Q1 2020 Earnings Call
Thank you for standing by this is the conference operator welcome to the Opentext Corporation first quarter fiscal 2020 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 to join the question Q simply press star and one on your Touchtone phone should anyone need assistance during the conference call. They may signal, operator by pressing star and zero on their telephone.
I would now like to turn the conference over to Harry Blount Senior Vice President Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone on the call today is open tax Chief Executive Officer, and Chief Technology Officer, Mark Jay Bear in shape, and our executive Vice President and Chief Financial Officer, They do Reagan acre.
We have so 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 Dot open text dot com, where we have posted two presentations that will supplement our prepared remarks today.
First our strategic overview titled Opentext Investor presentation.
The second titled Q1, F. Why 2020 financial and business results includes information as financial specific to our quarterly results, notably our updated quarterly factors on page number seven.
In November and December open tax management is pleased to meet with investors throughout Canada, the U.S. and you're up.
And we look forward to attending the following conferences the Bernstein technology innovation Summit on November six the New York.
The TD Securities Technology Conference on November 14th in Toronto.
The RBC capital markets T. I M T Conference on November 19th in New York.
The credit Suisse Technology Conference on December 3rd in Scottsdale, and the NASDAQ Investor Conference held in Association with Morgan Stanley on December 4th in London.
And also the Barclays Global Technology Media and Telecom conference on December 11th and Twelveth in San Francisco.
Please feel free to reach out to me or the IR team for additional information.
No proceeded 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 open text that contain forward looking information.
While these forward looking statements right 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 statements.
Additional information about the material factors that could cause actual results could differ materially from a conclusion forecast or projection in the forward looking information as well as risk factors that May project future performance results of open text are contained an open text recent Form 10-K and 10-Q.
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 manpower discussions are 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.
Thank you very good afternoon, everyone and thank you for joining today's call.
We start with an additional thank you to those who participated in our annual Investor Conference last month in New York City.
We asked for and appreciate your feedback.
Let's send the Opentext leadership team presented our strategic vision and operational plans for stronger Opentext. Our trust is aren't every day with our customers and then into our planning that gives us confidence in our strategy and operational delivery.
This is our 19th consecutive quarter up year over year growth and constant currency.
By our double digit cloud growth.
The strong Q1 results Oh, we're announcing today is a continuation of that long term perspective, and the teams continued commitment to excellence.
19 consecutive quarters up year over year growth.
Textbook definition durable.
We laid out a clear purpose driven strategy during investor day, how accompanying sidewalk Reformation advantage.
Leading platform for enterprise information management.
However, the bat hybrid cloud for customer experiences they relentless focus on operational excellence and efficiency.
And continue to higher develop and retained that most diverse inclusive talent in our workforce.
Today's digital era.
Pricing information management is a strategic and mission critical platform for enterprise customers.
We also laid out a value creation paper during Investor day.
Bulk includes recurring revenue growth.
Margin expansion with marching gains a body above 40% adjusted EBITDA reinvested for future growth that includes innovation products sales capacity and customer coverage accretive strategic acquisitions strong cash flows customer driven innovation.
Disciplined capital structure and approach to dividends.
In addition to our purpose driven strategy and value creation price playbook, we presented our fiscal 2020 business profile that included low single digit organic growth plus additive M&A revenues high single digit cloud well.
So our support what cost and to low single digit growth.
Right and its business a constant year over year and professional services constant year over year and continued optimization for margin.
Continuing to expand EBITDA margin.
And they longer term view for fiscal 2022 aspirations up 38% to 40% adjusted EBITDA and 1 billion EUR 1.1 billion operating cash flows.
Protect that there's an annual business, we view annually. We ask you have your annual annually.
Please with our start to fiscal year 2020.
And constant currency with approximate numbers.
Total revenues of 707 billion and 6% growth.
The team delivered the highest Q1 revenues for the company's history.
We also had positive organic growth within a quarter.
Annual recurring revenues of 557 million were up 7% year over year, representing 79% to total revenues driven by our cloud revenues of 239 million, which increased significantly by 15% year over year.
Customer support was up 2% to 317 million license was up 3% to 79 million gas was constant year over year. Our adjusted EBITDA dollars are up 5% to 259 million and trailing 12 month cash flows are up 4% to 842 million let me.
Got a moment on some key customer wins within the quarter.
The UK department of work and pensions had depended upon opentext extreme since 2009 to create multichannel notifications the UK benefits system.
Having successfully used to softer it out for over a decade DWP has furthermore, modernize their extreme environments now into the Opentext cloud.
AAA Auto club.
Represents over 9.4 million members and it's one of the largest AAA clubs.
After slacking Opentext identity and access management in May of last year. AAA has recently expanded that partnership Opentext demand at 16 million Daniel identities to support growth and expansion all in the Opentext cloud.
Third third when I'd like to highlight if the Deutsche Bank in Germany multinational investment banking financial services company selected Opentext Magellan provides the ability to seamlessly transform complex data and to compelling visualizations and graphs in Charleston tables and diagrams for all their lending businesses.
Reflect the highlight die Daiichi jetsuite.
Eight leading Japan consulting firm offering customer solutions that combined manufacturing marketing and services, which selected Opentext extended DCM for their pharmaceutical business unit due to its complexity, what I'd say, Pete and ability to effectively manage the creation review and approval of new pharmaceutical trials.
And lastly international to many of the Red Cross based in Geneva, Switzerland selected Opentext media management to capture store managers distribute retrieve an archived it's multimedia assets with the ability to support its mobile workforce and areas of support network connectivity, while also providing a very high.
Level security for confidential assets.
But the cloud and hybrid all the dominant themes here.
Hi, good migration is a once in 20 or shift within enterprise software or hybrid cloud strategy is resonating with customers and I like to expand on that a little bit.
First it's about providing customers choice and completing the need at I'd like to say that is that is about to route that it's about focusing on running anywhere and allowing customers to consume anyway anyway.
Run anywhere consume anyway by Ron anywhere, we mean, all cloud our cloud somebody else's cloud by consume anyway, we mean light.
Consumed by a license or subscription.
Yes, all integrated off cloud and on cloud.
Combined this is hybrid and compete completes the need for our customers second it's about modernization and offering customers. The latest enterprise class solutions and a seamless diagnostic compelling user experience managed by open tax managed by third party or managed by the customer.
Themselves.
At Enterprise World at Investor Day, we detailed our next generation platform called cloud additions or C and OTI to.
Opentext cloud additions as our E. I am software native to the cloud and OTI to the Iot platform services available for direct consumer consumption.
We're on track to the delivery in Q4 this fiscal year.
Seagate and OTI too, it's a cloud first approach.
We have successfully transitioned into a modern cloud company servicing the information needs of the world's largest enterprises and governments.
Let me turn my remarks to Q2 Q.
Q2 is historically, a strong quarter for the company and our Q2 outlook it's favorable.
Why do we have not seen any material impacts to our business sort of macro related factors, we have taken prudent steps regarding customer spending environments in the UK due to Brexit uncertainty central Europe to do a slowdown in manufacturing.
And China due to trade captains are you have been assessed as looking solid over 50% of our revenues and profits are located in the United States. U.S. dollar also remains very strong compared to other currencies and this has caused a short term FX revenue headwind.
I'll just like to recall that in fiscal 2019, the FX revenue impact was a negative 53 million.
In Q1 fiscal 20 as most recent Q1, the FX revenue impact or the negative 10 million in the deal getting to that point in more detail and we now expect a total revenue impact of a negative 35 million to revenues in fiscal <unk> 20. This is an industry challenge not I don't but not opentext specific challenge.
Let me ask some additional two two financial color.
We are expecting Q1 to Q2 sequentially high single digit revenue growth and this includes a negative 10 million of FX revenue impact.
Low to single digit operating expense increase and flat adjusted EBITDA dollars sequentially as we complete the integration of catalyst and liaison customers infrastructure employees will have the integration of these two acquisitions complete within the quarter.
You will see these items presented in the quarterly factor section of our Investor materials again, Q2 is a seasonally strong quarter for Opentext our outlook for the second quarter is favorable.
So and deal with a few key thoughts before I turn the call over to my do.
First our Q1 results are a continuation of our long term planning and execution. Another strong data point to the long term durable nature of the Opentext business.
We delivered the strongest Q1 revenue in the history of the company and our 19th consecutive quarter of year over year revenue growth in constant currency.
Second and constant currency had growth in all the right places with 15% growth and the Opentext cloud.
7% to 7% growth and recurring revenues and our adjusted EBITDA dollars expanded five by 5%. This is growth in all the right places.
Our balance sheet continues to strengthen.
Trailing 12 month, most yes, this up 4%.
We had approximately we ended the quarter with approximately 1 billion in cash at a $750 million Undrawn revolver supporting our total growth strategy.
Our net debt is 1.6 billion, our trailing 12 month adjusted EBITDA dollars is 1.1 billion and that leaves our net debt to adjusted EBITDA ratio just dividing the to another 1.5 times.
For the company is ready for all scenarios. The continued adoption of hybrid cloud by our customers, we're well positioned to capture share both in the United States and globally, where the market leader and content services and business networks, we're focused on gaining share with our upcoming cloud additions that OTI too.
Balanced and natural hedging and our cost structure that reduces FX volatility to earnings we are a patient and disciplined strategic acquirer our balance sheet is strong.
We are confident and executing to our long term fiscal 2002 aspirations, while delivering to our short term fiscal 2000 targets that we outlined at Investor Day, just last month.
Opentext is durable and bulk up and down upon us.
It's my pleasure to turn the call over to can do rather not Opentext Chief Financial Officer, Jim. Thank you Mark and Hello, and Thank you also joining us today.
Our first quarter. After 20, it reflects a focus and outpatient comments strong expense management and continuing to bend.
On our balance sheet strength.
Turning to the details about quarterly results similar to prior quarters, my references will be into millions of uxc and compared to same period in the pilots can yet.
So as a reminder, during our first quarter fiscal 2000 impact of foreign exchange was once again meaningful.
Especially if you will see the impact of FX. The coughing tie up you know in all revenue stream and outlining.
So let me start the revenues and earnings there was a 10 million FX impacted revenue during the quarter total revenues for the quarter with 696.9 up 4.5%.
Having no 6.6 up 5.9% on a constant currency basis.
Earnings per share GAAP earnings per share for the quarter was 27 cents per share up from 13 cents per share for the same period last year and let me outline the reasons now first of all at higher revenues this quarter and second lower in depreciation.
Completion of the acquired amortization period of certain technology assets at accounting purposes, and restructuring charges and put us higher interest income.
After a vision was also lower due to certain divestments during the quarter.
This led to an increase in net income of 38 million year over year up 105%.
non-GAAP earnings per share for the quarter was 54 cents on a diluted basis up from 60 cents per share for the same period last year, plus 65 cents up five cents per share on a constant currency basis.
We now shared with you all other details about adults.
Graphic split of total revenues in the first quarter with America, 60%.
He is 30% and if you do 10%.
The main but in other sectors, a financial services business services consumer goods technology public sector in healthcare contribution, 85% quite annular to cuttings happened.
I knew the cutting revenues of 549.6 million for the quarter up 5.8% or 556.6 million up 7.1% and constant currency basis.
I'm going to putting revenues as a percent of total revenue increased to 79% for the quarter and affecting similar seasonal strength <unk> first quarter last year and inclusive of contribution from autologous liaison and cabins acquisition.
Revenues, a particularly strong in the quarter at 237.3 up 14% of 239.3 up 15% in constant currency me.
We estimate the whole Japanese but 300 at 12.3 for the quarter up <unk>, 0.2%, let's see how about 17.3 up 1.8% on a constant currency basis.
Customer support a newer date, what's up slightly to approximately 92%.
Since revenues for the quarter was 77.9 up 1.2% of 79.1 up 2.9% on a constant currency basis.
Professional services revenue was 69.4 for the quarter down 1.7% or 17.8.
0.2% on a constant currency basis.
Turning to margins GAAP gross margin for the quarter was 67.2% up 110 basis points compared to same period last year.
Adjusted gross margin for the quarter was 73.1% down 30 basis points compared the same period last year as primarily due to 10 due to margin impact of liaison and catalyst.
Also on an adjusted basis cloud margin was 57.1% during the quarter down from 58% in Q1 last year and affecting our integration activities of catalyst in the as on customer support margin was 90.7% during the quarter up from 90.2% in Q1 last year.
License margin was 97%.
During the quarter up from 95% in Q1 last year.
Services margin is 22.1% during the quarter up from 20.2% in Q1 last year, our goal remains to optimize the professional services business the higher margins.
Adjusted EBITDA was 254.2 million this quarter up 2.2%.
To 58.6 million up 5% in constant currency basis.
Adjusted EBITDA margin of 36.5% down 40 basis points compared to 36.9% in Q1 last year and continuing to deflect seasonality as head of integration the fees on campus acquisitions.
Our GAAP net income for the quarter was 74.4 up from 36.3 in the same period last year again, primarily as a result of the reasons I mentioned earlier when discussing the year over year increase in gap yes.
Adjusted net income in the quarter with 107 to 3.5 up 7.4% from last year on 177.29, 0.8% on a constant currency basis.
As a reminder, that fiscal 2020 target model veins that adjusted EBITDA margin, it's 30% to 39%. It is important to continue to look at our margins on an annual basis.
Turning to operating cash flows for the quarter, we generated 137 million compared to 171 million in the same period last year, they were too crowded reasons, which I will outline a.
Strong license quarter in Q3 2019.
Even stronger collections in Q4, both resulted in annual operating cash flows of 876 million during fiscal 2019 and given the strong performance in Q3 in Q4, we saw a door opening a our accounts receivable in Q1 Ectwenty versus Q1 fiscal 19 by 5%.
Our 24 million. In addition, as we acquired leaves on a catalyst during fiscal 2019, we carried higher expenses into Q1 20 compared to Q1 19th.
Operating framework is more efficient that same quarter last year with Dsos at 54 days lower by two days compared to Q1 fiscal 19, we had on track to grow CF in fiscal 2020 and remain focused on achieving operating cash flow is a 1 billion to 1.1 billion in fiscal 2002 at the continued.
To apply automation and human based efficiencies and 12 working capital framework.
Turning to balance sheet, we ended the quarter with approximately 1 billion in cash compared to 941 million on June 30 at the fiscal year end or 6% higher.
Our consolidated net leverage ratio was one point fivex and remains a strong this level in two years and well within our external covenant that they ship for time.
In terms of our ongoing IRS matter, we are in the appearance face a standard Iota Spotless continues and that is all remained strong as the vigorously defend deposition.
On the revolver as mentioned in Atlantic City, we have the amended revolving credit facility to increase the capacity to 750 million.
Up from 450 million and restate the five year maturity 2020 to 2024. This amendment to align with open text size in insurance and ample capacity to support our total growth strategy.
On the shelf you will also note in our press release that we had a new inc. a universal Canadian shelf prospectus as part of ordinary course into what timing.
On the Canadian Jos a shelf prospectus effective for 25 months.
And our previous jump expires in September 2019, we're renewing with a 1.5 billion capacity under the Canadian shelf and again simply aligning with open text since our last filing during August 2017.
Turning to our dividend program today, we announced a quarterly dividend of 17.46 cents per share payable on December 19, 2019, as a reminder, a dividend rate is based in distributing approximately 20%.
Trailing 12 months operating cash flows.
Turning to fiscal 2020 target operating model and don't have aspirations.
Fiscal 2020 target model remains unchanged as a reminder, the model is included in our Q walk investor presentation posted on our IR website.
We remain on track to meeting of fiscal 2022 locked him aspirations.
38% to 40% adjusted EBITDA, but margins above this range reinvested back into the business for future growth, including product sales capacity and coverage.
1 billion to 1.1 billion operating cash flows during fiscal 2022 domains are locked him aspiration.
So let me summarize and reiterate the quarterly factors that we anticipate for upcoming fiscal Q2.
I would refer you back to Mike's commentary as well as slide seven you're not quality business and financial highlights on our IR website.
As we looked at where foreign currency rates are today as well as geographic components of our business. We note that the FX headwind was 10 million to revenues in Q1, and we expect the FX headwind in Q2 to also be 10 million.
But also expecting approximately 35 million annual FX headwind for fiscal 2020.
We expect operating expenses in Q2 to be up low to mid single digits compared to Q1 adjusted EBITDA in dollars to be flat year over year ethnic complete the integration of catalyst and the.
[noise]. So in summary, Q1 results came in line with our expectations and we continue to progress into a seasonally strong Q2 and remain focused on a fiscal 2020 and long term targets.
I'm very pleased with how we have further strengthened the balance sheet to execute against our total growth strategy.
Finally, I'd like to thank you.
Sure well knows what's trust and confidence we greatly value and be open text team for their deeply committed efforts I.
I would now like to turn the call for your questions operator.
Thank you we will now begin the question and answer session anyone who wishes to ask a question May press star and one on their touchtone telephone to join the question Q you will hear a tone acknowledging your request. If you are using a speakerphone. Please I'm sure you lift the handset before pressing any Keith if you wish to remove yourself from the question.
Thank you you May press Star then to anyone who asked the question May Press Star one at this time.
Our first question comes from Raimo Lenschow of Barclays.
Yeah, Hey, congratulations to a great start.
Two questions.
Michael off in Q4 will you talked a little bit about the on even performance.
Especially outside of the U.S. and this quarter did the license number looked pretty good. The overall numbers are pretty good can you see little ill talk a little bit of to towards what you're seeing in terms of end demand at the moment and then I have one follow up.
Yes.
Yes. Thanks, Thanks for the thanks for the question.
Were you mean, its end of October right and its a.
60 days to the end of the of the of the calendar year and <unk> in our Q2.
And in Q2 is our seasonally strong quarter for US now that said in my prepared remarks, with where we feel pretty confident coming into Q2 are seasonally strong quarter and ending in ending the year with a fair amount of confidence.
You asked pipeline in demand despite the headline.
If you will is strong.
The issues in Europe are I think well chronicled for most companies at this point and we see similar things, which is basically German manufacturing.
And I think there's just a new normal and in Asia Pacific Most companies are sort of set themselves into a strategy of if you're in China's servicing China you have your manufacturing plant filling in for more capacity you Bob your well on your way out migrating to up to another location and I'd like to say if.
If you don't know your land it cost you can plan of supply chain. So I think most folks know the Atlanta in other landed cost right now so I think it's.
The world's got a bit more defined.
And and work we've been able to build our strategy along that what's more defined that it was that it was 90 days ago that gives us the confidence going into Q2.
Perfect. Okay. That's really helpful. And then the last couple of days there was a lot of meuser on M&A with Microstrategy and all that stuff. There can you maybe remind us again like you talked about the capacity you have but also like what's driving your decision, making there what are the criteria that we should we look out for.
Yeah. So let me kind of address the first part which is.
The rumors and speculation I.
We don't respond to rumors and speculation but.
But in this case, we did.
Very uniquely because I think it's very important that we provide clarity of our position.
If there's any uncertainty and you can always expect that from me and the team so.
So as a rule, we don't respond to rumors and and that sort of thing, but it was important and you can always expected from me the team to provide clarity. So we did in our press release as far as our strategy.
Look our balance sheet has.
As amazingly strong with a with a billion in cash $750 million on undrawn revolver that debt to adjusted EBITDA ratio of one by 1.5 times compared to our our covenants of four trailing.
Trailing 12 month cash flows and we have a slide in our investor deck that shows.
The self funding nature of our M&A and if you just look back over the last 12 months we've generated.
600 million of of available cash that could have been used for for M&A on self funded basis, I like our value playbook and nothing's changing our value playbook the balance sheet as strong we're going to remain patient and strategic buyers.
And.
As equity.
Valuations decline in a in a volatile market will be in a much better position, but we're not changing our value playbook and were patient and strategic.
Allocators of capital and I do expect and this fiscal year in fiscal 2008 deploy capital on getting deals done.
Okay perfect. Thank you.
Our next question comes from Richard Tse of National Bank financial.
Yes. Thank you at your recent Investor Day, you lay a bunch of sort of objectives for 2020, I think increasing wallet share in the base and then penetration to the global 10000, so either today or going forward are going to be able to share metrics in terms of the performance on those objectives.
Hi, Richard Thanks. Thanks, a question, let me I will take that under consideration I think its a.
Good.
Good asked and I think on on at least an annual basis, we can provide.
A bit more insight into the into a global 10000, so I'll leave that with us and we'll think about.
Okay, Great and then with respect to the last question I guess from the previous analyst can you maybe give us a sense within that acquisition environment is like today.
By the valuations are there.
From that standpoint.
Yes.
All right.
Sort of re emphasize some comments I made last month and in New York, where it felt.
As if valuations had peak and we're on the.
Just starting to the back side just just.
The curve as Ben were just over the back side of the per.
Of valuations and it still feels that way are.
Top of the funnel pipeline is.
Very active.
Or or engage on a volume base Hassan on more deals.
And.
Feels like one the other side of.
Peak of some valuations they'll counter to that right I mean money still remains pretty inexpensive.
I think negative interest rates.
Push people, the putting money to work and not putting it into banks, if you will but our data the open text data we've tracked pretty pretty.
Very disciplined.
Shows activity activity up in stages progressing.
Okay, and just one clarification I think in your prepared comments, you said that Q on Q2 as mid single digit to increase in revenue and I think you referred to it on a quarterly basis sequential.
I think in your presentation at sort of imply this year to year can you clarify that.
Yes.
Comments, our sequential is that right right team yeah, Theres sequential okay, you want to thank.
Thank you.
Our next question comes from Daniel Jester of Citi Research.
Thanks for taking my question just sticking with the M&A team.
Upsizing under the revolver should be read into anything of that in terms of your desire or willingness to maybe do a little bit of a larger transaction then you have historically.
Hi, Daniel Marcia Thanks for the question I wouldn't read.
Anything in into it and the timing is just good for us as we kick off the year.
Our shelf need it renewing so we made a commensurate.
With the shelf.
And we are in the market looking at all.
All sizes smaller I'd like to say small medium and large.
The larger transactions are usually a bit more strategic and if there are opportunities in the market of that of that size, but I wouldn't read into the into the revolver of up kind of changing our playbook or our store.
Historical a deal size, we continue to run a value play ball.
We think ROIC is the most important metric then Dave it's two things has got to be the right company at the right price.
That yields the right return as measured by our return on invested capital.
Thank you and then just to follow up on some of the comments on margins.
The integration of the Dod and catalysts do you called that out as something that might be a bit of a headwind on margins sequentially.
We're 10 or 11 months past acquisitions. So is this the last quarter, where we're going to see maybe a little bit of incremental costs, there and maybe just help us frame, how we should be thinking about that over the next couple of quarters. Thanks.
Thanks, Daniel Insightful question.
This is the last quarter for us to integrate liaison in catalyst and they'll both of these businesses are.
Cloud businesses.
And they come with infrastructure, they come with servers and storage are they come with a large networking environment redundancy disaster recovery.
Systems.
Migrating banderas problem one.
Third party vendors from one cost structure to our cost structure. So this is the last quarter of all that work. So we will be complete complete what catalyst and liaison.
By the end.
Semper. So this is the last quarter, where we're going to have that work in that that expense.
And we'll see a low a little looks that expense in the quarter and thus are our quarterly factors all will be complete our well on track.
An acquirer.
We set out to get too.
Synergies in 12 months. Many other acquires it takes some 24 to 36 months to get to that point of synergies.
We get their rapidly within 12 months, so we'll be done with liaison and catalysts integration by the end of December and then well beyond the new cost structure.
Starting in the starting in January .
Great. Thank you very much.
Thanks, Thank you.
Our next question comes from San almost tripling of BMO capital markets.
Hi, Good afternoon, My do would you happen to have the sequential impact that FX had on revenue for the quarter.
This takes a sequential impact yes, I do recall dot approximately 10 million in Q1, sorry that was.
The year over year impact was was that the impact I'm talking about Q4, FX rates relative to Q when FX rates I listed it is it is that you'll be at impact and.
The sequential impact I think because abound, so that on 6 million 6 million okay.
And then secondly.
If I look at your cloud revenue I think you may have dipped a little bit sequentially on an FX adjusted basis, if I'm doing the math correctly and any color on that is there. Some Q1 seasonality with respect to be messaging transaction ones for example.
Yes, I'll take that.
Reported currency cloud up 14% in constant currency up 15%.
Yes look at recurring revenues in total.
And recurring revenues, a our year over year up 6%.
So.
You put a little FX in there you put a little mix in there as well.
It just created that variance sequentially, if you will.
So Bob we're on target for our growth targets.
Target market our growth objectives for cloud this year, but I would just point to mix in FX.
In the sequential nature of the cloud I wouldn't point to seasonality.
Okay, and then finally, you started implementing a significant maintenance price increase several months ago can you provide any color as to what proportion of the customer base might be on the new maintenance pricing at this point.
Yes, I won't get into what percent, but all new business is on that new new rate now going forward.
So we're on the other side up on new business.
And we're now.
In kind of hitting the yet to get kind of get through one renewal cycle.
Yeah. This is roughly one.
On the Mason aside about one year contracts. So all new renewal contracts also has that price being built into it and customers negotiate and we defend our position and we defend the position because we've added new service, we are getting 24 by seven.
You are getting all our digital access for that increased price.
A reaction has been.
Very favorable actually that size not just the price increase we're finding new capabilities and services for that for both.
Additional charges.
So we're not really good position to see the benefit of that and becoming a coming quarters.
Great and tenant or.
Just chime in and I stand corrected so when you look at comparison to prior quarter base and not the year over year dates that we shed, which I believe with your question, yes, it negative than two and a half million two and half million okay.
Great. Thank you offline.
Thank you.
Our next question comes from Paul steep of Scotia capital.
[laughter] great evening.
Maybe you could talk little bit of but the maintenance line here, we've seen that I guess static for six or seven quarters can you talk maybe a little bit and it relates presumably to some of the discussion around cloud as to what you're doing doesn't move maintenance higher or has there been focused more actively transition or shift some of the revenues.
Towards the cloud one.
Yes. So thanks, Thank you for.
Thank you for that.
We're not interested.
And.
Uplifting maintenance.
To cloud.
So we're not interested in.
Substituting revenue we're interested in.
New revenues, so cuts customers understand that they're making a long term by a long term deployment choice. My highlight a couple of customers made a decade long choice that it is more cost effective to continue to license the technology than to subscribe to it.
In constant currency, our maintenance was up 1.8%.
1.8% in the quarter and that's reflective of our strategy of we don't provide guidance, nor do we allow customers to flip maintenance into cloud.
Rather you must buy additives, new new new revenue so.
Again, we're up one point.
1.8% in in maintenance also look at the renewal rate of low nineties.
And it was up to 92%.
So you got to confidence you got the renewal rate you're seeing maintenance grow.
That's all aligned to our strategy that if you're if you're if you're going to can only checked out Lawton technology long term.
Maintenance.
As a better way to go than a subscription and is reflected in our numbers.
Great. Thanks, one quick clarification, just on the M&A, how should we be thinking about maybe legacy deals you would have thought of versus the mix of both higher focus on maybe.
Newer SaaS based business How's the pipeline looking in terms of the shift towards more cloud base to deals. Thanks guys.
Yeah interesting question.
End of the day, we like recurring revenues right. So in that can come in to form some maintenance.
Or pure cloud those are occurring rather some PS business has looked very recurring.
To us as well.
And if you just look at the.
In kind of turn first 20, 425 years or a history. Most our acquisitions were off cloud, but if you look at starting with easy link.
Gee excess.
Hey, Nx.
Covisint.
Liaison.
Catalyst.
These were all hi tail.
As we are all cloud based companies.
We're building the capability.
To be a cloud consolidator just as we have been historically regarded as an off cloud consolidator and I think one other thing that we use this opportunity to highlight again from Easylink GE excess.
Our next Covisint liaison catalyst high tail. We are building this capability of being a cloud consolidated that is unique in the marketplace and be ought to have a cloud business as we highlight we feel will be around $1 billion run rate.
And having the infrastructure that's our own.
And the teams to be able to operate this is up phenomenal, it's really a long term differentiator for us.
Nothing changes our view of ROIC up whether it's a SaaS based asset private private cloud or recurring revenue is going to be the right company at the right price with the right returns.
Thank you.
Once again, if you have a question. Please press Star then one.
Our next question comes from Stephanie prices CBC.
Good afternoon.
Hi, Scott.
So opex is holding at 24 city cloud summit. That's all I was hoping you could talk a bit about the uptake on the cement and how clients are thinking about the move to the cloud and feedback on Opentext cloud offerings right now.
Yeah. Thanks, Thanks, Stephanie yet were.
We're doing a major.
City tore the Expo.
And.
The focus of that more calling the cloud summit.
We got to code name for it which is a destination innovation.
Migrating to the cloud is not about cost out right. It's about your next platform is about innovation agility speed.
Modernizing the platform. So a big focus of the cloud summit is targeting at that kind of that that kind of meat of our install base, they're running off cloud and migration and monitor and modernization to the Opentext cloud.
So we're looking at our install base rate base, plus new clients come join us at the cloud summit and we're going to outline.
A migration.
And modernization path 12 to either private cloud bar to our SaaS workloads things like core Federated content services, our new cloud additions OTI to services.
Our E signature now lot integration to video in collaboration with high tail modern capture in the cloud archives and the cloud record management in the cloud business network.
In.
In the cloud FTP integration in the cloud support for Google support for S&P in their recent announcement with Microsoft in the cloud sold the pilot comment is really meant to go into our install base and provide these kind of clear journey maps to go from all cloud to cloud and.
In terms of attendance.
It's just it's phenomenal the response, we're getting into the.
For continent, 24 city tore coming up over the next three to four but.
Great. Thanks, and then I wanted to talk instrument on the partner channel.
Thank you could talk a little bit about it and how you think about the growth and outside of the business as you could target that the 10-K.
Sorry can you repeat that place I'm, sorry, sorry, I was asking about the at the partner channel and how you think but the growth on that side of the business with you target the a the 10-K.
Yes.
You don't if it remains healthy and strong and we know that.
There are multiple kind of layers to this there are kind of the bat.
Value added.
Partners, who can bring us into an industry one to a set of clients and it's really where they have relationships. We don't have that kind of a volume channel a solid our channels about it's really about I'd like to emphasize the v. part capital be a value and if you've got a relationship or known industry are then.
Let me get close to you.
The company called.
Yeah on capital we have four sites. These are partners, who are more mid sized FM me, but they know they have a relationship of clients and industries.
You then have where we have OEM relationships like Mckesson cerner can in for developing IP on top of our technology and then way up on top you have the global system Implementers.
And we're focused on about a dozen of them and then lastly.
Relationships with the new Hyperscalers, who are just.
Out there trying to build us much demand as they can so we want to be real close to them up off of the demand capability and as well as.
Key capabilities, they can provide like Google cloud platform. So.
We're not go look at our partner channel for volume, but really for value in those in those areas.
Okay, great. Thanks very much.
Thank you.
Our next question comes from Paul Treiber of RBC capital markets.
Thanks, very much good afternoon, it's nice to see organic growth a positive organic growth. This quarter. Among your core products are there any ones that were particularly stronger contributors to organic growth this quarter that you'd like to call out.
Hey, Paul Thanks for joining the call and thanks for the question.
I'd point to where we have leadership in scale I would look towards content services.
And how we really modernize the platform.
Both all off cloud and cloud.
And also.
I look towards our value added network arm as businesses have bomb.
Been moving supply chains around in locations.
That core part of our value added networking OTM volumes are certainly certainly up so I look towards.
Kind of the core of our business and content services and kind of the network side of business networks.
And also could you provide.
Or elaborate additionally, on Sep and after the announcement the partnership expanded partnership we announced earlier. This year. How are you seeing pipeline in customer interest to build related to that on the cloud side and then also just in regards to license side.
Business at Sep, how that's tracking ahead of the rollout of the two pound products.
Yes, and Paul I, just want make sure I didn't I Didnt hear you wrong on your previous question.
I think you lap.
Did we have hospital organic growth in the answer is yes. So we did have positive organic growth within Q1, So I'll just make sure I heard your question right.
And make sure I answered it we had positive organic growth and the quarter.
No you heard that right I was asking all drove the positive organic growth this quarter.
I would just guarantees that there was a good to see positive growth or if you ask did we have positive goes I just wanted to reinforce we had positive organic growth within the quarter. So thank you.
In relation to question.
Say Pete.
As I I've always said it this way that products come and go relationships under.
And our relationship with S&P indoors and as they've had a leadership change at Sep, but we have relationships all throughout and in there.
New leadership, we have great relationships with the team.
As.
Selected us for their next generation content services platform.
The S&P cloud and that work is gone along great.
So.
They were made a strategic partnership our plan remains great no disruption.
Based on the leadership.
Changes in and in fact with our recent partnership so to some other hyperscalers I, we see that's great news because it's just going to continue to reinforce our install base and the pace of their migration to the plot. So we see at all as positive.
We agreed to here obviously.
Okay. Thanks, Paul I appreciate it.
This concludes the question and answer session I'll now hand, the call back over to Mr. burn check for closing remarks.
All right I'd like to thank everyone for joining the call today and look I'm going to end, where I am sort of started with Investor day, and using one word which is durable.
And we like to durable nature of our business and it's been 19 consecutive quarters of year over year growth.
In constant currency, thanks for joining the call today and.
We'll speak soon thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.