Q3 2021 Open Text Corp Earnings Call
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I would like to turn the conference over to Harry Blount Senior Vice President of Investor Relations. Please go ahead Sir.
On June for.
Bank of America Merrill Lynch Global Technology Conference on June 8th.
The bird global consumer Technology and services conference on June 9th.
And nasdaq's virtual investor confidence on June 15th.
We look forward to virtual meeting with investors and the coming days and weeks.
I will now proceed with the reading of our Safe Harbor statements. 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 and the forward looking statements made today.
Certain material factors and assumptions for applied and drawing and he's such statements.
Additional information about the material factors that could cause actual results to differ materially from a conclusion forecast or projection and the forward looking information as well as risk factors, including.
And in relation to the current global pandemic that May project.
Future performance results of open text are contained and open text recent 10-Q, and 10-K as well as and our press release that was distributed earlier. This afternoon, which may be found on our website. We undertake no obligation to update these forward looking statements unless required to do so by law.
In addition, our conference call May include discussions on certain non-GAAP financial measures reconciliations of any non-GAAP financial measures to this most directly comparable GAAP beggars may be found within our public filings and other materials, which are available on our web site and with that it's my pleasure to hand, the call over to Mark.
Thank you Harry.
Good afternoon to everyone and thank you for joining today's call.
What a difference a year makes.
Today, we are announcing the strongest 12 month period and the history of the company.
The global economic outlook cash significantly improved.
GDP projections are strong.
And we are and a new product cycle with open text cloud additions and we just passed 1 billion COVID-19 vaccination globally.
We have endeavored over the last year to help our customers on and deploy digital capabilities.
We have purposely leveraged for last year to accelerate innovation.
Increase our spending and innovation transition to modern work get more efficient and dramatically strengthen or go to market.
On our last earnings call on February we spoke about green shoots and on our Investor Day and March we laid out our growth roadmap for physical 21, physical 22, and our fiscal 20 for aspirations.
And you can see are strong progress from within and Q3.
With our organic growth of three 6% and cloud services organic growth on for five per cent.
Volatility is still present of course, but we are on the offense and and and investing and our growth trajectory. Our business is back to pre COVID-19 level, except for some portions of automotive and our confidence as high as we look to complete physical 21, with a return for organic growth and upward trajectory and to fiscal too.
22.
What a difference a year makes and let me on packed us a little more and.
And deeply optimistic the number of vaccines is growing daily and vaccine Rollouts provide reason for optimism and many regions for the world does remain and the pandemic and where you are located will impact how you are experiencing it right now.
And our major markets vaccines are generally becoming more available improvements and re openings are accelerating.
And the international Monetary fund is calling for 6% growth globally, and 2021 and another strong growth here and 2022 and the market too much open text participates could grow even more strongly than this.
And finally, we are watching the U S infrastructure Bill proposals with great interest as open text should benefit from increased investments and many of these sectors transportation telecom water utilities supply chain and hospitals.
While the arrows are pointing upward we recognize that economic recovery may be uneven and will vary by country to the ongoing pandemic and other events like the global chip shortage, but let me leave you with no doubt at the positives now significantly outweigh the negatives are marching are amazing found.
<unk> and future is based on a large and growing addressable market with and information management and where we are the market leader.
80 per cent plus recurring revenue.
We have and enterprise installed base of $75 and customers and expanding S. M B and C channel through Rmm's Msp's and bars.
A comprehensive go to market that includes direct partners channel and digital to service customers of all sizes supported by our new digital zone.
We have increased investments and sales by the end of calendar 2023, where are for.
And coverage of the global 10000.
Increased investment and R&D over the next five years swollen back 2 billion plus and innovation.
A 90 day product release cycle that continues to rapidly, bringing new capabilities to market.
Our new grow with open text program that defines Claire value path for our customers and growth path for open text.
Reduced friction and pre sales sales pulse sales and back office operations via our digital zone and.
A disciplined M&A strategy for this foundation and future is based on again, and approximately $1.5 billion and cash and growing and.
And the economy that is projected and have strong GDP growth and the market's that matter to open text.
And let me spend some time on Q3.
We had another exceptional quarter highlighted per revenue growth margin expansion and strong renewal rates.
Many of our quarterly metrics are at historic highs and I'll be walk through the results on a year over year basis as reported unless otherwise stated.
Total revenue of $833 million up 2%, the highest Q3 and history with our organic growth of three six per cent and cloud services organic growth of for five per cent total.
Cloud revenue of $356 million or five per cent, the highest cloud revenue quarter and our history as cloud remains our largest revenue contributor the.
The strength and cloud was led by our enterprise content and services business and continued increase and business network volumes Cussed.
Customer support revenues of 306 336 million up for percent the highest customer support revenue of any quarter and our history.
A R R of $692 million up 4% and that 83% of total revenue the highest quarter on our history on a dollar basis, adjusted EBITDA of $297 million up 15% year over year.
And and $35, 7% on a margin basis.
Operating cash flow for 63, 6 million and free cash flows for $53 million, which includes CRF payment of 290 million within the quarter.
We have over 2.2 billion and cash and committed liquidity at our immediate disposal.
I also want to highlight Q3 wins.
We have a new battle rhythm created during the pandemic, our process and our speed enable us to bring new innovations and capabilities to customers. Every 90 days. This is clear differentiation first of all competitors and as a driver of many of our key customer when let me highlight a few.
The Royal Bank of Canada, The second largest bank and Canada selected the open text business network for commercial lending and a public cloud environment, Maersk largest containership and company and the world's selected open text out of price content management, but the integrations to S. A P and Microsoft 360 for better Global Records and invoice manager.
And Ah Hyperscale, our environment, but no further and then Suez canal for the importance of real time information.
United Nations Refugee agency, the U N H C R and deploying our extended ECM product and and open text cloud me and it services environment, enabling connection as well for Microsoft applications Archer Daniels Midland one of the world largest food processing and commodities tradings companies selected on.
Our new cloud API services.
The connected open text content system towards Salesforce Dot com deployment.
Del renewed and expanded their commitment to the open text business network to help manage their growing supply chain.
Johnson and Johnson upgraded their content and sweet platform and are migrating into and open text cloud managed services environment Juniper based and Germany, one of Europe's largest power producers selected our Corp archive cloud API services to connect to their S. P applications Perigo, a major Ireland based on <unk>.
Fax for a private label over the counter pharmaceuticals selected the open text cap cloud content and a win over Aviva.
And Deutsche a pension selected open text enterprise cloud for Personalised statement and communications to their stakeholders.
Or 90 day innovation Battle rhythm as clearly, helping us win and win and key accounts let.
Let me turn my remarks to our unique retain grow and acquire total growth strategy.
On retain we delivered another exceptional quarter with customer support renewal rates at 94% and our pod renewal rates, excluding carbonite at 93%.
I want to highlight the important enhancements, we have been making to drive growth and increased customer value and this portion of our revenue.
It is no longer just a maintenance business and it's turning into a customer value service.
Our customer support customers can now receive warranty services product updates enhancements upgrades new versions enhanced 24 by seven support full access to a digital knowledge base security update compliance updates privacy updates and other.
Enhancement.
Sweet of offerings, and the 90 day release cycle increases the overall value of our product and service offerings. We believe this offering will drive higher customer satisfaction and continued growth and our customer support business.
On to grow.
We announced grow with open text and investigate day.
Oh with open text as a set of programs that brings together and everything our customers need to transform their business to accelerate their growth engaged with their communities and stay ahead of the competition.
Our cloud additions is built on a single technology platform that enables customer choice through for different deployment options off cloud private cloud public cloud and our cloud API services.
Here are the strategic programs for grow with open tech.
For off cloud customers, we are offering enhanced longterm extended support programs and.
And now on premise managed services to brand new revenue opportunities for open text.
For our customers that want to deploy cloud addition, and open text private secure cloud are managed service offering is ideal we added 75, new private cloud customers in the quarter.
We are already 100 per cent available on the public cloud with a security and business network cloud content cloud will be available and cloud additional $21 for and our experienced cloud and see and and cloud edition 20, too dark to some notable areas of strength and the quarter included Corp capture for capture for US a P and.
Archived for extended ECM.
We have added a new go to market information management as a service via our cloud API services. There are over 25 services available for the day it developer that open text cloud developed.
Developer that open text Dot com. This is an important part of our future growth.
At the forefront of our grow with open text program is our cloud based engagement platform. The open text digital's on available today, the digital zone. It allows us to connect with customers and prospects for events seminars pre sales design proof of concept support and renewals. We do this digitally today the open text it.
Arizona ultimately automate the vast majority of our customer engagement and allow us to help scale revenues non linear two expense.
And lastly, and our grow with open tech setup programs as our Voyager learning services program that brings more professional since the open text ecosystem, which skills training and certification.
With the release of open text cloud edition of 21 Dot two we have never been better position to capitalize on some of the most.
On some of the most power.
Powerful post pandemic trends and there's been a moment and just highlight our our five clouds.
Content cloud.
The amount of work force wants control of their time and space. The workforce is forever changed.
And more centric.
Seamless personalized and exceptional service and they are less forgiving of sub par interactions I've always called this the internet of me.
Digital technologies enable businesses to engage with their customers every touch point to Wow, our customers. The open text experience cloud is an exciting part of our future growth and fully complements our thinking on.
On information management security and protection cloud during the pandemic, the number of off cloud and points and remote worker skyrocketed and cyber attacks increased by five times.
And the open text security and protection Cloud provides the foundation for best in class Cyber security data protection digital forensics and endpoint security solutions for businesses of all sizes we.
We are committed to expanding our security business over the long term and providing the necessary protections for the for the edge for the core and for the cloud for secure information management.
And I'll add cloud the open text developer cloud modern developer needs to deliver fast reliably and at scale.
A critical to select the right partners early in their innovation cycle.
Open text developer cloud provides information management as a service, making it faster and easier to build extending customized and applications using the collection of cloud services Kpis and SD case.
The open text cloud API services, our imap is already showing big wins and is opening a new route to market for.
Open text.
Overall cloud growth remains our largest opportunity and we are still on the early days of cloud edition adoption with approximately 20% of our customer base on the new platform.
Good additions accelerates our ability to cross sell upsell and enable self service access to more of our portfolio.
On acquire we.
We are committed to our M&A playbook patient disciplined value based buyers with return based metrics and cash flows as key criteria.
We always take the long view and I encourage you to look at our annual rate of revenues, we have on boarded via M&A over the last decade.
Our liquidity cash flow and balance sheet remained strong our M&A pipeline is healthy and we will deploy capital on the right opportunity arises our continued cash flow and cash flow generation only enhances our financial position.
We are very confident and our unique total growth strategy of retain grow and acquire let me turn to our financial outlook at Investor Day, we laid out our growth strategy for fiscal 'twenty, one fiscal 'twenty, two and our aspirations for fiscal 'twenty for based on as I said above or grow with open text programs the strength of our new cloud.
Additions continuous improvements and our own execution and optimism and a global economy today based on our organic growth within Q3 and other factors. We are updating our financial outlook with an increase to our cloud revenue outlook, Let me summarize.
For fiscal 'twenty, one total revenue growth of mid single digit today, we are increasing our full fiscal 'twenty, one cloud revenue growth outlook to a range of 18% to 20%.
From the previous high teens, and we remain confident that we will deliver on.
Organic growth here in fiscal 'twenty one.
For fiscal 'twenty to total organic revenue growth of 1% to 2% for.
Organic cloud revenue growth of 3% to 4% and.
And we will comment on our fiscal 'twenty two outlook on our next earnings call, but today, we can see even more green shoots happening and fiscal 'twenty two.
Our fiscal 'twenty for long term aspirations sustained total organic revenue growth of 2% to 4%.
For our of 85% adjusted EBITDA between 38% to 40% and free cash flow of $1 1 billion to $1 2 billion and of course, any new M&A revenues or new margin dollars and new cash flows from M&A would be additive to the above outlook.
Above F 'twenty, two outlook and F. 'twenty for aspirations are organic and they do not include any benefit from future M&A at this point in time for dual comment as well here and a few moments.
On our value creation strategy is predicated on growth.
Stability and capital efficiency.
Growth profitability and capital efficiency, we have built a company that continues to deliver growth.
<unk> profitability and cash flow, regardless of the economic environment. This strategy enables us to drive shareholder return through stock price appreciation and dividends and periodic share buybacks.
With this financial outlook, we could generate 5 billion plus and free cash flows over the next five years.
And that capital will enable great flexibility within our total growth and value creation strategies today I am pleased to announce that the board of directors has approved our quarterly dividend of <unk> 20.08 per share for holders of record on June four 2021 with a payment date of June 'twenty five 2021.
Before I turn my summary, before I turn to my summary comments, let me touch on the back to workplace and corporate citizen initiatives here and open deck.
For the past 12 months have been truly extraordinary share journey.
And our employees began to work from home last March we didn't know how long this would mark or exactly how we would adapt.
We have shown that our productivity is up our innovation is accelerating and we are growing.
We have heard from employees that they value and appreciate the flexibility that working from home is providing.
The pandemic has forever changed the nature of work employees want more control of other time more control of their space and more personal advancement.
Open text remains on a voluntary work from anywhere through the end of this calendar year and this approach is clearly working for our customers and for our employees.
We have also began a phase returned to their workplace.
Of course as per governmental rules and guidelines we.
We have also dedicate it and decided that are important that a return to the workplace will include a new flex work approach that means providing our employees the option of weekly flex days and the office on.
Corporate citizenship last August we published our foundational report, which reflects our corporate beliefs and culture of doing well by doing good and utilizing technology for the good.
We continue to learn and improve and the next corporate citizenship report, which we expect to publish this August you will see the open text employee relief fund expanded to 3 million USD to continue to support our employees and the Vantiv hardship and third because of the pandemic.
The expansion of our equity diversity and inclusion programs and we are adopting the <unk> reporting framework silicone more clearly articulate and measure our amazing investments and progress.
And the past 12 months, we have experienced great disparities and fishers not just at home, but also around the world.
And is deeply impacted me and the open text leadership team and we are redoubling our efforts to do good to create sustained positive change while doing well as an organization and corporate citizenship report and <unk>.
Our initiatives are so important to us.
For the last 12 months have been the best financial performance and the history of open text and our forward momentum is even stronger and closing let me summarize we delivered another exceptional quarter led by organic growth and cloud and they are our cash cash flow and liquidity keeps getting stronger.
We have increased visibility and to the impact of the global economic recovery of our business and this is creating upward momentum and our future outlook, we will benefit from many secular trends, including modern work monitor experiences and a transformation of global supply chain.
We are a cloud first company with the best product portfolio and our history, we continue to invest and the drivers of future growth and we have a great workforce that is increasing innovation cycles during the pandemic and leading the way to modern work.
On behalf of open text I'd like to thank our shareholders loyal customers partners and 14000, plus dedicated employees across the globe for their contributions to the success I am so proud of our culture and our resilience and our employees.
That we can feed them demonstrating every single day.
What a difference and your mix and it's my pleasure to turn the call over to Madhu Rog and often open text Chief Financial Officer Madhu.
And thank you Mark and thank you all for joining US today welcome kits and delivered another strong quarter and that goes out and given that investments in organic growth on.
On a strengthening base of operations.
And we expect this momentum to continue in fiscal 'twenty two.
For Q3, Q4 quarterly factors on fiscal 'twenty, one total growth Sandy on fiscal 'twenty, one and your target model ranges are 22 outlook and that won't come on citizens on outlined and I'll keep the investor presentation that is posted on our IR website today, all references will be in millions and USD and compare.
And same period and the price is going to be on unless otherwise stated and then lets talk for Japanese total revenue for the quarter and $832 nine up two 2% or down 8% on a constant currency basis.
And was a favorable FX impact again to be a 25 million and <unk>.
And I, suppose and Devin in the quarter and Madison and 61%.
EMEA, 31% and Asia Pacific, 8% net.
Year to date total revenue when it went to <unk> for $19 6 billion up nine 2% on <unk>.
And then 1% on a constant currency basis, <unk> annual recurring revenue and 691 eight for.
For <unk> for <unk>.
Or up one seven percentage on a constant currency basis other person.
<unk> total revenue.
And then the credit revenue was ADT percentage for the quarter up from 81% for the third quarter of fiscal 'twenty.
Year to date and Youre cutting revenue were two point Peter.
And <unk>.
Liam up for.
13, 2% or up 14, 5% on a constant currency basis.
Center total revenue net to date on.
And with 82% up from 78% for the first nine months for fiscal 'twenty.
<unk> cloud revenue for $255 eight up four 8% or up two 1% on a constant currency basis, our cloud and new and data excluding carbonite was approximately 92% yet.
And year to date cloud revenue was $1 seven.
<unk> 7 billion up 29% on a pretty sharp on price.
7% on a constant currency basis.
<unk> customer support revenues of $235 nine.
For person or a point keep it on a constant currency basis.
Customer support for new and then for Q2 was 94% across the business on renewals performance remained strong.
And yet to date customer support revenues were 990 985.
And five 2% for up to 9% on a constant currency basis Q3 license revenue was 76 point Keith.
Downside for 9% on down 10, 9% on a constant currency basis.
And yet to date license revenue with 252, two and down 15, 1% or down 18% on a constant currency basis.
Professional services revenue was $64 nine down 9% for Dow.
And 13, 2% on a constant currency basis.
To date and professional services revenues and 192 eight down eight 1% on down 11, 1% on a constant currency basis.
<unk> GAAP net income was $91 five up from.
And to net income of 26 in the prior year and time and really driven by high and avenues no other operating expenses and been a debt extinguishment costs incurred in Q2 of fiscal 'twenty.
Year to date GAAP net income was 129 for compared to net income of 207, eight and the prior year, primarily driven by the tax expenses relating to the IRS settlement, partially offset by higher revenue.
<unk> non-GAAP net income was tool for five up 22% or up 16, 9% on a constant currency basis net to date non-GAAP net income was $706 nine up 24, 7% or up 25% on a constant currency basis.
Q2, GAAP earnings per share diluted was <unk>.
From earnings per share diluted of <unk>.
And yet to date GAAP earnings per share diluted was <unk> 47.
Down from 77 on.
And also driven by the tactics and the tactics and donate them to buy on a settlement.
Q2, non-GAAP earnings per share diluted for the 75 for them.
14th from 61 and.
And up 10 and on a constant currency basis net.
To date non-GAAP earnings per share diluted was $2 59 up 50% from.
$2 nine and up 41 on a constant currency basis.
Turning to margins GAAP gross margin for the quarter was 68, 6% up 220 basis points net to date GAAP gross margin was 69, 4% up 190 basis points non-GAAP gross margin for the quarter was 75, 2% up 190 basis.
0.2, deep non-GAAP gross margin was 76, 2% up 230 basis points for.
GAAP gross margin and revenue stream pizza for to acute pieces from 'twenty, one and 10-Q report.
Also on an adjusted basis for the quarter cloud margin was 65, 4% up from 62, 5% driven by continued improvement and that cloud service delivery and strong contributions from Carbonite yet to date cloud margin was 66, 4% up from 59, 7% for.
On a corner customer support margin was 99% up from 91% and detecting continued strong renewal performance year to date customer support margin was 91, 2% up from 95 per cent for the quarter and license margin was 96, 2% down from $96.
9%, primarily due to higher third party and technology costs similar trends on a year to date basis as well for.
For the quarter professional services margin was 22, 5% up from 21, 2% and reflecting the ongoing benefits from your moat and cloud based deployment yet.
And yet to date and professional services margin was 26, 7% up from 22, 2%.
Adjusted EBITDA was 297.1 this quarter up 14, 5% or up nine 9% on a constant currency basis. This represents 35, 7% margin up from 31, 8% and the same quarter last year.
And yet to date adjusted EBITDA was $1 billion up 24% for up 17% on a constant currency basis based on.
For since 41% margin up from 36, 4% during the first nine months of fiscal 'twenty.
Turning to operating and free cash flow operating cash flow was $66 million and free cash flow and $50 2 million, which include and I had a settlement payment to 219 million operating cash flow for remained strong and Q2 and DSO was 44 days for Q2 fiscal 'twenty, one compared to 51 day.
In Q2 fiscal 'twenty.
And it'll be a deduction of standard is a significant and and just flex the consistent assets and two collection efficiency and other aspect of and working capital net cash conversion cycle on.
And next milestone and fiscal 'twenty, two will be automation within the working capital sales look to maintain and well optimized levels of performance and high and efficiencies and capital spend free cash flow generation also remained strong and the quarter for.
On balance sheet perspective, we ended the quarter with approximately $1 5 billion and cash and supported by strong cash flow performance you have for 750 million Zimbabwe Undrawn and for me the interval gaming a total liquidity to two 2 billion a.
Our consolidated net leverage ratio and 157 and scientists side achievement from one six times last quarter. This is a strong place to be a balance sheet that positions us well to execute on our total growth strategy.
Now turning to quality factors total growth damaging and employment model all available in the Q3 fiscal 'twenty one investor presentation on our website. After the mine there'll be view of business and Daniel and quarters, and Ben and long term value is key that can sustain and in performance and 90 day cycle on to shop dementia.
For quality factors for the fourth quarter fiscal 'twenty, one and compared to the same period from the prior year, we expect the following.
Expect Keith for FX teams and stimulate the kitchen.
Total revenue growth up to 2%.
And in the coatings and <unk> are up low single digits, and adjusted EBITDA margin percentage down 200 to 400 basis points for.
Our full year fiscal 'twenty, one total growth strategy.
And fiscal year to date performance has been strong and our leading indicators are pointing upwards. We are pleased to increase our cloud revenue outlook for the current fiscal year to grow 18% to 20% year over year versus our previous range of high teens, all other ranges remain unchanged for us.
For fiscal 'twenty, one topic model and inducing our capital expenditure spend target change to 55% to $65 million from our prior to and just 85 to 95 and <unk>.
Lower capex changes given the broader partnerships for the Hyperscale is for many parts of our business, while we continue to invest and our cloud infrastructure.
All other aspects of fiscal 'twenty, one target models remain unchanged and we do expect to increase and investment and a variety of income initiatives such as the digital zone non linear scaling of our processes and higher self service all towards the fixed and with environment, They choose and automation I am truly excited that many of these initiatives and <unk>.
Responsibility, including CIO organization.
Our fiscal 'twenty two outlook consistent 20 for explanations I mean unchanged from our Investor day presentation in March of this year as it continue to strongly execute against that roadmap.
Fiscal 'twenty two outlook provides for 1% to 2% total organic growth and key to 4% cloud organic growth for fiscal 'twenty for the targeting 2% to 4% total organic revenue growth for 85%.
And just to EBIT margin.
And excuse me and Jeff.
The EBIT margin of 38% to 40%.
And to reinvest any margin gains above 40% into additional growth initiatives and free cash flow of $1 1 billion to $1 2 billion on M&A that means additive to our outlook and expectations.
Tax update we note the recent development and needed to the medium and medical tax plan proposed to pivot and timing and the ongoing consolidation by the OECD, we do not anticipate any changes to our fiscal 'twenty on tax rate, nor any significant changes to our fiscal 'twenty two tax rates and we will continue to monitor these developments during.
April for Canada revenue agency or CRA issued a proposal to open text and connection with its audit of our 2017 tax here.
CRA asserting.
Aggressive technical valuation arguments, which seek to reduce the fair market value of certain tax assets I want to be clear that this is not similar to the prior IRS matter. We have previously discussed. This CRA proposal has no initial cash impact, but your other could affect that tax rate and future yet that said with the support.
And of leading tax advisor and we strongly disagree with the CRA and we intend to vigorously defend our position for all details are included on our form 10-Q filed today.
So in summary day, well done to the open text team for delivering a solid Q3, and leading the way and excited about our future and the momentum that continues to build into fiscal 'twenty team I wish you all continued safety and government.
I would now like to open the call for questions operator.
Thank you for it will now begin the question and answer session anyone who wishes to ask a question maybe for star and one on the Touchstone telephone to join the question queue.
Yeah.
Total acknowledging your request.
Using a speaker phone. Please ensure you lift the handset before pressing any key if you wish to remove yourself from the question queue and repair.
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We'll pause for a moment as far as trying to Kid.
The first question comes from Stephanie price from CIBC. Please go ahead.
Hi, good evening.
And that gave US Mark Hi, just wanted to hear it from our current uptake and CE, where are you seeing the most demand and how how does the pipeline Doug on that.
Stephanie Thank you for the question as I said on the.
Prepared materials, we have about 20% of our install base now on.
On cloud editions.
And.
And Thats very positive I think ultimately.
The ideal for the landing zone for us is about.
50% on the health and installed base that will migrate to cloud for all new customers come on on the cloud editions I think the ultimate landing zone is about half of our installed base.
About 20% today, so still significant opportunity in front of us.
And we are also announcing what grow with open text program.
That for those who decide to stay on.
And on release 16.
We introduced a new extended support program.
At additional fees and we're going to take our private cloud to on premise.
So we'll be able to do managed services on premise for customers who want to maintain.
For themselves on release 16 longer which is another revenue opportunity.
So we are progressed to about 20% I think the ultimate landing zone is about half the install base.
And we introduced new programs to support those who are either going to take a little longer to get there or will just run the life of their investment on release 16.
That's good color thanks and.
And then on the supply chain transformation, you mentioned that as a growth driver for several times. Just wondering if you could talk a bit about the demand you're seeing and of its network and it isn't it and supply chain offerings.
Sure thing.
I'll start at the.
At the headline which is all our services are back to pre COVID-19 letter levels.
Sept, some portions of auto and and that's driven.
Bye.
Chip shortages and dust wherever there is a temporary pause of some production, but I'm really excited to see our levels back to pre.
Pre COVID-19 levels things driving demand.
The return right too.
GDP growth.
New activity for us and CPG retail and health care.
<unk>.
More micro payments.
Volume over our network.
And as we've stated we think the longest.
One of the strongest drivers and <unk>.
And the sustainability and we have new.
New eco friendly and sustainability features of being able to look up suppliers and guest scores and look at many layers and we're also seeing regionalization.
Canada has moved.
Certain pharmaceutical supply chain back to Canada, we're participating in the re.
Regionalization of auto supply chains, and Germany, we're seeing certain manufacturing supply chain and come back to the U S, which we're going to be participating and some of those as well. So I think it's a return to volume sort of industry stacked.
Gained more Tam.
It is regionalization and our long term sustainability features.
And that is driving the growth.
Great. Thanks, so much.
The next question comes from Raimo, <unk> and shell from Barclays. Please go ahead.
Hey, this is Frank on for Raimo I wanted to dig a bit deeper into the raised guidance for cloud license.
Specifically, where are you seeing the most strength and confidence and the cloud business, both from a product and a customer vertical perspective.
Yes. Thank you. Thank you Frank so it's.
It's sort of broad based confidence right now.
On our private cloud as I said, we added.
Proximately 75, new customers into our private cloud and these are global 10000 customers.
So there's a continued need to provide.
These specialized environment these private cloud.
And that have very unique value proposition for them and.
And that includes.
Content services.
Experience.
And some other things second our new cloud API services I'll highlight some other wins.
<unk> previously and then both network volumes.
Coming back.
Back to pre COVID-19 levels and certain industries as I noted.
CPG.
Retail.
Health care.
Pharmaceutical on total leading the way for us so putting that altogether has led us to our confidence and.
And raising our total growth strategy for fiscal 'twenty, one where we now expect to see the cloud at 18% to 20% year over year per cent growth.
Great. That's really good color and then just on the grille with open text program I was wondering if you could provide some more detail into the customer conversations and feedback there so far.
Yes, it's Ben.
Early engagement is.
And quite positive we announced it we kind of gave an early preview and March at Investor Day.
We had intended to launch it with open text World Europe and open text towards Asia.
And then.
And that sort of rolling Thunder approach into July what our sales kick off and start a new fiscal year, but we kind of accelerate it and.
Previewed it at Investor Day.
So early conversations are really positive.
The first is that engagement with off cloud customers and ensuring that they can get the.
Full value for.
For their investment and release 16, so the two new services extended support programs.
<unk> is a.
20% fee that we're going to charge.
And then we have bringing on Prem managed services to off cloud customers. So those are the two new to brand new revenue opportunities for off cloud for private cloud, we're going to keep or we believed and private cloud some companies were in and out and back and again. This is just a great opportunity.
Or is it customer gain unique value and their unique processes and don't want to move to kind of on.
A more generic public cloud, we added 75, new private cloud customers.
And from that point, you can integrate into our public cloud or go to the public cloud directly our security and business network products are 100% public.
Public cloud today.
Good additions 21 dot for our content cloud will be a 100% public cloud you'll never have to upgrade GAAP and that 'twenty, one that for which will be available by the end of this year, then experienced cloud will be 100% public cloud and cloud editions 20, too dark too. So we've got great momentum there.
And then we've got this brand new market, which is we've turned our information management and to API and will it be twilio or other companies.
Ripe and alike.
Who are just pure API companies that will be our product and platform company, plus and API service company as well and this is our developer cloud.
And that's part of the grow with open text program. So.
Frank on.
You probably hear my voice excitement around these strategic programs.
But the initial take from April and May we're just two months and have been pretty positive.
Great to hear thank you.
And the next question comes from Paul hybrid from RBC capital markets. Please go ahead.
Thanks, very much and good afternoon.
And so on the the transition or migration to see he could you speak about the unit economics, and then typically when you see a customer migrate are you seeing expanded deployment and.
Effectively no higher <unk>.
Run rate per accounts as a result.
Good to hear your voice and thanks for the question, we certainly expect over the long term.
A multiplier effect as you just noted.
And the reason for that is you'll be on more standard product.
Youll have less friction.
And you'll be able to turn on more services.
Whether it be capture esignature.
Project management supply.
Our supply chain and.
And are they do you go to some API connectivity services as well.
We haven't talked about certain percentages of what that multiplier effect is but we certainly expect.
A greater share of wallet and higher IRR for.
And on each customer.
And that come on to cloud additions because of that less friction and multiplier effect as you noted.
Thanks, that's helpful.
Shifting to M&A.
And you Havent, Meda and acquisition and in over a year or so looking back and that's probably the biggest GAAP since probably hummingbird back in 2006 now.
And I imagine you know that the market and valuations are.
Honestly run up over the last year, but how are you.
Mentioned.
You're still looking to do acquisitions.
And how you're thinking about the environment right now in terms of valuations in terms of your pipeline what are the opportunities that youre seeing out there.
Yeah fair enough.
It's a it's a good question obviously, we're quite excited about our organic growth.
And.
Let me just data at a high level.
We're going to continue to acquire.
So nothing has changed.
And that M&A allows us to bring companies into Phil Green spaces for us that that also will add to future growth.
Revenue growth and.
Future.
Cash flow, we take a long term view.
Nothing has changed and our philosophy of disciplined and value based valuations are fairly higher today.
And.
We're not going to participate and valuations, where we can get the.
On return on invested capital or cash flow returns.
So we will continue to build our capital position our cash position.
As I said in the script over.
Over the next five years I would expect to have a pretty good capital build of.
$5 million and free cash flows.
On our on our on our current run rate I also noticed that when you look at us historically.
For fiscal year, we tend to on board on average 200 million plus of revenues per fiscal year.
That will happen this fiscal year in fiscal 'twenty, one and.
And that's happened on average for the last 10 years.
And our pipeline is healthy.
We're on we're varying degrees of the diligence and I would expect.
And then we're gonna have to over $200 million of M&A revenues in fiscal 'twenty one.
And I would expect to have meaningful.
Acquired revenue in fiscal 'twenty, two as well, which are not part of any of our projections right now.
And our F 'twenty two targets.
Great. Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from panels from Kaplowitz from BMO capital markets. Please go ahead.
Hi, good afternoon.
And Mark where your share price at Citi.
Just given where your share prices and your valuation relative to peers have you thought about being more aggressive on the share buyback or is it priority and it gets powder dry for M&A.
We as you can see and our cue from today, we did not purchase any shares last quarter, we have a share.
From a repurchase program available to us.
And.
Mark.
Monitoring it.
And we'll see how the share price tomorrow.
Of course and in the coming weeks.
But.
I like that I like the capital build that were or are going under right now.
And just probably my third time, I'm going to say it but look at our free cash flows and of course within the quarter. We had a one time on IRS payment.
We're going to have a period of very strong cash flow is based on all the efficiencies we gained over the last year.
As well as our incredible improvements and cloud margin and overall margin improvements for the company I like the cash the capital build and.
And it's going to provide us a lot of flexibility and our thinking around how we return value.
Keep watching this space, especially as we increase our cash flow.
Right.
And then in terms of the CRA tax disputes just any color in terms of the timing for how this financials would it be similar to the IRS in terms of vehicle to see process materials process and.
Probably a year or two or more before it gets resolved and should we think about that.
And we do will take the CRA question.
Yes.
And thank you Mark and thanks, Tenors and mentioned, we get to see the proposal diet and the CRA and debt service tend to talk with some timing I would say to us time and less of the factor we would take the quiet time to defend ourselves because we strongly believe and up ambition and we do plan to conduct and vigorous who for a successful outcome.
And to open text.
Alright.
Thanks.
Thank you. Thank you.
Thank you I will now hand, the call back over to Mr. <unk> for closing remarks.
Very good well look thank you for.
Joining us today, we're excited about our grow with open text program.
And.
And in that spirit, we have.
Increased our outreach for the quarter and inherent and the short term and we look forward to seeing you at CIBC need on Barclays Bernstein's Bofa and NASDAQ virtual thanks for attending today and look forward to our ongoing discussions have a nice day.
Yes.
This concludes today's conference call you may disconnect your lines and thank you for participating and have a pleasant evening.
Okay.
And.
Okay.
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