Good day, ladies and gentlemen, and welcome to the OpenText Corporation First Quarter Fiscal Year 2014 Results Conference Call. [Operator Instructions] Today's call is being recorded. And at this time, I would like to turn the conference over to Greg Secord, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Britney, and good afternoon, everybody. I'd like to start the call with a reading of our Safe Harbor statement. Please note that during the course of this conference call, we may make statements relating to the future performance of OpenText that contain forward-looking information. While these forward-looking statements represent our current judgment, actual results could differ materially from the conclusion, forecast or projection in the forward-looking statements made today. Certain material factors or assumptions were applied in drawing any such conclusions, while making any such forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information, and the material factors or assumptions that were applied in drawing the conclusion, while making the forecast, projection as reflected in the forward-looking information, as well as the Risk Factors that may project the future performance results of OpenText are contained in OpenText's Form 10-K and 10-Q, as well as in our press release that was released earlier today, each of which may be found on our website. We undertake no obligation to update these forward-looking statements unless required to do so by law. In addition, our conference call will include a discussion of certain non-GAAP financial measures. Reconciliations of all non-GAAP financial measures to their most directly comparable GAAP measures have been included in today's press release, which may be found on our website. With that, I would like to welcome everybody to the call. With me today is OpenText President and CEO, Mark J. Barrenechea; as well as our Chief Financial Officer, Paul McFeeters. As with our previous calls, we'll read prepared remarks, followed by a question-and-answer session. The call will last approximately 1 hour with the replay available shortly thereafter. I'd also like to direct investors to the Investor Relations section of our website, where we have posted an updated PowerPoint that would be referred to during this call, as well as a summary table highlighting OpenText's historical trend and financial metrics. And with that, I'll hand the call over to Paul McFeeters.

Thank you, Greg. Turning to the financial results, I will highlight our first quarter fiscal year 2014. Total revenue for the quarter was $324 million, down 0.5% compared to $326 million for the same period last year. Regionally, the Americas contributed 54%; EMEA, 37% and Asia Pacific, 9%. License revenue for the quarter was $55.3 million compared to $55.7 million reported for the same period last year. We saw license revenue broken down by vertical sector is 19% from basic materials and conglomerates, 17% from services, 14% from financial services, 13% from healthcare, 12% from technology, 12% from public sector, 5% from utilities, 4% from customer goods, and 4% from industrial goods. Cloud services revenue for the quarter was $42 million compared to $44 million in the same period last year. Cloud services gross margins were 65.7% in the current quarter compared to 59% in the same period last year. The current quarter margins were up partially due to a one-time impact of a reversal of certain sales tax liabilities. Absent this, the cloud services margin in the current quarter would have been approximately 51%. Customer support revenue for the quarter was $186 million, up 3.9% compared to $162 million in the same period last year. Customer support gross margins were 86.8% in the current quarter compared to 84.1% for the same period last year. The increase was due to efficiency gain from the centralization of technical support resources, and by a reduction in third-party technology costs. Professional services and other revenue for the quarter was $59 million, down 8.5% compared to $65 million in the same period last year. The professional services gross margin was relatively stable at 22.1% in the current quarter versus 22.5% for the same period last year. Gross margin for the quarter before amortization of…

Thank you, Paul, and welcome, everyone, to our fiscal '14 Q1 earnings call. There are 3 main things I'd like to speak about today in my prepared remarks. The first is intelligent growth. These are the operating principles for our financial strategy and our overall business model that guides the organization every day. Second, our Q1 results. I'll go a little deeper this call to provide additional insight into the quarter and our performance. And then third, Red Oxygen. Customers have begun to gain access to our next big release. They like what they see and I'll spend some time today highlighting the major aspects of Red Oxygen. Let me get right into it with intelligent growth. We're focused on creating value for our stakeholders. We do this by growing our earnings and our cash flows. We do this to our dividend program, and by on-boarding acquired assets to our operating model that can create value for our stakeholders, while investing in innovation and markets we know we can win in. We lead with value, we invest for growth. We do not chase growth at all cost, rather we have an operating principle of creating tangible and sustainable value. We call this intelligent growth. Over the last 2 years, we have grown our cash flows and earnings. We achieved this while creating a stronger, more efficient business. And over this period of time, to a large degree, we have insulated our cash flows and earnings growth from the ups or downs of license. This could not be clearer than in our Q1 results. Our adjusted operating margin was up 6% to 30.6%. Our operating cash flow was up 29%. Our adjusted net income was up 6% and our adjusted EPS was up 5%, on essentially flat revenue. We continue to…

Our first question comes from the line of Richard Tse with Cormark Securities.

With your comments on the government shutdown, just want to get a sense of post that shutdown today, where your sales stands, have things sort of noticeably turned around? And I've got a related question to that after.

Yes, sure thing. No, it certainly feels like business is getting back to normal, post the shutdown. We enter Q2 with a strong pipeline. We, of course, have to convert that pipeline, but we entered the quarter with a strong pipeline. I also noted that we had a large deal that flipped in Q1 in Asia Pacific that we have subsequently closed. So things are returning to normal now that the shutdown is over.

So related to that, I think in the past, you've broadly talked about growth expectations in the order of 10% on licenses. Given that turnaround in terms of the pipeline, should we to expect that that's a pretty good bogey that we're shooting for this year?

Well, it is -- all our investments can -- the design point for those investments are to grow at the market rate, and best that we can continue to tell that market rate is near 10%. As you know, we don't have guidance. We provide an operating model for the company. But I can tell you, we're focused on getting the company and our investments to the market ready.

Okay. And then one last question on Red Oxygen. Given that you're sort of consolidating the portfolio, I'm guessing that the price points certainly will be higher. So can you give us what your ASP was this quarter, and your expectations for the sort of ASP of each module looking out into Red Oxygen?

Yes, our ASP -- our average sales price is $268,000 for the quarter. And it's probably a bit of a longer discussion, kind of pillar by pillar and maybe we'll take that off the call.

Our next question comes from the line of Scott Penner with TD Newcrest.

I just like to ask a bit about the -- just the capital allocation strategy as it stands right now. As you've kind of pointed out, the license revenue has been a bit disappointing the last 2 quarters. And if you look at it, as you mentioned, the cash, even net of acquisitions, is up over $50 million in the last couple of quarters. So what can you do -- what is the plan for that cash going forward? Is it secure additional acquisitions and then assuming that's probably the answer, what is the -- what kind of comments can you give us on the outlook for the deal environment right now?

Thanks for the compound question. On the first part of the question, if I look back over the last 2 years or so, the company has done an amazing job operationally of sort of insulating our earnings growth, our cash flow growth from the variability of license. And that's an incredible achievement for the company, and that's part of what I call intelligent growth. Being able to grow our cash flow, our earnings, creating a dividend program and investing the markets we believe we can win in. So that remains our strategy. Our design point is to, for the investments we make in the business, whether it be Red Oxygen, whether it be investing in faster growth markets, getting additional coverage, bringing more partners on board, more program spend, the design point remains getting to the market rate. We don't guide to that, but those are our design principles. And then thirdly, in terms of capital allocation strategy, there's no change to the strategy. We are -- we continued with our dividend program every quarter even though the Board meets and reviews the dividend. Paul and I think of the dividend program roughly as 20% of our cash flows, operating cash flows. And we'll continue to acquire. So no change on the capital allocation strategy.

And just on the valuation of deals as you look out right now, even the past, repeatedly you want to be a value buyer. What have you seen in terms of the valuations of targets you may have approaching? Are they in the ballpark of what you're be willing to pay or are they creeping up?

Yes, like I commented on the last call, and I have no change that we continue to be in -- a value buyer. We look for certain ranges, and we're going to continue to look in those ranges for value assets. So no change to our strategy.

One question for Paul. The special charges were expected to be $5 million to $6 million or a little bit below that. Can you give us an outlook over the next couple of quarters on that?

Yes. It would probably be -- I'm looking at about $3 million for the next quarter and maybe $1 million each in the following 2 quarters. So the remainder of the year right now is about $5 million.

Our next question comes from the line of Thanos Moschopoulos with BMO Capital markets.

Mark, can you comment on the level of sales turnover in the quarter? We saw a higher level than typical during the last September quarter. Wondering if it was more consistent with sort of lab [ph] this quarter, or if it was -- any difference in that regard?

Good question. No, I would say we're operating really back to historical norms. We haven't seen ourselves having high turnover coming into the new fiscal year at all. So I'd say we're operating quite within historic norms. We also rolled in the year with minimal changes to the field organization. So I'm quite pleased with our retention rates coming into the year.

And so on a year-over-year basis, we should still think about you guys being sort of 20% higher in terms of sales headcount than you were last year?

Roughly, yes.

Okay. Question for Paul. Paul, can you break out the contribution from ICCM and Cordys in the quarter?

Well, ICCM has very little revenue. And Cordys, we acquired middle of the month. So both were actually quite negligible. With don't break it out because it's not material and certainly, negligible in the license. And so -- and correspondingly any maintenance we pick up, there was a very small haircut, I think, about $0.5 million for the next year. Cordys, trailing revenues, about $30 million.

Okay, that's helpful. And just one last one for me. Mark, can you clarify the Professional Service line that was down year-over-year and quarter-on-quarter? Any dynamic there? Is that just some quarterly volatility in that number?

Yes. I think of -- I mean, we love our PS business and we get great value for it. In a lot of ways, it's a trailing indicator, right, to license. So if PS is going to be down, it's probably a trailing indicator. And even if licenses going -- was down -- is down, we're compensating by having a stronger margin performance to continue to drive earnings growth. So I -- think of it as a -- just a trailing indicator to license.

Our next question comes from the line of Paul Steep with Scotia Capital.

Mark, maybe can you talk a little bit just about the metrics you're thinking about and the board's thinking about in terms of measuring success for Red Oxygen when it launches. How are we going to determine when you've won or when we're there, and that's the first one?

Well, the customer adoption, competitive replacements, are certainly things in top of mind for me and the leadership team, as well as ultimately gaining new logos, new customers and license revenue. It's an important release for us. We've choreographed -- organized 1,000 engineers to deliver instead of a couple hundred modules, 7 suites of software, with deep integration, over 300 integration points. So I'd be looking towards competitive wins, customer wins, new logos and then ultimately, leading to license revenue.

So on that same topic again, just the last one for me would be what's the plans -- or maybe you can remind us, what the stance is towards sort of customer support or migration towards Red Oxygen and what the expectation would be in terms of when you think you want to move the base over?

Yes, fair enough. So as we get into Enterprise World, we'll certainly highlight what's part of customer maintenance fee and what's not. So we're going to have opportunities where some of these suites to not have just it as part of maintenance. So this will be part of our roll out when we get to Enterprise World on the pricing, as well as what's included in maintenance and what is not. So there will be opportunities both within the installed base and obviously to attract new logos and new customers. So pricing and packaging, all we'll release at Enterprise World.

Sorry, just have to clarify there. Actually, it wasn't so much about pricing. I just want to see what's the policy on end of life legacy products? What's sort of the 4-store, the push to migrate people more quickly? I should have been more clear.

No problem, I misunderstood the question. We typically support 2 releases back. So when Content Suite 10.5 goes GA, we'll support 2 releases back. And we've been on sort of a 2-year strategy, so customer is 5 years, 4 to 5 years behind would get an end-of-life notice, and then we'd have to upgrade. So we tend to support 2 releases back.

Our next question comes from the line of Eyal Ofir with Clarus Securities.

Just to follow up on the gross margin line. Paul, I think you mentioned on the call, early part of the call that cloud services was in 51% without the reversal, is that correct?

61. 61%.

61%.

Yes.

Okay, perfect. And then, Mark, you talked about how you're starting to see some demand in the quarter, but building the release of Red Oxygen, can that also create a drag for you in the current quarter as well, as people anticipate the general release?

It wasn't a lead contributor to the flat revenues. I'm sure there are some customers who see it and our pausing, but I wouldn't -- I don't think of it as a major contributor.

Okay. And then you expect Red Oxygen to be a positive impact in this fiscal third quarter and also in the fiscal fourth?

Yes, certainly. I certainly see it as a new product cycle for us in the second half of the year, for sure.

Okay. And then just on the pipeline of opportunities, you guys are chasing solid -- pretty healthy pipeline. Some of the software vendors that have missed in quarter as well have also talked about the same thing. Where is that pipeline coming from? And in terms of execution, obviously, we have some issues over the last 2 quarters. What gives you confidence you can, I guess, turn the ship around from an execution standpoint here?

Yes, fair enough. So pipeline is up -- feels healthy. The effects of the shutdown seem to have worn off and folks are back to business. I look around our GOs, and last quarter in the Americas, the revenue was down 2%. It was primarily PS, but we did greater margin, but license was up. And we're -- and I see execution sort of improving in the Americas. In EMEA, our business was up 5% last quarter with strong CS. And in APJ, although our business was down 11%, I sort of point to a deal that slipped that we've closed and brought that back in Japan roughly $1.6 million. So just as we saw sort of a pause across GOs in Q1, we're looking at the pipeline across our GOs right now in Q2. So I'm actually going to look to each of our GOs here contributing.

Okay, perfect. And last question for me before I pass the line. The government shutdown, is there any way you can give us some form of a metric to figure out what kind of an impact this had on you?

Nothing except, I don't mean to be a bit cheeky, but across the board, I mean, it really was for us an across-the-board pause coming into the last few weeks of the quarter.

Our next question comes from the line of Paul Treiber with RBC Capital Markets.

Given the number of changes to your sales force and expand your reach in new geographies and channels over the last year, has the ramp-up of these new channels met your expectations?

Paul, thanks for the question. I think the short answer is nothing has changed our thesis on the opportunity in what I'll call our fast-growth markets or FGMs. But the time to revenue and the time to scale might be taking a little longer than expected. There's nothing that's changing our strategic thesis of India, Southeast Asia, Japan, Latin America, Middle East, Russia, Eastern Europe, South Africa, which we call our fast-growth markets. But time to revenue is probably taking a little longer than we'd like to see.

Okay. And then with Jonathan Hunter on board as your head of sales, do you anticipate any major changes to direct sales strategy, or do you expect to continue with the existing one?

No, right now, Jon and I believe that we have the sort of right structure in place. So we're certainly not envisaging any big changes to the organization.

Our next question comes from the line of Derrick Wood with Susquehanna International.

Great. This is Rakesh Kumar for Derrick Wood. So I had a question, last quarter you talked about execution issues in North America and the western U.S.. This quarter it's basically macro. I just wanted to understand how much has execution improved and how much is the weakness coming from macro in this quarter?

Yes, the flat revenues and up margin in EPS is primarily -- the flattish revenues are certainly driven by U.S. government shutdown. It had wide effects. Wide effects as we came at the end of the quarter. In the Americas, which I highlighted the West and Canada last call, license was up. License was up in the Americas. Not enough, but it was up. And all of Americas was down roughly 2%. PS for the most part is the trailing indicator for the business. So execution is improving in the Americas. We see that with license sort of up slightly year-over-year, and the flattish revenues certainly driven by the macro of the U.S. government.

And if I could just add one more. If you could talk about your SAP channel business. I mean, any color on revenue contribution from SAP relationship, any changes over there?

No changes. The relationship remains strategic. We remain close out in the field, and we'll continue to plan for field engagement, customer successes and explorations of the products. So strategic relationship remains important. Paul, anything on the percent of contribution?

No, it's been consistently -- we've talked about in last few quarters being over time between the 10% and 15% range consistent.

[Operator Instructions] Our next question comes from the line of Michael Nemeroff with Crédit Suisse. Michael J. Anderson - Crédit Suisse AG, Research Division: This is Mike Anderson on behalf of Michael. First, can you just comment on the competitive environment that you experienced in the quarter and maybe the win rates and the large deals that you did win?

So on a competitive side, really no change in the dynamic that I have highlighted in previous quarters. We tend to see IBM and Microsoft more so in our ECM seller; Adobe in CEM; Pega in BPM; j2 and Wesoft and Kofax in iX; and Autonomy over in the Discovery pillar. With the advent of Red Oxygen and strong integration and beginning to enable the developer with modern tools and much deeper integration, I'd expect our competitive ways to improve certainly against Microsoft, IBM. Addition of Cordys will certainly help us against Pega, and our new HTML5 interface should help us against Adobe. We don't publish win rates on big deals or sort of our medium-sized deals. No change to competitive environment than we've seen over the last couple of quarters before the advent of Red Oxygen. We're anticipating certainly a competitive advantage uptick for OpenText. Michael J. Anderson - Crédit Suisse AG, Research Division: Okay, that's helpful. And then with respect to partner-driven license revenue, it looks like you did grow a little bit year-over-year. Was that -- would you say that that's from SAP, driven by SAP or other partners that you have?

Yes, I mean, when we roll into Enterprise World, we have I think Monday. Monday is all dedicated to our channel and our partners. Our partner count is up in the quarter for sure. We've talked about 2 new big partners in the quarter, both ExactTarget and hybris. So we have a new leader who's running the channel for us. Lots of energy, lots of ideas. And our partner count is up, and we certainly announced 2 new partners last quarter hybris and ExactTarget. Michael J. Anderson - Crédit Suisse AG, Research Division: And then just one last one, and this is for Paul. Paul, can you just comment on the FX impact on revenue in the quarter, as well as where the support renewal rates fell in?

Yes, the only FX number that we give is the bottom line, so that was a positive $0.02 impact. And the renewal rates are staying very constant in the low 90s.

[Operator Instructions] And our next question comes from the line of Varun Choyah with CIBC World Markets.

Just one quick question on the acquisition strategy. Can you provide a bit more color onto the types of targets you could potentially look at, like is it going to be like complementary to your EIM strategy and maybe provide some color on that?

Sure, thanks for the question. As consistent with previous comments that we've made, we're going to continue to acquire. We look for assets that we can onboard to our operating model. And these are some of the usual filters for me and Paul. Third is we're quite happy with our EIM strategy. We're not looking to add new pillars to our strategy. And we continue to be more of a value buyer, and we have to see it passed to be able to onboard particular asset to our operating model. Those are, as usually, as much as we talked about on the strategy.

So would big data be like a new pillar or would that fall in the analytics bucket?

Our Discovery bucket is a little more oriented, I would say to applications and platforms. So big data is a big word, so hard for me to kind of answer that.

And our next question is from the line of Eyal Ofir with Clarus Securities.

Just a quick follow-up, I know you're going to through a big migration right now with the MS support Livelink 9.1. How's the migration going into CS10? And maybe give us a little bit more information on what customers are saying in terms of that migration path and what kind of -- what it's lead to in terms of either new customer wins or new engagement?

Yes, it's -- thank you for the question. I actually don't have the specific numbers from the kind of the little older version of 9.x, 9.1. What I can say is when I look at 10.5 Red Oxygen, Content Suite 10.5 there's significant capabilities. There's a new user interface. There's reports. There's a report writer. There's deployment options for on-premises or in the cloud for archive, new targets for archive, new workflow engine, and 10.5 is a destination release. So whether customer is on very old versions of 8.x, 9.x or earlier versions of 10.0, 10.1, 10.2 SP1, SP2, we're going to go out and be very aggressive to upgrade every one to 10.5 because it's the destination release. And with 10.5, you then can expand to Tempo Social, Tempo Note, Tempo Box and other integration. So I don't know the numbers for 9.1, but 10.5 is for sure a destination.

Got you. I imagine the whole premise here is that you'd be able to not only migrate them over in a reduced cost from also a support stance, but potentially also get them to upgrade the feature set and get a new license win on a different pillars within that software release?

I hope to upgrade them into our cloud as well, right? So that will be part of what we talk about at Enterprise World that instead of going on site and doing upgrade, we just install it for you and migrate your data.

Okay. I got you. So new pillars in the cloud versus just staying on premise.

Sure thing. Sure thing.

Our next question comes from the line of Scott Penner with TD Newcrest.

Just 2 follow-ups. Number one, Mark, can you just sort of remind us what application will be released on top of SAP HANA, and whether that -- and what the timeline is for that?

I believe we're already GA. So our Vendor Invoice Management, Employee File Management and our extended ECM, DAM and Document Presentment all support HANA today.

Okay. Second question is just the BPM assets that were in place for Cordys, are they -- is that still a growing business? Or did you really feel the need to go out and buy a whole new version?

Yes. I mean, the Metastorm, Global 360, ICCM and now Cordys. So what ICCM brings us, ICCM was a partner, primarily a service partner, who was very good at developing applications on top of MBPM or building apps on top of Metastorm. Cordys brings technology, a process orchestration layer, a developer tools and case management that work in the cloud. It's a multi-tenant cloud version versus Global 360 and Metastorm, which were on premise versions. So we wanted to get more expertise about writing apps, which we got with ICCM, and we want to take cloud platform, a path platform, that was multi-tenant and that's what Cordys is bringing us.

Our next question comes from the line of Michael Nemeroff with Crédit Suisse. Michael J. Anderson - Crédit Suisse AG, Research Division: Mike Anderson again. One more quick question for Paul. Can you comment -- based on the acquisitions in the past and you've done some acquisitions sometimes that affects your operating margin due to the expenses that are related to that. Can you quantify any impact that the recent acquisitions that you've done might have in fiscal '14?

Well, Mike, I'll make one reference to the beginning of the last fiscal year where we ended '12 in 27.3% operating margin. We onboarded $165 million of Easylink, which is in a low -- fairly low 20% margin. And at that time, we indicated to expect margins to be relatively flat because we're onboarding a sizable acquisition. As you know, we ended the year at 29.3%. So certainly, I would tell you that any acquisitions from an accretive -- from a margin accretion perspective have done at least, as well or better than we've anticipated. It speaks to the intelligent growth point that Mark has emphasized in the last 2 quarters is that we're successful on onboarding our acquisitions and achieving the margins. So I wouldn't point to any of them that have not done that.

And we have no additional questions at this time. I would like to turn the conference back to our speakers for any closing remarks.

Very good, thank you. Well, thank you, everyone, for joining today. It was an important call, discussing intelligent growth, Q1 results, Red Oxygen and our EIM strategy. I hope you'll join -- you'll be able to join me, Paul, the OpenText team, Greg, our customers, and William Shatner at Enterprise World in Orlando, Florida, November 17 through the 21st. Feel free to reach out to our Investor Relations team for more details. This concludes today's call.

Thank you. Ladies and gentlemen, this concludes the OpenText Corporation First Quarter Fiscal Year 2014 Results Conference Call. We thank you for your participation. You may now disconnect.