Q3 2022 Open Text Corp Earnings Call
In your materials, which are available on our website and with that I am very pleased to hand, the call over to Mark.
Thank you Harry and welcome everyone.
Madhu and I are on the road spending time with employees and customers and we're pleased to be hosting today's call together here in New York City.
We had a strong Q3 with total revenues of $882 million or $899 million in constant currency.
Adjusted EBITDA of $284 million and free cash flow of $306 million.
We grew total revenues five 9% year over year and 8% in constant currency led by the strength in our cloud bookings and well above our results from a year ago.
Driven by demand in our content business network security and data protection clouds.
Our total cloud revenues grew 13% year over year.
And 14, 3% in constant currency and topped $400 million of revenue in the quarter for the first time.
These strong results come at a time of increasing challenges.
From the continuing impact of Covid, 19, and supply chain constraints to.
The highest level of inflation that we've seen in decades.
Currency decline such as the euro and the yen decreasing double digit compared to the U S. Dollar.
Now Russia is more in Ukraine.
And all of these challenges reinforced our determination to remain vigilant to protect the health and wellbeing of our teammates and remaining agile to meet our customers' and partners' needs.
At open text, we have dedicated ourselves to cloud based innovations that power and protect information centered on information making sure.
Sure.
All sizes elevate themselves above these challenges and thrive in a world of hybrid work digital transactions and the need for security information protection.
Information management, and the digitalization of business powers, the economic inputs and outputs of the world's GDP.
Information management is as essential as ERP, and CRM and helping customers differentiate and scale their digital fabrics connecting all their stakeholders and doing more with less.
Open text is the market leader in information management, and we are the Switzerland for our customers, where we can integrate their many important workloads and their diverse digital fabrics.
Our teammates continue to amazing job and we remain confident in our ability to continue to deliver amazing results for all our stakeholders across a wide variety of scenarios.
Please read our press release my currently shareholder letter.
In our investor deck, they're informative nor eager to receive your feedback to better inform us as we strive to build the world's best information management company in the cloud at scale.
Investor Day, 22 is only 60 days ago. Our core message is was remains we are accelerating into the cloud.
If you didn't attend you'll find the materials and the recording on our website very informative.
<unk> team did amazing job detailing our approach to cloud acceleration, let me recap three things first our Tam is large total addressable market 92 billion.
So we have maximum strategic flexibility and to grow and to lead over the next decade.
Our five strategic priorities highlighted upfront in the presentation within that $92 billion Tam are clear first within our existing portfolio.
We will continue to transition our significant and valuable installed base to the cloud once transitioned to the cloud and our cloud editions, we can uplift customers to more cloud consumption.
Our future cloud platform.
Open text will continue to create compelling solutions with cloud editions that remove friction and the growing digital world and the vast majority the vast majority of our new customers start on the open text cloud.
Third new markets, we will continue to expand our coverage reach to new customers. The global 10000 over the next two years will grow in the medium and small business segment by expanding our MSP, we're extending our trading partners and our business network and we're growing our new API business. For example, we have a new healthcare data company.
Processing 25 million pages, a month via our capture API natively written SaaS running and the open text public cloud fourth.
Customer success and ecosystems.
We will continue to be the long term navigator for our customers as they become fully digital companies and fifth our voice, we're going to continue to drive growth through compelling propositions.
Sure every customer and every partner understands the value of working with open text.
Third thing I wanted to recap from Investor day that we outlined our top growth programs.
That will serve as the centerpiece to organic growth in the coming year.
We're going to keep driving clouded.
Additional adoption and customer migrate customer migration supporting customer deployment choice, if they want to run off cloud and the cloud as a managed service and the private cloud adopt our public SaaS offering.
We are building to respect customer choice.
Regardless of the cloud option they pick.
We look to achieve full Ken Goldman 10-K coverage by the end of fiscal year 'twenty three we look to disproportionately win share in our top customers and top ecosystems and we call. This winning the summit is our summit program.
We're going to continue to go after competitive replacements against IBM.
<unk> high land <unk> and Sps Commerce.
We look to our international sales expansion strengthen our world class renewals business into an expansion business and continue to build scaled partnerships. This is a partner friendly company partners are a force multiplier and we look to Microsoft in the mid market global in the enterprise AWS for large consumption and.
Application level partnerships with SAP Salesforce service, now and deep technical partnerships with Oracle.
As for the quarter, let me provide a few highlights and Baidu will go into the details this.
This is our best Q3 in our history.
Another consecutive quarter of positive organic growth the best cloud revenues and our cost and our history is we broke through $400 million a quarter run rate another strong quarter of double digit new cloud bookings growth.
And our mix of 83% of total revenues.
And off cloud renewal rates of 93%, 94% respectively.
Our adjusted EBITDA of 32% plus and tracking to our plan as we integrate six cash flows of $306 million or 35% free cash flow as a percent of total revenue.
We purchased and canceled 1 million shares in the quarter.
We ended the quarter at $1 6 billion of cash and a net leverage ratio of one nine times, we are ready for the next acquisition to accelerate our cloud leadership and their percent DAU for every quarter or their amazing customer wins and.
For Q4, Q3, then clearly the bank the France.
The bank of France joins our information management network, but of course, EU member banks within our content cloud.
Booz Allen Hamilton to provide project management and collaboration.
Across its ninth at 29000 employees for its clients within our content cloud.
Patrol.
A leading petroleum company in Colombia, and one of the four major petroleum companies in Latin America migrated all their content from IBM to open text using open text extended ECM.
Singapore customs to build new cloud based applications within.
Within our developer.
<unk>.
So the society Generale extended centralized open text archiving solution within our content cloud to support the merger of its retail banks.
And the Philippine National service of investigations modeled after the U S FBI to leverage our security and protection cloud for forensics to manage and solve high profile cases in the interest of the nation.
A huge thank you to our customers for trusting us for partnering with us as they build their future digital capabilities as I look into Q4 and full fiscal year 'twenty two.
We provide some key some key points demand remains resilient.
Two years ago, when the pandemic began we took preemptive actions to build a stronger business. It was the right call for us at that time, we're doing the same today and our preemptive actions are to accelerate investments.
Lean into the resiliency of that demand increase our R&D investments and increase our go to market investments. So that we can accelerate our cloud growth.
I'll hope you'll attend to open text.
Europe , our event, where we will highlight the future of open tax information management in the cloud will be a very future oriented conference on our product and solutions in the cloud.
Hosting the event live in person from Munich.
To bring our European customers employees together, please reach out to our IR team.
And right or register online, if you'd like to intend in person or online with us.
Our full year outlook is 3% to 4% total revenue growth.
And we remain in that range, we do expect to be closer to 3% in reported currency.
And closer to 4% in constant currency.
Manifestly due to the significant changes in foreign exchange.
As we look beyond fiscal 'twenty two there is no change to our targets and aspirations for our usual cadence, we'll provide our next fiscal year targets and any updates to our longer term aspirations on our Q4 call, but I can share the themes already new infant innovations and continued acceleration into the cloud.
Total revenue growth, both organic and acquired increased investments to accelerate our cloud business and cloud bookings, we expect our cloud revenue to grow fastest.
Helping our amazing customers and partners win and thrive in this new World and continued operation operational excellence and expanding free cash flows. Let me also speak to capital and M&A we.
We continue with our 33% capital allocation strategy via dividends and buybacks and our board of directors approved on May 3rd a dividend of <unk> 22.09 per share for shareholders of record.
June 3rd payable on June 24.
Acquisition valuations are coming more in line with our playbook of growth at a reasonable price our M&A pipeline is stronger than it's been in previous quarters.
We have $2 4 billion.
And cash and committed liquidity.
We have the management bandwidth and the financial strength to execute.
Our M&A strategy.
Open text is a unique company, we make long term decisions, we are purposeful and balancing profit and growth.
We believe in creating value through a combination of total growth capital efficiency and profit.
When we see the opportunity, we invest and we see the opportunity right now as we accelerate into the cloud with new investments security investments compliance investments data zones, new features or public cloud acceleration.
API is in more.
We are persistent and highly predictable with IRR percentages in the eighties.
Let me end with where I started.
We're accelerating to the cloud and you can clearly see it in our revenues bookings investments and customer wins.
Had a strong quarter supported by amazing execution in challenging times. These.
These challenging times also create new opportunity and established industries for us such as manufacturing defense energy oil and gas financial services.
I am deeply optimistic about our future with the strength of our pipeline and the ability to help our customers thrive and become fully digital as we accelerate investments has become clear that information management is strategic and essential capability to help organizations transform into digital companies help organization combat inflation.
Counter labor shortages and cost power hybrid work, new supply chains and to.
Security and information protection needs.
Our teammates continue to do an amazing job and we're confident in our ability to continue to deliver these amazing results.
One that brings peace.
Bring piece for all.
With that let me turn the call over to our amazing CFO Madhu Ragunathan Madhu.
Thank you Mark and thank you all for joining us today.
All references I will be making are in millions of USD and compared to the same period in the prior fiscal year and are on a reported basis unless stated otherwise our strong results in the quarter and year to date March 2020 to reflect our outstanding execution through these challenging times by building our position as a trusted partner.
Information management.
<unk> does not reflect that as Liam said, we achieved strong results across all our financial metrics. So let me expand on Q3 fiscal 'twenty Two's results. Please also refer to the shareholder letter Investor presentation press release and Form 10-Q filed today.
On revenues.
We are very pleased with our record Q3 revenue that got annual recurring revenue and record cloud revenue. We grew total revenues by 9% on a reported basis and 8% on a constant currency basis.
Revenue so its fifth consecutive quarter of organic growth, while total revenue in the cloud with 13% in reported currency and 14, 3% on a constant currency basis.
Currency volatility remains high foreign exchange impact Q3 revenues of $17 2 million impacting customer support and cloud revenues the highest.
We posted another quarter of double digit growth in enterprise cloud bookings and on a year to date basis. As a reminder, these bookings will be taken to revenue over the life of the contract. So we are growing our foundation of recurring cloud revenue to be recognized over multiple years.
<unk> 1 million dollar plus deals with significantly larger on average in Q3 at the same time last year. This is a trend in both cloud and license that we believe reflects the growing strategic importance of information management within organizations as they digitize and automate processes. We also saw strong day rates in cloud in off plan.
<unk> of 93% and 94% respectively NBC this continuing.
And moving to other financial metrics GAAP based net income was $74 7 million during the quarter.
<unk> from Q3 of fiscal 2021 income of 91 five.
Adjusted EBITDA for Q3 was $284 5 million or 32, 2% down from fiscal Q3, 2021 of $297 1 million or 35, 7% and better performance than the quarterly factors shared with you on the last earnings call.
As you see in our Q3 results on a non-GAAP basis year over year cost of sales and operating expenses were higher by $62 million of 11, 2%, primarily due to VIX integration and exited investments in R&D sales marketing and internal technology projects as reflected in our G&A spend.
Turning to cash flow, the operating and free cash flow, we generated $323 6 million in operating cash flows in the quarter and $1 billion in the trailing 12 months up 19%.
Generated $306 million in free cash flow in the quarter and $943 7 million in the trailing 12 months up 17, 1%.
During the quarter, we delivered strong cash flows and free cash flows were at 34, 7% of total revenues in the quarter consolidated Dsos of 44 days consistent with the same quarter a year ago.
Billing seasonality is normal into Q3, as we generate high positive working capital in the quarter and greater than 100% conversion from adjusted EBITDA into operating cash flows. These are best in class metrics and well done to all the teams for these accomplishments.
We're making excellent progress with the integration of <unk> into our SMB was alongside Carbonite Webroot, while <unk> is not yet integrated into our operating model. We expect to complete this by December 2022 to yield further positive benefits to cloud revenue margins and cash flows.
Balance sheet and liquidity, we ended the quarter with $2 4 billion of cash and available liquidity and a strong net leverage of one nine times as mark outlined in his prepared comments acquisition valuations are becoming more in line with our playbook of growth at reasonable price and we remain well positioned to continue to acquire.
And <unk>.
And let me turn to our outlook and updated targets and aspirations.
For the fourth quarter fiscal 'twenty, two you will see our quarterly factors outlined in page six of our investor presentation.
I expect Q4 on a year over year basis with foreign exchange revenue headwind as we see today of $25 million to $30 million.
Total revenue constant to slightly up and are up low to mid single digits.
And expect that adjusted EBITDA percentage for Q4 down approximately 100 basis points year over year due to.
Integration of the <unk> acquisition and higher investments in talent and technology for support of our growth ambitions. Both are consistent with our communications to you in terms of investments during the last earnings call and again on our Investor Day on March 1st.
For the full year fiscal 'twenty two you can find our full year outlook on page seven of our Investor deck total revenue growth range remains unchanged at 2% to 4%.
As mentioned earlier, the foreign exchange volatility remains high we expect to be closer to 3% in reported currency and closer to 4% in constant currency.
As our cloud bookings growth adjusting license expectations from our previous constant year over year to license being down low mid single digits for the year. This is purely a rebalance to the effect of growing number of enterprise customers choosing to deploy new workloads into the open text cloud.
Fiscal 2022 target model remains unchanged as noted on page eight as a reminder, our fiscal 2022 target model for adjusted EBITDA remains at 35, 5% to 36, 5% as we continue the integration of <unk> into our operating model and investments as I mentioned earlier.
Fiscal 'twenty for explanations as provided in page nine of our investor deck domain unchanged organic growth of 2% to 4% error out of 85%.
<unk> EBITDA margin of 30% to 40% and free cash flows of $1 2 billion plus our capital allocation of free cash flow remains at 33% for dividend and <unk> and <unk>.
Anti dilutive buybacks.
So in summary for all of US at open text Q3 performance with a strong and important step forward to continue our execution to the plan shared with you during our March Investor Day, which is continued exploration into the cloud on behalf of open text I would like to thank our shareholders, our loyal customers partners and employees across the globe.
Especially you mentioned to my open texts teammates around the globe. Thank you and you are the best in the industry.
I will now open the call for your questions operator.
Thank you we will now begin the question and answer session anyone who wishes to ask a question May Press Star then one on their touchtone telephone to join the question queue Youll hear a tone acknowledging your request if youre using a speakerphone. Please ensure you lift the handset before pressing any keys, if you wish to remove yourself from.
The question queue. You May press Star then to anyone who has a question May Press Star then one at this time.
Our first question comes from Stephanie price of CIBC. Please go ahead.
Good afternoon.
Hey, I was hoping you could talk a bit about what percentage of the installed base is now in the cloud and any metrics you have around the cross sell among this customer base.
Sure thing thanks for the thanks for the question.
Stephanie.
Look the vast majority of our.
New customers are all coming.
<unk>.
Into cloud editions.
And into the cloud so it's clear that the new R. R vastly coming into the cloud we have some customers who go off cloud.
For security reasons.
But the back to the vast majority are new customers or in the cloud.
In terms of the install base that have moved proactively.
It's about a third.
And we're going to continue.
Of course in the coming quarters in year or two years too.
To help our customers move.
In advance of the kind of end of lifecycle of the technology, but I can tell you. We expect at the end of the day to move all of our customers from a release 16.
Cloud editions.
And migrate them either into a private cloud managed services or into our public cloud capabilities.
As they approach the.
And of the lifecycle for release 16.
Daniel the best benchmark for that is just look at our renewals rate right.
We are operating near mid nineties.
The destination, where that training that north bound train and it ends at close to that 92% overtime. So about a third migrate it vas.
Vast majority of new coming into the cloud and we'll keep.
Helping customers before the end of the lifecycle.
Now once we get customers into the cloud.
Removes the friction to cross sell for US things are more pre integrate it.
We have the resources to get to module two three and four.
So it just it just removes the friction I don't have a metric for you to say what percent on how many modules or what percent is a suite adoption.
Keep thinking let me think about that Stephanie for the future.
Health care data company I mentioned, they added a workload.
From their off cloud they moved their capture into the cloud.
And.
But the volume is just phenomenal at 25 million pages of months is that.
Is that helpful. Stephanie.
That's great color. Thank you I also wanted to touch on the investments that you're making in the cloud that look you in the.
You mentioned them.
Expand a bit on what your what youre doing in 18.
Already.
So along those lines.
Yes, no. So all the investments we are speaking about are all in the models. We have we're talking about financials. So theyre not outside the models, they're all factored into the models that Madhu has.
Has presented.
We have kind of a functional features we're doing in each of the clouds.
But there's also a large.
The investment that we're making around data zones compliance security. These needs have really elevated over the last few months.
To really bring cloud technologies.
My description is to bring at the bank level sort of security and compliance could be Baffin in Europe .
Protected be fed ramp.
HSM inside of banking of course stock one stop to HIPAA.
All of these type of security and compliance we've decided.
That we're going to invest in those and we're going to be only a few companies can do this on global scale.
Hum.
It could be less than a dozen companies globally, who can deliver at this level of compliance and security.
One place, we're making investments in going to differentiate.
And the other is our go to market and investing in partners and our sales force to accelerate our cloud growth.
That's where some of the investments are coming and they are all factored into our projections.
Great. Thanks, so much for the color.
Our next question comes from Thanos <unk> of BMO capital markets. Please go ahead.
Hello.
Sorry, I apologize.
Yes.
Our.
Can you extend on the macro backdrop. So you said it was resilience, but just to clarify you know at this stage.
Signs of a slowdown in the European business are you seeing anything or is that.
Still a strong demand environment in your perspective.
It's still resilient for us and.
So every company is different.
We made the decision.
Three years ago to exit Russia.
And so we evacuated Russia three years ago, we also evacuated Ukraine three years ago.
And our.
Our hearts are with.
Our democracy, and Liberty and Ukraine, but we left from a business perspective, our Russia, Ukraine three years ago. So we don't have the exposure there.
The demand remains resilient.
There is one thing out of our control, which is foreign exchange a year ago. The euro was $1 20.
They closed at 105.
And.
The upside of that as it comes back.
Alright overtime.
But the demand remains resilient.
Don't have the exposure in <unk>.
Eastern Europe and Russia.
And we're going to help those.
Companies.
And in a handful of industries, where we have a lot of strength that will actually add to our demand here in the medium term for example, we're strong in Germany, Austria, Switzerland, or Doc region, very deep in manufacturing as well as the boondocks fear.
As a very large infrastructure for us.
Deepen and manufacturing in industrials and aerospace in France.
And we have a great team and installed base in the middle East in energy oil and gas.
As energy infrastructures move as investments go into manufacturing auto.
We're actually seeing an uptick in our demand, but we certainly have had the euro challenge like other companies have had but it is not about the demand is just the currency for us in Europe .
Okay, great and as far as M&A stock is trading at depressed multiple so how does that influence your thinking on <unk>.
Acquisitions, and the multiples that you can pay.
Are your hurdle rates sort of driven by an absolute basis or I think correctly, Mike may be influenced by your share price and how does that influence your thinking on buybacks with some of that as well.
Yeah, two things on buybacks as I noted on the script, we purchased and retired 1 million shares in the quarter.
And we will continue to be opportunistic in the market.
And <unk>.
Second on M&A valuations are coming down.
Our pipeline is up.
And we see more companies and our and our traditional playbook of growth at a reasonable price and we see more cloud companies in that.
Growth at a reasonable price and when we look at an acquisition, we really look at it it's got to be the right company at the right price, but it's got to generate the cash returns.
And it's got to be a platform for future organic growth.
So obviously.
Obviously as part of a formula.
And I wouldn't kind of compare it to what we're trading at what it's going to be the right company right price deliver the cash returns that we expect and then.
Be the right asset to drive future organic growth in the cloud.
Great. Thanks.
Thanks Mark.
Thank you Pam.
Our next question comes from Raimo <unk> of Barclays. Please go ahead.
Great. Thank you. This is a this is jeremy on for right now I just wanted to touch on <unk>. So given it's the first quarter were $6 contributing can you speak a bit to how the integration is coming together, there and maybe what youre seeing in terms of cross selling and up selling the product.
Some of the existing security and protection cloud customers. Thank you.
Yes, Jeremy I didn't here I'll take the first part.
Now I hand over to Mark and the cross sell the integration is going well as a reminder, we closed since with the week to week left in 2021, and we've given ourselves about a year and in that regard integration is going well very systematic.
It's a great set of people and of course products market, Great leadership, and I would say the leadership is very well integrated into integrated open text as I mentioned in the call and as the integration comes to closure.
We definitely expect to see a sort of accretion.
Gross margin accretion and working capital those are the areas, we're working on right now.
Two to bring them over to our operating model could we do it earlier than 12 months now, perhaps we can but we're being very systematic about it yes.
Thank you Madhu.
On the.
Maybe product integration and leverage let me describe it this way first of all we're delighted.
<unk>.
Just a.
<unk>.
This is mei.
<unk> right.
Our or and our second quarter of owning <unk>.
People are amazing technology.
<unk> and the <unk>.
The MSP network is everything we expect it to be in our in our diligence. So we're just delighted.
The first is more going strong on the Microsoft.
<unk> cycle, or new commerce experience and CE cycle that Microsoft is driving so there's an event in the industry, Microsoft LTE or top five player worldwide for Microsoft and the <unk> program. So there's just that opportunity within <unk> that we've been able to take that opportunity and.
Move it to Webroot, msp's and take that opportunity to move into Carbonite msp's as well.
So that's.
That's an opportunity lane for us as well.
Second is taking our <unk> secure cloud.
Which means secure E mail IP protection, but defender.
And move that into the web room Msp's and.
And the Carbonite MSP, but more interestingly the web grew MSP. So we've completed that first level of integration.
Webroot and Carbonite.
<unk> can come to our portal and see the product.
And then we have another opportunity to bring that secure secure cloud into basically our experience cloud.
Where we've integrated easy link and.
And other on demand messaging platforms and bring them into health care financial services for on demand messaging.
So we have really about four play very very clear plays.
When in.
In the Microsoft <unk>.
Bring the LTE play back to Carbonite Webroot secondly.
Bring secure cloud into Carbonite, webroot, three and bring <unk> secure cloud into our experience cloud.
Thank easy link inside.
Inside of health care and financial services. So so Jeremy those are the basic core plays very well defined.
And in our first four five months, we've been able to get them in place and now start to execute to them.
Great. Thank you very helpful.
Our next question comes from Richard Tse of National Bank Financial. Please go ahead.
Yes. Thank you, it's James Byrne sitting in for Richard Tonight.
You had mentioned that you'll be you'll continue to go after competitive replacements against major competitors such as IBM for example did you.
Gain any share this quarter and if so has the IBM or any of the other competitors responded in any way.
Yes, no. This is this is a strong playbook for us right now.
And with our cloud strength.
In private cloud our ability.
Our new API.
And our growing capabilities as public SaaS.
We can do this and filenet.
Thailand Colfax struggle.
So, it's just a clear opportunity for us and.
<unk>.
<unk> recently been announced their result.
The result, which will create a bit more electrons and the install base.
So look at your leverage what's in front of you and Thats whats in front of us So we're going to leverage.
We keep announcing wins and.
And we're going to go after the top customers.
Who are looking to make investments for the next five to 10 years in the cloud.
Sure.
And those competitors can't fulfill that.
Although different on data and Sps commerce on the Sps Commerce side recently.
We recently introduced a new mid market capabilities for our trading partners more self service ease of registration ability to connect trading partners without the need for professional services.
So we see an opportunity to bring our fans.
Fantastic Enterprise business network into the mid market and we've learned a lot about the mid market over the last couple of years from Carbonite through through <unk> and our next couple of releases are very targeted on the data protection as well as <unk>.
The resale markets and <unk> and MSP.
Against data.
So I like this playbook for US we know what features we need to build we know our customers we need to call.
And we got a global scale and can differentiate so we're going to continue to run this play Jane.
That's great. Thank you.
Yes.
Once again, if you have a question. Please press Star then one.
Our next question comes from Paul Treiber of RBC capital markets. Please go ahead.
Got it thanks, so much and good afternoon I was just hoping could you elaborate on your outlook for license revenue you mentioned, that's due to a mix shift that youre, taking down the outlook slightly there.
Is that because youre seeing customers.
Instead of purchasing license are now purchasing.
Cloud products or are the two trends somewhat unrelated.
Well I'll take a piece of this and then turn it over to Mark.
One of the main reasons is the minute that Chad the metrics of demand for license. It does remain strong.
But Q4, historically has been our strongest license quarter and consistent with everything we've been talking about in terms of cloud acceleration and as such we just wanted to do a rebalance and how the year is going to look in terms of license and hence the change in the yearly outlook, we're definitely seeing as Mark said more puts.
<unk>, new workloads, the acceleration into the cloud.
But I would say the first part is clearly the rebalance and as we're coming up on Q4 and wrapping up the year. We just wanted to put it within the parameters of where we believe license would be for this year and again consistent with the trends <unk> been talking to in the last couple of years, Yes, Let me.
Thank you, but youre right on and Paul Let me just add to that there is no doubt that we're seeing.
The vast majority of our new customers come in on the cloud and Thats exactly the high value segment, we want to be in and winning and winning business. There I do think as I look out and I'll just say at the annual basis for a moment.
As I look out on the coming years, we believe we're going to hold licenses relatively constant.
And our slight change from.
I think our total growth strategy slide seven in the investor deck.
Where we turned down just a notch on the outlook for license, we're just seeing that Q format.
All it is Ed.
Because it is Q4 and we wanted to kind of aligns with industry models.
We're executing to where we believe it is relatively constant, but it's just really Q4 math.
And aligning too.
The expectations on an annual basis, but going forward it should be relatively constant.
And the last thing I'd, just add that Paul is as you can see we have consistently sharing more color on our cloud bookings, which will absolutely come back to you more in the next couple of years.
But when you when you actually look at acceleration of the cloud we wanted to make sure there was a balance between the two.
And let me just just lastly, not to spend too much time on it.
We will spend as much time as you like pause I don't need to spend too much time on it but by content cloud is going to keep growing much faster license will be on an absolute relatively absolute.
Our quantum and just think about it compliance.
More seats.
Halfway through projects.
<unk>.
And thats the type of business that we see.
That gives us the confidence to say in the coming years, we look at license being relatively constant.
Yes, I mean, it cloud cloud bookings would be great great.
Great disclosure when you're when you're ready to give it for our investors complete that puzzle.
Just shifting gears.
On the margin side, when you look at margins for the quarter Theyre stronger than quarterly factors and then.
The outlook calls for margins to be down on a year over year basis for Q4 is that similar math.
Just sort of back into the full year outlook there.
Bigger picture, how should we think about.
Margins going forward just in light of all the moving parts you have the six synergies and integration, but then there's also the wage environment and cost inflation.
Yes, Paul I'll take that so I'm going to work backwards from at least shed.
Medium term aspiration data remain unchanged.
That is 38% to 40% and this year, we've talked about $35 five to 36 and a half.
And when you look at the nine months of course, we are closer to the 36.
We're doing well on margins they are reasonably predictable.
But again, if we can do better in quarter. That's what you see in Q3, we came out better than better than expected I would also point out the gross margin has gone up 110 basis points year over year.
In the quarter in the past I've talked about enterprise cloud gross margin that we have work to do in terms of efficiency do you see some of that come into play and as you rightly pointed out at six get integrated more volume on some of the SaaS cloud of Carbonite Webroot et cetera. It will certainly provide more accretion to the cloud gross margin and.
It will sort of.
Our lineup with the 38% to 40% we talked about you also mentioned wages look I think everyone is seeing it we've done well in terms of our attrition and we have taken care of our employees in terms of I would say total awards.
Cash equity et cetera, you will see that in our disclosures.
We're not saying, it's an item that we're not worried about but we stand in good stead with respect to incorporating that.
Into our models.
Okay. Thank you I'll pass on.
And I think Mark had a conference call.
You made a comment to complete the puzzle and.
I just wanted to tell you, yes, we agree.
And so one of the things you'll see for us on our next quarter call when we kick off fiscal 'twenty three.
Actually at a bookings metric.
And so you will be able to complete that puzzle going forward, so do and I are committed.
Chatting, a formal view into bookings starting next quarter.
That would be fantastic for time.
And I have to tell you for a week.
So thoroughly.
This concludes the question and answer session I would now like to hand, the call back over to Mr. Burns for any closing remarks.
Alright, well. Thank you everyone. Thanks for joining today and we have.
We have a big quarter of engagement and outreach as Henry outlined so we look forward to being with you. This.
This quarter, we hope you'll join us for open text world virtually or live.
We'll be taking.
Taking over the Alteon stadium.
Munich, Germany for open text World.
And.
Thank you for your continued support.
I'll end as I ended my prepared remarks may the one that brings peace bring peace to all and quickly.
Thank you for joining today's call.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yes.