Thank you for standing by. This is the conference operator. Welcome to the OpenText Corporation Second Quarter Fiscal 2018 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] I’d now like to turn the conference over to Greg Secord, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Ben, and good afternoon, everyone. On the call today is OpenText’s Vice Chairman, Chief Executive Officer and Chief Technology Officer, Mark J. Barrenechea; and our Chief Financial Officer, John Doolittle. We’ll have some prepared remarks, which will be followed by a question-and-answer session. This call will last approximately 60 minutes with the replay available shortly thereafter. I’d like to take a moment and direct investors to the front page of the Investor Relations section of our website, where we have posted presentation that will be referred to during the call. And now, I’ll proceed with the 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 a conclusion, forecast or projection in the forward-looking statements made today. Certain material factors and assumptions were applied in drawing any such conclusion. 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 as well as risk factors that may project the future performance results of OpenText are contained in OpenText’s Form 10-K and recent 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 may include discussions of certain non-GAAP financial measures. Reconciliations of any non-GAAP financial measures to their most directly comparable GAAP measures may be found within our public filings and other materials, which are available on our website. And with that, I’ll hand the call over to John.

Okay. Greg, thank you very much. Welcome to the call, everybody. Before I get to the numbers just wanted to acknowledge that I'll be leaving the company in September after four great years. I'm extremely proud of our accomplishments, the OpenText team is amazing and I'm pleased to be able to announce this news on a high note with such a strong quarter. Until September I am fully committed and dedicated at driving performance and ensuring there is a seamless transition. Okay, so let's go through the numbers. My references will all be rounded in millions of U.S. dollars and compared to the same period of the prior fiscal year unless I indicate otherwise. Total revenue for the quarter was $734 million, up 35% from last year, $720 million on a constant currency basis up 33%. Revenue was negatively impacted by $13 million due to acquisition accounting rules, positively impacted by $14 million due to foreign exchange. Year-to-date total revenue was $1375 million, up 33% from last year or $1356 million on a constant currency basis up 31%. Total annual recurring revenue was $516 million up 31% from last year or $508 on a constant currency basis up 29%. Year-to-date annual recurring revenue was $1005 million up 30% from last year $995 on a constant currency basis up 29%. License revenue for the quarter was $135 million up 38% from last year or $131 million on a constant currency basis up 34%. Year-to-date license revenue $213 million up 35% from last year or $208 million on a constant currency basis, up 31%. Cloud revenue for the quarter was $208 million up 19% from last year and new MCV bookings this quarter were approximately $65 million up compared to $54 million in the same period last year. Year-to-date cloud revenue is…

Thank you, John and welcome, everyone. I've five topics to cover on today's call. First, I want to start with an overview of our business model and first principles. Even if some this is repetitive I want to bring it all together in one place for today's call and future reference. Second, I'd like to discuss selected highlights from our terrific Q2 results where we delivered strong positive organic growth, record annual recurring revenue and solid operating cash flows. Third, provide an update on our recent acquisitions and M&A in general, next discuss the Madhu and John CFO transition and lastly, provide a few comments on Q3 and the second half of fiscal 2018, then I'll open the call for your questions. I want to start today's call speaking to our business model, our first principles and our approach to where we play and how we win. In many ways I'm reemphasizing what is well chronicle for OpenText. The OpenText market strategy is centered on enterprise information management. The EIM market is large, growing and strategic to enterprise customers therefore has high profits. EIM is enabling key trends such as new content platforms, new customer experiences, business networks, digitalization, securities, governance, internet of things and artificial intelligence. Enterprise customers are the world's largest 10,000 businesses and I use a short hand to describe them and that is the G10K, G for global. EIM is creating intelligent and connected enterprises, intelligent EIM automation, intelligent cloud, more intelligent endpoints, unlocking the value of enterprise information through AI and insight. Businesses are becoming more connected and faster 24 billion humans connected to the Internet in potentially over the next decade 1 trillion machines on the same network. Mobile is consuming the world and businesses are integrating their transactions of other businesses and networks…

Thank you. We will now begin the question-and-answer-session. [Operator Instructions]. The first question comes from Phillip Huang of Barclays. Please go ahead.

Hi thanks good afternoon. Couple of questions for me. First on the -- I was wondering if you could provide an update on cross selling into your recent acquisitions. Obviously, this isn't your first rodeo. I guess I'm curious what you might have learned in terms of selling to these new relationships specifically for documents. Where are some of solutions that are relatively easy in terms of cross sells to make. And what are some of the things that are little bit more complex to give a little longer to realize based on what you've learned so far.

Great question, Phillip. And I appreciate it. Look, I think some of that what we've learned through time is that we need to be laser focused and with focus comes our results. And bringing extended SAP a big strength of ours into the document from installed base, customer experience management as well as our managed service offerings has really created opportunity for us. I think the next wave is going to include products like guidance and security for our information forensic as well as AI in Magellan. So, it's always about a fulfilling a customer needs, so we're laser focusing your sales force. And quite candidly I think we saw some of the results of that in Q2 with very strong positive organic growth. I'd say it's about understanding the customer needs, laser focusing your sales force, getting them engaged and picking the best of your portfolio to get into the installed base.

Any surprises so far in terms of what you've learned versus what you're expecting, obviously you were planning the integration well even before. So, I was wondering if you sort of compare it to your expectations heading in? were there any sort of differences?

Well, of course I'll note that we're done with the integration and just delivered fantastic operating margin in Q2 of 33%. And then winding back, large asset integrations take time. Your reissuing comp plans, HR letters, employment letters, you're not buying a company so you have to integrate all the systems and people. And that takes a little time, if I rewind the cost maybe we could have done a better job communicating kind of some of that complexity in the early days. On the foot side of that, we felt we could get ECD to be within our model from kind a low margin into the 30s in 12 months or the team accomplished that just an incredible journey. Right now, we're on to more efficiencies and more season and more growth.

Great. I want to touch on the margin as my second question. Your 2021 aspiration is certainly impressive. Since the 40%, I was wondering if you could elaborate a bit on the visibility you have behind that aspiration quite imagine that the scale benefit from document and with the significant driver behind that. So, any color would be helpful. thanks.

Yeah, very good thanks for that question as well. Well we come out with that new range with confidence and visibility. It's going to be around continuing to scale our cloud managed services and renewals business. Continue to scale through our indirect business. And it's about scaling revenues faster than our cost of course and more automation, more automation in the business. So, I'm looking to kind scale revenues through the sales force or indirect channels continue to scale our support organization and doing this on lower cost as well as more automation in the business. John anything you want to add.

Yeah. I do said Mark, Phil it's a as we talk about when we laid out the 2020 model it's a programmatic locate every line on the P&L and increasing license margins and PS margins and reducing OpEx and scale so I agree with Mark that will continue in the progress, we have seen tremendous progress and that will continue and that what gives us confidence into the future.

And I look at Q2 that gives the organization confidence and 36.5% adjusted operating margin and 39.5% adjusted EBITDA.

Our next question comes from Richard Tse of National Bank Financial. Please go ahead.

So, when your press release referred specifically to cross sale up sale opportunities as kind of a focus this year. Does that mean you are kind of a lot more focused this year relative to previous years on organic growth?

I think the short answer is yes, but I think we can walk into gum quite candidly with the scale of the business continue to prosecute M&A opportunity, and deliver organic growth. In Q2 again we had strong positive organic growth. We have great stability and the sales force. We have greater scale. We have cycle of new product introductions with EP3 EP4, Magellan which is very topical and a great interest in our new security offerings from Guidance. So, look I think we have to do multiple things simultaneously. M&A will continue to be the lead growth driver. And I'm complimented [ph] with organic growth.

And John can you give us impression of the initial uptick you are getting on that?

Sure, we won numerous customers last quarter both in analytics and in AI. And I'm not sure the precise count here but we are running near 100 proofs of concepts in our installed base and we are learning a lot. We are learning a lot around deep integration into EIM, new workflows and used cases from everything from field service to customer journey optimization, where we want to compete and it think this is where we want to play and where we want to win is AI integrated into EIM. We are not looking for wins kind of standalone AI platform but we will some of those. We want to go out and capture the entire content installed base from documental and content suite. We want to go out and win the entire business network. We want to go out and win our million trading partners and ex filling of commerce over our network for AI. So, this is going to be a very steady state of progression. EP4 has a whole new wave of features in it for Magellan for our first wave of learning. But we had wins in Q2. We have a lot of proof of concepts going on. Our learning it way up on what we need to continue to deliver in the product and I think a very key philosophical point is its AI integrated into our automation is where we're going to have very long-term benefits for our customers and eventually flow through the revenue.

That's helpful thank you. And then just on Covisint and in Guidance, now that you're through ECD. With the synergies from those subsequent transactions scale fairly evenly over the sort of 12 months from which you've acquired them or is that front end loaded or back end loaded.

I'd say it's sort of even linearity there.

Okay. And then last question I can't hoping to ask John, what you're going to be doing in September there?

I think Richard, lots of things on my list but I am going to be totally focused for the next few months the job through April and then making sure there is a seamless transition to all. I will give you an update later on in terms of what the plans are for September.

Our next question comes from Thanos Moschopoulos with BMO Capital Markets. Please go-ahead sir.

Hi good afternoon. Mark revenues obviously came in well above the guidance you provided for the quarter and so if we look at the sources of strength can you provide some color on what drove that. Is there anything specific you call out? Was it maybe just a great macro environment, was it may be seeing the first to their cross-selling initiatives. Any color you can provide on that front?

Yeah thanks Thanos. I think it's a handful of things. Our acquisitions performed very well. And that was what one big contributor. Second is customer interest in our EP series, so just that kind of core organic demand. And the field was very focused in its execution. So, acquisition performance is to go our product cycle. Again, we have some help from FX. We had a handful of larger deals and those things are certainly helpful in any given quarter. But I would highlight two things, acquisition performance and focus and execution the sales force on organic growth.

Okay. Now you mentioned that Q3 will be seasonally weaker as it typically the case over the year. But given how strong this quarter was should we look for a larger than typical seasonal drop for your coming quarter or is there no reason to think that.

I'll state in my prepared remarks, that Q3 is typically our strongest cash flow quarter and our lowest in revenue. And we expect to see that usual historic seasonality.

And maybe one last one, just given the margin performance this quarter, it would seem that you're well positioned to maybe breakthrough the top end of your full year margin target. Any mitigating factors that we should aware of that might prevent that?

I will have to go back to my prepared remarks and confirming our 2018 rate.

Yeah, we're only in second quarter. So, we're going to stick with the range we put out.

Our next question comes from Stephanie Price, who's with CIBC. Please go ahead.

Could you talk a bit about the current competitive landscape and what you're seeing in terms of the competitors out there for the ECM fleet specifically.

Yeah sure, thanks. Thanks for the question. I didn't have anything in my prepared remarks today. So, I'd have the question. On the kind a EIM fleet from our content platform digitalization business network through AI and Managed Services. It's IBM that remains the macro competitor. And as you've seen from a series of campaigns we've run and number one campaigns in customer testimonials, IBM remains kind of the center piece of our study. How to beat them, and then how-to kind of show our value over their platform. We also have a -- we look very closely at vertical competitors, like Viva, iconic and others. And I think this is a next wave of our evolution is more and more vertical capabilities. We have a strong new engineering and construction module out. We have a new QMS clinical trials in pharmaceutical and biotech module out from inspired through ECD. And we put a press release out of couple of days ago on pack life which is a kind of filed sync and share collaborative workflow that's competitive against Box if you will and a win against Box. We still see Box in the midmarket but there are some collaborative workflows and we're though competing now with our latest release of core and pack life is an example of a win against Box. And let me kind of give you a new expression out there. I look at Box really as a feature not a company. And with our latest release of core, wins like pack. I think it's going to open up a new set of used cases and workflows for us to go after.

Great thank you. And then in terms of the reseller agreement you announced this ENC. Can you talk some incremental size of that opportunity? Like hos should we think about that?

Yeah. We're excited about sort of turning the corner from a buyer if you will to a build demand relationship. And what we're going to focus on initially are the larger more complex information lifecycle management environments so info archive. Big content platform deployments. And these typically will go into large insurance companies, financial services, government installations that nearly take tight hardware integration to sort of that information lifecycle management platform. So, it's really, I'd say very strategic view of larger more kind of integrated platform opportunities in the larger businesses. And that's where we're going to start and then build from that.

Our next question comes from Paul Treiber of RBC Capital Markets. Please go ahead, sir.

Thanks very much. I just wanted to turn our attention to the capital allocation for a moment. Previously, you gave an outlook to deploy $3 billion in acquisitions over several years. Do you have an update for that? And then if you can give us specific number, how should we think generally speaking the financial capacity to make acquisitions particularly in light of leverage and free cash flow generation?

Paul, obviously a great quarter in terms of operating cash flow and EBITDA and our leverage ratios coming down accordingly to below 3. And really no constraints from a covenant point of view on our bank dealer revolver. We are well below any kind of threshold there so we have a lot of capacity. And then as Mark and I have said obviously we want to maintain a conservative balance sheet. You have seen the leverage ratio has come down which is freeing up capacity each and every month. And so, as Mark said in his script we have got lots of capacity to do acquisitions and still maintain a conservative balance sheet.

And then in terms of the broader M&A strategy for EIM. Are there -- within the pillars that you have outlined are you still -- is it started to go deeper within those pillars or do you see any opportunity to expand among the pillars overtime?

I'm very pleased Paul with the breath of our market visibility if you will across our definition of EIM. We have been very successful not just be in ECM or CEM or business process management, we have our business network our internet of things AI and security now. So, it's a much wider playing field, the TAM is about 40 billion. So, it's giving us kind of wider berth of course you will, in the market for M&A. We continue to look at white species we want to fill while species as aggressively as we can. We would like vertical opportunities as well, and occasionally geographic opportunity. But I would say while space and verticals within our definition of EIM is very long-lasting strategy for us.

And then someone related to that is the -- with EMC, CECP now being owned for about a year or so you are controlling a lot more than messaging around I guess EIM in the market are you seeing customers beginning to think more strategically from a buying decision point of the universal EIM versus point solutions?

Absolutely, it’s a fantastic point. And this is why we are coming in behind more global SIs, the global system implementers such as Accenture, Deloitte, TCS, Dell EMC, which may not be technically ETSI but they have obviously huge echo system around them. They are customers who are looking more broadly at in information strategy, a digitalization strategy that can touch everything from managed services to a content platform, supply chains, business network analytics information and security. So, there is a lot of goodness happening in our ability to sell higher in an organization, wider solutions but we will also need a little more help in doing that and thus our GSI partnership.

[Operator Instructions] The next question comes from Paul Steep with Scotia Capital. Please go ahead.

Mark can you just talk a little bit about the field force. I think it seems like we have seen a period here of a much stronger field execution than I can remember in an exceptionally long time at OpenText. What's changed and do you think the stability there is now ingrained in the organization?

I think I'm very pleased with how we are organized. We have [indiscernible] leading professional services and managed services and that’s a very unique buyer in his characteristics. And you just see the stellar results in Q2 from professional services. We have James McGourlay leading one renewals organization, and we with almost two decades of experience here, the cloud looks a lot like on premise for us and in order to run a renewables organization. We brought all those things together and we have one renewals organization under James McGourlay and that's completely separate from our hunters in the field. So, we got a point of view where we organized around PS and managed services and printed. We had our renewals organizations with James and his great leadership and that hunter organization is led by an Open Tech veteran, Simon Ted Harrison. But I think that the org structure has helped I think the focus of 3 key executives driving their revenue lines, a product cycle and a strong acquisition contribution, all came together in Q4. But most importantly I'm going to look at the structure and the leadership we have across Ted, James and [indiscernible].

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

Hey thanks. Mark, just wanted to dig a little deep on the go-to-market with Global SIs. you've talked about some of the initiatives in the past. Are you keen with the progress and any SIs being typically worthy?

Yeah fair enough Steven. You've got to get a partner approach in your culture. You can't kind a bounce in and out. You have to have some real staying power here over the long term and build a partner mentality. And we're doing that, we put a great leader in place, you probably saw Patty Smith at Enterprise World, who now leads all worldwide partners and alliances for us. Our ecosystem partners, like SAP, AT&T, Dell EMC, our Global SIs, Accenture, Deloitte, TCS, CAP our value-added resellers, OEM and inside sales. Specifically, on the GSI side, I would point to probably TCS and Accenture where we have a lot of momentum right geographies. But it's a holistic view from our ecosystem partners to GSIs to way the stuff in our organization, go wider in our breadth, and get us into more strategic opportunity.

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

Alright very good. John, once again thanks for your incredible service to OpenText. And look forward to working together over the coming months and through September. So, thank you. Thanks for joining today and for your questions. This quarter, I'll be attending the Goldman Sachs conference on February 14 in San Francisco and we hope to see you there. So, thanks everyone, thanks for your time today. This ends today's call.

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