Thank you for standing by. This is the conference operator. Welcome to the Open Text Corporation Fourth Quarter and Fiscal Year End 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. I would now like to turn the conference over to Greg Secord, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon everyone. On the call today is OpenText's Vice Chair, Chief Executive Officer and Chief Technology Officer, Mark J. Barrenechea and our Executive Vice President, Chief Financial Officer, Madhu Ranganathan. We have some prepared remarks, which will be followed by a question-and-answer session. The call will last approximately 60 minutes with a replay available shortly thereafter. I'd like to take a moment and direct investors to the Investor Relations section of our website, investors.opentext.com, where material relating to today's call is posted. And now, I'll proceed with readings 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 the 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 recent Form 10-K as well as in our press release that was distributed earlier this afternoon, which of course, 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 turn the call over to Mark.

Thank you, Greg. Hello, everyone, and thank you for joining us today. I'll be briefer in my remarks, so we can get to your questions sooner. Let me also encourage you to have our press release and IR presentation in front of you as we go through our call today. Across OpenText, our teams ended Q4 strong and delivered a record year of innovation, operational and financial performance, as they focused on principled and disciplined execution. We have created the information platform, the intelligent and connected core and we are now adding to that platform via our own engineering and acquisitions. We have refined how we deliver value to our customers via our go-to-market teams. Our performance was in the midst of a dynamic environment and demonstrates our investment in our people, the confidence in our business and our commitment to creating long-term shareholder value, the OpenText way. Our business is best viewed on an annual basis and we strive for greater quarterly consistency through growing our recurring revenues and clear communications as I hope you'll hear today. Consider, Q3 was slightly below and Q4 slightly overachieved, compared to external models. As it was a dynamic year as we added $524 million in new revenues. Our business is best viewed annually. Looking beyond any given quarter and reviewing our fiscal 2018 results, we delivered a record year. $2.82 billion in total revenues, with 23% year-over-year growth. Annual recurring revenue or ARR was $2.06 billion or 73% of total revenue. ARR grew 22% year-over-year and crossed the $2 billion threshold and was a record year as well. Let me also note we have successfully transitioned the business to an ARR annual recurring revenue model. Year-over-year growth related to acquisitions was 17.5% or 17.2% in constant currency. Further, we allocated $321 million…

Mark, thank you. And thank you all for joining us today. Before discussing the details of our fourth quarter results, I want to thank all of you on behalf of Mark, Greg, and myself for sharing your valuable feedback with us on ways that we can even further improve information we provide to you and make it easier to evaluate progress of our business. With respect to fourth quarter and annual fiscal 2018 results and similar to prior quarters my references will all be rounded in millions of USD and compared to the same period in the prior fiscal year, unless I indicate otherwise. Total revenue for the quarter was $754 million, up 14% from last year or $730 million on a constant currency basis up 10%. The revenue was positively impacted by $24 million due to foreign exchange and negatively impacted by $4 million due to acquisition accounting rules. In fiscal 2018, total revenue was $2,815 million up 23% from last year or $2,743 million on a constant currency basis up 20%. Annual recurring revenue was $535 million, up 13% from last year or $517 million on a constant currency basis up 10%. Our fiscal 2018 annual recurring revenue was $2,061 million up 22% from last year or $2,014 million on a constant currency basis up 19%. And now for the impact of foreign exchange for the quarter FX positively impacted revenue by $24 million and had a positive impact on adjusted EPS. For fiscal 2018 foreign exchange positively impacted revenue by $73 million and had a positive $0.10 impact on adjusted EPS. And now to gross margins. For the quarter gross margins were, as follows. Our license margin was 98% up slightly from 97% last year. The cloud margin was 56%, down slightly from 57% last year. Our…

Thank you. We will now begin the question-and-answer session. Our first question comes from Phillip Huang of Barclays.

Hi. Good afternoon, and congrats on a solid finish to the fiscal year. It's great to see that you guys are providing the Quarterly Factors and I have a follow-up on that. You guys have been talking about accelerating spend to drive stronger cloud sales. I was wondering if you could provide an update on the progress of that, how far along are we in that accelerated cloud spend period and when do you expect that spend to normalize? Thanks.

Phil, yeah, thank you. Thank you for the question. As we highlighted in the script and we look to 2019, we're looking to grow low-single digit organically and to grow via M&A, albeit offset by FX and ASC 606, as we talked about. First reactions to OT2 is very favorable, coming out of Enterprise World. And we're now into a mode of quarterly updates in OT2.2. We will be refreshing the platform in October. We have a new set of managed service features around security and privacy for our private cloud. And I think you've seen the strength of our annual recurring revenues that crossed $2 billion for fiscal 2018. I think the short of it is, we still view the world as hybrid. I don't know if it ends 60-40, 40-60, 50-50. But right now, we're tapping the pedal on going a little faster in cloud. And I think you see that in the strength of our ARR results, a little bit of additional investments, baked into the 2019 targets and the reception to OT2 has been very favorable and opens up new use cases for us. So, more to come in this in the coming quarters.

That's helpful. Maybe a follow-up question on the cross-selling on your recent acquisitions, the biggest one being Guidance obviously. I was wondering if you could talk a bit about the lead times, your cross-selling. I would imagine that data security solutions might take a little bit longer. I was wondering if you could talk a bit about that and I'll pass the line. Thanks.

Yeah. Thanks, Phil. Yeah. I would direct everyone to our investor presentation, slide 19 specifically, we added a slide, cross-selling to the Global 10,000 and we're highlighting four particular customers that may be familiar to most, Nestlé, General Motors, AT&T and Daimler, where we look at the OpenText content suite base. And through our own engineering and our acquisitions, where we've expanded our information platform within these four marquee customers for Customer Experience Management, expanded Documentum, three out of the four. Three out of the four we have use cases for Covisint inside the customers; and then security, two out of the four. So, we thought this was a nice representative set to show how we're cross-selling and we're cross-pollinating via our acquisitions. So we added that to the investor material slide 19.

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

Well, thanks very much. Just in regards to publishing the ROIC metric, which is very helpful, could you comment if ROIC is now an explicit measurement for management. And then related to that at the Analyst Day at Enterprise World, you mentioned that you received feedback from investors that requested management to be evaluated on per share metrics. Do you have an update on that, those discussions around that and if there will be any changes on the metrics that management is evaluated on?

Yeah. Paul, thanks for the question. We think we have two basic programs and I'll maybe just highlight it myself in the management team is consistent with myself, in all our disclosed programs, 75% of my remuneration is at risk, and on an annual basis that's tied to operating profit and total growth. And if we make an acquisition, that revenue that is then added to the annual program. Acquisitions actually are not free in the model, in fact, they add risk to the model, because we have to deliver to what we say and there is always a lot of unknowns. So the annual plan is very simple, it's revenue plus income tied to the annual plan. Longer term, it's tied to share value. We're measured to a set of peers, if the stock doesn't go up, the program doesn't pay and we think that is just a lot of simplicity. We measure deals on ROIC. I want to note that we compare ourselves, we compare ourselves is a really important topic. We compare ourselves to large software companies. We don't compare ourselves to consolidators, there's a lot to learn from them. We don't compare ourselves as metrics to Canadian software companies. We compare ourselves to Oracle, SAP, Symantec, Citrix, VMware, Adobe, the large software companies and our goal is to consistently perform in the upper quartile of those companies for total growth, ARR, adjusted EBITDA, cash flow and, of course, ROIC. So I don't mean the longwinded answer, but it's important what you compare it to and we compare it to those companies, we measure deal on ROIC. I will note that a minority of voices have said move your metrics to per share. We don't feel that's the right way to lead right now. I will note that our dilution is in the – our small dilution is in the upper quartile of our peers. If you look at burn rates from large software companies annually they're in a burn rate of 4% or greater. We're in a burn rate of less than 2%. So I think we can give you confidence that we'll continue in that low annual burn rate of dilution and that we perform in the upper quartile. So thanks for the question and it's an important one, because it's who do we want to be compared to. And we want to be compared to large software companies.

Thanks for that explanation. And the second question is on the long-term model. I think the long-term model is now based on EBITDA as opposed to adjusted operating margins. I think the high-end is still at 40%. But because it's based on EBITDA, it implies that the high-end is slightly reduced. Is there anything – how should we think about that change or – and the potential slight reduction there?

Yeah. Paul, thank you for that. We don't see it as a reduction, just to start with. So thank you for that, we don't see it as a reduction. We have moved the metric from AOM to adjusted EBITDA and because that is the industry metric. And the vast majority of those who analyze the company are on adjusted EBITDA. So we're simply moving to the market metric. We are moving to our large software company compare metric and we tightened the range, right, it used to be 36% to 40%. We tightened it to 38% to 40%. And I'll note that 38% to 40% is in the upper quartile of the large software peers. Right? And it took them 50 years to get there and we're 27 years old. So we don't see it as a reduction. We do see it as a tightening on the upper end of the range. And I think even more important – and these are great questions and even more important, it is the upper quartile of performance for large software company.

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

Yes, thank you. So Mark, thank you very much for providing those Quarterly Factors and the detailed disclosure. It's really helpful here.

Thank you, Richard.

Certainly, it seems like you guys are a lot more focused over the past year or so on organic growth, probably as much as I've ever seen it. I'm kind of curious to see what triggered that in the background here. And to your sort of discussion on ROIC, do you see kind of a potentially better contribution from a ROIC standpoint to the organic?

So, a few things in there. Maybe, I'll save ROIC to the end. I think of our maturity are maturing over the last few years. And we're at a point where we have a platform, we've been acquiring businesses, we've been integrating the products, we'll always be integrating products. But, we've sort of hit a threshold of where I see us now as an information platform. And you're seeing that in our customer wins. BMW, for electronic invoicing, Auto Club for Internet of Things, the Department of Energy, for all their content management, expanding into new countries, like Ness in Israel. So, with that, we look at the large software company peers and we don't want to outperform them on a growth basis and that means total growth both organic and acquired. So, yeah, you're going to see a sort of a consistent message from us, where we're looking to grow in a total way, our total growth. We'll continue to grow via M&A and grow organically from the platform that we've created. With that said, we're happy with our ROIC. I don't think you grow ROIC beyond where you are. Our mantra is to consistently perform in the upper quartile and consistently perform. Total growth ARR, adjusted EBITDA, OCF and ROIC. And we think ROIC in the high teens is right in the upper quartile. So we'd like to consistently perform there over the long-term as we grow.

Okay. That's helpful. I guess on the sort of sticking with the organic side here. There hasn't really been as much discussion in recent years with respect to the partner channel. And I'm kind of curious to see, if you could help us size that opportunity and what you may be doing to survive their expanded channel or increasing that sort of the sell-through of the OpenText products through that channel? Thanks.

Yeah. Yes. Thanks, Richard. The partner channels are real important as probably you've seen and many have seen at Enterprise World. I mean, I harken back to when Oracle, Microsoft, and SAP were in the early 20s. And for them to reach their full potential, they needed an extended sales force and their products got to point 1, 2, their products and platform got to a point where they started to add strategic transformative value. So we're approaching this point where the information platform is – there are strategic initiatives in the Global 10000 and we can't get everywhere, right. We can't get to every country, so that's been our partnership in Israel. We can get to every Global 10000 that's our growing focus on the large global system implementers to extend our reach, to connect more customers to our platform.

Our next question comes from Stephanie Price of CIBC World Markets.

Good afternoon.

Hi, Stephanie.

Hi. I just want to focus on that 2.5% constant currency organic growth in fiscal 2018 I wonder if you could talk to the products that are driving it and how you see that organic growth unfolding as you head towards the 2021 aspirational targets?

Yeah. Thanks for the question. I'd point to, I call it – sort of call them the Big Fives internally. It's cloud, security, content services, our business network and analytics/AI. And those are the five sort of key product and service initiatives that are driving that organic growth. And these are long-term trends. So we are seeing more interest in both the private cloud and the public side, security as we've seen from Enfuse and Enterprise World where we're viewing it as what we do as the immune system for business, if you will. Content services has been reinvented recently with GDPR and privacy and I don't need to add the AI and analytics. But I think Steph these are not short-term kind of secular trends, these have a lot of staying power to them and will contribute to organic growth in 2019 and beyond.

Great. And then the slide deck mentions competitive replacements is one of the drivers for organic growth, can you talk a bit about the competitive environments at the moment and where do you see the opportunity to gain some share?

Yeah, for sure. And we remain very focused at the kind of top of house competitor and that being IBM and looking at strategic wins against FileNet and there are other platforms, so I'd say IBM remains our big focus right now for competitive replacement.

Our next question comes from Paul Steep of Scotia Capital.

Great. Thanks. Mark, could you talk a little bit about the Cloud services momentum we've seen, I guess, now consistently four good quarters of positive constant currency growth there. What you see that driving that into the next fiscal year and maybe beyond and then I got one quick follow-up.

Yeah. Paul, thank you for that. Again, our strategy is very differentiated than others. One is our sort of VAN, our value-added network services. Now look to a win at BMW, where we're going to be doing electronic invoicing across dozens of countries. And I talked about it at Enterprise World where we now understand how to do electronic invoicing, I can't remember the country count off the top of my head, but I think it was close to 60 countries around the world, where we understand local law or local invoicing requirements, local settlement for electronic invoicing and doing this digitally. So, that's all the Cloud service for us. That's an important driver for us. Second is, in the Global 10,000, private cloud is very important. We have clients who are not interested in being in public instances, where they may be in banking, like the ECB, or a proprietary IP in pharmaceuticals, or nuclear power plant designs and other things, very confidential IP. So, private cloud is a second aspect to our growth. And then third, we're opening up a new swim lane for public – for our public cloud in SaaS and the application layer on top of that. So we feel very good about our trifecta there, which is our value-added network, our private cloud and our new OT2 public cloud.

Great. And then just, I guess, thinking again about 2019, you would have gone through sales kick-off already, with the full transition to an ARR model, is there any change to the sales force, sales comp, anything like that that we should be thinking about or is it we're in a nice stable environment and business as usual? Thanks.

Yeah. Thanks, Paul, nice stable environment. In fact, one of the advantages to being an acquirer is we're studying – I just paused on myself here. Let's say we study a company a week, and we get to see every comp model that's out there in the marketplace, so we get to develop best practices. And a few years back, we put a method in place, where we incent our field, we don't give them product-specific quotas. We give an annual number and they need to retire that, either through license or through the annual contract value. So, we had studied this, we had seen what Oracle and SAP and others were doing, we learned from them, we see a lot of companies through our due diligence. And we put that method in place a few years ago. I think the stability of that plan showed us results in 2018. So coming into 2019, there are zero changes to that plan. We put those changes in place a long time ago, so we have great stability in the structure of the organization and there I can't think of actually a single change in the comp plan coming into 2019 for the field.

Our next question comes from Thanos Moschopoulos of BMO Capital Markets.

Hi, good afternoon. Mark, it seems like the license revenue's becoming more seasonal on a quarterly basis than we've seen historically. And your point that we should look at the business on an annual basis is well taken. But is there any specific reason you can point to us for why we're getting these bigger peaks and valleys on licenses in Q2 and Q4?

No – Thanos, I can't really point to something specific, except to say that our Q4 is the end of a calendar year. So, it's the end of many individuals' budgeting cycle. Second, as our government business has grown as well, I think May is the end of a budget cycle in the U.S. As our business has grown in Japan, Japan has its end of the year. So, I think if I look at our seasonality, it's not a precise answer, but it feels like we're going to trend more to market norms over time, given the scaling of the business. And you have back-to-school, which is now, or summer, which is now. You have end-of-year budget spends, and you have other cycles like U.S. federal government and other things. It feels like it's trending more towards a norm over time than anything else. Madhu, I don't know if you have any observation there?

Sure. I mean, we talked about the summer factors in Q1, right, that's very, very normal. And Q2, our Q2 being the calendar December quarter, as Mark said...

Everybody else's Q4.

...is everybody else's Q4 and certainly budgets open up.

Yeah.

And I think you all know this, because budgets open up in December, the budgets slow down in March. And then they open back up again in the June quarter, right.

And everyone else's Q2 is our Q4. So we have reps in just natural behavior pushing to exceed plan.

Right, right. I mean again as Mark said, I think it converges to what the sort of the enterprises and the business norms there.

Fair enough. And on the personal services revenue, PS head count has been flat on a quarterly basis throughout the course of 2018. And you mentioned that you expect PS revenue to be flat overall 2019. Just to clarify, is that a conscious effort on your part to leave more money on the table for your partners or is there some other dynamic underlying that?

No, I think you said it fine, Thanos, which is, we think it's a classic win-win. We're looking to hold our PS revenues consistent year-over-year on an absolute basis. And we're hoping our partners are going to grow the other revenue lines for us, as we grow ARR. So it's a conscious effort of growing our partner distribution and expanding ARR.

Our next question comes from Matthew Wells of Citi Research.

Hi, Mark, thanks for taking my question. As you look at the margins across the cloud business how long does ongoing investment pose a headwind in the margin expansion?

Yes, it's a great question. So I'll just start with we've always viewed our business in a blended margin. So we look at our 2019 target for adjusted EBITDA up 36% to 38%, it's factoring, factoring all the revenue lines in license, cloud customer support, professional services. So we're expanding the company blended margin by a 100 bps, they range it by a 100 bps year-over-year. Look, we have an opportunity to tap the gas pedal right now on attracting more customers into our cloud. And that's going to take a bit of investment already factored into the 36% to 38% for security, for OT2, for next-gen managed services. So, when we look at the target for the year of 57% – I think it's 57% to 59%? Madhu.

Yeah, that's correct.

Yeah. We've factored that into the whole year. So, is it this year and next year, look I think we're going to get more efficient as we scale, but we have factored it all into the 36% to 38% for the year.

I will now hand the call back over to Mr. Barrenechea for closing remarks.

All right. Well, let me thank everyone for joining the call today. And as I noted in my prepared summary remarks, we've listened, we've learned and now it's time for us to lead. And we had a strong Q4, which contributed to our record 2018 and we're excited as we look to 2019 to grow low single-digit organically to grow via M&A, adjusted EBITDA between 36% to 38% and that growth offset by negative $70 million due to FX and ASC 606. Well, thank you for your time today and Madhu and I look forward to seeing you at our upcoming conferences and one-on-ones. Thank you so much.

Yeah. Thank you, all.

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