Q4 2021 Open Text Corp Earnings Call
Thank you for standing by.
Conference Operator open.
And to the open text Corporation fourth quarter and fiscal 2021 earnings conference call.
A reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be and opportunity to ask questions and joined the question queue simply press star and 1 on your Touchtone phone.
Does anyone need assistance during the conference call and mixed signal and operator, the question Scott and Joe on the telephone I would like to turn the conference over to Harry Blount Senior Vice President Investor Relations. Please go ahead Sir.
Thank you operator, and good afternoon, everyone on the call today is open text, Chief Executive Officer, and Chief Technology Officer, Mark J bear and shape, and our executive Vice President and Chief Financial Officer, Madhu Rang and Nathan we have some prepared remarks, which will be followed by a question and answer session.
And.
This call will last approximately 60 minutes with a replay available shortly thereafter.
I would like to take a moment and direct investors to the Investor Relations section of our website investors Dod open text Dot com, where we have posted our consolidated investor presentations that will supplement our prepared remarks today.
The presentation includes information and financials specific to our quarterly results, notably our updated quarterly factors on page 9 as well as a strategic overview I'm pleased to announce that open text management will be participating at the following upcoming conferences the <unk>.
Oppenheimer Technology, Internet and Communications conference on August 10th the.
The BMO technology summit on August 22.
And with that I'm pleased to hand, the call over to Mark.
Thank you Harry good afternoon to everyone and thank you for joining today's call.
I'm thrilled with our progress we're on the offensive and let me walk you through it.
[noise] throughout physical 21, and I've spoken about the economy reopening.
A growing number of green shoots and our business and open text being on the offensive.
Amazing physical 21, Q4 and annual results are in other proof point of the open text of the future.
We doubled the company over the last 7 years to revenues of 3.39 billion.
And adjusted EBITDA dollars of 1.3 billion, we can double open text again over the next 5 to 7 years.
We have the vision the market the products of talent the business model and the capital generation engine to double again.
And I'm, so proud and my open text colleagues for their incredible dedication smart and hard work I.
I said, we were ready for all scenarios a few calls ago and these were not just words. It was action and that is evidenced and are announced results of today.
Total growth means growing our highest value business cloud the fastest and unlocking accelerant to continuously improve our rate of growth.
Total growth means moving beyond renewals and renewal rates and moving to growth and expansion rates and our feature and security updates services and.
It's not just a maintenance update business anymore.
And the second part of intelligent growth and profitable growth.
Look some companies grow at all costs, they consume bad business and lose money, we view that as a dangerous long term proposition because it creates unhealthy cultures and unsustainable businesses theres, good cholesterol and bad cholesterol growth at any cost or bad cholesterol and open.
Text, we seek profitable growth, we always have we always will this is the good cholesterol and we seek the lion's share of the markets profit and information management and a resilient long term business model.
This is intelligent growth and this leads me to my third point.
When you bring together, our 84 billion Tam plus our intelligent growth model, we can double open text again over the next 5 to 7 years.
I can say this with confidence we are patient and steady and forward thinkers, we do the basics really well and.
And we believe competing and winning is not about being a great sprinter, rather it's selling at Triathlons.
And you run swim and bike over great and long distances.
And we intend to put every dollar of capital we earned to work to create value through go growth, both organically and through M&A through innovation through cash flow expansion and through capital returns to shareholders. The more capital we generate the more capital we intend to put to work.
So I'm so excited about fiscal 'twenty, 2 and the years ahead.
Best days of open text are certainly in front of her.
Let me turn to the here and now and the overview of our Q4 and fiscal 'twenty 1 results.
Fiscal 'twenty, 1 was a stellar year of innovation organic growth margin expansion and cash flow improvements customer are accelerating their investment and owning their digital capabilities for modern work to digital force supply chains to cyber resilience.
We finished the year strong with an exceptional Q4 highlighted by record revenue and cash flows. These Q4 results are on a year over year basis as reported unless stated otherwise.
Record revenue of 9 of $894 million up 8% organically up 4% and constant currency.
And our our of 694 million, representing 78 per cent of total revenue up 6% organically up 2% and constant currency.
Record cloud revenue of $360 million up 8% organically up 6% and constant currency life.
License revenue of $133 million and increase of 25 per cent the strongest Q4.2018 and.
Justice EBITDA of $315 million and 35, 2% on a margin basis op.
And compete and win and the fourth industrial Revolution, and information management as a strategic requirement.
During the quarter, we purchased $2.5 million shares for a total consideration of $119 million the share repurchase reflects the confidence and visibility and our business and outlook and future capsules.
I will now move to all I will have more and our chair I'll have more to share on our future capital generation and a few minutes, let me talk about the full fiscal year 'twenty 1.
Which was rack, which was a record on the financial metrics that matter.
These annual results are on a year over year basis, as well and as reported and unless stated otherwise.
Record revenue of $3.39 billion up 8.9% with positive organic growth.
A record of $2.7 billion, representing 81% of total revenue up 13% and up to 7% organically record cloud revenue.
And 1.1 dollars 4 billion up 21, 6% and up 3.2% organically.
Record adjusted EBITDA of $1.3 billion, a margin of 38, 8% up 15% and dollars and the highest full year margin dollars and margin percent and our history.
Operating cash flows were 876 million and free cash flows were 812 million. Both measures include the impact of the $300 million IRS payment.
Let me move onto annual targets capital allocation and our foreign aspirations.
Today, we are providing our fiscal 'twenty 2 targets and our fiscal 'twenty 4 aspirations.
Which reflect our long term confidence and a steady acceleration and organic growth.
Cash flow over the next 5 years.
We have been building revenue scale and revenue to cash high efficiency conversion over the last few years.
And we will now see the fruits of that hard and smart work and this expected large scale capital generation left.
Let's step back.
And here is how I think about this.
We have worked hard and smart to gain revenue scale and high efficiency and converting revenue to free cash flow today is another important inflection point as we look forward over the next 5 years, we have the potential of generating up to 6 billion and free cash flows and there are 3 key points 1 there.
A significant present value and that 6 billion.
2 we have a stellar track record of delivering returns on invested cash and 3 we intend to put every dollar to work.
We are also announcing today and expand its shareholder return strategy our.
Our strategy has been to return approximately 20 per cent a trailing 12 month cash flow free cash flow to shareholders via dividends and we feel it's a good time to accelerate returns given the strength of our business and our new strategy of Toro and our new strategy and starts to target 33% of trailing 12 month free cash flows.
[noise] via dividends and now share buybacks.
With our new strategy, we expect to keep share count constant.
Let me also highlight when a transformative M&A opportunity presents itself, we reserve the optionality to shift our capital allocation strategy towards that opportunity today.
Today, we are announcing a 10 per cent dividend increase to 22.09 cents per share.
Let me speak to let.
Transition and speak a bit to the underpinnings of our organic growth confidence and that is our corporate program grow with open text. This is our narrative for the year ahead, and I will be returning back to this and our calls and our meetings ahead.
We are early and a new product cycle with open text cloud editions.
Our 5 cloud editions are focused on key strategic needs for large medium and small companies that.
That create and are on the information management digital journey.
Number 1 master modern work via our content cloud.
Digital business that works via our business network cloud power modern experiences via our experience cloud beside resilient via our security and protection cloud and build the API economy via our developer cloud.
We also have important secular trends that are helping the business continued remote work the need to digitize they need to be global to be and the cloud and to be secure.
This translates into key programs to drive organic growth.
They include a strong focus on our install base to help customers gain full value from their investments and it could be.
And their investments and transition to the cloud faster Kristina Langill joined US last year from sales force and Christina is leading all of our customer success teams and programs, including professional services.
We have recently bought together all our renewal teams under Paul Dougan, Paul ran a $6 billion plus renewal business at Oracle were put into are also putting more of an emphasis on our international business, China, Japan and.
Pac Latin America Africa, Middle East Jameson, and Gurley and open text veteran is now leading international sales.
We also see and opportunity to grow our largest accounts and partners faster as well as opening new opportunities with our developers and our developer cloud.
This is led by and open text veteran Ted Harrison, who also oversees all enterprise sales from North America, and Europe, our largest market practice leads our initiatives to expand our mid market presence and this is all supported by our key investments and digital and automation.
And to scale open text at less cost to create frictionless experiences between the company and our customers, which we call DNA to it at all led by Rene Mckenzie, our newly appointed CIO.
It's an exciting year ahead grow with open text, we are aligned to our largest growth opportunities. We see clear positive secular trends, we have strong programs and our leadership team is structured to drive growth.
Let me now turn to corporate citizenship.
And text has always upheld high standards of ethics integrity and business practices, it's important to do good well doing well.
And those and are positioned to effectuate positive change should and it.
Context of other business strategy.
I'd open text, we call. This corporate citizenship. This is not a program it's part of our DNA.
Corporate citizenship is at the Nexus of what we believe.
Our corporate purpose, how we run our company and the transparent standards, we set for ourselves how we do business and how we conduct business and a culture that is intentional innovative objective and that's inclusive and always advancing.
This is my corporate citizenship, where ESG is so important.
Today, we released our second annual corporate citizenship report.
And to report to provide insight into the objectives, we are setting for ourselves to be transparent on our goals and advancement and to hold a mirror to ourselves, where we are not making progress fast enough I'm pleased.
With the progress we've made but we still have many kilometers to go.
You'll see and the open text a 2021 corporate citizen and a report we've adopted this year that Youre right framework.
We've defined our top force a citizen citizenship priorities of culture, and human capital development equity diversity, and inclusion data privacy and information security and financial performance.
We're also strengthened our human rights statement supplier code of conduct and.
And tax transparency, and we expanded our data collection and processes to inform future goals and objectives.
Further today, we are announcing a partnership with Lakehead University, and northern and Central Ontario.
We intend to create a next generation internship program for indigenous students and fully fund this year up to 25 internships I look forward to the partnership offering a compelling pathway to digital jobs and learning from students as they have much to teach us.
We welcome your feedback on corporate.
Citizenship.
Let me wrap up my comments it was a stellar year.
And we grew 8.9% to $3.39 billion and revenues and delivered 3.2% organic growth and the cloud.
Record Q4, and fiscal 'twenty, 1 results have set a solid foundation for continued momentum into fiscal 'twenty, 2 and you just heard and Mark excellent commentary.
I will speak to Q4 fiscal 'twenty, 1 our quarterly factors our fiscal 'twenty 2 total growth strategy, our fiscal 'twenty 2 annual target model ranges and our long term aspirations all as outlined in our Q4 investor presentation that is posted on our IR website today, all references will be made and millions of USD and compare.
And at the same period and the prior fiscal year and let me just talk with revenues Q4 total revenues for the quarter, but $893.5 up $8, 1 per cent or up 4% and a constant currency basis.
So 'twenty 1 total revenues, but 238.6 billion up 8.9% or up 6.3% and a constant currency basis. There was a favorable FX impact to revenue of 34.1, and Q4 and 81.3 in fiscal 'twenty, 1 and the geographical split of total revenues in the year with Americas.
61%, EMEA 31 per cent and Asia Pacific, 8% Q4 annual recurring revenues of $6.94 point for our pipeline and 6% or up 2.2% on a constant currency basis.
In fiscal 'twenty, 1 annual recurring revenues were up 2.7, and 4.1 billion up $12.7 per cent or up 10, 4% and a constant currency basis other puts.
Central total revenues a R. R was 78 per cent for the quarter and 81% for fiscal 'twenty, 1 up from 78% and fiscal 'twenty.
Q4 cloud revenues of $3.62, up 8.3% or up 6% and a constant currency basis for free.
'twenty 1 cloud revenues were 1.47 billion up 21, 6 per cent or up 20% and a constant currency basis, our cloud renewal rate, excluding carbonite was approximately 92%.
Q4 customer support revenues of 334.3 up 2.9% or down 1, 8% and a constant currency basis for fiscal 'twenty..1 customer support revenues were 1.334 billion up 4.6% or up 1.7% and a constant currency basis our customer.
Support the newspapers and 94% across the business. Other nodes performance remained strong Q4 license revenues of 132.5 up $25.3 per cent or up 17, 8% and a constant currency basis and fiscal 'twenty, 1 license revenues of $384.7 down 4 point.
5 per cent or down 8.6% and a constant currency basis.
License business benefited from seasonal strength and increased customer confidence and our products and solutions to drive their digital capabilities Q4 professional services revenues of $66.6 up 5.
And 5.2% or down <unk>, 4% and a constant currency basis.
Till 'twenty, 1 and professional services revenues were $259.9 down, 5% or down 8.6% and a constant currency basis.
I would like to highlight that we achieved positive organic growth in book cloud and a R. R. During fiscal 'twenty, 1 on a reported and constant currency basis.
$1.14 up from 86, and Q4 non-GAAP earnings per share diluted was <unk> 80, and the famous Q4, 'twenty and down 2 cents and a constant currency basis for fiscal 'twenty..1 non-GAAP earnings per share diluted was $3.39 up 50 cents from $2.89.
And up 39 cents and a constant currency basis.
Turning to margins GAAP gross margin for the quarter was 69, 6% up 110 basis points for fiscal 'twenty..1 GAAP gross margin was 69, 4% up 170 basis points non-GAAP gross margin for the quarter was 75, 8% consistent with Q4 fiscal 'twenty.
Our fiscal 'twenty, 1 and non-GAAP gross margin was $76.1 per cent up 160 basis points per GAAP gross margin by revenue stream. Please refer to our fiscal 'twenty 1 form 10-K report.
Also on an adjusted basis Q4 cloud margin was 64, 8% down from 65.1 per cent for fiscal 'twenty..1 cloud margin was 66% up from 61.3 per cent driven by continued improvements and our cloud service delivery and strong contributions from Carbonite Q4 customer.
<unk> margin was 93 per cent up from 90.1 per cent for physics.
'twenty 1 customer support margin was 99% up from 94% both reflecting continued strong renewal performance Q4 license margin was 96, 7% down from 96, 8% for free.
'twenty 1 our license margin was 96, 4% down from 97, 2%, both primarily due to higher third party technology costs Q4 professional services margin was 20.4% down from political 0.1 per cent.
For fiscal 'twenty, 1 our professional services margin was 25, 1% up from $22.7 per cent.
Adjusted EBITDA was 314.8 this quarter down 0.8 per cent or down 2.5% and a constant currency basis. This represents 35, 2% margin down from $38.4 per cent to the same quarter last year, but year over year decline reflects yoga and performance payments given us.
Stronger sales performance during fiscal 'twenty, 1 as well as an $18 million special bonus accrual to reward a broad group of other employees with excellent contributions and make these employees hole for compensation deductions taken at the onset of Covid free.
Fiscal 'twenty 1 adjusted EBITDA was 1.315 billion up $14.5 per cent or up 11, 3% on a constant currency basis. This represents 38, 8% margin up from 36, 9% and fiscal 'twenty.
Turning to operating and free cash flow.
Operating cash flow and the 296, 2 for the quarter and 876.1 and for fiscal 'twenty, 1 free cash flows of $268.8 for the quarter and 812.4 for fiscal 'twenty 1.
21 includes the Iota secondhand and payment of $2.99.6.
DSO was 44 days for Q4 fiscal 'twenty, 1 and you can see fiscal 'twenty, 1 truly dropped together, a consistency and process improvements driving levels or the cash conversion cycle, particularly in billings and collections each quarter to and at 44 days compared to 51 days in Q4 fiscal 'twenty and we look.
[noise] ahead, we will be increasing our investments and automation to maintain this level of working capital efficiency and prepare for significant long term scale.
Balance sheet perspective, we ended the other was approximately $1.6 billion and cash and supported by our strong cash flow performance, we had a 750 million revolver undrawn and fully available, bringing our total cash and committed liquidity to approximately 2.4 billion of consolidated debt leverage ratio is 1.
And 4.5 times debt.
Victor.
And this model combined with the strength of balance sheet and visibility of our free cash flow gives us the confidence to announce today, what mark referred to as our capital allocation strategy, we repurchased 2.4 and 5 million shares for a total of 119 million during Q4.
Turning to quarterly factors total growth strategy and annual target model all available and the Q4 fiscal 'twenty, 1 investor presentation on our website.
A reminder, we view our business is annual and quarters will vary.
We note the uncertainties related to the pandemic, while our leading indicators continue to trend positive.
For the first quarter of fiscal 'twenty, 2 compared to the same period in the prior year. We expect the following total revenue up low single digits reported organic growth.
They are our annual recurring revenue up low single digits low single digits.
Call it organic growth ex.
Spec Q1, FX tailwind of $50 million.
For the first quarter fiscal 'twenty, 2 compared to our fourth quarter results on a sequential basis and.
<unk> EBITDA margin percentage up 250 to 300 basis points.
Our fiscal 'twenty, 2 total growth strategy.
Full year fiscal 'twenty, 2 compared to the same period and the pioneer we expect the following inclusive of FX and I.
Speak to the percentages note that all percentages episode organic growth any M&A will be additive.
Total revenue up 1% to 2% cloud revenue up 3% to 4% customer support constant to slightly up total out our annual recurring revenue up low single digits and.
License to decline mid single digits.
The services to remain constant and any M&A will be additive.
For a full year of fiscal 'twenty target model today, we published our fiscal 2022 target model, which highlights the predictability and profitability or profit actually bought them for free.
Fiscal 'twenty 2 we expect a or are in the range of 81 to 82 per cent of total revenues compared to fiscal 'twenty, 1 results of 81% cloud services and subscriptions and a range of 41 to 43 per cent customer support and a range of 39 to 41 per cent compared to 39.4 per cent for fiscal 'twenty 1.
Our license revenue to decline to a range of 9% to 11% versus 11.4% and fiscal 'twenty. What are professional services in a range of 7% to 9% growth.
And James is expected to be 75 to 77 per cent compared to 76, 1% and fiscal 'twenty 1.
Adjusted EBITDA margin of 37 to 38 per cent compared to 38, 8% and fiscal 'twenty 1.
EBITDA margin range for fiscal 'twenty, 2 and reflects many investments.
First and foremost our employees and talent pool, and our fiscal 'twenty, 2 and reflects the full restoration of compensation for employees and and accelerated performing cycle, along with met and increases to commence October for 2020..1. In addition, our investments will continue and R&D sales channel coverage.
And capacity and DNA to Dot O, which encompasses digital and automation initiatives across the company to the abuse, the constriction and drive scale there.
These investments will afford us confidence and momentum into our into our fiscal 'twenty, 4 expirations, which I will speak to now.
Most of your aspirations remain growing and our annual recurring revenue and driving an acceleration in organic growth, while expanding our margins for fiscal 'twenty 4 and we continue to expect total organic revenue growth of 2 to 4 per cent. They are our <unk> 85 per cent and adjusted EBITDA of 38 to 40.
And we're increasing our free cash flow aspiration to 1.2 billion plus versus a prior range of 1.1 to $1.2 billion and.
And long term taxes in regards to modeling our business to fiscal 'twenty, 4 and let me share a few comments and taxes.
First our adjusted effective tax rate will remain constant and fiscal 'twenty 2 at 14%.
Up slightly in fiscal 'twenty, 3 and then expect it to be in the low twenty's and fiscal 'twenty 4.
Second we don't expect and a significant change to our historic run rate of cash taxes, we do have ongoing programs to optimize taxes based on the expected long term business mix and sources of income.
So in summary, Q4 was a stellar finished where you'd have incredible performance the learnings from which will elevate our internal momentum to even greater levels as well.
We have strongly kicked off our new fiscal 2020, 2 well done to the open text and we could not achieve this without you we remain excited and committed to and I took and exploration and wishing you all continued safety and wellness I would now like to open the call for your questions operator.
Thank you.
And I will begin the question and answer session and anyone who wishes to ask a question press star and 1 on your Touchtone telephone.
And the question queue, you'll hear atone and acknowledging your request if you're using a speaker phone. Please ensure you lift the handset before pressing any key if you wish to remove yourself from the question queue, you May press star and too.
And the ones that have a question press star and 1 at this time.
The first question comes from tenants must calculus from BMO capital markets. Please go ahead.
Hi, Good afternoon, I'm, just looking at the strength and licenses are kind of surprised to see that and could you clarify was that driven by low customer support and on premise or is that more function of other people deploying on third party cloud infrastructure, and which case you might be looking into the license line.
Yes, and thank you for the.
The question and let me start at the high level, which is the direction of our business.
<unk> remains the same we have a great slide and our.
Investor deck that talks about our proven.
And as it's called a proven durable business model that shows over the last.
8.9 years.
Or recurring revenue going from 54 per cent up to 81, our license business growing from 24 to roughly 11% of our business on an annual basis. So the trend remains more cloud.
We had some strong platform wins and the quarter.
And that were Oh, you know could be as long as a decade long platform win.
And so that drove a bit more license revenue and the quarter. So again the trend is more cloud.
On an annual basis, you know, what we're hoping to keep license relatively constant in terms of its absolute quantum and theres no change in the and and and our and our strategy at all and those license as it can be deployed off cloud or in our cloud. If you will so we will certainly see some additional.
Services that follow from those licenses and redeploy them.
Okay, and then on the and redeployed.
And we applaud them on behalf of our customers right.
Yeah, Yeah, Okay on the gross margin side Youre guiding for gross margins to be relatively consistent year over year I would've thought we'd share.
Our gross margin extensions just to clarify is that really just conservatism on your part is and maybe some pandemic related costs that are going backwards and reinvestments are what's driving the economics.
Yeah. This is maybe I can take the question actually if you look at our target model going from 75% to 77% at the outset. It's the first time, we put up 77 on the outside and of the boundaries I would say that and you aren't going to see improvements and great and gross margin are both on the cloud side.
And as well as the customer support side notwithstanding to your point the investments I spoke about and the commentaries that we will be making but definitely take note of the 77% and the outdoor and the gross margin and talk about it.
Okay, and then finally, a mark in terms of the timing for I guess.
<unk> capital allocation strategy and share buybacks and if you could clarify if there's extra function of no you now have a higher recurring revenue mix and in the past maybe a stronger cash flow profile is that what's driving the timing of this or you know, we'll just leave it that thanks.
Yeah, I think it's a it's a combination of things that just brings us to the confidence and our.
Increased cash flow generation, we spent the last.
No.
5 years.
You know building up revenue scale, and a very efficient company and and you know from a dollar revenue to free cash flow that conversion rate.
Is upper quartile and the industry and we extrapolate that out 5 years.
And in a pretty straight line method from where we are.
We see the ability to generate upwards of 6 billion and free cash flow over the next 5 years based on all the hard work that's gone on over the last few years.
So with that we decided to expand our are our return strategy from 20 per cent per year to 33 per cent per year, we'll maintain the optionality that when the and 70 and and the 66 per cent because it's all the strategic flexibility, we need but if we need more than that.
And we reserve the right for that transformative deal, we like also holding our share count constant.
So we can better measure our returns.
On a on a on a on a constant share basis. So for all those reasons of improved cash flow stronger engine.
Confidence looking out of $6 billion of a cup of capital built.
A strong present value and the and those 6 billion as well.
We we increased our return strategy from 20 per cent to 33 per cent.
Great. Thanks, I'll pass the line.
Yeah. Thanks now.
And thank you.
The next question comes from Stephanie price of CIBC. Please.
Go ahead.
And second just to follow on Tuesday, and also its question just in terms of the M&A environment and you know, whether we should read and anything in terms of the increase and return of capital to shareholders and you.
M&A environment here.
Yes, Thanks Stephanie.
No I think I think we can do 2 things at the same time right we.
There there is nothing to read into the <unk> M&A.
Yeah.
Increasing our capital return strategy as I said.
And if price is really built on the foundation and confidence.
Of the.
The strength of that capital generation engine, and 6 billion over upwards of 6 billion over 5 years.
And so here here here and the short term.
<unk> gone from 20 to 33 per cent provides more value back to shareholders.
We're going to remain.
<unk>, a strategic acquirer that drives future organic growth and we will maintain all the optionality that when that M&A opportunity presents itself above the 66 per cent that we have that we will dialed at other 13 points.
Right back to a debt to.
M&A, so nothing to read into it we're not changing our strategy, we're going to continue to acquire we're looking for businesses that drive future organic growth.
But we're always going to be returning value to you our shareholders and this is another tool available to us right now.
Okay. Thanks, that's helpful. And then in terms of constant currency cloud growth it looks like it rose slightly in the Florida can you talk a bit about what you're seeing and that business and what's the big driver of the increase was whether it was new sales and our cloud migration.
Yeah. It's.
We're on the we're on the other side of the where.
And we're on the other side of the pandemic at this point.
And you know all I would note.
And that over the last 90 days.
And.
And it takes a while to there isn't necessarily a direct correlation to revenue, but over time it does translate into revenue our cloud volumes.
And are up 20 to 30, 25% to 30% over the last 90 days and that increased network traffic.
And it's really driven by what we've talked in the past about more regionalization.
And our move to more trusted suppliers. So there's a lot of activity right now going on within the business network. So now where we had those industries affected that way a year ago, we talked about industries affected where on the other side of that we've seen volumes return it will turn it will turn into revenue.
Going forward the revenue growth is.
Around key wins as we talked about volumes, returning and also off cloud customers moving into <unk>.
Into other cloud and so it's a combination of those of those thing Stephanie.
Great. Thanks, so much.
The next question comes from Paul steep from Scotia Capital. Please go ahead.
Good evening, and Mark could you talk a little bit about where you've seen and the cloud transition maybe the greatest engagement and thinking about the next product cycle, which of the 5 CE products, we'd expect to maybe be the reading of the leading drivers of growth coming into 'twenty..2 and then 2 quick follow ups.
Yeah. It sounds it sounds great, we I'm going to highlight 3 things.
And the first will be.
Cloud edition is $21, 4 which will push out [laughter].
And across our infrastructure.
October November.
And we're on target with delivering 21 dot for cloud editions.
And we will be at parity.
But all feature functions.
Of of of content services and the cloud as we were off cloud for 'twenty..1 day for the very important release I've talked about customers will never have to upgrade again once we pushed 24 to $21.4.
And out into the market.
And we're on track to do that so that's a very important milestone for us.
When we look at a business like box.
And be a complete parity for our records management archive capture work flow.
Application layer.
Regulatory platform that will be available and SaaS public cloud $21.4.
And so that's a big release second is 22 dot to which is.
April of next year still and this fiscal year, which will have the same experience for our experience cloud.
So everything we do.
For our digital experience platform.
B and a parity and the cloud public cloud SaaS as we have off cloud and a third is.
I'm getting pretty we're making good.
Progress on our developer cloud if you go to a developer.
You may not go there, but developer that open text that are a.
Well, we're not open tax dot com.
We now have our 30, a robust API available and this is a future growth driver for us.
And I think these other 3 Paul that I would pay attention to is this movement.
Within this fiscal year, we will have delivered public cloud SaaS versions at parity to our off cloud and we will have opened up a new go to market.
API services.
A couple of what companies like Twilio do and the marketplace.
Great.
Last 2 here the first 1 would be on the capital allocation strategy can you just either reiterate or sort of put in context.
Has there been any change to your level of comfort in terms of overall leverage relating to M&A I E should we read into this that given greater capital returns to people you're willing to actually maybe stretch a little bit more on the balance sheet side and then the second 1 just from a Duke can you just confirm that and.
Normal Q4 to Q1 seasonality, which obviously got interrupted for all of US last year should we be thinking that that's normal seasonality pre COVID-19 applies thanks guys.
Yeah I'll take the first 1 and then give the second 1 too Madhu.
No Paul I still I still like our up to 3 times and but as our quantum of adjusted EBITDA growth.
So does the low leverage dollars. So you know we have 2 point for on the balance sheet today.
Heading up to 3 times of 1.3.
That's another 4 billion, [laughter], and and and an increasing rate you could even add more.
So we have plenty of capital by both a cash and committed on the balance sheet plenty in the future flows both in that 5 year 6 billion free cash flow or 3 times adjusted EBITDA.
We're not we are not capital constrained to double the company again over the next 5 to 7 years not capital constrained at all.
And if we need to go above 3 ex Sherwood do it and we've had a track record to bring it down here. We are sitting at 1.4 times, but I still like the 3 times ratio.
2.
And so thank you Mark support and your question the pre Covid seasonality Q4 to Q1, I would say still domains and you'd think about August and everyone wants to take medications. If some other than they did last summer and there's still some uncertainty out there that has been factored into our Q factors.
I would also point out not quite seasonality and structures just simple at all but he's a day outlined we did had some COVID-19 related savings and coupon of last year our debt.
And it caught up once and I'll go back and employees other investments and you see that and to manage cloud because that's what it is.
And all of this I would focus on organic growth what do you share. The key factors for Q1, the range of revenue and teachers and other teachers are all organic growth and they get it.
Basis, and they're quite excited about it.
Thank you.
Okay.
The next question is Richard Tse from National Bank Financial Please go ahead.
Yes. Thank you so on the acquisitions are you guys.
Open up a bunch of product wins over the past 10 years, you know business network with G excess and then.
Security with Carbonite. So as we look forward are you planning on going deeper and in some of these product lines or is there sort of an option here and those are open up a new lean.
Hey, Richard Thanks for the thanks for the question I'm happy with the markets we're in.
So you know I look at information management and 84 billion.
8% CAGR I don't need it, but we don't need to expand the market definition of information management right now over time, and we have but we have plenty of.
Open space.
Within our our chessboards within each of these market segments. So we're we're.
We're staying very focused on our current definition of information management.
Okay, and then on the page I think.
I think it's page 8 on your deck you just share some of the wins that you've had and I'm just trying to get a.
Grasp on the competitive landscape and maybe if I look at this slide.
And is are these new projects that you're taking on or they are replacing incumbents and in terms of pushing out another player here.
Yeah, I'd say I mean, everything is competitive of course, a vmware is a new platform.
I look at EDF and this is a fantastic win for US it's a decade long decision.
And it's a great expansion of our current platform.
And and I look at Revlon and competitive with the IBM, California state hospitals competitive with Adobe.
Cerner expansion of our current platform.
It's a mixture of some open space, some competitive wins and expansion of our of our capabilities.
Okay and just the last 1 you know what we're all reading about and you're in a tight labor markets here and tech, particularly.
How are you seeing that in terms of your turnover and then perhaps the impact on your financials here going forward. Thanks.
Yeah. Thanks, Richard it's a great topic and it is a it's an unusual time and a time where.
You need to lean in as a as a CEO and a leadership team.
And we are we consider ourselves a very purpose driven organization and a very intentional 1.1 with high customer.
Christie.
Pre pandemic, we were far below the industry average and and turnover.
And then and they're just articles and the global mail and National Post this week about you know half.
Half of employees don't want a return to work and financial institutions and other industries just.
And on overdrive hiring tech people, and and and that hiring looks towards successful companies to do recruiting so.
We're doing better than industry average on retention.
We got a great mission and purpose driven culture.
You heard me speak about we've done a special bonus to our employees for their incredible results. We we've accelerated our merit round, we have high flexibility and and our work culture and work location.
And.
We hold ourselves together via our mission and purpose of helping other excel. So we're doing a we're or be in the industry average.
And we're going to keep investing in our and our people and and our product.
Okay. That's great. Thank you.
Yeah.
Once again, if you have a question. Please press Star then 1.
And next question comes from Paul Treiber of RBC capital markets. Please go ahead.
Thanks, very much and good afternoon.
Welcome to life at home.
They wanted to I hope I understand your assumptions for the year and also maybe to put Q4 and 2 better perspective.
The quarter saw higher growth, both for organic revenue and cloud organic cloud revenue and why and what's in your outlook. How do we sort of think about Q4 relative to the outlook for fiscal 'twenty 2.
Yeah, I'll take I'll take that Paul and and who may want to jump in as well.
We're very focused on increasing our rate.
Of organic growth.
And I look at our fiscal 'twenty 4 aspirations.
And I think that is a very important.
Milestones for us, where we want to see total revenue growth total revenue growth of 2% to 4% and cloud would be much stronger underneath that.
And so our investments are.
We're here to to gradually accelerate that rate of organic growth.
And thus that led us to our fiscal 'twenty, 2 outlook of 3% to 4% organic cloud growth and 1% to 2 per cent of total revenue organic cloud growth. So we like those estimates right now while investing and gradually accelerating the rate of organic growth.
And I'll say, it's still a pandemic.
And there's still volatility out there.
And I think you've just got to be mindful of that and we're kicking off our fiscal year, all those kicked off their fiscal year and January right. So.
And so we're also mindful that it's still a pandemic so I I like car a 3 to 4 per cent cloud organic growth for the year and accelerating to 2 to 4 per cent total revenue growth by fiscal 'twenty 'twenty, 4 and if and if the economy does a little better we'll do better as well.
A couple of financial questions for you first is on our travel and entertainment you know for the last year and what's been the uplift from the lack of travel and entertainment on EBITDA margins and then with you know reopening.
Over the next year or so and what's your expectations for or how much of traveling and steam and are you building back into the.
The coming year.
Yeah. Thank you for the question, so I'm traveling and entertainment direct correlation to EBITDA and just think about it and the way.
And it is an important number but and temperature in terms of significance I would say people pay at all or are sort of more than 2 times, if I extend shapes and think about it that's what I would say well I think we are we saw a lot of impact as marketing events sales events and all of it and they send.
It should be and are we saw productivity increase and performance increase in and those stats and we look and this is supposed to 'twenty 2 it is volatile and the delta variance and everything else, but we have baked and back to being together if a customer wants us to be there all safety and to do that and same thing with that type of service.
So we have increased the amount of being in person.
At the same time and get balancing the productivity. We saw a net we started at Covid check more digital but do we expect some in person, but I'll have baptist and baked into our target model numbers.
And for this past year, though the impact and the lack of travel is it.
Immaterial or is there any number to call out.
And maybe I would say the savings COVID-19 related saving we didn't bank at all we actually vs elected lead director and reallocated and do what they had been referring to as digitally and automation initiatives to allow better and better working to minimal environment.
And the savings, we used and again for all other regions.
Okay. That's helpful. And then just 1 last 1 just on the tax rate.
Just to clarify.
And sort of the low 20% adjusted price for it but no change and our cash tax rate is that right is that correct and then why and what's driving that.
So that's where the cash taxes perspective that said.
You see the numbers and our cash flow statement.
And the cash taxes, and actually James and 80 to 100 and slightly over $100 million as you've seen our cash flow statement in the last few years of course higher income and higher cash taxes. So the primary reason for that is our IP position in Canada, we do have a cash tax benefit in Canada.
And that and that continues as the as we look ahead and that could be the key drivers plus the shedding and optimization programs.
Bogged and sort of various tax initiatives globally.
And also that has optimized and net cash outflow and Texas.
Okay. Thank you for clarifying.
Yeah, Yeah. Thank you.
Thank you.
I will now hand, the call back over to Mr. Barry and shape for closing remarks.
Very good thank you and thank you for joining us today or.
And what we're thrilled with our progress.
And as we look out over the next.
New years.
And the next 5 to 7 years, we believe we can double the company again, we doubled over the last 7 years everything and double over the next 5 to 7.
And we've also pivoted to organic growth and organic growth is here to stay and we look forward to seeing you at our upcoming conferences at Oppenheimer.
BMO Deutscher City and Jefferies.
We have a big engagement plan for the coming weeks ahead and.
And that will afford you attending our AGM as well I'll be in person and Waterloo, if youre in and the neighborhood. Thanks for joining today and that concludes today's call.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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