Good day, and welcome to the Progress Software Corporation First Quarter Earnings Conference Call. At this time, I would like to turn the conference over to Tom Barth, Vice President of Investor Relations. Please go ahead, sir.

Thank you. And good morning, everyone, and thanks for joining us today for our fiscal first quarter 2012 earnings call. This is Tom Barth, Vice President of Investor Relations for Progress Software Corporation. With me today is Jay Bhatt, President and Chief Executive Officer of Progress Software, and other members of the management team. 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 and other information that might be considered forward-looking. Please review our Safe Harbor statement regarding this, which is available on the Investor Relations section of our website at www.progress.com. Today's conference call will be recorded in its entirety and be available via replay also on our website in the Investor Relations section. Today we published our financial press release and prepared remarks on our website and furnished the information to the SEC in an 8-K filing this morning. These documents contain the full details of our financial results for the fiscal first quarter, and I recommend you reference these documents for specific details. With that, I'd now like to turn it over to Jay.

Thanks, Tom. And good morning, everyone, and thank you for joining us today. The first quarter of 2012 marked my first quarter with the company. When I joined Progress, I knew the changes would be needed to improve the company's performance as well as to bring greater focus to the company's business and direction. And some of these changes, including to our management team, began in this first quarter. The first change we announced in early January 2012 was the search for a new Head of Global Field Operations. I'm very pleased to welcome Andy Zupsic to Progress as our new Head of Global Field Operations. Andy has extensive experience in the software industry on the sales side, including lengthy stints with Microsoft and IBM. Most recently, he ran the Americas sales organization at Juniper Networks. As a member of Juniper's executive staff, he led both the direct and indirect distribution channel enterprise sales organization throughout the U.S., Canada and Latin America. Andy will start on April 2. For the past 2 months while the search has been ongoing, I've been directly managing the field leadership team. And it's been very valuable for me to get this deeply engaged with the company's customers and field organization. It's allowed me to get far closer to the Progress go-to-market strategy than I otherwise could have in the short amount of time that I've been leading the company. The second change we reported this morning is that Charlie Wagner, our Chief Financial Officer, is no longer with the company. Charlie's departure is not based on any disagreement with the company's strategy, accounting principles, practices or financial statement disclosures. We thank him for his efforts over the past 18 months and wish him well. A search for his replacement has already begun with a global search firm. Until our new CFO is on board, I take responsibility for the finance function. I've been closely involved with our exceptional finance team firsthand, having been very engaged with them since I arrived, and particularly as we closed Q1. Additionally, I personally have a great deal of experience in finance throughout my career as a GM CFO and Corporate Development Lead, and I'm confident that this change will neither impact our day-to-day operations nor our ongoing financial management and strategic planning efforts. Despite exceeding our Q1 guidance provided in December 2011, we produced year-over-year declines in reported revenues and profits in Q1, and it's clear we're not executing on all cylinders yet. The EBS business did not perform as expected as it continues to be affected by ongoing changes in our direct sales model. Until execution in this segment is trending in the right direction, we've halted or slowed additional investments. However, the company did have several highlights during the quarter, for example, OpenEdge grew bookings year-over-year for the third straight quarter. This was primarily driven through our application partner base and is a reflection of their excitement and support around our December launch of OpenEdge 11, particularly as it relates to the database multitenancy, PPM module and the Cloud and SaaS transition tools that we're now providing. Additionally, while our EDS business declined slightly year-over-year, our Data Direct Connect product line saw revenue increase for the quarter. We are focused on improving the overall Connect product line with a specific emphasis on improving demand generation, which was really problematic throughout last year. The increase in Connect revenue is partly attributable to this renewed sales and marketing focus and the closure of several large OEM opportunities. We also saw significant revenue growth in Asia Pacific of 16%, a region that, as I pointed out in December, represents an untapped opportunity for the company. A large part of that growth is attributable to the EBS business performance in this region. Finally, we saw year-over-year growth in maintenance renewals, a positive indication that our customers remain loyal to Progress and the value our solutions provide. Overall, while I'm not happy with the year-over-year growth results for the quarter, I am pleased with the efforts taken to improve both productivity and profitability. During the fiscal first quarter, we initiated cost control measures, including tempering our hiring. As we navigate throughout the current environment, we'll continue to tightly control spending. As I mentioned in the earnings release, we are currently involved in a comprehensive evaluation of the company in its core strategy and operations. Our Board of Directors, with almost 40% new arrivals over the past 6-plus months, is deeply involved and engaged in this process as well. We've heard from our shareholders, customers, partners and employees as part of this undertaking. We're also working with external advisors, including JPMorgan and others. Specifically, the process that I've been driving at Progress over the past couple of months is a combination of both a bottoms-up, inside-out strategic examination and a tops-down cost and operational view of the current state of the business. It's a dispassionate, deeply analytical review and one that I've used numerous times in my career. Data has been collected from all stakeholders and constituencies in the business, and difficult decisions will be made, with the goal of making the company very competitive and financially successful in the segments and areas in which we will ultimately focus, with the end goal of driving strong shareholder value. To this end, both the qualitative but also a deeply quantitative assessment is being employed. In the end, I am confident that no stone will be left unturned in our process. We're nearing the end of our analysis and expect to share our revised plan with the marketplace in late April. We expect this plan to include actions on the company's strategy, product portfolio, expense run rate and capital allocation in order to strengthen the business and deliver higher levels of shareholder value. Because we're still finalizing our plans, it would be premature for me to go into more detail on the process or specifics. I'm confident that with the revised plan, we can expect Progress to chart a course towards higher levels of shareholder value creation. Now I'd like to add some further detail on our fiscal first quarter's performance. For the fiscal first quarter, the company reported GAAP and non-GAAP revenue of $124.4 million, a decrease of 7% compared to $134.2 million in the fiscal first quarter of 2011. GAAP diluted earnings per share were $0.12, a decrease of 59% compared to $0.29 in the same quarter a year ago. And non-GAAP diluted earnings were $0.28, a decrease of 33% compared to $0.42 in the same quarter last year. Overall, license revenues for the first quarter declined 19%, impacted primarily by the weaker performance of our direct channel within EBS. While maintenance and services was flat for the quarter, maintenance increased 2% year-over-year, driven by improved renewals. The EBS segment revenues declined 17% year-over-year. During 2011, we invested significantly in this segment to drive overall growth for the company. However, we experienced low sales productivity as we made changes in our direct sales organization throughout the year in the form of sales capacity and capability. These issues continue in the first quarter of 2012, and as a result, the EBS segment revenues did not meet our expectations. The slower uptick in the EBS business impacted closing larger deals throughout Q1, as we closed 8 direct deals over $500,000, down from 12 a year ago. However, the average deal size in the trailing 12-month basis was up slightly compared to the fiscal first quarter in 2011, and we remain focused on improving our sales productivity and yields. The ADP segment revenue declined 4% year-over-year. However, we were pleased that OpenEdge license and total bookings were up again compared to the prior year. During the first quarter, the indirect channel represented 76% of OpenEdge revenues. But the OpenEdge revenue growth from our indirect channel was more than offset by declines in the revenues for other mature product lines included in the ADP business segment, specifically Orbix and ObjectStore. Our EDS segment revenues declined 1% year-over-year, but this was better than expected due to a few larger deals that closed earlier in the quarter. Our largest product line in the EDS segment, Data Direct Connect, saw a slight increase in revenues for the quarter. Recently, we placed some emphasis on improving demand generation for our Connect product lines, which was problematic throughout the year -- throughout last year. The increase in Connect revenue is partly attributable to this renewed sales and marketing focus and the closure of several large OEM opportunities. However, in the near term, EDS will continue to be a lumpy business, with quarterly performance dependent on the timing of closing large opportunities. Our Q1 2012 non-GAAP total cost of sales and operating expenses increased year-over-year to $98 million, up from $93 million last year, primarily due to increases in our sales and services and employee-related costs in both product development and G&A. Keep in mind that expenses in Q1 2011 were still relatively low due to the timing and impact of restructuring activity in the third quarter of 2010 and were also down sequentially from Q4 2011. During the first quarter in 2012, we initiated cost control measures, including limited hiring and spending, until the company concludes its ongoing strategic review. Because of this, Q1 2012 non-GAAP total cost of sales and operating expenses actually declined sequentially from Q4 2011. As a result of our lower revenue and higher costs, net income was down year-over-year, and non-GAAP EPS declined to $0.28 in Q1 from $0.42 a year ago. The company generated $35 million of free cash flow during the quarter and ended the quarter with $315 million in cash and short-term investments. Due to the ongoing business review and pending announcements of future strategic plans, the company will not provide financial guidance for the fiscal second quarter or fiscal year at this time. The company anticipates announcing its strategic plan in late April and will provide an updated business outlook at that time. That concludes our formal remarks for today. I'd now like to open up the call to your questions. [Operator Instructions] I'll now hand over to the operator to conduct the Q&A session.

[Operator Instructions] We'll go first to Mark Schappel with Benchmark Company.

Jay, starting with a question on the sales force, if you look at your direct sales force, what percentage of your sales reps have been with the company over a year?

Yes. I think on the direct sales side, there's been -- and we've mentioned this in the past. There's been a lot of turnover. There's been a lot of change, we -- not just with the sales reps, the direct sales reps, but also the leadership. In fact, as I've been directly managing the sales organization over the last quarter, I've gotten very close to the sales organization and the leadership. Some of our guys running the organizations, our Asia Pacific leader and our Americas and EMEA leader, have come in within the last year and some within the last 6 to 8 months. And our direct sales organization has turned significantly in that process as organizations have solidified. So we're getting to a point now -- I think you saw that in Q1. You saw that productivity issue in Q1 with newness, among other issues. We're getting to a point now where people are starting to see them. And we're not quite there yet.

Okay. And then in the past, you've talked about the competitive win rate for the RPM suite or the RPM business. And given that you've had a chance for the last quarter or so just to sit back and observe and get involved with sales engagements, what do you think you need to do there to really boost that competitive win rate in that product set?

Mark, we've talked generally, I think, kind of qualitatively about the win -- the competitive landscape and the win scenario. We haven't given numbers on that. What I have said is that I have talked about number of large deals that we've won over $500,000, and I mentioned a little bit of that in my remarks. I think that the landscape's competitive in the EBS segment, and specifically around the RPM ideas, with some of the known competitors out there. We saw Q1 was no different than Q4 in last year in the competitive nature of the marketplace around the sale of these products, whether it's the single products and the single-category products or the suite and the combined value proposition. So we're out -- we feel like our value proposition around RPM is very compelling. We had some very positive movement around new customer wins in Q1. But as I mentioned, we did not meet our expectations in that business in Q1, and we're still going through and resolving that.

We'll go next to Steve Koenig with Longbow Research.

Jay, I want to dig into for a second on ADP here. You commented last quarter as well on how well sales through the Application Partners were going. We're continuing to see that ADP segment decline, though, year-on-year by several points. The other products are pretty tiny in the mix now. I actually estimate they're probably 15% less of the revenue mix. So I'm just having -- I'm having trouble understanding why the bookings growth you're getting there isn't translating to revenue growth. Is that a function of are you selling more SaaS? Or is it -- what's causing that divergence between the fact that the indirect license revenues for OpenEdge, they're a smaller part of the mix this quarter than a year ago, yet you're saying that, that area is strong? And also lastly, Jay, I guess I would add that our checks suggest that the SMB software markets in Europe aren't real healthy. So I'm just -- help me make sense of that, if you don't mind.

Let me just make sure I understand the question. So you talked about the ADP segment specifically and then the Application Partner base, which is primarily OpenEdge. And your question really -- you believe that -- let me -- is your question really you believe that the Orbix and ObjectStore piece is getting smaller in the mix of ADP, and you're wondering why we aren't seeing more indirect license? Is that the question?

Yes, yes, that's exactly the question.

Okay. Look, I think, generally, the lion's share of the ADP business, you're right, is the OpenEdge business. The OpenEdge business, as you know, I think, has 2 primary components. One is around the application partner sale, which is the sale of the platform through the lens of an application built on top of that platform sold by NIC [ph], and then the second is into direct users, IT departments, et cetera, who have built applications on top of the OpenEdge business. What we see in the OpenEdge business is the new license activity comes out of really the former and not as much the latter. So when you look at -- when you're looking for new license in the indirect channel, the OpenEdge business, you're looking at it in a part of the business where the new license activity is actually happening. So you've got a couple of things in the ADP business segment that tend to drag growth in new license. One is the Orbix and ObjectStore dynamic that you've mentioned. The other is the direct user component of the OpenEdge business. So I hope that helps understand some of the dynamic in the business.

It does. I guess, then, the follow-up to that would be when -- if bookings growth is positive in that for the -- for OpenEdge, when are you going to see that translate to ADP revenues actually growing? Because I think the OpenEdge sales through partners is probably, what, over half of the ADP segment? So sooner or later, it seems like that ought to translate to ADP showing fairly stable results.

Yes. I think those are -- I'm going to -- I have a feeling I'm going to say this a bunch on the call, and I'll say this now, but I'll also try to do my best to answer the question. We're in the middle of a planning process, and we're going to be coming at the end of April with a -- with our plan, and I hope to address some of those things then. So I don't want to get into too much detail on that front. I will say that you're -- some of the things you said are right in the dynamic in terms of the fact that more than half of the revenue is coming from that Application Partner base. Those guys that are running those business, many of them are very interested in driving new license activity and growth in their businesses. So some of that will be addressed in the process that we go through. You had another question on small- to medium-size business in EMEA and the weakness of the GEO of EMEA around SMB that you've seen. And what I can say there is I would say there are still challenges in EMEA. And I think -- I guess I'm probably not the first CEO to mention that and probably not the first company to mention that. We see challenges. There's still macro challenges that face EMEA, and there's still pockets of instability that we face as we execute into EMEA. So whether it's SMB or direct, et cetera, I think it's -- there's some effect around the entire landscape.

We'll go next to Scott Zeller with Needham & Company.

I'd like to hear your thoughts, Jay, about the commitment you have to solution selling and large deals. You mentioned in your prepared remarks what the large deal count was, but could you let us know with the new head of sales how committed you are to doing large-scale deals and if that is the strategy going forward?

Well, yes. And so let me say I'm really excited about the hire of our new Head of Field Operations, Andy Zupsic. We went through, Scott, an exhaustive search with a really internationally branded search firm. And Andy was our #1 choice, and we're really fortunate to have brought him into the company. He comes from a really interesting background in terms of his knowledge of sort of multi-sales channels. He's had lots of both channel and indirect experience in the Microsoft days and direct experience in his Juniper experience as well as at IBM. So he's had a global footprint. He's run organizations in the Americas and Asia Pacific, and he certainly had scale, if you I think about that scale that I've mentioned in my prepared remarks. So I think that what's really exciting about Andy is as he assessed the landscape of Progress, he was excited about the multichannels and the penetration that we're making both in sort of ISV and channel-oriented business but also on the direct and enterprise side. I would say I was -- we were disappointed to see the drop in larger deals closed in the quarter, and we've been reporting on that for some time. But -- and it is important. I think it's important as an indicator around consolidation of product absorption at the customer level. And especially as we've integrated some of these products, we expect to sort of upside some of these deals. So I would say that we're watching that. We're watching that specifically in the EBS business. I think that's where you're seeing some of the -- most of the larger deals, although there are some sales of components and technology that size up into the OpenEdge channel, particularly on that Direct End-User side. And some of the deals that we reference around larger deals come from the sale of products into that non-application partner base in OpenEdge.

And to follow up, could you tell us if there has been turnover in the regional head since your former head of worldwide field operations departed?

No, there absolutely hasn't. In fact, the leadership is exactly the same as it was when I got here. It's -- I've been very impressed with the leadership of that organization and been working very, very closely with the 3 geography leads. We've had some sublevel new hiring to strengthen those areas. So for instance, in Asia, we've had some really great country manager hires come in -- come onboard recently, specifically in Japan. As an example, in Australia, Australia, New Zealand and ANZ, and even prior to that, we had Avian [ph] come on board. So we've been shoring up our leadership in EMEA, we've had recent leadership at the country level in sort of Southern Europe, France, Italy, with very strong profile. So I think the team that we put in place, it's, as I mentioned, fairly recent, at that second-tier -- the sales staff level is really shoring up and solidifying their teams.

We'll go next to Gabe Lowy with Mizuho.

I did want to focus in on the EBS segment. And I know in your prepared commentary, Apama was called out for some deals, and I think Savvion as well. What I'm trying to get at is, are any of the components of EBS performing better than others, particularly vis-a-vis suite sales as opposed to individual product sales?

Gabe, I'm sorry, we don't break it down at that level probably. So I want to sort of caveat it with that. I can give you some -- directionally, I would say, the concept -- the use cases and concepts around RPM, and when you think about RPM as an idea or IBO or whatever title that's given by the market analyst, we tend to call it RPM, you really have to think about it in the context of use cases. And the products have different penetration and different relevance to the use cases. I would -- you specifically called out Apama and Savvion. I would put in there Sonic and Actional and the Control Tower and some of the other components that make up what we call the bucket of RPM or EBS. And directionally, I would say that PCT is a product line, is a brand new product. So you're going to see it's got fantastic compares, given it's coming from nothing. So you see high growth in that. But overall, I'd say there's a general -- it's a -- I don't see too much difference across the board. So I think the lens in EBS is fairly clean. I mean, the way we report tries to capture the core components of RPM and roll them up that way. So we -- but we don't break it down at the product level, at the individual product level or the growth per product level.

And you mentioned in an answer to an earlier question that the landscape is pretty competitive there. Can you delineate for us who you view as your principal competitors in that business and what your win rate is that you perceive against those competitors?

I would say, honestly, I don't mean to sort of hedge, but they vary. And it varies by use case, and it varies by product competence. So if you look at a deal led -- really led with the concept of event processing at Apama, you have a different set of competitors than if you look at a BPM-led idea that cross-sells other products around it but is really BPM-oriented at the core, which is a different set of competitors. So I think it does vary. I think it's a high-level solution idea of RPM, and conceptually, there are a lot of people that are chasing the concept in different ways. Most people are really locking into this idea of workflows and use cases and where they're going to differentiate. But the competitive landscape really does vary by use case, by product and by -- and, at some level, by customer segment industry. So it would be difficult kind of go through a competitive list over the phone here.

[Operator Instructions] We'll go next to Greg McDowell with JMP Securities.

Jay, I just have one quick question. I know that EDS license business was below your expectations, but could you go a little bit into the renewal rates of the EBS business and whether or not the renewal rate came in line with your expectations? And along those lines, I'd love to hear a little bit about renewal rates across some of the different product areas.

So -- and what we report on renewals is sort of the top line number, the -- I'm sorry, the roll-up number. Your question was specifically directional around which area?

EBS, EBS.

EBS, EBS. Yes, I think that we have generally healthy renewal rates across the board is what I would tell you. And having run a bunch of software businesses in the past, I was pleased to see that coming into Progress. I think that it's a -- renewal's a critical gauge, obviously, for customer satisfaction and health of the business and health of the implementation and sort of lots of things, avoidance of shelfware, et cetera. And we have pretty healthy renewal rates across the board is what I can say.

It appears there are no further questions at this time.

Okay. Thank you all for joining the call this morning. As a reminder, we plan on releasing our financial results and prepared remarks for our fiscal second quarter on Wednesday, June 27 before the financial markets open and holding a conference call the same day at 9 a.m. Eastern Time. We look forward to speaking with you again soon. Thank you, and have a great day.

This does conclude today's conference. Thank you for your participation.