Progress Software Corp (PRGS) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Progress Software Corporation Q3 2018 Investor Relations call.

At this time, I'd like to turn the floor over to Brian Flanagan.

Please go ahead, sir.

Thank you, Greg.

Good afternoon, everyone, and thanks for joining us for Progress Software's Fiscal Third Quarter 2018 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 our 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 will 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 third quarter 2018, 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.

With that, I'll now turn it over to Yogesh.

Thank you, Brian.

Good afternoon, everyone, and welcome to our third quarter 2018 conference call.

I'd like to focus first on our solid financial results for the quarter and then provide an update on our operations, strategy and new initiative.

Our revenue was at the midpoint of our guidance but would have been near the high end if not for the FX headwinds during the quarter.

Earnings per share grew 25% year-over-year.

Operating margins were 37%, and we also achieved healthy cash flows.

We also returned over $25 million to shareholders in the form of share repurchases and dividends as we continued to execute on our capital allocation strategy.

And we just announced another double-digit increase to our quarterly dividend, demonstrating our continued confidence in our cash flow generation.

As we move into Q4, I'm disappointed that our revenue expectations for FY '18 now fall short of our prior guidance for the year.

However, this does not reflect a change in the strength of our overall business.

Rather, the decrease is partially a result of the incremental FX headwinds I just mentioned, with the remainder primarily due to timing, structure and size of a few large OpenEdge deals.

Our goal, when negotiating contracts, is to maximize the overall economic value, which is in the best long-term interest of our business.

Unfortunately, that sometimes means that revenue shifts in the short term versus our expectations.

Therefore, despite this change in our full year guidance, we believe our business remains stable, and I remain encouraged by the commitment of our strong, loyal customer base.

Paul will cover our guidance in more detail during his remarks while I focus on the highlights and strengths of our business.

Our OpenEdge partner business remains very solid, with strong license growth during the quarter, again, driven primarily by those ISVs who now offer their applications in a SaaS model.

Our revenue from sales of these cloud-based applications grew by 12% in Q3 and 15% year-to-date.

Many of the enhancements to OpenEdge in the past few years, and several more that will be included in our next major release are designed to make it even easier for our partners to transition to the cloud.

In fact, we recently announced that one of our large European ISVs use our OpenEdge and Kendo UI front-end tooling technologies to migrate their on-premise workforce management applications to the cloud.

The resulting SaaS-based application provides the modern user experience that their customers are looking for, along with a 30% performance improvement.

This is just the most recent example of the substantial number of our ISVs who now offer their applications in a SaaS model, representing a $25 million revenue stream for Progress over the last 12 months.

We also saw a slight increase in license sales from our OpenEdge direct enterprise customers following last quarter's strong growth.

As we discussed during the last call, the timing of additional license sales to these customers can vary from quarter-to-quarter based on their need for additional capacity.

And we still expect a slight decline in license sales to direct enterprises for the full year offset by growth from our ISV channel.

Our extremely low churn rates are further evidence of the health and strength of our OpenEdge business with maintenance renewal rate, again, well over 90% for both our ISV partners and our direct enterprise customers.

Turning to our other segment.

Both DCI revenue and Sitefinity bookings within our App Dev segment had better-than-expected results during the quarter, and our overall App Dev bookings grew year-over-year.

Both segments represent strong consistent businesses, and they continue to perform overall in line with our expectations.

These segments also play a key role in our Cognitive Apps strategy.

Our solutions deliver fast, scalable and secure access to all data as well as intuitive user-friendly front end, both of which are critical user requirements in modern application development.

Let's turn now to the current application development market and discuss how we are well positioned to take advantage of the demand for modern, high-productivity development platforms.

As we discussed, the requirements for mission-critical apps continues to evolve.

Today's apps must have an adaptive user experience, be cognitive and predictive and connected to all data and systems.

They must also be agile, flexible, reliable, secure and capable of Internet scale.

We recently participated in the Gartner Catalyst Conference, which targeted IT decision-makers and enterprise architects and highlighted the increasing importance of high-productivity, cloud-based application development platform.

In order to produce today's modern apps, developers need a serverless back-end, front-end tooling, business logic and data connectivity all integrated into one seamless development environment that is easy to use and deploy.

Gartner also noted that there are several challenges for enterprises that want to deliver these modern apps and experiences at the fast pace and low cost that today's users demand.

The first challenge is a significant skills gap.

Because other high-productivity platforms in the market today use proprietary languages, there are simply not enough developers with the knowledge of these languages to meet the huge demand for modern apps.

The second challenge is friction with core business systems.

These existing business systems can be difficult to interact with and cannot scale to accommodate the new loads of modern mobile applications with many times the number of users and transactions than they were originally designed to support.

With our history of providing high-productivity platforms for building mission-critical business apps, Progress is uniquely qualified to solve these challenges.

Our integrated platform with Kinvey providing the low-code back-end, and NativeScript on the front end enables developers to use JavaScript, one of the most popular development languages in use today.

Enterprises can eliminate the skills gap by leveraging the abundant supply of low-code web developers who already know JavaScript.

These developers can use our platform without additional training, a huge advantage that can shave months off of a development effort.

Also, Kinvey's modern serverless cloud architecture enables apps to easily interact with existing core business systems using only JavaScript, addressing the friction issue that Gartner identified.

In short, enterprises love our platform because they can deliver applications much more quickly at significantly lower cost.

And developers love it because they can focus on the user experience and business logic while lets the platform take care of everything else like performance, security, compliance and data connectivity.

To take advantage of our strong position in the market and the increasing demand we are seeing, we began to gradually scale up our go-to-market efforts and headcount for our new initiatives during Q3, and this will continue during Q4.

We're already seeing results from these investments.

We're finding quality sales resources in the market, and we more than tripled the number of leads we generated in Q3 versus Q2, including a significant uptick in August.

Our pipelines are building, and we've now added nearly 30 new customers for our Kinvey and DataRPM offerings this year through Q3.

Some of these are existing Progress customers, consistent with our strategy of providing a future technology path for our existing network of ISVs and customers.

One such existing Progress customer is an organization that administers the world's first all-electronic, barrier-free highway.

They chose the enterprise edition of Kinvey to develop a brand-new mobile application that will allow drivers to access information about the highway, view toll balances and make payments.

And because the app will access user's personal information, they also purchased Kinvey's compliance module, taking advantage of its built-in secure data privacy capabilities.

I'm excited about the increased demand and growing pipelines we are seeing from our integrated cloud-based modern App Dev platform, which also includes DataRPM.

We expect the need for cognitive predictive capabilities will be a key driver of the adoption of our new platform by both enterprises and new ISVs.

In this way, DataRPM can contribute to our bookings and revenue in the shorter term.

Of course, we also have a longer-term opportunity within our OpenEdge ISV base.

Our partners recognize that predictive maintenance is a key future user requirement, and we continue to work to enable them to leverage this important technology as part of their future.

As I mentioned earlier, we returned over $25 million to shareholders during Q3 in the form of dividends and share repurchases consistent with our capital allocation framework.

We've now returned nearly $130 million of capital to shareholders during fiscal year 2018.

As part of our strategy, we're also continuing on the path we've established for M&A, and I'd like to provide an update in that area.

Any acquisition must meet our strict discipline criteria.

As we've stated, they must first be complementary to our business with similar products, audiences and growth profile.

From a financial standpoint, they must bolster our recurring revenue and be accretive with margins of at least 35% after cost synergies.

By bolstering our internal M&A team and broadening our sourcing of targets, we're seeing many more opportunities that fit our criteria.

Many of these are in the data and DevOps serials, which would be a good fit with our current business.

We're also particularly well suited to acquire carve-outs from strategics, where we can leverage our industry experience to provide their existing customers with a high level of customer support and a clear, stable path forward.

Of course, it is difficult to predict the timing of any potential transaction, and we will remain disciplined in our approach in what is an active and highly competitive market.

In closing, while I'm disappointed with our decreased revenue expectations for 2018, I'm still pleased with our financial and operational performance so far this year, with a strong track record of earnings and cash flow growth and with our ongoing business momentum.

Our business remains strong and stable.

We are seeing increased demand for our new initiatives, and we'll work to take advantage of the growth opportunity we see in modern application development.

We will continue to invest in the products and programs that are existing, and new customers need to stay competitive in their markets while remaining committed to future operating margins of at least 35%.

We are executing on our M&A and capital allocation frameworks, and we look forward to continued engagement with our shareholders during Q4 and beyond.

I will now turn the call over to Paul to review our Q3 performance in more detail and to outline our financial expectations for Q4 and 2018.

Paul?

Thank you, Yogesh, and good afternoon, everyone.

I'll begin by providing some additional details on our third quarter performance, an updated guidance for the year.

Then I'll provide some color on how we expect our adoption of ASC 606 in December to impact our financial results going forward.

Now as a reminder, all numbers that I'll be referring to in my remarks are on a non-GAAP basis.

For our third quarter, total revenue was $95.8 million, at the midpoint of our guidance range.

Revenue would have been $500,000 higher or approximately $96.3 million if not for the unfavorable FX impact of the stronger U.S. dollar during the quarter.

Operating margin for the quarter was 37%, an increase of nearly 100 basis points over Q3 of last year.

Our earnings per share of $0.60 for the quarter grew 25% year-over-year and was $0.02 above the high end of our guidance range.

The overachievement is primarily due to a lower tax rate, the result of several discrete tax benefits that were realized during the quarter.

Looking at consolidated revenue for the quarter compared to Q3 of last year, total revenue of $95.8 million was 2% lower at actual exchange rates and 1% lower on a constant currency basis.

The year-over-year impact of exchange rates on our third quarter revenue was a negative $600,000.

License revenue of $27.2 million decreased by 5% from a year ago at actual exchange rates and 4% on a constant currency basis.

Within our segments, OpenEdge achieved solid license growth and as expected, license revenue decreased year-over-year in both DCI and AD&D segments.

For DCI, the decrease was primarily due to the timing of OEM contract renewals.

Maintenance and services revenue was $68.6 million, a decrease of 1% year-over-year at actual exchange rates and flat compared to last year on a constant currency basis.

Maintenance revenue of $60.6 million was flat to last year on a constant currency basis, while professional services revenue was $7.9 million, down 5% on a constant currency basis due to lower service revenue from OpenEdge, which was partially offset by increased Sitefinity, service revenue from our AD&D segment.

Turning now to our revenue by segment with all comparisons at constant currency.

OpenEdge revenue was $68.6 million for the quarter, up 1% versus Q3 2017.

We had another solid quarter from our ISV partners as well as modest growth from direct enterprise customers.

License revenue from our partner channel continues to be solid, including SaaS-related revenue of $6.4 million for the quarter.

This represents growth of 12% for Q3, up from the 9% increase we reported in Q2 of this year.

Year-to-date SaaS-related revenue growth is 50%, higher than the low double-digit growth that we expect from this revenue stream going forward.

OpenEdge maintenance revenue was flat compared to last year on a constant currency basis, and we once again achieved renewal rates of well over 90% for both our ISV partners and our direct enterprise customers.

As I noted earlier, consistent with our expectations, OpenEdge professional services revenue decreased in the third quarter as well as year-to-date.

We have also reduced the associated costs as part of our decision late last year to optimize the profitability of our OpenEdge Professional Services.

Excluding Professional Services revenue, OpenEdge license and maintenance revenue was stable with growth of 1% for Q3 and 2% year-to-date.

DCI revenue was $7.6 million for the third quarter, a decrease of 60% compared to Q3 of last year and in line with our expectations.

Our view for the full year has not changed.

DCI business remains healthy, underpinned by our strong, long-standing OEM relationships.

Our multiyear license backlog at the end of the third quarter was $12.3 million compared to $18.1 million at the end of Q3 of last year and $14.9 million at the end of last quarter.

While the annualized value of our OEM contracts has not changed, the timing and the terms of the renewal agreements affect the amount of our backlog from quarter-to-quarter.

Turning to our AD&D segment.

Revenue was $20.1 million for the quarter, down 1% compared to Q3 of 2017.

Total bookings were $20.6 million for the quarter, up 1% versus Q3 of last year.

The bookings increase was primarily due to higher renewal maintenance bookings from DevTools and Sitefinity as well as increased professional services for Sitefinity.

These increases were partially offset by decreased license and new maintenance bookings for those same products.

The total revenue by geography with our international regions at constant currency: North America revenue was $52.3 million, down 7% versus Q3 2017; EMEA revenue was $33.3 million, up 5%; Latin America revenue was $4.9 million, down 1%; and Asia-Pacific revenue was $5.9 million, up 23%.

Total cost and operating expenses were $59.9 million for the quarter, down $2 million from a year ago.

The year-over-year decrease was primarily due to low compensation and benefit costs across most areas of the company.

This decrease was -- also includes the impact of lower expected achievement levels of our variable comp plans primarily due to our moderated revenue expectations for the full year.

These decreases were partially offset by increased marketing programs to support the go-to-market efforts of our new initiatives and for our DevTool products.

Q3 2018 operating margin was 37%, an improvement of nearly 100 basis points from Q3 of last year and consistent with our expectations.

Q3 EPS of $0.60 was $0.12 higher than last year, primarily due to a much lower tax rate and to a lesser extent, a lower share count.

The year-over-year impact of exchange rate movements on our third quarter EPS was an unfavorable $0.01.

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 $138 million.

Our debt principal balance at the end of Q3 was $119 million.

DSO for Q3 2018 was 43 days, up 3 days sequentially but down 5 days from Q3 last year due to strong collections.

Deferred revenue was $145 million at the end of the third quarter, up $4 million versus Q3 of 2017.

The increase was primarily due to solid year-over-year increases in deferred revenue for OpenEdge, Sitefinity and DevTools.

Adjusted free cash flow was $21 million for the quarter compared to $18 million in Q3 of last year.

The increase is due to high collections, lower tax payments, which are partially offset by increased CapEx.

Year-to-date, adjusted free cash flow is $97 million, an increase of $8 million versus the first 3 quarters of 2017.

During the third quarter, we repurchased 513,000 shares at a cost of $20 million.

At the end of the quarter, we had $110 million remaining under the current repurchase authorization.

We are targeting an additional $10 million of repurchases during Q4 in an attempt to spend the remaining $100 million of our authorization during fiscal '19.

And lastly, we announced today that we increased our quarterly dividend by $0.11 from $0.14 per share to $0.155 per share.

I'll now turn our business -- I'll now turn to our business outlook and guidance for fiscal '18 and Q4.

For the year, we've moderated our revenue guidance to be $393 million to $396 million versus our prior range of $399 million to $404 million.

This represents a decrease of approximately 1% versus 2017.

The decrease in our guidance was primarily within our OpenEdge segment and reflects an incremental negative FX impact of $1.3 million versus our prior guidance, a large deal where revenue will be recognized over a longer period of time based on customer-driven contract terms, the delay completing a large renewal and lower deal sizes on a few compliance engagements.

We believe these changes are customer specific and do not reflect any change in the strength and stability of our overall business.

On a constant currency basis, our guidance reflects a slight year-over-year decline for our OpenEdge segment revenue.

This reflects lower professional services revenue and lower license revenue from direct enterprises, partially offset by license growth from our partner channel.

Consistent with our prior guidance, we expect slight revenue from our AD&D segment, and for DCI segment, we expect a mid-single-digit decline for the full year but essentially flat for Q4, also unchanged from our prior expectations.

The U.S. dollar strengthened again during Q3, and based on current exchange rates, the total expected positive impact on our 2018 results is now $3.2 million, a decrease of $1.3 million from the guidance we provided in June.

We are maintaining our guidance for operating margin at 38%, with lower cost offsetting our moderated revenue expectations.

Similarly, our guidance for adjusted free cash flow is unchanged at $120 million to $125 million.

For EPS, our guidance is $2.45 to $2.48, which is unchanged at the low end and $0.02 lower at the high end versus our prior guidance.

This reflects a $0.01 reduction due to the impact of exchange rate versus our prior guidance as well as the negative impact of the additional revenue decreases I discussed, partially offset by lower expenses.

Our EPS outlook also reflects the impact of share repurchases we are targeting to complete during Q4.

Our updated fiscal year 2018 EPS guidance represents a strong 28% to 30% increase over fiscal 2017 EPS.

Our expected tax rate is 22%, unchanged from our prior estimate.

Turning to our guidance for Q4 2018.

We expect revenue to be between $107 million and $110 million compared to the $116 million a year ago.

The total expected year-over-year currency translation impact on our Q4 revenue is expected to be a negative [$1.3 million].

We expect earnings per share of $0.71 to $0.74 for the fourth quarter compared to $0.67 in Q4 of last year, an increase of 6% to 10%.

Based on current exchange rates, the expected currency translation impact on our Q4 EPS is expected to be a negative $0.01.

Now before closing, I'd like to provide an update on our upcoming adoption of ASC 606, the new revenue recognition standard.

This new guidance will be effective for us on 12/1/18, the beginning of our fiscal year 2019.

We're still working through the expected total impact on our revenue and expenses, but I want to provide a preview of how we expect the new standard to affect revenue recognition within each of our segments and highlight the area where we anticipate the most material impact.

In our OpenEdge segment.

Revenue consists primarily of license and maintenance royalties from our ISV partners and sales of perpetual licenses and maintenance for our direct end user customers.

For both partner and direct end users, we currently recognize license revenue upon delivery and maintenance revenue ratably over the maintenance period.

This will not change under ASC 606, so we do not expect a material impact on revenue for our OpenEdge segment.

Our AD&D segment revenue was mainly perpetual licenses and maintenance revenue from our Telerik products, primarily DevTool and Sitefinity.

Because we lack [visual] for the maintenance on these products, we currently recognize both the license and maintenance revenue over the term of the maintenance contract.

ASC 606 will require us to allocate revenue between license and maintenance and recognize the license portion upon delivery.

This is a change from our current practice, but since we expect bookings from these products to remain consistent from period to period, we also do not expect quarterly revenue for this segment to be materially different under ASC 606.

Our DCI segment, however, is comprised primarily of multiyear OEM contracts, and as such, this is where we expect to see the largest impact from the new revenue guidance.

License revenue from these multiyear contracts currently recognize upon payment due dates over the term of the agreement.

ASC 606, however, requires the license revenue for the entire term of this -- for these multiyear arrangements to be recognized upfront, and this change will have a material impact on the recognition of our DCI revenue.

ASC 606 also potentially impacts our expenses, primarily the timing of commissions, which will be amortized over the term of multiyear contracts.

We're still working through the details of those calculations but do not expect a material impact.

We will provide more details during the conference call for our fourth quarter earnings release, including the impact of the new revenue standard on our guidance for fiscal '19.

In closing, we had a solid financial performance in Q3.

While I'm disappointed in our moderated revenue outlook for 2018, I'm pleased with our ability to maintain our operating margin and cash flow levels for the year and to drive double-digit increase in our dividend.

As Yogesh mentioned in his remarks, we remain committed to making the investments needed to strengthen our business while maintaining future operating margins of at least 35%.

With that, I'd like to hand it back to Brian for Q&A.

Thank you, Paul.

That concludes our formal remarks for today, and I'd now like to open up the call to your questions.

(Operator Instructions) I will now hand over to the operator to conduct the Q&A session.

(Operator Instructions) And first, we have Steve Koenig with Wedbush Securities.

Yes.

Just maybe one housekeeping and then another question.

The multiyear backlog decline, that's related primarily to DCI, and that's not related to your change in your outlook on the Q4 OpenEdge revenues, correct?

Steve, this is Paul.

No, that -- you're absolutely correct.

That is all related to DCI, and we've talked about that in the past.

And I would say, in my prepared remarks, the outlook for DCI has not changed for the full year.

Okay.

And then, Paul, just one more housekeeping if I may.

That -- The outlook on OpenEdge, did you say what that was for the year?

It sounds like that's changed.

What's your new outlook for OpenEdge this year?

We said that it would be down slightly, right, down from 2017 for our professional services and then also licenses primarily with direct enterprise customers.

Okay.

And you gave some color on those -- on what's happening on those deals, so I'll skip over that.

If I may ask one more question, it has to do with your -- just stepping back here, your strategy for creating shareholder value.

The 2 generic options, clearly, are to raise margins even further or to try to drive growth here.

You've chosen primarily the latter strategy, reinvesting and trying to create a cognitive application strategy that will drive revenue growth.

I assume you have a self-imposed runway for creating that growth.

How long is that runway?

And what are you looking for in terms of payback or ROI there?

And what metrics should we be looking at to try to understand your progress on that cognitive app strategy?

Steve, this is Yogesh.

You are correct.

We have had a plan to grow our business organically through the cognitive app strategy.

There is another component of our strategy, which is to acquire businesses that we can improve their operations off and run them well and provide growth and shareholder value through that mechanism as well.

So we actually have a two-pronged strategy in terms of delivering long-term shareholder value.

In terms of the growth of our cognitive-first business, as we mentioned even in the prepared remarks, Steve, we have begun to scale up our go-to-market efforts around this.

Early signs in terms of building pipeline and demand generation are looking positive.

And as we do 2019 guidance, we will share with you what we expect going forward.

So from our perspective, clearly, the ROI thresholds are the same, whether we do any kind of investment, right?

And so to us, we have the same thresholds, whether those are for acquisitions or internal investment.

Where is it that we can best spend our money.

Some of our investments continue to go to the core, right?

I don't want us to forget the fact, Steve, that we make significant investments in our core products.

We are working on a larger release of -- new release of OpenEdge 12.0 expected to be delivered in early 2019.

And so we continue to make investments in -- across the entire portfolio.

We've delivered many more new releases in DCI this year than we did last year.

So I think that -- I think it's not just an investment in the cognitive first side.

It is also an investment in the core business that we continue to make.

While we run our business with tremendous discipline, tremendously lean, for a business our size, our long-term target margins of 35% is a -- in my opinion, in our opinion, tremendously high and best in class.

And moving on, we have Mark Schappel with Benchmark.

Paul, starting with you.

With respect to the lower revenue guidance for the year, I believe, in your prepared remarks, you said there's 3 main reasons for the decline in the OpenEdge segment.

I just wonder if you can just repeat those one more time.

Yes.

So we had FX, right, which we've called out.

There's also a late renewal that's contributing to the lower revenue.

We also had a large deal that the revenue will be recognized over a longer period of time based on customer-driven terms.

And then we also had lower deal sizes on a few compliance engagements.

And then, Yogesh, moving over to you.

During the past few quarters, you've provided new customer counts for the Kinvey and DataRPM products.

I was wondering if you can just give us an update there.

Yes, so as I said, we now have nearly 30 customers of Kinvey and DataRPM this year.

So that has been a steady sort of a nearly 10 a quarter over the last 3 quarters.

We have just begun to, as you know, in Q3, begun to accelerate our go-to-market efforts.

And again, sales cycles for those products is, on the average, around 6 months, so we expect to see deal flow get better starting in Q1.

So right now, we're focused very much on building pipeline, Mark, and we've seen truly positive signs there.

Okay, great.

30, I didn't catch that.

And then, Yogesh, in past earnings calls, you've mentioned that you're evaluating, introducing new metrics of the new growth businesses, metrics such as bookings or maybe even total contract value.

Can you just give as an update on where you are on that front?

Yes.

So we expect to introduce those as they become meaningful.

Obviously, we're not providing guidance for '19 at this point.

We will do that in January when we announce our Q4 results.

So we would expect to share exactly what those specific metrics will be at that time.

And next we have Matthew Galinko with National Securities.

I guess, maybe just housekeeping on the DataRPM and Kinvey year-to-date customer adds.

I could be wrong, and maybe I understood it incorrectly last quarter.

But I thought we were up around 10 in the first quarter, 20 adds in the second quarter, which would post that net 30 through 2Q.

So was it more like 10 and 10 and then another 10 in Q3?

That -- it's the second, Matt.

So it was 10, 10 and 10 nearly in each of the quarters.

Gotcha.

Okay.

And you mentioned some positive indication on the pipeline there.

Anything you could speak to positively there?

And then maybe about -- on the [interesting], almost 30, just any color around end market that's taking down the product?

Is there any more color?

Yes, yes.

So I think the primary end market that we are seeing the most interest are 2 of them.

One is the sort of market that Gartner calls the high-productivity Platform-as-a-Service market.

This is a market where people are building modern business applications, and they are looking for high-productivity tools that require, Matt, both front-end capabilities, back-end capabilities, connecting to data, the sort of standard modern things.

Within that, there is a specific submarket, if I may call it that, which is around mobility.

And so focused -- people who are focused on mobile apps is another sort of subsegment of that market, and we're seeing traction there.

In vertical, we, of course, continue to focus on health care as a special one area with our Progress Health Cloud, but in general, the 2 market segments that we broadly look at, or probably the one big one and then the piece within that are the high-productivity application platform market, what is called hpaPaaS.

Gartner could have come up with longer acronym on that one, so the high-productivity PaaS market and also the mobile application market.

We'll move on to Glenn Mattson with Ladenburg Thalmann.

So just trying to figure out on the OpenEdge issue that you talked about.

It sounds like everything -- like the message you're trying to convey is that there's a series of kind of one-off situations.

Can you describe maybe a little bit more detail about what's causing the delay with the one enterprise customer?

Is there anything on terms or negotiations or anything?

Or is it just timing?

Glenn, with any Enterprise customer, the renewal of maintenance sometimes moves around.

Customers sometimes go, I'm negotiating.

I want better terms, so I want to do the -- and they -- but when they renew, they end up basically paying back maintenance.

Overall, our renewal rate hasn't changed at all, right, despite all this.

So our renewal rate is well over 90%, but specific deals occasionally get delayed.

And so this does happen, and this happen to be a larger one and therefore had an impact that made an impact to -- and that ended up impacting what we'd be able to achieve in Q4.

I guess I'm just curious if it's like a negotiation around price or something like that or just simply a matter of not being able to get the income on paper in time-type thing.

Well, I don't want to get into very specifics on the specific things on the term, but we are looking forward to doing the deal sometime in early 2019.

Okay.

And so given that you're just kind of suggesting that the weaker OpenEdge enterprise business is simply a matter of a handful of one-off occurrences, without giving obviously guidance on 2019, would you say that your expectation would be that you have some sort of catch-up period where you have slightly better growth because this deal comes through in OpenEdge, and then everything kind of returns to the normal rates that you're more used to?

So Glenn, clearly, we're not talking about 2019 at this point, and we did mention that one of our deals has gone ratable for -- over a long period.

So clearly, that's not -- so what I would say is, for 2019, very simply, we will give the outlook in January.

Overall, however, what I want to reiterate, Glenn, is that our ISV license business is tremendously stable and actually has grown in 2018, and we expect it to continue to grow, primarily driven by the SaaS-related license revenue, which grew 15% in the first 3 quarters over this year.

Renewals in both those OpenEdge segments, whether it is ISVs or direct customers, continues to be well into the '90s.

And license revenue from direct has been lumpy, and it continues to be lumpy.

And it will be lumpy even in the future.

And so we will provide guidance for 2019 in early '19, in January, when we do our Q4 call.

Thank you all for joining the call today.

As a reminder, we plan on releasing financial results for our fiscal fourth quarter of 2018 on Thursday, January 17, 2019, after the financial markets close and holding the conference call at the same day at 5 p.m.

Eastern Time.

I'll now turn the call over to Yogesh for his closing remarks.

Thank you, Brian.

I want to thank everyone again for joining us on today's call.

We are committed to building a stronger company for the longer term, and I believe we are making good progress towards that goal.

As always, we look forward to our discussions with you and getting your feedback on all aspects of our strategy and operations.

Thank you very much.

Once again, ladies and gentlemen, that does conclude today's call.

Thank you for joining us.

You may now disconnect.