Progress Software Corporation
Q4 2018 Earnings Call Transcript
Published:
- Operator:
- Please standby, we are about to begin. Good day, and welcome to the Progress Software Corporation Q4 2018 Investor Relations Call. At this time, I would like to turn the conference over to Brian Flanagan. Please go ahead, sir.
- Brian Flanagan:
- Thank you, Melissa. Good afternoon everyone, and thanks for joining us for Progress Software's fiscal fourth quarter 2018 earnings call. With me today is Yogesh Gupta, President, 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, 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 fourth quarter and full-year 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 Web site in the Investor Relations section. And with that, I will now turn it over to Yogesh.
- Yogesh Gupta:
- 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 the full-year 2018, and then provide an update on our business and goals for fiscal 2019. Our revenue and earnings per share for Q4 were both above the high-end of our guidance range, providing a strong finish to a solid financial year. The overperformance was driven by our OpenEdge segment with both our ISVs and direct end-users delivering higher-than-anticipated license sales during the quarter. Earnings per share grew by 13% year-over-year in Q4 and by 30% for the full-year. Operating margins were 40% for our typically strong fourth quarter and 38% for the year as we remain focused on running our operations efficiently. We accomplished this while at the same time making the investments needed to take advantage of the longer term growth opportunities we see in modern application development. We continue to generate strong cash flows, which is further evidence of our disciplined operating approach. Our ability to produce consistent cash flows enables us to invest in further strengthening our business, while still returning meaningful amounts of capital to our shareholders. With our dividend increase in Q3, we returned over $16 million to shareholders during Q4, and almost $150 million for the full-year through the combination of dividends and share repurchases. Let's now take a look at each of our businesses, starting with our OpenEdge segment. I'm pleased with the level of OpenEdge license sales in Q4. The better-than-expected performance during the quarter from both our ISV partners and direct enterprises enabled us to achieve flat revenues for the full-year on a constant currency basis, consistent with our goal of keeping our flagship business healthy. License sales to our ISVs grew in Q4 and for the full-year, again led by those partners who offer their applications in a SaaS model. Sales of these cloud-based applications now represent $25 million in recurring annual revenue for us, with growth of 8% in Q4, and 13% for the full-year. Maintenance renewal rate were again well over 90% for both our ISVs and enterprise customers, an important measure of the stability and strength of the business, as well as the overall satisfaction of our OpenEdge customer base. Our high renewal rates are driven by the continued success of our customers and partners and by keeping our OpenEdge technology current is critical to that effort. That is why I am thrilled to report that OpenEdge 12.0, the next major release of our flagship product is currently in its early access program, with an expected release date during Q1. This latest version features improvements in availability, as well as a 3x improvement in database performance that would dramatically lower the total cost of ownership for our OpenEdge partners and customers. It also includes expanded modernization capabilities, making it even easier for our existing partners to continue to evolve their applications and utilize value edit capabilities, such as Kinvey, as they further advance their technology roadmaps. Our OpenEdge community remains engaged and vibrant, and are committed to our technology, including this upcoming release. Our annual OpenEdge User Group Conferences were held in both EMEA and North America during Q4, with over 700 partners and customers gathering for sessions led by industry and community professionals, as well as experts from Progress. These conferences are a great way for us to share our vision for the future, and to get valuable feedback from users who rely on our OpenEdge technology, and release 12 received extremely positive reactions from the attendees. Turning to our AppDev segment, although Q4 revenue was down slightly year-over-year, maintenance renewal bookings for both DevTools and Sitefinity was strong during the quarter, which provides us with a good start towards our revenue objectives for fiscal 2019. We also released new versions of our DevTools products for both the .NET and JavaScript developers during the quarter, which is consistent with our goal of continually advancing our technology in this fast-moving business. Providing developers with the best tools and UI components is critical to boosting their productivity and enhancing their ability to build modern intuitive applications. Our AppDev products continue to lead the market, and Sitefinity, our web content management platform was the only WCM product named 2018 Gartner Peer Insights Customer Choice during this quarter. Sitefinity received high marks for its mix of features and benefits compared to other CMS tools as well as its ease-of-use and robust capability. I'm very proud of the strong external validation of the quality of our offering. Just as with OpenEdge, our AppDev developer community is also very active and engaged. We held our Annual DevReach Conference in Bulgaria in November, with over 600 .NET, JavaScript, and web developers attending sessions from UI development to artificial intelligence, and virtual reality. This was our 10th annual conference, and it has become an annual highlight for the international developer community. Turning to our DCI segment, revenue was flat year-over-year in the quarter, consistent with our expectations. Our data connectivity technology is best-in-class, and provides fast, scalable, and secure access to all data sources, a critical requirement for modern applications. I'm very excited about an important new data connectivity solution that we released just this week, our DataDirect Autonomous REST Connector. The volume of data and the number of data sources continues to grow exponentially, and REST-enabled APIs are quickly becoming the standard that organizations use to share and access data, both internally and externally in running their businesses. In the past, however, connections to each individual API had to be developed and maintained manually, a costly and time-consuming effort. Our new intelligent connectivity solution automatically creates high performance data connections to any REST-enabled API, which is the standard for accessing SaaS application data with no coding required. This is a huge leap forward in our already best-in-class technology, and a tremendous productivity gain for developers and businesses. I also continue to be pleased with the progress of our new businesses, and there were several positives during the quarter that I want to highlight. The first is the new adoption of our Health Cloud solution by an OpenEdge partner, a great example of our ability to expand existing customer relationships through our new technology offerings. In this case, our OpenEdge partner needed to modernize their employee -- health records system, utilizing Kinvey's out-of-the-box HIPAA compliance solution they produced a brand new mobile application that allows healthcare providers to engage more easily and efficiently with their patients, and because our new platform uses JavaScript, they did this without having to hire a team of mobile developers. In addition, a nationally known insurer and one of our largest customers recommitted to our Kinvey platform. This insurer developed a customer-facing app that is now used by millions of its customers, and their continued satisfaction is a strong testament to the security, scalability, and sub-second response times that Kinvey offers as the backbone of our modern application development platform. We also continue to receive recognition from industry analysts. In Q4, we received a Gartner Peers Insight Customer Choice Award for our high-productivity application development platform; this time receiving the highest rating of any vendor in this category. Voters noted that our platform significantly reduces time to market for new applications, with seamless integrations to third-party providers and the flexibility to meet any design challenges they face. Because the award is driven by reviews from users themselves, it is especially gratifying to be recognized as a leader in this area. I am pleased with our accomplishments in Q4 and 2018, and I'm very excited about the opportunities that lie ahead for us. Just as in 2018, our business strategy is focused on three areas for 2019. Number one, keeping our business strong by continually delivering best-in-class technology and support running it efficiently through proven management of our operations; number two, expanding our sales reach to grow the pipeline and bookings for our new platform, taking advantage of our strong position in the modern application development market; and number three, leveraging our operating model to pursue the acquisition of complimentary businesses that we can operate more efficiently, adding scale and cash flows to our business. As you are aware, on December 1st, we adopted the new revenue recognition accounting standard known as ASC 606. Paul will provide more detail on the impact of the new standard during his remarks, but I want to emphasize that while our reported revenue will certainly be lumpier under ASC 606, our view of our core businesses has not changed. OpenEdge, AppDev, and DCI, all remain strong and healthy businesses with high levels of recurring revenue and loyal customers. With that in mind, as we execute on our goals for 2019, we expect to achieve revenue that is flat to 2% higher than 2018, with earnings per share growth of 6% to 9%. Operating our business in a lean fashion will enable us to maintain industry best-in-class operating margins, and even slightly improve over 2018 while continuing to make the investments we need to keep our business strong and sustainable. We expect to, again, produce strong cash flows while also returning significant amounts of capital to our shareholders. While we're confident that our core businesses will continue to be solid and stable contributors in 2019 and beyond, another key element of our strategy is our modern application development platform. This platform enables us to win new customers while also providing a future technology path for our existing partners and customers. Enterprises face many challenges as modern application development continues to evolve. Businesses are under great pressure to be agile, and to deliver these new apps and an ever increasing pace. We had a great omni-channel experience including mobile, web, chat, AR, VR, and more, and today's apps must also be cognitive and predictive, connected to all the data and systems, be flexible, reliable, and secure, and capable of Internet scaling. In the past, enterprises have had to choose individuals, fragmented tools, for developing on each of these different channels, learn to build and manage cloud infrastructures, attempt to hire scarce resources, and spend significant time to build multiple native apps they need. Instead, organizations today are increasingly looking for an integrated platform that offers easy-to-use solutions for rapidly building and deploying these applications while leveraging the developer talent they already have. These platforms are emerging as an important market category recognized by both Forrester, and Gartner and Progress is extremely well-positioned to take advantage of this opportunity. Progress recently presented at the Gartner Application Strategies & solutions Summit where over 1,800 developers, architects and CIOs and more than 60 elite Gartner analysts came together to explore the latest approaches to optimizing application architectures, development, and deployment. The challenges of modern application development that I just articulated were the central topic of conversation at this summit, and high productivity platforms are being looked at as the preferred alternative to meet these challenges. High productivity platforms promise rapid app building of easy-to-use apps. However, most of the platforms in the market today are rejected by professional developers, because they require knowledge of closed and proprietary technologies, lack the ability to truly deliver compelling user experiences, and falls short of the performance scale, security and robustness required for business-critical applications. As such, professional developers are increasingly relying on Progress, and our open standards-based, highly productive AppDev platform, Kinvey. Kinvey is focused on making professional developers more productive in delivering critical business outcomes, something Progress has always done. The attendees and analysts of the Gartner Summit were very enthusiastic about our platform's differentiators, which solved the problems they are facing. Kinvey, our integrated platform, which includes NativeScript on the front end and a server less highly scalable back-end, enables developers to use only JavaScript, one of the most popular development languages in use today to write native mobile apps for iOS and Android or web apps with no additional training. With DataRPM, those apps can also be cognitive and predictive. With DCI, they can connect to any data source, and with Kendo UI, they can provide the elegant intuitive user interfaces that users have come to expect. With Progress, Kinvey, developers don't need to sacrifice control, or use proprietary tools and languages to create the user experiences that today's modern apps demand. They can deliver apps much more quickly at a significantly lower cost, all the while focusing on the user experience and business logic, and letting the platform take care of everything else like performance, security, compliance and data connectivity. With this high productivity platform, we are helping businesses rapidly and easily develop apps in both of the mission-critical categories; number one, business-facing apps, which include both business-to-business and internal apps. These apps require heavy backend system integrations with complex processing across multiple systems and data sources and extensive performance scale in security requirements. And number two, consumer facing apps, which need to be deployed across multiple channels at Internet scale with millions of users when innovative user experience is often the differentiator. Industry analysts estimate the size of the high productivity modern AppDev market at $2 billion in 2017 and growing at 46%. So this represents a substantial opportunity for us. Our go-to-market activities which began in the second-half of 2018 are squarely targeted at this opportunity, and we continue to be encouraged by the increased activity we're saying as a result. We added nearly 40 new customers in 2018 and demand continues to grow. After tripping sequentially in Q3, the number of leads generated for our new platform doubled again in Q4 with pipeline growth of nearly 50%. Since these leads they typically follow a six to nine months sales cycle, we expect to see bookings for our new platform start to ramp up during the second quarter of 2019. As bookings ramp up, we'll provide bookings data for our new platform. Moving on, while we're focused operationally on strengthening our business and growing new platform, we also continue to execute on our capital allocation strategy in 2019, utilizing both share repurchases and dividends to return significant capital shareholders. Executing on our M&A strategy remains a top priority for 2019 as well. We have built a timeline of opportunities that meet our strict financial criteria, and would provide scale, and increased cash flows while enabling us to drive significant shareholder returns. I am confident that we have the financial resources, the management team, and the correct approach to execute and integrate such an acquisition in 2019. However, we will not compromise our disciplined approach in what is an active and highly competitive market. Before I close, I also want to share that the Boston club recently honored Progress with its 2018 Advancement of Women Award, noting that we appointed two women to our board in 2018. Both Sam King and Angela Tucci, two of our newest board members provide extensive software industry and entrepreneurial experience, and have made valuable contributions to our strategy and corporate governance. This award recognizes our ongoing emphasis on inclusion and diversity both at the board level, and throughout the company, and we're extremely proud to receive it. In closing, we had a solid financial year in FY18, and I'm excited about our prospects for 2019 and beyond. Our business is healthy with an extensive community of partners and customers that values the best-in-class technology and service that we continue to provide. Thank you for your support as we close out 2018 and work towards our goal of building an even stronger business as we move into 2019 and the future. As always, we appreciate your input, and I look forward to meeting with you in the coming year to hear your perspectives on our strategy, operations, and results. I will now turn the call over to Paul to review our Q4 performance in more detail, and to outline our financial expectations for Q1 and 2019. Paul?
- Paul Jalbert:
- Thank you, Yogesh, and good afternoon everyone. As a reminder, all the numbers I'll be referring to in my remarks are on a non-GAAP basis. For our fourth quarter, total revenues was $111.5 million, $1.5 million above the high-end of our guidance range primarily due to higher than anticipated license sales to both OpenEdge ISV partners, and direct enterprise customers. Our earnings per share of $0.76 for the quarter grew 13% year-over-year, it was $0.02 above the high-end of our guidance range, primarily due to a lower tax rate. For the full-year, total revenue was $397.7 million flat compared to a year ago. Earnings per share was $2.49, up 30% from $1.91 in fiscal 2017. Looking at a consolidated revenue for the quarter, as compared to Q4 of last year, as expected revenue for Q4 decreased from last year. Total revenue of $111.5 million was 4% 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 negative $1.5 million. License revenue of $43.2 million decreased by 6% from a year ago at actual exchange rates and 5% on a constant currency basis. Within our segments, solid growth from our OpenEdge ISVs was more than offset by a decline in license revenue from direct enterprises. And as expected, license revenue increased slightly year-over-year in our DCI segment offsetting a small decrease in our AD&D segment. Maintenance and services revenue was $68.3 million, a decrease of 3% year-over-year of actual exchange rates and 1% on a constant currency basis. Maintenance revenue of $60.5 million was down 1% compared to last year on a constant currency basis. Professional services revenue was $7.9 million, down 7% on a constant currency basis due to lower services revenue from our AD&D segment. Turning to our full-year revenue as compared to prior year, total revenue of $397.7 million was flat for last year at actual exchange rates and 1% lower on a constant currency basis. The year-over-year impact of exchange rates on our full-year revenue was a positive $3 million. License revenue of $122.2 million decreased by 2% from a year ago at both actual rates, and on a constant currency basis. Within our segments, OpenEdge license revenue decreased slightly overall in constant currency due to an expected decline from direct enterprises. However, this was substantially offset by a solid performance from our OpenEdge ISVs for the year. In line with expectations, license revenue also decreased year-over-year, in both DCI and AD&D segments. Maintenance and services revenue was $275.5 million, growth of 1% at actual exchange rates and flat to last year on the constant currency basis, despite a 5% decrease in our professional services revenue. Turning to our revenue by segment, with all the comparisons versus 2017, at constant currency, OpenEdge revenue was $74 million for the quarter down 3%, versus Q4 of last year. For the full-year, revenue was $278.5 million flat to last year. Our ISV partners has achieved solid license growth for both Q4, and the full-year, while license revenue from direct enterprise has declined for both the quarter in a year as expected. License revenue from our OpenEdge partner channel included SaaS related revenue of $6.3 million for the quarter and $25.2 million for the full-year. This represents an increase of 8% for Q4, and 13% for 2018. This is consistent with our low double-digit growth that we expect from this return revenue stream going forward. OpenEdge maintenance revenue was down 1% in Q4 and flat for the full-year compared to 2017. Despite the slight drop in revenue, for the quarter, our renewal rates remained well over 90% in Q4 and all of 2018 for both our ISV partners and direct enterprise customers. As I noted earlier, OpenEdge professional services revenue decreased for the full-year. This decline was expected and was accompanied by a reduction in associated costs consistent with our strategy to optimize the profitability of our OpenEdge professional services. Excluding professional services revenue OpenEdge license and maintenance revenue is stable showing slight growth for the full-year over 2017. DCI revenue was $18 million for the quarter flat to Q4 of 2017 and $39 million for the full-year, both in line with our expectations. Our multi-year license backlog at the end of the fourth quarter was $500,000 compared to $14.8 million at the end of last year, and $12.3 million at the end of the last quarter. The reason our DCI backlog is so low is because a significant number of OEM agreements are up for renewal in 2019. I'll provide more color on the DCI business a little later in my remarks through my discussion of our adoption of ASC 606. Turning to our AD&D segment; revenue was $98.5 million for the quarter, down 5% compared to Q4 of 2017. Revenue for the full-year was $80.1 million, a 1% decline versus 2017. Total bookings were $21.9 million for the quarter, up 2% versus Q4 of last year, and $81.2 million for the full-year, flat when compared to 2017. Bookings for the second-half of the year were stronger than the first-half, with growth of 1%. The second-half bookings performance was driven by strong 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 with those same products. Turning to expenses; total cost and operating expenses was $67.3 million for the quarter, flat with Q4 a year ago. This reflects the following
- Brian Flanagan:
- Thank you, Paul. That concludes our formal remarks for today. And 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'll now hand over to the operator to conduct the Q&A session.
- Operator:
- Thank you. [Operator Instructions] And our first question will come from Steven Koenig with Wedbush Securities.
- Steven Koenig:
- Great. Thanks very much, gentlemen. You may be repeating yourself on this, but could you just go over again or give more color on the Q1 guide being down and particularly on OpenEdge there, and if I could, on my initial question I'd also like to ask just on AppDev licenses for this quarter just ended for Q4, why were they down, and to what extent was that expected? And then I do have one quick follow-up, if you don't mind.
- Paul Jalbert:
- Sure. Steve, this is Paul. Thanks for the question. So, for Q1, right, our revenue is expected to be down on DCI, AppDev is expected to be fairly flat, on the OpenEdge, keep in mind that I mentioned there is a $2.4 million FX, and then on top of that there are, in Q1 of '18, we had some larger license sales in Q1 of '18 that we're not able to lap in Q1 of '19.
- Steven Koenig:
- Got you. And the Q4 AppDev, a little color on why was that, what caused that to be lower year-on-year and why was that -- and was that expected? And then I did -- if I could add one more, guys, and then I'll turn it over, the stock buybacks were lighter this quarter, I think you had anticipated that going in to the quarter per your guide, but the stock is way down from prior level. So, why not buyback at a higher rate when the stock is lower, and then are you still committed to -- I'd say then you're committed, I think you did say 100 million in repurchases this year, correct?
- Yogesh Gupta:
- Yes.
- Paul Jalbert:
- Yes. So, Steve, so let me hit the buybacks first. So, we had committed in '18 that we would repurchase 150 million in the first tranche, 30 million that was done previously, and then 120 million that we did in '18, so that $10 million tranche was really the completion of that tranche. We had committed that we would do $100 million going into 2019. And I'm sorry, Steve, can you repeat what your first question was again?
- Steven Koenig:
- Yes. Thanks, Paul, for your patience. I know I…
- Paul Jalbert:
- Yes. So, I mean I have to add that was somewhat expected, so it's not a big surprise to us there. So, it was really the result of lower bookings, right, so all of that gets taken ratably, so we had lower bookings than what we had expected at the beginning of the quarter.
- Steven Koenig:
- Okay, gentlemen, thank you very much.
- Operator:
- [Operator Instructions] Our next question will come from Mark Schappel with Benchmark.
- Mark Schappel:
- Hi, guys. Thanks for taking my call…
- Yogesh Gupta:
- Hey, Mark.
- Paul Jalbert:
- Hey, Mark.
- Mark Schappel:
- So, Yogesh, the OpenEdge business outperformance in the quarter was a pleasant surprise, especially since OpenEdge was the contributor to taking your guidance last quarter, but could you just discuss what happened in the quarter with respect to OpenEdge that drove the outperformance?
- Yogesh Gupta:
- So, you know, we had -- thank you, Mark, we had a few OpenEdge deals in our Q4 business that came in a bit larger than expected, and these weren't the deals that we had thought, you know, weren't going to be there. So those deals weren't part of it, they were different deals. So that's what made it happen in Q4. So, as you might recall that our lower guidance for Q4 was partially due to a negative FX impact of $1.3 million as well, but there were few customer-specific ones on OpenEdge that those didn't happen but we actually got additional license revenue from other, both direct and ISVs.
- Mark Schappel:
- Okay, great. Thanks. And then, Paul, a question for you, free cash flow came in much lower than expected this quarter, I was wondering if you could just go through the puts and takes for why that was?
- Paul Jalbert:
- Yes, so, we had guided -- oh, for the quarter, right, so we had guided for the full-year, Mark, $120 million to $125 million, came in just at the low-end of the range there. So, we had some lower collections, plus we also had some additional tax payments for -- of the transfer of some IP from a foreign jurisdiction back to the U.S., which is contributing to, or part of that is the result of the lower tax rate going into 2019 as well. So, for 2019, if you look at our tax rate going into 2019, we're going to benefit from the next provision of the Tax Act that was enacted earlier this year. So, we did take advantage of taking some of the IP and bringing that back to the U.S. So there were some additional tax payments there.
- Mark Schappel:
- Great, thank you.
- Operator:
- [Operator Instructions] Our next question will come from Glenn Mattson with Ladenburg…
- Glenn Mattson:
- Hi, guys. Thanks for taking the questions. So, I'm just trying to get the timing right on the OpenEdge. So, first I'd like -- so maybe Paul can remind us what OpenEdge growth was for the year, and then -- because I think it was positive, but just slightly positive, and then -- yes, go ahead.
- Paul Jalbert:
- So, it was essentially flat, Glenn, the OpenEdge.
- Glenn Mattson:
- Okay. So, it's flat in '18, but you benefited from some large deals in Q1, and then in the Q3 call you were talking about kind of a lighter Q4, which some deals came in better than expected, but Yogesh just mentioned that some deals that you had pushed out in Q3 guidance are now -- didn't close yet, so you should benefit from those in '19. So, I'm just trying to get the sense of kind of, you know, is this business really shrinking but there's a couple bit of lumpiness that occurred that helped in, or just exactly a better sense of what kind of [indiscernible] about.
- Paul Jalbert:
- Yes, so Glenn, I wouldn't say that it's shrinking, right. So, it's really -- as you cited some of the lumpiness, right. So, on the direct enterprises, right, that is somewhat lumpy. We do have certain term arrangements in our OpenEdge with our partners, right, that get recognized in a particular quarter that don't repeat, but in terms of where we ended up at the end of Q3, we did take down our full-year guidance. And some of those, not the specific deals that we had called out, some additional -- the partner channel deals came through, that was the cause of the overachievement in Q4.
- Glenn Mattson:
- Right, I guess to understand [indiscernible] in Q3, those should benefit you in '19, right, so…
- Paul Jalbert:
- No, Glenn, I think we talked about a particular renewal that we were expecting, or that did not come in 2018. We now know that renewal is not coming into 2019 as well, but we still have again with -- this is maintenance renewal with a direct end-user, even what that maintenance renewals rates are well over 90%.
- Glenn Mattson:
- Right.
- Yogesh Gupta:
- And Glenn, from characterizing the business perspective, I actually see the OpenEdge business to be very, very strong, and I actually don't see anything secularly different with it. I think there will be a little bit more lumpiness showing up maybe because of a term licenses that we didn't previously have, but in general, you know, maintenance remain high in general across the board, both direct and indirect business well into the 90%. And just from a color perspective, I really don't see this business at any significant risk at all.
- Glenn Mattson:
- Is the new release a catalyst at all for better results, or is that business kind of standard…
- Yogesh Gupta:
- Well, to us, Glenn, the goal is to continually keep providing our existing customers and partners to technologies and additional capabilities that keep them with us longer and extend continually the lifetime of those customers and partners. Additionally, we have released 12 with the three times performance improvement and throughput of the database that actually significantly lowers the infrastructure cost for our partners and customers that they need to drive the same level of activity. So, we see that as making it more sticky. We also see the modernization capabilities with even better integration than before with Kinvey has impressed [ph], and actually I talked about the fact that we have a healthcare partner ISV, who decided in Q4 to use Kinvey and our progress health cloud offering to build on top of OpenEdge, there are mobile apps using that. So I think all these things in my mind are signals that I believe that this is a tremendously strong business.
- Glenn Mattson:
- Okay, great. I will pass it on, and thanks for the clarity.
- Yogesh Gupta:
- Thanks, Glenn.
- Operator:
- Our next question will come from Matthew Galinko with National Securities.
- Matthew Galinko:
- Hey, good afternoon.
- Yogesh Gupta:
- Hey, Mattt. Good afternoon.
- Paul Jalbert:
- Good afternoon.
- Matthew Galinko:
- So, maybe firstly, you guys -- can you comment on how significantly healthcare deals are represented in the pipeline, and how important that sort of HIPAA compliance into the pipeline build for Kinvey?
- Yogesh Gupta:
- Yes. So, it is a significant percentage of our overall Kinvey, both deals that happened in last year as well as in the pipeline today. I believe it is one of the top three verticals for Kinvey; again, both for 2018 and our current pipeline, as it stands. In addition to that, Matt, the other compliance capabilities and security capabilities help us with verticals, where compliance is needed as well, which includes financial and others. So, we are actually seeing compliance as a very strong differentiator for us, but there are several differentiators. I mean, one of the fascinating things is that the capabilities of the front-end, which is native apps and native experiences across all kinds of channels, the capabilities of the back-end, which makes the back-end developer productivity dramatically higher because of single-click integrations with data sources, single-click integrations with security systems, single-click performance characteristics, you know, I want type performance syncing -- you know, offline activity and sync, all those things are differentiators as well. In addition to being able to use, as I said, both the data connectivity through DCI to a very, very large number of data sources to a single-click. So, all those things are differentiators, but I think compliance right now is a tremendously useful and important differentiator for us.
- Matthew Galinko:
- Got it, thank you, and I guess my follow-up in, it sounds like you do factor some of the new app development tools into your guidance, like particularly Kinvey. So, can you talk about maybe your -- how you go about constructing that guidance considering, you know, I guess that there is more in the pipeline than there is in sort of current revenue and in bookings. So, how do you factor that in and what gives you confidence to build that?
- Yogesh Gupta:
- So, as Paul said in his commentary, right, that our revenue guidance for 2019 has a -- the increase of zero to 2% growth projection at actual rate, and 2% to 3% growth projections at constant currency has a modest contribution from our Kinvey new offerings. The way, you know, obviously you go about doing that is, you know, the revenue that was last year, the bookings that we are expecting based on the pipeline, and so on. You are actually correct, and it's a ratable recognition. So, as bookings grow, the revenue will get recognized over the period of a contract. So, the earlier year bookings will show up more, the later year -- second-half year bookings will show up less. I mean, it's basically straightforward based on our business projections today.
- Matthew Galinko:
- Got it. All right, thank you.
- Operator:
- And this concludes our question-and-answer session today. I would like to turn the conference back over to management for any additional or closing remarks.
- Brian Flanagan:
- Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal first quarter of 2019 on Thursday, March 28, 2019, after the financial markets close, and holding the conference call the same day at 5
- Yogesh Gupta:
- Thank you, Brian. We remain committed to building a strong sustainable business for the benefit of all our shareholders, and I believe we have made good progress towards that goal in 2018. The future is bright for progress, and with continued execution of our strategy, I look forward to a very successful 2019. Thank you again for your support and for joining us on today's call.
- Operator:
- That does conclude our conference for today. Thank you for your participation.
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