Brian Flanagan - IR Yogesh Gupta - CEO Paul Jalbert - CFO.

Steve Koenig - Wedbush Securities Mark Schappel - Benchmark Glenn Mattson - Ladenburg Thalmann.

Good day, and welcome to the Progress Software Corporation Q2 Investor Relations Conference Call. At this time, I’d like to turn the conference over to Brian Flanagan. Please go ahead..

Thank you, Melissa. Good afternoon, everyone, and thanks for joining us for Progress Software’s fiscal second quarter 2017 earnings call. With me today is Yogesh Gupta, President and Chief Executive Officer; and Paul Jalbert, our Chief Financial Officer.

Before we get started, I’d like to remind you that during this call, we may discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives or other information that might be considered forward-looking.

This forward-looking information represents Progress Software’s outlook and guidance only as of today and is subject to risks and uncertainties. Please review our Safe Harbor statement regarding this information, which is available both in today’s press release, as well as in the Investor Relations section of our Web site, at progress.com.

Progress Software assumes no obligation to update the forward-looking statements included in this call, whether as a result of new developments or otherwise. Additionally, on this call, the revenue, operating margin and diluted earnings per share and adjusted free cash flow amounts we refer to are on a non-GAAP basis.

You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers in our earnings release issued today. Today, we published our financial press release on our Web site.

This document contains the full details of our financial results for the fiscal second quarter 2017, and I recommend you reference it for specific details. Today’s conference call will be recorded in its entirety and will be available via replay on our Web site in the Investor Relations section. And with that, I’ll now turn it over to Yogesh..

Thank you, Brian, and good afternoon, everyone. Welcome and thank you for attending our second quarter earnings call. I’m very pleased that we delivered another solid financial performance in Q2 due to the strength of our core business.

We also made further progress in our growth strategy with the acquisition of Kinvey, the leading back end-as-a-service platform, but more on that later. First a bit about our Q2 results. Our revenue of $93.4 million exceeded the high-end of our guidance range, primarily due to the timing of revenue from our OpenEdge segment.

Our earnings per share of $0.42 was well above our guidance range, partially due to the higher revenue I just mentioned and partially due to delays in some of our growth investments and prudent discretionary spending.

Our adjusted free cash flow was $27.9 million, another strong performance which was in large part attributable to a lower cost profile resulting from our recent restructuring efforts and to our continued strong collections.

Although we are not raising the high-end of our annual revenue guidance, we're narrowing the range by raising the low-end of our revenue projections. We’re also substantially increasing our annual guidance for EPS, operating margin, and free cash flow.

Paul will provide more detail on our financial results and guidance, but I would like to focus my remaining remarks on the progress we’ve made towards executing on our strategy since our last call. As I’ve previously mentioned, we are executing on a two-pronged strategy.

The first prong of our strategy is to strengthen the core of our business, which consists primarily of our OpenEdge, DCI, and Dev Tools products. The second leverages our core business to create the platform of the future for developers to build modern, next generation apps, including cognitive business application.

I’ll talk about our growth initiatives in a few minutes, but let's first address our core businesses. The second quarter performance of our core segments and regions was consistent with our overall expectation.

Although we did achieve a slightly stronger-than-expected quarter from our OpenEdge partners, offset somewhat by lower-than-expected revenue from our DCI segment. As we discussed during the last few calls, revenue from our core businesses may fluctuate from quarter-to-quarter due to the timing of certain customer and partner deals.

Despite these fluctuations, however, we still expect flattish revenue from these businesses over time. Our OpenEdge partners who are the foundation of our core business, achieved strong license growth and our maintenance renewal rate for both partners and enterprises was again well above 90%.

OpenEdge is a great platform, one that tens of thousands of organizations depend upon for their mission critical application. We are making focused and targeted investments in our OpenEdge technology to further meet the needs of our ISVs and customers. Early in Q2, we released OpenEdge version 11.7.

Our customers and partners are truly excited about this new release, which delivers several enhancements in security, high performance replication, and always on capabilities.

As we have mentioned in the past, more and more of our ISVs are taking advantage of OpenEdge as architecture to move their applications to the cloud and sell them in a SaaS model.

For example, during Q2, one of our largest manufacturing software partners in Latin America began offering a cloud version of their application, which will open up new segments of the market for them.

The lower price point as well as the ease of deployment and use of their SaaS offering will enable them to target more small and midsize businesses, customers who would not have previously considered their on-prem perpetual license solutions.

This potential to tap into new customers is one of the reasons that our OpenEdge SaaS related revenues have grown by 17% in the first half of this year. Moving on to DCI, even though our DCI segment revenue was lower-than-expected in Q2 due to the timing of certain OEM renewals, our outlook for the full-year for DCI has not changed.

We are the largest provider of relational database connectivity in the market, a trusted partner to all the major database vendors, and the leading industry analysts recognize our DCI offering as best-in-class.

For example, 8 of the top 10 business intelligence and analytics platforms use our DCI products to connect their products to data stored in systems of record.

The speed, reliability, and scalability of our data connectivity products enables their business users to spend their time adding value by analyzing their data instead of wasting it trying to get to the data.

Within our App Dev segment, Telerik bookings were flat versus last year, but renewals for our Dev Tools products were above our expectations and showed solid growth in Q2. Sitefinity, our web content management product, also had a strong bookings quarter.

And earlier this month, Gartner recognized the strength of our mobile application development products by naming us the leader in the Magic Quadrant for MADP, Mobile Application Development Platform for the first time. As with OpenEdge, we are also committed to continued investments in our DCI and App Dev core products.

For example, we announced an important lease of Sitefinity during the quarter. This new version includes out-of-the-box capabilities for authentication of major social and email accounts, providing marketers with access to a wealth of customer data from these third-party sources.

We’ve made it easier for them to now create and deliver an even more personalized and enriched digital experience. I’m truly pleased with the progress we are making on our core, and now more than ever I'm really excited about the potential opportunity for Progress that lies ahead.

Our overall strategy is to reclaim our leadership in delivering the best platform for mission critical application.

The market opportunity for a platform that makes it easy for businesses and ISVs, to build modern intelligent cloud applications, what we call cognitive applications is very large and growing providing the platforms on which mission critical applications are built and deployed is core to Progress' DNA and we’re leveraging that DNA to do the same for this next generation of business applications.

As we discussed during our last call, we already have many of the foundational elements we need to build our next generation platform. But there were several components that we needed to add or strengthen as well. To that end, we acquired DataRPM in March.

As we discussed in our last call, DataRPM is a leading provider of machine learning solutions that focuses on addressing predictive maintenance for industrial IoT. Its unique technology automates machine learning, dramatically reducing the need for armies of data scientists to build cognitive applications.

I'm pleased with the progress we’ve made with DataRPM since its acquisition. We recently released a new version of the product, which has been very positively received by our customers. And the integration of DataRPM with OpenEdge and our other products is proceeding well and well on target to deliver those integrations by end of this year.

When we acquired DataRPM they had a handful of customers using their predictive maintenance offering. And one of our goals for the business this year was to double that number. We are pleased that we are track to do so, and have added both in oil and gas customer and an extremely large industrial manufacturer during our second quarter.

Another area we needed to strengthen was our back-end platform, which is why I'm so excited today to announce our recent acquisition of Kinvey, the leading provider of back-end as a service or BaaS platform for mobile, web, and IoT applications.

Kinvey actually coined the term back end of the service and was the top-ranked leader in the latest Forrester wave for mobile development platforms which was published in late 2016.Kinvey has a growing list of loyal customers and prospects across many industries.

Their proven back-end as a service technology forms the foundation for mission-critical apps for insurance and manufacturing. They are secured and HIPPA certified BaaS serves life-critical apps for healthcare and Pharma.

Their offering, which is cloud only and subscription-based, powers innovation for customers like Farmers Insurance, Johnson & Johnson, Schneider Electric and VMware as well as being the back-end that numerous start ups use to run their entire business on.

With over 31,000 apps used by over 100 million end users, Kinvey's BaaS currently serves up over 10 billion API calls a month. Kinvey's technology is a perfect fit for us. Since it helps to both aspects of our strategy.

Combining their best-of-breed cloud back-end platform with our leading front-end technology, including NativeScript and Kendo UI, plus the cognitive capabilities from DataRPM and a strong data connectivity technology. We can now offer the premier platform for building and delivering cognitive business application.

In addition to helping us win new customers, this platform also strengthens our core by enabling our OpenEdge partners to more easily build and run modern next generation apps.

Kinvey's back-end as a service as well as NativeScript, Kendo UI, our machine learning and our data connectivity products are all best-of-breed offerings in their own categories. Seamlessly integrated, they offer an unmatched platform to build modern business applications.

It is a testament to the openness of our products and the agility of our development teams, that we're also announcing today the immediate availability of integration between NativeScript, Kinvey BaaS, and our Data Connectivity products.

Demos of this integration are available online on our Web site and production ready code is available to our customers for download today.

As I mentioned earlier, in naming Progress a leader in their Magic Quadrant for mobile application development platform, Gartner cited NativeScript, in particular, as a framework that enterprise developers are adopting and they also recognized us for the strength of our developer community and the highly positive feedback we received from our customers.

With Kinvey as they acknowledge market leader among back-end platform and Gartner's recent recognition of our mobile front-end platform, we have leading technologies for both front-end and back-end application developer. This is a very powerful combination that one -- one that few vendors can play.

While the market for Kinvey's BaaS offering is more mature than for DataRPM's machine learning technology, we do not expect a meaningful revenue contribution from either for FY17. Therefore, while we invest in both technology, we will continue to operationally run lean.

In closing, I'm pleased with our Q2 performance, but we must continue our focus on execution to ensure that we have a successful second half as well. We remain confident in the strength of our core products, and I'm excited about our future prospects as we focus on the very large and growing market opportunity for modern development platforms.

Our recent acquisition of Kinvey combined with our unique mobile and web development tools, advanced machine learning capabilities and unmatched data connectivity products, results in a best-of-breed product portfolio for building and running modern mission critical business applications.

We remain committed to building long-term shareholder value and on positioning Progress for enhanced profitability and cash generation. I'll now turn the call over to Paul to review our Q2 performance in more detail and our expectations for Q3 and the full-year ahead.

Paul?.

North America was $52 million for the second quarter, down 4% from the same quarter a year-ago. On a constant currency basis, EMEA second quarter revenue was $32 million, up 2% versus last year. Latin America revenue was $5 million, up 17% and APJ revenue was $5 million, down 19%.

The year-over-year decrease in North America was primarily due to the lower license revenue from our DCI segment that I mentioned earlier along with decreased revenue from OpenEdge. For the first half of the year, OpenEdge revenue from North America was essentially flat to last year.

The increase in Latin America was primarily due to higher OpenEdge license sales, and the decline in APJ was related to a large DCI deal for the customer in Japan that occurred in Q2 of last year.

Turning to our revenue by segment, which is all at constant currency, OpenEdge revenue was $67 million for the second quarter, essentially flat with last year. Maintenance renewals were again well over 90% and we had another solid license performance from our OpenEdge partners.

But that was partially offset by decreased license revenue from our direct enterprises. The license revenue increase from our partner channel was fueled by the growth from partners who deployed their applications in a SaaS model. Our SaaS related revenue from OpenEdge was $5.5 million for the quarter, up 21% versus Q2 of last year.

While we are pleased with the growth rate of our SaaS related revenue in the first half, we expect growth to be in the low double-digits going forward. DCI revenue at $7 million, a decline of 28% compared to Q2 of last year. The year-over-year decline was due to the timing of certain OEM renewals.

This was slightly lower than our expectations, but our outlook for DCI for the full-year has not changed based on the current license backlog and our visibility into the upcoming renewals. Our multiyear license backlog at the end of the second quarter was $20.4 million compared to $23.5 million at the end of Q2 of last year.

Turning to our AD&D segment, total bookings were $21 million for the quarter, a decrease of 1% versus Q2 of last year. Bookings for our Telerik products were flat with the last year, but renewals of our Dev Tools products were stronger than our expectations.

Revenue for AD&D segment was $20 million for the quarter, an increase of 4% versus Q2 of last year. Operating expenses were $61 million, down almost $9 million from a year-ago.

The year-over-year decrease in operating expenses was due to lower compensation and benefit costs as well as decreased facilities costs both the result of our fiscal '17 restructuring efforts.

And as I mentioned earlier, our Q2 expenses were also lower due to a slower ramping of investments in some of our growth initiatives, as well as prudent discretionary spending. Q2, 2017 operating income grew 21% over Q2 of last year. While operating margin increased 700 basis points to 35% from 28% in Q2 of last year.

The improvement in both operating income and margin was in large part the result of the cost reductions from our restructuring action. Now moving on to a few balance sheet and cash flow metrics, the Company ended the quarter with a strong balance sheet with cash, cash equivalents, and short-term investments of $245 million.

Our debt balance at the end of Q2 was $127 million. DSO for Q2 2017 was 42 days, down 6 days sequentially and down 3 days from Q2 of last year. We had a strong collection across all geographies and businesses with particularly strong results in North America. Deferred revenue was $142 million at the end of second quarter, flat with Q2 of 2016.

Excluding a negative impact for exchange rates, deferred revenue increased slightly primarily driven by Telerik maintenance bookings. Adjusted free cash flow was approximately $28 million for the quarter compared to $26 million in Q2 of last year.

The cash flow performance for the quarter was driven primarily by lower operating costs as well as lower capital spending, partially offset by higher estimated tax payments. On a year-to-date basis, adjusted free cash flow was almost $71 million. In the quarter, we repurchased 238,000 shares at a cost of $6.9 million.

At the end of our second quarter, we had approximately $110 million remaining under our current 200 million share repurchase authorization. We will continue to provide quarterly updates on our actual share repurchases during the year. Now I’d like to turn to our revised business outlook and guidance for the fiscal -- for fiscal year 2017.

We expect 2017 revenue to be between $391 million and $396 million, an increase of $3 million to the bottom end of our range. The increase to the lower end of the range is based on the favorable impact with exchange rates on our first half results relative to our original estimates.

This represents a year-over-year decrease of 3% to 4% at current exchange rates and a decrease of 2% to 4% on constant currency. As a reminder, approximately one-third of our revenue is invoiced in currencies other than the U.S dollar.

The strengthening of the U.S dollar throughout 2016 created headwinds this year related to currency translation of our non U.S revenue. Since the dollar has continued to weaken during the second quarter, the expected negative currency impact on our full-year 2017 outlook has lessened.

Based on current exchange rates we now expect a negative currency translation impact of about $2 million on our 2017 revenue. Our previous estimate was $5 million. Now moving to our earnings per share guidance. For the full-year, we expect earnings per share of $1.73 to a $1.78, an increase of $0.09 versus our prior guidance.

This represents growth of 5% to 8% versus our 2016 EPS of $1.55. As we’ve discussed during previous calls, our 2016 results included a one-time $0.05 income tax benefit related to the release of the valuation allowance that was no longer required. Excluding this one-time benefit, 2017 EPS growth would be 8% to 11%.

Our improved EPS outlook for 2017 is based on the higher operating income performance for the first half of the year and to a lesser extent on the favorable impact of exchange rates due to the recent weakening of the U.S dollar.

Based on current exchange rates, the net negative currency translation impact on our 2017 operating income is expected to be about $1 million and about $0.02 on EPS. Our previous estimated impact was approximately $2 million on operating income and $0.03 on our EPS.

We expect our operating margin for 2017 to be in the range of 33% to 34%, an increase of 100 basis points versus our previous estimate of 32 to 33%.We are also increasing our adjusted free cash flow guidance to be between $100 million and $105 million, an increase of $5 million. Now about our tax rate for the first half of the year, it was 34%.

We expect the rate for the third quarter to be in line with the rate in Q3 of last year, but we still expect an effective tax rate of approximately 32% for the full-year unchanged from our prior guidance.

Our 2017 guidance for operating margin, earnings per share, free cash flow reflects the cost savings from restructuring our operation and includes investments that will be required to strengthen our core businesses and to drive our future growth, including the acquisition of DataRPM and Kinvey.

For our third quarter, we expect revenue to be between $93 million and $96 million. The year-over-year decrease of 6% to 9%. The year-over-year revenue decrease is primarily due to lower revenue from our DCI segment due to the timing of renewals and revenue recognition with several of our OEM contracts in 2016.

We expect earnings per share of $0.41 to $0.43 for the third quarter compared to $0.44 in Q3 of last year, a decrease of 2% to 7%. Our guidance for the third quarter is based on current exchange rates, which do not have a meaningful year-over-year impact on our revenue and EPS growth.

Now today we also announced that we acquired Kinvey, a leading provider of back-end as a service platform for mobile, web and IoT applications. Kinvey is headquartered at Boston has approximately 30 employees. The purchase price was $49 million. The acquisition closed on June 1, that won't be reflected in our financial results for the third quarter.

We do not expect this acquisition to have a meaningful impact on our revenue in 2017 and the associated operating costs have been factored into our third quarter and full-year guidance. Today we also announced a quarterly cash dividend of $0.125 per share to be paid on September 15, 2017.

In summary, we are pleased with our Q2 financial performance and our first half performance provides us with the confidence to meaningfully increase our full-year estimates for EPS, operating margin, and adjusted free cash flow.

Our restructuring has allowed us to maintain healthy operating margins and free cash flow in 2017, while we made prudent investments that strengthen our core and drive our growth initiatives. With that, I’d like to hand it back to Brian for Q&A..

Thank you, Paul. 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] We will take our first question from Steve Koenig with Wedbush Securities..

Thank you, gentlemen. Nice quarter and nice to see you guys be more consistent since new management took over. I want to ask you maybe two questions, if I may. The first one is about OpenEdge. So you talked about the revenue beat as partially stemming from OpenEdge results from partners and you referenced the timing, I believe.

And so I’m trying to understand that a little bit better. My understanding of the partner revenue has always been, it’s kind of earned as the partner sell licenses and generate maintenance and the SaaS stuff they’re doing is probably ratable as well.

And so it's kind of a stream of revenues, and so -- maybe enlighten me as to how timing can affect the partner revenues here and how that might have helped in the quarter?.

Sure, Steve. Thank you for those kind words. The -- you’re absolutely correct as to how the partner revenue comes in. So the SaaS part of it is actually as you said, very predictable as is usually the maintenance. The part that is a little less predictable is the perpetual license.

What happens is that if a partner of ours has a new customer to whom they sell a perpetual license that have been -- and that the deal happens to close in Q2 versus Q3 or a different quarter than initially expected, we get the benefit of the license revenue fraction that they gave us – that they pay us for that.

So that’s how the -- that needle moves back and forth, Steve. So, we have visibility when we work with our partner organization and our partner organization works with our partners, we’ve visibility into sort of approximately when what kind of business they might expect. But it is much less than sort of having visibility into our own deals, right.

So ….

Yes..

And one of the other interesting things is that our quarters end on the second and fifth etcetera month of the year, and most of our partners are on calendar quarters. So, we will sometimes expect something to be in June and they might close the deal in May and now of course that ends in Q2 for us, even though it’s the same quarter for them.

So it's kind of a -- it makes it a bit of a challenge for us to estimate these things, but that's why you sometimes see this. But in general you’re absolutely correct. That's why from an overall annual perspective, we don't see anything different than we previously expected..

Okay. So as my follow-up, but maybe I will also throw in maybe a clarification question, I will call it that on the OE revenue question.

So, the -- when you talk about those transactions that were in the pipe that might have closed earlier than expected, are we talking about just a handful of transactions that you were tracking or more generally from several partners, better revenue and they're telling you that it's timing, but may in fact be demand conditions?.

So they were primarily small transactions, Steve. They’re telling us it’s timing, we believe they are timing and I think we have no reason not to believe their timing, right. So, we have a good relationship with our partners.

They -- I mean, obviously it could be demand and that will be a wonderful surprise for all of us, but at this point we don't think so..

Got it. Okay. And then, if I may, before I pass the baton, I want to ask you about one follow-up and feel free to -- if you want to expand on that one any further, but on the margin side, your restructuring is delivering higher margins, delivering outperformance.

It looks like you’re tracking to more like a 35% margin now, and I’m just kind of wondering what's your approach here and how you want to handle your margins and what kind of operating leverage we could see in the future?.

So, I will let Paul add to this, but from my perspective, couple of points, right. We obviously didn't ramp up our investment expenses the way we had initially planned that you know was an impact on the positive side on Q1, that was an impact on the positive side on Q2.

The Kinvey acquisition closed after the quarter ended, so the operating costs didn’t come in. So in general, I think even though we've had higher than what we’ve expected on margins, I think that our guidance is a fair reflection of what we expect for the remainder of this year.

Overall, in terms of philosophy, we want to invest to grow our business, but we want to do it in a prudent lean manner, Steve. We’ve talked about that before. We are big believers that we can keep our margins north of 30%, which has been our goal historically as well I believe.

But I will let Paul speak to that and I think we can do that and stabilize revenue and start growing it, while maintaining 30% plus margin. That is sort of the philosophy. And I will let Paul add to that..

Yes, okay. I think Yogesh you’ve covered most of it.

I think Steve when you look we got 30% margins in Q1, 35% -- 32% on a year-to-date, and we’re comfortable driving at 30% -- 33% to 34% for the full-year, and based on the guidance that we’ve given for, the full-year and the third quarter I think you can get the math and we’re happy with the margins that the business is generating.

And just one point of clarification, Steve, on the revenues, part of the beep [ph] I mentioned in my comments was due to our tax. So you shouldn’t think of the whole beat as just the open hand. Some of that was FX favorability from the weakening U.S dollars..

Yes..

Yes..

Very good. Yes, great. Thanks so much, gentlemen..

Thank you, Steve..

Thanks, Steve..

Thank you. We will take our next question from Mark Schappel with Benchmark..

Hi, good evening, and nice job on the quarter..

Thank you, Mark..

Thanks, Mark..

Yogesh, starting with you with respect to Kinvey, is it Kinvey or Convey, anyways, could you just give an example or two of how the -- that acquisition or their technology will complement the DataRPM technology you acquired last quarter, as well as how it just fits in with a broader cognitive app strategy?.

Yes, Mark, definitely. Yes, so I think they pronounce it Convey. So the Kinvey technology is a back-end platform which allows for any kind of -- what in the old days we used to be called application modules or business logic. Nowadays it's called services or micro services based on the size of and amount of code that is running there.

So it is a back-end of the service platform.

So what happens if you think about an application you have a front-end piece that’s running let's say for example on the mobile app or mobile app running on your mobile phone or a tablet or something like that, that talks to some business logic that is running on something in the clouds that happens to be in this case Kinvey.

That been connects to a back-end data set -- a set of data sources which could be systems of record that are in the cloud or on-prem, Big Data or not. In the middle where the services run, you could have services that are being built by development organizations who license the technology or partners or they could be some services that we offer.

Services that we could offer and this is where DataRPM fits or things like machine learning services or predictive maintenance.

So, people -- an organization may use DataRPM, they come up to figure out what the predictive maintenance models are for their environment and for their industrial equipment, they take those models and now they need to run it at one time in real-time to -- for that model to track what's going on and send alerts.

And that would run and would sit on top of the Kinvey platform, for example. We have a -- a set of rule based services using our Corticon product, right. Again same thing, people define the business rules, business policies, Kinvey is actually the only HIPPA certified back-end of the service platform on the model today.

And because Corticon plays in the healthcare space quite well, I mean, some of our many, many -- more than a couple of dozen of the state healthcare exchanges use Corticon for their business policies to be -- put in terms of Corticon rules and enforce. And so those rules, those policy can also run on top of Kinvey platform.

So Kinvey can offer a whole host of these things for both DataRPM and things like people writing their own business logic, third parties offering their additional modules or services in that.

And in terms of how it plays with the rest of Progress portfolio, on the front-end NativeScript and Kendo UI are absolutely the best solution if somebody wants to build a native app or a web app and a responsive web application with Kendo UI. So the -- and in fact by the way we’ve common customers between Kinvey and Progress who are doing that today.

On the back-end side, there is integration and value in now connecting to more than two dozen more data sources than Kinvey could before. Our DCI data connectivity tool which as you know is second to none, is absolutely world-class.

It's something that connects to more than two dozen data sources and those data sources can be Big Data sources like MongoDB and Hadoop.

They could be applications such as Salesforce or ServiceNow or NetSuite or something else or they could be on-prem applications such as SAP or Oracle or others, and they could be of course traditional relational databases, and of course including OpenEdge.

And so therefore what you can have is -- and by the way this integration is also available today, the Kinvey module, code written in Kinvey actually written in JavaScript running on top of Kinvey can -- with drag-and-drop ease, access any of those data sources and use those for business processing.

So fundamentally we see all these pieces really playing well together in terms of a modern back-end platform, all the way and a modern front-end set of development tools and machine learning and business rules and data connectivity to any systems of record.

So, I see this as a premier platform on which future modern business applications can be built..

Great, thank you.

And then, so this is the second consecutive quarter that plan investments that you’re expecting to make have kind of lagged expectations and was wondering if you could just go a little bit into why that is, I mean, were you just a little bit too aggressive on your initial plans for hiring up, or you have been trouble finding people, or -- was the attention being given to the acquisitions just taking away from management time for hiring, maybe just address a little bit..

Well, I think that we -- part of the new budget, you want to be prudent in terms of your hiring plans and make sure that you intend to hire people, but you don't want to get into a situation where your hiring gets ahead of your budget, and so we knew that after the restructuring we would be hiring people, yes we’ve been -- our hiring has been slower than expected.

It isn't anything unusual in terms of difficulty in finding people. I think everybody knows that folks are difficult to find. So nothing unexpected there, but just -- its ramping up slower than we thought. The second part is the acquisition. So we expected DataRPM in our earlier plans to close earlier.

We expected Kinvey, so we had actually planned on the acquisition to have a operating impact in Q1 and -- two acquisitions to have an operating impact in Q2 possibly, right. And so, again, from a budgeting perspective that’s the way we’ve laid it out, because we knew these were the two areas where we needed potentially some help.

And so, when the acquisitions actually landed makes it also that our operating RAM got delayed on that front as well. We also, I mean, there is a third component, right. We have been prudent about our expenses in general, we like to run a tight ship and that has also helped us as well..

Okay. Thank you..

Thanks, Mark..

We will take our -- and the next question is from Glenn Mattson with Ladenburg Thalmann..

Hi. Good afternoon.

Also on the acquisitions, maybe you could talk about how you determine the price being that there -- it doesn’t sound as any revenue associated with it and what it will take for these business to start producing revenue there with impressive customer list as it is, so what is the factor that’s going to help them become revenue producers?.

Yes. So, Glenn, a couple of things, I think you've two questions at least maybe more rolled into that one. In terms of the purchase price, obviously as you know with a private company several factors come into play.

You know how much capital has been invested in it, what is the appetite of the sellers, what is the market like, the company, actually Kinvey was in the middle of raising its second round. So that obviously also comes into play in terms of at what price they are able to buy somebody.

So, a number of factors, right from figuring out what price the deal can be done. Obviously, we then look at it and say if that’s the price of the deal is likely to happen, does that make sense for us from our expectations of what the business will be and how it will deliver returns to our shareholders. And so, again, that that's how we got to that.

So, a whole host of inputs, whole number of inputs and horse trading and a deal gets done.

In terms of what will it take to generate revenue, I think as I said with DataRPM, we need to continue to win new logos, and we’ve really modest goals for DataRPM in terms of revenue, in terms of Kinvey, again they are a -- as you are aware, a 100% cloud subscription business.

They do have a very impressive list of customers and again our goal is to accelerate the go-to-market efforts.

And from our perspective the integration with our DCI product, the capability and ability for us to potentially sell and license other add-ons as well and offer both front-end offerings and the services in the back-end, additional services in the back-end around intelligence, I think all of those things can also potentially increase the deal sizes.

But I think it's a matter of execution, I think it's a matter of us continuing to win more new logos and build out a strong a business. And I think as we do that over the coming quarters, we will share -- we will be completely transparent and share with you how that is doing and [technical difficulty] and how it will impact us going forward..

Okay, thanks.

And Paul, the -- on the tax rate for the non-GAAP adjustments, can you go over what went on there, it seems lower than the tax rate of the firm overall or last quarter's tax rate on the adjustments?.

We are at 34% for Q2. I think I had mentioned that our Q3 rate should be in line with our Q3 -- this is non-GAAP tax rate, our Q3 2016 rate..

Okay. With just regards to adjusted earnings per share table and it's just $0.04 provision of income tax on $0.25 of adjusted -- of adjustments which is only in the mid teens or something. Can we -- Glenn, can we take that offline. I’m not quite sure..

Yes. We will [indiscernible]. That’s it for me. Thanks, guys..

Thanks, Glenn..

All right..

That concludes today’s question-and-answer session. I would like to turn the call back to Brian Flanagan for any additional or closing remarks..

Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal third quarter of 2017 on Wednesday, September 27, 2017 after the financial markets close and holding the conference call the same day at 5 PM Eastern Time. I'll now turn the call back to Yogesh for his closing remarks..

Thank you, Brian. I'd like to wrap up by reiterating that I truly am excited about the progress we’ve made so far to transform ourselves into a much stronger and much more innovative company.

Our results for the first half of the year were solid as we operated our business efficiently and coupled with the progress on DataRPM and our acquisition of Kinvey, we’re positioning ourselves for future growth. Thank you for your continued support. I look forward to continuing our dialog in the coming days and weeks.

Thank you all and have a great evening. Bye, bye..

That concludes today’s conference, and thank you for your participation..