Progress Software's (PRGS) CEO Phil Pead on Q4 2015 Results - Earnings Call Transcript

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Progress Software Corporation (NASDAQ:PRGS)

Q4 2015 Earnings Conference Call

January 12, 2016 05:00 PM ET


Brian Flanagan - IR

Phil Pead - CEO

Chris Perkins - CFO

Jerry Rulli - COO


Greg McDowell - JMP Securities

Steve Koenig - WedBush Securities

Mark Schappel - Benchmark

Stan Berenshteyn - Sidoti and Company

Glenn Mattson - Ladenburg


Please standby we are about to begin. Good day and welcome to the Progress Software Corporation Q4 Investor Relations Conference. At this time, I would like to turn the conference over to Mr. Brian Flanagan. Please go ahead, sir.

Brian Flanagan

Thank you, Shannon. Good afternoon everyone and thanks for joining us for Progress Software's fiscal fourth quarter 2015 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 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 revenue, 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 2015 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.

Phil Pead

Thank you, Brian. Good afternoon everyone, and thank you for attending our fourth quarter earnings call.

I am excited to report that our fourth quarter execution resulted in a strong performance across all key areas of our business. OpenEdge had a very solid fourth quarter capping off a year of consistent growth from our ISV partners, strong sales to enterprise customers and an uptick in our maintenance revenues.

We achieved record bookings in the quarter for our Telerik products as a whole, including record bookings for Sitefinity and DevTools. A great finish to our first year following the acquisition which also positions us well for fiscal '16.

Our Data products grew by more than 20% in the quarter and achieved double digit growth for the full year. Earnings exceeded our expectations even as we continue to invest in our future growth. We have a lot to be proud of in our fiscal year '15 performance and I attribute that to the incredibly talented team we have across the globe as well as to the strength of our technologies and services.

Financially, we achieved revenue growth in all of our segments and finished the year at 98% of the currency adjusted revenue target we set at the beginning of the year. We significantly exceeded our beginning of year guidance for operating margin and EPS, and finished with higher than expected adjusted free cash flow as well. And finally through the acquisitions of Telerik and BravePoint we were able to add great people and products that make us stronger together solidifying our outlook for future profitable growth.

We now turn our focus to the opportunities we see for fiscal year '16 and beyond. Our solutions are among the strongest in the industry and every day they enable developers to build powerful and intuitive apps and solve specific problems.

OpenEdge is the fourth largest embedded database in the U.S. and over 5 million people use applications created using OpenEdge technology. Corticon is used by 26 states primarily for their healthcare exchanges. DataDirect is the market leader in data connectivity used by over 10,000 enterprises and embedded by most leading software vendors.

Telerik has a community of over 1.7 million developers and over 55,000 mobile apps have already been created by users of the Telerik platform. Gartner highlighted Sitefinity’s strength with larger multi brand global organizations and its ability to deliver the best possible web and mobile brand experience in multiple local markets.

While these solutions are compelling on their own, they also combine to form a very powerful holistic platform that can help enterprises achieve their digital business transformation initiatives. Many of you attended our Investor Day in October where we not only provided in depth views of all our solutions but also highlighted the market for digital transformation and why we feel we’re poised to capitalize on it.

Enabling digital transformation presents a significant opportunity for us. IDC estimates that this is a -- this is currently a $150 billion market which will grow to almost $370 billion in 2020 and that two-thirds of CEOs plan to focus on digital transformation strategies for 2016. Enterprises need to be discovered on the web and to engage with their customers in a personalized way, which is driving strong demand in the marketplace for a new generation of web and mobile applications.

Businesses must transform their websites into digital sales channels and create web and mobile apps that work seamlessly together to drive business results and increase customer engagement, satisfaction and loyalty. Enterprises that are not prepared to operate in this increasingly digital world will find themselves severely disadvantaged. In fact, as organizations become more horizontal than vertical and business becomes more fragmented size and scale will often no longer provide a competitive advantage.

A single application can have the power to disrupt and disintermediate entire companies or industries, something that's happening in more and more frequently as new technologies up-end their market categories.

Our solutions align perfectly with the needs of enterprises that are undergoing digital transformation. This increasingly fragmented world is connected and enabled by what we do. Web, mobile rules and data connectivity are all critical to this rapidly evolving space and our technologies excel in all of these areas.

In addition our focus is and always has been on developers who play an integral role in the digital transformation efforts by reducing the complexity involved in application development. We free up developers to create powerful intuitive web and mobile apps that in turn allow businesses to engage with their customers in a personalized way, the kinds of apps that digital transformation demands.

This is our competitive advantage, taking something complex and making it simple. OpenEdge has always been a productivity tool for developers helping them to create powerful systems of record quickly and efficiently. Our DevTools allow developers to create modern, intuitive UIs for systems of engagement, better looking apps created in less time that do more and delight their users. Our mobile platform allows developers to quickly develop, connect, test, deploy and measure their native or hybrid apps from a single unified interface eliminating the effort often required when working with multiple, disparate technologies.

And Sitefinity our platform for building next generation dynamic websites is renowned for its ease of use and intuitive user experience, enabling enterprises to personalize customer experiences, increase market share and drive digital revenues.

Data sources continue to multiply both in number and complexity and there is greater need today to quickly analyze and recognize patterns in data and learn from it. Our market leading data connectivity products leverage data from any source and are known for their speeds, scalability and reliability.

Our Corticon solution allows developers to separate business rules from software code making their applications more efficient and flexible. Today’s dynamic applications require constant adjustments to business rules and Corticon allows users themselves to adjust those rules without involving IT resources. By learning from all the data gathered from customers digital interactions on the web and then using the Sitefinity digital experience cloud and business rules to determine what each visitor to their website should see, enterprises can provide the personalize experience that customers demand today.

The theme here is all about speed, agility, reliability and ease of use. Time-to-market is critical today and Progress enables a high speed app development and short update cycles that enterprises need to align with their digital business initiatives. As enterprises create these next generation web and mobile apps, we have not only a fantastic opportunity to accelerate the growth of new customers but also our existing customers benefit.

A great example is one of our largest partners which prior to our acquisition of Telerik had been working on an internal project to build their own library of development tools. However, they've since made the decision to adopt our DevTools instead which provide them with better speed, agility and productivity than they could achieve internally or through our competitor’s products.

They selected DevTools not only because it's a great solution, but also because Progress is a trusted partner that has already helped to make them successful with OpenEdge. This is just one example that through our modernization efforts we're very engaged with our OpenEdge partners to enable them to take advantage of digital transformation and we’re making it easier for them to adopt our newer technologies.

DevTools and our mobile platform are now part of our modernization framework and both are tightly integrated with OpenEdge. This allows OpenEdge customers and partners to create modern UI's for their applications and develop new mobile applications that leverage existing OpenEdge business logic. Part of our success is dependent on helping our partners sell more of their applications to new and existing customers. And digital transformation opens up new markets for them.

In summary we continue to identify significant opportunities in the marketplace that validate our technology strategy and capabilities.

We recently held our annual sales kick off, which included Telerik sales teams for the first time. And I experienced a tremendous level of energy and enthusiasm for the upcoming year and for our prospects for future growth. We entered 2016 with great momentum and I want to thank all of our customers and partners for their support, as we strive to make Progress the preferred destination for application developers.

I'll now turn it over to Jerry, who will provide a more detailed review of our operational results for the quarter. Jerry?

Jerry Rulli

Thank you, Phil, and good afternoon everyone. As Phil mentioned in his remarks, we are proud of our results and accomplishments during the fourth quarter and through all our 2015. Let's start by looking at each of our segments all on a constant currency basis. OpenEdge revenue was $87 million up 2% for the quarter compared to last year including revenues from our acquisition of BravePoint. Organic growth excluding BravePoint revenues was 1%. Licensed revenue was lower compared to a very strong fourth quarter performance at 2014. But this decline was more than offset by an increase in maintenance revenue driven by renewal rate of well over 90% in the quarter.

A consistently strong renewal rate is a great indicator that customers are pleased with all of the new technology and product support we have to offer, which helps keep them committed to their relationship with Progress. Corticon also showed growth in both license and maintenance in the quarter.

For the full year OpenEdge revenue was $320 million an increase of 8% compared to 2014. Excluding BravePoint revenues organic growth was 3% driven by strong license sales both to our ISV partners and direct end users, as well as moderate increases in maintenance and services revenues. Corticon revenues were essentially flat for the full year, but we continue to be positive about our strategy for this product going forward which concludes broadening our sales effort through partnerships with system integrators and consulting firms.

As Phil mentioned part of our success depends on helping our partners sell more of their applications to new and existing customers and we continue to deliver on that promise by offering them additional solutions like Analytics360, which was released earlier this year. We will also soon launch OpenEdge academy for organizations in the U.S. and EMEA can send their new employees for four weeks boot camps led by our BravePoint consulting organization.

New developers will be trained on OpenEdge technology for the specific focus on modernization capabilities including Telerik's UI tools. Modernization projects utilizing our prescribed framework are ongoing in all of our regions. We also released OpenEdge 11.6 during the fourth quarter, the latest version of our flagship development platform.

This release included Telerik platform for OpenEdge, an offering that specifically targets our OpenEdge customers and partners who want to add mobile applications as an extension to their current OpenEdge applications. This combination of Telerik platform and OpenEdge applications affirms our commitment to deliver mission critical production systems that meet the demands of the SaaS, cloud, web and mobile environments. We're also seeing a positive trend in SaaS related revenue in OpenEdge. We’re really proud of the fact that we were the first in the industry almost five years ago to offer a multi-tenant data base, a critical feature that enables OpenEdge applications to be deployed and scalable in the cloud environment.

More and more of our ISVs are taking advantage of this architecture to offer their applications in the cloud. Including one of our major North American partners, which made the decision in Q4 to use OpenEdge for the cloud base version of their application. SaaS related revenues were approximately $5 million for the fourth quarter and $18 million for the full year.

Our application development and deployment segment had an excellent performance in Q4. Bookings were $25 million for the quarter, which included record bookings for both Sitefinity and DevTools as well as for our Telerik products as a whole.

We continue to grow our channel business with both Sitefinity and our mobile platform by deploying the same best practices that our OpenEdge partners have come to appreciate. Bookings for our other App Dev products which include Rollbase and Modulus while still small also grew rapidly.

Revenue for the App Dev segment was $19 million compared to 400,000 in 2014 and included SaaS and subscription revenue of approximately $1 million. The year-over-year increase is primarily due to revenues from the Telerik product lines. For the full year App Dev bookings were $85 million and revenues were $79 million, primarily attributable to the Telerik product.

SaaS and subscription revenue for the full year was approximately $4 million. We had several significant updates to our App Dev products during the quarter including Telerik platform 2.0 which includes support for the latest releases of iOS and Android as well as Apple watch. A newly released version of Sitefinity provides even more flexibility and agility for enterprises to deliver personalized experiences to their Web site visitors and DevTools now includes a major new spreadsheet widget empowering developers to organize and manage data using typical Excel like functions such as formulas, sorting, filtering and many more.

All of these releases are designed to provide our developer community with everything they need to build modern, intuitive web and mobile apps as well as a website that help enterprises drive digital revenue. We're really pleased with the increased bookings in Q4, the bookings growth is a great indicator of the momentum we're seeing with our App Dev products which are all geared towards creating systems of engagement that delight users.

Our recent product enhancements will make it easier than ever for enterprises to deliver the next generation web and mobile apps that are an integral part of our digital transformation and with the right focus on execution we feel we are well positioned to take advantage of this market opportunity as we head into fiscal year '16. Turning to data connectivity integration I'm pleased to announce that this segment grew by 22% in Q4 and by 10% for the full year. Our OEM partners are not only renewing their distribution agreements but we're also seeing them add more drivers as a result of the explosion of data sources.

This is reflected in our revenue growth as well as in the increase in our backlog of multiyear license arrangements which grew from 15.5 million in Q4 of last year to 17.7 million at the end of the current quarter. The increased backlog strengthens our ability to achieve sustained growth in our data business as we enter 2016.

While still small we're also seeing increased interest from mid-market companies utilizing our data drivers on a subscription basis. Pricing the drivers as a subscription makes them more affordable and accessible to these companies resulting in an expanded market for our data connectivity and integration products.

As Phil mentioned data is also key to enterprises digital transformation efforts and we continue to deliver market leading technology. For example one of the most challenging aspects of mobile application development is connecting mobile apps to existing data. In order to simplify this complex task we incorporated our data direct drivers into the recent release of Telerik platform. Using our embedded drivers mobile developers can easily leverage enterprise data from Microsoft's SQL server, Oracle or Salesforce, significantly reducing the amount of time and effort they need to spend on data connectivity and integration and increasing the speed of data access.

In closing I share Phil's enthusiasm and optimism as we move into 2016.

Our partners are renewing expanding their relationships with us and we're looking forward to hosting over 200 of them including our new Sitefinity and mobile platform partners at our global partner conference at the end of January.

Our new customer growth is accelerating also, all because we have really great technology across the full spectrum of applications that enterprises need including the next generation apps that digital transformation requires. We still have a lot of room to grow our partner and enterprise businesses and I'm really looking forward to 2016 and beyond.

I'll now turn it over to Chris to review in more detail our fourth quarter and full year financial performance as well as our expectations for the first quarter and for the full year of 2016. Chris?

Chris Perkins

Thank you Jerry and good afternoon everyone. As Phil and Jerry mentioned I too am pleased with our financial performance as we achieved organic growth in all of our business segments on a currency adjusted basis and exceeded our earnings and cash flow guidance.

For our fourth quarter total non-GAAP revenue was 115 million, an increase of 18% at actual exchange rates and 24% on a constant currency basis. Our fourth quarter non-GAAP EPS was $0.53, an increase of 13%. This was above the high end of our guidance range of $0.47 to $0.51 due to our strong operating performance as well as a lower non-GAAP tax rate of 31% for the quarter.

Also reflected in our Q4 results is the year-over-year impact of currency translation due to the strengthening of the US dollar which was a 5.7 million decrease on revenues and $0.02 on earnings per share. For the full year non-GAAP revenue was 412 million, an increase of 24% at actual exchange rates and 31% on a constant currency basis. Full year non-GAAP earnings per share was $1.58, an increase of 5%. This was above the high end of our guidance range of $1.51 to $1.55.

The year over year impact of exchange rates was negative 25 million on our 2015 revenues and $0.14 on our earnings per share. On a constant currency basis our EPS increased 14% over 2014. Non-GAAP revenue for the fourth quarter includes acquisition related revenue adjustments for Telerik totaling $3 million. As I discussed in our October 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 in our non-GAAP quarterly reporting to better reflect our true business performance on a normalized basis. On a year-to-date basis, these acquisitions related revenue adjustments for Telerik totaled $35 million.

Excluding the impact of BravePoint and Telerik acquisitions, revenues for the fourth quarter grew by approximately 4% at constant currency over the last year, by approximately 3.5% for the full year. License revenue was 45 million in the fourth quarter up 9% from Q4 2014 at actual exchange rates and 14% on a constant currency basis. In addition to the incremental license revenue from Telerik DCI license growth was strong in the quarter particularly within the OEM partner channel.

For the full year license revenue was 139 million up 18% from last year at actual rates and 25% on a constant currency basis. In addition to the incremental license revenue from Telerik both OpenEdge and DCI showed strong growth both to our ISV and OEM partners as well as to end users.

Maintenance in services revenue was 70 million for the quarter up 24% from last year at actual exchange rates and 31% on a constant currency basis. Maintenance for the services revenue for the full year was 273 million up 27% from last year at actual exchange rates and 35% on a constant currency basis. The maintenance and services revenue increased for the fourth quarter and the full year was due in large part to the incremental revenue associated with the Telerik and BravePoint acquisitions as well with our -- as well as our strong OpenEdge maintenance renewal rate up over 90%.

For our fourth quarter revenue by geography, North America was up 62% compared to the same quarter a year ago. On a constant currency basis EMEA fourth quarter revenue was up 7%. APJ revenue was down 32% and Latin America was down 35%. Excluding the acquisition of Telerik and BravePoint North America revenue was up 23% for the quarter and on a constant currency basis EMEA was down 4%, APJ was down 45% and Latin America was down 39%.

The increase in North America is due to strong OpenEdge license sales both to our ISV partners and direct to end users, growth in DCI license sales to our OEM channel and strong maintenance renewals.

The decrease in Latin America is primarily due to the difficult economic environment in Brazil that we discussed last quarter as well as a strong Latin America performance in Q4 of 2014. The decrease in APJ is primarily due to a large multi-year OpenEdge deal that occurred in the fourth quarter of last year.

For the full year North America revenue was up 58% versus the prior year. On a constant currency basis, EMEA was up 10%, APJ was up 26% and Latin America was down 7%. Excluding the acquisitions of Telerik and BravePoint North America revenue was up 6% and at constant currency EMEA was down 1%, APJ was up 10% and Latin America was down 11%.

Non-GAAP operating margin in the fourth quarter was 35%. For the full year our operating margin was 29%. As I discussed previously through the year our operating margins were primarily impacted by currency translation and the acquisitions of BravePoint and Telerik which were dilutive to our operating margin percentage in 2015, but accretive net of financing cost to our fourth quarter and full year earnings per share.

Non-GAAP operating expenses were 75 million in the fourth quarter up 15 million from a year ago. The net increase in operating expenses year-over-year is primarily the result of the BravePoint and Terelik acquisitions, partially offset by further integration synergies and by the impact of currency translations which benefits us on the expense side.

Moving on to a few balance sheet and cash flow metrics, the company ended the quarter with a strong balance with ending cash, cash equivalents in short term investments of 241 million an increase of 23 million sequentially from Q3. Our ending debt balance for Q4 was 144 million. Net DSO for the fourth quarter was 52 days down 2 days sequentially from 54 days in Q3 and down 11days from the prior year. The quality and aging of our receivables continues to be very good.

Deferred revenue was 134 million at the end of the fourth quarter compared to 96 million in Q4 2014, an increase of 38 million. The increase was driven primarily as a result of the Telerik acquisition. Deferred revenue for application development deployment segment was 49 million at the end of the fourth quarter. As a reminder, sales of our Telerik products and services are generally billed and collected upfront, while revenue is recognized ratably over the term of the arrangements.

Adjusted free cash flow for the first year was 102 million which was above the high end of our guidance range of 92 million to 95 million. For the full year, we've repurchased 1.3 million shares at a cost of $33 million as part of our share repurchase program authorized by our Board in January 2014 and September 2015. As of January 2016 we have $115 million remaining under these authorizations.

We ended the quarter with just under 1,800 employees, an increase of approximately 700 versus Q4 2014 and sequentially down slightly versus Q3. The year-over-year increase is primarily due to the incremental headcount associated with the Telerik acquisition.

Now I'd like to review our business outlook and financial guidance for 2016. First, I want to give some color on the impact of currency translation on our 2016 outlook. The significant strengthening of the U.S. dollar that began near the end of 2014 and continued through the first half of 2015, creates some headwinds for us in 2016 related to currency translation of our non U.S. revenues.

As we have discussed previously approximately one-third of our revenues are invoiced in currencies other than the U.S. dollar, compared to 2015 average exchange rates at its current level U.S. dollar has strengthen by approximately 5% against many of the currencies of the countries in which we operate. Our financial guidance reflect the current exchange rate environment which results in a negative currency translation impact on our 2016 revenue outlook of approximately $7 million primarily in the first half of the year.

Keeping this in mind, we expect 2016 non-GAAP revenue to be between 427 million and 433 million which represents a year-over-year increase of 4% to 5% at current exchange rates and 5% to 7% on a constant currency basis. This guidance assumes low single-digit growth in our OpenEdge segment and low to mid-teens growth in our data and app development segments.

Additionally, our outlook includes over 20% growth in bookings for application development and deployment segment. We are confident that we have momentum in all three of our business segments that will result in year-over-year growth in bookings and revenues. For 2016 we will continue to include pre acquisition deferred revenue in our non-GAAP quarterly reporting which will better reflect our true business performance on a normalized basis. Our full year 2016 guidance includes approximately $2 million of non-GAAP revenue.

Moving to our earnings per share guidance similar to my revenue guidance discussion our earnings per share outlook for 2016 is also impacted by the strengthening U.S. dollar and the related currency translation impact of our non U.S. base revenues and income. That being said, because we have a meaningful portion of our cost based is also denominated in foreign currencies, we get some translation benefit from the strengthening of the U.S. dollars on our cost structure. This is a natural currency translation hedge in our business based on the global diversity of our cost structure.

The net negative currency translation impact on our 2000 operating income outlook is approximately $2 million and approximately $0.02 to $0.03 on our earnings per share. Taking currency translation into account, we expect non-GAAP earnings per share of $1.59 to $1.65, a year-over-year increase of 1% to 4% or 2% to 6% on a constant currency basis. We expect our non-GAAP operating margin for 2016 to be between 29% and 30%, free cash flow to be between 97 million and 102 million and non-GAAP effective tax rate of approximately 33%.

Our 2016 guidance for operating margin and earnings per share also includes investments we continue to make to drive our growth strategy and particularly related to our opportunities around digital business transformation that Phil and Jerry discussed previously.

For our fiscal first quarter in 2016 we expect revenue to be between 92 million and 94 million. Our guidance for the first quarter is based on current exchange rates which have declined by approximately 9% versus the average rates for the first quarter of 2015 and negatively impact our revenue outlook by approximately $3 million to $4 million, excluding the impact of currency translation revenue growth would be flat to up 3%.

We expect non-GAAP earnings per share of between $0.27 and $0.29 for the first quarter compared to $0.29 in Q1 of 2015. The impact of exchange rates on our first quarter EPS is expected to be approximately $0.01 to $0.02. Our year-over-year growth in non-GAAP earnings per share is also impacted by a $0.02 foreign exchange transaction gain in Q1 of 2015, realized on certain intercompany balances related to the FLARIC [ph] acquisition structure which we discussed in our Q1 2015 earnings call. Excluding the impact of currency translation and the foreign exchange gains in Q1 of 2015 growth in non-GAAP earnings per share would be 4% to 15% for Q1.

In conclusion, we are pleased with our fourth quarter financial results and remain confident in our strategy and products. As Phil stated in his comments, we enter 2016 confident in the growth prospects for each of our segments, as we continue to make appropriate investments in our growth strategies and drive strong profitability in cash flows.

With that I’d like to hand it off to Brian for the Q&A.

Brian Flanagan

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. And I will now hand it over to the operator to conduct the Q&A session.

Question-and-Answer Session


[Operator Instructions]. And we’ll take our first question from Greg McDowell with JMP Securities.

Greg McDowell

Great. Thank you very much and it’s nice to see the return to solid execution in the business. My first question one theme I pulled out of your prepared remarks was just the uptick in maintenance and the strong renewal rates and I was hoping you could maybe spend a minute talking about what's changed in terms of approaching customers and getting them to renew and what exactly is driving that uptick and are we at a spot maybe where low 90s is going to be the sort of the perpetual growth or the perpetual renewal rate of that business, thanks -- of the maintenance business?

Phil Pead

Hey, Greg. This is Phil. Well we've maintained that renewal rate I think ever since Chris and I came on board and really focused on the OpenEdge business, but I will say that the maintenance renewals for OpenEdge is a key metric that we have tracked every day that we’re here because it does I think reflect the health of the OpenEdge business and the fact that it -- we had an uptick in maintenance obviously we really like that, but the causes of that I will attribute to the fact that we have now delivered more new technology to our OpenEdge partners and our customers over the last three years than I think we've done in the last at least six or seven, and the modernization framework that we have now prescribed to our OpenEdge customers really encourages them to first of all upgrade to our latest versions and by upgrading to our latest versions they see even more functionality within the technology that they can make use of, this also enables them to move more to the cloud, I think in 2015 we saw a more than 30% of our partner license revenue move to SaaS.

All of this technology that we’re delivering to them and the modernization framework plus the services that surround it all really encourage them especially on the win backs, when they start to see the things that we are doing that would really help their business this really encourages them to renew and that's why I think we're seeing that kind of uptick.

Greg McDowell

That’s helpful thank you and one quick follow-up and this is going back to your Analyst Day and I’m just sort of trying to reconcile your long-term targets and I'll specifically point to sort of the 10% to 15% growth in EPS and 10% to 15% free cash flow growth and I recognize those weren’t short term targets, those were sort of your long term targets, but how should we think about -- I know free cash flow looks like it's going to be pretty flat and as you stated the EPS guidance is 2% to 6% constant currency growth. But just how should we think about 2016 growth for your targets versus sort of your long term targets and how do we reconcile I guess the difference between what you laid out?

Chris Perkins

Sure. I will take that one. This is Chris. First I'll talk about the earnings per share growth. I guess I would say that we discussed on the call some of the opportunities that we see and accelerating the growth, long term -- the bookings growth and the long-term growth prospects for all of our segments, but particularly in the application development segment related to the digital business transformation market opportunities that we see. And we’ve -- as we've said in the call just a moment ago I spoke about the fact that we are continuing to invest in driving the growth opportunities. So those investments are included in our guidance for 2016.

On the cash flow basis as you saw we significantly outperformed our free cash flow performance for the year, driven by a solid performance across the business and a very good performance in our DSOs, so I think there is an opportunity, we performed quite well, I think there's an opportunity to continue to maintain those level of DSOs and that level of cash flow, the Telerik business as we do continue to build growth in those bookings, be it being ratable revenue recognition that drives a high level of deferred revenue, that's a very positive cash flow model.

So I’d say it's focused right now, if you just look at 2016, we are investing in the business, our earnings per share growth from an actual exchange rate basis is moderate because of the investments we're making in growth and I think again we had very strong performance for free cash flow and I want to make sure that we can continue to duplicate that kind of collections and driving the deferred revenue going forward. So as we grow, I think there is a great opportunity.

This year we performed even better, when you think about the foreign exchange impact on our cash flows and the year over year performance we had, you know currency translation does also impact our foreign cash flows and again we’ve showed very nice growth on a full year basis even with those foreign exchange translation impacts on that.

So I think we performed very well this year, we actually exceeded our performance, I think -- I’m pretty confident that we'll have a very strong performance and as we do get that growth in our application development business and continue to drive that deferred revenue it should be a positive driver for free cash flow going forward. So the investments we're making today, we see an opportunity to drive that 10% to 15% free cash flow growth target that we set for our long term objectives.


And we'll take our next question from Steve Koenig with WedBush Securities.

Steve Koenig

Want to start with the same question I asked last quarter which was, your application development and deployment revenue was flat again sequentially, I guess it was actually down a little bit last quarter on a tough comp in Q2, but it's been flat since the start of the year. Last quarter you told us a little bit about how the bookings out of the gate were a little weak as you were integrating, you've had two quarters now you've been reporting record bookings. Why don't we see growth yet in AD&D and how do you -- you guided, you gave us some guidance for next year, how does that guidance play out, is that more backend loaded?

Chris Perkins

Well again just to talk about the overall growth characteristics of the business and again we had talked about the fact that all the revenue is ratable. So the strong bookings of Q4 actually have very little impact on the revenue in Q4, it's mainly driving revenue growth that will be recognized in future periods. As we talked about and we updated today that our bookings for the Telerik business were, that Jerry mentioned were 83 million of bookings for the year, so a growth in year-over-year bookings of 16%.

So again we think we've got an opportunity and our guidance reflects getting our App Dev revenue growth in the mid-teens for next year. I think as we see that trajectory continue going forward and growing our bookings year-over-year in 2016 by over 20% I think we'll have an opportunity to, one, provide information and tracking on a quarterly basis the growth in our deferred revenue, we’ll provide information on our quarterly bookings for the App Dev segment that should give an indication of when that growth will start to accelerate.

Steve Koenig

Okay, thanks Chris. For the follow up and I actually want to just toss in a house keeping question, we heard the multiyear numbers from Jerry, but I think that was just DCI, you have it for the full company, but then I don’t want to waste my question, I actually want to ask you about the guidance. The rev guidance looks more backend loaded than we would have expected even just factoring in currency and then I am wondering does that all come from the Telerik bookings cadence or is the DCI renewal cadence perhaps a bigger factor there, what's leading to the backend loaded sort of revenue guidance?

Chris Perkins

I think again you know because you said and you said even beyond currency, but just to reiterate you know the currency translation impact is primarily weighted and the impact will be in the first half of the year. So after factoring that in, you know we do typically have some seasonality to our business and I know it's a seasonal comparison. But we do expect as our bookings trends on the App Dev segment we did expect that growth trajectory to start to improve more as we get to the second half of the year. We do expect based on the timing of our data business bookings for that to be trajected more towards the second half of the year as well. Again we saw the trajectory be very strong for Q4, we expect that we will see year over year growth in Q1, but that will start to accelerate as we go through the year again as we did in 2015.

Steve Koenig

Got you, thanks Chris. Could you toss out the multiyear backlog numbers for the whole company?

Chris Perkins

For the whole company it’s 19.8 million and for the data business it was 17.7 million.

Steve Koenig

Perfect, great, thank you very much.


And we'll go next to Mark Schappel with Benchmark.

Mark Schappel

Chris, I believe last quarter Telerik's growth rate dipped below its 20% annual growth rate that you were shooting for and I was just curious if that product got back to the 20% plus growth rate in quarter?

Chris Perkins

On the full year base -- it wasn't at the 20% growth rate in the fourth quarter, no it wasn't. But on a full year we did realize 20% growth rate. So again as we were seeing that start to pick up as we go through, again from a sequential basis it will be a tough compare in the first half for the year, but we still -- we’ll see that start to grow sequentially towards a trajectory we are targeting in the back half for the year.

Mark Schappel

And I assume Chris that’s based on the bookings?

Chris Perkins

That’s right, it's based on the bookings growth that we saw, good growth and good performance in the fourth quarter and we expect to see bookings growth as we’re moving through 2016.

Mark Schappel

Okay great. And then moving over to OpenEdge, I didn’t catch the organic growth rate for OpenEdge in constant currency, so it would be at BravePoint?

Chris Perkins

OpenEdge growth in constant currency, I think it was, for the quarter it was 1% excluding -- again that excludes the impact of Telerik. Telerik we had two months in the fourth quarter of last year, we have -- BravePoint, I am sorry we had two months in the fourth quarter of last year. So it was 1% in the fourth quarter and 3% on a full year basis.


And we will take our next question from Stan Berenshteyn with Sidoti and Company.

Stan Berenshteyn

I guess the first question is, if there is obviously continued FX pressures, I am wondering are you seeing any cracks in the sales cycle. By that I mean is there any increases in the amount of clients that are differing purchases?

Jerry Rulli

Well I’ll -- it's Jerry. We are not seeing any significant -- the pressure we are seeing mainly really is in Latin America. They’ve had some pretty wild swings, so that’s -- if anything we’re seeing pressure in Latin America, mainly Brazil and Mexico, but mainly Brazil.

Stan Berenshteyn

Okay. And also a follow up, now that you’ve had Telerik for a year can you talk a bit about the evolution and the level of interest existing OpenEdge clients towards utilizing the Telerik tool kits?

Jerry Rulli

Yes, this is Jerry. I think I mentioned and Chris and Phil mentioned it also, part of our modernization framework that we have introduced this year, we’ve been talking modernization to our partners for many years, one of the key elements of that is the use of Telerik tools. Now the interesting thing about OpenEdge is the key thing, its open right, part of the OpenEdge applications track [ph] its open, so our partners can choose a multitude tools. We make it extremely easy with the way we’ve integrated our tools sets in 11.6, as I talked about in my discussion, 11.6 release of OpenEdge we also included very tight aggression to our mobile platform from Telerik platform.

Though promise to our partners is that we’re going to continue to keep OpenEdge open, we will always make sure that our products are the best integrated products today. We are seeing tremendous uptick, as Phil mentioned as an example one of our partners. And I’ll say any anecdotally I have made many sales calls this year and over the last 12 months many of our OpenEdge partners and end users have already been using some different -- we talk about the development tool kit, there is probably 15 different products within the tool kit, so it’s a very broad term we use and so our customers have been using certain elements of the Telerik tool kit’s stack prior to our acquisition and because of acquisition we are seeing a really nice adoption in the OpenEdge base today. And again because of our modernization framework and the tooling we provide and the integration we provide, it is the tool kit of choice for the OpenEdge partners for modernization.


And we will take our next question from Glenn Mattson with Ladenburg.

Glenn Mattson

Two quick ones. Just I guess Chris you mentioned that you are still making investments in 2016 and that’s perhaps why that your earnings growth isn’t at the target rate, would you be able to say what kind of do you think a normal non-GAAP operating margin is when you move past this period of investment?

Chris Perkins

I think there is an opportunity to expand it, with topline revenue growth making progress as far as growing the bookings it will deliver future earnings growth. I think there is an opportunity to get -- certainly get our operating margins above 30%, our guidance is to move from 29% to between 29% and 30%. So I think in the low 30% is a realistic target over the next couple of years.

Glenn Mattson

Okay, I guess secondly I would ask, there doesn’t seem to be a lot of stock repurchase in the quarter though the stock, it's been for a few years now back and forth between low 20s to the high 20s or just above 30, so I wonder I mean I release you took on some debt with the acquisition, but it's only equivalent to about six quarters of free cash flows. So the balance sheet is going to get stronger quickly here and I wonder what was the decision behind that, perhaps purchasing more shares this quarter?

Chris Perkins

Yes, I think it was more impacted by the fact that with our Investor Day in late October. We felt it was appropriate to not open our window until we got through the Investor Day and then we were very late in the quarter, at that time near the point of closing our window. So we thought it was appropriate to again, not open the window. As you know there are factors and circumstances that from time-to-time we may make that decision not to open the window, but it was really driven by that. We see good value and we certainly acted on repurchasing stock, it was about $444 million worth of stock repurchased over the last three years. So we see that as an opportunity but I think it was more of a matter of circumstances that we didn't see an appropriate opportunity for the window to be open in the fourth quarter.

Glenn Mattson

Okay. Great, thanks.


And with no further questions in the queue. I'd like to turn the call over to Mr. Flanagan for any additional or closing remarks.

Brian Flanagan

Thank you all for joining the call today. As a reminder, we plan on releasing the financial results for our fiscal first quarter of 2016 on Wednesday, March 30, 2016 after the financial markets close, and holding the conference call the same day at 5:00 PM Eastern Time.

We look forward to speaking with you again soon. Have a good day.


That does conclude today’s conference. We thank you for your participation.

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