Greg Secord - Open Text Corp. Mark J. Barrenechea - Open Text Corp. John Marshall Doolittle - Open Text Corp. Stephen Murphy - Open Text Corp..

Richard Tse - National Bank Financial, Inc. (Broker) Paul Treiber - RBC Capital Markets Stephen Bersey - MUFG Securities America, Inc. Paul Steep - Scotia Capital, Inc. (Broker) Steven Li - Raymond James Ltd. (Broker) Thanos Moschopoulos - BMO Capital Markets (Canada) Eyal Ofir - Dundee Securities Ltd. Stephanie Price - CIBC World Markets, Inc..

Thank you for standing by. This is the conference operator. Welcome to the Open Text Corp. First Quarter 2017 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 Greg Secord, Vice President, Investor Relations. Please go ahead..

Thank you, operator. Good afternoon, everyone. On the call today is OpenText's Chief Executive Officer and Chief Technology Officer, Mark J. Barrenechea; our Chief Financial Officer, John Doolittle; and our President, Steve Murphy. They'll read prepared remarks 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 front page of the Investor Relations section of our website where we posted PowerPoints that will be referred to during the call. And now I'll proceed with the reading of our Safe Harbor statement.

Please note that during the course of this conference call, we may make statements relating to the future performance of OpenText that contain forward-looking information.

While these forward-looking statements represent our current judgment, actual results could differ materially from a conclusion, forecast or projection in the forward-looking statements made today.

Certain material factors and assumptions were applied in drawing any such conclusion 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 future performance results of OpenText are contained in OpenText's Form 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 may include discussions of certain non-GAAP financial measures.

Reconciliations of any non-GAAP financial measures to their most directly comparable GAAP measures may be found within our public filings and other materials which are available on our website. And with that, I'll hand the call over to Mark..

Thanks, Greg. I think we're going to have John go first..

cloud, $1 million; customer support, $3 million; professional services and other, $1 million; and license revenue, no impact. Gross margins for the quarter were comparable to prior year's as follows. License margin was 94% compared to 95% last year. Cloud services and subscriptions margin was 59% compared to 60% last year.

Customer support was 88% compared to 89% last year. Professional services was 19% compared to 23% last year but up from 14% last quarter and 17% in Q3 2016. Good progress and Steve will comment on that specifically. All gross margins are in line with our fiscal 2017 target model. Adjusted operating income was $151 million this quarter, up 2%.

On a constant currency basis, adjusted operating income was $152 million, up 3%. Adjusted net income increased by 2% to $106 million this quarter. Interest expense was $27 million in the quarter, which is line with our estimated quarterly run rate of approximately $28 million, which we discussed on last quarter's call.

Adjusted earnings per share for the quarter was $0.86 per share on a diluted basis compared to $0.84 for the same period last year, up 2% and up 4% on a constant currency basis at $0.87. Now to GAAP net income, for the quarter, it was $913 million, or $7.46 per share on a diluted basis compared to $41 million or $0.34 per share on a diluted basis.

We recorded a significant tax benefit this quarter of $876 million specifically tied to the internal reorganization that I talked about last quarter. This internal reorganization was implemented to consolidate ownership, management and development of our intellectual property in Canada.

We believe the reorganization also reduces our exposure to global political impact of uncertainties, particularly in Europe. Consolidating our intellectual property in Canada will ensure appropriate legal protections for our consolidated IP, simplify legal, accounting and tax compliance, and improve our global cash management.

The asset recorded is representative of tax benefits that are anticipated to be realized in future periods. There were approximately 122.4 million shares outstanding on a fully diluted basis.

The operating cash flow for the quarter was $73 million, down from $92 million, and DSOs were 52 days, up from 48 largely due to the onboarding of receivables from recent acquisitions. Let me give an example. This quarter we onboarded approximately $30 million of receivables via the Recommind acquisition, and they have a longer collection cycle.

This is a temporary issue that will be resolved as we collect these receivables and shorten the cycle. As I've noted on every call, our operating cash flow is a top priority. We ended the quarter with a strong liquidity position including a cash balance of $835 million. Tax update, there's nothing to report on our ongoing discussions with the IRS.

Our adjusted tax rate for the quarter was 15% and is expected to be the same for the remainder of this fiscal year, and the details of our approach are outlined in the reconciliations. Also, today our board of directors declared a cash dividend of $0.23 per share for shareholders of record on December 2, 2016, payable on December 22, 2016.

Turning to the Dell EMC transaction, Mark will update you in a few minutes, but we are still deciding on our financing plan. In the meantime, we are affirming our external target model pre-EMC for fiscal 2017 non-GAAP operating margins to be in the range of 30% to 34%.

We're also affirming our fiscal 2020 aspirations of non-GAAP operating margins of 34% to 38%, and a revenue mix that would reflect 50% of our revenues from the cloud as part of 90% recurring revenue portfolio in 2020. Details on these and other metrics mentioned today are contained in the investor presentation posted on our website.

And now, I'll turn the call over to Steve..

Thanks, John. We're reaching critical mass as we onboard our recent acquisitions and expand our verticals, geographies and customer base. With Release 16 and most recently EP1, which is Enhancement Pack 1, we have world class offerings that strengthen our leadership position in the EIM market.

We are gaining strategic consideration with our customers, and we remain passionate about making them successful. I continue to focus on driving sustainable organic growth initiatives while improving efficient operations and cost discipline to improve margin and cash flow. Our business model is scaling, and I'm pleased with our progress.

Let me make some comments on Q1 on what I see as a great first quarter. We had a strong Q1 for license, customer support and cloud businesses. Total MCV bookings is higher year-over-year, and the average size of MCV grew significantly over the same time period. Let me share some quick stats. We had seven on-premise license deals greater than $1 million.

The geographic split of total revenue was Americas 60%, EMEA 30%, Asia-Pacific/Japan 10%. On-premise's customer successes in the quarter include BMW, Paychex, and the Qatar Foundation, just to name a few. In terms of the industry breakdown, financial, services and technology saw the most demand. Now let me give you some quick cloud stats.

Cloud revenue was up 15% year-over-year, and we had 13 new MCV cloud deals greater than $1 million. Cloud customer successes in the quarter include BGL Group, Davide Campari-Milano Group, House Foods Group, IntelliTek Systems, Knorr-Bremse, Self Regional Healthcare and Transport for London.

We added 31 new managed service customers in Q1, which brings our total managed service customers to 1,133. We had 27% MCV growth from $41 million to $52 million compared to the same quarter last year and average MCV deal size increased 41% from $350,000 to $509,000. Financials, services, technology and consumer goods saw the most demand.

Let's talk a little bit in specifics about some customer wins, and I'll start with license deals. BMW, BMW needed to address the increased number of regulatory requests. Axcelerate 5 and OpenText Discovery eDiscovery solution allows the BMW Group to be more efficient with regulatory requests while still maintaining high standards of response.

Paychex, Inc., a leading provider of integrated human capital management solutions for payroll, HR, retirement and insurance services, has extended its investment in OpenText Exstream for data center disaster recovery.

The Qatar Foundation bought OpenText Process Suite Platform to drive process control and standardization across support services, shared services, equine management and legal management. The content produced is archived in OpenText Content Suite for compliance and records management purposes in the cloud.

Now on the cloud, IntelliTek Systems purchased OpenText Media Management On Demand and Video Services to enable the company to maintain their media files from a secure central repository for improved collaboration, protection and file storage. House Foods Group is one of Japan's largest food manufacturers.

The company purchased OpenText Optimost to build an engaging corporate website and enhance its online presence.

The SaaS platform enables House Foods to quickly create and run tests through an intuitive interface, segment, target and personalize online customer experiences, and improve its web operations with the ability to analyze results anytime and anywhere.

Transport for London is overseeing the Crossrail project, which is the largest construction project in Europe. Transport for London has invested in a fully managed cloud service from OpenText to manage technical documents and drawings for the new assets using OpenText Content Suite Platform.

BGL Group UK, an insurance company, discovered OpenText Optimost when looking to streamline its website performance and personalize customer journeys. OpenText Optimost allows BGL to be more efficient by going to market quicker with fully tested implementations while saving time and money.

The Davide Campari-Milano Group bought OpenText Business-to-Business Managed Services to manage its order to cash process and cover its fiscal compliance needs in South America and Southern Europe. Previous to OpenText, Campari had a fragmented EDI strategy with no visibility at the corporate level and suboptimal decision support.

Knorr-Bremse Group is the world's leading manufacturer of braking systems for rail and commercial vehicles.

With OpenText's analytics information hub, what we call the iHub platform, Knorr-Bremse IT has access to a highly scalable embedded BI and data visualization platform that enables IT teams to design, deploy and manage secure interactive reports and dashboards. Let me touch on customers.

As I've always said, customers don't buy from companies but rather they buy from people. Customer care and satisfaction are an integral part of our culture at OpenText and it's the reason why we have such a loyal customer base.

It is this unrelenting commitment to achieving customer success that positions us to win new business and repeat business again and again. Talk a little bit about sales. Our sales organization is scaling well. Stronger leaders in every region have brought us the process, rigor and discipline to know our pipeline inside and out.

We are fully staffed up with world-class sales professionals. Enhancement Pack 1, EP1, establishes a new entry point with the customer with the extended ECM platform for Salesforce and deeper integration with SuccessFactors. The addition of added discovery functionality from Recommind makes the value proposition for EP1 even more compelling.

Our strategic position just got stronger. The hybrid model is also a competitive advantage. Our managed services offerings bring strategic customer value and we provide a consultative environment where the customer can actually weigh the costs and benefits of either model and then work with us to do what is best for them. We are competing and winning.

We have energy and enthusiasm and a renewed discipline around account planning and sales execution in the field. Let me touch on partners. Our healthy ecosystem of strategic partners continues to grow fueled by a broader set of product offerings and new relationships we inherited from our previous acquisitions.

Global SIs and VARs love working with OpenText because of our dedication to building and investing in long-term relationships. If partners invest in us, we will invest in them. A quick update on professional services, our initiatives to address professional services performance over the last three quarters has resulted in improved margins.

With a foundation of a stronger, more efficient PS organization, we will look to grow these revenues while continuing margin discipline on a deal-by-deal basis. Acquisitions, turning to acquisitions, we've brought together a great set of products that fit together both organizationally and from a one-stop shop perspective.

Onboarding acquired revenue and integrating teams and product sets are core competencies at OpenText. We have the experience and the infrastructure to scale our businesses through acquisitions and we are executing to plan.

Cross-selling and lead sharing is already occurring between our enterprise sales teams and our newly-acquired CEM and Discovery sales teams. We now have five sales pillars aligned at each case under a strong and experienced sales leader. Each of these sales leaders reports directly to me.

In many cases, we have much improved account coverage due to the natural concentration from acquired sales resources. Lastly on the EMC Documentum, I look forward to learning from the industry vertical expertise of EMC Documentum and I do know that they will gain from us with respect to our ERP expertise and our holistic EIM vision.

So before I wrap up, let me summarize a few key points. We delivered strong quarterly revenue performance, showing double-digit growth in both our license and recurring revenue lines. Our PS business is back on track and on target to our margin model, and I can expect it to continue to grow in the coming quarters.

OpenText remains committed to customer care and satisfaction. With deep customer loyalty, we are positioned in the right market, at the right time with the best product suite in the EIM. We value this culture and we will fiercely protect it as it is a key driver of our success.

With our recent acquisitions, Release 16 and most recently EP1, we are gaining strategic consideration with our customers. Release 16 is a rallying point for the entire OpenText sales force and we are leveraging our leadership position in EIM to achieve market share gains. We're winning. Our business model is scaling.

I very much continue to believe in our overall business plan and our ability to achieve it. Thanks a lot. Over to you, Mark..

CEM, discovery, analytics, managed services, and vertical content applications. Let me spend a moment and provide an update on our announced acquisition of the Enterprise Content Division of Dell EMC. First and foremost, our strategic rationale remains consistent and reaffirmed.

A marquee install base of nearly 5,600 customers seeking digital transformation, a vertical application opportunity, upsell opportunity into EIM, expanded geographic and account coverage, ability to upgrade into the OpenText Managed Services and nearly 2,000 EIM professionals and experts that would join OpenText.

We are on schedule and expect to close within the estimated next 75 days pending regulatory approvals and standard closing conditions. Our approach will be a deep functional integration.

That is to say, we will not run the business standalone, but rather we plan to integrate each ECD functional group into their corresponding OpenText group while leveraging the best talent from either organization.

As it relates to financing, we continue to consider our permanent financing for the transaction, which may include elements of cash on hand, new borrowings under credit facilities and newly issued equity. We have a $1 billion commitment in support of the transaction.

As a reminder, in fiscal 2016, we generated $526 million in operating cash flows, and our continuing objective is to maintain a long term conservative capital structure including preserving our current credit ratings. As for further financial details, we will not be providing any additional information until after we close.

Though let me note, at present, there is nothing I see that changes our historical views on how to model or integrate an acquisition. ECD looks very consistent and right in the power alley for OpenText to manage and optimize. I refer back to our investor deck of September 12, 2016 for the ECD transactional details.

Let me summarize my remarks before I open the call to your questions. We are focused on revenue growth and market scaling and expect double-digit revenue growth this fiscal year. We're off to a fast start and nearly half a billion dollars in Q1 revenues up 13% year-over-year.

We're on track with our recent acquisitions to add approximately $300 million in revenues on an annualized basis. I refer to our quarterly supplement investor presentation on our investor website.

The benefits of our new acquisitions are not yet fully reflected in our financial results, and as we complete the integrations, additional benefit will be reflected. We're on track to close ECD over the next estimated 75 days. EP1 offers new partner opportunities with Salesforce and SuccessFactors.

We see demand drivers with CEM, discovery, vertical content apps, analytics, and managed services, and the second half of fiscal 2017 with EP2 and Magellan.

Expect us to continue to be opportunistic in the market for additional acquisitions that fit our model, and Q2 is a seasonally strong quarter for us and our pipeline currently supports these historical views. At the end of the day, all companies are software and analytic companies attempting to maximize the value of their information.

OpenText's engagement to insight will help companies unlock the value of that information. OpenText is in a great position to benefit from this market dynamic. With that, I'd like the operator to open the call for your questions..

We will now begin the question-and-answer session. The first question comes from Richard Tse with National Bank Financial. Please go ahead..

Great. Thanks.

Mark, this might be too early to ask this question, but when you close this EMC deal, how long do you think it'll keep you out of the market from making another meaningful transaction?.

Richard thanks. It's probably a little early to ask the question. As I said in my summary remarks we're going to continue or we're continuing to be opportunistic in the market for additional acquisitions. I mean we operate in certain functional pillars as Steve walked us through in CEM discovery business network.

And we continue to seek opportunity across those areas. And as we scale the company we have bandwidth in multiple parts of the company. So we continue to be opportunistic in the market..

Okay. And then I was going through the presentation deck here and it looks like you're sort of dedicating a little bit more effort towards R&D. I was wondering if you could maybe share with us what areas that you're going to be focusing on with respect to R&D here..

Yeah. So maybe I'll take one part of that and maybe hand another part to John if he wants to jump in. Let me just also note in the first part of your question, we also have funding to do right now as we noted as we onboard HP, Inc., CEM, CCM, Recommind and ANX is pretty much fully integrated into the business.

And certainly the ECD group will keep us quite occupied over a series of quarters as we integrate and get the business to our operating model. I think the R&D expense came in a little high and it's just that some of the acquisitions we made were not quite in the OpenText model.

And as part of some of my prepared remarks, part of our execution in the coming quarters is to just simply do what we do when we integrate to get those businesses in line to our operating target model. And R&D is one of those areas where we have opportunity to do that. John, anything you want to.....

I totally agree, Mark..

And then just one last one maybe for Steve. Since you've come in it sounds like you made a lot of changes here. From my vantage point of the company historically it's not been terribly great in terms of upselling and cross-selling given the organic numbers.

Have you done anything since you've joined to maybe capitalize on that opportunity given that you've got all these great products here in front of you?.

Yeah, we've done several things. So I think that the first one is the alignment by product so that we've got specialization within each of the five pillars.

And it's no exaggeration to say we've got really strong VPs, SVPs running each group has dramatically improved the skill level and the focus that that team has on that product when they go out and sell. And if you think about our peer group and some of the really big software companies out there, it's a proven model and it does work.

Now it may mean that somebody who used to do two or three different things only does one, so satisfaction wise that may or may not be good for somebody, but we have sharpened our focus. And I've set an expectation of product knowledge that it should be extremely high, and we do inspect for that.

And I think that's a key part of getting the value out of the sales force and I'll continue to have that product specific, vertical specific focus which ECD from Documentum is a great fit for our existing enterprise sales force..

Great. Thank you very much, guys..

Sure..

Yeah. Thanks, Richard..

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

Thanks very much. I was hoping if you can clarify that the $5 million purchase price accounting impact that you called out, was that already reflected in the estimated revenue from those acquisitions that were in the press releases, or is that incremental or in addition to the – or I guess it'd be a reduction to the revenue in those press releases..

Yeah, most of it's incremental, Paul..

Okay. Is there a rule of thumb that we should model for that type of purchase price accounting impact? I think in the past many years ago you guys have mentioned 20% to 25% impact from the deferred revenue write down.

Is that a fair rule of thumb?.

Yeah, I can't give you a rule of thumb because every deal stands on its own two feet. You got to look at the balance sheet and the metrics for each and every deal, so it'd be tough to give you a percentage as a rule of thumb..

Okay. Moving on to the receivables, you mentioned, or I think the HP acquisitions are structured to just carve out, that would involve some working capital build-up or some build-up of those receivables.

Did that have an impact on the cash flows in Q1?.

Yeah, the acquisitions in general had an impact on our cash flow performance in Q1. And I called out Recommind as one example where we inherited about $30 million of receivables and the days of the collection cycle on those are quite long. And you're absolutely right.

On the HP deals we did not inherit any receivables, so receivables built during the quarter..

Okay. And then just for Mark, when you think about the competitive landscape now that you have Documentum, really it's a three horse race among the big guys.

How do you see, over the long-term, differentiating against IBM and Microsoft longer-term?.

Sure thing. Good question, Paul.

And I'd like to maybe just add my voice to your previous question as well, which is as you think of revenue in Q1, as John talked about, we had the $5 million effect of purchase price accounting, $5 million of FX, and I just emphasized a note in my script that we did not have a full quarter of revenue benefit from CCM and Recommind.

So those are very simple and very clear things to just take in consideration when we look at our – what we think is a very solid quarter at 14% revenue growth in constant currency. In terms of the competitive landscape, customers are responding to engagement to insight.

And we can see opportunities where customers are looking to extend well beyond traditional document management into customer experience management. And we strengthened that with CEM. We can see opportunities where customers are looking to bring in new data sources.

We're looking to combine content with process management with BPM, and also looking to bring in eDiscovery capabilities into their content world. So we're going to differentiate first and foremost through expanding the process flow from ECM to Enterprise Information Management. Second is we're going to differentiate with managed services.

We have the ability now on a global basis, enterprise quality, secure, to be able to, in a lot of ways, have a company outsource to us complete process flows into our cloud. And we're doing that with very large brand names. I mean Transportation for London, huge success for us in engineering and construction. BMW, I mean these are marquee customers.

And then third, we're going to differentiate with our expertise. And that's one of the reasons I highlighted it. We are maniacally focused on Enterprise Information Management and can present thousands of success stories and thousands of professionals to help customers make that transition into digitalization.

So those are the areas we're looking to differentiate on, Paul..

All right. Thank you for taking my questions..

The next question comes from Stephen Bersey with MUFG. Please go ahead..

Hi. Great. Hey, I know it's early days with the EMC acquisition or the Documentum acquisition, but I'm wondering if you're able to get in there early given the friendly nature of that deal, and kind of understand the product a little more as far as their processes and kind of what they were up to with future functionality..

Steve, thanks for the question. We're guided by kind of the standard regulatory processes that we're under. But as we've gotten closer to ECD over the last month and a half, month or so, we're reaffirmed on what we liked in coming into the transaction.

First and foremost, their vertical content, right, Steve mentioned our strength in big data sources like ERP highlighted by our SAP relationship. We like what Documentum brings in their vertical content. We also very much like their view of information lifecycle management through InfoArchive as a second opportunity.

And we remain impressed with the opportunity to upgrade, if you will, the Documentum install base both into CEM and to our managed services and to the wider EIM opportunity. So I'd say our view is reaffirmed over the last month or so as we've gotten closer to their products and their organization.

Steve, anything you want to add to that?.

I would reiterate that within the boundaries that are appropriate with the SEC and otherwise we have a friendly relationship. The quality of the product, the industry vertical expertise, to Mark's point, and the quality of the people are all consistent with what I would've expected from a world-class company like EMC, EMC Dell, in this case.

It's very exciting..

Great.

And maybe on the Magellan rollout in the second half, just how's that going to be integrated across all of your platform? And what's the game plan for getting that into all of your different products?.

Sure. So, Steve, thanks for that as well. There'll be a series of releases. I mean our first release will be where we're taking the Apache Spark analytic engine, and making that part of Actuate. And we've already done our first level integration of Actuate across Content Suite, Process Suite, Experience Suite.

And we see an opportunity to go from, if you will, a relatively closed predictive engine, to a completely open predictive engine. Not to get too technical, what's called MLlib, which is inside of Apache Spark. That also opens up whole new data sources for us. Hadoop, not just SQL databases but also deep learning databases on graph databases as well.

So step one is to be able to embrace Spark that will open up all these open algorithms, new data sources. And our first level integration of Actuate, in fact, into all our suites will remain on track.

The next piece is to take some of our existing engines and then integrate them into Magellan like our narrative science engine, our face and voice recognition engines that we have. But the first task is to bring in Apache Spark, open the platform up with open algorithm. The next phase will be deeper integration..

Sounds fun. Looking forward to it. Thanks..

Yes. Same here. Thanks, Steve..

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

Great. Thanks. Mark, maybe you could just give us a perspective here. There's been lots of FUD in the market as normal with one of the large deals closing with Documentum.

With Muhi being in Barcelona on Tuesday, can you give us a view of what you committed to Documentum's customers to make them comfortable with the investment you're making here? And then secondly, maybe any feedback he brought back from the conference about what those clients thinking about OpenText..

Yes. Fair enough, Paul. Actually, I'm not familiar with the FUD or the large deal. So I'm pretty dialed in, but I haven't heard that. So I'll go learn as to what that FUD is, but it hasn't hit my – it's not a blinking green light on my radar screen. Yeah.

So Muhi joined our conference in Barcelona and look, we – both product lines just have a clear place in the OpenText future. Content Suite is the foundation for large data sources such as SAP, Oracle, email. The Documentum group has a firm position for vertical applications, and that's the simple and clear distinction.

And they're both going to have that position in our future, and we will reaffirm that with their installed base in Barcelona. It's really that simple. We like their information lifecycle management product that we think can work underneath all our pillars in the technology suite. And our managed services just has massive scale.

I get a kick out of reading the FT every day and seeing the lower right-hand corner that Oracle is number one in the ERP cloud with 2,000 customers. They've been at it for a decade. I have great respect for Oracle. We've been at it for a few years, and we're near 1,200 customers in our EIM Cloud.

So our managed service offering is leading the EIM market, and I think will be a great opportunity for all Documentum customers..

Great. I guess the second one would be for either you or Steve, maybe feedback on what you've seen out of the client base on shifting the traditional lite (44:33) ECM licenses towards the cloud and what you've heard back from the field in terms of clients' uptake on that. Thanks, guys..

So you may notice that the MCV number went up significantly. And we are seeing traction with content customers saying they're interested, and willing to write a contract to move business into the cloud. So I think that, so long as we are responsive, we can demonstrate that our data centers can perform, and be safe, we can protect the data.

And we can agree to SLAs that work for both us and the customer around things like reliability. We're seeing bigger and bigger deals from larger and larger customers move into the cloud where it makes sense. I look at a lot of the margins of those deals to make sure that, as the business comes over, it's attractive.

And so long as it is, we're interested in taking that business into our cloud, and into our data centers. We have more than 30 data centers globally..

Great. Thanks, guys..

The next question comes from Steven Li with Raymond James. Steve, go ahead..

Thank you. Mark, your PS group had some challenges a couple quarters ago.

Has this been resolved, and are you happy with this Q1 PS?.

Yeah, Steve, thanks for the question. I just want to add just a little bit of commentary on the last question, and leave PS to Steve. Let me just reinforce the comments on customers asking for hybrid workloads.

And we've talked a lot about this, and demonstrated multiple years of onboarding cloud revenues, while holding license constant through those years, and expanding margin. For fiscal 2017, we expect to grow double digit.

And Steve and his team delivered a fantastic Q1, with cloud growing at 15%, and license growing at 18%, just as a demonstration of our hybrid strategy working. Steve, I'll hand it over to you, the PS question..

Hey, yeah, thanks, Mark. So just a few quick comments, so we expect that each of our lines of business will stand on its own two feet, and earn well on a standalone basis. And one of the things that had probably slipped over the last year or so was that we weren't having that level of discipline within professional services on a deal-by-deal level.

So, at this point, we have controls in place to make sure that from the ground up, any business we take down in professional services whether it's time and material or fixed fee or otherwise, is a profitable piece of business. And when it all adds up, we get the kinds of margins that we expect.

So it's a combination of discipline, control and making sure that that business is measured and expected to perform on an autonomous basis, which at this point it is. And I think that in addition to the improved margins, I certainly expect to see double digit growth for that professional services business this year..

Great. And maybe one more, Mark, for EMEA. Was there any unusual weakness there? It showed your licenses was down year over year despite the acquisition. Thanks..

Steve thanks for that. It's certainly a data point, but we don't think it's a trend. Again, I'll highlight as John expertly outlined the $5 million PPA impact, $5 million of FX, and again I'll highlight that we just did not have a full quarter of benefit from CCM and Recommind.

And John, maybe you want to talk a little bit about the mix, a little bit of mix with the new acquisition?.

Yeah. So I would agree, Mark, with what you said. Steven, as you look back over the trending, I'd say that it is a data point, it ebbs and flows. One quarter EMEA is a greater percentage, and the next quarter it's North America. And the acquisitions that we've onboarded have trended to more of a North American revenue stream than EMEA.

So that tilts the mix just a little bit..

Thank you..

Yeah. Thanks, Steven..

The next question comes from Thanos Moschopoulos with BMO Capital Markets. Please go ahead..

Hi, good afternoon.

Are you seeing any impact on the sales pipeline either positive or negative from the Documentum deal? Are you finding that prospects are incrementally more interested in engaging with you guys? Or, on the flip side is there any hesitation you're seeing until the deal closes and until you can provide more color on the product roadmap?.

Yeah, so I'd say there's no impact based on what I'm observing. No impacts..

Neither positive nor negative?.

Neither positive nor negative..

Fair enough. Maybe a different one for John, the license gross margin was slightly below your target operating model this quarter.

Was that just some noise related to the acquisitions and should that bounce back to a more normal level going forward?.

Yeah, that's right, Thanos. It was a little noise from the acquisitions and as we looked across all the line items from the acquisitions, we'll be getting those onto our target models. So it's just a temporary thing..

Maybe one last one, in terms of the cloud bookings, I mean I was struck by the number of deals over $1 million.

I think Steve kind of alluded to it, but just to clarify is that sort of incrementally being driven by more engagement on the content side rather than the managed service, the excess side of the business that's driving that or is it a mix of both..

No, you're right. That's what it is. It's a mix of both but certainly large content server deals are moving into the cloud. Where it makes sense for the customer, it makes sense for us..

Yeah. And Thanos I'd amplify those comments from Steve that over the last year the organization has done a great job of expanding beyond the sort of supply chain outsourcing opportunities via TXS (50:35) into CEM opportunities, enterprise content opportunities as well. And we're starting to see that success flow into bookings and in cloud revenue..

We are and there's growth.

As far as the skills of the sales force has there's growth with respect to people understanding what a multi-year contract looks like, what margins need to look like, what the terms and conditions need to be or the SLAs or penalties need to be so that when we do one of those deals it's going to be a profitable piece of business and the sales people are confident around being able to sell that and understand the technology that underpins putting something in the cloud.

So there's been, for the year I've been here, a tremendous growth out in the field of folks that sell understanding how to do those deals and do them in a way that are profitable. So it's a capability we've developed and are continuing to develop..

And in light of this traction, did it change at all your outlook in terms of maintaining this ability at the license phase?.

No, not at all. Not at all..

Okay. Thanks for clarifying. I'll pass the line. Thanks, guys..

Thanks, Thanos..

Thanks, Thanos..

The next question comes from Eyal Ofir with Dundee Capital Markets. Please go ahead..

Thanks. Thanks for taking my question.

Just a first housekeeping question for you guys, can you just provide the aggregate dollar figure of how much the acquisition contributed this quarter?.

No, we haven't broken that out, Eyal..

Okay, okay That's fine. And then I just wanted to clarify – I guess it's a question for both for Mark and Steve, just on the pipeline your comments about pretty strong seasonal trends into the December quarter.

Can you just talk to where you're seeing strength coming out of? Is it in the region specific, a product specific category, and how the dynamics are playing out? Thanks..

Yeah. You bet. Steve, here. We have, as you would suspect, a relatively detailed look at the pipeline on a daily basis and seeing large seven figure deals in some places like Europe that from a linearity standpoint are ahead of where I would expect and that underpins our belief that it will be a seasonally strong Q2.

To Mark's comment I'll be support consistent with what he said which is we have reason to believe based on the data it'll be a strong Q2..

And could there be also some pent up demand based on like some, I guess, contract delays either in the quarter post-Brexit or some other areas in Europe, is that also happening as a trend?.

Yeah, Eyal, just to tag team this one. I think the headlines seem worse than reality. And it's sort of an inverse of what usually is the mood. The Brexit headlines, oh heck, we had news this morning that parliament has to approve Brexit. There are multiple elections coming up in Europe as well.

And as Steve noted, Q2's a seasonably strong quarter and we're expecting our European teams to deliver in that vein. So as we look across all the countries we operate and geographies, it feels like there is – the headlines seem a little worse, if you will, than the reality on the ground. And of course we have the U.S.

election coming up that we're all paying attention to. But independent of that, we're expecting a seasonally strong Q2..

Okay. Great. It seems like from – based on what SAP said they're also kind of seeing the same thing in Europe. So thanks. I appreciate the comments and I'll pass the line..

Yes..

The next question comes from Stephanie Price with CIBC. Please go ahead..

Good evening..

Hi, Stephanie..

Hi, Steph..

Steve, you mentioned the partners in your prepared remarks, talking about inheriting a number of partnerships with recent acquisitions.

Can you talk a bit more about this and where you expect to see some growth out of these new partners?.

Yeah, a couple of things. One specifically would be that Documentum had done a very good job developing the channel in Japan. And they have done considerable business over there through what is almost entirely a channel-driven business to an impressive extent.

So I look forward to understanding what that channel looks like in Japan and how we can make the most of that. Also when it comes to the global system integrators, whether it be Accenture or Deloitte, Documentum has had a considerable amount of success there with LiquidOffice.

So very impressed with their ability with the big GSIs to be effective and to have brand recognition in some cases we just don't have. The Documentum name, it's a fantastic brand and it's one we're really going to be able to take advantage of with the GSIs..

Great.

And then I know it's early days but can you just talk a bit about demand for EP1 as well?.

Yeah. So, Stephanie, I'll maybe take a piece of that. So it is early days. We announced EP1 just a few days ago. And it's a very seamless Enhancement Pack. Our strategy is to go through a series of rapid Enhancement Packs, EP1, EP2, then EP3, to really accelerate that cadence of more capability, right.

These are capability packs, thus we call them Enhancement Packs. And it is early days but I'll highlight some of the big drivers behind EP1. One is expanding data sources. Salesforce.com, we now have a extended ECM into Salesforce. We're using it across our 10,000 person organization.

SuccessFactors, another big data source which is now available to our customers with EP1. Engineering and construction is a new advanced module for us and wins like Transportation for London is an example of the strength of an EP1. New vertical apps as well, we're now in high functional mode for a Healthcare Direct in the U.S.

and document exchanges for that within EP1. So it's early days but EP1 is a very strong Enhancement Pack. It's not a maintenance release by any means..

Great. Thank you very much..

Very good. Well, I think that brings us, Greg, to the end of our prepared conference call and I'd like to just end on a couple of points, is we're on track for double-digit growth in fiscal 2017. Our EIM position continues to gain strength in the market through CEM, discovery, managed services and soon ECD.

And as I look beyond, even beyond these activities in the second half fiscal 2017, new demand drivers with Magellan and continuing to differentiate with our managed services. So thanks for joining the call today and we'll all speak soon. Thank you very much..

Thank you..

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