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

Thank you, and good afternoon, everyone. I’d like to welcome you to today’s call. With me is Open Text’s President Steve Murphy, Open Text’s CEO and CTO, Mark J. Barrenechea; and our Chief Financial Officer, John Doolittle. 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 a replay available shortly thereafter. I’d like to take a moment and direct investors to the Investor Relations section of our website where we posted several PowerPoints that maybe referred to during this call, including our quarterly supplemental update on the financial results; as well as our recently announced acquisitions. I encourage all investors to download the presentation. As with previous quarters, we’ve updated a summary table highlighting Open Text’s historical trends and financial metrics. These trended financial spreadsheet is downloadable from the front page of the IR section of our website as well. Open Text will be hosting an Investor Day in New York on Thursday May 12. If you’re interested in attending or want to find out more information, please contact myself or the Investor Relations team directly. And with that, I’ll proceed to the reading of our Safe Harbor statement. Please note that during the course of this conference call, we may make statements relating to future performance of Open Text that contain forward-looking information. While these forward-looking statements represent our current judgment, actual results could differ materially from a conclusion forecast or projection in the forward-looking statements made today. Certain material factors and assumptions were applied in drawing any such conclusion while making a 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 a conclusion, forecast or projection in the forward-looking information and material factors or assumptions that were applied in drawing a conclusion while making a forecast or projection, as reflected in the forward information, as well as risk factors that may project the future performance results of Open Text are contained in Open Text's Forms 10-K and 10-Q, as well as in our press release that was distributed earlier this afternoon, 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 non-GAAP financial measures to their most directly comparable GAAP measures have been included in today's press release, which of course may be found on the website. And with that, I'll turn the call over to John.

Very good, thank you very much, Greg. Welcome, everybody, to the call. Let's go through the numbers and my references will all be in millions of US dollars unless I indicate otherwise. Total revenue for the quarter was 441, down 2% compared to 448 for the same period last year and up 2% on a constant currency basis. This decrease is related to professional services performance in the quarter and Steve will comment. For fiscal 2016 year-to-date total revenue was $1.34 billion, down 2% compared to $1.369 billion for the same period last year and up 4% on a constant currency basis. Recurring revenue for the quarter was 376, down 2% year-over-year compared to 384 for the same period last year and up 1% on a constant currency basis. For fiscal 2016 year-to-date recurring revenue was $1.143 billion down 2% compared to $1.172 billion for the same period last year and up 3% on constant currency basis. Next the impact of foreign exchange. In Q3, our revenues were negatively impacted by 15 and the adjusted EPS was negatively impacted by $0.01 compared to the same period last year. The negative effect at 15 by revenue type is broken down as follows. License, 3; cloud services, 4; customers support, 6; and professional services and other, 2. For fiscal 2016 year-to-date our revenues were negatively impacted by 80 and adjusted EPS negatively impacted by $0.14. The negative effect of 80 by revenue type is broken down as follows: License, 16; cloud services, 19; customer support, 33; and professional services and other, 12. License revenue for the quarter remained stable at 64 compared to the same period last year and up 6% in constant currency. For fiscal 2016 year-to-date license revenue was stable at approximately 198 and up 8% on a constant currency…

Yeah. Hey. Thank you, John, and hello to everyone on the call. Let me touch on my first 100 days on the job. The first 100 days in my post as President of Open Text has been nothing short of spectacular. I’ve hit the ground running, and I’m energized to be here. I made it a priority to take time to listen, learn and act where appropriate. At Open Text, we have a culture of customer first, and we live up to it. Since coming on board in January, I’ve met with more than a 1,000 customers, partners and employees in North America, Asia, Europe, the United Kingdom and Australia. Speaking at the Innovation Tour was a great opportunity to engage customers in a dialogue about Release 16. My philosophy is that customers don’t buy from companies, but rather they buy from people. And I continue to be impressed with the high level of customer engagement that these in-city events deliver. The feedback is clear. With Release 16, we have the best products positioned in the right market with deep customer loyalty, reflected both in the amount of follow-on sales and retention of CS and cloud revenues. My other big observation is looking internally. Open Text has a strong operations-oriented culture, which fits my management style well. There is opportunity to balance cost discipline with driving sustainable, organic growth initiatives. Let’s talk a little bit about the quarter in review. I’d like to take a quick look at the quarterly results. We had a strong quarter for license sales, and I’m pleased with the performance of our customer support and cloud businesses. Professional services came in weaker than we had planned, and I’ll touch on our plans to improve this a little later in my remarks. So some quick license…

All right. Thank you, John and Steve. There are two topics I'd like to cover today, M&A and Release 16. Before I get into those details let me start with a few comments on our Q3 performance. There are many metrics, but the one metric above all is cash flow. As cash is king. We are very pleased with our record operating cash flows of $190 million and the execution that supported it. The team delivered these results with a $15 million drag on revenue due to FX a very busy quarter in deal flow and execution while completing and launching Release 16 while strengthening my leadership team on 12% left operating expenses I know in constant currency OpEx was $179 million this quarter compared to $203 million last year same period. We delivered these results on a growing mix of revenue that is recurring in cloud based, recurring revenues were 85% to total revenues and cloud revenues were 2.3 times larger than our licensed revenues. And we delivered this while expanding adjusted operating margin 480 basis points again in constant currency. Beyond the numbers and the 15% dividend raise, the company got stronger in Q3. And it was a wonderful thing to see. On to my first topic, mergers and acquisitions. M&A is our leading growth driver and it's central to our business and financial model. We are generating expanding cash flows that will be reinvested into acquisitions at market leading rates of return. There are hundreds of assets available within the enterprise information management market and our pipeline of targets is increasing. Open Text is a consolidator and as a culture of proven history of integration. Our M&A model is differentiated from others for many reasons, but let me just highlight two, an integrated go-to-market and integrated engineering…

Thank you. [Operator Instructions] Our first question is from Richard Tse of Cormark Securities. Please go ahead.

Yes. Thanks. I'm not sure if this is a question for Mark or Steve, but I wondering if you can elaborate little bit more on the professional services. Did you say that the pull back was due to a pause and customers waiting for Release 16 to come out, or maybe give us bit more color on that, please.

Yeah, hey, Steve here. So I think that the pause itself is a little bit of a lack of managerial attention. I think that’s part of it. I think there are places like EMEA quite frankly where we’ve got backlog de-burned through that could have been burned through and wasn't. So I look to that and then seasonally Q3 has been a weak quarter for us and I think that a lack of management attention associated with what I just described in. The inability to burn through that backlog was part of what affected it. And I do expect it’s going to take two to three quarters to get this business back on track. Those are the biggest things associated with the TS lag. Mark is there anything to add to that?

No. Not at all.

Okay. And Mark, you talked a lot about M&A and the predictable pace, is that because you sort of put in place of process now or things just sort of coming to you given the pricing aren’t better, maybe give us a bit more color on that, please?

Yeah, sure thing, Richard. So it’s a sort of a combination of items. One is we've expanded our in-house capabilities. We have more attention on it from the leadership including myself. And I also think the market conditions are more favorable to buyers today. So I think those things coming together and has created a kind of a, you know, unique opportunity in the near term here for the company. And M&A has always been at the heart of what we do, right? So I would say with the expanded capabilities of the team, more time for myself and others and sort of market conditions, that we're putting more of an emphasis on it.

Okay. And just one last one on the cash flow there was a big step-up in cash flow. So should we take that as being a kind of a -- an increase in your former run rate here, or was this – it doesn't sound like it's a one-off, but maybe give us a sense of where that could be?

Yeah, Richard, it's John. Couple of things, one is the, you know, the bulk of the increase was related to the increase in net income. And then secondly, we continued as I said on previous calls to focus on working capital and driving improvements there. So there is more room to improve on working capital, but those are the two big contributors.

Great. Thanks, guys.

Our next question is from Steven Li of Raymond James. Please go ahead.

Thank you. Maybe I will start with a question for John. So when I look at the sequentially Q2 and Q3, so your revenue base is lower in the March quarter but your operating expenses is higher this quarter. So John, are there any non-recurring costs on the expense side, or is it more increasing investments you're making?

Yeah, Steven, thanks for the question. So we talked last quarter about increasing our investments and we’ve been doing that as we prepared for Release 16. So we have increased some of our headcount and sales in engineering and other areas. And there is some degree of seasonality in there as well. So we had low vacation expense last quarter and that would have increased this quarter. So it's a combination of increased investment and better seasonality on the expenses.

You expect it to be sustained, John, or does it taper off after some point?

Which part, Steven?

The investments for Release 16?

I would expect us to continue to invest over the next couple of quarters, definitely.

Okay. And Mark maybe a question for you, I know its early days but the customers you highlighted for Release 16, like Bell, Canada, any of those customers have been competitive displacements?

I’d say that the early wins are more of within our install base, Steve. We – as we get towards enterprise world, its sort of a natural progression. We're going to educate our sales force, we’re going to educate our partners, we’re going to educate our install base, and we'll then kind of fan out from there to more competitive replacements. So, as we march towards enterprise world in July. We'll have quite a bit of news around competitive replacement programs. It's sort of like a rolling thunder program. Its 50 employees, install base and then new customers and competitive replacement.

All right. Great. Thanks.

Our next question is from Paul Steep of Scotia Capital. Please go ahead.

Great. Mark, thanks very much for the description and the discussion around M&A, I think it articulates what lots of us have known over the years about Open Text. The one part I'd be curious about, though is, in the context of how you’re thinking about deals, particularly large transformational transactions, would you differentiate the hurdle rates across your deal portfolio and then I’ve got a quick follow-up.

Yeah, it's a good question. Deals, opportunities, really come in small, medium and large packages. And they also come with different structures, both HP Inc., and ANX were carve-outs by first, maybe standalone companies and share purchases. As you move up in deal size, yeah, I think some of the metrics do change a bit. Our philosophy doesn't change around value and cash flows, but theoretically the larger the asset typically a higher valuation is associated with it, which means we have to look a bit more deeply on integration and cost synergies. But theoretically the larger, this is just a theoretical M&A statement, that the larger the deal size typically that scale comes with a slightly higher valuation. But our philosophical view of value and cash flow generation won't change.

Great. I guess to follow on and maybe shift to Steve a little bit, we talked already about the PS change you've made. Are there any other changes or realignments in field operations that you've executed at this pointer? Or is it fair to think that you’d wait till sort of sales kick-off towards the end of the year?

Yeah. Hey, good question. So the answer is, that’s the big one, as far as bringing in someone from the outside to run PS. And stability is really my focus right now. So identifying some room to improve PS was clear and just maintaining stability with what is a, quite frankly, a really solid team with some good products I think has a opportunity to pay some really big dividends. So, short answer is, that's about it for now and we're going to focus on continuing to do what we do well.

Great. One last quick clarification, not to leave John out, because I know he’d be disappointed. On R&D…

So you’re going to talk about the cash flow at 190.

Yeah.

This would relate to the forward which would be, Mark talked a lot about R&D investment into next year, great development sort of going to happen for customers. Is it fair to think that those investments are all going to be within the existing envelope that we've been all thinking about? Thank you.

Yeah, Paul, it is. We've I think given a target model of 10% to 12% on R&D and Muvi has done a great job managing with that envelope, and he has been increasing his headcount but redistributing a lot of that in lower cost jurisdiction. So we look at the overall expense holding pretty steady but he has actually been able to do that and increase headcount and I would expect that to continue.

Perfect.

No change at this stage to the model.

Our next question is from Blair Abernethy of Industrial Alliance Securities. Please go ahead.

Thanks. Just two things. First, Mark, I wonder if you can give us a sense, or Steve, of just sort of what you're seeing with suite 16 in the marketplace? How many weeks have you really been out there where you're actually selling it and, you know, what are the kind of -- what areas of the suite are you seeing the most traction with?

Yeah, so we've got -- we'll say a couple of months of exposure putting the product out in the marketplace, and content management, whether it be a consumer package good company, or a bank, those are two examples where we're seeing customers coming and say, yeah, we would like to give it a try and understand how we would apply the technology, how quickly can we implement it and at what price point. So definitely within financial services and banking and manufacturing, we have seen uptake, significant uptake, government financial services and also the public sector or places where we're seeing content management, also some business process management solutions that customers are requesting. Anything to add to that, Mark?

Year, Blair, thanks for the question. And let me add to Steve's comments. I'll injecture on the competitive landscape a bit. You know, we compete with IBM mainly in file net and in sterling commerce. And, you know, 16 quarters of revenue decline, boy, it must be getting tiring, I have to tell you that. On the EMC side, they sold off their cloud assets, they have not innovated, and they are just core ECM. So they're not ECM with Apps, CCM with SAP, they are not EIM, and we're competing very effectively against them. Adobe, we are winning in the digital asset management space, web experience management space and customer communications management. We just got stronger with the assets that we announced with Interwoven. You have FPL being sold in pieces by Florida, went to private equity. Lexmark, you know, who knows where Cofax and ReadSoft will end up and, of course, we still see a fair amount of disruption on the archive side with Symantec. So its early days, as Steve said, with Release 16. Actually next quarter will be our first full quarter of GA , but I tell you I have never felt better on the competitive side where, you know, if you wind back 20 years in ERP, there were 100 ERP competitors and then it got down to 50 and 20 and 10 and J Bop’s and two. Release 16 is a pivotal moment with these market conditions that I think we're getting down to three to five main competitors in this area.

Okay. That's great. Thanks for that, Mark. And John, just I wonder if you can touch on maintenance renewals in the quarter, customer support revenue was down a little bit sequentially. I suppose most of that is FX, but just can you talk a little bit about core license renewals, maintenance renewals, and pricing.

Yeah, Blair, holding steady at around 92% mark, no change in the quarter. And we were up in constant currency in customer service. So, the FX is the reason that you pointed out that's accurate.

Okay, great. Thanks, guys.

Thanks, Blair.

Our next question is from Paul Treiber of RBC Capital Markets. Please go ahead.

Thanks very much. I just wanted to focus on the go-to-market strategy for Release 16. A couple years ago, you guys went through a large sales force expansion. How do you look at your sales force at this point and what are some of the investments that you're making from a go-to-market point of view?

Yeah, hey, Steve here. So, a couple of things, we're not going to give any specifics on sales force expansion, but it is an area of investment. And I'm not going to any KPIs, but there is a robust opportunity to expand with quality where it makes sense and with Release 16, there are plenty places like I just said financial industry, consumer package goods, government where we continue to grow and expand. So, we're a direct sales force and we will continue to be a direct sales force. We will partner closely with the big GSIs, the global system integrators where it makes sense, and we'll continue to put a lot of effort and investment in SAP. That relationship has borne fruit for us and I see that it will continue to do so and will do that with a focus on quality and on Release 16. From an industry vertical standpoint, I won't repeat myself, there are few with 16, we already see it having a great fit. There was a second part to your question, too. What was it?

Broader go-to-market strategy around Release 16.

I think that's it. I think I outlined it as far as the GSIs and SAP. That's about as broad as I think it gets for us. I think that as far as enabling the sales force and making sure that they have enough product knowledge to be capable, we've gotten very systematized around the different modules and tracking and training and making sure that our sales force can take that, the direct sales force. I think that having a value-based sale -- the actual value proposition being well-defined by vertical is another area of focus for me. I've got a lot of experience based on the places I've been where we can take a -- basically looks like Excel Spreadsheet that says this functionality which is unique within Release 16 is going to equal this much in value to you depending what vertical industry you're in. And using that as part of the pricing process, the discount is little as possible. That's another method we've introduced with Release 16 by industry vertical.

Secondly, could you speak to the opportunity around Salesforce and your partnership there?

Yeah, I'll take that one, if that's right. So, -- thank for your question, Paul. And just to amplify a couple points that Steve made. I think what's new with Release 16, are some of the large global SI partnerships that Steve and his team are building. What's new are kind of key vertical opportunities. And probably a third one that's new that has come along to actuate our embedded opportunities that Steve and the team are working on. So, those are sort of the new opportunities. And on that vein of large software partnerships like SAP, we see an opportunity with salesforce. The work we've done with extended ECM, we are going to extend into sales force, with EP1 and provide full enterprise content management hosted in our cloud, cloud to cloud, with salesforce, you know, fully integrated into salesforce.com and a modern HTML5 user interface and our full extended document management, our archive, records management and governance capabilities that will be integrated to salesforce with EP1.

Okay. Thank you. I'll pass the line.

Thanks, Paul.

Our next question is from Eyal Ofir of Dundee Capital Markets. Please go ahead.

Thanks. I just want a quick question on Release 16 here in terms of the early days. Are you guys seeing more demand on the SaaS side or on the license. Maybe you could talk to what the customer feedback is like and what type of take-up you're seeing thus far?

Let me take that first, which is – we're not really seeing a shift of SaaS or, you know cloud – subscription versus on-prem kind of shift. We still see the world as hybrid, the best way to describe it is a ultimate 50-50 split. You know, in fact, we had two customers last quarter, who went from our cloud services to back on-prem. And one went back on-prem, because they've done the economic model. They have been in our cloud for a couple years, and having a great service from us, and they wanted – they were looking at a multi-year model and just felt that for them and their usage that economically it was better to be on-prem. We had another customer who had a security event unrelated to us, who had decided that the system should be in-house versed in a cloud. So we actually had two customers that I know of, there may be more, who went from cloud back to on-prem last quarter. We view the world as hybrid, I don't think Release 16 will change the dynamic that the world is 50-50.

Okay. I appreciate that. Just on the acquisitions as well, you talked about integrations and onboarding your operating model. In terms of actually getting them onboard to your platform, how long does that take for each acquisition?

I am sorry, Eyal. Could you repeat the question?

Just to get them onboard, I assuming the plan is for both acquisitions is to get them on to your platform, technology as well, not just the financial model. So I was just wondering if it is the same time lines or if it is different and how long it would take?

On the financial model we're looking for the HP assets within the first year, and on the ANX day one. On the technology…

I meant technology – sorry.

Fair enough. On the technology platform our view is really kind of the next release cycle. So we want to be able to get the asset onboard, get them integrated day one, and then on the next release cycle have them more in line with our technology standard. So I don't know if probably in this road map around EP2, that they would be more on our technology platform. But conceptually within the next release cycle, which could be 12 to 18 months, that would like them more aligned with our tech staff.

Okay, great. And before I pass the line, last question for me just on documentum [ph] the rumors MC looking to sell it, just wanted to get your thoughts on it and how are you guys looking at that asset as well? Thanks.

Thank you for that last question. And we won't comment obviously on rumor or speculation. But we appreciate the question. With that, I think we will wrap up the call and we look forward to hosting everyone on -- at our Investor Day in New York City on May 12, and hope to see you there. Thank you very much.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.+