Good day, ladies and gentlemen, thank you for standing by. Welcome to the Open Text Corporation Second Quarter Fiscal Year 2014 Results Conference Call. (Operator Instructions) This conference is being recorded today, Thursday, January 23, 2014. I'd now like to turn the conference over to Mr. Greg Secord. Please go ahead, sir.

Thank you, Damien, and good morning everybody, good afternoon actually. 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 Open Text and 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, or projection as reflected in the forward-looking information, as well as the Risk Factors that may project future performance results of Open Text are all contained in Open Text's Form 10-K and 10-Q, as well as in our press release that was distributed 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 Open Text 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 one 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 we'll be referring to during this call, as well as a summary table highlighting Open Text'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'll highlight our second quarter of fiscal 2014. Total revenue for the quarter was $364 million, up 3% compared to $352 million for the same period year last year. Regionally, the Americas contributed 51%, EMEA 39% and Asia Pacific 10%. License revenue for the quarter was $81 million, up 7% compared to 76 million reported for the same period last year. We saw license revenue broken down by vertical sectors, 22% from financial services, 17% from services, 14% from public sector, 11% from basic materials, 10% from technology, 10% from consumer goods, 7% from healthcare, 6% from industrial goods and 3% from utilities. Cloud services revenue for the quarter was $42 million, down 6% compared to $45 million in the same period of last year. Cloud services gross margins were 62.1% in the current quarter compared to 60% for the same period last year. A reduction in telecom, collocation fees and third-party technology costs contributed to the higher margins for this quarter, compared to the same period last year. Customer support revenue for the quarter was $174 million, up 6% compared to $165 million in the same period last year. Customer support gross margins were 86% in the current quarter compared to 82.8% for the same period last year. The increase in customer support margin was due to a reduction in third-party technology cost and employee savings. Professional services and other revenue for the quarter was $66 million, down slightly by 1% compared to $67 million in the same period last year. The professional services gross margin was 22.1% in the current quarter versus 26% in the same period last year. The decrease in margin was primarily as a result of high use of subcontractors this quarter, compared to the same period…

Thank you, Paul. And welcome everyone to our fiscal '14 Q2 earnings call. There are four main topics I'm going to speak to you today, our business model, our product line up, fiscal '14 Q2 results and our GXS initiatives. Let me start with the business model. We're focused on creating value for our stakeholders. We do this by growing our net income and our cash flows to our dividend program, and on-boarding acquired assets to our operating model. We do these while investing in innovation and in the markets we know we can win in. We lead with value, we invest for growth. We don't chase growth at all cost, rather our operating principles are aligning to creating tangible and sustainable value. I call this approach intelligent growth. For some businesses, acquisitions are either opportunistic or strategic. For Open Text, acquisitions are core to our business model. We have created our EIM platform through acquisition. We advanced our acquired technologies through the innovation of features, modules and integration. I highlighted in my keynote at Enterprise World that Red Oxygen now has over 350 points of integration. Consider our EIM platform. In ECM, we have acquired IXOS, Odesta and Hummingbird. In CEM, we acquired Vignette, Artesia and StreamServe. In BPM, we have acquired Global 360, Metastorm and Cordys. In discovery, we have acquired Nstein and Hummingbird. And in IX, we have acquired Captaris, EasyLink and now GXS. Over the last 20 years, we have completed 48 acquisitions and put $3.4 billion in capital to work. Over the next five years, we're working within our current leverage ratios and cash availability, we conservatively estimate $3 billion in acquisition capacity. As Paul mentioned, on January 16 we completed the GXS acquisition, which places us in the clear leadership position for information exchange.…

Thank you, sir. We will now begin the question-and-answer session. Our first question is from the line of Richard Tse with Cormark Securities. Please go ahead.

Yes, thank you very much. Mark, could you elaborate a little bit more on the potential revenue synergies with GXS? I guess specifically I am kind of curious to see of the existing customers that Open Text has, how many are currently running transactions through GXS? Maybe from a percentage basis, what that number would be?

Richard, thanks for the question. Look, I think of the revenue, the growth opportunities. The first is bringing EasyLink services to GXS customers and bringing EI to EasyLink customers. The customers overlap roughly at 20% to 25% between the two installed bases. So a significant portion of the customers do not overlap. Second is filling up their applications. We have world-class OCR capture and vendor invoice management. These are more -- they are more horizontal apps to add to their portfolio. And then, operationally we can certainly help GXS in places where they don't have scale where we do, like Canada and Germany, to name a few. So, there is lots of white spaces in the installed base, natural synergies between GXS and EasyLink to sell both ways. New horizontal applications that are at the ready from the Open Text portfolio, and then just operationally more [GL] [ph] coverage, few clear examples are Canada and Germany.

Okay. And then just one other quick question with respect to the $3 billion acquisition capacity, given that you are in the sort of midst of integrating this, is it fair to say that we are not going to see a sizeable deal until this is complete or is that something you can take on still for the rest of this year?

I think consistent with previous commentary on acquisitions, I won’t get into timing or pillars or markets. And I'd say that for the most part though this acquisition is going very deep right within one of our five market pillars. So, we will reserve remarks for the timing and deals and pillars. But I do look at the previous 20 years of 48 acquisitions and 3.4 billion of capital to work and over the next five years conservatively we see another $3 billion we can put to work.

Okay, great. Thank you.

Thank you. Our next question is from the line of Thanos Moschopoulos with BMO Capital Markets. Please go ahead.

Hi, good afternoon. Mark, can you talk a little bit about what you saw from a geographic perspective? I think you mentioned EMEA was strong, it looks like the Americas was flat year over year. Can you elaborate on that and how the environment is looking currently?

Yes, it's a fine question. I think there is some stability that we started to see in EMEA. Over the last few quarter's discussions of the Euro, who is leaving the Union, who is not, have sort of faded and some confidence has -- that we could see has returned and I think the term "cautiously optimistic," is quite appropriate for EMEA at this point. We're also executing – we also executed well in our EMEA emerging market strategy in South Africa, Eastern Europe, and Middle East. So we had a good quarter. I think we had 11% growth in EMEA license. So it was a good environment for us in Q2. In the U.S., certainly it’s always getting stronger and I think confidence is returning a little bit to the U.S. I think that's starting to flow into conversation, but hasn't sort of fully translated into revenues yet.

Okay. And can you talk about what you are seeing as far as Red Oxygen both in the quarter and in the pipeline? You singled out a specific deal that closed in the quarter driven by Red Oxygen. Was that really a benefit in the quarter or is that more, from a pipeline perspective, what are we going to see going forward?

Yes. I'm just highlighting one; we have closed certainly a handful of Red Oxygen deals within Q2. And you know half the suites are live. And the other half will go live this quarter. It is a major product cycle for us. It's an opportunity to go out and speak to our entire installed base to upgrade them from whatever release they were on. One release, two release, three releases back, they have our field and support organization re-engaged with the installed base, drive upgrades and drive new module sales. So, Red Oxygen is for sure a catalyst for us to drive a lot of activity for many, many quarters.

Great. Thanks I’ll pass the line.

Our next question is from the line of Scott Penner with TD securities. Please go ahead.

Thanks. Mark, just two questions, first of all, I wanted to ask about AppWorks. It seems like a really exciting opportunity. I wanted to see if you guys can quantify exactly what that could add to your overall market opportunity? And then as far as driving developer licenses or license to the foundation elements, is this a second half of 2014 event or is it more like fiscal year '15?

Fair enough. It's a great question. EIM is still a young market. And one of the reasons that drove us very hard to modernize our developer platform and to modernize our core suite, so they can be acceptable through modern languages has been done in an innovative way. So you can build apps very quickly. That's the fact that we recognize that our customers are still building insignificant volume custom applications. So, many parts of our sales cycles compete against custom development. That is one of the reasons people take SharePoint is that it's easy to write C code or Java code on top of SharePoint. So we put a lot of energy behind delivering AppWorks, and putting a services layer on top of our platform. We also feel we need to build for our ecosystems that was part of our venture capital strategy that we announced earlier in the week with the [inaudible] Canada, as well as the Open Text Enterprise Application Fund, both of which will be minority and investors in. And the revenue opportunity certainly our developer licenses but if you are writing code, you also, when you go into production have to buy the suites and then begin to deploy the suite. So the largest revenue opportunity is actually deploying our core suite once you build an app on top of that, which I would think would be a greater contributor in fiscal '15.

And then just lastly, Paul, a quick one, how should we view the priorities for capital allocation now and how quickly or not quickly is your preference to pay down the debt?

Well, I think we are quite comfortable, Scott right now in the net leverage on our balance sheet. So I don't think the first use of cash would be to accelerate any repayment. As you know, the term loan A we have mandatory repayments presently at 7.5% over the next two years and 10% before the term comes due. So I think with that, you'll see obviously as confirmed [inaudible] repayments accelerating beyond that. It's unlikely because of the opportunity we would have for future acquisitions with the cash.

Okay, thank you.

Thank you. Our next question is from the line of Paul Steep with Scotia Capital. Please go ahead.

Great, thanks. Mark or Paul, maybe you could talk a bit about acceleration. You pulled things forward by about six months, maybe what has changed? And then, also give us perspective on how we should think of the GXS organizations, one of your biggest deals ever? And then I have got one quick follow-up. Thanks.

I'll start with the cost side. We have done this probably every time. And I am sure we really have moved up the synergies in the sense that we have just done a kind of reduction in force across both entities, across many functions. So, as I mentioned then, as we really benefit from [inaudible] we'll continue to see that in our operating results. By merely separating the two we just simply did a reduction in force.

Yes, fair enough. But let me just provide a couple of comments as well. When we're doing our initial planning, we looked at two years. But once we were able to get to the right stage and looked deeper we found path to kind of bring that into, like, on-boarding to our model within 18 months. And a lot consistent with our best practices and experiences, the faster you can go on integration, the better you are short-term and long-term. When you have two of everything, I encourage teams to take an "adopt and go" strategy and not invent a third. And whether it would be a process or a team or some activity, you got to have something that's both good, "Pick one, adopt it and go." So, bringing together over 8000 employees we found after - reducing employee base by about 4%, do that in day one and integrating quickly.

Okay, one last clarification on that and then another one. Just on the sales force alignment, is there any changes we should expect there, Mark, in terms of merging together those forces or they can actually stay distinct? And then, the second clarification on your earlier comments in the call, in terms of revenue decline historically and licenses I think we’ve been guided sort of maybe 20% down at the max, what's the thought around cloud in terms of the magnitude there? Thanks.

Fair enough. On the sales force, we [haven't] [ph] bought together the GXS and EasyLink sales forces. George Schulze, world-class sales leader from the GXS team is leading the combined field organization. George will report directly into Jon Hunter. George is a world-class individual, amazing amount of experience and he is taking over both GXS and EasyLink go-to-market reporting to John directly. And John is off to just a wonderful fast start inside the organization. On the license side, we have typically guided down, and that's the license business. But given that this is recurring revenue, we don't see those types of declines at all. Paul obviously went through the purchase price accounting adjustment studies that are is accounting, if you will. And then, we are expecting the revenues to be flattish as we come out of the gate except for some potentially slight declines here in the short-term depending on how well we do on the integration. So, on a recurring base, the declines will be nothing near this. There is the accounting effect that Paul walked through. We have some potential slight declines on a flattish business just as we bring the two together.

Perfect. Thanks guys.

Thank you. Our next question is from the line of Paul Treiber with RBC Capital Markets. Please go ahead.

Thanks very much. Two quick ones on the financials, one is, with the addition of GXS, do you anticipate any change to target tax rate? And then also, what was the foreign exchange impact to revenue in the quarter?

Yes. So Paul, in terms of tax rate for this fiscal year -- no, I update tax rates annually. But I don't see a change for the current fiscal year. We have not provided constant currency revenue adjustments, but I can tell you that for licenses that were slight for CS, I haven't mentioned that before, it impacted by about 1% to benefit.

Okay, thank you. And then, one for Mark on the strategy and sort of the longer term view. After GXS [inaudible] cloud transaction revenue is about one third of total revenue, I'd say you're obviously making a big investment to just the cloud. How should we think about the license business going forward in terms of the perpetual model? Will you continue to sell license longer term [inaudible] moving to SaaS over time?

Well, thanks for the question. The license business remains important. I certainly emphasize recurring revenues, which we like very much. Customers are placing workloads that -- where they need to, that are most effective for them. Customers will continue to buy license at scale and in mass. Customers will place workloads in the cloud. We continue to envisage a world that is hybrid, especially in the market that we serve, which is the global 10,000 and top governments. Cloud is a big term. So, one of the big strategies, larger strategy that we have is managed services where we want customers to bring their computers, their software, their data, our software, their data, our experts into our infrastructure. So, we can manage and advance those environments for our customers. So, we continue to see customers buying license. And in fact, they bought a lot of licenses last quarter, about 81 million, 7% growth year-over-year and 47% sequential growth. The license business remains real important to us.

Okay, thank you very much. I'll pass the line.

Our next question is from the line of Michael Nemeroff with Credit Suisse. Please go ahead.

Hi guys. This is Mike Anderson on behalf of Michael. Thanks for taking our questions, and congrats on the nice quarter. Mark, I believe that you mentioned last quarter that your ASP was roughly 268,000, whereas this quarter it ticked up to 274,000. With the Red Oxygen suite strategy, can you give us a framework to think about how Red Oxygen has the potential to lift ASP over the next couple of years since your customers may be more likely to purchase more of your EIM suite?

Mike, thanks for the question. It's a fair observation that customers buy more of the suite. The ASP should trend up. So, when it should trend up over a variety -- over a course of many years as we sell more and more suites. There will be three layers to buy licenses. The folks will buy by the product or folks like to say, buy the drink, folks will buy by the suite or buy the bottle or they may buy the whole unlimited, which is buy the case. But I'd expect to sell more, be gathering in more suite sales, which should drive up the ASP.

Great. And then, of the large deals that you did close this quarter, between 500,000 and a million and a million plus, can you give us an idea of what percentage of those deals were Red Oxygen related? And then with that, where the new Red Oxygen customer -- did most of those come from the beta test group?

Thanks for the question. Look, I'm not breaking up the total number of Red Oxygen customers, but I'll say Red Oxygen had a favorable impact in the quarter. Many times you come out with such a larger release that has a sort of broad impact across your installed base it's going to have an effect. So, we had a favorable effect within the quarter. Only half of our suites are live right now, the other half would go live at the end of the quarter, but it had a favorable impact.

Great. And then, just one quick housekeeping one. I think in your prepared remarks you said that there was a 41% of license was partnered and I think in the slides it says 35%, so I just wanted to make sure I have my numbers right?

It is 35%.

35% my prepared remarks were had a typo on it.

No problem. All right, thanks very much.

Our next question is from the line of Blair Abernethy with Cantor Fitzgerald. Please go ahead.

Thanks very much. Just a question for you Paul, on the GXS side, the last numbers that we've seen have been end of 2012, can you give us a sense of has their run rate moved that much at the end of 2013?

Short answer, no.

Okay. And in terms of the reduction in force on the Open Text side, I wonder if you could just give us a little more color there. Have you done anything on the sales force side and what is your thinking this year in terms of sales force capacity? Are you happy with where you are or is that going to change this year?

I'm sorry, Blair. Could you repeat the question?

Sure. Just in terms of -- just a little more color on the reduction in force on the Open Text side?

Yes. We looked at overlapping functions as we were going to integrate the two businesses. And that was a primary nature of other reductions across all organizations, so across all functional lines. We're doing well on hiring. Our turnover rate remained sort of on the sales force at the industry levels, so nothing out of normal bands.

Okay, great. And then, Paul, in terms of revenue reporting next quarter with the GXS, will a 100% of the GXS revenue be in your cloud services line or is there some revenue that will be moving into other categories?

Yes. So, there will be some revenue that will be in license and maintenance.

Can you give us a sense of the magnitude of how much would be in license and maintenance?

I want to be more accurate than I have right off the top, and so what I'll do is I'll look at their disclosed information as I can take that out, I will and I'll put it in our update on investor site, if that's okay.

Sure, that will be great. Okay, that's it from me. Thanks, guys.

Okay, thank you.

Our next question is from the line of Mark Schappel with Benchmark Company. Please go ahead.

Hi, good evening. Mark, in the past I believe you've broadly talked about maintaining product growth at or above the market growth rates and with the exception, GXS is still holding to that general growth rates in the core business?

Look, you have to continue to target the industry rate, Mike. I don't know what else to target. So we were looking at the Gartner data, and we've updated our -- not updated, but it's in our investor deck. And I'm looking at it right here. I think its Slide 11 that talks about the Gartner data across the five pillars. They are reporting roughly 11.4% CAGR between 2012 and 2017. So, the programs, the investments we're driving at, is still the driver at marketplace.

Okay, thank you. And then a follow-up quickly, you may have mentioned this, but the quarter's revenue in the quarter, do you have that handy?

We are not having that.

Thank you.

Thanks, Mark.

Thank you our next question is from the line of Rakesh Kumar with SIG Susquehanna Financial Group, please go ahead.

Great, thank you. Sir, I believe at the conference last year you talked about pretty much your Cordys BPM platform, I just wanted to understand if that's correct? And if yes, I wanted to understand your strategy for the BPM segment and could there be any potential disruptions in the field?

Rakesh, thank you for the question. Cordys is our lead go-to-market platform, for sure. The opportunities we see are continuing to provide a business process orchestration layer, which Cordys is extremely strong on. Second is a set of libraries and developer tools on top of that orchestration layer to build smart process applications. Third is delivering a set of our applications such as case and contract management deeply integrated to other pillars, especially document-centric or content-centric applications we're integrating to ECM. So, we end visit our own app layer, our developer tools and libraries that help customers build enterprise after these deep integration, and then, our process orchestration layer. Those are sort of the three key go-to-market pushes that we have and Cordys is our lead. We had a good BPM quarter. We had a good BPM quarter, and quarter certainly contributed to that.

And just a quick follow-up, so I was hoping if you could talk about customer and custom pipelines for Red Oxygen, and also when should we expect Red Oxygen to be fully GA?

So, Red Oxygen across everything even through the tempo suites will be GA, fully GA in 90 days or less. So, such -- for the most part, say, by the end of this quarter. We're about half live and the other half next 60-90 days, hopefully everything by the end of the quarter. And our pipeline is up. We came into the quarter and the pipeline was stronger than the previous quarter. And Red Oxygen again gives us the opportunity to go back into our install base, and have really a very broad discussion around if you are on previous version or two or three versions back to -- our sales forecast has a variety of tools now to set customers to come forward, to go forward with a module upgrade. That module upgrade to other module, upgrade to a suite. So part of their design characteristic behind Red Oxygen was to give the field a broad tool to re-engage the install base, which they now have. And we are expected to be a catalyst through the coming quarters.

Okay, that's it.

Yes, thanks Rakesh.

Our next question is from the line of Kris Thompson with National Bank Financial. Please go ahead.

Thank you. Paul, maybe if you could just talk about the GXS's CapEx, it looks like it's hovered around 40 for the last couple of years? And Mark, there are some capitalized software developing, can you maybe just highlight what a good run rate is going forward, and maybe give an explanation of that software on the capitalized software development, please?

Yes, Kris, Paul. Until we get closer to it and maybe change this answer, it looks like it will be the run rate in the next year or so. Internal capitalized software is for -- it's build out of TG13. At the point, that is complete -- the portion of that capitalized software attributable to that will remotely occur. As I said, if we take down that, it would be more specific in that. So, I would think about it as continuing and also the internal capitalized software as building out the grid.

Okay, that's helpful. And just on the income tax, I know GXS had over a half a billion of tax loss carry forwards. Are you able to retain those on a change in ownership or are those going to go away?

They don't necessarily go away. Unfortunately on acquisition the use of those losses are very restrictive, and in small percentages of offset against otherwise taxable income.

Got it. Thanks guys, great quarter.

Thanks, Kris.

Our next question is from the line of Eyal Ofir with Clarus Securities. Please go ahead.

Thank you, and thanks for taking my question. We are exiting the quarter by the way. First question is just on last quarter; the license revenues were a little bit weak due to the government shutdown. I just want to get your impression, were you able to close some of those deals that slipped and how much of that helped in the quarter? And then, also I have another follow-up on Red Oxygen.

Eyal, thanks for the question. I'd say on the government side, I'd say North American government, conversations are -- conversations are more frequent today but it hasn't flowed through into revenue. But conversations are sort of reengaging, but it hasn't sorted down through all the way to the pipeline to close into revenue. Our public sector performance in Q2, which I think was up 14% of our revenues, more driven out of actually Asia Pacific and EMEA and a lot of state and local wins that we had. We had a good public sector quarter in Q2, but is mainly driven in Western Europe and Asia Pacific, but I know in U.S. and Canada, conversations are sort of re-engaged for investment areas, but hasn't worked all the way through the revenue yet.

Okay. So, we could depend on demand coming back there as well for future growth there. Another question for you, just on the Red Oxygen side, obviously when you come through into new a promise cycle here, the partners lagged a little bit more than your direct sales force would. What are your partners saying so far in terms of feedback providing you and also from a pipeline standpoint, what kind of -- what were the partner showing you thus far and kind of what do you expect going forward?

I would point to Enterprise World. I mean we had record partner attendance. We go through end-user training, into a partner conference and get to the broad conference and Enterprise World. We just had record attendance on Monday. It was the first partner conference we had that brought together all the pillars really into one room. So, partners have a lot more opportunity today and more opportunity, should they grab it to sell across pillars. So, partners and alliances are real important to us. We added about 20 new partners last quarter primarily in sort of our bar business, value-added resellers. Hybrids, was the customer we talked about -- the partner we talked about last quarter that we're investing in. And SAP remains real strategic to us. It's our biggest most important partnership that we have. And we also expect our extended ECM for Oracle. We're on track for that to go GA in March, which will open up an Oracle discussion as well.

Okay, perfect, thanks. Before I pass the line, just one last from me, on the GXS front, obviously you put together your sales forces with EasyLink. When can we expect some of the -- your own Open Text direct sales or feel to start up-selling the GXS products and vice versa?

Yes. I mean the immediate opportunity is for GXS and EasyLink sales forces to optimize what's right in front of them. So, we're keeping them real focused on what they own and going to perfect what they own. We do have all sort of hunting licenses across the sales forces for lead gain and opportunity selling. That's it for the rest of this fiscal year, we're going to be real focused on perfecting what's inside of GXS and EasyLink.

Okay, great. Thanks for correcting the corner.

Thank you so much.

There are no further questions at this time. Please continue with any closing remarks you may have.

All right, very good. Well, it was an important call discussing intelligent growth, GXS and our strong Q2 results. We'll be presenting at the Morgan Stanley Investor Conference in San Francisco on March 5th. And we hope to see you there. So, thanks for joining us today. That ends today's call.

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