Brian Flanagan - IR Yogesh Gupta - President and CEO Paul Jalbert - CFO.
Steve Koenig - Wedbush Securities Mark Schappel - Benchmark.
Good day and welcome to this Progress Software Corporation Q4 Investor Relations Conference Call. At this time, I’d like to turn the conference over to Brian Flanagan. Please go ahead, sir. .
Thank you, Shannon. Good afternoon, everyone and thanks for joining us for Progress Software’s fiscal fourth 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 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, the revenue, operating margin, 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 website.
This document contains the full details of our financial results for the fiscal fourth 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 website in the Investor Relations section. And with that, I will now turn it over to Yogesh..
Thank you, Brian, and good afternoon, everyone. Welcome to our fourth quarter conference call. I want to first walk you through the highlights of our financial results for the quarter and for the full year and then provide an update on our business. We are very pleased with our results for the fourth quarter.
As you will recall, we had raised our full year guidance for revenue, earnings per share and free cash flow in conjunction with our Q3 earnings report in September. Our strong fourth quarter performance enabled us to deliver results that are even better than that increased outlook.
Specifically, our revenues for the quarter and the year were above the high end of our guidance. And we also significantly overachieved our projections for EPS, free cash flow, and operating income margin. Full year expenses for 2017 were $30 million lower than last year, and our operating margin for the year increased to 36%.
We did this while stabilizing the revenue of our core products, improving customer retention, and investing in the future of our business. In addition, our strong cash generation allowed us to return more than $100 million to our shareholders during the year, consistent with our disciplined capital allocation policy.
Our financial performance for the quarter and for the full year can be traced directly to three factors, one, our focus and commitment to running our business efficiently; two, our work in strengthening our relationships with our large and loyal base of partners and customers; and three, consistently delivering greater value with our products.
Our goal entering 2017 was to stabilize and strengthen our core to achieve and maintain a relatively flat revenue profile while also working towards growth in other areas. As I mentioned earlier, we restructured our core operations to make them more efficient.
To build an even stronger company, we knew we needed to provide a future technology path for our existing partners and customers while at the same time positioning ourselves for future growth. That technology path is cognitive applications. At the beginning of last year, I said that the future of business applications was cognitive-first.
Cognitive apps learn business characteristics and behavior from data and allow businesses to spot anomalies and correct them before they cause expensive business disruption.
To create these modern, intelligent cloud applications, one we call cognitive apps, businesses need an open, standard based platform that connects to all data from systems of record to IoT and supports all type of user interactions and interfaces. Progress’ history made us an ideal candidate to provide businesses with this platform.
Offering a platform for building mission critical apps has always been our mission at Progress. We already had many of the foundational elements we needed to build our new platform with best in class products in data connectivity, business logic and rules, UI development tools and NativeScript.
Through the acquisitions of DataRPM and Kinvey and their subsequent integration with our other core technologies, we now offer the most complete platform for building cognitive-first mission critical business applications.
Our new platform better enables us to retain our existing customers and acquire new one, both of which are key to our strategy and our long-term success. The platform that our ISVs need to build their future mission critical applications is the same as the one that will attract potentially new customers in the application development space.
While I’m proud of what we accomplished so far, there’s still much to be done to sustain our momentum. Going forward, we’re confident that we can achieve our goal of maintaining flat revenues in our core businesses while adding incremental revenue from our new platform to achieve overall low single digit revenue growth over the next few areas.
Let’s talk about the go-to-market initiatives we’ll be advancing in 2018 to help us achieve that objective. Our first go-to-market initiative for 2018 is cognitive anomaly detection and prediction or CADP.
As I mentioned earlier, apps that include predictive maintenance capabilities can learn business characteristics and behavior from data, allowing businesses to spot anomalies and correct them before they cause expensive business disruption. The market for these cognitive apps was $1.4 billion in 2016 growing at 30% annually.
And McKinsey estimates that predictive maintenance will help companies save $630 billion by 2025. Since almost half of our OpenEdge partners have big manufacturing ERP applications, we have a strong presence in the manufacturing and industrial sectors.
These sectors can realize tremendous benefits from predictive maintenance and will be our initial focus area of sales of CADP to both our existing ISVs as well as to new customers.
Let’s talk first about how our OpenEdge partners with new CADP and why it is critical that we provide them with this technology? In Q4, we released the OpenEdge PdM Integration Kit, a new offering that combines predictive maintenance capabilities of DataRPM with the OpenEdge development platform.
Our ISVs can now enhance their OpenEdge applications for the predictive analytics, enabling their customers to prevent equipment failures before they occur. By offering this new capability, we’re filling a critical future need of our partners.
To divest a moment, it is a misconception that our large base of ISVs is “stuck” with us and that it takes little effort from us to retain them. This could not be further from reality. Our large base of existing ISVs and customers is loyal to our products but we cannot take their loyalty for granted.
Rather, we need to continually earn it, by providing them the technology they need to continue to grow and remain competitive in their markets. While our partners have made significant investments in OpenEdge, their end users have many viable alternatives for their mission critical applications.
Our partners’ revenue and by extension our revenues would quickly begin to suffer if their end users were to switch to a competitor’s solution. So, it’s critical that their applications remain competitive and best of breed, which is why we must continue to invest in our core technologies.
Our investment in our cognitive apps platform which includes the recent acquisitions of DataRPM and Kinvey is the latest example of a long history of providing our partners and customers with technology that helps them stay competitive.
As I have mentioned in the past, many of our partners now offer their applications in the cloud, something made possible by investments in our own internal development efforts. OpenEdge was the first multi-tenant database in the industry.
And our revenue from ISVs who now deploy their applications in the cloud was almost $22 million in 2017 and is expected to grow at low double digit rate going forward.
Our most recent release OpenEdge 11.7 delivered several enhancements in security, high-performance replication and always on capabilities that our partners really needed in order to meet evolving customer requirement.
In addition, our acquisitions over the years have enabled us to provide our base with the best data connectivity available in the market, the capability to embed complex routes into their applications, business process management technology, best of breed UI tooling, and application modernization services and framework.
These investments have been most beneficial through our largest ISVs who provide the bulk of our partner revenue. Our partner base consists of both large and small ISVs, and over the years the lower tier consisting of smaller ISVs has experienced a certain amount of churn.
This is not driven by any decision to move off of our OpenEdge platform; instead, it is caused by events beyond our control. Many of our smaller ISVs have been acquired over lifestyle businesses whose owners decided to retire. What we can control however is potential churn within our large partners.
By offering them the technologies I’ve just mentioned and many more, we’ve been able to offset the revenue churn created by our smaller ISVs. These large partners have adopted our new technologies to keep their applications current and competitive, and they continue to win new customers and grow their revenue.
It’s still early for the revenue opportunity from offering predictive maintenance to our base because our ISVs will need 12 to 18 months before they can offer this new capability to their customers.
Therefore, success in 2018 will be measured by our partners, the adoption of this technology and their progress in integrating it into their applications. It is encouraging that two of our largest partners have already expressed their support for this new technology path.
QAD, our largest partner has expanded their relationship with us and is looking forward to making DataRPM’s predictive maintenance capabilities available to their customers.
They’ve noted publicly that our cognitive applications strategy is well-aligned with their vision for the future and they see DataRPM as a significant opportunity to drive new value for their end customers.
And proALPHA, one of our largest partners in the international market recently invited me to deliver the keynote address at their Annual User Conference because they too share our vision for the applications of tomorrow and look forward to bringing leading edge cognitive capabilities to their customers.
Our CADP initiative will also help us win new customers. We have already had success in selling predictive maintenance directly to customers such as Jaguar and Samsung. In fact, we recently expanded our relationship with Samsung by closing another opportunity with the new business unit during the fourth quarter.
We will continue to market DataRPM directly to enterprises within manufacturing, transportation and logistics, oil and gas, energy and utilities, and the automotive industry. The second initiative we’ll be focused on in 2018 is mobility. The mobile application development market is over $1.5 billion today, growing at 28% annually.
By 2020, Gartner estimates that more than 75% of enterprises will have adopted at least one mobile application development platform compared to only 33% in 2015.
Despite this rapid growth, developing mobile apps is still difficult and time-consuming and all too often the resulting app doesn’t get widely adopted due to slow response times and poor user experience.
Our mobile application development platform features NativeScript which allows businesses to write truly native apps across devices, Kinvey the best-in-class cloud native serverless platform to deploy backend logic and our world-class data connectivity offering.
With NativeScript, developers can use their JavaScript skills to write an app once and deploy on both iOS and Android with full native capabilities and performance. This delivers a consistent experience to all end users while making developers much more efficient and providing tremendous cost savings for business.
The popularity of NativeScript is skyrocketing with over a 1 million downloads in the past year and developers are embracing it as their choice for cross-platform mobile application development. Gartner cited NativeScript as a strength in naming progress, a leader in their 2017 Magic Quadrant for Mobile App Development Platform.
In Q4, we entered into agreements with several large enterprises who are using NativeScript to develop device-independent mobile apps. And opportunities like these will allow us to expand the adoption and revenue potential of our mobility solution.
With Kinvey, customer can rapidly deploy their backend applications on a highly scalable, secure and performant serverless cloud that runs on AWS, the Google Cloud Platform or Azure infrastructures. This gives customers the freedom from cloud vendor lock-in while dramatically reducing operational costs.
One vertical in which we have had success with Kinvey is healthcare where the HIPAA compliant platform has already enabled several healthcare companies to build secure and simple patient-centric apps in record time.
For example, a large healthcare provider base in California has already used Kinvey to build and deploy apps that allow patients to manage all insurance-related aspects of their care.
Kinvey’s unique strengths are the reason why Forrester identified it as the best mobile backend platform as well as the best enterprise health cloud platform in their most recent research report.
By combining Kinvey with our other core technologies, we believe we are well-positioned to enable healthcare providers to quickly and easily create apps that improve patient experiences and enable better healthcare outcomes. We expect these go-to-market initiatives to be instrumental in helping us deliver on our goals in 2018.
We will measure success for DataRPM and Kinvey on three factors. First, our internal bookings target; second, the adoption of DataRPM by a meaningful number of our OpenEdge partners; and third, winning new logos, particularly with our mobility solutions across a variety of verticals including healthcare.
Longer term, in addition to these three items, we will measure success by how much these two products help stabilize our core revenues and reduce customer churn. We will share the bookings for both DataRPM and Kinvey as they become meaningful.
Before closing, I would like to remind our shareholders that we are currently undergoing a search process to add up to two new independent directors to the Progress Board. The first is in keeping with our Board’s longstanding focus on ensuring that it has the right skills and perspectives to enable Progress to execute on our business strategy.
As we noted when we announced this process late last year, we’re emphasizing diverse candidates with executive experience at public companies in the enterprise infrastructure software industry. The search is well underway and we have already met the several highly qualified individuals.
So, in closing, I’m proud of all the hard work and accomplishments for 2017, but we must continually work to build a stronger business with sustainable growth and profitability that will enable us to continue to generate strong return for our shareholders.
Paul will go into more details on our FY18 guidance during his remarks but to recap, our three high-level financial goals for the next year are, first, stable to slight revenue growth.
Second, tight cost controls and prudent investments allowing us to achieve operating margins of between 35% and 36%, further underscoring that our Company is highly efficient, especially for scale. We are among only a small number of software companies that delivers margins in this range.
And third, we’ll continue to generate strong cash flows which will enable us to return meaningful amounts of capital to our shareholders. We will continue to run our business in a lean fashion, always looking for ways to potentially expand margins and cash flows in the future, creating even more value for shareholders.
Any M&A opportunity would need to meet the vigorous financial criteria we outlined for you earlier in 2017. And we will remain focused on disciplined capital allocation, utilizing dividends and share repurchases to return capital to our shareholders.
I’d like to thank the investors I’ve had the opportunity to speak with over the past few months, as our conversations have helped shape our views on our strategy as we head into 2018. Progress is successfully executing a clear strategic plan to drive sustainable, long-term shareholder value.
The Board and I are excited about the prospects for the future and truly appreciate your continued input and support. I’ll now turn the call over to Paul to review our Q4 and full year performance in more detail and outline our expectations for Q1 and 2018.
Paul?.
Thank you, Yogesh, and good afternoon, everyone. As a reminder, all the numbers that I’ll be referring to in my remarks are on a non-GAAP basis. For our fourth quarter, total revenue was $116.3 million, which was $1.3 million above the high-end of our guidance range of $115 million.
The overachievement was primarily the result of two six-figure deals that closed earlier than expected. Revenue would have been even higher if not for an unfavorable FX impact of approximately $700,000 from the stronger U.S. dollar since we provided our revenue guidance in September.
Our earnings per share of $0.67 for the quarter was also well above the high end of the guidance range of $0.61. The $0.06 overachievement consisted of approximately $0.02 of higher revenue and $0.04 from lower expenses.
Our strong revenue performance coupled with continued prudent expense management enabled us to achieve a 42% operating income margin in Q4 and 36% for the full year. This is 100 basis points higher than our recent annual guidance.
In addition, as a result of strong collections in Q4, our adjusted free cash flow of $122 million exceeded our annual guidance by more than $10 million. Looking at our revenue for the quarter as compared to Q4 of last year. Total revenue of $116.3 million was 1% lower at actual exchange rates and 3% lower on a constant currency basis.
The year-over-year impact of exchange rates on our fourth quarter revenue was a favorable $1.8 million. License revenue of $46 million decreased by 5% at actual exchange rates and 7% on a constant currency basis.
Maintenance and service revenue was $70 million, an increase of 1% year-over-year at actual exchange rates and flat to last year on a constant currency basis. The declines in total revenue and license revenue for the quarter were entirely attributable to AD&D segment.
As we’ve discussed in the past, in Q4 of 2016, we closed a one-time multimillion dollar perpetual license deal for our role-based product. This decline was factored into our guidance and was partially offset by increased revenue from our DCI segment.
Although maintenance and services revenue was flat for the quarter constant currency, maintenance revenue grew by 1% while professional services revenue declined by 7%. The growth in maintenance reflects our strong renewal rates and our commitment to stabilizing and strengthening our business.
The decline of professional services revenue was expected and is part of the decision to reduce cost in this area and optimize the profitability of our professional services. Turning to our full year revenue as compared to prior year. Total revenue of $399 million was 2% lower at both actual exchange rates and on a constant currency basis.
License revenue was of $125 million decreased by 8%, both at actual exchange rates and constant currency. Maintenance and services revenue was $274 million, an increase of 1% at both actual rates and constant currency.
The declines in total revenue and license revenues for the full year were primarily due to the timing of certain large OEM renewals in our DCI segment as we’ve discussed over the past few quarters; and revenue in AD&D segment also declined for the full year due to the large role-based deal in Q4 of last year that I just mentioned.
Turning to our EPS, despite the overall lower revenue, EPS increased for both the quarter and the full year as compared to 2016. Q4 EPS of $0.67 represented an 8% increase versus Q4 of last year; and EPS for the full year was $1.91, an increase of 16% on a year over year basis.
Excluding the $0.05 income tax benefit in Q4 of last year that we’ve discussed in prior calls, Q4 EPS increased by 18% and full year EPS increased by 19%. The increase within EPS for both the quarter and the full year reflect the positive impact from our restructuring efforts earlier this year and our continued focus on prudent expense management.
The year over year impact on exchange rate movements on our EPS was a favorable $0.02 for the fourth quarter was not meaningful for the full year. Turning to revenue by segment, which is all at constant currency, OpenEdge revenue was $76 million for the fourth quarter, down 2% versus 2016.
For the full year, OpenEdge revenue was $276 million, flat to last year. In line with our expectations, we have solid license growth from our OpenEdge partners for both the fourth quarter and the full year, which was partially offset by decreased license revenue from our direct enterprises.
The license revenue increase from our partner channel continues to be fuelled primarily by the growth from partners who deploy their applications in a SaaS model. Our SaaS-related revenue for OpenEdge was $5.6 million for the quarter, up 12% versus Q4 of last year.
For the full year, this revenue was $21.8 million, up 15% versus 2016 and we continue to expect growth to be in the low double digits, going forward. Maintenance renewals were well over 9% for both the quarter and full year.
OpenEdge professional services revenue decreased for the full year with most of the decline in the fourth quarter, as I mentioned earlier. DCI revenue was $18 million for the fourth quarter, an increase of 5% compared to Q4 of last year. For the full year, revenue was $41 million, a decrease 15% versus 2016.
Both, the increase for the quarter and the decrease for the full year are due to the timing of certain OEM renewals. As we’ve discussed in the past, revenue for this business was somewhat lumpy due to the timing of invoicing and renewals of our OEM partner agreements.
Our multiyear license backlog at the end of fourth quarter was $14.8 million, compared to $25.2 million at the end of Q4 of last year. The DCI backlog can rise and fall as our OEM contracts are renewed and revenue is recognized, and the year-over-year decrease is due solely for the timing of these renewals.
Turning to our AD&D segment, total bookings were $22 million for the quarter, down 12% versus Q4 of last year and $82 million for the full year, down 5%. Revenue was $20 million for the quarter, a decrease of 12% and $81 million for the full year, down 2%.
The declines in bookings and revenue for AD&D for both the fourth quarter and the full year are due primarily to the large role-based deal in Q4 of last year. Bookings for our Telerik products were up 4% for the quarter due to strong renewals for our DevTool products and increased license sales for Sitefinity.
For the full year, Telerik bookings were up 1%, primarily due to the growth in renewals and services for Sitefinity. Bookings for DevTool renewals also showed solid growth, were offset by lower license bookings. Turning to revenue by geography, all at constant currency for the fourth quarter.
North America revenue was $67 million, down 3%; EMEA revenue was $36 million, up 3%; Latin America revenue was $5 million, down 36%; and Asia Pacific revenue was $6 million, up 8%.
For the full year, North America revenue was $225 million, down 3%; EMEA revenue was $132 million, up 1%; Latin America revenue was $20 million, down 6%; and Asia Pacific revenue was $22 million, down 10%. Total costs and operating expenses were $67 million for the fourth quarter, down more than $8 million from Q4 a year ago.
Total costs and operating expenses for the full year were $254 million, down 11% from 2016.
The year-over-year decrease in costs and operating expenses for both the quarter and full year was due to lower compensation and benefit costs, decreased facility costs, both the result of our fiscal 2017 restructuring efforts as well as our lower marketing program spend.
We have more than achieved the cost savings targets that we announced in January of 2017 with a decrease in our total cost and expenses of $30 million for the full year. We reduced headcount by 23% or 442 positions, ending the year at 1,470 employees.
Even with the successful execution of our cost savings, we were still able to make adjustments needed to strengthen our business. Q4 operating income grew 15% over Q4 of last year and by 17% for the full-year. Operating income margin was 42% for the quarter and 36% for the full-year; in both cases, a 600 basis points improvement over prior year.
The improvement in both operating income and margin is the result of the cost reductions from our restructuring actions as well as additional savings from ongoing aggressive expense management. These efforts have allowed us to expand our margins this year beyond our original expectations. Moving on to a few balance sheet and cash flow metrics.
The Company ended the quarter with a strong balance sheet, cash and cash equivalents, and short-term investments of $184 million. Our debt balance at the end of Q4 was $124 million.
And during the quarter, we amended and expanded our existing credit facility which includes the remaining $124 million term loan, plus $150 million in revolving credit with the ability to increase the facility by an additional $125 million.
With this amendment, the new maturity date of our facility is November 2022 and our scheduled principal repayments for 2018 have decreased from $15 million to $6 million. Our credit facility coupled with our strong cash flow generation provides us with the flexibility to pursue opportunistically the accretive acquisitions we outlined in September.
DSO for Q4 2017 was 47 days, down 1 day sequentially and down 3 days from Q4 of last year. We had strong collections across all geographies and businesses including selecting almost $10 million that was invoiced during the month of November. Deferred revenue was $142 million at the end of fourth quarter, up $4 million versus Q4 of 2016.
The increase was due to FX as well as solid year-over-year increases in deferred revenue for Sitefinity. Adjusted free cash flow was approximately $32 million for the quarter, flat to Q4 last year. Relative to our expectations, the cash flow performance for the quarter was driven primarily by the strong collections I mentioned earlier.
For the full-year, adjusted free cash flow was $122 million. In the quarter, we repurchased 751,000 shares at a cost of $30 million and for the full-year we repurchased 2.2 million shares at a cost of $74 million.
At the end of the quarter, we had $220 million remaining under our current authorization which we expect to spend by the end of 2019 with $120 million targeted to be repurchased during fiscal 2018. Now, I’d like to turn to our business outlook and guidance for fiscal year 2018.
We expect 2018 revenue to be between $399 million and $404 million, flat to an increase of 1% versus 2017. This includes a positive currency translation impact of approximately $4 million on our 2018 revenue.
On a constant currency basis, we expect slight growth from OpenEdge segment which includes a small revenue contribution from DataRPM and Kinvey and flat revenue from our AD&D segment. We expect revenue to decline by mid -- we expect DCI revenue to decline by mid single digits due to the timing of OEM contract renewals.
We remain confident in the overall strength of the DCI business and our long-standing OEM relationships. Turning to EPS, we expect full-year earnings per share of $2.29 to $2.35, an increase of $0.38 to $0.44 or 20% to 23% increase versus 2017.
Our guidance reflects the impact of the newly enacted tax legislation which lowers our non-GAAP effective tax rate to approximately 22% for the full year. The lower tax rate improves EPS by approximately $0.35 on a full-year guidance compared to 2017.
Our outlook also reflects $120 million of share repurchases we have targeted to complete by the end of the year. Based on current market conditions, the impact to EPS of share repurchases is $0.07 to $0.08 for the year.
At current exchange rates, the weaker dollar is expected to have a positive currency translation impact of approximately $0.01 on our full year EPS. We expect our operating income margin for 2018 to be between 35% and 36%.
Beyond 2018, we will continue to target 35% operating margins on an ongoing basis and we are confident in our ability to run the business efficiently. The 2018 guidance for operating income margins reflects overall flat expenses at constant currency while making the investments required to strengthen our business.
The full year expense impact of DataRPM and Kinvey which were acquired in Q2 and Q3 of last year is also included. In addition, our guidance reflects the benefit of a small additional restructuring action we took during Q4 and early 2018. These actions enable us to further streamline our sales and product functions.
Our adjusted free cash flow guidance for 2018 is between $115 million and $120 million. This reflects a benefit of approximately $10 million due to lower taxes which is offset by higher cash payments for our variable compensation programs and higher capital funding.
Turning to our guidance for Q1 2018, we expect the revenue to be between $90 million and $93 million, the year-over-year change of negative 1% to positive 2%. This includes a positive currency translation impact of approximately $2 million. On a constant currency basis, this guidance assumes flat revenue from each of our segments.
We expect earnings-per-share of $0.46 to $0.48 for the first quarter compared to $0.34 in Q1 of last year, an increase of 35% to 41%. Our guidance reflects the impact of a newly enacted tax legislation which lowers our non-GAAP effective tax rate to approximately 24% for the quarter, slightly higher than our full year range.
Our EPS guidance for the first quarter includes full benefit from restructuring our operations during Q1 of last year as well as the partial benefit of restructuring actions I just discussed. Based on current exchange rate, we expect a positive currency translation impact of approximately $0.01 on Q1 earnings per share.
In closing, we’re pleased with our solid finish for the quarter and our overall financial performance for the year. In 2017, we executed on our strategy and we delivered on our commitment to operate our business efficiently as evidenced by the $30 million reduction in our cost structure in 2017.
In 2018, we will continue to run our business in the lean fashion while also making thoughtful and prudent investments to strengthen our business. We’re committed to delivering on our financial goals in 2018 and creating value for our shareholders. 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..
Yes, sir. [Operator Instructions] We first move to Steve Koenig with Wedbush Securities. And Steve, your line is open. Please proceed..
I am sorry.
Gentlemen, can you hear me now?.
Yes. Hi, Steve. .
Okay. Hi. Good afternoon. Thanks for taking my questions. Maybe one follow-up as well. Let me start by asking the six-figure deals.
Did you guys say what segment was that in?.
Yes. Steve, it’s Paul. They were primarily the OpenEdge segment..
And were those direct or partner, Paul?.
They all came through our indirect channels, the partner deals..
Got it, okay.
And those were the driver of the overachievement you said?.
Yes, they were. Correct..
Got it, okay. And then for the follow-up. I wanted to ask about DCI. So, Paul, you talked about deal timing as impacting the timing of renewals. When I looked at the fiscal 2017 DCI revenue, it looks like that was down 15% year-on-year, about $8 million or $9 million; and then, you expect a further mid single digit decline in fiscal 2018.
Could you elaborate on how is this timing? I mean, deal slipping out of the quarter wouldn’t do that I would think. So, maybe help me there.
And I guess related to that, does Progress have a plan? What’s your thought on how to arrest the decline in DCI? Which predates [ph] you guys in fairness, which is a kind of -- when I look at DCI revenue from years back, it’s been in decline.
How can we turn that around and how does cognitive apps help DCI if at all?.
Yes. Steve, it’s Paul. So, I’ll take part of it and then I’ll pass to Yogesh, maybe add some color on how cognitive apps will help with that. Right? So, I think, as we’ve discussed this in the past, so this business is somewhat lumpy and the revenue recognition in this segment is related to how we invoice and recognize revenue with these arrangements.
If you look at the overall book of business, that has not necessarily changed. But the manner in which the agreements are structured, whether it’s three-year or five-year, revenue is recognized based on milestone billings dates. So that’s what causes the lumpiness in the revenue.
But if you look at the overall health of the business, the book of business is not necessarily growing but it’s not declining as you would expect to see just by looking at the financials on the quarterly or annual basis. I hope that helps..
So, Steve on the -- as Paul said, the current business actually is stronger than it looks. But the more important thing from going forward is that when you look at DCI, it’s a key component of any modern application that people want to build.
And so I mentioned for example our mobile solution which users can weigh as a backend platform, NativeScript and Kendo UI as a frontend platform and it enables people to build these great apps and they need to connect to all data. And when they need to connect to all data, that data connectivity is facilitated by DCI.
Same thing is true when you look at applying the capabilities of data RPM in the CAPD solution set. And again, connecting to data that is not OpenEdge -- OpenEdge, we have directly integrated but other than OpenEdge other data sources that is also provided by DCI.
So, we see there’s a potential of growing this business through the cognitive app strategy. But to underscore what Paul said, the business actually is very, very solid despite the fact that it looks the way it looks because of the way revenue has to get recognized..
Next question comes from Mark Schappel with Benchmark..
Hi. Good evening and good job on the upside quarter here. Yogesh, this question is for you.
Yogesh, given the new CAPD and the mobility initiatives that you have coming up this year, what are your plans for the direct sales force, as far as hiring?.
So, we are -- our goal in terms of going to market with these is to continue to run our business lean and hire folks as demand is generated. So, we continue to be prudent about the way we go to market. And we have hired some folks in these teams and we’ll continue to look at it as demand is generated as we see need..
Okay. Thank you.
And then next question here, with respect to your new booking numbers for DataRPM and Kinvey that you’ll be putting out there, do you plan to start reporting those next quarter or will it be a little bit later on?.
So, from our perspective, we expect to report these numbers when they become meaningful. I do not expect that to be in the coming quarter..
Okay, great. And then, Yogesh, machine learning’s an area, it’s relatively hot, it’s an area that you’re moving into. And I was wondering if you could just talk a little bit about how you’re finding as far as being able to hire up the right developer skill sets, specifically the data scientists for artificial intelligence..
We’ve actually been very successful at attracting the right individuals. We, for example, were able to very recently bring on board a tremendously strong technological -- technology person with both background in data science and in the industrial and manufacturing space, to actually manage all of our customer success efforts.
And so, we’re not seeing a challenge in hiring. Of course, it takes time; of course, it is a competitive market.
But, I think the fact that we have a vision that is very complete, we have a vision that is very much software centric and doesn’t have hardware and other pieces to it, allows us to attract those engineers that truly want to work on a cognitive platform that is unique in the marketplace.
And I think our other products really help strengthen the position. And so, our frontend tooling, our backend data connectivity, all those are key. And so, when people see what Progress brings to the table, we’re able to find the people and get them as needed..
And then, finally here, in your prepared remarks, Yogesh, you called out two ISVs, QAD was one of them that was adopting DataRPM today.
I was wondering if those are the only two ISVs today that are your beta program for lack of a better term or do you have others?.
So, those are the two largest ones and the two large ones proALPHA in Europe and QAD in this country. We have engaged with lot of the smaller ones as well. But as you imagine, we are looking to identify the ones that can have the greatest impact and the fastest way possible. So, we’re starting sort of with the bigger ones now.
So, today, those are two key ones that we have..
And it appears there’re no further questions in queue. At this time, I’ll turn the conference back over to management for 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 2018 on Wednesday, March 28, 2018 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..
Thanks, Brian. Our success in 2017 has really provided us with good momentum as we head into 2018 and beyond. We’re executing well on our strategy and we’ll continue to focus on building a stronger business that generates significant returns for our shareholders.
I thank you again for your input and support and we look forward to further meetings, discuss our strategy, goals, and accomplishments. Thank you all..
Thank you, ladies and gentlemen. That does conclude today’s conference. We thank you for your participation and you may now disconnect..