Q3 2022 Open Text Corp Earnings Call
Thank you for standing by this is the conference operator welcome to the open text Corporation third quarter fiscal 2022 earnings Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll be an opportunity to ask questions.
To join the question queue simply press Star then one on your Touchtone phone.
Should anyone need assistance during the conference call. They may signal, an operator by pressing star and zero on their telephone I would like to turn the conference over to Harry Blount Senior Vice President Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and welcome to open text third quarter 2022 earnings call.
With me on the call today are open text, Chief Executive Officer, and Chief Technology Officer, Mark J, Baron shape, and our executive Vice President and Chief Financial Officer, Madhu Reagan Nathan.
Please note that similar to last quarter, our prepared remarks have been shortened to allow more time for the question and answer session.
Today's call is being webcast live and recorded with a replay available shortly thereafter on the open text Investor Relations website.
Earlier today, we posted our quarterly shareholder letter along with our press release and Investor presentation. These materials will supplement our prepared remarks and can be accessed on the open text Investor Relations website investors Dot open text dotcom I am pleased to inform you that open text management.
We'll be participating at several upcoming conferences, including Cibc's technology and innovation conference on May 25th in Toronto.
Jeffrey Software conference on June 1st in San Francisco.
<unk> annual strategic decisions conference on June 3rd in New York, and Baird's Global Consumer Technology and services conference on June six.
So in New York.
And now onto our Safe Harbor statement. Please note during the course of this conference call. We may make statements relating to the future performance of open text that contain forward looking information. While these forward looking statements represent our current judgment actual results could differ materially from a conclusion forecast.
Or projection in the forward looking statements made today.
Certain material factors and assumptions were applied in drawing any such statement additional information about the material factors that could cause actual results to differ materially from a conclusion forecast or projection in the forward looking information as well as risk factors that may project.
Future performance results of open text are contained in open text recent forms 10-K, and 10-Q as well as in our press release that was distributed earlier this afternoon, which may be found on our website.
We undertake no obligation to update these forward looking statements unless required to do so by law. In addition, our conference call May include discussions of certain non-GAAP financial measures.
Reconciliations of any non-GAAP financial measures to their most directly comparable GAAP measures may be found within our public filings and other materials, which are available on our website and with that I'm very pleased to hand, the call over to Mark.
Thank you Harry and welcome everyone.
And you 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 in supply chain constraints.
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 Ross shows more in Ukraine.
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 led transformations.
These digital capabilities help organizations of 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 and ERP, and CRM and helping customers differentiate and scale build 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 do 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 quarterly shareholder letter and our Investor deck, they're informative are 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.
Our leadership team did an 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 I'm highlighting 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 transition to the cloud and our cloud editions weekend uplift customers to more cloud consumption.
Our future cloud platform open text will continue to create compelling solutions with cloud editions that remove friction in the growing digital world and the vast majority the vast majority of our new customers start on the open text cloud.
Third new markets will continue to expand our coverage reach to new customers. The global 10000 over the next two years will grow in the end.
The medium and small business segment by expanding our M. S piece, we're expanding our trading partners and our business network and we're growing our new API business. For example, we have a new health care data company processing 25 million pages of month.
Our our capture API natively written SaaS running in the open text public cloud fourth.
Customer success and ecosystems, well, 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. We're gonna sure every customer and every partner understands the value of working with open text. The 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 our cloud edition adoption and customer migrate customer migration supporting customer deployment choice, if they want to run off cloud and the cloud as a man.
<unk> service in the private cloud adopt our public SaaS offerings or via an API well, we are building to respect customer choice, regardless of the cloud option they pick.
We look to achieve full 10 global 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 this summit is our stomach program.
We're going to continue to go after competitive replacements against I B M Coe.
Colfax, Highland Dato and S. P S Commerce Wheeler.
We look to our international sales expansion strengthen our world class renewals business into an expansion business and continue to build a scaled partnerships part. 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.
Application level partnerships with SAP Salesforce service, now and deep technical partnerships with Oracle.
And for the quarter, let me provide a few highlights of Madhu will go into the details.
This is our best Q3 in our history.
Another consecutive quarter of positive organic growth the best cloud revenues and our costs and our history is we broke through $400 million a quarter run rate another strong quarter of double digit new cloud bookings growth.
Our mix of 83% of total revenues cloud and off cloud renewal rates of 93, and 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 a 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.
For Q4 Q3, they include the bank of France.
The bank of France joins our information management network of course, EU member banks within our content cloud.
Booz Allen Hamilton to provide project management and collaboration.
Cross its 929000 employees for its clients within our content cloud Echo patrol.
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 our developer tower cloud.
Uh huh.
Our society Generale extended the 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 and 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.
Clean 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 hope you'll attend to open text World Europe , our event, where we will highlight the future of open text information management and cloud will be a very future oriented conference on our product and solutions in the cloud I'll be hosting the event live in person from Munich, We're gonna bring our European customers employees together, please reach out to R. R.
IR team and REIT 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.
Do you 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's 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.
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 co.
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 continue with our 33% capital allocation strategy via dividends and buybacks and our board of directors approved on May 3rd a dividend of 22.09 cents per share for shareholders of record of June 3rd payable on June 24 Act.
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 in.
And cash and committed liquidity.
We have the management bandwidth and the financial strength to execute.
Our M&A strategy.
You know 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 profits when.
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.
AP is and more.
We are persistent and highly predictable with air our 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 we.
We 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'm 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 it's become clear that information management is strategic in a central capability to help organizations transform into digital companies to help organization combat inflation.
Counter labor shortages and cost power hybrid work, new supply chains, and 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.
Piece for all.
With that let me turn the call over to our amazing CFO , Madhu Rog and often madhu.
Thank you Mark and thank you all for joining us today.
All of that for instance, 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 understated otherwise a strong results in the quarter and year to date March 2022 reflect outstanding execution through these challenging times like drilling our position as a trusted partner.
Information management.
The fact that as Indians as we achieved strong results across all our financial metrics. So let me expand on Q3 fiscal 'twenty two there's outs. Please also refer to the shareholder letter our Investor presentation press release and Form 10-Q filed today.
On revenues Veeva, they're very pleased with our record Q3 revenue record 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 was 13% in reported currency and 14, 3% on a constant currency basis.
I didn't see volatility the main 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.
The size of 1 million dollar plus deals was significantly larger on average in Q3 than 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, but then organizations as they digitize and automate processes. We also saw strong de novo's rates in cloud and all.
Flood of 93% and 94%, respectively, and we see this continuing.
And moving to other financial metrics GAAP based net income was $74 7 million during the quarter down from Q3 of fiscal 2020 one income of 91 five.
Adjusted EBITDA for Q3 was $284 5 million or 32, 2% down from fiscal Q3, 2021 up $297 1 million or 35, 7% and better performance than the quarterly factors shared with you on the last earnings call.
Have you seen a qt results on a non-GAAP basis year over year cost of sales and operating expenses were higher by 62 million 11, 2%, primarily due to the <unk> integration and exited investments in R&D sales marketing and internal technology projects as reflected in our G&A spend.
Turning to cash flows the operating and free cash flows we generated $323 6 million in operating cash flows in the quarter and $1 billion in the trailing 12 months up 19%, we generated 306 million and free cash flows in the quarter and $943 7 million in the trailing 12 months up seven.
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 at 44 days consistent with the same quarter a year ago.
Our billing seasonality is normal 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 team for these accomplishments.
We are making excellent progress on the integration of <unk> into our SMB World alongside Carbonite Webroot, while VIX has knocked it integrated into our operating model. We expect to complete this by December 2022 to yield further positive benefits to cloud revenue margins and cashless.
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 Commons 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 of 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, but foreign exchange revenue headwind as we see today of $25 million to $30 million.
Total revenue constant to slightly up and E. R. R up low to mid single digits.
And expect that adjusted EBITDA percentage for Q4 down approximately 100 basis points year over year due to continued integration of six acquisition and higher investments in talent and technology to support 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 ranges of means 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.
I've got cloud bookings grow with 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 should affect the 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 five as we continue the integration of <unk> into our operating model and investments as I mentioned earlier.
Fiscal 'twenty for aspiration, that's provided in page nine of our investor deck domain unchanged organic growth of 2% to 4% error out of 85%.
And EBITDA margin of 38% to 40% and free cash flows of $1 2 billion plus a capital allocation of free cash flow remains at 33% for dividend and that and the 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 club 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 text teammates around the globe. Thank you and you are the best in industry.
Now open the call for your questions operator.
Thank you we will now begin the question and answer session.
Who wishes to ask a question press Star then one on their touchtone telephone to join the question queue, you'll 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 quest.
You May press Star then one at this time.
Our first question comes from Stephanie price of CIBC. Please go ahead.
Good afternoon.
I would like to actually talk a bit.
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 Steph.
Stephanie.
Look the vast majority of.
Our new customers are all coming in 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 Bath to the vast majority are our new customers are 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 are 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 end of the lifecycle for release 16.
And you know the best benchmark for that is just look at our renewals rate right, where we're operating in and near mid Ninety's. So.
You know the the the destination, where that training that north bound train and it ends at close to that 92% overtime.
So about a third migrate it vast majority new coming into the cloud.
And what will keep helping.
Helping customers before the end of the lifecycle now once we get customers into the cloud. It just 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 percentage on how many modules or what percent is a suite adoption I'll keep thinking of let me think about that Stephanie for the future, but the health care data company I mentioned, they added a workload off from there off.
Loud they moved their capture into the cloud and but the volume is just phenomenal at 25 million pages of month.
Is that is that helpful. Stephanie.
That's great color. Thank you.
So wanted to touch on the investments that you're making in the cloud. So you mentioned them.
And expand a bit on what you're what you're doing and I'm 18 months all the inquiries.
Uh huh.
Yeah no. The so all the investments we are speaking about are all in the models. We have we're talking about financially so theyre not outside of the models, they're all factored into the models that Madhu has has presented we.
We have kind of a functional features we're doing and in each of the clouds.
But there's also a large 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 it to the bank level sort of security and compliance could be Baffin in Europe .
Protected D fed ramp.
HSM inside of a banking of course sock 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 gonna be seen only a few companies can do this on global scale.
It could be less than a dozen companies globally, who can deliver at this level of compliance and security.
So that's 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.
Thanks, so much for the color.
Our next question comes from Thanos, most travelers of BMO capital markets. Please go ahead.
Hello.
Sorry, I apologize, it's shut up on mute.
Can you extend on the macro backdrop. So you said it was resilience, but just to clarify you know at this stage no signs of a slowdown in your European business are you seeing anything or has that.
It's still a strong demand from your perspective.
It is still resilient for us and.
So every company is different we are we made the decision.
Oh, three years ago to exit Russia.
And so are we we evacuated Russia three years ago, we also evacuated Ukraine three years ago.
And I mean, all of our Hearts are with 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 you know a year ago. The euro was 120.
I think today closed at one O five.
And are they up.
Outside of that as it comes back [laughter] right, Oh overtime, so, but the demand remains resilient.
We don't have the exposure in eastern Europe and in 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 Boon just fear.
As a very large infrastructure for us.
Deepen and manufacturing and industrial and aerospace in France.
We have a great team and installed base in the middle East in energy oil and gas.
So as energy infrastructures move as investments go into manufacturing auto.
Where we're actually seeing an uptick in our demand, but we certainly have had the euro challenge like other companies have had but it's not about the demand.
The currency for us in Europe .
Okay, great and as far as M&A.
<unk> is trading at depressed multiple so how does that influence your thinking on acquisitions and the multiples that you can pay or 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.
Buybacks with somebody as well.
Yeah, I go to things like buybacks as I noted on the script, we purchased and retired 1 million shares in the quarter and will continue to be opportunistic in the market.
Hum.
And a.
Second on M&A valuations are coming down.
Our pipeline is up.
And we see more companies in our in 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 too, though 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.
Whack, obviously as part of our Formula.
And I wasn't kind of compare it to what we're trading at but it's got to be the right company right price deliver the cash returns that we expect and then.
B, the the right asset to drive future organic growth in the cloud.
Great.
Thanks Mark.
Yes, Thank you Tim.
Yeah.
Our next question comes from Raimo <unk> of Barclays. Please go ahead.
Great. Thank you. This is a this is jeremy on for Raimo I just wanted to touch on zinc. So given it's the first quarter, where we're six it's contributing can you speak a bit to how the integration is it's 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.
Okay.
Yeah, Jeremy it's Madhu here I'll take the first part and now I hand over to Mark them to cross sell the integration is going well as a reminder, we closed just with a week to week left in 2021 and they've given US says it's about a year and in that regard integration is going well very systematic it's a great set of <unk>.
People are and of course products market, great leadership, and I would say the leadership is very well integrated into into Brown at open text as I mentioned in the call as integration comes to closure or we definitely expect to see a sort of accretion in gross margin accretion in working capital.
Those are the areas, we're working on right now to two week to to you know 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.
Thank you Madhu.
On the.
Maybe product integration and leverage let me describe it this way first of all we're delighted Ah just a.
This is mei how time flies right.
We're in our second quarter of earnings ex.
The people are amazing technology, it's amazing.
And the the MSP network is 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 N.
N C E cycle, or new commerce experience and CE cycle that Microsoft is driving so there's an event in the industry, Microsoft N C E or a top five player worldwide for Microsoft and the N. T. E program. So there's just that opportunity within <unk> that we've been able to take that opportunity and.
Move it to web M S piece and take that opportunity to move into Carbonite M. S piece as well.
So that's a that's an opportunity lane for us as well.
Second is taking our <unk> secure cloud.
Which means a secure email IP protection, but the.
Offender.
And move that into the web room Msp's.
And and Carbonite MSP, but more interestingly the web room M. S piece. So we've completed that first level integration.
Webroot and Carbonite M msp's couldn't 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.
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 plays very very clear place when I'm in the Microsoft and CE play bring.
Bring the N C E play back to Carbonite Webroot secondly.
Bring secure cloud into Carbonite, webroot, three and bring a VIX secure cloud into our experience cloud.
Think easy link inside of health care and financial services. So so Jeremy those are the basic four plays very well defined and in our first four or 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.
Did you gain any share this quarter and if so how is the IBM or any of the other competitors responded in anyway.
Yeah. No. This is a this is a strong playbook for us right now.
And with our cloud strength.
And 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 Colfax things recently been announced there.
Salt, which will create a bit more electrons in the installed base.
So I'm looking at your leverage what's in front of you and that's all it is in front of us. So we're going to leverage we 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 [laughter] and those competitors can't fulfill that.
Hello different on data and Sps commerce on the Sps Commerce side.
<unk> 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 fantastic enterprise business that work into the mid market and we've learned a lot about the mid market.
Over the last couple of years.
Carbonite through through <unk> and our next couple of releases are very targeted on the data protection as well as other resale markets and <unk> and MSP.
Against data.
So I like this playbook for US are we know what features we need to build we know what customers we need to call on and we got a global scale and can differentiate.
Well, we're going to continue to run this play James.
That's great. Thank you.
Yeah.
Yes.
Yeah.
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.
Oh, thanks, very much and good afternoon, I was just hoping could you elaborate on your outlook for license revenue.
Mentioned that is due to a mix shift out of your you're taking down the it looks slightly there.
Is that because you're seeing customers.
Instead of purchasing license are now purchasing a cloud products or are the two trends somewhat unrelated.
Well I'll take a piece of this and then turn it over to Mark.
The main reasons is we minutes I shared 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 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 outcomes are we're definitely seeing as Mark said more.
This is 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 we've been talking to in the last couple of years.
Let me yeah. Thank you, but you are right on and Paul Let me just add to that Theres no doubt that were seeing the vast majority of our new customers come in on the cloud and that's 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.
It is as I look out on the coming years, we believe we're going to hold licenses relatively constant.
And our slight change from our I think our total growth strategy slide seven in the investor deck.
When we turned down just a notch on the outlook for license. We're just doing the queue format. That's all it is and because its Q4 and we wanted to kind of align to the industry models, what we're executing to where we believe it is relatively constant but it's just really.
Q4 math.
And aligning to our 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 growing cloud bookings, which will absolutely come back to you all more in the next couple of years, but when you when you actually look at the 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'll spend as much time as you like part I don't need to spend too much time on it but by constant cloud is going to keep growing much faster license will be on an absolute relatively absolute oh.
Our quantum and you just think about it compliance.
Our seats.
Halfway through projects.
And that's the type of business that we see all of 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 a great disclosure when you're when you're ready to give it for our investors.
Put that puzzle.
Just shifting gears on on the margin side. When you look at margins for the quarter Theyre stronger than quarterly factors and then E. The outlook calls for margins to be down on a year over year basis for Q4 is that similar masses.
You should've back into the full year outlook there.
A bigger picture how should we think about.
You know 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.
Yeah, Paul I'll take that a 10 minute walk backwards from as we shed a medium term aspiration data mean unchanged that is 38% to 40% and this year, we've talked about 35, and a half to 236 and a half and when you look at the nine months of course, we are closer to the 36.
Oh, we're doing well on margins they are reasonably predictable, but again, if we can do better in quarter or that's what you see in Q3, we came out better than better than expected I would also point out that 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 you see some of that come into play and as you rightly pointed out that VIX gets integrated more volume on sort 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 you know.
Your line up with the 38% to 40% we talked about you also mentioned wages look I think everyone is seeing is we've done well in terms of our attrition and we have taken care of our employees in terms of I would say total towards a cash equity et cetera, you will see that in our disclosures are were not saying its an item that we're not worried about it but we stand in good stead.
With respect to incorporating that.
Into our models.
Okay. Thank you I'll pass on.
And I think market economy, So yeah, Paul just.
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 will officially out of bookings metric.
So you will be able to complete that puzzle going forward, so I'm doing a committed.
Chatting, a formal view into bookings starting next quarter.
That'd be fantastic looking for time.
Yeah, and I have to tell you so are we.
Ah 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 a 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 to virtually or live will be taking over the Ali on stadium in Munich, Germany for open text World.
And.
Thank you for your continued support.
And I'll end as I ended my prepared remarks made the one that brings peace bring peace to all quickly.
So 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.
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