Greg Secord - Vice President-Investor Relations John Marshall Doolittle - Executive Vice President & Chief Financial Officer Stephen Murphy - President Mark J. Barrenechea - Chief Executive Officer & Chief Technology Officer.

Paul Steep - Scotia Capital, Inc. (Broker) Steven Li - Raymond James Ltd. (Broker) Paul Treiber - RBC Capital Markets Stephanie Price - CIBC World Markets, Inc. Eyal Ofir - Dundee Capital Markets Blair H. Abernethy - Industrial Alliance Securities.

Thank you for standing by. This is the conference operator. Welcome to the OpenText Corporation Fourth Quarter and Fiscal Year 2016 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 like to turn the conference over to Mr. Greg Secord, Vice President, Investor Relations. Please go ahead..

Thank you, operator, and good afternoon, everyone. I'd like to welcome you to today's call. With me today is OpenText's, CEO and CTO, Mark J. Barrenechea; our CFO, John Doolittle and our President, Steve Murphy. As with our previous calls, we'll read prepared remarks followed by a question-and-answer session.

The call will last approximately an hour with a replay available shortly thereafter.

I'd like to take a moment and direct investors to the Investor Relations section of our website, where we posted PowerPoints that will be referred to during the call, including our quarterly supplemental update on the financial results and an update to the strategy presentation from our May 12 Investor Day.

I encourage all of our investors to download both presentations. As with previous quarters, we have updated a summary table, highlighting OpenText's historical trended financial metrics, both PowerPoints and our trended financial spreadsheet are downloadable from the front page of our IR section of our website.

And with that, I'll proceed to the reading of our Safe Harbor statement. Please note that during the course of this conference call, we may make statements relating to 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 a projection in the forward-looking statements made today.

Certain material factors and assumptions were applied in drawing any such conclusion while making a forecast or projection, as reflected in the forward looking information.

Additional information about the material factors that could cause actual results to differ materially from a conclusion, forecast, or projection in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion while making a forecast or projection as reflected in the forward-looking information, as well as the risk factors that may project the future performance results of OpenText are contained in OpenText's Forms 10-K and 10-Q, as well as in our press release that was distributed earlier this afternoon, each of which may be found on our website.

We undertake no obligation to update these forward-looking statements unless required to do so by law. In addition, our conference call will include a discussion of certain non-GAAP financial measures.

Reconciliations of all non-GAAP financial measures to their most directly comparable GAAP measures have been included in today's press release and Investor materials which may be found on our website. And with that, I'll hand the call over to John..

License margins remained stable at 96%; cloud services and subscription was 59%, compared to 61% same period last year; customer support at 87% compared to the same period last year, stable; professional services was 14% compared to 18% in the same period last year.

And this decrease in margin was primarily caused by integration efforts for recently acquired assets and lower-than-expected revenue. Gross margins for the full-year 2016, license remained stable at approximately 96%; cloud was 59% compared to 61% last year; customer support was 88% compared to 87%; and professional services was 19% compared to 22%.

Adjusted operating income was $158 million this quarter, up 6% compared to $149 million in Q4 of last year. On a constant currency basis, adjusted operating income was $155 million, up 4%. For the full-year, adjusted operating income was $617 million, up 8% compared to $573 million during fiscal 2015.

On a constant currency basis, it was up – it was $635 million, up 11%. Adjusted operating income was up on both the quarter and annual basis as a result of the decrease in operating expenses of approximately 13% and 49%, respectively, primarily resulting from ongoing expense managements.

Adjusted net income increased 2% to $109 million this quarter, up from $107 million in Q4 of last year.

This is primarily due to a $9 (07:00) increase in adjusted operating income that was partially offset by higher interest as a result of the high-yield notes issued in Q4 fiscal 2016 and higher taxes due to change in the company's adjusted tax rate from 18% to 20%.

For the full year, adjusted income was $432 million, up 2% from $425 million, and up $22 million or 5% on a constant currency basis.

The increase is primarily due to an increase in adjusted operating income of $44 million, partially offset by higher interest as a result of the high-yield note issued in Q3 of fiscal 2015 and Q4 of fiscal 2016 and our higher adjusted tax rate as I mentioned. Interest expense was $22 million in the fourth quarter, up from $18 million last year.

On an annual basis, interest expenses is $76 million, up $22 million, again due to the high-yield notes raised in fiscal 2015 and fiscal 2016, offset by approximately $2 million of income earned from our cost base investments. And going forward, we estimate our quarterly run rate for interest expense to be approximately $28 million.

Adjusted earnings per share for the quarter was $0.89 on a diluted basis compared to $0.87 for the same period last year, up 2%. For the full year, adjusted earnings per share was $3.54 compared to $3.46 for fiscal 2015, up 2% and 6% on a constant currency basis of $3.66.

GAAP net income for the quarter was $0.86 or $0.71 per share on a diluted basis compared to $0.69 or $0.56 per share on a diluted basis in Q4 of last year. For the full year, net income was $2.84 or $2.33 per share compared to $2.34 or $1.91 per share on a diluted basis in fiscal 2015.

There were approximately 122 million shares outstanding on a fully diluted basis both for the fourth quarter of fiscal 2016 and on an annual basis. Operating cash flow for the quarter was $119 million, down 10% compared to $132 million in the same period last year.

Net income increased $18 million and our two working capital items, accounts receivable and accounts payable added $11 million.

However, there was a significant change in deferred tax assets, resulting from the IP organization, which I will talk about later in the call and some timing delays in customer support renewals, plus the impact of acquisitions on deferred revenues, when combined, reduce our operating cash flow by $46 million.

Driving cash flow improvements continues to be a top priority of mine and the company's. For fiscal 2016, operating cash was $526 million, up 1% compared to $523 million for last year.

On the balance sheet at June 30, deferred revenues were $411 million compared to $386 million at June 30, and the increase is due primarily to the impact of our acquisitions in the fourth quarter. Accounts receivable was $286 million at June 30 compared to $284 million at June 30, 2015 and our day sales outstanding were unchanged at 53.

During the quarter, we announced that we closed a high-yield debt offering of $600 million in unsecured notes at 5.875% due 2026. So with the addition of these high-yield notes, we are suggesting investors' model interest expense of $28 million per quarter going forward, as I mentioned before.

We announced four acquisitions during Q4, closed two transactions in the quarter. We acquired customer experience management assets from HP and acquired ANXe, a cloud-based information exchange network. These businesses did not contribute meaningful revenues or earnings in the quarter.

Closed the acquisition of Recommind, a provider of the eDiscovery and information analytics solution, on July 20 and the financial results of Recommind will be consolidated with the company in our first quarter of fiscal 2017.

On July 20, we announced that we'd signed an additional agreement to acquire certain customer communication management assets from HP. This transaction is expected to close during the first quarter of fiscal 2017 and is subject to customary regulatory approvals and closing conditions.

The combined purchase price of these four transactions is approximately $750 million. We plan to have all four acquisitions on to our operating model within 12 months of their respective acquisition dates.

Now to the external model, fiscal 2017 non-GAAP operating margin target remains at 30% to 34% and the model and support information is contained in our investor presentations on our website.

We are also affirming our fiscal 2020 aspirations of non-GAAP operating margin of 34% to 38% and a revenue mix that would reflect 50% of our revenues from cloud as part of 90% recurring revenue portfolio in 2020. And Mark will give further information on the external target model. Now for a tax update.

Let me start with an update on the IRS draft NOPA matter regarding historical years. There remains no update to provide at this time. We still have not received the second expected draft NOPA and the status remains as previously disclosed.

We are continuing to monitor and I'd reiterate our strong disagreement with the IRS's position expressed in their draft NOPA from last year. We will provide an update following any material developments. Now to the bigger news in the quarter.

Looking back to 2010, we announced our plan to consolidate our intellectual property to create operational effectiveness. We chose Luxembourg for the consolidation and along with this effectiveness came certain tax advantages.

Fast-forward seven years, we find ourselves in a situation where IP is not consolidated, but that continues to be our objective. Additionally, the international tax environment has dramatically changed and our tax rate has been climbing every year.

With that as a backdrop, we examined a number of options and we decided to reorganize in order to consolidate our intellectual property into Canada. This achieves our goal of operational effectiveness through consolidated ownership, management and development of our IP.

As a consequence of the reorganization, the IP enters Canada with a tax base equal to fair market value and this will allow us a stable and predictable platform for years to come.

As a result of the reorganization, as well as the integration of recently completed acquisitions, we released a $35 million reserve or valuation allowance primarily related to certain Canadian deferred tax assets in the fourth quarter of fiscal 2016, which contributed to the lower GAAP tax rate in fiscal 2016 compared to 2015.

We also expect to recognize a material tax benefit currently expected to be several hundred million dollars in the first quarter of fiscal 2017 associated with the creation of a deferred tax asset resulting from the reorganization.

We expect this to materially reduce our GAAP income tax rate for fiscal 2017, which is anticipated to be significantly below zero. Our adjusted tax rate for fiscal 2017 is expected to be approximately 15% and is indicative of our anticipated cash tax rate.

We calculate this rate by dividing anticipated current tax provision for the period by adjusted pre-tax income. The illustration of this adjusted tax rate is anticipated to be more representative of the actual cash tax burden on adjusted earnings and we believe is more aligned with financial market expectations.

Please refer to our investor presentation on our website for more details. On July 26, 2016, the board declared a cash dividend of $0.23 per share for shareholders of record on August 26, 2016, payable on September 16, 2016.

Lastly, on to our NCIB program, I confirm that we did not repurchase any shares in the fourth quarter under our expiring share purchase plan. However, on July 26, our board authorized a new share repurchase plan for the repurchase of up to $200 million of our common shares, if considered advisable from time to time. Thank you.

And I will turn over the call to Steve Murphy.

Steve?.

Hey, thanks, John. So let me get into my intro. It's been seven months since I joined OpenText and I'm pleased to say that the organization is exactly what I'd expected. We're a business with a world-class product offering and a high integrity group of folks. We're passionate about making our customers extremely successful.

I was brought in to focus on driving efficient operations and to help grow our revenue, while improving margin and cash flow. There is opportunity of balanced cost discipline with driving sustainable organic growth initiatives. My mission hasn't changed. I'm pleased with our progress. Let me talk a little bit about Q4 and our fiscal year overview.

I'd like to take a quick look at the quarter performance. We had a strong Q4 for our customer support and cloud businesses. MCV is showing improvement and we see growth in the cloud in both North America and Europe, where large deals are becoming more prevalent. We've achieved stability in the field with key leaders in place across the board.

This includes senior leaders in place for professional services, customer support, license sales and cloud. We have a structure and a leadership team that is stable and scaling well. At a time when the software industry is changing rapidly and we are acquisitive, this stability is of great value. Let me share some quick stats for the quarter.

We had 10 on-premise license deals greater than $1 million. The geographic split of total revenue was Americas 58%, EMEA 33% and Asia Pac 9%. On-premise customer successes in the quarter include Nevada State Controller's Office, Schwan Cosmetics, Kamehameha Schools, eMeter Corporation, APA Group, State of Iowa, KUKA Manufacturing.

In terms of industry breakdown, financial, services, technology, and public sector industries saw the most demand. Let me give you some quick cloud stats. Q4 cloud revenue was up 5% year-over-year in constant currency and we had 10 new MCV cloud deals greater than $1 million, cloud customer successes in the quarter include Red Hat and s.Oliver.

We added 38 new managed service customers in Q4, which brings our total managed service customers to 955. We had 20% MCV growth from $56 million to $67 million compared to the same quarter last year. An average deal size for MCV increased 42% to $587,000 compared to $413,000 last year.

Financials, services, technology and consumer goods saw the most demand for cloud. Let me give you some quick annual stats. On an annual basis, we grew MCV bookings by 6% over fiscal 2015, reflecting continued strength in our business network and enterprise businesses.

Our average MCV deal size was up for the year by 8% as we see the strategic nature of our deployments driving increase in both the size and the scope of cloud transactions. Let me talk a little bit about some specific customer wins. In the cloud for starters, Red Hat.

Red Hat has selected OpenText B2B Managed Services to support its growth initiatives and provide a best-in-class experience for its customers. Red Hat and OpenText will expand the existing B2B program around the globe as well as implement additional transactions in support of the order to cash cycle. Next State of Iowa.

State of Iowa is creating a digital platform as a service, or PaaS, to support its internal customers. The initial project is to implement OpenText Enterprise Content Management, ECM, for their department of administrative services, integrated with their ERP system. The goal here is to extend ECM (18:22) and extend that into the State agencies.

The solutions will help the State of Iowa to take full advantage of the opportunities offered through digital transformation. KUKA, a large German manufacturer of industrial robots, automates contract management with OpenText Extended ECM for SAP. This quarter, they extended their investment at OpenText to optimize their sales process.

And lastly, the Nevada State Controller's Office purchased OpenText Information Hub, or iHub, for its reporting needs. iHub conforms with the other data management products deployed by the State of Nevada Controller's Office and offers many ways to share analytic content securely with their teams. Talk a bit about customers.

At the heart of any great company is a loyal customer base. With a culture of customer first, OpenText remains committed to customer care and satisfaction. We value this culture and we will fiercely protect it as a key driver of our success. It's worth repeating. Customers don't buy from companies, but rather they buy from people.

We are a software company with our focus in the right place, squarely on the customer. We have the skills and products to solve our customers' toughest problems. This positions us to win new business and repeat business again and again.

Enterprise world was a great opportunity to see this in action, engaging customers, better understanding their business challenges and celebrating their successes in deploying OpenText products. Let me touch a bit on our partners. OpenText also has a healthy ecosystem of strategic partners and system integrators.

Our global partner program is gaining traction and we remain committed to building these relationships. The premise is simple, if partners invest in us, we will invest in them. We have a significant stable of global SIs and bars including SAP, Accenture and Deloitte that are industry and regionally focused.

In many cases, it's better to have a partner service a region, where we don't have a presence and we continue to support their initiatives with significant marketing and resource commitments. Talk a bit about sales. Turning to our sales organization, I have a lot of confidence in both our accounts planning and sales execution in the field.

As I mentioned earlier, structure and leadership is scaling well. We have world class leaders in the field. The energy and enthusiasm they express for the business is contagious. We are competing and winning. Release 16 is a rallying point for our field to upskill and bring a truly differentiated product to our many sales cycles.

Sales enablement and field readiness is key, taking advantage of customer upgrade opportunities and competitive replacements; again, leveraging Release 16. Our salespeople know how our products solve our customers' toughest problems. They sell this differentiated value in a way that best serves the needs of the customer.

There is also strategic value in our managed services offering. I can't stress enough that our hybrid model is a big competitive advantage. We know that the customer ultimately makes the decision on which model to deploy and we respect that process.

We provide a consultative environment where the customer can accurately weigh the costs and benefits of either model for their situation and then work with us to do what is best for them. Release 16.

Speaking of our product portfolio, as I mentioned in May at our Investor Conference in New York, I am focused on growing healthy and sustain organic revenue for OpenText. And I'm convinced that Release 16 will help us to achieve this. The dialog about Release 16 with customers is strategic.

And I think that it's exciting to have this level of innovation and an integrated platform that offers such a compelling value proposition. The field has been fully trained, are engaged with customers and enter into this product cycle with enthusiasm and laser focus on the immediate business problems that we can solve.

Let me touch on professional services, PS update. We're on schedule to deliver on a stronger, more efficient professional services organization.

With a new leader in place and one quarter into our plan to improve PS revenue, utilization and margin performance, we have a great foundation to build on our improvements to the professional services organization. Turning to acquisitions, as John mentioned, we have recently announced four acquisitions, and to-date, we've closed three acquisitions.

Our customer support organization under the leadership of James McGourlay is already seeing traction out of the integrated assets we acquired. Onboarding the acquired revenue and integrating teams and product sets are core competencies at OpenText. We're good at it. It's in our DNA. We have foundation and structure to scale and we're executing a plan.

I see synergies for both sets of HP assets and we have a strong leader already in place with full knowledge of the products. We brought together a great set of products that fit both organizationally and from a one-stop shop perspective. ANXe is firing on all cylinders with great products and strong leaders.

It's been a seamless transition in our business network. ANXe revenue is highly recurring and is proven to be a very good fit. So a quick summary before I hand off to Mark. We delivered strong annual performance in our recurring revenues. Specifically, growing cloud and customer support, while expanding margins and growing adjusted operating income.

License sales have been consistent on an absolute dollar basis and our PS business has stabilized and is on track with our improvement initiatives. With deep customer loyalty, we're positioned in the right market at the right time with the best product suite in EIM.

We're leveraging our leadership position to achieve market share gains through sales enablement, field readiness, customer upgrades and competitive replacements and takeout. We have stability in the balance sheet. We've got stability in the field and we've got stability in our management team.

I absolutely believe in our overall ability and our business plan and our ability to achieve the business plan. So over to you, Mark..

We will acquire our way there while also growing our cloud revenue organically. Let me wrap up my comments. Fiscal 2017 will be a year of double-digit growth across all our revenue lines as we onboard approximately $300 million of acquired revenues. We should also see double-digit growth for our adjusted operating income.

We'll continue to acquire with over $3 billion of available capital that regenerates itself with new acquisitions and our operating improvements. Release 16 EP1 will open up new opportunities and new partnerships. Our recent acquisitions enable OpenText to deliver on the vision of engagement to insight.

No other single company can provide this fundamental and complete platform. And lastly and most importantly, Magellan will deliver on the promise of EIM, enabling customers to gain insight and unlock the value of their enterprise information. I have never been more excited about a new fiscal year.

With that, I'd like to open up the call to your questions..

We will now begin the question-and-answer session. The first question today is from Paul Steep of Scotia Capital. Please go ahead..

Great, thanks. Mark, maybe you could talk just a little bit about analytics and what you've seen over the past year and where you're at now in terms of the number of deals that have analytics into them and the uptake within the base. And maybe that is a prerequisite to Magellan or not a prerequisite..

Sure. Let me just start with – we're obviously very pleased with our Actuate acquisition. And it met its business plan for fiscal 2016. It onboarded extremely well and we met our financial goals for the year. One of its key differentiators is its embeddability. We won some fantastic business throughout the year.

And you also saw how quickly we were able to integrate Actuate into Release 16, which we presented at Enterprise World in November and presented it again just a couple of weeks ago in Nashville. So embeddability is really key for us. And look, it's going to be a key differentiator and one of the catalysts for Release 16.

On the basis of that, the next version of Actuate will keep all its embeddability, its reporting, its visualization. But by opening it up to Apache Spark and open algorithms as well as bringing together all our other engines into this platform, we think it will be another key differentiator for us..

Great, that helps. One final one to clarify is Cloud 16. Can you maybe talk a little bit about what you've seen in terms of the base and migration and the willingness of clients to shift over there? Thanks..

Yeah, I would maybe say two things and look for comments from Steve as well. I'd say, firstly, we have great new capability. In the U.S., our new Healthcare Direct protocol, we're seeing an uptick in interest because of that new protocol. MCV – excuse me, Managed Services is just so pivotal for us. We have our VAN.

We have our on-demand messaging network. These are transactional networks. They're important. But on top of that is vertical apps like ANX, Healthcare Direct, but Managed Services. And by the end of this quarter, we'll have over 1,100 customers again who have outsourced their environments to OpenText.

And 1,100 enterprise customers, marquee customers, that's getting some real critical mass to it. Steve, I don't know if there's anything you'd like to add to that..

I would just add that at this point we have hundreds of customers that are either live or going live on Release 16..

Great. Thanks, guys..

Thanks, Paul..

Yeah, thanks, Paul..

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

Thank you. And just a couple of questions for me. John, I thought with the exit from Luxembourg, your adjusted tax rate was going up.

How are you bringing it back down and are there any cash outflow implications as you consolidate your IP into Canada?.

Yeah, thanks, Steven. There are nominal cash outflows as we consolidate, so it's a very small amount of cash outflow. And as I mentioned in my remarks, we're bringing the IP back into Canada at fair market value with a tax base that's equal to fair market value. And that's essentially the way we're going to lower our tax rate to 15%..

Okay. And Mark, maybe a couple of questions for you on the macro.

In Europe, was there any impact from Brexit on deal closures at the end of the quarter? And do you expect any impact in Q1?.

Yeah. Steve, thanks for the question. The answer is very simple. We had little to no effect on Brexit. It's less than 5% of our revenues. UK is less than 5% of our revenues. We moved our operations, our EMEA ops out of the UK into Germany a few years ago and we just haven't seen any effect.

And we think in a lot of ways, it's either going to be neutral to us. It actually might be a slight positive because people need to buy more software for governance. So the net effect to us are going to be neutral to maybe slightly positive. Now, a more global statement as we look into 2017 is FX volatility is going to remain out there, for sure.

You do have the Brexit. For us, we see it again to be neutral to maybe a slight benefit. Who knows where the U.S. election is going to go. You continue to have some Russian risk, I think, and some risk around terrorism, kind of all in in global risk. It remains a volatile world.

And we've taken our strategy with M&A to be able to grow our business both from M&A as well as organic growth. And I think we're in a pretty good position if global risk increases..

Great. And the last one for me, Mark. The license revenues was quite weak in the Americas for Q4. Was there a specific region and any changes you've made? Thanks..

Steve, any comments on that?.

Yeah, so we have made some leadership changes. And we've got a new head of license sales for North America. (43:48) is very happy with the skills he brings and his background as far as different places he's sold.

I think that we will see – based on my observation of John (43:58) and his team, we will see steady improvement in license sales in North America..

Okay. Thanks, guys..

You bet..

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

Thanks very much. I was just hoping, could you comment and perhaps clarify some of the growth or the growth rates of MCV in 2016? I think you mentioned it was 6%. It does look like it was below the target that you gave out last year.

Are those two numbers the right numbers to compare like from the apples-to-apples point of view? And then how should we think about the variance between the two?.

So we ended the year at $211 million for MCV. And John, what's the growth rate for the year? I can't find it quickly year-over-year..

5%..

Yeah, 5%. So $211 million is the right number. And we're expecting much stronger growth in fiscal 2017. And you are correct, we put out a larger target for us in MCV. And it was our first year in doing that. And there were some uncertainty in that. And yes, you're correct, we missed the number though we still grew year-over-year.

And I'd expect it to grow faster as we get into 2017. At the same time, our hybrid strategy is we're allowing customers to kind of choose where they want to place the workload. So we're sort of agnostic as to what revenue line a customer workload falls on. And our goal is to, as we increase those recurring revenues, to expand our margin as we did.

So yes, we came in under our aspirations for 2016 on MCV. The number was $211 million and I'd expect it to grow faster in 2017..

Thank you for explaining that. How should we think about your bullishness for 2017? What are the signs that you're seeing that lead you to be bullish? And then maybe could you just elaborate on the reasons for the shortfall in 2016. Is it product-related timing? Anything would be helpful there..

Yeah. So I go back to we're going to see approximately $300 million of revenues onboarded from acquisitions. And when we look at our product roadmap of Release 16, the default product fully shipping, EP1 opening up new ecosystem partners and Magellan in the second half of the year; the product lineup keeps getting stronger.

And we expect to continue to make acquisitions in 2017. And when I look at the shortfall in Q4, really what's top of mind is a few pennies though they're important in Q4, which was primarily the EPS missed related to professional services, which I believe we have under control for Q1..

Okay. Just lastly, just looking at the target model for 2017, the margin model; you mentioned that acquisitions would take time to ramp up to your margin model.

How do we think about organic investments in 2017?.

Well, I'll start on the product side and Stephen can talk about the field side. The organic investments again are – we are accelerating our capabilities through an enhancement pack series as, quite candidly, our competitors falter a bit in the marketplace.

So EP1 is a very important release for us to support sales force, to support success factors, open up government opportunities for new regulations. And EP2 will support Magellan. So that's a pretty good investment for us as we accelerate those enhancement packs, accelerate those capabilities as our competitors falter a bit in the market.

Steve, do you want to talk about some of the field investments for a minute?.

Yeah. So we discuss organic growth in the low single digits. And we have staffed up with account executives, salespeople and the solution consultants, field engineers that support them to the point where as of now, early in the year, we are fully staffed to meet what we've guided to, which is organic growth in the low single digits.

And that's been a concerted and steady effort over the last six or seven months as far as bringing in high-quality salespeople and making sure that we retain our high-quality salespeople. We've also invested in top executive talent.

And at this point, all of our senior leadership positions in the field are filled with experienced people who know what they're doing..

All right, thank you. I'll pass the line..

Sure..

The next question is from Stephanie Price of CIBC World Markets. Please go ahead..

Good evening..

Hi, Stephanie..

Hi, Stephanie..

So you touched on the competitive landscape in an earlier question.

Could you just walk through what you're seeing there and where OpenText is gaining traction?.

Yeah, sure thing. So look, there was a critical mass moment in ERP when the market really considered just a handful of providers because they could – this is software and service. You're here to automate. And a handful of ERP providers was able to automate campaign to cash.

And the market rallied around that because they could fully automate a seminal process. Engagement to insight is that process for EIM. And I think as we bring onboard Recommind, as we bring onboard the HP Inc. assets and add Magellan. There I can't see another company in the marketplace that can provide this flow.

I ultimately believe that our ultimate competition is IBM. From IBM Watson – from Watson to FileNet, Sterling Commerce, their Tivoli for business process management.

So when we look at the point providers, from the usual suspects of Documentum, Kofax, SharePoint, Box, Adobe, Pegasystems, they're starting to continue to get more and more niched features, while we keep expanding capabilities to engagement insights. The HP Inc., assets really strengthen that engagement piece.

That whole box of discovery we filled force with Digest (50:59) and now we've really solidified with Recommind and then insight on our next version with Magellan..

Okay, thanks.

And then, on Magellan, can you give us an idea of the scope of the offering and what features it's going to focus on?.

Yeah. I would point to two large improvements while maintaining our strength around visualization reporting and embeddability. New capability, one, is Apache Spark, opening up the platform to bring in the Spark engine that will allow for ETL, data integration, a recommendation engine, as well as real-time streaming and thousands of open algorithms.

IBM Watson is closed. You don't own the IP when you create an algorithm and you're using proprietary tools to do all the AI, machine learning and algorithmic work. By bringing in Spark, it's all going to be open and we'll be able to leverage thousands of algorithms.

I'd say the second big capability is we're going to bring together all our existing engines on to the platform. Voice, natural language processing, image processing, and making those engines integrated and available under the actuate engines..

Great. Thank you very much..

Thanks, Stephanie..

Thanks, Stephanie..

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

Thanks for taking my questions.

First one is, just can you guys provide us with the contribution or revenue contribution from the acquired assets in the quarter?.

As I said in my script, I'm not going to give you the exact number. It was nominal both from a revenue point of view and an earnings point of view..

Okay. And in terms of thinking about the integration, Mark, maybe talk a bit more on the strategic side. Obviously, the HP assets is a more of a carve-out.

So how do you look at integrating those assets? Are they more complicated to integrate? And how has the first tranche gone so far?.

Yeah. So let me go through them one by one. So we have the CEM assets from HP Inc., such as TeamSite, MediaManager, Optimost and a few others. And quite candidly, we like asset deals. It's the ability for us to, to some degree, pick the assets and liabilities that we're interested in.

And it's usually the hardest of the work for an acquirer and it's the hardest work because you can unlock the most value. So we actually like these difficult situations because we can unlock the most value. So TeamSite, in particular, is a market leader for engagement, website development, electronic form, the beginning of the whole process.

So it's integrated extremely well into the business. And this will be a strong quarter for them. We have not yet closed on the CCM Assets from HP and it's probably the larger and the stronger of the two. But we expect to close on it very, very soon.

And once we're – probably at our next Investor Conference or next call, we'll give an update on the CCM Assets. ANXe, strong recurring revenues. They were a partner of ours before the acquisition. And as Steve commented in his script, an incredibly strong team, strong recurring revenues.

And then, I think as we noted when we originally announced it, they were at a relatively high EBITDA already. So they're onboarded to our model right away. And so we're quite pleased with that. And Recommind is going to turn out to be just incredibly strategic asset for us. It's a box we haven't been strong in. And it's a very timely acquisition as well.

I noted two recent wins. It's now closed. And we'll get it on our operating model. And they were a privately-held business. We'll get them on to our operating model in two quarters to three quarters. But strategically, it's incredible value..

Okay. Great. And before I pass the line, just one more question. On Release 16, have you noticed any difference in the sales cycle? Obviously, it's a potentially bigger ticket sale item and clients could also look at other vertical applications alongside it so....

Yeah, hey. Steve Murphy here. So what we have noticed is that – and I can reflect on a couple of the sales cycles. I was very, very involved with Q4. The deal size increases, and there's a degree of integration across all the different modules.

For instance, when we sell ECM, Release 16 has a degree of integration with business process management in something like case management, entity modeling that expands the deal size. And I think that is probably the single biggest difference. And someone asked earlier about the competitive landscape.

That's where we're different unlike a Documentum, or another company, this is a narrow focus. We've gotten engagement to insight. And with Release 16, a customer might be in the sales cycle for content management and finally they want to buy something else, because of the degree to which Release 16 integrates all of the capabilities we have..

Okay. So that could also mean that the sales cycle is a bit longer, then, right (56:50)..

No, I have not observed that to be the case..

Okay. Okay. That's great. And then, just finally, on the PS, I think – I don't know if it was John or Mark made the comment. I think the margin profile was a bit lower this quarter. And you said you're already on track for fiscal Q1. I just wanted to confirm that that is the case that PS margins are back up..

Yeah. We said that the plan is on track. And a quarter ago, we guided for two quarters to three quarters to get back to our target margin range of 20% and the plan is on track. So we're a quarter into that. Probably another quarter or two quarters to get to our target margin range.

Any additional comments?.

No, I agree with that, Steve..

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

You bet..

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

Yeah. Thank you. Following on the last question, if we can talk a little bit about the sales and marketing margins. If I look at your fiscal 2016 to 2017 model, you've raised the range – the target model range in 2017 versus what you were going in at 2016.

What's changing there?.

You're talking about the sales and marketing in costs, Blair?.

Yes..

Yeah. I think Steve hit the nail on the head when he said that he's built up the sales team over the last couple of quarters. And whereas we entered 2016 with a smaller sales force, we built up the sales force heading into fiscal 2017 and it's reflected in the sales and marketing margin..

Okay. Okay.

And just on the Recommind acquisition, where will you be allocating revenue? What revenue line should we expect to be impacted by the Recommind? And if you can do the same for the – even though the second tranche of the HP assets hasn't closed, just wondering what's going into – what I would term as on-premise versus what's going into cloud?.

Yes. So, on Recommind it will be cloud and on the HP deals, I think it will be reflective of our....

It's sort of a normal mix. Yeah, it's sort of a normal distribution..

Yeah..

And Recommind will be majorly cloud..

Yeah..

Okay. Great. Thanks, guys..

Yeah. Thanks, Blair..

This concludes the time allocated for questions on today's call. I would like to turn it back over to Mr. Barrenechea for closing remarks..

Very good. Thank you and thank you for joining us today. Just a summary of our key messages. Fiscal 2017 will be a year led by M&A growth. We expect approximately $300 million in revenue growth from these acquisitions.

All revenue lines should grow double-digit as well as double-digit adjusted operating income growth and as well as the benefits of our recentralization of IP back into Canada. With that, I'd like to thank you for your time and I couldn't be more excited about fiscal 2017. Thank you for the call..

Thank you..

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