Q4 2020 Open Text Corp Earnings Call
[music].
Thank you for standing by this is the conference operator welcome to the open text Corporation fourth quarter and year end fiscal 2020 conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll 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, an operator, operator by pressing star and zero on their telephone <unk>.
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 text, Chief Executive Officer, and Chief Technology Officer, Mark Jay Bear in shape, and our executive Vice President and Chief Financial Officer, Madu Reagan Nathan we have some prepared remarks, which will be followed by a question and answers.
This call will last approximately 60 minutes with replay available shortly thereafter.
I'd like to take a moment indirect investors to the Investor Relations section of our website investors Dot Opentext Dot com, where we have posted two presentations that will supplement our prepared remarks today.
First our strategic overview titled Open text Investor presentation August 2020.
The second titled Q4, and fiscal 2020 financial results includes information and financials specific to our quarterly results, notably our updated quarterly factors on page eight.
During the month of August and September open tax management will be pleased to virtually meet with investors at the following conferences.
Oppenheimer's annual technology, Internet and Communications conference on August 11.
Be imos virtual technology summit on August 26.
Cities Global Technology Virtual conference in September Eightth.
Interbank Technology conference on September 14.
And Jefferies Virtual software conference on September 15th.
In addition, I'm pleased to announce that will eat we will be hosting an investor day on Thursday November 12. This virtual event will consist of our annual investor update.
Featuring strategic presentations from key members of our executive leadership team.
Please save the date and your calendar in contact investors at open text Dot com.
Registered for the event.
Please feel free to reach out to me for the <unk> or the IR team for additional information.
And now I will 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 open text 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 statements additional information about the material factors that could cause actual results to differ materially from conclusion forecast or projection in the forward looking information.
As well as risk factors included including in relation to the current global pandemic that May project future performance results open text are contained in open text recent forms 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.
On 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.
With that I will hand, the call over to Mark.
Thank you very.
Good afternoon, everyone and thank you for joining todays call.
I wish everyone health, well being and happy to.
The last six months.
Has made it very clear.
That digital technologies are the key to business resilient.
And our ability.
Organizations that own their digital got capacity will recover faster and emerge stronger from this ongoing crisis.
Brazilians has the ability to recover quickly durability as permanent.
The ability to or is this strategy or fourth.
And it also very clear that while the prices persist.
There will be economic volatility and uncertainty and there will be challenges and opportunities alike.
Fiscal 2020 with a seminal year for open tech.
The rallied around the principles are Brazilian durability.
Thanks and opportunity.
Got it through this difficult time.
The pandemic has validated our purpose to help cut the companys digitized and transform.
Now more than ever customers trust, and relying opentext products and expertise to help them digitize their business as they navigate through a changing global environment.
The World runs on information from the debate on true.
The global pandemic response for the modern Civil rights movement. The fact is information is more important than.
Than ever.
Nearly 30 years, we have helped companies on a global basis.
All industries built culture, something knowing with our information management software and expertise.
Our leadership position and information management management has never been stronger.
And customers of all sizes continue the trust opentext as they reset to a new equilibrium at work at home and that play.
The preemptive action, we took at the beginning of a pandemic are enabling us now to make significant investments in sales products and more automation.
Positioning us to compete better and to gain market share regardless of the economic scenarios ahead.
Let me begin.
Discussing around 20 results in accomplishment.
For fiscal 20 open text delivered record revenue.
Record annual recurring revenue record cloud revenue record gross margin dollars record operating cash flow and record free cash flow all during the most challenging economic period in our lifetime.
Total revenue of 3.1 billion up 8% year over year.
Record annual recurring revenue of 2.4 billion up 13% year over year and now 78% of total revenue 300, that's higher than fiscal 19.
Cloud revenues of 1.2 billion up 28% year over year.
The through 147, Bips margin increased to 61%.
Record customer support revenues of 1.3 billion up 2% year over year with a 25 that margin increased to 90.4%.
We also closed at the year with record enterprise customer support renewal rate of 93.8%.
We generated 1.15 billion of adjusted EBITDA dollars up 4% or 37% of total revenues.
Record operating cash flow of 955 million up 9% year over year record free cash flow of 882 million up 9% or 28.4% of revenue.
Let's now we're gonna be using free cash flow going forward.
Birth operating cash flows.
We ended the quarter with 1.69 billion in cash and then that leverage ratio approximately two tops.
Looking back from fiscal 11 through today, just looking back a little bit through today.
Our our has expanded from 54%.
78% of total revenue.
Cloud revenues have grown from zero to 1.2 billion for 37% of total revenue.
Since makes is only 13% of our business today compared to NIS, 30% in fiscal 11.
And we deliver strong gross margins overtime, regardless of the mix of business that strong gross margins in the low to mid Seventys and we expect continuous.
Improvements in the future and we've grown adjusted EBITDA from the high Twentys.
The high Thirtys from fiscal 11 through today.
Opentext business model is based on recurring revenue, which has significantly predictable.
Strong margin and strong cash flow and we've de risked away from a volatile license led model.
Exceptional accomplishment in the softer industry.
Let me transition to provide a few highlights from the quarter.
Within Q4 total revenues of 827 million up 11% year over year A.R.R. of 658 million.
Up 18% year over year, they are with 79.5% of total revenue.
<unk> revenue of 333 million up 38%.
Adjusted EBITDA of 317 million up 12% and a 38.4% margin.
Oh, CF of 284 million up 22% within the quarter and free cash flow of 263 million up 21% within the quarter.
And then constant currency. This quarter also represents a 22nd consecutive quarter of year over year growth in total revenue and they are.
We're now cloud first company with a rich installed base of customers for the second consecutive quarter cloud has become a largest revenue line.
Five gross margins were 31.3% for the year.
And 65.1% for the quarter.
And we have more room for margin improvement through scale mix and more automation.
As the cloud business continues to scale it will get more efficient.
Overall, it was a great quarter by all measures and I'm. So proud of my colleagues for their focus and commitment to our customers.
We continue to generate cash.
Grow.
And have returns in the right places.
Leveraging the increase predictability that they are brings to our business model, while we continue to take market share.
We have many notable customer wins in Q4 that included the National Institute of allergy and infectious diseases, the and I 80, or the NIH, which we announced today.
Becton Dickinson rapid radiology, you asked a defense Health agency Panasonic Michelin Mark the Williams companies.
[noise] Amway, let me highlight two today.
The National Institute of allergy and infectious diseases.
It's a leading a research thoughts immunologic <unk> and our genetic diseases, including Cobot 19.
The NIH ideas expanding its partnership would open text and selected open top works to support enterprise wide.
Business operations to advance the NIH mission.
Turning discovery into health, we're very proud of our partnership with the NIH.
Rapid radiology, one of the largest teleradiology providers in the U.S.
Are they selected open text business that work to streamline the delivery of radiology test results to electronic medical records.
The Opentext business network solution delivers the Industrys only cloud integration service survive interoperability between all electronic medical record systems, and the long term care market, ensuring seamless delivery of clinical results between providers in improving patient care.
This is particularly important the move to increase remote work as physicians and nurses are able to review lab results online and support purse and support personnel interview orders remotely.
These wins highlight how information management is relevant to an imperative.
And that digital technologies are the key business resilience and durability.
Customer purchasing decisions in the in the quarter continue to support the acceleration to digitize.
And the demand trends, we outlined in our last call.
Content services is being driven by the urgent need to digitize and migrate to the cloud.
Content services saw particular strength in healthcare and government.
Well, we also saw notable wins and other industries, the momentum and content services as a direct result.
Of the investments made in both R&D and vertical go to market since our acquisition of documented.
Ambitious network, we saw volumes begin to recover through the quarter as supply chain reconfiguration continues.
Offset by lower secure messaging volumes and some impacted industries.
And cyber resilience, we strongly we saw very strong quarter given work from anywhere is here to stay.
And digital experience the shift to supporting a customer through their entire lifecycle.
Via and an omnichannel delivery digital delivery direct to consumer and contact list experiences.
Our cloud based digital experience.
I will become even stronger with some of our upcoming quarterly product releases.
Turning to our F 20 acquisitions Carbonite delivered another strong quarter of operations.
Validating our expansion into SMBC market and enhancing the strength of our cyber resiliency offering.
Carbonite delivered 116 million of revenues in Q4, or 235 million since the date of acquisition and continues to be accretive to adjusted earnings and cash flows and is on track.
To be on our operating model by the end of fiscal 21.
In fiscal 2001, where we will release, new security enterprise offerings that leverage the capability of the Carbonite Webroot bright cloud integrate it with our existing encase offerings.
We had other notable akashi accomplishments in fiscal 2000.
We strengthened and extended partnerships with Google and Amazon as part of our open text anywhere strategy and enhanced our long our longstanding relationship with S&P <unk> cloud based content management.
We launched our next generation platform the Opentext cloud additions in April.
CE 20, dot too and recently extended our content services technology for Microsoft teams.
Four years ago, we were leasing product every 15 months.
To date, we are releasing product every 90 days each release has more features.
And 20 Dot three is on schedule for this quarter.
Our delivery speed and capability is a long term competitive advantage.
I used to get haircuts every six weeks, but now we really software every 12 weeks.
Finally, we were recognized by S.A.P. as their Pinnacle Award winner at U.S.A.P. solution extension provider of the year with our 13th consecutive year.
And by I'd see an aspire for a leadership and customer Communications management.
Let me transition to begin to look forward to the quarters in years ahead, we continue to execute on our total growth strategy.
I will retain grow and acquire that we outlined are a last investor day from New York City, Let me touch base briefly on each of these three pillars.
First to retain.
We have a rich install base of customers customer support and cloud renewals are highly are highly predictable business that continues to expand in parallel with our growth in the cloud.
We remain committed to give me customers choice and how they buy our products, where they deploy our products and giving them world class support maintenance and update right.
Customer support is an important contributor to our A.R.R. and we achieved the highest enterprise customer retention our history. This year at 93.8% and enterprise cloud renewal in the mid nineties.
As good as it is we can we continue to see opportunities to improve.
How.
Compelling new features an expanded product offerings.
Factor cloud native product releases products designed with automation for upsell and increased consumption built in.
And apply our best in class customer support capabilities for our SMBC channel.
Second pillar growth.
We intend on growing and taking share regardless of the economic environment through continued investments in sales coverage partnerships cross selling opportunities and product innovation, let me double click on each one of those first continued abroad and sales coverage and expand our salesforce in fiscal 2001.
Second continue to deepen sales coverage for the expansion of specialized sales groups, especially in the public sector security life Sciences and legal tax.
Third deepen relationships with enterprise partners, such as I'd say, P., Google Amazon and Microsoft.
So the number of partners in our SMB channel.
In addition, each of our specialty sales unit.
Has built a partnership growth strategy.
Fourth cross selling a product.
We will introduce an enterprise ready security platform in the second half of fiscal 21 that leverages. The combined capabilities of Carbonite Webroot Bright cloud and then case for also now selling select opentext products, such as Opentext core and high tail for our enhanced SMB channel.
And finally, we are delivering more products to market at a faster pace than ever before.
Opentext sheet future product releases will include more SAS offerings self service Onboarding seamless app to App and cloud to Klabin cloud to cloud integration and new industry specific capabilities.
And the third pillar is acquisitions.
We continue to be a strategic disciplined value based buyer of companies.
This is an important aspect of our total growth strategy.
The strategic acquisitions, we're better positioned to expand our product portfolio and improve our ability to innovate.
We have the proven track record of integration and we will continue to acquire businesses that deepen and strengthen our platform.
We believe return on invested capital ROIC is the best measure of success of our strategy in fiscal 20, we achieved a ROIC of 17.6%, which remains consistent with our target range in the upper teens.
We have a real both robust pipeline of acquisition opportunities that span the entire portfolio and up companies of all sizes. We do expect to close deals in fiscal 2001. These are all three pillars retained grown acquire.
Let me turn to business outlook.
First and foremost we view our business as an annual business.
And its annual performance at annual trends over the long term that create value.
90 day cycles are just too short a measure.
The economic volatility remains high and we will persist during the global pandemic.
We have some customer areas negatively impacted like auto airline to retail construction and services.
We have some areas positively affected like government.
Customer experience management security and work from anywhere technologies. However, as of today, the positives do not outweigh the negatives given the global crisis.
What's that introduction, let me detail our annual business outlook for fiscal 21.
We expect on a year over year basis.
As it relates to revenue.
Cloud revenue to grow low double digits.
Customer support revenue to be constant.
They are our to grow mid single digits.
License and professional services businesses to decline.
It's consistent with the trends in the broader softer industry impacted by the pandemic and consistent with our multiyear transition to cloud today our AR.
And for total revenue to be constant.
Perhaps we got a few points of growth to the economy recovers sooner, but constant total revenue was our base case and this volatile economy.
On innovation, let me call out.
Engineering investments to expand to 12% to 14%.
Revenues continue on our business outlook on non-GAAP on non-GAAP margin cloud margin targets, expanding 500 basis points.
63% to 65%.
Total gross margin targets, improving 100 beds.
To 74% to 76%.
And adjusted EBITDA targets, expanding 200 basis points to 37% to 38%.
Lastly, and as noted earlier, we expect to deploy capital via acquisitions in fiscal 21.
Our balance sheet and pipeline are strong.
The strength our business model and operating excellence is demonstrated in our annual historical results and strong F 21 business outlook.
For fiscal 21, Q1, we expect total revenue to increase high single digit year over year, and adjusted EBITDA dollars to increase low double digits FX is expected to be neutral in the quarter.
As for our fiscal 23 aspirations are three your aspirations.
In light of the global crisis, we're simply shifting our F 22 aspirations for adjusted EBITDA and cash flows out 12 months the fiscal 23, if the economy recovers sooner well adjust the aspirations as appropriate.
Specifically our F 23, adjusted EBITDA margin aspiration is in the range of 38% to 40% now fiscal 23 free cash flow aspirations. His point 9 billion for 1 billion remember, we're moving to free cash flow of course operating cash flow.
Outlook continues to represent upper club pile performance and adjusted EBITDA and free cash flow.
Also note that a long term growth planning remain unchanged and we expect to continue to reinvest incremental adjusted EBITDA a margin above 40%.
Back into the business supporting our long term objective of driving further organic growth, but a normalized demand environment.
Today, we declared a regular dividend quarterly dividend of 17 point 46 cents per share the same as the prior quarter.
Opentext strongly both believes in returning value to its shareholders.
And we intend on holding our dividend constant during that pandemic subject to board approval.
Today I'm also pleased to announce that our inaugural corporate citizen report will be released on our web site next week.
On August 14th.
I encourage everyone to read it.
And the age of information disruption, we see opportunity use technology for the greater good and we aspire to unlock its potential to advance the cycle goals and accelerate positive change.
This inaugural report establishes R.E.S.G. baseline.
And we intend to hold ourselves accountable to and we will report to you annually. We welcome your feedback and continuing.
And contributing to a better world.
Let me summarize my prepared remarks, the world runs on information.
And we are the leader and information management.
Against the backdrop of the most challenging economic environment in our lifetime, we delivered record results because we have the products that matter customer relationships that matter a balance sheet that gives customers confident that we will deliver on our commitments and then experienced leadership team that is ready for all scenarios.
In a new equilibrium in a new world and we intend to gain market share regardless of the economic environment.
Because we are delivering more product innovation to the market faster than in our history.
We continue to make investments and initiatives that would generate further and future organic growth.
Our cloud first company that is committed to providing our rich installed base of customers a choice of cloud off cloud.
Integration in a combination of both.
We remain committed to our proven total growth strategy and we'll deploy capital when the right opportunity presents itself.
We also remain highly disciplined and our dedicated to driving shareholder returns through growth and free cash flows transparent communications and return of capital through dividends.
On behalf of open text, we commend the brave women and men serving on the front lines of this pandemic.
To me as healthy safe and productive.
I'd like to thank our shareholders oil customers partners and 14000 plus employees all contributing to our success in fiscal 2020.
I'm, so proud of the resilience and durability that open text employees continue to demonstrate opentext truly represents the culture of humble and hungry and our resolve is only strengthened by the energy and transformative impact of our customers such as the NIH I'd The U.S. Defense Health Agency Panacea.
Sonic Merck and the Williams companies the most trusted companies truly trust Opentext.
It's my pleasure to turn the call over them or do about an often opentext chief financial officer, but do.
Yeah. Thank you bye.
And thank you all for joining us today.
That's just that's when he was a groundbreaking yet in many respects one where the open text based next month came through with solid financial results I'm humbled and try to shed and with you today.
I would speak to Q4 to fit the 20, Cisco 21 topic, Marty and I was on capacity.
Q4, Investor presentation posted on the IR website will also be that but to my comments on that sometimes we'll be in millions of U.S.P. and compared to the prices come yet.
He stopped with revenues are nothing.
Total revenue for the quarter, but 820 to 26.
10.6% or up 12.2% on a constant currency basis. So fiscal 20, I told US revenues at 3.1 billion up 8.4% or up 9.7% in a constant currency basis. It was an unfavorable FX impact to revenue of 12 million in Q4 and 37 million.
In Kentucky 20 <unk>.
Just lapping some good total revenue, India Americans, 61%, India, 30% and 89.
And use the coatings revenues for the quarter, let's say 57.5 up 18%, 19.5% constant currency basis, the fiscal Cheney and allows us to 24 billion up 12.9% or up 14.1% on a constant currency basis.
Just a sense of total revenues at odds with 80% for the quarter and 70% for 20 Optum, 75% in fiscal 19.
Cloud revenues were particularly strong at 232.6, but keep walk up 37.5% or 38.8% in a constant currency basis.
It's got 20 cloud revenues of 1.2 billion up 27.5% or up 28.4% on a constant currency basis. The growth is primarily driven by continued success in business networks and the integration of Carbonite I've clouds annuities into the quarter the means at midnight.
I think it's a full JV that 220.9 into four up 2.1% or up 4.7% on a constant currency basis.
Let's go 20 customer support that use the 1.3 billion up 2.2% or people in 7% on a constant currency basis, a customer support to new luxury focus was 20 with 92%, reflecting the strength of our this installed base even during cold at times.
I'm proud that use the Jefferson's a license of professional services revenues of 169.1 in Q4 down 11% and 676.5 in fiscal 2000 down 5.1%.
License revenues of 105.8 in Q4 down 11.6% or down 10.2% in a constant currency basis.
Fiscal 20 license revenues at 402.9 down, 5.9%, Oh down 4.5% in a constant currency basis, primarily corporate related.
Professional services revenues of 63.3 in Q4 down, 10.1%, Oh down 7.7% on a constant currency basis for fiscal <unk> 20, P.S. seventies, but 270.6 down 4% and down 2.2% on a constant currency basis in line would be.
Thank you bye.
Turning to GAAP net income and GAAP earnings per share you have a boat impacted the carbonite acquisitions late.
Hi, Carbonite acquisition related items.
Special charges due to have these things it's tough.
GAAP net income of 20 to 24 in Q4 down 62.3% and time will lead you to 47 million of intangible amortization from Carbonite, and 74 million, especially charges relating to lobby and construction.
If it's because 20 GAAP net income was 234.2.
Down 18%.
Adjusted net income was 217.8 into poor up 12% or up 12.5 contingent upon some kind of the basis for fiscal 20. Adjusted net income was 784.5 up 5.2% or up 7.3% on a constant currency basis.
GAAP earnings per share diluted was 10 cents in Q4 down from 47 cents at 86 cents in fiscal twin down 27, when the dollar than six cents.
Non-GAAP earnings per share diluted with 80 cents in Q4 up eight cents [laughter] 72 cents and also up eight cents on a constant currency basis. Let's just go 20. It was $2.89 13 cents from 2.76 or up 18 cents per share on a constant currency.
Turning to margins that gross margin for the quarter was 68.5, sometimes up 20 basis points and we'll just go 20 for 67.7% up 10 basis points.
Adjusted gross margin for the quarter.
5.8% up 160 basis points and put the Sun 27, equaled, 25% up 40 basis point, both solid improvement on a go to the epic.
Also on an adjusted basis cloud margin was 65.1%.
Before and 61.2% purpose for 20 up some 57.8% driven by continued improvement and higher even though 80 gross margin some parts of that Japanese such a predominant pickup I.
Customer support margin was 90.1% the coupon and 90.4% for fiscal two end up from 90.1%.
Second continued strong going live apartments.
License margin was 96.8% for Q4 and was 97.2% Cisco 20 up from 96.6%.
I professional services margin was 24.1% until Q4 and was 22.7% for fiscal 2000 up from 21.8%.
Adjusted EBITDA was 217.4 this quarter up 11.8% bought up 12.1 had been a constant currency basis for fiscal 2000, adjusted EBITDA was 1.1 billion up 4.2% or up 5.7% in a constant currency basis.
Since that meeting it 36.9% margin down from 38.4% as we integrate two quarters of Carbonite and higher now excludes 20 top model range of 35% to 36%.
Well that's disclosed what do you target model, we ended fiscal 2000 at spot at the high end of my target modern thing just notably in annual recurring revenue God. This margin overall gross margin and adjusted EBITDA much.
Turning to operating cash flow it was excellent performance.
280.3 for the quarter and as active 954.5 for fiscal 2000 up 8.9% I see cash flow consists of 20 was strong at 882 million increase of 8.5% you called deal. So, let's 51 days compared to 56 days into full night.
Continued investment in opposition bitumen and innovation of Carbonite led to higher connection efficiencies lower dsos and strong cash conversion cycle. Additionally, during Q4, we deployed approximately 41 billion in tax payments, primarily at the results of the kids that that was enacted in the United States that pool core.
During the fiscal 2000 and other quoted 19th related tax relief program to Gmbh needs to photos will be paid during fiscal 21 and 22.
He has built a tight and year deals timeframe, but internally to closely monitor customer trends and the main watchful of economic backdrop as it relates to both enterprise and SMB customer base.
And looking ahead, we are introducing see cash the metrics and along domestic.
That is a balance sheet. We ended the year with approximately 1.7 billion in cash given our strong cash flow performance Ussix hundred millions of all the main strong as a preemptive measures in the current environment.
Our consolidated net leverage ratio, it's 2.4 times that improvement can be 0.25 times last quarter.
An update on Carbonite.
Q4 is the second full quarter with Carbonite yourselves up Truven track record of integration exceeded its being units changes to carbonite.
As opposed to the acquisition on December 24, 29, P. The integration activities have remained steadfast in every aspect of the business go to market products and engineering DNA and system, you see crews and other dogs I've been I delivered another strong quarter without adding to critical adamant about financial model.
As a cutting revenues <unk> margin adjusted EBITDA and working capital we remain on target to get Carbonites, what operating model ended fiscal 2021.
And now for restructuring plan.
During the quarter will be implemented cold it depends restructuring activities to streamline operations and did you just see that I'm. The was as previously announced it got fiscal Q2 earnings calls, we incurred approximately 54 million, especially charges relating to these activities during the quarter.
As a reminder.
We anticipate annualized expense savings of approximately 65 million to 75 million once completed the substantial digitization of the savings just started just a 21 incorporated in our topic Martha subsequent month.
Well, let me factors. So let me summarize the quarterly factor we anticipate upcoming Q1 also provided in our quality Deco. The IR website on a year over year basis, We expect Q1 fiscal two anyone FX impact to be concerts revenue.
Revenues to increase height, the visit and adjusted EBITDA dollars to increase and then those happen.
That's starting to discuss what different topic model.
We published a modest today, which I live in mind, you didn't feel good enough quality deck, an IR website.
First answer the first time they are expected in the range of 80% to 82% of total revenue up from upstream Cisco's 20 years old of 78.2% of Sevens.
Oh, so for the first time type services and subscription revenues increased to a range of 41% to 42% up from 37.2% a customer support this amazing to 38% to 22%.
I'll start revenues license to decrease to where they just 10% to 30% and professional services to decrease who they just 6% to 9% expanding gross margins by 100 basis points to a range of 74% to 76% and adjusted EBITDA margin change also expanded to 37, 30%.
So that they provide more context of expansion of margins throughout our history as the mix of license in Saudi shifted they have continually extended the gross margins.
72.2% in fiscal 16 to 74.5 different pieces come 20, we expect this trend to continue as a cloud SaaS company. This installed base of customers that high renewal rates and high and expanding annual into cutting back.
Our cloud revenue should grow in the low double digits getting to for 21 that gross margin target model changes between 50, and 65% aided by Carbonite No 80, plus margin along with continued improvement to scale Nixon automation with respect to customer support revenues remain constant did in fiscal 21.
Hi expanded product offering compelling features including big design automation Upsells will enable us to maintain and even slightly below the gross margins for customer support.
Expanded gross margin Jane just 74 to seven six depend will enable us to fully integrate carbonite expanded R&D investment within 12% to 14% of revenue.
And did the with an adjusted EBITDA of a 37 study.
And and that's a long term activation as outlined in wants to my earlier comments billing and coding that when you went expanding margin has been a highly successful much I get Jody. It open text, we expect that tend to come to you at reflected in a long term activation.
Looking into system 20 feet targeting adjusted EBITDA activation to 38% to 40% undermining your plan to the invest any margin gains above 40% into additional growth initiatives.
Our long term aspirations going into that yeah for fiscal 2003, or FCS target is 900 million to 1 billion and Oh see it targets as 1 billion to 1.1, but.
What attacks uptick diet is massive excuse me at the pace and I dissolved remains strong as we continue to vigorously defend deposition.
Finally, turning to our dividend program today, we announced a quarterly dividend to 17.46 cents per share payable on September 25 2020.
Organic growth in an annual and go to legal basis.
Just putting Debbie art, it's amazing the continued to be a key indicator of our organic growth in constant currency.
Ah organically that 0.5% getting for the country.
Total organic revenue was down 1.2% in constant currency doing the 20 impacted primarily by license volatility due to the pandemic and global macro environment, noting that people are tracking towards positive organic growth in fiscal frenzy prior to defend them.
I tend to though our return on invested capital it was 17.6% compared to 18.7% last year, which remains within our target range to be in the upper teens.
But in summary, we humbly and proudly take a solid discussed when he was also attract fun to strong you navigate the macro environment challenges for 21 and they don't.
We believe that both position to take market share regardless of economic environment, and finally, especially thank you the entire open pits community for the incredible efforts and to our shareholders construction competency pay P value and wishing each if you all 50, it could happen I would now like to turn the call. So we'll take questions operator.
Thank you you will now begin the question answer session.
Anyone who wishes to ask a question May Press Star then one on their touchtone telephone to join the question Q you will hear Tony acknowledging your request.
If you are using a speakerphone. Please ensure you lift the handset before pressing any keys, if you wish to remove yourself from the question Q you May press star and to anyone who has a question My press star and one at this time.
Our first question comes from Lima, Raimo Lenschow of Barclays. Please go ahead.
Hey, this is Frank on for Raimo, Congrats on another really strong quarter, Oh, just one for me and the customer conversations. So last quarter, you mentioned that depend demick made things very binary where if you had it need you plus somebody bought a very quickly.
Could you give us a little bit more color into how those customer conversations kind of progress throughout the quarter.
Yes. Thank a marker. Thanks for thanks for the question Yeah, just like I kicked off my introductory remarks on the script.
No. The last six months of just made a very clear that.
Technologies or are the key that business resilience and and durability.
So you know we've seen.
A very solid conversations around.
Or kind of core digitalization.
You know the ability to support a walk from anywhere environment.
So data management collaboration workflows.
Electronic signatures.
That's a that's an area that we think will that we'll continue to accelerate for us.
Second is in the world of contact list.
And direct to consumer.
We've seen a a real strong interest in our digital experience platform, which has an which was another place of Ah of strength for us. So the conversations on digital continue to accelerate.
They are right in the core of our wheel house of content services.
Plus our technologies of work from anywhere.
And customer customer experiences and our customer experience platform fording direct to consumer and ER and contact list.
Activities.
Great. Thank you guys.
Our next question comes from Stephanie price of CPC World markets. Please go ahead.
Good evening.
Hi, Jeff.
She could dig into the Cisco 21 revenue expectations, a little bit more and I guess I'm I'm talking about the puts and takes a lunch an expectation of constant revenue gross maybe specifically money off club business and the cloud ex Carbonite.
I'm sure thing stuff. Thanks, Thanks for the plan.
Thanks for the question.
As we look into fiscal 21.
We are you know, we expect cloud revenue to grow low double digits.
Customer support revenue to remain constant in the year.
And you know that that's sort of models out annual recurring revenue to grow in the mid single digits.
And you know we're communicating today that we expect license of professional services to decline sort of consistent with the the broader trends in the softer industry.
Impacted by.
The pandemic and the deferral by some companies have a transactions here in the short term airlines.
Auto hospitality retail those industries are down for us.
But you know we're also seeing industries up like government health care manufacturing.
Work from home, but the I'm the yeah, the up areas don't off that all the down area. At this point. So we think it's prudent to kind of look at a license in professional services to decline.
And that brings us to that brings us a total revenue.
Which oh, we're expecting to be constant.
A year over year, but you know if we get some help from the economy, we're hoping to get a few points of growth, but that's a that's more dependent on the economy than us I'll I'll also note, we're not losing to competitors.
All right in fact, we see competitive strength. This is more driven by the demand environment, then by a competitive environment within cloud.
You know, we see Carbonite unplanned.
Our man, it's our managed services remains strong, but the transactional volumes as we talked about last call did decline. We're all follows.
And we're increasing again.
But the new volumes don't completely offset the affected volumes. If you will we haven't lost customers and we're not losing to competitors.
But again, we did see you know as we talked the last time.
Volumes were down we're off those lows now.
Okay. Great. Thanks, that's good color and then in terms of Carbonite sounds like it's still doing well can you talk a little bit that the demand you're seeing especially in the SMB market there.
Yeah we've.
Oh, the business has been incredibly resilient and our first a six seven months a a of owning it no. We you know whiny back to December when we closed the.
The transaction our thesis was that it's not just the cloud alone its cloud plus the edge.
And no edge or.
No cloud no cloud no edge and here, we are all on the edge so to speak [laughter] working from everywhere. So the to go hand in hand, and we really like the that the technologies of data protection threat intelligence threat protection and having those technologies.
Available from walk from from anywhere.
So we're pleased to our progress we're on target to complete the the integration.
Or here in fiscal <unk> 21, or the business has been on our internal plan. The SMB channel has been very resilient.
And we've actually is one of the areas of where demand is up its actually or walk from home technology walk from anywhere technology.
The Harry plays a lot progress.
Thanks, so much that color I'll pass the line.
Our next question comes from Dinos Smells Truffles of BMO capital markets. Please go ahead.
Hi, good afternoon, Mark just extending them carbonite clearly much stronger than you'd expected. So we've got more be outs, a churn holding in better than you expected or new customer activity being stronger than expected or combination of those.
Yeah, it's a it's a.
Basket of activities the.
Overall, the business has been amazing <unk> resilient here during the Pandemics. He just take it in its pieces the OEM part of the business applied cloud.
Been very resilient well in fact, we've added.
Up here in the first six months a few dozen new embedded partners.
The SMB channel.
Our channels, probably a little more resistant than others. Since we have larger RMS that help consolidate smbs for us.
Renewal rates for and consumers.
<unk> have been very strong given work a walk from anywhere.
And our new kind of direct marketing activities has has shown some early signs of promise.
Actually found all says we come into fiscal 21, one of our big effort is cross selling and having our enterprise teams now green carbonite or to the to the enterprise.
Also on plan on all our integrations systems.
People et cetera. So it's a combination of renewals combination of some new demand of walk from anywhere and some early signs of cross selling into the enterprise.
And you mentioned a launching a core in high tail through the channel no timing a badge and how may depend to make a effect feed the uptick you might see that regard.
Yeah. It's like this started many new fiscal year gives you an opportunity to Oh do new things and align your organization. So a we launched in July just a few weeks ago, I'm, having or SMBC teams bring core share core signature and high tech.
Through the SMB channel. So we've only been added for a few weeks, but it. It is very relevant then applicable and in a very.
Elaborate trouble sales play from how they bring Carbonite and web route to market. So we've only been added for a few weeks and well keep you updated as we go along here in fiscal 21.
Hi, Thanks for the Hawaii.
Our next question comes from Paul steep of Scotia capital. Please go ahead.
Mark could you talk a little bit of both.
What changes if any you need to sales comp or key metrics that might be looking to drives creator.
Revenues in the school 2021, and maybe further de emphasize the license side of the business. Thanks.
Yeah, Paul Thanks for the question you don't we have we've had great stability in our sales organization both the leadership.
Or.
Sort of field structure, we call them, but selling hubs U.S. West U.S. East, Canada, Southern Europe, we call them.
Selling hubs if you will.
Well, we had great stability in kind of our named account models on the on specifically in the enterprise because we come into fiscal 21.
Leadership very stable structure very stable.
You know, we haven't changed our comp plans coming into fiscal 21 a.
In AG is incented to hit at an annual number or that can be either retired through MCV.
Oclaro, a guarantee cap cloud contract or or license.
And it's really driven by how the customer wants to consume.
Oh and I've never believed that.
Clinical back at corporate we can tell in AG and to loose, France and their customers into loose right Oh, how they should consume but we haven't made any changes we certainly go in and to advocate cloud first in what we're doing.
We have though made some changes around account prioritization, we're emphasizing a little less the affected industries like airlines and auto and spending more time on health care a government.
And manufacturing, but no changes to the comp plants coming into fiscal 21.
Great one quick follow up to that or clarification embedded in the numbers next year with to further acceleration of cloud.
Is there an implicit assumption that 20 dot three years, the security offering actually force broader migration to the base. Thank you.
We are a cloud first company.
We are Phil or it's very clear in our history of how we have transition to an a or two or annual recurring revenue.
Which we expect for fiscal <unk> 21.
To be you know between 80% to 82% of our business.
We're releasing every 90 days.
Or new product releases.
And you don't we released first into the cloud.
So customer, we're still going to support customer choice of how they consume.
We have one code line for cloud and off cloud, we released first into the cloud.
Oh, there's great benefit to being the cloud, it's our largest opportunity we will of course continue to sell licenses and support hybrid.
But it is a cloud first world and 20 Dollarsthree certainly supports those principles.
Thank you.
Our next question comes from Richard Tse of National Bank Financial. Please go ahead.
Hey, Thank you.
Mark I think you said a you guys are still going to be acted on acquisitions. Here. My question is can you maintained the same level of cadence in terms of enough.
In terms of magnitude it.
Can you also still pursue these larger opportunities assuming you know this backdrop continues for another.
Quarters or so.
Oh I believe we can.
No. We we have a very experienced team.
Very experienced.
Both of these had a great leader, Doug Parker of the organization.
Or we have our approach and methodology, we also know what markets intimately.
And I mean, there are ample targets within our core markets of pop type services business network digital experience platform cyber resilience and advanced technology.
I wouldn't want to enter a new market segment I'm at this point in time.
Other pandemic possess a richer we know our core markets extremely well we know those competitors.
So all we know their business models and it is Apple pipeline an opportunity for us. So it's it's steady as we go on M&A, where our balance sheets ready our team is ready other pipelines, a little stronger and we expect to deploy capital in fiscal 2001 that the pandemic isn't that Dennis lost out of course.
Our due diligence is going to include.
Help how cold it 19 is as affected a potential target and our customers.
[laughter] excuse me so that's an important feltl.
But it doesn't slow down or our AR has an effect to kind of the target set for us.
Okay. That's her thanks.
I don't know is this your question sort of looking at your Investor deck midyear had when you had the yesterday down your answers to the growth drivers was a one expanding into the GE 10000 customer base and too.
Expanding adoption within his sox anywhere else in customers.
Oh sure again, the backdrop, but can you give us maybe a sense of whether you answer and push that are those injections out to your next thing yesterday and looking at 2021 or did you make good progress on that ER and 2020.
[noise], Yeah, I don't recall [laughter] excuse me, let me just got it.
Hello drink of water that I don't recall the specific metrics might do maybe you have them that we had in the.
New York Investor deck, but I can say.
Of course, two of our greatest <unk> enterprise sales opportunities is expanding the jet expanding the GE 10-K, and we did expand coverage.
One of things, we Didnt fiscal plenty is we put a new global account management team in place.
And I'm I'm I'm real pleased and excited about that dedicated team.
I'm looking at global accounts, and we expanded the coverage I'll, let me do kind of see if the if there was a specific number there and Richard cigarette cross selling it to install base is a great opportunity is cloud.
And continue to drive managed services, which is private cloud.
Cross selling opportunities are like customer experience management work from home technologies Carbonite.
And other offerings and upgrading into 20 that 220 dot three so GE 10-K installed base remains front and center for us for growth.
Yeah, Okay well. Thank you hard you can just should I was just at a if you look at our investor deck on page 25, we continue to D. today that has to go out in terms of doubling the company just little bit 10-K bankruptcy as they were like Mark said absolutely tons incentive.
Okay. Thank you.
Good thing and then Richard It's also an important point if I can just add to it you know in a time of like like this.
Its important to leverage existing relationships and that's why the installed base is so important work trusted provider.
We got a proven track record.
And being able to go into our installed base elaborate stacked history.
A track record of delivering benefits and and balance sheet strength to sell the next module. The next platform is a it's a long term strength for us and one that will help us gainshare.
Over smaller less stable competitors.
Our next question comes from Paul Treiber of RBC capital markets. Please go ahead.
Thanks, very much and good afternoon.
In regard to Bobby outlook for fiscal 21.
In regards to the Pandemics do you see that the headwinds are the delays from a pandemic weighing.
Both equally on license and cloud for new bookings or are you seeing in cloud demand is more resilient or even increasing.
Whereas the majority the headwinds are on licenses.
Thanks for the question.
I'd say the following.
Renewals have been amazingly resilient for us as you can see in the numbers.
You know renewals or not just support.
Or it's it's the ability to get value from the software its ability to speak to experts its product updates.
Its security.
Patches.
And update services and as you can see in the numbers that's been amazingly strong for us year over year growth, great margins Hot pipe high renewal rates.
There there is certainly in a time of crisis, it's accelerated.
Customer interest in time to value.
So I would put the emphasis on time to value.
If we can show time to value in a managed service that could include a license a time to value in our cloud, there's really a premium on time to value.
As you and that's you know through time, we've been on an A.R.R. and cloud transition.
Where back in fiscal 11, Oclock or you know cloud was.
Excuse me license was near 30% of our business in today's 13% of our of our mix.
So I think they know the Pat or the pandemic is revealing.
The need for time to value and we still can provide that regardless of the way a customer consumes.
But it but it also does put a a bit of an emphasis on cloud because typically you can get time to value in our managed service.
On one of our SAS offerings.
And then following up on that you know cloud additions just launched how's the pipeline building versus your expectations.
And you know how.
He was in terms of bookings or MCV for cloud products. This past quarter, you know new without providing specific number but just you know how how was that that the new deal closed environment for cloud this past quarter.
As you.
Are you know what were 20 back to and now 20, Dollarsthree Oh almost here yeah. The reaction 20 dot to has been written really very very favorable.
No we but we are on these EAP releases and getting features out.
And use it and you see it and are in the renewal rates just how strong they are.
You also see it and I think a strong cloud number from from from fiscal fiscal 20.
So.
Customers have have really liked our ability to release quickly.
ER, we're getting better at <unk> at having customer be able to consume it very quickly.
And you know we've solved for releasing every 90 days we've.
We've solved for having it run anywhere with through containers were now sobbing for the ease of consumption and the and the automatic way to turn on on on mute on new modules.
So first take is very very positive.
And as I highlighted script I think this is a long term differentiator for us, but do you think it has a series of things.
Getting the time down it's getting the features up it's getting it to run anywhere or it's it's now turning into the ability to consume it much more quickly.
And automatically turn on new capabilities.
Okay.
Thanks for taking my questions.
This concludes the question and answer session.
I'll hand, the call back over to Mr. Baron check for closing remarks.
All right well look I'd like to thank everyone for joining todays today's call.
And again, I wish everyone, a whole health, well being and happiness and look forward to continuing to to engage during the coming days and weeks and see you digitally and our upcoming conferences they can be joining todays call.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Uh-huh.
HM Mhm.
Mhm mhm.