Progress Software's (PRGS) CEO Phil Pead on Q3 2016 Results - Earnings Call Transcript

| About: Progress Software (PRGS)

Progress Software Corporation (NASDAQ:PRGS)

Q3 2016 Earnings Conference Call

September 28, 2016 5:00 p.m. ET

Executives

Brian Flanagan - Investor Relations

Phil Pead - President and Chief Executive Officer

Jerry Rulli - Chief Operating Officer

Analysts

Steve Koenig - Wedbush Securities

Mark Schappel - Benchmark

Glenn Mattson - Ladenburg Thalmann

Operator

Good day, and welcome to the Progress Software Corporation Third Quarter Investor Relations Conference Call. At this time, I'd like to turn the conference over to Brian Flanagan, Senior Director, Investor Relations. Please go ahead, sir.

Brian Flanagan

Thank you, Don. Good afternoon, everyone and thanks for joining us for Progress Software's fiscal third quarter 2016 earnings call. With me today is Phil Pead, President and Chief Executive Officer; Kurt Abkemeier, Chief Financial Officer; Jerry Rulli, our Chief Operating Officer; and Paul Jalbert, our Chief Accounting Officer.

Before we get started, I'd like to remind you that during this call, we may discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives or other information that might be considered forward-looking. This forward-looking information represents Progress Software's outlook and guidance only as of today and is subject to risks and uncertainties.

Please review our safe harbor statement regarding this information, which is available both in today's press release, as well as in the Investor Relations section of our website at progress.com. Progress Software assumes no obligation to update the forward-looking statements included in this call, whether as a result of new developments or otherwise.

Additionally, on this call, all of the revenue, operating margin and diluted earnings per share amounts we refer to are on a non-GAAP basis. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers in our earnings release issued today.

Today, we published our financial press release on our website and also furnished the information to the SEC in an 8-K filing. These documents contain the full details of our financial results for the fiscal third quarter 2016, and I recommend you reference these documents for specific details.

Today's conference call will be recorded in its entirety and will be available via replay on our website in the Investor Relations section.

With that, I'll now turn it over to Phil.

Phil Pead

Thank you, Brian. Good afternoon, everyone, and thank you for attending our third quarter earnings call. First, I'm very pleased to introduce Kurt Abkemeier, who joins us on the call today, and is in his first day at Progress as our new Chief Financial Officer. Kurt has a proven track record of growing businesses and managing complex capital structures in global technology-driven companies, and his broad financial and operational experience will be invaluable in helping us achieve our strategic business objectives. So welcome, Kurt.

Our third quarter had several highlights of note with our DCI segment leading the way with a terrific revenue performance. Maintenance renewals was strong for both OpenEdge and our Telerik solutions and we had another solid cash flow quarter. Jerry will address these highlights in greater detail when he discusses each segment's performance. I'll first review the status of our direct OpenEdge opportunities.

If you recall from previous discussions we have had, I mentioned that it is difficult to predict the timing of closures of some of the larger OpenEdge direct enterprise opportunities. This is primarily due to us not being able to influence the internal timelines of OpenEdge customers who are expanding their applications or adding new licenses or other related opportunities.

Some of the deals we expected to close during Q3 were not completed by quarter-end, which is why our overall revenue fell slightly below our guidance range. The good news however, is that some of those deals have already closed in September, enabling us to keep the low end of our fiscal year 2016 revenue guidance unchanged.

Although third quarter bookings for our Telerik solutions were down slightly both sequentially and year-over-year, we have made significant progress in 2 of the 3 areas of improvement we have been focused on. You will recall earlier that this year, the primary area that was underperforming was dev tools renewals.

After making changes to systems, processes and people and applying increased sales rigor, we saw a much improved performance during the second quarter. This positive momentum extended into the third quarter, resulting in a very strong renewals performance as I mentioned earlier in my remarks. Renewals are a great indicator of both the market opportunity and quality of our products, and we are pleased with our improved performance in this important area.

Next, we set out to increase our average deal size this year by having sales reps engage more directly in some opportunities where we may be able to encourage developers to purchase a higher-value bundle of our solutions. Since the beginning of the year, our average deal size has increased 10%, demonstrating that we are making good progress on this initiative.

While we are pleased that the average deal size has increased, the final area we're working on has been to increase the number of quality leads we generate. This requires developing a higher level of relevant content that attracts more developers to try our solutions and ultimately, convert.

Many of these trials will lead to low touch, no touch conversions in line with our historical strength in this area, but a significant number will also provide additional opportunities for sales rep engagement, allowing us to maintain our increased deal sizes. While we expected this activity to show positive results in Q3, we are confident that as we exit Q4, we should see the benefits of all our efforts.

Our Data Connectivity segment had a fantastic third quarter. Jerry will provide more details about this segment's performance, but it speaks to the quality of the data connectivity solutions we deliver, the focused execution by our sales and marketing teams, and the brand loyalty we continue to enjoy from the majority of independent software vendors across the globe.

So in summary, regarding our business recap, while our ability to predict the timing of closing large OpenEdge opportunities remains a challenge, we have a significant number of deals in our pipeline and are pleased that some of those deals have already closed, giving us confidence in our fiscal year 2016 revenue guidance.

Our data connectivity segment is demonstrating outstanding growth and we expect that the work that we have done to improve our bookings performance for our Telerik solutions will be evident as we exit Q4. I remain confident that our momentum is building and I'm very excited about the powerful strategic foundation we have built.

I spoke about our digital transformation strategy briefly in a prior quarter. But I want to spend more time talking about why I believe that Progress is well positioned to solve the very real problems enterprises are facing if they seek to be discovered or engaged with their customers in this rapidly changing digital economy. IDC estimates that businesses will spend more than $1.3 trillion on digital transformation over the next 5 years.

While the digital transformation market opportunity covers a wide range of problems and solutions, we are focused on helping enterprises better understand the customer journey, engaging the customer and either creating new customers or cross-selling more products to existing customers. This all begins with how customers engage with companies on web and mobile devices.

Almost all search today begins on one or other of those platforms, and if an enterprises solutions are not discovered during that initial search, they will not be in the short list of vendors being considered by those seeking a solution or service. In addition, not all companies are engaging customers through search. Engagement also consist of creating and maintaining brand loyalty or expanding the brand relationship through targeted campaigns.

Digital engagement is further complicated by the dizzying array of technologies and software that are available to the enterprise. Web and mobile today are entirely separate technologies and are supported by very different developers. If a pizza company builds a promotional campaign on the web, it has to have a completely different team build the same campaign for mobile.

Synchronizing the technologies and the campaigns is a huge burden on most enterprises. In addition, when you consider the many multinational multi-brand companies have literally thousands of websites across the globe, catering to different local markets and subject to differing laws and customs, it becomes almost impossible to manage, let alone understand the customer journey.

When we announced Progress DigitalFactory, our goal was to help solve the problems I have just described. This compelling cloud platform is built on our existing assets and enables enterprises to greatly simplify discovery and engagement by being able to build their solutions on web and mobile with the same technologies and by using the same developers.

The Progress DigitalFactory is more than the convergence of technologies. While this is an amazing and innovative engineering feat and a significant differentiator for us, our comprehensive suite of capabilities in mobile App Dev, web content management, personalization and analytics, enable organizations to track a single and comprehensive view of each customers interactions and journeys across all digital channels, generating actionable insight to allow them to engage with customers in the right way and at the right time.

We are now in a position to sell much more strategic solutions to medium and large-scale enterprises bringing together developers, IT and marketers, which in turn will result in significantly higher average deal sizes and accelerated bookings growth. Our motivation to acquire Telerik was driven in large part because we wanted to be a leader in delivering these so-called fun end applications as this is where the majority of development is focused today.

Our opportunity for accelerated growth in this market is exciting. And while it's still in its early stages, we are engaged with several large multinational companies that have validated our strategy, and we hope that in future periods, we will be able to announce some significant wins in this space.

I look forward to closing our fiscal year 2016 with a strong quarter and moving into fiscal year '17 with increased momentum, armed with products and services that really differentiate Progress in the marketplace.

I'll now turn it over to Jerry who'll provide a more detailed review of our operational results for the quarter. After Brian reviews our financial results for the quarter, I will come back to review our guidance for Q4 and for the full year of 2016 and make closing remarks. Jerry?

Jerry Rulli

Thank you, Phil. Good afternoon everyone. Our overall revenue grew by 3% at constant currency led by our data business, which had a strong growth in both revenue and license backlog. We also saw continued improvement in renewals for our Telerik products and a solid performance from our OpenEdge partners, highlighted by a maintenance renewal rate that continues to be well over 90%.

Let's review each of our segments all on a constant currency basis. OpenEdge segment revenue was $69 million, down 7% for the quarter compared to last year. Our total revenue from our ISV partners again showed steady growth. Sales to our OpenEdge Direct enterprise customers were lower year-over-year. There were deals that we expected to close in Q3 that did not. But as Phil noted, some of those deals have already closed early in the fourth quarter.

Coupled with our visibility into a strong pipeline of OpenEdge Direct opportunities, this gives us continued confidence in our Q4 revenue expectations for our OpenEdge Direct enterprises.

Our revenue from OpenEdge partners who deploy their applications in a SaaS model continues to increase. Revenue for the quarter was approximately $5 million, representing growth of 8% year-over-year, and we expect this trend to continue during the fourth quarter, further increasing the percentage of our revenue that is recurring in nature.

The license decline in the OpenEdge segment was partially offset by an increase in maintenance revenue, driven by a renewal rate that was once again well over 90% for the quarter. Our OpenEdge renewal rate continues on its improved year-over-year trend, evidence of our partners and customers overall continuing satisfaction with their relationship with Progress and confidence in our overall product direction and strategy.

Q3 was a strong quarter for our EMEA region with solid license growth as a result of several large direct enterprise deals and also strong growth in services. We're seeing continued demand for modernization overall and increased demand in EMEA in particular for both modernization services and our managed database administration service. We now maintain and manage the OpenEdge database for more than 135 end-user clients and one of our goals for this year was to further expand this program internationally. So we're pleased with the uptick in EMEA during Q3.

This service adds to our recurring revenue and also brings us closer to our customers providing visibility into areas where they could potentially benefit from other solutions that we offer. And since many of these customers are end users of our ISV partners, our manage database administration service provides an entry point for us into these accounts, increasing our pool of total customers to market our solutions to.

As I mentioned before, modernization is an ongoing process that provides a technological path for our partners to follow to ensure their applications remain up-to-date and competitive in their markets. To further bolster our partners and customers modernization efforts, we recently released Kendo UI builder, combining the strength and capabilities of Telerik's market leading development tools with OpenEdge.

Kendo UI builder is specifically targeted toward OpenEdge developers. It provides templates that can generate 80% of the code needed to create engaging user interfaces that are paramount to driving modernization. This tool essentially generates web interfaces for the developer, dramatically reducing the development time for a complex application, which can often have 1,000 or more screens that need modernizing.

We're also proud that Frost & Sullivan recently honored Progress as the winner of their 2016 Customer Value Leadership Award in the Enterprise Application Development Platform Market for Manufacturing. The accompanying report identifies OpenEdge as, "One of the most collaborative, comprehensive and integrated application development platforms on the market."

Highlighting its support for cloud business and deployment models, and its flexibility to respond in constantly changing business requirements and processes. This award provides further proof that OpenEdge is a state-of-the-art modern platform that enables developers to modernize existing applications and build brand-new next-generation apps as well.

Moving to our Application Development and Deployment segment, bookings were $20 million for the quarter, a decrease of 1% versus Q3 of last year. Revenue for the App Dev segment was $20.6 million, an increase of 8% versus Q3 2015 and included SaaS revenue of approximately $1.2 million.

As Phil mentioned, we had a strong renewals performance for our Telerik products this quarter, the result of some of the changes we made to our headcount and processes earlier this year. Our continuing focus is on recreating more opportunities and activity at the top of the funnel, which will increase our overall bookings growth rate.

Bookings of Sitefinity and Telerik Platform slowed in Q3, but will also benefit in the future from the increased quality leads in our digital marketing investments will create. Our full year expectation is for Telerik bookings to decrease slightly year-over-year, but we do expect double-digit sequential growth in Q4 relative to Q3.

Our longer-term expectation is still to achieve 20% plus bookings growth, driven by improvements in our dev tools bookings and rapid growth in Sitefinity and Telerik Platform, but the time line has shifted based on our FY 2016 results. Nothing structurally has changed in the competitive position of our Telerik products.

Our Telerik products are market-leading and Sitefinity has moved up from niche player into the Challenger Quadrant in our Gartner's latest Magic Quadrant for Web Content Management. This is the third year in a row that Gartner has included Sitefinity in its Magic Quadrant, something we're very proud of. Gartner noted that we considerably improved our vision, positioning and overall strategy in the web content management over the past year as we work toward the upcoming release of DigitalFactory and cloud offering.

As I mentioned last quarter, Gartner also named Telerik platform as a visionary in their Magic Quadrant for mobile application development platforms and highlighted in its latest report that our mobile and cloud capabilities are more advanced than most of other providers in the web content management market. This is a confirmation that Progress is uniquely positioned to enable digital transformation, as Phil mentioned in his remarks, due to our strength in both mobile, application development, and web content management.

Revenue for our Data Connectivity and Integration segment was $14 million for the quarter, an increase of 72% versus last year. Our multiyear license backlog of $29.4 million at the end of Q3 is an increase of 48% year-over-year and 25% sequentially versus Q2. Several of our large OEMs renewed and expanded their distribution agreements during the quarter, driving a large growth in both revenue and backlog. Based on our current pipeline and visibility into our upcoming OEM contract renewals, we're confident that we will show continued revenue growth from our data business in Q4 with strong growth for the full year.

Applications can only provide value with access to data. We are the acknowledged market leader in data connectivity. We allow developers to focus on designing and building engaging next-generation applications without having to worry about the difficulties in connecting to the ever-expanding number of data sources those applications require. The Massachusetts Technology Leadership Council recently named Progress as the winner in its best use of technology, big data category, and I'm proud to receive this honor from our region's leading technology association.

In closing, I'm pleased that we achieved revenue growth in Q3. While we're still working on improving our bookings in our Telerik business, we have made progress as you continue to see improved results. This improvement, along with the strength of our data business and our visibility into the pipeline for OpenEdge Direct enterprise deals, gives us confidence that we're going to achieve our revenue goals for Q4.

I'll now turn it over to Brian to review in more detail our third quarter financial performance. Brian?

Brian Flanagan

Thank you, Jerry. All of the revenue, operating income and earnings per share amounts I'll be referring to in my prepared remarks are on a non-GAAP basis. For our GAAP results, please refer to the earnings release. Revenue was $102 million for the quarter, compared to $101 million in Q3 2015, an increase of 2%. Revenue increased by 3% on a constant currency basis with a negative year-over-year impact from currency translation of $1 million due to the strengthening of the U.S. dollar.

Our third quarter EPS was $0.44, an increase of $0.05 when compared to Q3 of 2015. In addition to higher year-over-year revenue, the increase was also due to a lower tax rate and a lower share count, partially offset by a $0.01 negative impact from currency translation. Revenue includes acquisition-related revenue adjustments for Telerik totaling $400,000.

As discussed in our June earnings call and consistent with previous quarters, GAAP rules require us to eliminate certain preacquisition 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.

The year-over-year revenue increase was primarily due to maintenance and services revenue, which was $69 million for the quarter. This represents an increase of 2% at actual exchange rates and 3% on a constant currency basis. The increase in maintenance and services revenue is primarily due to improvements in our maintenance renewals for both OpenEdge and Telerik and increased SaaS revenue generated by our AD&D segment.

License revenue was $34 million for the quarter, an increase of 1% versus Q3 of 2015 at an actual exchange rate and 2% on a constant currency basis. The license revenue increase was primarily due to our DCI segment as several of our larger OEMs renewed and expanded their distribution agreements during the quarter. This increase was partially offset by a decrease in OpenEdge license sales, as well as lower Corticon license sales.

For our revenue by geography. North America was $59 million for the third quarter, up 6% from the same quarter a year ago. On a constant currency basis, EMEA third quarter revenue was $34 million, up 9%; Latin America revenue was $5 million, up 2%; and APJ revenue was $6 million, down 34%. The year-over-year increase in North America was primarily due to the increased revenue from our DCI segment due to the renewal of several large OEM distribution agreements, partially offset by decreased OpenEdge license sales, both of which I mentioned above, and lower revenue from our AD&D segment.

The increase in EMEA is primarily due to several large OpenEdge Direct enterprise deals during the quarter, plus increased revenue from our AD&D segment. The decrease in APJ is due to several large OpenEdge license deals that occurred in Q3 of last year.

Operating expenses were $70 million, up $1 million from a year ago. The net increase in operating expenses year-over-year is due to higher compensation and benefits expense, primarily related to the 7% year-over-year increase in our headcount, partially offset by decreased costs for external services. Operating margin in the second quarter was 31%, essentially flat to last year.

Moving on to a few balance sheet and cash flow metrics, the company ended the quarter with a strong balance sheet with ending cash, cash equivalents and short-term investments of $233 million. After making scheduled principal payments during the quarter, our ending debt balance for Q3 is $137 million.

Net DSO for the third quarter was 49 days, up 4 days sequentially and down 5 days from Q3 2015. We had a strong collections performance during the quarter across all of our geographies and businesses, including Telerik, and the quality and aging of our receivables continues to be very good.

Deferred revenue was $138 million at the end of the third quarter, compared to $131 million in Q3 2015, an increase of $7 million. The increase was driven primarily as a result of Telerik bookings. As a reminder, sales from our Telerik products and services are generally billed and collected upfront, while revenue was recognized ratably over the term of the arrangements.

Adjusted free cash flow was approximately $19 million for the quarter, a 1% increase when compared to Q3 2015. The cash flow performance for the quarter was driven primarily by the continued strong collections that I discussed earlier. Our year-to-date adjusted free cash flow for FY 2016 is $68 million. We repurchased 443,000 shares in the third quarter at a cost of approximately $11.5 million. Year-to-date, we have repurchased over 2.8 million shares at a cost of approximately $72 million.

I'll now turn it back over to Phil to review our expectations for the fourth quarter and for the full year of 2016. Phil?

Phil Pead

Thank you, Brian. Turning to our updated guidance for fiscal year 2016, we expect revenue to be between $412 million and $415 million, which at actual exchange rates would be flat year-over-year at the low end of the guidance and 1% growth at the high end of the guidance.

At constant currency rates, this guidance represents an increase of 1% to 3% as this includes an estimated year-over-year negative currency impact on our 2016 revenue of approximately $5 million. Our previous annual revenue guidance was between $412 million and $418 million. The decrease in the high end of our guidance is primarily due to continuing a more cautious view with respect to several of our large OpenEdge Direct end-user opportunities.

With the deals we've already closed in September, coupled with our visibility into the timing of deals in our pipeline, we are confident in our Q4 revenue expectations for our OpenEdge Direct enterprises. This guidance assumes a low single-digit decline in revenue from our OpenEdge segment, a 20% plus growth in our DCI segment and low single-digit revenue growth from our AD&D segment.

Additionally, while we are still confident in meeting our long-term growth objectives for Telerik bookings, we're lowering our outlook to a low single-digit decline for the full year. Although we are lowering our outlook for the full year, our guidance reflects double-digit sequential growth in Telerik bookings in the fourth quarter as we begin to see the benefits of our digital marketing investments to increase our top of funnel opportunities.

Our 2016 operating margin guidance is approximately 30%, and our effective tax rate for the full year is expected to be approximately 32%. Our earnings per share guidance for the full year is $1.57 to $1.60, with the bottom end unchanged from our prior guidance and a decrease of $0.03 on the high end. The decrease in the high end of our guidance is due to an increase in our weighted shares outstanding due to lower-than-expected share repurchases in the second half of the year.

We also continue to monitor exchange rates and based on current rates estimate the total year-over-year negative impact of currency movements on our EPS guidance to be approximately $0.04, unchanged from our previous estimate.

We've increased our guidance for adjusted free cash flow to be between $85 million and $90 million, an improvement of $5 million versus our prior guidance. We had another strong cash flow quarter in Q3. And while we expect Q4 to be lower than prior year, primarily due to higher capital expenditures, as well as increased working capital requirements, we're confident that we can achieve this increased amount.

Today, we announced the commencement of a quarterly cash dividend with the first payment of $0.125 per share to be made on December 15, 2016. We believe that the commencement of a regular dividend underscores the strength of our cash flow generation and offers an attractive yield to those investors seeking income. As of the end of our third quarter, we had approximately $143 million remaining under the $200 million share repurchase authorization of our board in March of 2016.

It is still our intention to repurchase the full amount of our authorization, but due to market conditions, it is unlikely that we will meet our original goal of spending this amount by the end of the fiscal year. Our guidance does not assume any additional share repurchases in the fourth quarter.

For our fiscal 2016 fourth quarter, we expect revenue to be between $123 million and $126 million, a year-over-year increase of 7% to 9%. Our guidance for the fourth quarter is based on current exchange rates, and the impact on our Q4 revenues is expected to be immaterial. We expect earnings per share of between $0.55 and $0.58 for the fourth quarter, an increase of $0.02 to $0.05 or 4% to 9% versus Q4 of 2015.

In summary, we're pleased on balance with our Q3 operating performance. We expect higher growth in the fourth quarter, primarily due to the timing of some of our larger OpenEdge Direct enterprise deals, another strong performance from our DCI segment and double-digit sequential bookings growth in our AD&D segment. And with that, I'd like to hand it back to Brian for the Q&A.

Brian Flanagan

Thank you, Phil. 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 questions and one follow-up. I will now hand over to the operator to conduct the Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we'll take our first question from Steve Koenig with Wedbush Securities.

Steve Koenig

Thanks gentlemen for taking my question. Yes. So I wanted to ask you guys about the back-end loading of the year, just to parse that out a little bit. Is most of that due to the cadence of the DCI renewals, which were clearly pretty big this quarter? And are the expectations for OpenEdge closing a lot of those deals in Q4, a big part of that? Or simply, it's more pronounced seasonality, more of the lion's share. If you could maybe just parse that out and maybe help me understand which of those factors are most important.

Jerry Rulli

Sure. Steve, this is Jerry. I'll talk about two issues. The DCI, I think DCI leaves us, I would call, the normal expectation for Q4. We're working the renewals as they come up, and so we're confident in their pipeline as we mentioned. As far as OpenEdge, we talked about this earlier in the last call and Phil mentioned in this call that we're pleased with the deals we're working and the large transaction we're working in the pipeline. They're hard sometimes to manage to get the timing right. I will say that ending Q3 going to Q4, we have a larger-than-normal amount of transactions in the pipeline today. Some of them from hundreds of thousands to multiple million of dollar transactions we're working. So a very, very strong pipeline that flow from Q3 to Q4. So, I think it's more or less what we've committed, what we've talked about in last quarter and this quarter from working the OpenEdge deals.

Phil Pead

Yes, Steve. So it's less seasonality driven and more opportunities that we're working to close for the - as we mentioned in prior quarters, we said that the second half of the year is when we expect to see some of the larger opportunities close.

Steve Koenig

Yes, got it. Okay. And then the follow-up is kind of related to that, which is, so closing the OpenEdge deals that you did in September. Does that effectively help you to make up for the Q3 lightness? Or does it actually go further and de-risk the bottom end of your guide, would you say?

Phil Pead

It does a little of both, I would say, Steve. It would've definitely produced a positive result for us in Q3, and it somewhat adds to our revenue expectations for Q4.

Steve Koenig

Got it. Great, very helpful. Thank you gentlemen, appreciate it.

Phil Pead

Thanks Steve.

Operator

We'll take our next question from Mark Schappel with Benchmark.

Mark Schappel

Hi good evening. Thank you for taking my question here. Phil, starting with you. Given the challenges in the OpenEdge Direct business that you saw this year, I was wondering what gives you confidence that Q4 will be any different?

Phil Pead

Yes. It's a good question, Mark. And I think that as we reviewed all the opportunities that we're working and where they are in the sales cycle, there is always that risk. Obviously, the timing doesn't exactly coincide with the quarter as we saw in Q3. But I think that with Jerry and I working these opportunities, I think that the maturity of the sales cycle as we look at the pipeline gives us confidence that we'll be able to close the required number of deals that will represent the - enough for us to meet the quarterly objectives. And bear in mind, Mark, that as I mentioned in my remarks, these are not - it's not a situation where we're going to lose the deal because the competitors come in and taking it from us. This is really internal timing that we're trying to work with our clients and customers to make sure that their natural close of their application, additional licenses that they're buying, coincides with our quarter.

Mark Schappel

So is it fair to assume that you haven't seen OE Direct deals or OpenEdge Direct deals go away?

Phil Pead

No, we have not.

Mark Schappel

Okay. Great. And then just final question here on your share buyback program. What's changed that you're unable to execute that as you and Jerry planned?

Phil Pead

Well, I think we've always said that our intention is to execute on the authorization by the Board, subject to market conditions. And clearly, we have expectations of intrinsic versus market value, Mark. So that affects how much stock you buy.

Mark Schappel

Okay, thank you. That’s helpful.

Phil Pead

Welcome.

Operator

For next question we will go to Glenn Mattson with Ladenburg Thalmann.

Glenn Mattson

Hi, on the Telerik business, I guess it’s good news also on the guidance for double-digit snapback and bookings next quarter. I guess, my question I wonder is what early signs are you’re seeing from the changes you've made to the sales force or to their go-to-market strategy that's given you confidence that you'll hit those targets?

Phil Pead

Yes. Well, we've been working on this for some time, Glenn. And I will tell you that the disappointing thing for us is that we were expecting to see some effect of the efforts that we have been focused on with our - particularly in the dev tools area. But as our marketing folks will tell you, it is something that takes a little longer than people expect because we're encouraging people to come to our site. They definitely have needs. They will download trials. Those trials will take whatever time we give them and then there's a conversion, right? So that timing is sometimes very difficult for us to predict. But we were hoping that in Q3, we would see evidence of that, but we are seeing evidence of that now, which gives us confidence that as we exit Q4, we'll see that double-digit growth in bookings quarter-over-quarter.

Glenn Mattson

Okay. It sounds good. And then on OE, we talk about snapback next quarter, some of these large deals come through. But what do you think - do you think anything's changed? Or how do you view that business as we head into the next fiscal year?

Jerry Rulli

Yes, I was going to say, I think we feel very confident on the partner revenue stream, very confident on our maintenance renewals. We continue to build solid pipeline for OpenEdge Direct, and it's just managing the larger transaction. So, we feel good going into Q4 and continuing into next year for our OpenEdge today.

Glenn Mattson

What do you think the natural growth rate is of that business currently? Same as kind of the, what you guys were talking about at the Analyst Day?

Phil Pead

Yes. I think we said low single digits and we're kind of staying with that right now. But obviously, we haven't given guidance for 2017. As we go through that, we'll look at that a little bit just given that the dependence on larger deals are the ones that move the needle for us. We're still doing a large number of smaller deals. So I don't want anybody to misunderstand that direct business. But the larger deals are the ones that move the needle on our growth rate. And they are the ones that we've been challenged through this year. I think as we go into 2017, we're going to take a real hard look at what the opportunities are, the maturity of the sales cycles and I think we're going to make sure that we can align those sales cycles with our quarters, which has been the challenge for us in 2016.

Glenn Mattson

Lastly, I guess, is it that there's fewer deals, but they're larger or is it there are fewer deals overall? Or is there any - can you characterize that at all, as far as - just when you're talking about those large deals?

Phil Pead

Yes. There's actually a larger number of larger deals.

Glenn Mattson

Okay. All right. So that should give you confidence then in the long-term growth. Okay. Thanks guys.

Phil Pead

Thank you.

Operator

It appears there are no more questions at this time. So I'd like to turn the conference back to Brian Flanagan for any additional remarks.

Brian Flanagan

Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal fourth quarter of 2016 on Tuesday, January 17, 2017, after the financial markets close and holding the conference call the same day at 5:00 p.m. Eastern Time. We look forward to speaking with you again soon. Have a good day.

Operator

That does conclude today's conference. Thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!