Good day and welcome to the Progress Software Corporation Q3 Investor Relations Conference Call. At this time, I would like to turn the conference over to Brian Flanagan, Vice President, Investor Relations. Please go ahead.

Thank you, Shannon. Good afternoon, everyone and thanks for joining us for Progress Software’s fiscal third quarter 2017 earnings call. With me today is Yogesh Gupta, President and Chief Executive Officer and Paul Jalbert, our Chief Financial Officer. Before we get started, I would 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, the revenue, operating margin and 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 third quarter 2017 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 will now turn it over to Yogesh.

Thank you, Brian and good afternoon everyone. Welcome to our fiscal third quarter conference call. I am looking forward to walking you through our results for the quarter and providing you with an update on our strategy. I will also elaborate on the themes I covered on my September 12 shareholder letter. But before I do so, let me begin by recapping several of the steps we have taken to drive shareholder value during my first 12 months as CEO. One, in January, we restructured our core operations to make them more efficient and reduced our headcount by 20%. Two, over the past 9 months, we have built a new management team, including most recently, the addition of Gary Quinn as the new head of our field organization for our core products. I am delighted to have Gary on board. Three, we strengthened our relationships with our ISVs and customers. A key indicator of this is that over 20 OpenEdge partners and enterprise customers have revised their relationships with us this year after a gap of at least 2 years. Four, we had several important product releases reflecting our continued commitment to our core products. For example, we released OpenEdge 11.7 and had multiple releases within our Data Connectivity and DevTools portfolio. Five, with our January restructuring and prudent expense management throughout the year, we have expanded our margins from 28% to 34% year-over-year. And six, we returned over $60 million to shareholders in the form of dividend and share buyback. These steps reflect our focus on and commitment to managing our business efficiently while at the same time bolstering our core products and our relationship with those ISVs and customers that have come to depend upon us. Our strong Q3 financial performance can be traced directly to this laser…

Thank you, Yogesh and good afternoon everyone. As Brian mentioned, all the revenue, operating income, earning per share and adjusted free cash flow amounts that I will be referring to in my remarks are on a non-GAAP basis. For our GAAP results please refer to the earnings release. For our third quarter, total revenue was $97.6 million, which was $1.6 million above the high-end of our guidance range of $96 million. The overachievement resulted from a few 6-figure deals within our OpenEdge segment that closed earlier than expected as well as a favorable FX impact of approximately $700,000 from a weaker U.S. dollar since we provided our revenue guidance in June. Our EPS of $0.48 was also well above the high-end of our guidance of $0.43. The $0.05 overachievement consisted of $0.01 from higher revenue and $0.05 cents from lower expenses partially offset by a negative $0.01 impact due to a higher than expected tax rate during the quarter. Expenses were lower than expected due to lower hiring and lower more focused marketing program expenses. On a year-over-year basis, as expected, revenue for the quarter decreased by 5% at actual exchange rates. This decline was entirely related to our DCI segment and was factored into the guidance we provided in June. Overall, our core business led by our OpenEdge partners continues to perform as expected. Despite the overall lower revenues, EPS increased by 9% versus Q3 of last year reflecting the positive impact from our restructuring efforts earlier this year and our continued focus on prudent expense management. The year-over-year impact of exchange rate movements on both revenue and EPS for the quarter was immaterial. As expected, total license revenue was $29 million for the quarter, a year-over-year decrease of 50% at actual exchange rates and 60% on a constant…

Thank you, Paul. That concludes our formal remarks for today. I would 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.

Yes, sir. Thank you, ladies and gentlemen. [Operator Instructions] We will take our first question from Steve Koenig with Wedbush Securities.

Hi, gentlemen. Thanks for taking my questions.

Hi, Steve.

Hi. Yes, so let me start with the cognitive application strategy since that’s the bone of contention right now. So, on the revenue line, it’s hard to see evidence yet, but that strategy is working. So, what are the timeframes with which we should expect to see revenue impact in the strategy and are there other milestones we can use to gauge whether or not that strategy is working?

Steve, as we had previously stated our initial lift back and our initial expectation for this year was the measure, the success of DataRPM by doubling or at least handful of customers that we have and we are well on our way of doing that. We actually expect to exceed that number. Our ISVs, OpenEdge ISVs have to-date validated our strategy. They have actually already started to take us into their customers. And speaking to them personally which I have, they are very enthusiastic about how we are responding to the future need. One of the other things that I would like to share is that we are targeting the market that has been the center of our success for over 30 years. Right, so we are focusing our initial efforts on predictive maintenance, because almost half of our OpenEdge partner base has been manufacturing an industrial ERP application. So by focusing on this segment rather than the broader market, we are helping these partners solve a very specific business problem just as we have done so before. And as I said, our partners have already validated this strategy by already starting to take us to these partners, to their customers. As the next year evolves, we will share with you other metrics that will show what kind of financial progress the business is making.

Okay. And I will move on to my second question and then turn over to the next caller. So on the margin side, you guided on the call to 35%, I believe you said in fiscal ‘18 and beyond and Yogesh, you made a remark about expanding operating margin to world class levels. So to clarify, I’d like to understand is by world class levels, do you mean that 35% or do you mean getting beyond 35%?

We mean 35%, Steve, for a business our size. We are a $400 million revenue company. If you look at other companies that are in our market with a similar profile, we believe that those are truly best-in-class margins.

Okay, I will leave it at that. Thank you very much.

The next question comes from Mark Schappel with Benchmark.

Hi, good evening. Yogesh, question for you. I have a question regarding the operating margins and maintaining them at 35% next year and beyond. I suspect that company is going to have to ramp their sales and marketing expenses pretty meaningfully next year as you start to build out the cognitive apps business, especially in the sales and marketing side. And keeping operating margins flat at 35%, lot of initiatives taking place suggest that you are going to have to be cutting in other areas, with revenue being relatively flat. So, what are your thoughts on some areas that you think there is just more opportunities next year for squeezing additional costs out of it?

So, one of the things Mark that I am a very big believer in is growing businesses by running them lean and not really scaling up sales and marketing ahead of demand. I think the different ways that people do this I have always run lean organizations. And so we do not expect to ramp up sales and marketing in advance of demand for our solutions. We also continually look for opportunities to run our business better, right. And that as you know and I have said this before as well, that’s an ongoing pretty much daily exercise what is it that we can improve and where we can find more efficiencies we will bring those to bear.

Okay, great. Thank you. And then as a follow-up as your cognitive apps initiatives move forward, are you close to putting an official launch date on the calendar for those solutions?

So, Mark as we have said that our predictive maintenance and Kinvey acquisition will get integrated into our products by end of the year. We are way well along that path. And I would expect to launch the product once it’s ready, right. We have already however started going to market with them and we are seeing tremendously positive feedback from our partners. And they are already as I said taking us into their customers already. So, we haven’t officially launched the products, but we are already working with our partners customers in doing projects for them and working with them to get them to use our products.

Okay, great. Thank you.

Thanks Mark.

The next question comes from Glenn Mattson with Ladenburg Thalmann.

Hi, Glenn.

Hi, Yogesh. One quick one on the free cash flow, curious what the working capital assumption is for the full year on that?

Yes, when we have had some higher tax payments that are in the fourth quarter to do to the higher profitability of the business.

So, can you give me just a general sense of what the full year working capital modest outflow I guess or?

Yes, it should be fairly flat. I don’t have those numbers with me, Glenn.

Okay, that’s fine. So, Yogesh, the buyback kind of is interesting in that. I think you make a concerted effort for some period of time – the company has for some period of time for returning capital to shareholders, but never equated these, 21 times forward non-GAAP earnings to level that Progress haven’t traded at too often. And so pardon me, wondered if this is a strategy that’s being put in place in order to defend against some of the attacks that are going on out there and perhaps if that’s the case, then maybe you are doing this return of capital for not necessarily all the right reasons. So I guess, just I would be curious as to how you came about making that decision, I think it’s lofty – relatively lofty evaluations?

So, Paul do you want to start with that and I will come back to that.

Sure. So, we have a fairly large cash balance at $181 million in January, hopefully $100 million of cash flow here. So, we say that share repurchase is a good vehicle to returning capital to shareholders certainly in the context of the overall capital allocation strategy that we just outlined right. So share repurchases we feel are – they are always subject to market conditions as well.

Sorry, Glenn, what I would like to add is that it isn’t just that the Board has authorized the $250 million over between now and end of FY ‘19 but in addition to that, we would actually come up with a capital allocation strategy that says that we will use 50% of our cash flow to buyback stock, right going forward. So, I think to us this is a very structured plan. This is not just a plan that basically we decided to do a one-time thing. So we believe that we have a very strong business. We have confidence in our business going forward and we believe this is the right thing to do for our shareholders.

Okay. But the valuation was a factor in that discussion as well or is the buyback 13% allocation of free cash flow?

Valuation, Glenn, as you know valuation is always a criteria and you know how much we buyback is always based on valuation.

Okay, thanks for that.

Thanks, Glenn.

The next question comes from Matthew Galinko with Sidoti.

Hi, good afternoon.

Hi Matt.

Hey. So, you talked a fair amount about your capital strategy, I am curious what your outlook is for M&A that meets the new criteria you set out and sort of what your internal capacity there is for integrating and sort of managing that kind of transaction?

So, Matt, we have a very strong management team that we have built over the past 12 months. We have put together an internal set of operations and processes in place that we feel very positively about. We believe we can execute on this M&A and we believe that we can deliver the kind of results we would want to from these type of M&A. So obviously these kind of things are opportunistic, right, they don’t – opportunities like this will come along when they come along. We want to make sure that they meet our strict criteria, which is – which I outlined earlier. And as long as they do, I am truly confident that we have a strong management team, we have strong processes and structures in place and we can and will deliver on the results.

Got it. And maybe just as a follow-up to that given to my math right it sounds like your targeted dividend payout and your repurchase you are looking at pretty good majority of your annual cash flow being sort of returned to shareholders, just correct me if I am wrong, but does that math change if you can make a reasonably sizable acquisition that takes you above your sort of target leverage ratios. And does it reach a point where you are sort of pulled the reigns on that so that you could maybe scale up to do bit of a larger transaction without levering up to too much?

Yes. I mean, if we temporarily go over the 2x, those debts to EBITDA ratio then we would figure out what we ought to do to bring that leverage down to the target levels. But again as I said, these things are going to be very disciplined about identifying them. We are going to be very disciplined about executing on them and these things are opportunistic. They don’t always come around. They have to be in our market segment. They have to meet all the criteria that we laid out. Paul, do you want to add?

So going forward right so I think if you look at our cash flow from operations 25% of that going to dividends and we said we have returned roughly 50% of our cash flow in the form of share repurchases. While obviously if we are looking at an acquisition, then we would and depending on the leverage, we would just spend what could tell some of the share repurchases to get us back in line with what our targeted leverage ratio would be.

Got it. Alright, thank you.

And ladies and gentlemen, that concludes our question-and-answer session. I will turn it back to Mr. Flanagan for closing remarks.

Thank you, Shannon. Thank you all for joining us today. And I would like to remind you that we plan on releasing our Q4 financial results on Wednesday, January 10, 2018 after the financial markets close holding the conference call at the same day at 5 p.m. Eastern Time. I will now turn the call over to Yogesh for his closing remarks.

Thank you, Brian. We are very pleased with our progress to-date and excited about our future prospects as we continue to execute on our business strategy. Building on our solid financial performance and healthy cash flow over the past three quarters, we look forward to closing out FY ‘17 and beginning 2018 with good momentum. We are looking forward to meeting you to discuss with our strategy objectives and accomplishments. Thank you all for joining and have a wonderful evening.

Thank you. Ladies and gentlemen that does conclude today’s conference. We thank you for your participation. You may now disconnect.