Thank you for standing by. This is the conference operator. Welcome to the OpenText Corporation Third Quarter Fiscal 2021 Earnings 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 would like to turn the conference over to Harry Blount, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator, and good afternoon everyone. On the call today is OpenText's 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 would like to take a moment and direct investors to the Investor Relations section of our website investors.opentext.com where we have posted our consolidated Investor Presentation that will supplement our prepared remarks today. The presentation includes information and financials specific to our quarterly results, notably, our updated quarterly factors on Page 7 as well as the strategic overview. I'm pleased to announce that OpenText management will be participating at the following upcoming conferences: CIBC's Technology and Innovation Conference on May 12, Needham Technology and Media Conference on May 18, Barclays America Select Franchise Conference on May 19, Bernstein's Annual Strategic Decisions Conference on June 4, Bank of America Merrill Lynch Global Technology Conference on June 8, the Baird Global Consumer Technology and Services Conference on June 9 and NASDAQ's virtual Investor Conference on June 15. We look forward to virtual meeting with investors in the coming days and weeks. I will now 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 statement, 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, including in relation to the current global pandemic that may project future performance results of OpenText are contained in OpenText recent 10-Q and 10-K as well as in our press release that was distributed earlier this afternoon, 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 this most directly comparable GAAP measures may be found within our public filings and other materials which are available on our website. And with that, it's my pleasure to hand the call over to Mark.

Thank you, Harry. Good afternoon to everyone, and thank you for joining today's call. What a difference a year makes. Today, we are announcing the strongest 12-month period in the history of the company. The global economic outlook has significantly improved. US GDP projections are strong and we are in a new product cycle with OpenText Cloud Edition and we just passed $1 billion COVID vaccination globally. We have endeavored over the last year to help our customers own and deploy digital capabilities, we have purposely leveraged the last year to accelerate innovation, increase our spending and innovation, transition to modern work, get more efficient and dramatically strengthened our go-to-market. On our last earnings call in February, we spoke about green shoots and at our Investor Day in March, we laid out our growth roadmap for fiscal 2021, fiscal 2022 and our fiscal 2024 aspirations and you can see our strong progress from within Q3 with ARR organic growth of 3.6% and Cloud services organic growth of 4.5%. Volatility is still present, of course, but we are on the offense and at the end investing in our growth trajectory. Our business is back to pre-COVID levels, except for some portions of automotive and our confidence is high as we look to complete fiscal 2021 with a return to organic growth, an upward trajectory into fiscal 2022. What a different a year makes! And let me unpack this a little more. I'm deeply optimistic. The number of vaccines is growing daily and vaccine rollout provide reason for optimism in many regions but the world does remain in a pandemic and where you're located will impact how you're experiencing it right now and our major markets vaccines are generally becoming more available, improvements and reopenings accelerating. The International Monetary Fund is calling…

Thank you, Mark, and thank you all for joining us today. OpenText delivered another strong quarter of results-driven by our investments in organic growth on a strengthening base of operational excellence. We expect this momentum to continue in fiscal '22. I will speak to Q3, Q4, our quarterly factors, our fiscal '21 total growth strategy, our fiscal '21 annual target model ranges, our '22 outlook, and our long-term aspirations all as outlined in our Q3 investor presentation that is posted on our IR website today. All references will be in millions of USD and compared to the same period in the prior fiscal year unless otherwise stated. And let me start with revenues. Total revenues for the quarter were $832.9 million, up 2.2%, down 0.8% on a constant currency basis, there was a favorable FX impact revenue of $25 million. The geographical split of revenues in the quarter was Americas 61%, EMEA 31% and Asia-Pacific 8%. Year-to-date, total revenues were $2.49 billion [ph], up 9.2% or 7.1% on a constant currency basis. Q3 annual recurring revenues at $691.8 million, up 4.4% or up 1.7% on a constant currency basis. As a percent of total revenues, ARR, annual recurring revenue, was 83% for the quarter, up from 81% in the third quarter of fiscal '20. Year-to-date annual recurring revenues were $2.047 billion up 15.3%, or up 13.5% on a constant currency basis. As a percent of total revenues year-to-date ARR was 82% up from 78% in the first nine months of fiscal '20. Q3 cloud revenues were 355.8 up 4.8% or up 3.1% on a constant currency basis. Our cloud renewal rate excluding Carbonite was approximately 92%. Year-to-date cloud revenue was $1.047 billion up, 26.9% or up $25.5 million or 0.7% on a constant currency basis. Q3 customer support revenues of…

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

Hi, good evening. Just want you to give us more color on the uptake of CE? Where you're seeing the most demand and how is the pipeline building there?

Stephanie, thank you for the question. As I said in the prepared materials, we have about 20% of our installed base now on cloud additions and that's very positive. I think ultimately the ideal landing zone for us is about 50% of the installed base that will migrate to cloud. We have all new customers come on the cloud additions. I think the ultimate landing zone is about half of our installed base by 20% today. So still significant opportunity in front of us. We are also announcing our GROW with OpenText program that for those who decided to stay on Release-16 that we introduced a new extended support program at additional fees and we're going to take our private cloud to on-premise. So, we'll be able to do managed services on-premise for customers who want to maintain themselves on Release-16 longer, which is another revenue opportunity. So, we progressed to about 20%. I think the ultimate landing zone is about half the installed base and we introduced new programs to the support those who are either going to take a little longer to get there or we'll just run the life of their investment on Release-16.

That's good color. Thanks. Then on the supply chain transformation, you mentioned that of the growth driver several times. Just wondering if you could talk a bit about the demand, you're seeing in the business network and maybe some of it is [ph] approach in offerings?

Sure thing. I'll start at the headline, which is all our services are back to pre-COVID levels except some portions of auto and that's driven mainly by chip shortages and wherever there is a temporary pause of some production. But I'm really excited to see our levels back to pre-COVID levels. Things driving demand, the return to GDP growth, new activity for us in CPG retail, healthcare, more micro payments volume over our network. As we stated, we think the one of the strongest drivers include sustainability and we have new eco-friendly sustainability features of being able to look up suppliers and get scores and look at many layers. We're also seeing regionalization. Canada has moved certain pharmaceutical supply chains back to Canada. We're participating in the regionalization of auto supply chains in Germany. We're seeing certain manufacturing supply chains come back to the US, which we're going to put be participating in some of those as well. So, I think it's a return to volume. Certain industries that have just gained more TAM, it is regionalization and our long-term sustainability features that is driving the growth.

Great, thanks so much.

The next question comes from Raimo Lenschow from Barclays. Please go ahead.

Hey, this is Frank [ph] for Raimo. I wanted to dig a bit deeper into rate guidance for cloud. So, specifically, where you seeing the most strength and confidence in the cloud business, both from a product and customer vertical perspective?

Yes. Thank you, Frank. So, it's sort of broad-based confidence right now. On our private cloud, as I said, we added approximately 75 new customers into our private cloud and these are global 10,000 customers. So, there is a continue need to provide these specialized environments, these private clouds that have very unique value proposition for them and that includes content services, experience, and some other things. Second, our new cloud API services. I highlight some of the wins previously. Then, both network volumes coming back. We're back to pre-COVID levels in certain industries as I noted, CPG, retail, healthcare, pharmaceutical leading the way for us. Putting that all together has led us to our confidence in raising our total growth strategy for fiscal 21, where we now expect to see the cloud at 18% to 20% year-over-year percent growth.

Great, that's really good color. Then just on the GROW with OpenText program. I was wondering if you provide some more detail into the customer conversations and feedback there so far?

Early engagement is quite positive. We announced it. We kind of gave in early preview in March at Investor Day. We had intended to launch it with OpenText World Europe and then OpenText World Asia and then continue that sort of rolling thunder approach into July with our sales kickoff and started a new fiscal year, but we kind of accelerated it and a preview did at Investor Day. So, early conversations are really positive. The first is that engagement with off-cloud customers and ensuring that they can get the full value for their investment in Released-16. So the two new services, extended support program, which is a 20% fee that we're going to charge. Then we have bringing on-prem managed services to off-cloud customers. So, those are the two brand new revenue opportunities for off-cloud. For private cloud, we believed in private cloud. Some companies were in and out and back and again. This is just a great opportunity. The customers gain unique value in their unique processes and don't want to move to kind of a more generic public cloud. We have 75 new private cloud customers and from that point, you can integrate into our public cloud or go to the public cloud directly. Our security and business network products are 100% public cloud today. Cloud Editions 21.4 or content cloud will be a 100% public cloud. You'll never have to upgrade again and that 21.4, which will be available by the end of this year. Then Experience Cloud will be 100% public cloud and Cloud Editions 22.2. So, we got great momentum there. Then, we got this brand new market which is we've turned our Information Management into APIs and whether it'd be Twilio or other companies, Stripe, and alike, who are just pure API companies, now will be our product and platform company plus an API service company as well. This is our Developer Cloud, but that's part of the GROW with OpenText Program. So, Frank, you probably hear in my voice the excitement around these strategic programs, but the initial take from April and May were just two months in have been pretty positive.

Great to hear. Thank you.

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

Thanks very much and good afternoon. Only the transition or migration to CE. Could you speak about the unit economics? Typically when you see a customer migrate, are you seeing expanded deployments and effectively higher AR run rate per account as a result?

Paul, good to hear your voice. Thanks for the question. We certainly expect over the long term a multiplier effect as you just noted. The reason for that is you will be on more standard product, you'll have less friction, and you'll be able to turn on more services, whether it'd be Capture, E-Signature, Project Management, the Supply Chain, or maybe you go to some API connectivity services as well. We haven't talked about certain percentages of what that multiplier effect is, but we certainly expect a greater share of wallet and higher ARR from each customer that come on cloud editions. Because of that less friction and multiplier effect as you noted.

Thanks. That's helpful. Shifting to M&A, we haven't made an acquisition in over a year or so. Looking back, that's probably the biggest gap since probably [ph] HummingBird back in 2006. I imagine you're at the market and valuations of obviously run up over the last year. You mentioned, you're still looking to do acquisitions. How you think about the environment right now in terms of valuations, in terms of your pipeline, what are the opportunities that you're seeing out there?

Yes, fair enough. It's a good question. Obviously, we're quite excited about organic growth. Let me just state at a high level we're going to continue to acquire. So, nothing has changed in that. M&A allows us to bring companies into green spaces for us. That also adds to future growth and revenue growth and future cash flows. We take a long-term view. Nothing has changed in our philosophy of disciplined and value based. Valuations are clearly higher today and we're not going to participate in valuations where we can get the return on invested capital or cash flow returns. So, we'll continue to build our capital position or cash position. As I said in the script, over the next five years, I'd expect to have a pretty good capital build of $5 million in free cash flows on our current run rate. I also noted that when you look at us historically per fiscal year, we tend to on-board on average $200 million plus of revenues per fiscal year. That will happen this fiscal year, in fiscal 21, and that's happened on average for the last 10 years. Our pipeline is healthy or varying degrees of the diligence and again, we're going to have to go over $200 million of M&A revenues in fiscal 2021 and I would expect to have meaningful acquired revenues in fiscal 2022 as well, which are not part of any of our projections right now in our F22 targets.

Great, thank you.

[Operator Instructions] The next question comes from Thanos Moschopoulos from BMO Capital Markets. Please go ahead.

Hi, good afternoon. [Indiscernible] your share prices and your valuation relative to peers. Have you thought about being more aggressive on the share buyback or for M&A?

As you can see in our queue from today, we did not purchase any shares last quarter. We have our repurchase program available to us and Thanos, we'll keep monitoring it. We'll see how the share prices are tomorrow [ph]. But I like the capital build that we're all going under right now. It's probably my third time I'm going to say it, but you look at our free cash flows and of course, within the quarter, we had a one-time IRS payment. We're going to have a period of very strong cash flows based on all the efficiencies we gained over the last year as well as our incredible improvements in cloud margin and overall margin improvement for the company. I like the cash, the capital build. It is going to provide us a lot of flexibility in our thinking around how we return value. So, we'll keep watching this space especially as we increase our cash flow.

Right. And then, in terms of the CRA tax dispute, just any color in terms of the timing? Would it be similar to the IRS in terms of [indiscernible] probably a year or two or more before it gets resolved, how should we think about that?

Madhu will take the CRA question.

Thank you, Mark and thanks, Thanos. As mentioned, we just see the proposal. CRA does of tend to talk within timing. I would say, to us, time is less of the factor. We will take the required time to defend ourselves because we strongly believe in our position and we do plan to defend ourselves vigorously for a successful outcome to OpenText.

All right. Thanks.

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

Very good. Thank you for joining us today. We're excited about our GROW with OpenText Program. In that spirit, we've increased our outreach for the quarter and here in the short-term and we look forward to seeing you at CIBC, Barclays, Bernstein, BofA, and NASDAQ Virtual. Thanks for attending today and look forward to our ongoing discussion. Have a nice day.

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