Good day ladies and gentlemen and welcome to today’s Progress Software Corporation Q3 2018 Investor Relations Call. At this time, I’d like to turn the floor over to Brian Flanagan. Please go ahead, sir.

Thank you, Greg. Good afternoon, everyone, and thanks for joining us for Progress Software’s fiscal third 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 Web site 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 Web site. This document contains the full details of our financial results for the fiscal third 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 Web site in the Investor Relations section. With that, I will now turn it over to Yogesh.

Thank you, Brian. Good afternoon, everyone and welcome to our third quarter 2018 conference call. I would like to focus first on our solid financial results for the quarter and then provide an update on our operations, strategy, and new initiative. Our revenue was at the midpoint of our guidance, but would have been the high-end if not for the FX headwinds during the quarter. Earnings per share grew 25% year-over-year, operating margins were 37%, and we also achieved healthy cash flows. We also returned over $25 million to shareholders in the form of share repurchases and dividends as we continue to execute on our capital allocation strategy. And we just announced another double-digit increase to our quarterly dividend demonstrating our continued confidence in our cash flow generation. As we move into Q4, I'm disappointed that our revenue expectations for FY '18 now fall short of our prior guidance for the year. However, this does not reflect a change in the strength of our overall business. Rather, the decrease is partially a result of the incremental FX headwinds I just mentioned with the remainder primarily due to timing, structure, and size of a few large OpenEdge deals. Our goals, when negotiating contracts is to maximize the overall economic value, which is in the best long-term interests of our business. Unfortunately, that sometimes means that revenue shifts in the short term versus our expectations. Therefore, despite this change in our full-year guidance, we believe our business remains stable and I remain encouraged by the commitment of our strong, loyal customer base. Paul will cover our guidance in more detail during his remarks, while I focus on the highlights and strengths of our business. Our OpenEdge partner business remains very solid with strong license growth during the quarter, again driven primarily by…

Thank you, Yogesh, and good afternoon everyone. I will begin by providing some additional details on our third quarter performance and updated guidance for the year. Then I will provide some color on how we expect our adoption of ASC 606 in December to impact our financial results going forward. Now as a reminder, all numbers that I'll be referring to my remarks are on a non-GAAP basis. For our third quarter, total revenue was $95.8 million at the midpoint of our guidance range. Revenue would have been $500,000 higher or approximately $96.3 million if not for the unfavorable FX impact of a stronger U.S dollar during the quarter. Operating margin for the quarter was 37%, an increase of nearly 100 basis points over Q3 of last year. Our earnings per share of $0.60 for the quarter grew 25% year-over-year and was $0.02 above the high-end of our guidance range. The overachievement was primarily due to a lower tax rate, the result of several discrete tax benefits over realized during the quarter. Looking at consolidated revenue for the quarter compared to Q3 of last year, total revenue of $95.8 million was 2% lower at actual exchange rates and 1% lower on a constant currency basis. The year-over-year impact of exchange rates on our third quarter revenue was a negative $600,000. License revenue of $27.2 million decreased by 5% from a year-ago at actual exchange rates and 4% on a constant currency basis. Within our segments, OpenEdge achieved solid license growth, and as expected license revenue decreased year-over-year in both DCI and AD&D segments. For DCI, the decrease is primarily due to the timing of OEM contract renewals. Maintenance and services revenue was $68.6 million, a decrease of 1% year-over-year at actual exchange rates and flat compared to last year on…

Thank you, Paul. That concludes our formal remarks for today. And 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] And first we have Steve Koenig with Wedbush Securities.

Hi, gentlemen. Thanks for taking my questions.

Hi, Steve.

Hi, Steve.

I want to ask -- greetings. Yes, just maybe one housekeeping and then another question. The multiyear backlog decline, that's related primarily to DCI and that’s not related to your – change in your outlook on the Q4 OpenEdge revenues, correct?

Steve, this is Paul. Now that you’re absolutely correct, that is all related to DCI and we’ve talked about that in the past. And I would say, in my prepared remarks, the outlook for DCI has not changed for the full-year.

Okay. And then, Paul, just one more housekeeping, if I may, that the outlook on OpenEdge, did you say what that was for the year? It sounds like that’s changed. What’s your new outlook for OpenEdge this year?

We said that it would be down slightly, right? Down from 2017 for our professional services and then also licenses primarily with direct enterprise customers.

Okay. Okay, thanks. And you gave some color on those deals -- on what’s happening on those deals, so I will skip over that. If I may ask one more question, it has to do with your -- just stepping back here, your strategy for creating shareholder value, the two generic options clearly are to raise margins even further or to try to drive growth here. You’ve chosen primarily the latter strategy, reinvesting and trying to create a cognitive application strategy that will drive revenue growth. I assume you have a self-imposed runway for creating that growth. How long is that run way and what are you looking for in terms of payback or ROI there, and what metrics should we be looking at to try to understand your progress on that Cognitive Apps strategy?

Steve, this is Yogesh. You’re correct. We have had a plan to grow our business organically through the Cognitive Apps strategy. There is another component of our strategy, which is to acquire businesses that we can improve their operations off and trun them well and provide growth and shareholder value through that mechanism as well. So, we actually have a two-pronged strategy in terms of delivering long-term shareholder value. In terms of the growth of our cognitive-first business, as we mentioned even in the prepared remarks, Steve, we have begun to scale up our go-to-market efforts around this. Early signs in terms of building pipeline and demand generation are looking positive. And as we do 2019 guidance, we will share with you what we expect going forward, so from our perspective, clearly the ROI thresholds are the same whether we do any kind of investment, right. And so to us, we have the same thresholds whether those are for acquisitions or internal investment, where is it that we can best spend our money. Some of our investments continue to go to the core, right? I don't want us to forget the fact, Steve, that we make significant investments in our core products. We are working on a large release of new release of OpenEdge 12.0, expect it to be delivered in early 2019. And so, we continue to make investments in -- across the entire portfolio. We delivered many more new releases in DCI this year than we did last year. So, I think that -- I think it's not just an investment in the cognitive first side, it is also an investment in the core business that we continue to make. While we run our business with tremendous discipline, with -- tremendously lean for a business our size, our long-term target margins of 35% is a -- is in my opinion, in our opinion tremendously high and best in class.

All right. Well, thank you very much, Yogesh and Paul. I will stop there.

Thanks, Steve.

Thanks, Steve.

And moving on we have Mark Schappel with Benchmark.

Hi, good evening. Thank you for taking question.

Hey, Mark.

Yes. Paul, starting with you. With respect to the lower revenue guidance for the year, I believe in your prepared remarks you cited three main reasons for the decline in the OpenEdge segment. I was just wondering if you could just repeat those one more time?

Yes. So, we had FX, right, which we’ve called out. There’s also a rate renewal, that’s contributing to the lower revenue. We also had a large deal that the revenue will be recognized over a longer period of time based on customer driven terms and then we also had lower deal sizes is on a few compliance engagements.

Okay, great. Thank you. And then Yogesh, moving over to you, during the past few quarters, you’ve provided new customer accounts for the Kinvey and DataRPM products. I was wondering if you could just give us an update there?

Yes, so as I said, we now have nearly 30 customers of Kinvey and DataRPM this year. So -- that has been a steady sort of nearly 10 a quarter over the last three quarters. We have just begun to -- as you know, in Q3, begun to accelerate our go-to-market efforts and again sales cycles for those products is on the average around six months, so we expect to see deal flow get better starting in Q1. So, right now, we’re focused pretty much on building pipeline, Mark, and we’re seeing truly positive signs there.

Okay, great. 30, I didn’t catch that. Thank you.

Oh, sorry.

And then, Yogesh, in past earnings calls you’ve mentioned that you're evaluating, introducing new metrics for the new growth businesses, metrics such as bookings or maybe even total contract value, could you just give us an update on where you’re on that front?

Yes. So, we expect to introduce those as they become meaningful. Obviously, we’re not providing guidance for '19 at this point. We will do that in January when we announce our Q4 results. So, we would expect to share exactly what those specific metrics will be at that time.

Great. Thank you. That’s all for me.

Thanks, Mark.

Thanks, Mark.

And next we have Matthew Galinko with National Securities.

Hey, Matt.

Hi, Matt.

Hey, good afternoon, guys. I appreciate you taking my question here. I guess, maybe just housekeeping on the -- of the DataRPM and Kinvey, year-to-date customer adds, I could be wrong and maybe I understood it incorrectly last quarter, but I thought we were up around 10 in the first quarter, 20 adds in the second quarter which [indiscernible] net 30 through 2Q. So was it more like 10 and 10 and then another 10 in Q3?

That -- it's the second Matt. So, it was 10, 10 and 10 nearly in each of the quarters.

Got you. Okay. Thank you. And you mentioned some positive indications on the pipeline there. Anything you speak to positively there? And then maybe about -- on the [indiscernible] thing almost 30, just any color around end market that's taking down the product, is there any more color?

Yes. Yes, so I think the primary end market that we are seeing the most interest are two of them. One is the sort of market that Gartner calls the high productivity platform as a service market. This is a market where people are building modern business applications and they’re looking for high productivity tools that require, Matt, both front-end capabilities, backend capabilities connecting to date, sort of standard modern things, within that there is a specific submarket, if I may call it that, which is around mobility. And so focused -- people who are focused on mobile apps is another sort of sub-segment of that market and we are seeing traction there. In vertical, we, of course continue to focus on healthcare as a special one area with a progress health cloud, but in general the two market segments that we broadly look at are probably the one, big one and then the piece within that are the high productivity application platform market, what is called HPA [indiscernible]. Gartner couldn’t have come up with longer acronym on that one. So the high productivity pass market and also the mobile application market.

Got you. All right. I think I asked [indiscernible] back in the queue. Thank you.

Okay. Thanks very much.

Thanks, Matt.

We will move on to Glenn Mattson with Ladenburg Thalmann.

Hey, Glenn.

Hey, Glenn.

Glenn?

Glenn, you may have your phone muted on your end. We are unable to hear you.

Hi. Sorry, can you hear me now?

Yes, we can. Hey, Glenn.

Hi. So just trying to figure out on the OpenEdge issues that you talked about, it sound like everything like the message you’re trying to convey is that there is a series of kind of one-off situations. Can you describe maybe a little bit more detail about what's causing the delay with the one enterprise customer? Is there anything on terms or negotiations or anything or is it just timing?

Glenn, with any enterprise customer, the renewal of maintenance sometimes moves around. Customer sometimes go, I am negotiating, I want better terms, so I want to do the -- and they -- but when they renew they end up basically paying back maintenance. Overall, our renewal rate hasn't changed at all, despite all this, right. So our renewal rate is well over 90%, but specific details -- specific deals occasionally get delayed. And so this does happen and this happen to be a larger one and therefore had a -- had an impact that made an impact and that ended up impacting what we would be able to achieve in Q4.

I guess, I’m just curious if it's like negotiation around price or something like that or it's just simply a matter of not being able to get the ink on the paper in time type of thing?

Well, I don’t want to get into very specific on the specific things on the term, but we are looking forward to doing this deal sometime in early 2019.

Okay. And so given that you’re just kind of suggesting that the [indiscernible] or OpenEdge enterprise business is simply a matter of a handful of one-off occurrences, without giving obviously guidance on 2019, would you say that your expectation would be that you have some sort of catch up period where you have slightly better growth, because this deal comes through in OpenEdge and then everything kind of returns to the normal rates that you are more used to?

So, Glenn, clearly we are not talking about 2019 at this point. And we did mention that one of our deals has gone ratable for over a long period. So, clearly that's not -- so what I would say is for 2019, very simply we will give the outlook in January overall. However, what I want to reiterate, Glenn, is that our ISV license business is tremendously stable and actually has grown in 2018, and we expect it to continue to grow primarily driven by the SaaS related license revenue which grew 15% in the first three quarters of this year. Renewals in both those OpenEdge segment, whether it is ISVs or direct customers continues to be well into the 90s. And license revenue from direct has been lumpy and it continues to be lumpy, and it will be lumpy even in the future. And so we will provide guidance for 2019 in early '19, in January, when we do our Q4 call.

Okay, great. Thanks for the color, Yogesh.

You’re welcome. Thanks, Glenn.

Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal fourth quarter of 2018 on Thursday, January 17, 2019 after the financial markets close and holding the conference call at the same day at 5 PM Eastern Time. I will now turn the call over to Yogesh for his closing remarks.

Thank you, Brian. I want to thank everyone again for joining us on today's call. We are committed to building a stronger company for the longer term and I believe we are making good progress towards that goal. As always we look forward to our discussions with you and getting you feedback on all aspects of our strategy and operations. Thank you very much.

Once again, ladies and gentlemen, that does conclude today's call. Thank you for joining us. You may now disconnect.