Thank you for standing by. This is the conference operator. Welcome to the OpenText Corporation First Quarter 2016 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I would like to turn the conference over to Greg Secord, Vice President, Investor Relations. Please go ahead.

Thank you and good afternoon everyone. I would like to welcome you to today's call. With me is OpenText's President and CEO, Mark J. Barrenechea as well as our Chief Financial Officer, John Doolittle. As with our previous calls, we will read prepared remarks followed by a question-and-answer session. The call will last approximately one hour with a replay available shortly thereafter. I would like to take a moment to direct Investors to the Investor Relations section of our website where we posted two PowerPoints that will be referred to during this call. The first is our quarterly supplemental update on the financial results and the second PowerPoint is our annual strategic overview presentation from July outlining our leadership positioning in the EIM marketplace with supporting stats outlined both our historical performance and cloud transition initiatives. I encourage all of our listeners to download both presentations. As in previous quarters, we have updated an updated summary table highlighting OpenText's historical trends and financial metrics. Both these PowerPoints and our financial spreadsheets are downloadable from the front page of the IR section of our website. OpenText will be hosting an Investor Day in Las Vegas on Wednesday, November 11, during Enterprise World, our annual users conference. If you’re interested in attending or just want to find out more information, please contact our Investor Relations team. We will also be at several Investor Conferences in the coming months including Cantor Fitzgerald, TD and RBC conferences in Toronto, the Credit Suisse Investor Conference in Phoenix, Arizona as well as the Barclays Technology Conference in San Francisco for more information and all of this and all of our Investor Events on the IR section of our website. And with that, I’ll proceed to the reading of our Safe Harbor statement. Please note that during…

Very good. Thank you, Greg. Welcome to the call everyone. Let’s go through the numbers and my references today will all be in millions of U.S. dollars unless I indicate otherwise, first the impact of foreign exchange. The first quarter compared to the same period last year, our revenues were negatively impacted by 34 million. Adjusted operating income negatively impacted by 9 million and adjusted EPS by $0.06. The negative effect of 34 million by revenue type is broken down as follows; license 5 million, cloud services and subscriptions 9 million, customer support 15 million, and Professional Services another 5 million. Total revenue for the quarter was 435 million, down 4% compared to 454 million for the same period last year, but up 3% on a constant currency basis. Recurring revenue for the quarter was 383 million, down 3% year-over-year compared to 396 for the same period last year but up 4% on a constant currency basis. License revenue for the quarter was 51 million down 12% compared to 58 million reported for the same period last year down 4% in constant currency. Cloud services revenue for the quarter was a 148 million, down 4% compared to 154 million in the same period last year but up 1% in constant currency. Customer support revenue for the quarter was 186 million, up 1% compared to 184 million in the same period last year and up 9% in constant currency. Professional services and other revenue for the quarter was 50 million, down 14% compared to 58 million in the same period last year and down 4% in constant currency. Now I’ll turn to gross margins for the quarter. License margins remain stable at approximately 95%. Cloud services and subscriptions 60% compared to 61% in the same period last year. Customer support margin…

Thank you, John and welcome everyone to fiscal 2016 Q1 earnings call. Let me start by sharing with everyone that personally I feel great and I look forward to seeing all of you at Enterprise World in two weeks time. Fiscal 2016 is teed up to be a transformative year for OpenText as we increase our focus on digital transformation and we see more customers adopting our managed services. We are poised to deliver project Blue Carbon, our next major EIM release which will be unveiled at Enterprise World. Project Blue Carbon is the enabling platform for digitalization, full of new and compelling innovations for customers. Our improved margin engine will generate greater long term cash flows and we continue to deliver smart capital allocation through our dividend program, our buyback program and meaningful M&A transaction. The IT industry is going through sweeping changes, perhaps the most change I’ve seen in my 30 years in the industry. The market has progressed from the adoption of internet technologies to leveraging the flexibility, efficiencies and speed of the cloud is now seeking full digital transformation to ensure continued successful operation in hyper competitive and hyper connecting markets. A great example of this is seen to the latency of analytics where requirements have progressed from reporting and visualization to analysis and predictability. It was once a better way to compete a task about improving pure human efficiency. Today, digital is about fundamentally impacting business which is about prediction, an analysis of in-human amounted data, it’s about automation and disrupting markets with technology. This is inning one for digitalization. As an all things both in life and in business being stagnant is usually the unsafe place to be because when you are stagnant you are the target. Change is always the safest choice. Those…

We will now begin the question-and-answer session. [Operator Instructions] First question comes from Kris Thompson of National Bank, please go ahead.

Great, thank you. Mark, it looks and sounds like more than $50 million of annual savings were achieved from the restructuring. Can you quantify what the savings are actually and if they are fully reflected in Q1? And also maybe for John, if we should expect anymore restructuring expenses related to this restructuring in future quarters?

Yeah. So, Kris, when we announced the restructuring I think we said that the total cost was expected to be somewhere around $25 million and you will note that the charge this quarter was around $17 million. So we got to virtually all of the people related costs. Obviously it didn’t all happen on the first day of the quarter but they were for the most part frontend loaded in the quarter and the facilities will take a fair bit longer. So there may have been some minor facilities closed during the quarter but that will take longer to realize.

Okay. And while I have you John, just on the IRS last quarter, I think you mentioned that potential liability is around 550 million and I’m hearing that it may be increasing?

No, not at all, Kris. We received the – just to backup what we announced last quarter is we received one drop notice of proposed adjustment and we were expecting to receive the second. Based on the input we had from the IRS when we added both of those things up and included penalties and interest that was the gross possible number and that hasn’t changed.

Okay. Just my last one Mark for you on the Dell acquisition of EMC, can you just may be give us some comments on what you think that might mean for you guys opportunity wise? Thank you.

Yeah, Kris, thanks for the question. Well, I’m pretty excited about what I see in Suite 16 and Cloud 16 and we’ll be unveiling all those details in two weeks and we will have our first customer shipments in the next few weeks. Roughly we’ve put 300 million of R&D into this release, it’s the largest investment in EIM software and it’s time to get more aggressive and going after new customer acquisition, more aggressive and compelling upgrade programs including programs to upgrade into the cloud, our cloud and it will be time to get more aggressive on competitive programs from FileNet, Documentum, Alfresco, Interwoven, and HP-Autonomy. So Suite 16 and Cloud 16 is a very meaningful release for the company and I’m quite eager to show the world in the next couple of weeks.

Great, thanks. Looking forward to learning more about it at your show, see you there.

Thanks, Kris.

The next question comes from Phillip Huang of Barclays Capital. Please go ahead.

Hi, thanks. Good afternoon. Just wanted to touch on the cloud and how additive it’s been to the business. Certainly your goal is to grow cloud meaning from new revenue resources including acquisitions overtime. I was wondering if you might be able to give us some color around how that’s going to evolve since the launch of our full cloud solutions in January. How much of the growth for cloud has been from new revenue sources from your perspective?

Well, Phillip, let me just kind of walk through what it is and just may be remind everyone a little bit of what it is since it’s new, all right. so we are not interested in substituting a license for a subscription and in fact we disallow it by – we don’t go after that business, the field is not incentive to do it and we don’t have contracts to go and do it. what we are looking to do is either for new customers or for existing customers is to sell additional services to that license business which includes hosting fees in our cloud and complete managed services fees in our cloud that includes we’ll install a software, we’ll manage the software, we’ll operate the platform, we’ll manage the data environment, we’ll back it up for you, we’ll upgrade it, we are the experts on our stack and with Suite 16 and Cloud 16 we will actually take all the database cost out of that environment for you as well with our new support of an open source stack. Now we kind of wrapped that up into a term that we call MCV, minimal contract value, and when we talk about MCV, this is the net new value, right. So if we had an existing MCV arrangement in place for 1 million and renewed for 1 million, we will talk about MCV of zero. But if we had an existing arrangement at 1 million and grew that to 3 million, we talk about MCV of 2 million or any new in MCV would be added in that as well. So this quarter, we added 41 million of new MCV to the business and I’ve noted that renewal rate is actually higher. And that renewal rate is in the mid 90s all blended which is a higher renewal rate in the low 90s of our maintenance business. So the short of it is, we’re going after new spend. Customers are going to continue to buy a license in maintenance while we want to go after the infrastructure and the managed services which are new revenue stream.

That’s really helpful. Just on the topic of that, would you – just based on your current sales strategy, would you assume maybe more pronounced seasonality on your marketing costs between the quarters going forward? Do you think you expect for the fiscal Q4 is going to be a big marketing spend quarter as you kind of see your strategy play through?

Phil, it’s John. So traditionally the second quarter is a big marketing spend quarter for us. Mark talked about the Enterprise World and that is we typically see higher marketing expense in the second quarter.

Got it, that’s very helpful. And then last one just looking at your buyback obviously you repurchased 50 million of shares this quarter to get advantage of the current share valuation. Should we view your buyback as any indication on the availability of large acquisition opportunities at all or do you also see room for both acquisitions and buybacks in the foreseeable future? Thanks.

Yes, Phil. So as Mark pointed out, I mean we operate the OpenText intelligent growth model, which is making sure that we think about returns for all of our stakeholders. We have plenty of liquidity available. So, we finished the quarter with over $700 million in cash, got lots of additional capacity to the extent we needed. So, we can continue to repurchase shares if we decide to and fulfill our M&A strategy.

That’s really helpful. Thanks very much guys.

Thanks, Phil.

The next question comes from Richard Tse of Cormark Securities. Please go ahead.

Yes thanks. Mark, despite the currency, the Cloud growth has been, I guess flat, I think constant currency grew by 1.4%, given that you guys have won a number of MCV new deals this past few quarters when do you guys actually going to see the cloud piece start to pick up and accelerate here, is that later this year, maybe give us a sense when that would be?

Richard thanks for the question. Yes there is no doubt that currency mask it’s a bit and as you will say in constant currency it is up a couple points year-over-year. Look, I am looking towards Suite 16 and Cloud 16 as the next catalyst for us. As I highlighted in the call script that Cloud 16 is a significant step forward for us. We will have our next generation core platform, which really hasn’t generated, really contributed yet on the revenue side. We will be putting archive center in the cloud, which is completely new and quite expanded, you know SAP, Oracle, Microsoft, our own Suites and Gmail. Analytics will be a big push as well and we recently introduced Analytics as a standalone service in the Cloud, but with Cloud 16 it will be integrated into the GSX platform. So, that is new and additive and the state of the grid solution, I just, I can’t, I get very excited about it being able to do deep packet inspection. I had an engineer call it, it’s the Splunk for B2B because we are able to do deep packet inspection among our transactions and then aggregate that information and obviously we’ll able to commercialize and sell that information to say as manufacturing transactions up or down as retail up and down in Germany. So, Richard I look towards Cloud 16 and Suite 16 really as our next catalyst to grow.

Okay. And for many of us who have been following the name for a long time this is obviously been largely a growth plan acquisition story and I think if you sort of look forward you talked about a number of acquisitions this year, can you give us a sense of what you think about the contribution from acquisitions versus organic when it comes to growth, you know these acquisitions to more or really represent 70% of your growth targets or give us a sense where that comes from?

Yeah, sure thing. I will reiterate our model, right. Our model is, we look for organic growth in the low single digits and we look for acquired growth to get us into double digits. Some years are little more than that, some years are little less than that given the market opportunity, but our overall framework for growth, revenue growth is, we try to take our to internal innovation and execution given our margin profile and smartly grow organically low single-digit and then through M&A get us into double digit. And that’s the model we’ve operated on over the last decade as that model remains in place, some years it is a little better, some years it is a little less.

And one last question, you guys are obviously in different markets now, you’ve got ECM, Analytics, little bit of EDI, where are you seeing the most traction today and I guess it probably will change after early 2016 as it stands today, where was that strength this quarter? Thanks.

Yeah. I would say where a lot of interest is coming from is really our core right now around ECM. The digitalization journey starts with consolidation of platforms and a consolidation of unstructured data. So, a lot of the strength we’ve seen is sort of in the core of what we do via ECM and the interest is very high in Analytics. We have come a long way as a company without really ever having a formal Analytics solution and with them actually now on board on our operating model fully integrated into the business with Cloud 16 and Suite 16 fully integrated across our suites and integrated into the Cloud there’s been a lot of interest in understanding what we can offer via Analytics.

That’s great. See you in a couple of weeks.

Yeah. Thanks, Richard.

[Operator Instructions] The next question comes from Paul Steep of Scotia Capital, please go ahead.

Great thanks. Mark, maybe you could talk just a little bit, you mentioned it in the Q that you released about increasing the rate of flexibility for customers and the fact that you’re agnostic, maybe talk about your interactions with the customers and how we from the outside should be thinking with that rate of adoption in terms of the overall growth rate as you see clients explore and examine some of the cloud options?

Yeah, I think there are, Paul there are two things. One is we’ve talked about or maybe three things, our longer term model of getting recurring revenues to 90% of total revenues, that’s a very important milestone. Second is having our license business remain consistent on an absolute basis and watching the MCV number, which is minimal contract value, new contract value that will ultimately turn into revenue via the cloud. So, those are the three markers that we’re certainly watching which translates into the flexibility which is getting our business to 90% or greater recurring, we’ve held our license business consistent on an absolute basis, for the last three years. We expect that to continue and the MCV number is new for us, we put that metric out there this year. The renewal rates are more impressive than our already impressive maintenance business and I’m watching the growth of that MCV number.

Okay. Fair enough, the other question that sort of popped when you touched on it briefly in the script, as your drive towards being a $2 billion company hopefully sometime soon, how are you feeling of both expense or control, obviously there was a senior sales change towards the end of mid last year middle of the year, where were you at in terms of your thinking about the need to maybe broaden out the team even more, are you satisfied at this point?

I am satisfied at this point. I actually feel we have the - part of the last restructuring that we did, we looked at stands and layers and wanted to make sure that we were aligned without kind of being this bureaucratic large organization, we wanted to remain very lean and nimble and we got those changes done quickly as you’ve seen sort of reflected and I’m quite pleased with Ted and George who lead the bulk of the field. George focused on the iX world and Ted very focused on the EIM platform. So, I like the structure, feels good inside and I like the organization, feels good inside and outside the company and I’m not looking to make any additional changes at all to that org structure.

Fantastic thanks, look forward to see more.

All right, thanks Paul.

Next question comes from Eyal Ofir of Dundee Capital Markets, please go ahead.

Great, thanks. Thanks for taking my question. Just first off on your commentary on Blue Carbon obviously you guys are pretty excited about that and it’s going to beta this quarter, so traditionally the December quarter has been pretty strong from a seasonality standpoint over the first fiscal quarter. So should we be assuming that some of that could be deferred into Q3 or how should we think about the license revenue here into Q2 and Q3?

Eyal, thanks for the question. Historically, we haven’t seen a delay due to an upcoming release. Customers have immediate needs and they want to get going and if they are in maintenance, they get the next version of the software. So uncertainly just at the Red Oxygen transition, we didn’t see a pause, I’m not anticipating a pause here as we unveil Blue Carbon. We will actually also talk about the next release post Blue Carbon and customers appreciate being able to do multiyear planning with us now. So historically we haven’t – my last four years, we haven’t seen a pause as we transitioned between releases. I’ll add I talked about a strong Q2 pipeline, let me offer up maybe a little more insight into that. the reason I feel good about that strong pipeline is really due to mix. It’s about mix in geography, it’s about mix in deal sizes, it’s about mix in industries and also a mix of on premise and cloud/MCV deals. So that’s why that’s a little more of the underlying detail behind the strength of the Q2 pipeline.

Okay, good. Just on your comment on MCV, do you guys have – is there like an average period of MCV like this revenue is recognized over a three year timeline or is it – it’s like an average time contract length you can talk to?

Yeah, we typically do three to five year deals on MCV and we’ll book a deal, a guaranteed contract and then we have to work to get the customer live and then we start the monthly billing from that Go Live part.

Okay, perfect. And before I pass the line, last question from me, Actuate, do you guys have a number of how much revenue recognized on the Actuate side and then it seems like also you guys have integrated with this restructuring, you’ve already integrated them potentially to your OpEx target margins. How is that gone and where are you guys out there and then I’ll pass the line. Thank you.

Yeah, so thanks for the question. We haven’t put out a number for Actuate revenue this quarter but it is reasonably consistent with the numbers we put out when we announced the acquisition. And I did say in my script Actuate did have a good quarter and is now on our operating model, and so the integration of that has gone very well and we are on or ahead of schedule.

Okay great, thanks. I’ll pass the line. Thank you.

The next question comes from Paul Treiber of RBC Capital Markets. Please go ahead.

Thanks very much. Good afternoon. I just want to follow-up on one of Richard’s questions on cloud growth. Could you quantify either the revenue or MCV mix between the business network like the GSX or EasyLink versus SaaS or software subscription revenue or could you speak to the general growth rates in those two segments.

So, Paul, let me take a crack at it first and then head it to John. So we are not getting below that number right now to say which segment or pillar it’s coming from but the majority of this is MCV, not SaaS revenues. So SaaS hasn’t really kicked in for us if you will, most of that MCV number is multiyear managed services right now.

Okay, that’s good to understand. Is there any I know you mentioned it won’t be cannibalistic but additive but could we see some license shift out of the license number and into the MCV number?

Well, let me approach that via our model. And I think the answer is plainly in our model which is our aspiration here is to get to 90% or greater recurring, the other part is license. That’s a good modeling exercise to say what is that look like and our margin aspirations of 34 to 38. So I’ll just remind everyone that the thing that’s not recurring as we defined in our model has license. Do I think some license business will migrate to a managed service? Sure, thanks and that’s okay because with the latter at its expense you’d hold on to the asset, you would pay your maintenance for the asset, but you’re coming to us to either manage it on-site, which we do today for the Government of Alberta, which we do today for the European Central Bank or you’ll ask us to lift that license and maintenance up move it into our cloud but pay for infrastructure and managed services. So, yeah I do think we can see some of the license business move to the Cloud services line, which is okay because there will be additional revenues and I again will re-highlight our goal of getting to 90% or greater recurring revenues.

Okay, thanks. Just wanted to shift to your capital structure just in light of comments on M&A and then also the recent share repurchases, how do you think about your capital structure, you completed a successful high yield offering earlier this year, would you continue to use high yield to augment the existing liquidity that you have?

Paul, it’s John. So, as we talked about before we did do the high-yield issue about a year ago just under a year ago and that was an opportunistic financing. We took advantage of a very frothy high-yield market, which was great. We did it for a few reasons, one is to balance out our fixed floating ratios and so we’ll continue to look at that as we move along. We’re pretty happy with our capital structure rate now, as I mentioned we’re pretty happy with our liquidity position. So, we’ll continue to look at the capital structure as we move forward and high yield is just one of many tools that we might use.

Okay thank you, I’ll pass it on.

[Operator Instructions] the next question is from Varun Choyah of CIBC World Markets, please go ahead.

Good afternoon gentlemen, just two quick ones from me. Going back to the MCV you mentioned that most of it is from the multi-M managed services deals, do you have like any sort of growth targets or like how MCV is going to grow over time on a year-over-year basis??

Yeah, we have a target model goal this year MCV between 280 million and 320 million.

And that’s pretty much the managed service, do you have any …

I think and if I’m recalling the fiscal 2015 number was 211 million.

Correct.

Yeah, so fiscal 2015, 211 million, fiscal 2016, 280 million to 320 million.

And I know you said you haven’t really touched on the SaaS from a contract value perspective, but is it safe to say that once you start seeing all of these SaaS deals, would it be like multiples of the existing managed service MCV?

No, I think managed services is going to remain the bulk of - the lead of what we do for some time, but our next generation core, OpenText core we’re going to unveil and demo main stage in two weeks and that will be our first real SaaS opportunity to generate revenue, but managed services is going to remain the lead for quite some time.

Great. And switching gears to the M&A front, what sort of targets like look attractive to you, any specific vertical in your business, is it more on the Analytics side, is it more on the augmenting the content side or do you feel you have a good mix of functionality in your offerings?

Yeah, I typically don’t get into any details - typically I never get into any details, not just typically as to where we are looking in M&A. At the top of our pipeline we usually lead we’re trying to fill wide spaces, I’m happy with the pillars we’re in. I’m not looking to get outside of EIM at this point. There is plenty of white space within EIM, so top of our funnel is just filling wide spaces in the current markets we’re in.

Great that’s all I got, I’ll pass the line, thanks.

Okay. Thank you.

This concludes time allocated for questions on today’s call. I will now hand the call back over to Mr. Barrenechea for closing remarks.

All right, thanks everyone for joining us today and I’m very optimistic about fiscal 2016 and look at it to be a transformative year for us. Our strong earnings engine got even stronger. Our ultimate financial goal is cash flow. Our capital allocation approach I think is market leading with our view on dividend buybacks and how we generate return from M&A. We have a catalyst release coming up for us with Suite 16 and Cloud 16 and we’re looking forward to drive aggressive new customer acquisition upgrade and competitive replacement programs and our customers will get their first shipments Suite 16 and Cloud 16 this quarter. I hope you will be able to join us at Enterprise World and I look forward to seeing you all there. Thanks for your time today.