey, Steve. It really is across the board. And I will tell you that I think you're trying to look at whether or not the market is more competitive, I will tell you that we are the largest provider of UI tools, certainly in the dot-net segment. And that market, while you might say it's a mature market, it's still growing at mid to high single digits, and we should be able to take market share in that. So I think you just got to look at this as we're working through our execution issues. I feel confident that we're going to resolve those and that our bookings growth, as we've indicated, will reach double digits in the second half of this year.

Terrific. All right. Well, gentlemen, I appreciate all three of you answering my questions.

Thanks, Steve.

Our next question comes from Glen Mattson with Ladenburg Thalmann.

Hi guys. Just building on the last question a little bit on the OE side. So, understand kind of the challenges that are out there, but, you know, and I guess this is multiple deals, but it sounds like you have some that is closing this year in order to hit your numbers. So, can you give us a sense of how big a swing factor you're talking about for those to hit your number? And then what gives you that confidence that you will get some of them over the goal line this year?

Well, they're an important part of our OpenEdge performance in the second half of the year. So that is something that -- obviously when we -- when you look at our first half versus second half performance, that is a key driver of us being down in the first half. But again those are going to be important in our overall expectations for the second half related to OpenEdge.

This is Jerry. I would just add, there are multiple transactions in multiple areas of the world. So they're not concentrated, which to me is a good thing, which means we have opportunities across the globe in these areas.

And so I guess there's enough opportunities out there and that's what gives you confidence that at least enough of them will close to get to your number, is that what you're saying?

Yes, exactly.

And not only that, Glen, you know, as the year has progressed, we, you know, the sales cycle obviously becomes more evident. We move closer to the decisions. It gives us confidence that the second half will be able to close some of these big deals.

Okay. Great. And then the strong growth in Sitefinity that you mentioned, can you talk about how big that sub-segment is now as a percent of the whole app dev group?

We haven't historically given that information, but obviously I'll say that the dev tools is the large majority of the business. The dev tools probably makes up I would say over 50% of the total app dev revenue segment. Probably the next largest piece is going to be in Sitefinity.

Okay, great. And just last, do you ever break out by country what U.K. is as a percent of revenue?

We haven't historically. As I mentioned in the call, the European -- the EMEA market is 34% of our revenues. And I'll just say that the U.K. is an important market within our European operations. So it is one of our stronger markets that we participate in.

Okay, great. That's it for me. Thanks.

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

Hi, good evening. Thanks for taking my question. Phil, starting with you. The lower revenue for fiscal 2016, is that due solely to foreign exchange or are there some macro concerns baked in there as well?

There's -- it's actually a very small, you know, the exchange translation, currency translation impact, is pretty close to where we were at when we talked at the end of Q1. So it's deteriorated maybe just slightly on the currency translation. It's really -- it's going to be primarily driven by again our caution around some of our European -- our European business, as well as we did take down a little bit of pullback on our AD&D revenue outlook for the full year.

Great, thank you. And then if I recall correctly, Phil, you were making some changes to the Company, particularly in the sales organization, after last quarter. I was wondering if you could just review or just highlight a few of those for us.

I'll let Jerry take that. But before he does, this was really about making sure that we meet the targeted headcount that we had identified in our goals for the dev tools business primarily. So this isn't, you know, a major effort that was underway, Mark. This was really part of our plan, the hiring, which we realize we fell short of in Q1, and that was one of the things that we adjusted as we went into Q2.

Yeah, this is Jerry. Mark, I think I'll just add to what Phil said. I think the major changes were focused on our Telerik renewals and dev tool business. We, I think we've done a very good job on the renewals business. The team has done a very good job reclaiming that business. We instituted many of the same processes and metrics and technology, and so we're seeing the uptick in that I believe in Q2 from a renewals perspective and increase in dev tools. So I think we suspect we'll get that, continue to get that from a renewals perspective going forward, that same process and drive.

And while there's still work to do, Mark, you know, we said that we feel that the second half of this year we will -- we expect to achieve double-digit growth rates in our bookings for our Telerik solutions.

Okay, thank you.

You're welcome.

There are no further questions at this time. I'd like to turn the conference back over to our presenters for additional comments.

Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal third quarter of 2016 on Wednesday, September 28, 2016, after the financial markets close, and holding the conference call at the same day at 5:00 p.m. Eastern Time. We look forward to speaking with you again soon. Have a good day.

This concludes today's conference. You may now disconnect.