Thank you for standing by. This is the conference operator. Welcome to the Open Text Corporation Fourth Quarter and Year-End Fiscal 2019 Conference Call. [Operator Instructions] I would now like to turn the conference over to Harry Blount, Senior Vice President, Global Investor Relations. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. On the call today is OpenText Chief Executive Officer and Chief Technology Officer, Mark J. Barrenechea; and our Executive Vice President and Chief Financial Officer, Madhu Ranganathan. We have some prepared remarks, which will be followed by a question-and-answer session. This 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 we have posted two presentations that will supplement our prepared remarks today. The first is our strategic overview, which is titled, "Open Text Investor Presentation." The second titled "Q4 FY2019 Financial & Business Results"; includes information and financials specific to our quarterly and FY 2019 results, notably our updated quarterly factors on Page 9. In August and September, OpenText management is looking forward to meeting with investors in Canada and United States. We will be attending the KeyBanc Technology Leadership Forum on August 12 at Vail, Colorado as well as the Citi Technology Conference at September 5 in New York. Please feel free to reach out to me or the Investor Relations team directly for more information. And now, I'd like to tell you about an exciting event coming up in OpenText. OpenText is pleased to announce that we'll be participating in the NASDAQ Opening Bell ceremony at the NASDAQ market site in New York's Times Square on September 5. The event will be live, live streamed at 9:20 AM on the Investor Relations website. And finally I'd like to remind institutional investors and equity analysts that OpenText will be hosting Investor Day on the morning of Friday, September 6 at the Lotte New York Palace. This event will consist of our annual investor update, featuring strategic presentations from key members…

Thank you Harry. A good afternoon to everyone and thank you for joining today's call. I'm pleased to announce record OpenText fiscal 2019 results. If there was one word to describe OpenText, it is durable, long lasting, well-made, sustainable. Durability stems from our business model, centered on value creation in up or down markets and stable in volatile times. We delivered record results in markets that are increasingly volatile. Just look at the U.S. news today on another 10% China tariff and the hard Brexit discussions last week in England. OpenText results are built with the continued trust from our customers and places the company in a great position for the years ahead. We are a company focused on total growth, cash returns and disciplined value creation. Let me speak to this bigger picture, before I get into the shorter term. In constant currency, we finished fiscal 2019 at $2.92 billion in total revenues up 4% year-over-year. Our cloud revenues grew by double digits to $918.6 million up 11% year-over-year. Our organic growth was positive, but under a 1% for the year and ARR grew organically by 1.5%. Our growth would have been even higher not for the short term, external effects of strong U.S. dollar, trade wars, tariffs and the temporary slow down across Asia. Q4 revenues were affected by $22 million due to foreign exchange and $53 million for the full year. I have more to stay on growth in a few minutes. As reported our adjusted EBITDA dollars were $1.1 billion or 38.4% up 210 basis points year-over-year. Operating cash flows were $876 million up 24% year-over-year. Our ending cash balance was $941 million and we had a net consolidated debt ratio of 1.5 times, this is growth in value in all the right places. The correct…

Thank you, Mark, and hello and thank you all for joining us today. Q4 and fiscal 2019 results reflect an unparalleled year of operational performance, investment and growth, strong expense management and capital optimization. So now turning to the details of our quarterly and annual results and similar to prior quarters my references will be in millions of USD and compared to the same periods in the prior fiscal year During the fourth quarter and fiscal 2019, FX negative impact was meaningful. You will see the impact of FX across the entire P&L, all revenue segments and our earnings pointing to upward performance when measured on a constant currency basis. And let me start with revenues and earnings. On revenues, there was a $22 million negative effects impact during the quarter and a $53 million negative FX impact to revenue for the full fiscal year. Total revenue for the quarter was $747 million, down 0.9%, or $769 million, up 2% on a constant currency basis. For the fiscal year, total revenues were $2.87 billion, up 1.9% from last year or $2.92 billion, up 3.8% in a constant currency basis. Our earnings per share, GAAP earnings per share for the quarter was $0.27 per share, up from $0.23 per share for the same period last year. For the fiscal year GAAP earnings per share was $1.06 on a diluted basis, up from $0.91 per share in the prior year. Adjusted earnings per share for the quarter were $0.72 on a diluted basis no change from $0.72 per share for the same period last year a $0.74, up $0.02 per share on a constant currency basis. For the fiscal year, adjusted earnings per share was $2.76 up $0. 20 from $2.56 in the prior year or $2.79, up $0.23 per share on…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Stephanie Price, who is with CIBC. Please go ahead.

Good afternoon.

Hi, Stephanie.

I was hoping you could talk a little bit more about the macro environment. You've mentioned the headwinds around trade tensions and FX, prior quarters and this quarter as well. Have you seen any changes in customer buying patterns given the uncertainty? And could you talk a little bit about the impact on the pipeline?

Yes. I mean, there is no doubt that tariffs are top of line, right, just look at today's headlines out of the U.S. of another 10%. And that does lead into kind of the corporate psyche and effecting – do I want to spend money for growth or do I only do more cost out strategy. So I do think the market is a bit more cautious today than it was 90 days ago. With that said, we are a very durable business, we don't see a slowdown in our pipeline, but we certainly are seeing kind of the tones of caution out there. And this is why we've transitioned our business to a recurring business. 75% of our business in recurring revenues, we had incredible margin and cash flow expansion in the year. And whether we have 1% or 2% variance up on the top line, we were able to grow margins, able to grow cash flows. So as I look into Q1, we're going to grow year-over-year, I look into fiscal 2020, we're going to grow year-over-year. I do think the environment is a bit more cautious.

Okay. And when you think about that more volatile potentially environment, can you talk a little bit about the acquisition environment? Are you seeing that impacting the pipeline at all, our valuations coming down. Has the acquisition environment changed at all?

We’re going to – M&A will continue to be our leading growth driver as I said in my prepared remarks. Our pipeline is growing and we expect to get deals done here in fiscal 2020. So on valuations in the public markets do remain a bit high, we are seeing some private equity funds, that kind of the end of their lives and assets. I’m getting ready to turn, but let me confirm that M&A is going to remain our leading growth driver, our M&A pipeline is up, and we expect to get deals done this fiscal year at our value playbook.

Okay, great. And just one more, maybe this one is for Madhu. In terms of R&D, so when you look at your target fiscal 2020 model, it doesn’t show revenue, in terms of R&D hasn't changed at all. And when you think about the costs associated with moving to cloud and the quarterly product releases in the cloud. Can you talk a little bit of how we should see R&D going forward?

Yes, sure thing. Thanks, Stephanie. So when you look at the dollar spend of R&D, right, we continue to look at how much of that spend is in the innovation bucket and it's added to the maintenance bucket. And keep in mind, we've expanded R&D workforce across the globe. And we not only have U.S. based presence, we have centers of excellence around. So I would say, we’re able to use that R&D dollars much more effectively. And you specifically talked about cloud investments and that's also why where we maintained our gross margin with the cloud at 57% to 59%, where some of that odd investment is going into that line. And the dollar that spent may be flat or relatively flat, but I can tell you the people growth is high and the productivity we get from the people growth is also very high to support both innovation and maintenance. Mark…

Okay, great. Thank you very much.

Yes. Thank you, Steph.

Thanks, Stephanie.

[Operator Instructions] The next question comes from Richard Tse, who is with National Bank Financial. Please go ahead, sir.

Yes, thank you. Just wondering, notwithstanding your comments on organic growth, it has been soft for some time. I'm kind of curious to see, are there any hurdles from an Open Text perspective that you would need to clear to sort of accelerate that pace of growth here?

Richard, thanks for the question. Fiscal 2018, getting constant currency, we grew 2.5%. Fiscal 2019, all in, we were positive but under 1%, ARR was 1.5%, growth in 2019. And we're targeting low single-digit organic growth, right. And M&A faster than that, and we're targeting cloud high single-digits. So we're not far from the goal on kind of the next way station for us on organic growth. If not for the external factors in Q4, right, which were out of our control of FX, tariffs that affected a temporary pause in Asia. And let's not confuse that with the long-term strategicness of Asia, it also paused some public sector spending, you can see that in some of our tables, organic growth would have been higher. So in fiscal 2018, we're right where we want to be at 2.5%, this year positive, but a little lower due to the factors in Q4 in ARR 1.5%. So we’re not far from where we want to be in low single-digit organic growth. I like our total CAGR though 12% over the last five years, and ultimately it is about EBITDA dollars, we generate $1.1 billion and 24% year-over-year expansion of cash flows. We're almost there in low single-digit on organic growth.

That's fair. With respect to your comments on the professional services sort of moving away from the lower margin business using your partners a bit more, how should we think about that going forward? Is this sort of like coming into this zone, we’re at this baseline or just kind of their perspective I guess from modeling this company?

Yes. Again, I like the approach of constant year-over-year, so I'd model constant in 2020 over 2019. Look at our Q4 margins in PS, 21.6% and we closed the year at 20%. So we run a world-class PS organization, we set out to go after the higher margin business and we captured it. I'll put our business next to the best run PS organizations. We generate better margin than the world's largest firms, and we're modeling constant year-over-year and that's a good place to be, that gives our partners a lot of room like Google and SAP in the global SI to do what they need to do. We're able to capture the high value work to us, so continue to model constant year-over-year. And that’s right where we want to be and the margin is ideal at 2020.

Okay, great. Thank you.

The next question comes from Thanos Moschopoulos, who is with BMO Capital Markets. Please go ahead, sir.

Hi, good afternoon. Question for Madhu. In terms of your organic growth calculations for fiscal 2020, did that includes adjustment for the $46 million ASC 606 impact year-over-year or no?

Do you mean our organic growth in fiscal 2019, right?

Sorry for 2019 over 2018, yes.

Yes. We’ve calculated organic growth consistently as we've done before. And I would say when you look at term licenses specifically 605 to 606, term license is a part of our growth. So these are again new incremental businesses the team has gone out and secured from customers. So to answer your question, we've calculated organic growth consistently as we've done in the past.

Okay. But to be clear, you're using an ASC 606 number over an ASC 605 denominator, just to make sure I understand, is that correct?

Yes. And that's what we will do going forward as well.

Okay. Fair enough. Different question, Mark, when you sell a cloud deal, can you speak to the tip of attach rate you're seeing for the Open Text cloud as opposed to customers hosting with a public cloud provider? And has there been any discernible trend in that metric or would you expect it to change on the back of the Google partnership?

Yes. Look, I think the – we had double-digit cloud growth in the year as we talked about. And as I look into 2020, I talked about high single-digit cloud growth for fiscal 2020. And our partners are going to help contribute to that. Google is going to help contribute, SAP is going to help contribute to that. We're not seeing kind of a –we don't produce a metric that says x percent is in which cloud provider if you will, interesting question, let me think about that. But I do think and I haven’t seen a meaningful movement in the percent, if you will. Let me think about that as a metric. But there's no doubt that the Google will – deeper Google relationship is going to grow the business. Now being the SAP, the fact it’ll partner in the SAP cloud for content services going forward will contribute to growth as well.

And I guess the implication is over time that should maybe be help cloud margins if the infrastructure burden is being shouldered by somebody else, correct?

If I have no cost it should help margin. If I have lower – no, the lower cost, it should help margin, yes.

Okay. I will pass the line. Thank you.

Thank you.

The next question comes from Walter Pritchard, who's with Citigroup. Please go ahead, Walter.

Hi, thanks. Question for Mark around the three year kind of assumptions that you have embedded in the three year plan, I'm wondering Multi-Tenant SAAS, just how you're thinking about adoption, they're both in the market generally as well as moves that you make to come out with products and so forth as cloud adoption continues in your product base?

Yes, Walter. Thanks for that. Look, I think we're being fairly conservative in factoring in, what I call our core applications in our OT2 services AKA public multi-tenant SAAS, the second half of this year is a big product cycle for us, what we call 20.2, 20 being the sound of the year, that two being the quarter, where we're going to enter the market providing at scale, enterprise consumable services, our core EIM capabilities. We already have customers in production about the – 20.2 allow customers to do this on their own. We're also making incredible progress with our core collab, we introduced electronic signatures. So we have it factored into our statements of high single digit cloud growth on our margin expansion target. So multi-tenant SAAS is factored into that, but I can also say we're being a little conservative in how it's contributing in the models.

And then obviously I'm going to do, I guess the Asia dynamics thing, I think they're a little bit out of your control, I was a little bit surprised for you calling them temporary, just feel like things may be just worsening as you looked at it, maybe three months, over three months or six months, over six months, especially Mark, you highlighted new trade tariffs this morning, what makes you think those are temporary? Or how are you thinking about temporary? Is that just being a 2020 dynamic? I'm just curious what you're factoring into the forecast really.

Yes. So they were my words so Madhu, I'll take the question. I'm being optimistic, they're temporary. I mean, ultimately we need to – in my opinion we have to come – the governments have to come to a resolution. And when I say temporary, I probably – I mean a couple of quarters, could they be longer than that? Sure. But I'm going to be optimistic that it's temporary. Again, let's not be confused, the importance of Asia in the global economy. So by temporary, yes, they're factored into our views for 2020 already, and by temporary I mean one to two more quarters.

Okay. Thank you.

Thank you. Walter.

The next question comes from Howard Leung who's with Veritas Investment Research. Please go ahead, sir.

Thank you. I just wanted to kind of turn to a discussion on organic growth. Mark, you had mentioned that Asia-Pacific was a little weaker. Did you guys look into what the constant currency organic growth rate is just for that region? May be?

No, we don't break it down by – that's a pretty granular metric and we don't get down to sub-geographies, you're asking for a revenue line and in a sub-location, but no, we don't get down to that level of publication.

Okay. That's fair. And then just one on the 606 impact, Madhu you mentioned in Q4 it was less material than in prior quarters. Is that just as a result of that term license sales in Q4 and if so, what kind of factors drove that licenses, just slow down in the demand that you were talking about?

Yes. Thank you. Thank you for that.

Madhu, if you want to take 606, I'll take the license question.

Sure, thanks.

Yes.

So in the fourth quarter it was de minimis and the license business also kind of closed throughout the year and I'll let Mark expand on it.

So 606, was 3.7?

3.7 million

3.7 million Madhu. So quite de minimis over the total revenues. Look license was down and this is why we pick two metrics, which is recurring revenue and cash flow for the company. And ARR was up at constant currency 1.5% for the year. And we had record operating cash flows up 24% year-over-year. I'd also note that, third quarter license was strong and there can be variances per quarter, but license was down in Q4. And it's basically FX. In Asia as we talked about, which we think is temporary and I don't want the world to confuse that with the importance of Asia and our continued investment and importance in our business model.

Right. That makes sense. So I guess you would attribute a lot of that to get really regional factors and that's why liken sales were slower in Q4.

External elements, absolutely.

The next question comes from Paul Steep with Scotia Bank. Please go ahead.

Good evening. So Mark, can you talk a little bit about go-to market resources? You talked about a boost there. Maybe talk about the timing of when you see that contributing and then the size of the magnitude of the ads that you're sort of looking to do. And, then one quick follow-up.

Yes. Well, thanks for the question. A couple of important points in there. One is we're raising the EBITDA target this year, last year was 36 to 38, this year was 38 to 39. So the bottom ends up 200 bps and the top-end is up to 100 bps. And we closed fiscal 2019 just over 38% in adjusted EBITDA. This is upper quartile performance of all software companies. And I just want to make the point that 38 to 40 is the ideal zone for OpenText. Some of the world's largest software companies don't operate in this zone and we chose to be productivity leader and we got here faster than others and I'm very happy to be in this range. Some ranges you're happy with. I'm happy with 38 to 40 row, I'm happy at 18.7 that will be above our range in EBITDA. We will use any excess above that to invest in growth and to invest in value creation. So I just want to be very clear that I'm very happy with the range we're in and we raised the target range coming into 2020. The investment, if not an investment would otherwise increase the EBITDA range. We're looking at kind of expansion into our core markets in North America, U.S., Canada, Western Europe and we have a stronger geographic focus in Latin America, South Africa, Middle East, APAC and Japan. I'm not going to give a specific quantum on the capacity expansion, but we are expanding capacity coming into 220. We're also taking our inside sales and going global with it. So I would really note three things, Paul. One is, stronger geographic coverage, so create more intimacy in Korea, more intimacy in Japan, more intimacy in New Zealand, if you will stack-in is taking inside sales global. And then third is capacity, expansion. That will allow us to get deeper into the Global 10000 and have more account coverage. More account coverage means more RP coverage.

Sure. Great. The quick follow-up for Madhu, on ASC 605 to ASC 606, fiscal 2019 we saw benefit there. In thinking about fiscal 2020, should we consider a reversal there or simply think that it was a onetime benefit to FY 2019 that won't materially impact FY20. Thanks.

Thank you again for the question. I would say it was a one-time accounting requirement for 12 months. And again I emphasize that these are new businesses that the sales team won with the customers. We are required to show the differences and we did. So going forward in 2020, we are going to be showing under one accounting with 606 if that makes sense.

Thank you.

Thank you as well.

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

Thanks very much and good afternoon. Just want to follow-up on the term licenses and I don't want to think so much about the accounting, but more just on the business and nature of the products or the deployments that you're selling like I recognize it's term license. Could you clarify what leads to term licensed revenue?

The shipping and marketing expenses as well. So think about the purchase by any customer in terms of a period of time. It could be a two year, a three year or a five year term license, right. And again, the commitment, the advantage here, the benefit here is that committing for a longer period of time, which is exactly what we want from a business standpoint and that includes obviously the licenses, it could include the services, it could include the support as well. So it's really sort of extending the period of time, not just in terms of the budget, but in terms of the commitment to the customer to us.

And Paul, let me emphasize. The term business has always been very small for us. Historically, this has not been a large business. It wasn't a large business or a large vehicle for us in fiscal 2019. We are more focused on cloud subscriptions. As you can see in our cloud growth numbers, some customers choose to do a term license, that's they'd like to purchase that way. We will enable it. At the end of that term they may not even own the IP at the end of the term, I actually think term licenses are not the best long-term value for a customer in how to procure something. And as you know in Q4 was de Minimis, it was $3.7 million to $3.8 million. So, we much prefer and the vast majority of what we do are cloud subscriptions.

And to further clarify in regards to that, that deals with hyperscalers, can you recognize that revenue on term licensed basis or on a ratable basis?

From a cloud subscription as it says that would be on a ratable basis but term licenses purchase as we described earlier, that would be an upfront basis.

So regardless of if it's a hyperscaler or deployed at the customer your facilities would be recognized in that manner.

Yes. It's the nature of the deal itself. Yes, that's right.

Yes. So Paul, let's make two distinctions. There's our technology and then where you want to run it. Okay. And then what services you may want to wrap around it, right. So, a customer can buy a license and choose to run it anywhere. They could procure that license as a term, very small part of our business I know that focus here in fiscal 2019 to management in Q4, won't have the visibility going forward, but you could run that anywhere as well. What we do on our managed service is coupled along and provide us a subscription around the whole thing, run it in the cloud, we provide upgrade services with the application performance management. We provide all the services, and provide you back just one dial-tone in one service for that software. So you can buy the license run anywhere including hyperscalers, you could buy a term, buy it, run it anywhere you'd like or we could wrap all our services around it and it becomes a managed service.

This concludes the question and answer session. I now like to hand the call back over to Mr. Barrenechea for any closing remarks.

All right. I'd like to thank everyone for joining us today and we very much look forward to seeing you at our Investor Day in New York City on September 6. That concludes today's call.

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