Progress Software's (PRGS) CEO Phil Pead on Q2 2014 Results - Earnings Call Transcript

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Progress Software Corporation (NASDAQ:PRGS) Q2 2014 Results Earnings Conference Call June 27, 2014 5:00 PM ET


Brian Flanagan - Senior Director, IR

Phil Pead - President & CEO

Chris Perkins - CFO


Steve Koenig - Wedbush Securities

Mark Schappell - Benchmark Investments

Scott Zeller - Needham & Company

Greg McDowell - JMP Securities

Glenn Mattson - Sidoti & Company


Good day, and welcome to the Progress Software Corporation Q2 Earnings Release Conference Call. At this time, I would like to turn the call over to Brian Flanagan, Senior Director of Investor Relations. Please go ahead, sir.

Brian Flanagan

Thank you, Brendon. Good afternoon, everyone and thanks for joining us for Progress Software’s fiscal second quarter 2014 earnings call. With me today is Phil Pead, President and Chief Executive 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 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 second quarter 2014, 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, and good afternoon, everyone. And thank you for attending our second quarter earnings call. I’m pleased to say that we had a solid second quarter performance. OpenEdge bookings were up over the prior year’s quarter, reflecting our partners’ strong performance in their respective markets.

We have an energized partner base driven by our significant technology releases over the last 18 months and a comprehensive partner program that is assisting our partners in their go-to market efforts. Progress Pacific continues to gain momentum with customers and partners and it is exciting that we are seeing adoption not only in our existing customer and partner base, but also that we are signing net new customers and partners.

While the appropriate changes have been made to our sales coverage for Corticon and DataDirect, we are still in our pipeline building stage for both solutions. That being said, Corticon has showed strong growth for the second quarter. Some of this growth came from opportunities that were expected to close in the prior quarter but moved into this quarter instead and we also benefited from some opportunities that closed earlier than expected.

Corticon remains a market leading solution for complex business rules management and we are experiencing increased demand particularly from industries that are highly regulated such as healthcare, financial services and insurance. While the sales cycle is typically six to nine months, we have seen some of these opportunities accelerate, particularly in healthcare.

While the second quarter performance for DataDirect was disappointing, it is important to note that this is not a demand issue, but an execution issue. I won’t dwell on the execution issue as this was discussed previously on our first quarter call other than to say that we have much greater focus on all aspects of our go-to market execution. This includes sales, marketing and product marketing.

I know that you’ve heard me say many times how valuable our data assets are and so perhaps it would be helpful to provide some context. There is a convergence of social, mobile, cloud and data, the combination of which empowers individuals as they interact with each other and their information through well-designed ubiquitous technology. This convergence creates opportunities and challenges in data and applications and places Progress in the center of these opportunities and one from which we believe we are well positioned to benefit.

Some of these changes result in a multitude of endpoints such as the Internet of things, wearable computing, SaaS applications and mobile devices and apps. In addition, we are dealing with an exponential number of distributed best-of-breed applications and app components. And finally, there is an explosion of data volumes and sources. More people need access to more data.

These changes require new ways of connecting, managing, metering and monitoring distributed application components and data. Data will become more open and more available. Devices are communicating directly with other devices. There will be dramatic innovation as business-oriented algorithms or applications or application snippets become distributed and provided by vendors with very specific business expertise.

Application developers will stitch together apps based on the best snippets available. All this leads to a fusion of app development, data, social and cloud, which requires a fabric to enable that fusion. We are experiencing an incredible age of digital literacy where the workforce is more technologically educated than ever before, and so companies are not only trying to engage their own employees in a way that leverages that competency, but also want to engage customers who exhibit that same digital literacy.

The components of our Pacific platform, rapid application development, mobile and data are clearly directed towards this new world of systems of engagement. It is why data is such an important part of our vision. We’re definitely improving our execution, but still expect it to take some time before we will see the results of our efforts.

I’m excited to say that OpenEdge continues to perform well. As I previously mentioned, bookings for the second quarter were up year-over-year and our renewals remain solid. I recently attended our Partner Advisory Council meeting and our strategic partners remain very energized and excited about the direction of the company.

We will continue to enhance the OpenEdge product line and provide support for our partners’ go-to market efforts to help our 1,400 ISVs continue to sell more of their solutions to their customers. Although sales to our enterprise customers rebounded nicely in the second quarter, I believe that we can perform even better in this segment of the market. Executing on our sales strategy to our direct customers will remain a focus for the rest of the fiscal year as we believe they represent a substantial market for all of our products.

Continuing with the theme of the convergence of social, mobile, cloud and data, we significantly enhanced our Pacific platform during the second quarter to include market-leading mobile application development functionality, allowing developers to now create enterprise-class Web and mobile applications rapidly and in one platform using drag and drop, point and click tools.

IDC estimates that the mobile enterprise application development platform market will reach almost $5 billion by 2017, a 39% annual growth rate and Pacific’s enhanced mobile functionality positions us well to take advantage of that growth potential. We are seeing more and more of our existing OpenEdge partners and customers taking advantage of the Pacific platform. For example, some partners have used Rollbase to develop CRM applications not only for their own internal use, but also to resell into their specific vertical industry.

The attraction of the Pacific platform to our OpenEdge partners and customers is that Rollbase is seamlessly integrated into OpenEdge, making it easy for customers and partners to rapidly build new modules around their current application with Pacific’s full-service platform-as-a-service. As we again consider the fusion of cloud, mobile, social and data, open source is playing a very influential role in creating and enabling many of the technological changes we are experiencing.

To that end, we recently acquired Modulus, a privately-held company that provides a platform-as-a-service for hosting, deploying, scaling and monitoring applications using powerful, rapidly growing Node.js and MongoDB technologies. Node.js is an open source, server-side Java script technology and our acquisition of Modulus fits well with our desire to support the very large and fast-growing community of Java script developers.

Node.js executes Java script at high speeds making it ideal for building data-intensive high-transaction real-time applications, however, setting up, running and maintaining a production Node.js infrastructure is complicated, time consuming and subject to frequent change, requiring very specific development operations expertise. Modulus provides and supports a complete platform designed to run Node.js applications at scale without requiring dedicated development operations resources.

Modulus has over 450 customers of all sizes and is an acknowledged leader in the Node.js community. Node.js is also very good for powering modern browser-based front-ends for existing and new applications and for building custom integrations with Progress products and other Internet-enabled products. For example, Fitbit, a leader in Internet-enabled fitness wearables, has deployed their Node.js status application on the Modulus platform.

Some of our OpenEdge partners have already started to use Node.js and will find Modulus a natural fit in their application development and deployment environment. Node.js applications running on Modulus can integrate with all Progress products today through APIs and we will be working on tighter integrations in the future.

Modulus affords us the opportunity to support the Node.js community not only by contributing to the community, but also by enhancing the user experience through the addition of other Progress technologies. I’m pleased with our performance in the second quarter and the progress we continue to make towards realizing our vision to be a leading application platform-as-a-service.

I will now turn it over to Chris to review in more detail our Q2 performance as well as our expectations for the third quarter and for the full year. Chris?

Chris Perkins

Thank you, Phil, and good afternoon, everyone. As a reminder, and consistent with our previous earnings calls, all of the financial metrics I will talk about today are related to our continuing operations and exclude results from product lines that were divested in prior years, which are reflected in the press release as discontinued operations for all periods presented.

Total revenue for the quarter was $81 million, compared to $82 million in Q2 2013, which represents a decrease of 1% at actual exchange rates and 2% on a constant currency basis, but was slightly above our guidance range of $78 million to $80 million. The year-over-year decrease was primarily due to lower license revenue which was $28 million in the second quarter, down 5% from Q2 2013 at actual exchange rates and down 6% on a constant currency basis.

The license revenue decrease was in North America, primarily related to our DataDirect products. Also, our second quarter 2013 revenue included $4 million of license revenue related to open orders that were unshipped at the end of Q1 2013.

Maintenance and services revenue was $53 million, up 1% from Q2 2013 at actual exchange rates and flat on a constant currency basis. Our maintenance renewals were in line with our expectations with renewals rates above 90%.

On a constant currency basis, second quarter year-over-year revenue decreased by 2% in OpenEdge and by 32% in DataDirect and increased by 81% in Corticon. The decrease in OpenEdge was primarily due to $3 million of license revenue in Q2 2013 related to open orders that were unshipped at the end of Q1 2013. Excluding the open orders impact, OpenEdge revenue grew by 4% in the second quarter.

The decrease in DataDirect was primarily due to two factors, the timing of revenue recognition for large multi-year OEM deals in 2013 which had lower revenue recognized in 2014 and weakness in our DataDirect pipeline which suffered in Q1 2014 due to the execution issues we discussed in the first quarter earnings call.

While we are disappointed in the first half start for DataDirect, as Phil mentioned in his opening remarks, it remains an important piece of our strategy and is a solid contributor to our overall results. The increase in Corticon revenue was due to several large deals with state and local governments during the quarter with some deals moving through the pipeline more quickly than we had forecasted.

For Q2 revenue by geography, North America was $37 million for the second quarter, down 2% to the same quarter a year ago, EMEA second quarter revenue was $32 million, down 5% on constant currency, and Latin America second quarter revenue was $6 million, down 3% on constant currency. APJ revenue for the quarter was $5 million, up 20% on constant currency. Adjusting for the impact of open orders noted above, revenue grew by 3% in North America, 1% in EMEA, 20% in APJ and was flat in Latin America.

Non-GAAP operating margin in the second quarter was 35%, 6 percentage points higher than second quarter of 2013. Non-GAAP operating expenses were $52 million, down $6 million from a year ago and down sequentially from $53 million in the first quarter of 2014.

The reduction in net operating expenses year-over-year is primarily the result of executing our margin improvement initiatives during 2013. These initiatives lowered our operating expenses in several functional areas and was somewhat offset by increased investments in product development and marketing programs to support our Pacific cloud strategy.

Product development expenses increased 5% in Q2 2014 compared to Q2 2013. Adjusted for the impact of software development costs capitalized in Q2 2014, total product development increased by 13% versus Q2 of the prior year. We plan to continue making investments in product development and marketing as we build out and enhance our Pacific platform in other products throughout the year.

Our second quarter non-GAAP earnings per share from continuing operations was $0.37 compared to $0.27 in the second quarter of 2013, an increase of 37%. This was above our guidance range of $0.32 to $0.35 primarily due to the higher-than-expected revenue I previously discussed.

Operating cash flow was approximately $17 million for the quarter compared to $14 million in Q2 2013. Adjusted free cash flow was approximately $16 million for the second quarter compared to adjusted free cash flow of $14 million in Q2 2013.

Our Q2 2014 cash flow included capitalized software development cost of $1.1 million related to our Pacific platform. As discussed in our first quarter conference call, we did not begin to capitalize software development costs until Q4 2013, so there were no capitalized development costs in Q2 of last year.

During the second quarter, we continued to invest in our platform-as-a-service strategy by acquiring Modulus, a privately-held company that provides a platform-as-a-service for hosting, deploying, scaling and monitor applications created using Node.js.

We repurchased 1.2 million shares in the second quarter at a cost of $25 million as part of our $100 million share repurchase program authorized by our Board in January of 2014. Year-to-date, we have purchased 1.6 million shares at a cost of $35 million. The company ended the quarter with a strong balance sheet, with ending cash, cash equivalents and short-term investments of $227 million and no debt.

Net DSO from continuing operations for Q2 was 65 days, down six days from 71 days in Q1 and up nine days from Q2 2013. The quality and aging of our receivables is very good. The increase in DSOs year-over-year was driven mainly by a higher number of deals closed and invoiced in the latter part of the quarter. We ended the quarter with just over 960 employees, flat to the prior year quarter.

Moving to our guidance for fiscal year 2014, we expect revenue to be between $331 million and $338 million, unchanged from the revenue guidance we provided during our Q1 earnings call, which represents a year-over-year change of between minus 1% and plus 1%. With 54% of our revenue stream outside of North America, we continue our cautious outlook due to macroeconomic uncertainty in some of the regions where we operate.

For non-GAAP earnings per share, we expect between $1.38 and $1.45, a year-over-year increase of 16% to 22%. Our earnings per share guidance includes the dilutive impact of the Modulus acquisition of $0.01 to $0.02 in the second half of 2014 and the impact of shares repurchased in the first and second quarters. We expect non-GAAP operating margin for 2014 to be between 33% and 34%, free cash flow to be between $79 million and $83 million and non-GAAP effective tax rate between 32% and 33%, all of which are consistent with the guidance we provided during our first quarter earnings call.

Our guidance is based on our revenue for fiscal 2014 being derived primarily from our on-premise business. We do expect a modest revenue contribution from Pacific where near-term revenue growth is somewhat lower due to the impact of subscription revenue recognition for cloud-based SaaS applications. As the revenue contribution from Pacific becomes meaningful, we will provide metrics to help our investors better understand the momentum we are achieving. For operating margins, our guidance includes investments we continue to make in product development and marketing, including Modulus to support our future growth.

For our fiscal 2014 third quarter, we expect revenue to be between $78 million and $81 million, a year-over-year increase of 1% to 4% and non-GAAP earnings per share of between $0.32 and $0.35, a year-over-year increase of between 19% and 30%.

In summary, we are pleased with our Q2 financial results and remain confident in our strategy and products. We are committed to executing on our internal plans in both on-premise and cloud-based application development and continue to see positive future growth opportunities in our business.

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

Question-and-Answer Session


Thank you. (Operator Instructions) And we’ll go to Steve Koenig with Wedbush Securities.

Steve Koenig - Wedbush Securities

Thanks for taking my question. Congrats on the quarter gentlemen and getting things back on track here. Wanted to ask a housekeeping question and then I’ll follow-up with a more significant question. Wondering Chris do you happen to have handy the multi-year licensing backlog ending Q2?

Chris Perkins

Yeah, I think it’s about $12 million, Steve.

Steve Koenig - Wedbush Securities

Okay, great. Thank you. And then, I wanted to ask on DataDirect Connect, you provided some good color on the execution issues after the Q1 call. I wanted to get your updated thoughts on what you still need – what targets have you made on fixing the execution issues, what you still need to do, and how long do you think it will take?

Phil Pead

Steve, this is Phil. As far as the actual sales coverage, we talked about different model for our sales organization, those changes have been made. So, the way in which we are going to market with our field force is those changes have already occurred. We had, if you remember, from Q1 there was some lead routing issues and I would say that they have predominantly been corrected.

I think lead routing is always in a state of some kind of change just because of the way in which we and other companies have the same experience the way in which you tweak the model in order to improve your efficiencies and productivities. But I would say they are substantially corrected.

And I guess the last piece to this is DataDirect is very much a search engine optimization driven marketing program, and some of that got seriously disconnected in prior periods. So, we are still rebuilding that part of it.

Google has also changed some of their search prerogatives, so we’re going to have to work through that, but I would anticipate within the next 30 to 60 days, just because some of these things take time to find their way in the Web, that we will be substantially back on track with everything that we need to do to drive the kind of revenue that we’re expecting in the third and fourth quarters.

Steve Koenig - Wedbush Securities

Okay, that’s great. And do you -- just a color on that, on DataDirect Connect, do you think that – are you thinking at all differently about how you might work with your OEM partners going forward or what their needs might be in the future and how those needs will evolve?

Phil Pead

We are seeing – we are having all kinds of conversations with all kinds of OEM partners as they experience the kinds of things that I discussed in my remarks. Big data is continuing to be a huge opportunity for our OEM partners as we look at more and more unstructured data sources and as I mentioned, as the whole world of devices and Internet of things and wearables, so where people previously thought that we’re going to have a finite number of data sources, it couldn’t be more different than what we’re experiencing.

And so, I will tell you that the exciting part for us is that every time that we add a new way of connecting to a new data source, it opens up huge opportunities for us for that particular market. So, our engineering teams, who I think are the best in the world in our data side and generally I would say that of everyone in Progress, is really bullish on the opportunity for us to improve our business on the data side.


We’ll go next to Mark Schappell with Benchmark Investments.

Mark Schappell - Benchmark Investments

Hi, good evening. And Phil, starting with you, I was wondering if you'd just talk a little bit about the Modulus acquisition and what your timeframe is for combining it with the broader Pacific platform?

Phil Pead

We’re really excited about Modulus. It is a small company but really great team. It is fascinating to me that Node.js is becoming such a rapidly accepted language for companies of all sizes and ISVs building applications using Node. I guess a lot of it is driven by the growth in Java script given that it is the de facto standard for Web-based application development. And this was a natural extension of Java script on to the server side.

So, application developers love building applications, but all the infrastructure necessary to deploy those applications is a pain in the neck for them. And so, we found that if we can provide a great user experience for those that are using Node to deploy their applications so that they don’t have to worry about all the messy infrastructure and scaling and monitoring and metering and all those things that the Modulus platform does, it would find its way into the open source community in a way that would be delightful to them and that’s what we’re finding.

So Modulus has got a great reputation in the marketplace. We are going to keep it as a stand-alone for now because we want to continue to nurture and invest and grow in that business and however we are going to start to integrate some of our Pacific assets on to the Modulus platform. And we’re finding great synergies with Rollbase, for example, and Corticon, because rules and rapid application development for Node developers is something that they would be very interested in consuming. And we would offer those as add-ins to the Modulus – into the Node community and obviously on to the Modulus platform.

So what it gives is, is access and bringing the Progress name to literally millions of developers who ordinarily would not consider or would not have considered Progress because we were just not in their world and so we are excited to contribute also given that it’s open source we’re going to be good corporate citizens and contribute to the open source community, but at the same time provide that commercial backing to enable enterprises to feel confident that the platform will be there for them to help sustain their enterprise applications for the long term.

Mark Schappell - Benchmark Investments

Okay, great. Thanks. And then, Chris one for you, just wondering if there is any open software license orders in the coming fiscal Q3 here that will weigh on next quarter’s license comps?

Chris Perkins

No, Mark, there is not. The open orders had the impact in just Q1 and Q2 of last year, so there is no impact in Q3, Q4.


We’ll go next to Scott Zeller with Needham & Company.

Scott Zeller - Needham & Company

Thank you. Another question on Modulus, could you tell us if there is any revenue associated with that that’s now part of the yearly forecast?

Chris Perkins

Yeah, this is Chris, Scott. It’s very moderate revenue and I gave some view on the impact from an earnings perspective of Modulus. The revenue is very small today, so our forecast – what’s included in our forecast and outlook for the rest of the year is relatively minor. So, again, as we start to see that revenue grow, we’ll be giving metrics in the future periods – in the future, maybe in 2015 as we build some momentum.

Scott Zeller - Needham & Company

But not willing to breakout how much is in the forecast for now?

Chris Perkins

It’s very small, it’s less. I’ll just say it’s less than $1 million in second half of this year.

Scott Zeller - Needham & Company

And could you talk a bit more about Rollbase, I mean you’d mentioned that as part of Pacific, you are encouraged by increasing adoption, but could you give us some more color about the scale or types of projects that you are seeing that give you confidence around that effort?

Phil Pead

Yeah, sure Scott, it’s really a – I look at this in a number of different ways. Obviously, our first focus was to enable our OpenEdge partners and customers to modernize and extend their existing OpenEdge applications using Rollbase. And we’re seeing more and more of our partners doing that. And not only are they doing that to extending their existing applications, but they are building new applications.

And I mentioned the particular example of one of our partners building a CRM application which enable them to replace their own CRM application and they are in the construction industry and they love the idea of going out to that vertical and offering it as a CRM using Rollbase, so they’ll resell their CRM application to that vertical industry that is tied specifically to the construction industry.

So we’ve got that element and that’s growing nicely and we’re excited and they are excited. It’s not just, of course, Rollbase because they can also consume the data access, data connectivity products as well our external rules. So, they are now beginning to embrace the platform and it’s doing what we initially designed it to do.

The other part of it, of course, is getting net new customers. And where I think some of the most exciting opportunities are is working with service providers who are looking to enable either their infrastructure or get a broader access to an ISV base where they would use Pacific as a value-add to their infrastructure, so basically moving up the stack to create a value proposition that not only includes infrastructure, but also a rapid application development platform.

Adding mobile in the way that we have creates even more of an opportunity now, so you’ve got the rapid application development functionality of Pacific and the mobile part of that with a same paradigm is giving service providers, we think, a competitive advantage as they go to market with their offerings.

So we’re seeing it being adopted in a variety of ways including by the way SMBs who come to our site and click on free eval. So it’s a combination of go-to market strategies that – I got to tell you I’m pleased with the performance as we continue to trend in positive directions but it’s just not big enough, as Chris mentioned earlier, for us to share those metrics with you yet.


We’ll go next to Greg McDowell with JMP Securities.

Greg McDowell - JMP Securities

Great. Thank you very much. Hi, Phil. Hi, Chris. Thanks for taking my questions. I first wanted to ask about just how we should be thinking about maybe long-term operating margins. I mean, if I look at sort of your operating margin expansion in the first half of this year compared to the first half of last year, I mean, in Q1 you’re up 300 Bps in operating margin expansion, this quarter, really nice, 600 Bps in operating margin expansion. So I guess are there a lot of other operating levers left to pull for you guys, I know last year there was some talk about stranded costs, but are we getting to the point where just the scale of the operating margin expansion is going to start to moderate and should we think about sort of this 35% non-GAAP operating margin as sort of a peak sort of mid-year non-GAAP operating margin moving forward? I know a lot of questions in there, but just general thoughts.

Chris Perkins

That’s fine. And again, as we’ve said before, the margin on a quarter-to-quarter basis can be impacted by the seasonality and the revenue movement from seasonality in our business, but I think from a full-year perspective, again, our guidance for the operating margins is 33% to 34%, which is very strong margin certainly compared to the prior year.

We did achieve our objectives and completed our work related to the stranded costs at the end of last year. We’ll continue to focus as we look forward on areas where we have opportunities to improve efficiencies or cost structure, however, we’re also focused on opportunities that will drive and support our future growth, investment in our products, marketing programs and selling.

So, when we see an opportunity to accelerate revenue growth as we begin to get traction and momentum. If there are opportunities to invest to accelerate that growth even further, we will evaluate those and we’ll articulate those steps that we take to our shareholders going forward.

So, again, I would not look forward to continuing margin expansion year-over-year as we go to 2014, I think we’ll be focused on investing in our business to drive growth both for our customers and our partners.

Greg McDowell - JMP Securities

That’s helpful. Thank you. And then, maybe one for you Phil and I just spent the last couple of days at the MongoDB conference and your DataDirect team had a nice boost there and looked like they were getting some good foot traffic. So I wanted to ask how much of sort of the challenge in DataDirect do you think is driven purely by execution or is it something else, is it something like just this proliferation of alternative database platforms like the NoSQL players? Is that changing something into the market where maybe DataDirect just isn’t needed as much today as it was currently when we’re in a much sort of fewer vendor data platform environment?

Phil Pead

Now, I would tell you, Greg, that is not what we’re seeing at all. We’re seeing the complete opposite. In fact, if you look at – you are at the MongoDB conference right? So, you can see the draw that we had and the number of leads that we got out of that conference was amazing.

So, this is not about are we relevant and is DataDirect product really was focused on traditional relational databases with ODBC-JDBC drivers, this is much more of a conversation about data solutions not data drivers, it’s not about data connectivity and everything that I mentioned in my opening remarks about the complexity of the environment that we’re living now as social and cloud and mobile and data come together.

It’s just staggering to me how much people want to make sense of the data that they have and where it’s all stored and we are so relevant today and it’s frustrating, I got to tell you it’s frustrating that I’m answering questions like this because I think that once we get this right, we will see a dramatic improvement in our opportunities going forward.

But, as I mentioned, it’s going to take us some time, and it’s got nothing to do from all the channel checks that we’ve done and as we look at the leads that we generate, it’s got nothing to do with the demand for our solutions.

Greg McDowell - JMP Securities

I don’t want to frustrate you with my questions, Phil, but I do appreciate the response.

Phil Pead

Now, I’m not frustrated by your questions, Greg, I’m just frustrated that we’re in this position to have to answer something like that and it shouldn’t be that way.


(Operator Instructions) We’ll go next to Glenn Mattson with Sidoti & Company.

Glenn Mattson - Sidoti & Company

Good afternoon. OpenEdge renewals you guys, I think, you said were solid. In the past, I think we’ve said other things like greater than 90%, is that still the case or?

Chris Perkins

Yes, and I did comment that it continues to be over 90%.

Glenn Mattson - Sidoti & Company

Okay. I missed that. And then, I guess just it sounds like Pacific is picking some steam a little bit, and can you just kind of help us reinforce the idea maybe that there wouldn’t be any type of potential for a slip-up in OpenEdge as people kind of take their eye off the ball there and focus more on the opportunities in Pacific? And any color on that would be good.

Phil Pead

Yeah, I think that what we try to do is separate the go-to market so that our field force know that really the opportunities that they have to sell Pacific back into the OpenEdge base actually, as I mentioned earlier, energizes those partners, Glenn, so I feel confident that that’s not going to happen.

And then, the second part of our strategy is very much a digital one where, as I mentioned, we’re looking at search engine optimization, we’re looking at search content optimization and we’re trying to get into the conversation with developers out there that are looking for a platform like Pacific to meet their needs. So those two are very different and shouldn’t be distracting.

And then, for service providers, Pacific is really what they are looking for, so it doesn’t again detract from our OpenEdge opportunities. I would tell you that as I spend more and more time with our partners and our customers on the OpenEdge side, I’m really pleased with the connection that we made back with our OpenEdge base and I think they really appreciate it too.

So we’re going to continue to nurture and maintain and grow OpenEdge and work closely with our partners so they can sell more of their products to their customers which is where we’re seeing the pickup and why bookings are up, but I’d also tell you that we’re excited about selling Pacific as a platform to net new customers, we’re excited about the addition of Modulus because we now have an incredible access to Java script and Node.js developers and it opens up a whole new world for Progress. And it really just all connects together with the platform-as-a-service vision that we have.

Glenn Mattson - Sidoti & Company

Okay, great. Yeah, that helps. And as you were talking about the service providers, that part of the strategy is paying off because I think that makes a lot of sense, so have you ever released which service providers you are working with, I think Amazon was one that you’ve talked before?

Phil Pead

We haven’t, Glenn, because what I like to do is give you examples of opportunities that we won and as they come up or at least something that’s meaningful that we can talk about, but as they come up I’m hoping that perhaps in next earnings release we’ll be able to share some of those examples with you. But it’s still early in our sales cycle, but we’re very encouraged because of the reaction that we are getting from service providers and hopefully next call we’ll be able to share some of that with you.


And that concludes our question-and-answer session for today. I’d like to turn the call back over to our presenters for any additional or closing remarks.

Brian Flanagan

Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal third quarter of 2014 on Thursday, September 25, 2014 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.


And that does conclude today’s call. Thank you all for your participation.

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