Brian Flanagan - Senior Director, Investor Relations Phil Pead - President and CEO Chris Perkins - Chief Financial Officer.

Steve Koenig - Wedbush Securities Mark Schappel - Benchmark Greg McDowell - JMP Securities Glenn Mattson - Ladenburg Thalmann Scott Zeller - Needham & Company.

Good day. And welcome to the Progress Software Corporation Q4 Earnings Release Conference Call. At this time, I would like to turn the conference over to Brian Flanagan, Senior Director, Investor Relations. Please go ahead, sir..

Thank you, Blend. Good afternoon, everyone. And thanks for joining us for Progress Software’s fiscal fourth 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.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, 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 fourth 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..

Thank you, Brian. Good afternoon, everyone. And thank you for attending our fourth quarter earnings call. I am very pleased with our fourth quarter performance. As a result of our considered execution, we achieved strong growth over the prior quarter in each category of our business.

Moreover, the momentum we have built as a result of this effort will benefit us going into our new fiscal year. We entered 2015 with a suite of strategic solutions that offer an unrivaled choice to application developers. I know this is often said by CEOs, but I couldn’t be more excited about future.

With our accomplishments over the last two years, we are now even closer to achieving our vision of becoming the preferred destination for application developers.

Just to put this into greater perspective, Progress now has one of the largest developer communities in our industry, with a broad range of platforms and languages from .NET to HTML5 to Node.js.

This provides us the opportunity to further broaden those communities by offering them great user experiences, as well as the potential increase the breath of solutions they use from us. I will provide more detail about the strength of our application development and deployment segment in a moment.

Focusing on our OpenEdge segment, over the last two years we have completely reinvigorated our OpenEdge business. As a result of these efforts over that period we have grown license revenue by more than 23%. Part of that license growth has come from ISVs selling more of their solutions as software-as-a-service.

This is an exciting development for our OpenEdge business as even more of our revenues become recurring.

Our customers and partners are not only excited about the direction we have taken and the enhancements we have made to the OpenEdge technology with the latest release of version 11.5, but also are actively consuming the new technologies we have acquired.

OpenEdge partners and customers are building Node.js applications and deploying them on our Modulus platform. They are building brand new obligations in Rollbase and they've begun to externalize their rules using Corticon and they are using Telerik user-interface tools to improve the user experience.

This is incredibly exciting as we are able to help our partners become more competitive not only by enhancing OpenEdge, but also by offering them new channels of revenue with other elements of our Pacific platform.

Our acquisition of BravePoint provides us with a wonderful pool of talented people who are already significantly engaged in assisting our OpenEdge partners and customers in modernizing their applications. This work is vital for our partners to remain competitive and for our customers to build a more intuitive business application.

Our partners and customers are also able to augment their staff as they build out new applications, functions and features. This service which we were previously unable to offer with any scale enables us to further extend the use of OpenEdge with our partners and direct customers.

OpenEdge continues today to be a very powerful and strategic platform, which is used by more than a third of the Fortune 500 companies. It is used in high transaction environments, such as manufacturing, financial services and healthcare. Critically strategic solutions have been built by over 1,400 independent software vendors across the globe.

By focusing a separate division on this vital segment of our business, we are better able to assist all our partners as they compete in their respective markets and to build closer relationships with our direct end users.

Moving to our application development and deployment business, with our acquisition of Telerik combined with the Progress Pacific platform, we are now capable of attracting a wide range of developers who create business applications from individuals to teams within enterprises of all sizes. These developers can't be sold to in any conventional sense.

They are looking for ways to solve difficult business challenges and they have tremendous freedom today in choosing the tools that will best help them to meet those challenges. Progress speaks to these developers in an authentic compelling voice. We uniquely appeal to them by offering one of the industry's most complete end-to-end development suites.

Entering 2015 Progress solutions seamlessly address the entire development lifecycle including application design, deployment, data and business rules integration, testing and management, and analytics.

We understand that developers want an integrated platform for building business applications and websites with elegant, intuitive and sticky application interfaces that run on any device. To build these applications, Progress offers the Telerik platform and Rollbase.

The Telerik platform is a full lifecycle platform for building enterprise grade mobile applications. Gartner underline Telerik success in addressing these needs by positioning it in the visionary category of Gartner’s Magic Quadrant for mobile application development platforms.

Rollbase are point-and-click drag-and-drop productivity platform for building line of business employee facing SaaS applications is part of our Pacific platform and enable progress to be positioned in the visionary category of Gartner's magic quadrant for enterprise application platform-as-a-service.

For building and managing websites, developers can use Telerik Sitefinity, a renowned solution for web content management, digital marketing and customer analytics used by major enterprise worldwide. Sitefinity also debuted in Gartner's web content management magic quadrant during 2014.

And through our Telerik DevTools suite, developers benefit from an expansive library of ready-to-deploy user-interface widgets or reusable code to rapidly create beautiful custom front ends for their mobile web based and on-premise applications. For deployment, developers can use Modulus, our deployment platform for Node.js applications.

Node.js is ideal for building today's data intensive high transaction real-time applications but setting up, running and maintaining the required infrastructure is complicated and time consuming. Modulus provides a complete platform for deploying Node.js applications at scale without requiring dedicated development operations resources.

Developers also want to integrate data and business rules into their applications. And Progress' end-to-end offering includes solutions for those challenges as well.

Our market-leading DataDirect Cloud product provides access to all business data, no matter where it resides and by essentially making data plug and play, it simplifies connectivity and reduces the cost and complexity of data integration.

For business rules, developers can incorporate our powerful no-coding Corticon rules engine into their application to allow users to make decisions and act on their business data. For testing and management of their applications, we offered to leverage application lifecycle management and testing products.

This includes an automated testing suite for mobile, web and desktop applications and an application lifecycle management suite for managing development projects. Progress provides all the tools developers need to develop, manage and deploy their applications from end-to-end throughout the development lifecycle.

However, it's important to know that we understand there can be many entry points into our business. We are as agile and approaching developers seeking out single solutions as we are in delivering comprehensive platforms and suites.

For instance, developers looking for data integration only can use our DataDirect Cloud product while those with deployment challenges can use Modulus. If they are looking to create a website and manage it with integrated e-mail marketing and tracking, they can use Sitefinity.

And if they need to build an elegant engaging front-end for their application, they can use Telerik DevTools. They can purchase all of these on our website just by swiping a credit card through our no touch digital sales strategy.

However once they solve their initial challenge, we can assist them in expanding their use of our solutions to help resolve other challenges. This enables them to reduce their total cost of ownership and simplify the deployment by having to manage fewer moving parts.

With Telerik now a part of progress, we benefit from the breadth of technologies that assist hundreds of thousands of developers across the globe. Telerik provide us with digital marketing capabilities that resulted in more than 50% of their revenues being generated with no touch.

Their leadership in so many areas and application development is helping to drive the success of our business unit. Turning to data connectivity and integration segment, we achieved strong performance in the fourth quarter.

First, our traditional data connectivity solutions experience strong growth as not only data sources continue to increase but also the need to access those data sources of high speed becomes more critical.

It becomes a significant competitive disadvantage for companies operating in markets that demand high data availability in order to make critical business decisions to have to wait for that data to become actionable. Our market-leading DataDirect Solutions solve that problem.

No other vendor in the market comes close to providing the breadth of sources and enterprise features available from Progress. Next, as SaaS applications grow exponentially, ISVs and direct end users require access to not only other SaaS applications but also on-premise data.

Again, the requirement here is for high-speed data access that also eliminates the need to understand the structure of that data and the complexities of data security. DataDirect Cloud solves those problems. In particular, we are very pleased with the strong interest shown by our large DataDirect OEM customers in DataDirect Cloud.

And we expect DataDirect cloud to continue to gain momentum in 2015. Finally, preparing data to be used by analytic tools such as the data can be relied upon as always been a critical element of data analysis. However, this has never been easy.

Understanding the location and structure and cleanliness of the data has previously required lengthy work by data analysts. Given our strength and data access, we can now offer analysts a very powerful tool called Easel that significantly reduces the time and complexity of data preparation.

More and more of our data connectivity and integration solutions are being consumed as a subscription, enabling us to have greater visibility into future revenues and also reducing the volatility in our quarterly performance. In summary, 2014 was a pivotal year for us as we continue to lay the foundation for future growth.

We enter 2015 with great momentum, intense focus and an unrivaled appeal to the millions of application developers who are seeking a comprehensive set of solutions to not only make their life easier but also by using Progress Solutions enable them to become more competitive.

I’ll now turn it over to Chris to review in more detail our fourth quarter performance as well as our expectations for the first quarter and for the full year of 2015.

Chris?.

Thank you Phil and good afternoon everyone.

As a reminder and consistent with our previous earnings calls, all 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 $98 million compared to $91 million in Q4 2013, an increase of 8% at actual exchange rates and 10% on a constant currency basis. Our fourth quarter non-GAAP EPS was $0.47 compared to $0.43 in the fourth quarter of 2013, an increase of 9%. This was at the high end of our guidance range of $0.44 to $0.47.

Fourth quarter revenues include a negative impact from currency translation of approximately $900,000 as the U.S.

dollar strengthened significantly during the fourth quarter compared to other currencies and also includes incremental revenue of approximately $3 million associated with the acquisition of BravePoint, the professional services firm we acquired in October.

Excluding the negative impact of currency translation and the incremental revenue associated with BravePoint, revenue would've been approximately $96 million which was at the low end of our guidance range. For the full year, total revenue was $333 million flat to last year on both an actual and constant currency basis.

Full year non-GAAP EPS was $1.51 per share compared to $1.19 for 2013, an increase of 27%. This was above our guidance range of $1.47 to a $1.50. The year-over-year revenue increased in the fourth quarter was due to growth in both license and maintenance and services revenue.

License revenue was $41 million in the fourth quarter, up 10% from Q4 2013 at actual exchange rates and up 12% on a constant currency basis. License revenue increase was primarily in APJ, which grew by 127% and also in EMEA and Latin America, all at constant currency.

The increase in APJ was due to a large multi-year deal with two affiliated OpenEdge end users. Maintenance and services revenue was $57 million for the quarter, up 6% from last year at actual exchange rates and 8% on a constant currency basis.

The maintenance and services revenue increase was due in large part to the incremental professional services revenue associated with the BravePoint acquisition. Our maintenance renewals were in line with our expectations and we remain confident that we will continue deliver renewal rates above 90%.

For the full year, license revenue was $118 million, down 4% from last year at actual exchange rates and down 3% on a constant currency basis.

As we have discussed in previous quarters, the license revenue decline year-over-year was due in part to $9 million of revenue included in the first two quarters of 2013 related to open orders that did not meet revenue recognition requirements at the end of 2012. Otherwise, we showed solid license bookings growth for 2014, particularly in OpenEdge.

Maintenance and services revenue for the full year was $215 million, up 1% from last year on both an actual and constant currency basis. The increase in maintenance and services revenue was due in large part to the increase in professional services revenue from the BravePoint acquisition.

As you know in August, we announced the creation of three business units, OpenEdge, Data Connectivity and Integration or DCI and application development, deployment or app dev. Each business unit president is responsible for the profitability of their respective unit.

And as a result of this realignment, we've adopted segment reporting for the three business units beginning in the fourth quarter. We have included quarterly results of operation by segment for 2013 and 2014 in our earnings press release. Also the results of our Corticon products are included in the OpenEdge business unit.

For the fourth quarter, revenue by business units on a constant currency basis, OpenEdge revenue was $87 million, an increase of 11% year-over-year including revenues related to our BravePoint acquisition.

DCI revenue was $13 million, an increase of 5%, primarily due to an increase in our OEM revenue in EMEA and app dev revenue was $400,000, an increase of 120% versus the prior year. As I'll discuss shortly, we expect that the positive momentum we saw in each of our business units in Q4 will continue into 2015.

For the full year, OpenEdge revenue was $297 million, an increase of 1% due to growth in APJ and Latin America, as well as incremental services revenue as a result of the BravePoint acquisition.

DCI revenue was $35 million, a decrease of 13% year-over-year, primarily in North America and app dev revenue was $1 million, an increase of 160% versus the prior year.

The full year decrease in DCI revenue is primarily due to two factors, the upfront revenue recognition in 2013 on several large multi-year OEM renewals and also the weakness in our pipeline from earlier in the year, which impacted our revenue growth in the first three quarters of 2014.

Our pipeline is getting stronger for this business unit, which is reflected in the Q4 year-over-year growth in revenue of 5%. For our fourth quarter revenue by geography, North America was up 2%, compared to the same quarter a year ago and included incremental services revenue from BravePoint of $3 million.

On a constant currency basis, EMEA was up 4%, APJ was up 69% and Latin America was up 37%. The increase in EMEA was primarily from our application partners, while the increase in Latin America was due to additional revenue from end users.

The increase in APJ was due to a large multi-year deal with two affiliated OpenEdge end users that I mentioned earlier. For the full year, North America revenue was down 2% versus the prior year. On a constant currency basis, EMEA was down 4%, APJ was up 29% and Latin America was up 6%.

Non-GAAP operating margin in the fourth quarter was 39%, two percentage points higher than the fourth quarter of 2013. In the fourth quarter, we generated strong cash flows with operating cash flow of approximately $39 million compared to $18 million in Q4 2013.

Operating cash flow in Q4 of last year included restructuring charges of approximately $7.2 million associated with our margin improvement initiatives and adjusting for these charges, operating cash flow for Q4 2013 would've been approximately $25 million. We also had a very strong cash flow performance for the full year.

2014 adjusted free cash flow was approximately $99 million, above the high-end of our guidance range. This represents a 35% increase over the $73 million generated in 2013. We did not repurchase any shares in the fourth quarter.

For the year, we repurchased 2.3 million shares at a cost of $53 million, as part of the 100 million share repurchase program authorized by our Board in January 2014. As of January 2015, we have $47 million remaining under this authorization.

The company ended the quarter with a strong balance sheet, with ending cash, cash equivalents and short-term investments of $283 million and no debt.

Subsequent to our year-end, we funded the purchase of the Telerik acquisition using approximately $100 million of cash, with the remainder of finance through a $150 million term loan, which is just part of a new five-year $300 million term and revolving credit facility.

The interest rate on the term loan is based on LIBOR, plus a margin determine by our consolidated leverage ratio. Based on our current leverage ratio and the current LIBOR levels, our effective annual interest rate is LIBOR plus 1.75% or approximately 2%.

Net DSO for the fourth quarter was 63 days, down three days from 66 days in Q3 2014 and also down three days from the prior year end. The quality and aging of our receivables is very good. We ended the quarter with just over 1,070 employees, an increase of 10% sequentially versus Q3.

This increase was primarily due to incremental professional services headcount associated with our acquisition of BravePoint. Taking into account the Telerik acquisition in early December, we currently have approximately 1,800 employees. Now, I'd like to review our business outlook and financial guidance for 2015.

First, I want to give some color on the impact of currency movements on our 2015 outlook. The significant strengthening of the U.S. dollar during the second half of 2014, which has intensified over the past two months, creates a potentially strong headwind for us in 2015 related to currency translation of our non-U.S. revenues.

As you know, approximately 55% of our revenues are generated in market outside of North America and based on today's current exchange rates, compared to 2014 average rates, the U.S. dollar has increased approximately 10% against many of the currencies of the countries in which we operate.

Our financial guidance reflects the current exchange rate environment and impacts our revenue outlook by approximately $17 million to $18 million. We do not expect any translation impact on Telerik revenues because the vast majority of their customers are invoiced in U.S. dollars.

Keeping this in mind, we expect 2015 non-GAAP revenue to be between $425 million and $435 million, which represents a year-over-year increase of 28% to 31%.

Although, our guidance includes revenues from the Telerik and BravePoint acquisition, I want to emphasize that our business outlook is for 2015 revenues to grow by 6% to 7% on a constant currency basis, excluding the impact of revenues associated with BravePoint and Telerik.

We are confident that we have momentum in all three of our business units that will result in year-over-year growth in bookings and revenues. On Telerik, which will be included in our app dev business unit, our guidance reflects a continued revenue growth trajectory of over 20%.

BravePoint, which is included in OpenEdge is expected to add approximately 6% to 7% growth to that business unit in 2015. There are two other items I would like to discuss relating to our 2015 revenue guidance. The first concerns our DCI business unit revenues.

If you have heard Phil and I discussed in the past, we launched DataDirect Cloud in 2014 as part of our cloud strategy. And we are very pleased with the strong interest shown by several of our large DataDirect OEM customers in this product. As such, we anticipate DataDirect Cloud to be added to several OEM license renewals in 2015.

Well, this is a very positive development to our business strategy and provides long-term incremental revenues. Accounting rules require if when a SaaS product is bundled with an on-premise arrangement, the revenue related to the entire agreement must be recognize ratably over the contract term.

We expect this ratable revenue recognition to lower our recognize revenue by approximately $3 million versus our historical revenue recognition. Despite this negative impact, we expect our DCI business unit to achieve year-over-year revenue growth over 2014 on a constant currency basis. The second item relates to Telerik.

As result of the acquisition, our revenue guidance for 2015 is based on non-GAAP revenue, which will include acquisition related revenue adjustments. GAAP rules require us to eliminate certain pre-acquisition revenue classified by Telerik as deferred revenues. This adjustment is often referred to as a purchase accounting deferred revenue haircut.

As many companies do after acquisitions, we will 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 2015 guidance includes our current estimate of approximately $35 million of non-GAAP revenue.

As the majority of Telerik agreements are for one year, we expect any non-GAAP revenues beyond 2015 to be minimal. Moving to our earnings per share guidance, similar to my revenue guidance discussion, our earnings-per-share outlook is also impacted by the recent strengthening of the U.S.

dollar and the related currency translation impact on our non-U.S. based revenues and income. That being said because of meaningful portion of our cost basis also denominated in foreign currencies, we get some translation benefit from the strengthening of the U.S. dollars in 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 of revenue in cost is expected to reduce our operating income by $8 million to $9 million and our earnings per share by $0.10 to $0.11.

Taking currency translation into account, we expect non-GAAP earnings-per-share of $1.37 to $1.47, a year-over-year decrease of 3% to 9%. We expect our non-GAAP operating margin for 2015 to be approximately 27%, free cash flow to be between $90 million and $93 million and the non-GAAP effective tax rate of between 33% and 34%.

Beyond the foreign currency translation, there are several factors impacting our 2015 non-GAAP earnings-per-share guidance that I'd like to review.

In addition to the positive business and strategic attributes that Phil mentioned previously, regarding BravePoint and Telerik, both acquisitions will be accretive net of financing cost on a full-year basis.

These acquisitions will be slightly dilutive in the first quarter, due primarily to seasonality and also as we continue to work through our integration plans. We expect they will be neutral to slightly accretive in the second quarter and accretive in the third and fourth quarters.

Also the impact on the DCI business unit related to ratable revenue recognition from DataDirect Cloud that I mentioned previously is expected to negatively impact our 2015 operating income by approximately $3 million and our EPS by approximately $0.04.

Lastly, excluding the currency translation impact in the BravePoint and Telerik acquisitions, we expect our operating expenses to increase by approximately 5% to 6% on a constant currency basis over 2014 levels.

This increase is primarily related to normal year-over-year inflation related increases along with lower 2014 variable compensation expense due to not achieving the financial targets set based on our pay-for-performance compensation philosophy and investments we're making in our app dev business unit to drive our growth strategy, including a full year of Modulus expenses.

Also consistent with our previous guidance approach because we have no specific commitments or timing for completing the remaining $47 million on our current share repurchase authorization, our earnings per share guidance does not reflect the impact of any share repurchases in FY 2015.

The impact of any share repurchases would have minimal impact on the earnings per share in the quarter in which they occur, but we will provide updates each quarter on any repurchase activity and its impact on future earnings per share.

For our fiscal first quarter in 2015, we expect revenue to be between $93 million and $96 million, a year-over-year increase of 25% to 29%. Our expectation is that our base business excluding the BravePoint and Telerik acquisitions will grow by 2% to 4% in the first quarter at constant currency.

Our guidance for the first quarter is also based on current exchange rates, which have declined by approximately 10% versus the average rates for the first quarter of 2014 and impact on revenue outlook by approximately $3 million to $4 million.

We expect non-GAAP earnings per share of between $0.22 and $0.24 for the first quarter, excluding the impact of currency translation and the acquisition of BravePoint and Telerik, our EPS guidance for Q1 is flat to a decrease of $0.02, compared to Q1 2014, due to further prudent investments in our growth strategy.

The acquisitions of BravePoint and Telerik net of financing costs will be slightly dilutive in the first quarter due to seasonality and integration activities. And the currency translation impact, which is expected to be approximately $0.02 in Q1.

Since I have covered a lot of information in our financial guidance, I’d like to summarize some of the key takeaways. With approximately 55% of our revenues outside of North America, the recent significant strengthening of the U.S. dollar has a significant impact on our 2015 financial outlook.

And based on current currency rates, the negative full year translation impact is approximately $17 million to $18 million on our revenue guidance and $0.10 to $0.11 on our earnings per share guidance.

We had positive momentum in all three of our business units and expect full year growth in revenues of 6% to 7% on a constant currency basis prior to any impact from our 2014 acquisitions.

We are confident that our acquisitions of BravePoint and Telerik will be accretive in 2015, and will positively contribute to our OpenEdge and app dev strategy and growth objectives. And last, we expect to continue to generate strong free cash flow with our business outlook at $90 million to $93 million in 2015.

In conclusion, we are pleased with our Q4 financial results and remain confident in our strategy and products. As Phil stated in his comments, we exit 2014 with great momentum and intense focus and we are excited to execute on our opportunities in 2015 and beyond. With that, I’d like to hand it off to Brian for Q&A..

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..

Thank you. [Operator Instructions] And we’ll go first to Steve Koenig with Wedbush Securities..

Thanks guys for taking my question..

Hi, Steve..

You’ve given plenty of clues. We can probably puzzle together some of the revenue contribution assumption from the acquisitions for ‘15. I am curious about margins, I guess not only because of the acquisitions but also you are investing in the base business, the guide on margins is down and currency is a bit of an impact there.

So my question is a, how should we think about Telerik’s margins in fiscal ‘15 and then where they will go? And then secondly, how should we think about the potential and the timeframe for getting back to 30% and then potentially even mid-30s in terms of operating margin?.

Well, this is Chris, Steve. I'll comment a little bit on the impact of the acquisitions. As I mentioned, both acquisitions will contribute positively to your EPS in 2015. The operating margins of BravePoint, being a service business are generally lower. Those operating margins are above 10%.

And I would say that I expect we can potentially get some expansion as we grow that business, but being a service business not a significant expansion. The Telerik business again is positive and it generates operating margin also in excess of 10%.

I think we’ve got some opportunities as we move forward through the integration work that we're doing, as well as we experience growth and leverage in the Telerik revenue model. I think we’ve got an opportunity to expand those margins. We haven't given any outlook on how that will progress.

But I think that as we get towards the later part of the year, we’ll see an improvement in the operating margin from those businesses.

As we grow and as we continue to generate revenue from the investments we are making in the app dev business, again just to remind, most of the app dev investments are related to revenue that’s recognized on a ratable or subscription basis. So the revenue contribution is lagging the time of the investments.

I think we have an opportunity to continue to show improved margins through the year and improve those as we go forward. But we are not in a position to give an expectation of how they will progress longer-term until we see how our traction goes in those businesses..

Okay. Great. And for my follow-up, I would just like to ask Phil, what is the -- you now have a lot of a pretty broad set of tools for different styles of applications and different languages and different phases of development lifecycle.

Where you see as being the biggest synergy opportunities in the various tools that you have?.

Synergies in what respect, Steve?.

And really from a revenue perspective and a market -- really from a product perspective in terms of having solutions that could be sold together..

Oh! Yeah. I see what you are saying. There are a number of areas that we see between the various solutions that we have that would pull-through some of the other solutions we’ve got.

For example, we've always talked about application developers needing data to be included obviously in every application that they build and the opportunity that we have for example with data solutions and our Modulus Deployment platform is an opportunity right there.

In the Sitefinity Web Content Management Solution getting access to data for your intuitive intelligent analytical websites is also another area. I could go down a long list on the data side or Corticon has a rules engine, using rules and calling rules through our Rollbase application for example is another synergy, using rules along with Sitefinity.

So you can have an intelligent website, a website that enables somebody who is looking for a mortgage to qualify themselves requires some pretty intricate rules.

You can combine the Sitefinity solution with our Corticon rules and allow prospective mortgage applicants to qualify themselves and then build in workflow behind that so that it goes to a mortgage processor. On the mobile side, again, data access is critical, mobile -- building mobile applications requires highly intuitive user interfaces.

So there is another area that I could build on. It's really exciting for us to bring our engineers together to look at all the different solutions we have, look at the market demand and the needs that they have and I’m pretty excited about what the opportunities are in 2015.

Having said all that, it’s really critical that we focus on continuing the momentum in each of these point solutions. I don't want to just say, hey, the future looks bright. We got to build all this stuff or integrate this stuff.

We have an enormous amount that's available to sell today, a large percentage of which as I mentioned in my prepared remarks are being sold with no touch. We’ll continue that momentum. We’ll continue those growth rates.

But at the same time, the opportunity for us to accelerate those growth rates by the synergies that I just described, I think, will add to our opportunity as we look towards the latter part of 2015 going into ‘16..

Great. Thank you very much, gentlemen..

You’re welcome, Steve..

We’ll go next to Mark Schappel with Benchmark..

Hi. Good evening. And thanks for taking my call.

Phil, I was wondering if you could provide a little bit more color around the large deal that you signed an APJ?.

Yeah. This is a long time customer of ours that is expanding, they are in a growth business in APJ and we've been working with them for well over a year, and it all came together for us in the fourth quarter. So it’s a nice relationship as we go into 2015. We think we are going to be able to expand it into other solutions..

So it’s not an ISV deal it’s a direct deal..

Yeah. It was a direct deal..

Okay.

And then since you gave us a little bit here, I was just wondering you talk a little bit about what we can expect in the marketing front here, now that you have product under your belt?.

Oh! Mark, we have a lot of stuff going on in marketing. Again, as I mentioned, I think, when we announced the acquisition of Telerik. They really have an incredible machine on the digital marketing side. And we are leveraging as much of that infrastructure as we possibly can.

We are leveraging their leadership, their knowledge, the analytics tools that they have in the way in which they deploy their content, the way in which they manage search.

So we're very fortunate, I think, to be able to take advantage of that, because that's an area that, as I’ve said, I mentioned before, is something we had to build internally on the Progress side because that's not the way we were doing business. So we are definitely leveraging that. I’m thrilled that we have a new Chief Marketing Officer.

She is I think in her fourth month of being on the team and the teams come together, we have got opportunity to now incorporate a lot of the Telerik folks into our marketing organizations. So look for great stuff from us in ’15..

Great. Thank you..

You’re welcome..

We will go next to Greg McDowell with JMP Securities..

Great. Thank you very much. Hi, gentlemen. Happy New Year.

My first question and maybe this relates to the question about Asia from before? But, I guess, I don't understand what an affiliated OpenEdge end-user is? Could you just help clarify what that means?.

Yeah..

I think what we're saying is, they are not affiliated with us. They were two affiliated entities that actually were part of the transaction. So it was just they were affiliated..

Yeah..

.. and they are direct end users and they have been long-time customers..

So both of them were customers, I think it's a confusing -- confusing phrase. Just put it this way, Greg, they are both customers that are long time users of OpenEdge and we now have an opportunity with this agreement in place to help them expand into new markets that they're looking to expand into and also to add additional solutions to them.

It was a very nice opportunity for us to close in the fourth quarter..

I see.

Does it imply that there is some sort of like prepayment or they essentially brought or bought rights to embed OpenEdge in their solutions they are selling or is there some component like that or is something like that?.

No, no. This is -- it is a direct end-user. So they are not selling application, so....

Okay..

It’s based on use..

It’s based on their….

Got it. Got it..

… growth..

Okay. Thank you. I will move..

Sure..

And maybe this is sort of a longer term question but taking step back four a minute, Phil, I was wondering now that, you have three business units and then three different heads running those business units? Just how you're thinking about the sort of the incentive structure for those three managers and whether or not you're driving them to optimize their unit for growth versus profitability? And just how we should think about sort of their marching orders they have for the next 18, 24 months?.

Right. So, let's just talk about the characteristics of each of these units. OpenEdge is going to absolutely be focused on driving more revenue from the OpenEdge Solutions. So, Jerry Rulli, who is the President of that division and all his team are focused on continuing to expand and build on the momentum that we have generated in OpenEdge.

So as I mentioned again in my prepared remarks over the last two years, growing license revenue by 23%, ostensibly in a business that everybody thought was in maintenance mode, we are really excited about the reinvigorated base of customers that we have and the partners and the -- and an incredible work that they're doing with their own applications becoming more competitive in their markets.

Having said that, the OpenEdge business unit is also an opportunity to include other technologies for our OpenEdge ISVs, as I mentioned again, they are beginning to build Node applications which they are deploying on Modulus. They are building Rollbase applications. They are adding Corticon to externalize their rules.

So, Jerry and his team now have an opportunity to add to their individual sales opportunities the additional solutions and technologies that we have. And plus as I mentioned also, we have a lot of OpenEdge customers that are already Telerik users. They use the UI tools to improve the user experience on our application.

So there is a lot of activity going on in our OpenEdge base, not just because we are adding new technologies like. We just released the new version of OpenEdge 11.5. But all the other technologies that Jerry and his sales teams can now include as part of their value offering to our OpenEdge customers and partners.

On Karen Padir, who is President of the App Dev division, obviously, we've got incredible momentum with the Telerik solutions and I won’t go over those again. But her primary focus is net new business for our application development group.

So the technologies that she has that I just mentioned that that our OpenEdge group will also be selling that cross-pollination will exist because in order for our OpenEdge business to take advantage of these new technologies, the OpenEdge sales force is going to be selling them back into the OpenEdge base.

But really we want to App Dev to grow as fast as they possibly can and her mandate with her team is absolutely to focus on net new business for our App Dev group.

For the data group that business is segmented into a large OEM arrangements and agreements that we have with some of the largest software application ISVs in the world and we are going to continue to focus on those relationships.

At the same time, data is being drawn in by our application development platforms, as I mentioned earlier, where we talked about the synergies.

And then DataDirect Cloud which is gaining really incredible momentum particularly because of the SaaS growth for application ISVs and also the need to have Saas to SaaS connectivity, as well as SaaS to on premise connectivity.

So, again, focus on growing the heck out of our data business, bringing on new customers, expanding our relationships with OEMs, but also using data to be consumed by other technologies with selling as part of a value suite or platform as I mentioned earlier..

Great. Thank you..

You’re welcome..

We will go next to Glenn Mattson with Ladenburg Thalmann..

Hi. Good afternoon, everyone. Thanks for taking the call.

The, I guess, kind of we are going to offer you just, we are talking about, Phil, are you seeing better success in kind of just going back to Pacific or going, are you seeing better success up-selling OpenEdge user on the Pacific or with net new customers?.

It’s actually both. I think that our primary goal was to first of all enable our OpenEdge customers to begin to expand on their application using Rollbase and it’s -- that is being a really positive result in 2014, as we introduced Rollbase to more and more of our OpenEdge customers.

And they started building out new applications to generate new lines of revenue for them. At the same time, the digital strategy that we need, that we had to build as part of our infrastructure to manage people looking for productivity platform, to be able to influence the searches for people looking for those kinds of platforms.

That's an area that I think we can benefit from the Telerik infrastructure and we've already begun to leverage the marketing capabilities of Telerik to expand our Rollbase reach.

We are adding what we call sales pods to that, so that we can engage on people that are coming to our website that are seeking a trial, that are trying to build an eval so that we don't lose them. There is a whole bunch of things that we're doing on the net new side.

So the two together, I think in 2015 is where I think we are going to -- I hope to be able to share with you in future quarters how we're doing in that particular area because we see it -- we see the signs as being very positive as a result of the work we did in ‘14..

Okay. That’s encouraging.

And then the -- on the DataDirect, there has been somewhat lumpy historically but do you envision that being, this reemergence of growth being more sustainable now that DataDirect cloud has kind of taken the reins?.

We had a really good fourth quarter and the team did a fantastic job. I think going into 2015, pipelines are being strengthen to the point that the coverage is now at the level that we need in order for us to meet our numbers. If you remember, we had to fix a bunch of stuff on the marketing side.

I won’t dredge up that in Q1 that caused us to have the miss. But as we go into ’15, I really love the focus of the team, having a separate business unit. They are very motivated with the opportunities they have in front of them. DataDirect Cloud is really a superstar in the making here.

Now it does obviously take our revenue ratable when we add it to our perpetual license revenue, which does have an impact that Chris mentioned earlier. But to me that's an accounting issue. We now are building great visibility in this business.

That recurring revenue will pay dividends for us in future periods and actually should reduce the volatility in this business because as you know, we do sign very large contracts, which influences the quarter and then on a comparative basis, we see the lumpiness.

So, I think that this will help us in the future by having more of this revenue become subscription, we will get greater visibility to it and the stability within each quarters I think will improve..

Okay. Great. Thanks. Good luck in ’15..

Thank you..

And with five minutes remaining in today’s conference, let’s take our last question from Scott Zeller with Needham & Company..

Hi. Thank you. I just wanted to go through some of the math possibly around the contributed revenue from acquisitions. So if I use your year ending fiscal revenue and growing up by 6% or 7% for the out year, as you were suggesting guidance.

It seems as if you're contributing about $75 million being contributed by acquisitions, is that roughly accurate?.

Yeah. I think that’s right. It’s probably a little bit higher than that if you include -- again, we had the $3 million of revenue in 2014 from BravePoint. So there will be incremental revenue from BravePoint year-over-year but then Telerik as well.

So, I think it would be a little bit higher if you use those -- higher than the figures that you just said..

Okay. And the growth -- I believe the growth rate from Telerik, when it was announced was roughly a 20% annual growth rate.

Is that -- should we think of the business running at roughly that same growth rate going forward?.

That's correct. That’s correct. And our guidance for this year does include that growth trajectory continuing..

Okay. Thank you very much..

Okay..

And that does conclude our question-and-answer session. I’d like to turn things back to our speakers for any closing remarks..

Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal first quarter of 2015 on Wednesday, April 1, 2015, after the financial markets close and holding the conference call the same day at 5 p.m. Eastern time. We look forward to speaking with you again soon. Have a good day..

Thank you everyone. That does conclude today's conference. We thank you for your participation..