Good day and welcome to the Progress Software Corporation Q2 2018 Investor Relations Conference Call. At this time, I’d like to turn the conference over to Mr. Brian Flanagan. Please go ahead, sir.

Thank you, Cody. Good afternoon, everyone, and thanks for joining us for Progress Software’s fiscal second quarter 2018 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’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, 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 second quarter 2018 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 will now turn it over to Yogesh.

Thank you, Brian, and good afternoon, everyone. Welcome to our second quarter 2018 conference call. I want to first walk you through the highlights of our financial quarter -- financial results for the quarter and then provide an update on our business, operations and strategy. Our continuous focus on keeping our business strong and on running our operations efficiency enabled us to achieve another strong result -- another quarter of strong financial results in Q2. We far exceeded our earnings per share expectations while also achieving revenue that was slightly above the high end of our guidance range, despite foreign exchange headwinds during the quarter. Earnings per share increased by 43% following 59% growth in the first quarter and we also had a very strong free cash flow performance. Operating margins were 39% and we maintained our disciplined approach to capital allocation by returning over $50 million to shareholders during Q2. The strength of our business combined with our first half performance has given us the confidence to raise our full-year guidance for earnings per share and operating margin for the second quarter in a row and to increase our expectations for free cash flow as well. As we have discussed, our goal is to drive sustainable, long-term value by building an increasingly stronger business. Our solid first half results and consistent execution are evidence that our strategy is sound and working and is generating real value for our shareholders. Now, let’s take a look at some of the operational highlights for the quarter. OpenEdge, the foundation of our business, continued to perform well in Q2, including strong license growth from direct enterprise customers. As we have discussed in previous calls, the timing of additional license sales to direct enterprises can fluctuate somewhat from quarter-to-quarter, based on their additional capacity…

Thank you, Yogesh, and good afternoon, everyone. As a reminder, all numbers that I’ll be referring to in my remarks are on a non-GAAP basis. For the second quarter, total revenue was $96.2 million, which was slightly above the high end of our guidance range of $96 million. Based on exchange rates in effect at the time that we provided our guidance in March, revenue would have been $500,000 higher or approximately $96.7 million if not for the unfavorable FX impact of a stronger U.S. dollar in the second quarter. Our higher-than-expected revenue was primarily due to an OpenEdge direct enterprise deal that closed earlier than expected. Our earnings per share of $0.60 for the quarter grew 43% year-over-year and significantly beat the high-end of our guidance range of $0.53. The $0.07 overachievement was due to lower expenses as we continued to tightly control, both hiring and discretionary spending. The solid revenue performance coupled with continued prudent expense management enabled us to achieve 39% operating margin for the quarter, an increase of nearly 400 basis points over Q2 of last year. Looking at our consolidated revenue for the quarter compared to Q2 of last year. Total revenue of $96.2 million was 3% higher at actual exchange rates and approximately flat on a constant currency basis. The year-over-year impact of exchange rates on the second quarter revenue was up favorable $2.4 million. License revenue of $26.5 million increased by 3% at actual exchange rates and 1% on a constant currency basis, driven by an increase in our OpenEdge segment. Maintenance and services revenues was $69.8 million, an increase of 3% year-over-year at actual exchange rates and approximately flat to last year on a constant currency basis. Maintenance revenue was $62.4 million, an increase of 1% on a constant currency basis, driven…

Thank you, Paul. 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.

[Operator Instructions] We’ll take our first question from Mark Schappel with Benchmark. Please go ahead.

Yogesh, starting with you, I was wondering if you could just speak to the brand campaigns and the upcoming marketing awareness campaigns, initiatives that you have planned around the new predictive maintenance solutions that you spoke to -- that you touched on in your prepared remarks.

So, Mark, we are increasing a little bit of our spend around both, go-to-market efforts as well as modest hiring for the sales organization. Primarily, the marketing efforts are not around branding but around demand generation. So, that’s where the effort is going. It isn’t a branding exercise, Mark; it’s more of a targeted demand generation effort.

Great. That’s helpful. And then, on the predictive maintenance solutions, if I recall correctly, you had 10, your customers last quarter, I think you mentioned 20 this quarter, or you’re making [ph] another 10 this quarter. Could you just maybe speak a little bit about some of the trends you’re seeing as far as the type of customers and industries that are gravitating to the new product.

So, across our portfolio of new products, the customers range from -- I think I’ve mentioned a couple of those when it comes to healthcare cloud customers, of course manufacturers for the predictive maintenance side of things. And also really from the Kinvey perspective, it really is a horizontal solution. So, we are not -- other than the Progress Health Cloud, which is -- where we’re seeing healthcare related companies coming, we actually are seeing a very broad segment of industries. We’re not seeing a specific, like one or two industries at this point, Mark. So, numbers are small to sort of make a trend out of it. As the numbers get larger, we may be able to see a trend. And if so, we will share it.

And then, finally, one last question. Yogesh, you mentioned in your prepared remarks, you mentioned in your chatbot tools, and I was wondering if you could just expand a little bit on those as to what you’re thinking there. I know it’s early days, but maybe just give an example to how customers have asked you to move into this area?

Yes. So, as you’re aware, Mark, right, the frontend UI experience continues to evolve rapidly. Conversational interfaces have become something that people want to provide in their apps now. One of the big challenges with conversational interfaces and creating them that our customers are facing is that they -- the hand coding of these and the tools that are out there, require people to sort of identify every use case of what the person might say and how to respond to it and so on and so forth, becomes an extremely complex set of programming. And if -- I’m sure you’ve used chatbots where you basically decide, oh wait a second, I gave three pieces of information, now I want to go back and change the first piece, after having given the second and third, and you basically end up starting over. Right? We have leveraged machine learning and AI for our chatbot capability as well. And it manages the conversation and it allows for developers to create a chatbot and embed it in their application extremely easily. And it learns from the interactions that it continues to have with various folks that use that application, and as it gets used, it actually gets better. It’s a cloud offering on the backend from the run time perspective and is a frontend tool that the developer uses to make it easy. We’re seeing interest from folks across industries. Again interesting enough, financial industries and healthcare are two of the ones that are what I call the early users and early -- they were the early testers and they are the early users from -- for that product today. It’s a very new product. We just announced it recently.

Thank you. We’ll now take our next question from Joseph Winn with Wedbush Securities.

Hey guys, Joe Winn on for Steve Koenig. Yogesh, you’ve talked about a consolidation strategy to pull in a mature business. Can you give us any additional color around the type of business you’re pursuing, and any additional thoughts on the current market conditions and deal landscape? I also have a follow-up. Thanks.

So, in terms of M&A, our -- we’ve always said this, and Joe, our goal is to identify businesses that are complementary to us in terms of product, audience, and growth profile, so that we can leverage our existing field organization, we can leverage our existing, of course G&A organization and so on. And so things that actually help with application development and the application development markets and markets related to what we already do whether it is data or application development is where we are focused. From a financial perspective, we have a very high bar. And these would bolster our recurring revenue and be highly synergistic, so that they end up with operating margins after synergies that are equal to or better than our current margin that generated return on invested capital within one year of completion that is above our rack. And given our return criteria, we anticipate that any such acquisition would be immediately accretive to our non-GAAP earnings. And so, that’s -- we set up fairly high bar. There is a lot of activity going on. Prices are something that we are -- given our criteria, we’re being very selective and we are going to be selective and find the right assets and make sure that it meets those financial criteria and business criteria that we’ve laid out.

All right, thanks. And then, my next question is on the HIPAA-compliant Health Cloud. And I was just wondering if you could give any additional color on how incremental that can become to revenue in the long term and do you have any market sizing ideas there? Thanks.

So, Joe, the market is for HIPAA-compliant cloud platforms is projected to be almost $2 billion in five years and is growing very, very rapidly. We’re of course early in the game, and the game has just started actually. We of course are not disclosing any revenue; we have said before that we will as we get closer. In fact, we expect to share our bookings before we get to share revenue because all of these are ratable cloud offerings. So, the bookings will come ahead of and will be a leading indicator of our revenues. Competitively, we feel really good about our offering. We’re seeing wins that are tremendously strong against all kinds of competitors.

Thank you. I will take our final question from Glenn Mattson with Ladenburg Thalmann.

First, a quick one. How big was the pull-in from the enterprise OpenEdge deal that you mentioned?

Yes. Glenn, it’s Paul. So, it’s just a little under $1 million. So, when you look at it, that really resulted in the over-performance, if you look at the actual exchange rates at the time that we provided the guidance. So, it is really something that we had planned for in the back half of the year and it closed earlier. So, it got reflected in Q2.

And then, can you give me a better sense, perhaps your guess about the degree of confidence in the bookings acceleration in the App Dev segment? It seems like the bookings have kind of been less than perhaps you would like in the last couple of quarters. So, just little more color around why this is going to turn around?

So, Glenn, good question. We actually have focused some additional efforts around driving that, including demand-gen efforts. We feel good about what we’re seeing. And we see this as a fairly stable market where we continue to win our fair share of deals. And so, from our perspective, based on what we are seeing, based on what the trend has been -- even though we report quarterly, as you can imagine, there are -- that business by the way has a 30 to 60-day sales cycle. So, we are able to tweak and see things at even shorter timeframes. We feel confident where the direction is going.

And that does conclude today’s question-and-answer session. I’d like to turn the conference back over to Mr. Flanagan for any additional or closing remarks.

Thank you, Cody. Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal third quarter of 2018 on Thursday, September 27, 2018, after the financial markets close and holding a conference call the same day at 5 p.m. Eastern time. I’ll now turn the call over to Yogesh for his closing remarks.

Thanks, Brian. We are committed to executing on a strategy that would benefit all our shareholders and we will work hard to sustain the momentum we’ve achieved during our strong first half. I want to thank everyone again for joining us on today’s call and look forward as always to getting your feedback on our progress to-date and our goals for the future. Thank you.

Thank you. This does conclude today’s conference. Thank you all for your participation.