Q3 2019 Earnings Call

Good day welcome to the progress Software Corporation Q3, 2019 Investor Relations call at this time like to turn the conference over to Brian Flanagan VP Investor Relations. Please go ahead Sir.

Thank you James Good afternoon, everyone. Thanks for joining us for progress Softwares fiscal third quarter 2019 earnings call with me today, its you'll get scooped up President and Chief Executive Officer, Paul Jalbert, Our Chief Financial Officer before we get started I'd like to remind you that during this call will discuss our outlook for future financial and operating.

Performance corporate strategies product plans cost initiatives and other information that might be considered forward. Looking this forward looking information represents progress softwares 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 in today's earnings.

Lease as well as in the Investor Relations section of our web site at progress Dot 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 at adjusted free cash flow amounts, we refer to our out of 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 also please note that all 2018 amounts have.

When adjusted to reflect the U.S.C. six so six which we adopted effective December 1st 2018, using the full retrospective method.

Today, we published our financial press release on our website. This document contains the full details of our financial results for the fiscal third quarter 2019, and I recommend you referenced that for a specific details.

Today's conference call will be recorded in its entirety. It will be available via replay on our website in the Investor Relations section and with that I'll now turn it over to go gosh.

Thank you Brian .

Afternoon, everyone and thank you for attending our third quarter earnings call.

As you've seen them. This afternoon specialties, we had a really strong Q people folks.

Sustaining the momentum we've seen in our business throughout this year.

Both revenue and EPS.

Well above the high end up our guidance wage and.

And cash flows were very solid as well.

The over performance was driven by our Openedge segment.

Which included better than expected revenues from Ipswich.

And by the timing of deal.

D.C.I. segment.

I continue to be encouraged by the performance of our core business.

Based on not consistently strong execution and the opportunities we see within our segments.

Yeah, again, increasing our annual guidance for both operating margin.

And earnings per share.

In addition.

Despite additional FX headwinds as we head into the fourth quarter.

We are increasing the midpoint of our revenue guidance by over $1 million.

As I mentioned, if such performed very well during the quarter.

And we remain ahead of expectations with integration efforts and the realization of cost synergies, helping to drive both revenue growth and profitability upside.

This was the first full quarter up if such operations within our results and I'm more than convince.

Than ever that this acquisition is proving to be a winner for us.

Paul will provide more detail on our Q3 results, but I would like to focus my remaining remarks, well not strategy moving forward and on some of our financial goals for Fytwenty and beyond.

Underpinning our strategy of course is strong and stable or business, which has high levels of recurring revenue and as I've stated many times, if flattish revenue growth profile.

And would be successful fips, which we've demonstrated that accretive M&A can drive meaningful inorganic growth along with increased scale and cash flow.

We believe our success with IP switches repeatable.

By allocating capital to accretive acquisitions, we can leverage out consistently strong cash generation to replicate the Ipswich playbook and drive real shareholder value over the long term.

Therefore, our major focus I fly 20, and beyond will be on maintaining a strong and stable core business.

Minted by M&A that is similar in profiled Ipswich.

We believe the successful execution of the strategy can produce 10% to 20% annual inorganic revenue growth with a goal of doubling our revenues over five years.

Due to this strategy will be maintaining our disciplined criteria for acquisitions.

To reiterate acquisitions must first be complementary to our business in terms of product audio some growth profile with high retention rate and high levels of recurring revenue.

They must also be.

Well synergistic and accretive to earnings and cash flow with margins after synergies that are consistent with our overall operating margins any their tone on invested capital that is well above our weighted average cost of capital.

We are focused on companies within the infrastructure space, particularly in areas of application development.

The integration and data quality.

Database and database management.

End of ops.

We've been actively building a pipeline of opportunities which include carve outs from strategic.

Our experience in operating businesses with longstanding customer bases and high levels of recurring revenue is a real advantage for us.

We can utilize our operating model.

Scale acquired businesses and provide a better long term experience for their customers, which can be a deciding factor for many sellers.

The market demands hypercompetitive, making it difficult to predict the timing of transactions.

As we stay disciplined in our approach.

By choosing only targets that we meet our strict criteria.

Like if switch we believe in accretive M&A strategy will drive significant scale and cash flows and will be key the maximizing shareholder value over the long term.

As we execute on this strategy, we will maintain an extremely shareholder friendly capital allocation policy.

In addition to M&A.

Our strong cash flow generation enables us to also return meaningful amounts of capital to shareholders in the form of dividends and share buybacks.

We remain committed to allocating approximately 25% of our annual free cash flow through dividends.

In fact, we announced today that our board has approved an annual dividend increase of four cents per share beginning in the fourth quarter up this year.

This is the third you're in the role that you have increased our dividend since it was established in 2016.

Reflecting the confidence we have an ongoing cash generation as well as our commitment to returning capital to shareholders.

Turning to share repurchases.

Continue to believe that they provide a solid low risk return to shareholders and our target will be to buy back shares at a level sufficient to offset the annual dilution from equity plans.

Of course, we have the additional flexibility to increase reduce or suspend buybacks, depending on market conditions and on the size and timing of M&A activity.

As we stated the time of the Ipswich acquisition, we do not intend to repurchased any shares in Q4 up this year.

Shifting gears as you know we've also been targeting organic growth indeed, cognitive Martin application development market.