Q4 2022 Open Text Corp Earnings Call
Thank you for standing by.
Conference Operator, welcome to the open text Corporation fourth 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 will be an opportunity to ask questions. During the question simply press star one on your Touchtone phone should anyone need assistance during the conference call Amy signal, an operator by pressing star and zero on your telephone I.
I would like to turn the conference over to Harry Blount Senior Vice President Investor Relations. Please go ahead Sir.
Thank you operator, good afternoon, everyone and welcome to open text fourth quarter and fiscal 'twenty two earnings call with me on the call. Today are open text, Chief Executive Officer, and Chief Technology Officer, Mark J bear in shape, and our executive Vice President and Chief Financial Officer Madhu.
Dragon Nathan 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 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 tax dot com.
I'm pleased to inform you that open text management will be participating at the following upcoming conferences Oppenheimer's virtual technology Internet and Communications conference on August 10.
Deutsche Bank Technology Conference on August 31st in Las Vegas, and Citibank Citi Global Technology Conference on September nine in New York.
And now onto our Safe Harbor statement.
Please note that during the course of this conference call. We may make statements relating to the future performance of open text that contain forward looking information.
While these forward looking statements represent our current judgment actual results could differ materially from a conclusion forecast or projection in the forward looking statements made today.
Certain material factors and assumptions were applied in drawing any such 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 pleased to hand, the call over to Mark.
Thank you Harry and welcome everyone. We appreciate you joining us today and I'm very pleased to be doing the call from Waterloo, Ontario.
My remarks are a little longer than usual given we just closed a great year and we have a trip a tremendously exciting board agenda. So let me jump right in.
Open text Q4 constant currency results once again beat expectations on the top and bottom line with 935 million in total revenues and 17% cloud revenue growth.
Our own our renewal rates are best in class at 94% and our adjusted EBITDA margin was 35% and our free cash flows were $214 million in the quarter and $889 million for the year up 9%, you'll hear the details on the quarter from Madhu.
I have never felt better about the future of open text, the resiliency of our technology and expertise the intrepid ness of our people and roadmap the transformative nature of our mission to elevate every person.
And organizations of all sizes to gain the information advantage and the value we are creating to the open text business system of total growth cash flow expansion and capital efficiency like other premier technology companies were managing through many macro issues.
Pandemic continues high inflation the strength of the U S dollar interest rate, Russia as war on Ukraine.
The energy crisis in Europe , and recessionary indicators understanding the macro today is more difficult than usual as there is not a one size fits all plan nor can you have a single point of planning unit multifaceted plant unique to your business and you need to act preemptively.
Boldly.
Let's unpack the macro for open text and everything I speak about today is already factored into our F. 'twenty three outlook and our F. 'twenty five aspirations.
The pandemic continues.
Open text has performed superbly the last two and a half years and we will continue to do so we are a culturally stronger company our roadmap with project titanium was forged over the last year.
And if customer prioritized, our renewals business is iron clad and our corporate and talent brands are stronger than ever the pandemic tempered and sharpened us.
Onto high inflation, we are putting in place a program that we call win project win with inflation now when we are systematically attacking inflation on all fronts revenue expenses efficiency and investing for growth we raised prices by.
5% starting July one we are not pulling back on hiring we have a 2% head count expansion plan for the year. We're also accelerating some key automation projects for efficiency and cost out and then in parallel we're doing some good old fashioned belt tightening.
As well, we will help our customers win with inflation now by accelerating third digitalization projects, removing variable cost and enabling them to do more with less let's be Frank digitalization is the only answer here.
The strength of the U S dollar where possible we minimize our FX exposure through natural hedging, where we match revenues and costs in our major theaters of operations and will continue.
Continue to optimize this balance.
Our high a R. R provides for consistency and predictability and we will provide our F. 'twenty three outlook and our F. 'twenty three aspirations now in constant currency to reinforce that consistency and predictability.
Interest rates, we've already moved approximately 75% of our debt to fixed rate and interest rate increases have a minimal effect on our business.
Russia is a war on Ukraine on.
On the human aspect, we are helping our employees in Europe , which stipends for those employees hosting refugees.
We've announced.
Series, a funding of schools in Poland for refugees, and where our technology and funding partner with the United Nations Refugee agency.
And business aspects, we shut down our Russia offices and removed all employees two years ago and exited Russia at minimal financial cost.
More than offsetting this we see an upward pipeline in Europe , and the middle East given our strength in heavy industries construction and the energy sectors.
Recessionary indicators companies are going to fall into a variety of categories here those poised to thrive.
Those will be constrained.
Those are all just survive and that will be those who get lost.
Our clear and preemptive actions on the macro issues with our wind program are placing open text squarely in the thrive category.
We plan to out compete our rivals by investing in our people our products and in our customers' success, we see a real opportunity to help organizations of all sizes to use digital technology to overcome today's challenges emerge stronger and out compete the arrivals.
Open text is fantastically positioned to help organizations deliver on the digital imperative to innovate to grow to connect people and organizations and systems to be well run and to do more with less.
We are investing to win and we're putting our investments behind that in fiscal 'twenty three approximately 40% of our total expense is direct investment in R&D and cloud operations and our investments this year are going to increase $75 million.
Six years ago, our annual investment was just half that and 10 years ago, our cloud revenues were zero and today, they're 154 billion.
We are fully committed to being the global leader in information management in the cloud at scale.
In constant currency just to recall in fiscal 'twenty, one our cloud organic growth rate was one 8% in fiscal 'twenty two last year, our cloud organic growth rate was three 6%. This year, our cloud bookings rate and we're going to do we'll talk about we're going to introduce bookings this year, our cloud bookings.
Rate is expected to grow 15% plus and these proof points and increased investments give us the confidence that youll see here on our F. 'twenty five aspirations of up to 8% cloud organic growth.
We are accelerating all things cloud and open tax isn't all weather company with foundation built on bedrock in this dynamic environment. We saw strong demand took share and fortified our cloud with increased customer commitment.
Time to standardize on companies built for the long term like open text. So for the full year fiscal 'twenty two in constant currency. We delivered record total revenues of $3 five 3 billion and grew four three year over year or one 7% organically.
The open text cloud delivered a record $1 54 billion in revenues and grew nine 8%.
Don't mistake. The open text cloud is the flywheel of our business today 135 billion in maintenance and update services growing and a gross margin of 91%.
I'm really proud to highlight we've cracked we've created an S. M D&C business from zero to approaching $700 million in just two years growing and with gross margins in the high eighties, we have a unique distribution strategy with Rmm's Msp's and our great partnership with <unk>.
Microsoft and we're just getting started.
<unk> was $2 89 billion up five 5% and 82% of our revenues customers fortified their long term commitment to the open text cloud what $466 million of new value in enterprise bookings and we expect this to grow 15% plus in fiscal 'twenty three.
In Q4 alone, we had 34, new cloud wins over $1 million in bookings value with an average commitment of over four years World class brands joined the open text cloud in Q4, Carl Zeiss Sitko close brothers Hydro, Quebec ever Mark <unk> Bank and the Salt River project.
We had adjusted EBITDA dollars of $1 3 billion for upper quartile margin of 36, 5% our free cash flow for the year was $889 million up nine 4% year over year and.
And during fiscal 'twenty, two we returned $415 million to shareholders 238 million via our dividend program and we also purchased three 8 million shares for cancellation during the year, reducing our share count by one 4%.
To 269 5 million shares we did what we said we were going to do.
Total growth 353 billion up four 3% or one 7% organic growth cloud growth 154 billion up nine 8% or three 6% organic growth free cash flow expansion $889 million up nine.
4% and for our capital efficiency, we returned 415.
$15 million to shareholders.
As we begin our new fiscal year 'twenty three.
We remain committed to balancing our operational discipline, which is a hallmark of open text with continued investments in key strategic areas to drive future revenue growth free cash flow expansion and our continued capital efficiency. We're hiring smartly, we're investing in project titanium or going to help our customers.
While all sizes with their transition to the open text cloud and win.
Pressure is a privilege and pressure creates diamonds at the core of our fiscal 'twenty three operating plan or the open text <unk> cut.
Customers cloud cash flow and capital efficiency and.
And we intend to produce diamonds this year.
On customers and cloud again, let's be Frank digital technology is the only answer and our demand drivers are very clear converting our off cloud install base to the open text cloud the continued value realization of digitizing all manual transactions and repeatable work the overhaul supply change for our regionalization insight.
And mitigating ongoing disruptions the explosive growth in security data Trust data zone, and compliance needs and regulations.
The need for information and process insights to help customers manage staff turnover to create cultures of knowing to remove costs and do more with less their transition the transition to a green agenda and new ESG audits, new trading partners know manufacturing de carbonization and 2030 pledges to be climate.
<unk> open text has a key role to play here to help our customers be climate innovators and even deeper relationships with top tier Tech partners like Microsoft to capture New Rmm's, an MSP is driven by the Microsoft ecosystem and disruptions that companies like data <unk>, and what security and data protection needs.
We're also going to look for deeper relationships with DCP and AWS four new enterprise workloads, all together, helping our customers win with inflation now and get more done with less on the cash flow on capital side, our outlook for the new fiscal year is continued growth and expansion, let me start with the assumption.
<unk> that we're using for the next 12 months things important to get an insight into the assumptions that we're using.
One is continued high inflation.
Continued strength of the U S dollar.
Global GDP at 2% to 3% growth high energy and wage costs for some of the open text operating assumptions, we're expecting every business line to show revenue growth. Please recall, we have a half year of <unk> benefit.
Youll see in our target models that were anticipating gross margin to be constant R&D and cloud operation investments up $75 million.
Constant adjusted tax rate at 14% and we're anticipating capex down 5% to 10% as we leverage greater benefit from our partners with our cloud partners at Microsoft Google and Amazon.
We have a strong constant currency outlook for fiscal 'twenty, three enterprise cloud bookings growth of 15% plus.
Cloud revenue growth between 6% to 8% that's total cloud revenue growth between six and 8%.
Our growth between 3% to 4% total revenue growth between 3% to 4% positive organic growth constant adjusted EBITDA as we invest significantly continued free cash flow growth and continued capital return our board of directors approved a 10% dividend.
Increase to $24 three per share for shareholders of record on September 2nd payable on September 23.
On M&A there is no change to our previous statements. Our pipeline remains active we continue to seek those opportunities that meet our criteria on valuation future growth contribution cash returns and return on invested capital.
Our ability to execute is another key point of confidence.
This is a proven team.
I am very excited about project titanium or cloud editions 23 dot too.
We chose the name titanium because it reflects our cloud fundamentals strong.
Lightweight industrial strength.
<unk> resistant.
Titanium is both new product and new routes to market.
Let's get into a little bit.
The acceleration of our large off cloud customer base to the open text cloud.
Look our licensed customers benefit by consuming this by consuming by license and are all cloud customers remain a massive cloud conversion opportunity. We believe this acceleration will happen because our customers can drop plans for large scale customization to increasingly move towards consumption and expansion model. So we think titanium is going to help us.
<unk> are large off cloud installed base titanium has also been a further scale our private cloud business with.
With significantly expanded geographic capabilities data zones and compliance capabilities.
We see the opportunity to be the most trusted secure and compliant private cloud.
Around the world, our public cloud products will be at equal functionality to our off cloud and private cloud products.
And.
We're going to be adding all of these and this will open up a whole new set of opportunities with our public cloud at equal capabilities to our private cloud, we're going to look to win the next generation platform and future workloads from customers partners and embedded IP partners through our developer cloud.
We see where ecosystems can be built around our API based developer cloud the.
The open text cloud platform the fundamentals underneath all of our business clouds and developer clouds will allow customers to leverage all of our clouds suites with less friction and less professional services and seamlessly go from one module to all modules because the technology the data the workflows of setup the user administration.
<unk> is all common across those business clouds.
We also see the new opportunity for new digital engagement center that we call. The open Tech zone, where customers can trial purchase renew and get all the support they need automated all self service without human intervention with all of this together with titanium.
We have an opportunity to re imagine the enablement of customers at scale in the cloud. This is really important now the old model that almost all of the large tech partners. The tech ecosystem work under today that all it's the old model of layer land adopt expand renew.
Ben books written about it well, let me let me be clear, it's an artifact of the past and it is not built for cloud scale. We've created a new model with titanium a new customer success model centered on four principles and we've actually already trademarked it its land operate Val.
<unk> expand when the customer land.
Operate their business at scale.
The customer and deliver the value and when we have delivered the value together than they expand land operate value expand we're going to organize it we're going to evangelize. It we're creating programs behind it a land operate value expand L. O V E. That's right it spells love.
The new open text love model for customer success with titanium land operate value expand.
We are investing and accelerating all things cloud and this puts us on a vigorous and guided growth trajectory that informs our medium term fiscal 2025 aspirations. We are raising the bar on our medium term aspirations and in constant currency our aspirations include.
Continued enterprise cloud bookings are 15% plus.
Total revenue organic growth between 2% and 4% increase bookings to drive increased cloud organic revenue growth up 6% to 8%. There is really important I want to repeat this our three year aspirations, our fiscal 'twenty five medium term aspirations.
Includes cloud organic growth revenues of 6% to 8%.
<unk> are up to 85% of total revenue adjusted EBITDA margin between 37% to 39% given our increased R&D investments to drive more cloud growth and annual cash flows of approximately $1 1 billion and a slight change is due to the U S dollar strength and our updated non-GAAP tax rate in the low twenties.
Continued capital allocation of 33% of free cash flows.
To dividends and buybacks, let me wrap up my prepared remarks before I hand, the call them do within your questions.
We're prepared for this dynamic environment.
And we've prepared uniquely in the open text way for the opportunity that we see for open text, we are investing to out compete our rivals and our R&D and current investment for F. 'twenty three is up $75 million to a total of $1 billion in annual investment driving titanium the open text zone.
Increased distribution and the open text love model.
We're also preparing for a better company and a better tomorrow.
Today, we published our third corporate citizenship report, please read and it reflects our culture, our commitments to our employees our commitments to our customers to our partners and our commitment to you and to the world around us and the communities in which we live and work we welcome and value your feedback.
I'm an optimist deep.
Deeply believe the future is brighter than today, because the future is made in the best parts of today Okay.
Open text is committed to ensuring that growth that our growth is based on inclusivity and sustainability I'm recently back from just a fantastic customer employee tour in Europe , Let me put a customer.
Time and people are the greatest assets of our company and its time for radical prioritization.
At our strategic technology table is Microsoft Oracle SAP Salesforce, Google and open text open text has demonstrated amazing flexibility time to value and unwavering commitment to us during the pandemic and you earn <unk> end quote.
It's time to standardize on companies built for the long term like open text I'd like to thank our employees our customers our partners and our shareholders for your continued trust and confidence in open text. It was just a fantastic fiscal year, we're off to a great start in fiscal 'twenty, three we're humbled and proud to help advance <unk>.
Our mission and goals and work and to make open text on the world better for everyone.
One that brings peace bring piece, we're all well.
With that let me turn the call over to our amazing CFO Madhu Robin often madhu over to you.
Thank you Mark and thank you all for joining us today all references.
Millions of USD and compared to the same period in the prior fiscal year and on a reported basis unless stated otherwise as.
As I share our strong results in the quarter and full year ending June 2022, and let me start with the entire open texts gene execution during the quarter and.
Which was remarkable.
And now let me expand in Q4 fiscal 2022 results.
For revenue, we are very pleased with our record Q4 revenue record annual recurring revenue and record cloud Debbie.
On revenues and adjusted EBITDA, we are well within the expectations shared with you as part of our quarterly factors in May 2022.
Trust and foreign exchange the U S dollar strengthened throughout the quarter, creating an additional headwind beyond what we shared back with me for foreign exchange in Q4 was a revenue headwind of $33 million impacting customer support and cloud revenues the highest.
We grew total revenues four 7% on a constant currency basis and 1% on a reported.
Cloud revenues to 16, 6% in constant currency and 14, 3% in reported currency and our sixth consecutive quarter of organic growth.
Strong renewal rate of 94% in cloud and 94% and off cloud and we see this continuing given strong performance of our newest organization and customer validation.
And now moving to other financial metrics GAAP based net income was $102 2 million during the quarter down from Q4 of fiscal 2021 income of 181 3 million units.
ZIP integration higher special charges, including a facility optimization and lower year over year equity gains on limited partnership investments.
Adjusted EBITDA for Q4 with $313 $6 million 34, 8% of revenue versus $214 8 million or 36, 2%.
You see in our Q4 results on a non-GAAP basis cost of sales and operating expenses were higher by $12 million year over year as we proactively balance the integration of VIX Foreign exchange expense plus the continued investment in growth focused R&D.
Marketing and automation debated internal technology projects.
Operating and free cash flow, we generated $251 9 million in operating cash flows free cash flows in the quarter, but $213 8 million or 22, 7% of revenue.
During the quarter consolidated DSO days sales outstanding were 43 days consistent with the same quarter. They get it up our team continues to deliver strong working capital efficiency and conversion from adjusted EBITDA to free cash flow.
Conversion rates from adjusted EBIT to operating cash flow was 80% and a high conversion of 85% with operating free cash flow.
Now, let us move to our full fiscal year 2000.
'twenty two.
We generated record revenue.
Revenue for the full fiscal year.
As we accelerate our business into the cloud we believe the better way to measure our business tempo is enterprise booking plus supported Debbie.
Slide 22, our enterprise.
$466 million that presenting strong double digit growth over the prior year.
It is broad based across our enterprise.
Our enterprise product offering and we're seeing a growing number of large multiyear cloud deal with an average commitment of over four yet reflecting the strategic importance.
Oh I've opened textbook customers.
Relating to our enterprise cloud bookings.
Trend of larger deals defined $1 million contract value continued during the fourth quarter content cloud was strong in telecommunications and you get to these in detail our experience cloud is the strong in insurance healthcare and chemical manufacturing while business networks saw strong cloud growth in sectors that rely on supply chain such as Google.
Beverage manufacturing automotive and detail, we will begin to disclose enterprise cloud bookings every quarter on a trailing 12 month basis.
On revenues for the year, we grew total revenues scope, one 2% on a constant currency basis, three 2% on a reported basis and one 7% on an organic constant currency basis cloud.
Cloud revenues grew nine 8% in constant currency and nine 1% in reported currency and three 6% on an organic constant currency basis.
Our revenues grew five 5% in constant currency 12, 5% on a reported basis and two 3% in organic constant currency the impact of foreign exchange to revenue for the full year was $39 million, most affecting customer support and cloud.
And now moving to other financial metrics GAAP based net income was $397 1 million up 27, 8% simply held at 10 million Anticipant 2021, due to lower tax provisions relating to the prior year settlement.
The higher custom mix acquisition, our facility optimization charges and debt extinguishment related to our successful refinancing getting yet.
Adjusted EBITDA for fiscal 'twenty, two was $1 6 billion or 36, 2% of revenue versus 132 billion. A 38, 8% of revenue in fiscal 'twenty. One once again, reflecting our continued investments in cloud edge security and VIX integration, we remain on track to have Victor that operating model.
By December 2022.
Operating and free cash flow for fiscal 2022, and we generated $981 8 million in operating cash flows in $888 7 million and free cash flow, except the center.
The conversion rates from adjusted EBITDA to operating cash flows on an annual basis, and 78% and a high conversion to free cash flows of 91% given our continued capex efficiencies.
Now moving to balance sheet and liquidity, we ended the quarter with $1 7 billion of cash another 750 million available.
Undrawn revolver and a very strong net leverage ratio of two times and approximately 75% of our debt at fixed rates.
Let's turn to outlook, our updated targets an aspiration.
The U S. Dollar remained strong we plan our business in constant currency and we will present, our business. This year on a constant currency basis, but our quality factors children's those strategy and medium term aspiration.
For the first quarter of fiscal 'twenty thing you would see a quarterly factors outlined in page seven of the investor presentation.
So Q1 on a year over year basis in constant currency, we expect cloud revenues up 13% to 15%.
<unk> up 6% to 8% total revenues up 4% to 6% and FX revenue headwind of 40 to 45 million.
Adjusted EBITDA dollars flat year over year in constant currency, while continuing to make investments in cloud in security and edge and continued integration of <unk> acquisition.
We expect FX to be an adjusted EBITDA headwind of approximately $20 million.
Our fiscal 2000, <unk> total growth strategy in constant currency, we have provided on page eight of our investor deck.
Cloud bookings are 15% plus.
Total cloud revenues up 68% payout are up 4%.
Children's revenue growth up 3% to 4% at current exchange rates FX will be a headwind of approximately $100 million for the full year.
As noted on page nine our fiscal 2023 targets modeled it remains largely unchanged from fiscal 'twenty to levels, except for an increase in net interest expense of 12 to 22 million and a decrease in capex at 10% to $13 billion.
Fiscal 'twenty five exploration in <unk>.
10 of our investor deck, and specifically enterprise cloud bookings uplift.
15% plus.
Organic revenue growth of 2% to 4% led by cloud organic growth of 6% 8%.
At 85% of children.
As you can see somebody results outlook and medium term explanations with respect to cloud revenue, we have grown cloud revenues from zero in fiscal 12 to $1 5 billion in fiscal 'twenty two we.
We delivered nine 8% constant currency total drought in the cloud in fiscal 'twenty two.
Communicating today fiscal 'twenty three outlook to deliver 6% to 8% constant currency total growth in fiscal 'twenty.
Yes.
Important constant currency organic growth in the cloud improved from one 8% in fiscal 'twenty, one to three 6% in fiscal 'twenty two and today, we are communicating our medium term aspirations outlook up 6% to 8% organic growth in fiscal 'twenty. Five this truly reflects open text is xfinity.
To the cloud with emphasis on cloud organic leading acquisitions remain a strong optionality and consistent with our total growth strategy.
Retain and acquire.
This is a fantastic accomplishment.
So moving to adjusted EBITDA margin, but I can give to them aspiration, 37% to 39% free cash flows of $1 1 billion plus with an opportunity to do better.
The revenue improving currency exchange and higher benefits from tax structure optimization.
We expect that effective tax rates to stay at approximately 14% in fiscal 'twenty three before moving to the low 20 in fiscal 'twenty five.
And finally, let me Echo Mark's comments, the relevancy of our technology and expertise to our customers has never been higher.
In Texas, not just prepared for the future.
Poised to thrive.
Without strong financial model, we expect continued investments for growth and innovation domain focused on book BMT and ongoing actions operational excellence and disciplined execution.
In summary, all of US at open text it within a marketable finish to our fiscal year on behalf of open text I would like to thank our shareholders, our loyal customers and partners, especially thank you goes out to my <unk> colleagues around the globe. Thank you you are the best in industry.
I will now open the call to your question.
Thank you.
We will now begin the question and answer session anyone who wishes to ask the question you May press Star and one Andre 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 key if you wish to remove yourself from the question queue.
Press Star and two.
The first question comes from Stephanie price of CIBC World markets. Please go ahead.
Hi, good evening.
Thanks, Jeff.
EMEA almost 15% cloud bookings expected in fiscal 'twenty three I was hoping you could walk through the cloud offerings that you see driving the growth there.
Yes, it sounds great very very very happy to so first of all.
Stephanie we're going to introduce.
New bookings.
And for the year and going forward.
And we're going to keep you up to date quarterly.
We can do that on a trailing 12 month basis as as Madhu said to keep a lot of visibility right on here.
And this is enterprise bookings.
For us it does not include SMB.
Its enterprise bookings.
There are a variety of of the two.
The two top of the list our continued strength in <unk>.
Customers migrating from off cloud to our cloud.
For the content.
This is the continued digitalization.
Finding being a bit short on resources skills security compliance the need to go global on on workflows. So just that continued drumbeat of digitalization for the content cloud.
Or co number one.
Rather is we're seeing a lot of activity in the supply chain.
As companies are in full throttle for regionalization and Derisking.
From around the world getting more control of.
Just in case inventory more control towers, and a new set of requirements around.
There are 2030 pledges, even with all the macro we see just a sustained commitment to 2030 pledges.
We more toyotas partner in the supply chain as they drive towards through 2030 electrification goals for for example, so Stephanie I put the continued drumbeat of digitalization and the content cloud.
And supply chain.
Co number ones.
Driving towards what we think is going to be strong double digit growth in our cloud bookings and just to recall that's on a base of $466 million of new bookings in 2000, and a 15% plus in fiscal 'twenty three.
That's helpful. And then maybe the other side of the equation can you talk a bit about the income incremental $75 million in cloud investments in fiscal 'twenty three what are the major investments in our go back and maybe related it looks like these investments will continue into the future given the fiscal 'twenty five aspirational market, Jim about 100 basis points below that 24 outlined so maybe.
Talk a bit about what you're seeing going forward there.
Yes, very good.
That 75 million additional in total $1 billion in R&D.
And cloud operations.
Number one titanium objective.
Public cloud parity.
Two our amazing private and off cloud capabilities.
The list.
Second.
Is security and compliance we just see a.
Just a huge opportunity to be the trusted cloud operator, and information management there to meet the requirements of a data zone in France, a data zone in Germany.
We're seeing customers post.
Russia is worn Ukraine, we're seeing commercial customers ask for banking level type security in the private cloud, we think literally only a handful four or five companies around the globe can deliver.
These type of requirements whether they be.
Hip up.
Socks.
Boston.
Data zones sovereignty.
Type data zones, and sovereignty type requirements. So step that would be the second area and then third is what we call. The open Tech zone, we're going to compete and we're just getting started in SMB I mean, what an amazing two year journey from zero to.
Approaching $700 million of revenues and there's a lot of automation, we're going to put behind.
The growing.
Growing our MSP MSP and Rmm's, all through automation and self service.
Trying buying downloading install based management.
So those are the three big areas that we're going to see the lion's share of the $75 million.
Okay.
That's helpful. Thank you very much.
The next question comes from Raimo <unk> of Barclays. Please go ahead.
Great. Thank you. This is Jeremy on for Raimo Tonight I wanted to ask also on cloud just on the performance in the quarter can you speak to how much that is net new for customers migrating over from licenses and then.
In terms of product and anything kind of stand out across content or network or security or would you say it was pretty.
Consistent from past quarters across the board. Thank you.
Yeah, So Jeremy thanks for the question.
Yes were not breaking out that which is brand new versus that which is a migration or just like a pure migration or migration and a new workload or a new customer.
But I can tell you it was really a mixture of all of that.
And look I think the second to the second half of last year was stronger than the first half for our cloud bookings.
So we look at the $466 million of this is new value. This is a total value of what we booked this only the incremental value.
To those cloud bookings so the second half of the year was certainly stronger than the first we're going to keep everyone updated quarterly.
Here on a trailing 12 month basis. So you can track our progress to this double digit new booking value for enterprise cloud growth.
But Jimmy I'd say it was a mixture of those the installed base migrating which is still the number one opportunity we have to migrate our installed base.
To migrate and add new workloads like we've had some customers that esignature.
That were either migrating or just or just moved and then completely new customers like close brothers.
In the cloud so a mixture of all three.
Thank you.
The next question comes from Richard <unk> from National Bank Financial. Please go ahead, yes. Thank you so kudos on the continued execution there.
With respect to the macro environment I understand you said that it's in your outlook, but what are your customers, saying today about their budgets for.
Tech spending as we look to the remainder of this year or are they feeling kind of continually optimistic or are they kind of.
Perhaps putting some pause or slowing the cadence of some of the projects.
Richard Yes. Thanks for the question good to hear from you.
On the demand side.
In aggregate.
Our demand is steady.
We have strong visibility and it supports our outlook for the year.
And this is a strong outlook of double digit 15% plus cloud bookings growth.
We're looking to grow our cloud revenue, which takes bigger bookings right between 6% to 8% and then total growth between 3% to 4%.
So I'd say in aggregate.
Demand is steady we got very strong visibility and supports the outlook we have for the year.
Let me drill down just into a little bit and avian to three three places around the world.
Germany, there is a lot of attention on Germany of course, a lot of a lot of activity fuel costs a lot of headline news now we're very strong in government heavy manufacturing heavy industries manufacturing.
Sure.
Should there be.
A downturn in Germany, we're in a great position, because we're going to be where customers are spending.
Government defense Aerospace heavy industries manufacturing has always been a.
Look at our history, there over a decade as well chronicled.
Whether it's all weather business in Germany, because of our our our sector exposure, we're paying a lot of attention to the UK as well.
And that's a little more on the inflation side versus the spend side and we talked about are our wind program with inflation now we've got a lot of campaigns around that.
And I'll tell you in the U S demand is very strong.
And the U S economy is not predetermined.
To go to go read not predetermined.
So look our demand is steady we got very strong visibility.
We're paying attention to Germany, and UK, very uniquely and more and more up arrow in the U S right now.
Alright, Okay, and then you made some comments on the cloud bookings and thanks for providing more disclosure going forward on that but.
I just wanted to clarify is that kind of all organic care or is that include some acquisitions.
100% organic.
Okay. Okay.
And last question for me is.
Obviously, the labor market has been fairly tight given your stability.
Finding it easier too.
Retain talent and bring on new talent.
Another great question and look I am going to short answer is yes, our talent and company brand has never been stronger.
I'm just back from a great trip in Europe .
With customers and our team in France.
France, and Germany, the Netherlands, UK I've been traveling throughout the U S. On here in Waterloo right now are preparing for a trip to India.
Next month, and let me zoned in on India, because it's our probably our largest hiring market. We are a 100% back to work in India honored percent and its invigorating to see the teams back with such.
Intrepid newness and robustness.
So our talent and corporate brand has never been stronger we are competitive in the market and this is going to support our our 2% head count expansion.
A lot of companies, we're going to put a lot of.
Oh wait behind performance reviews this year.
And raise the bar internally on our expectations of all of us.
But we're in great shape, Richard for hiring and meeting our talent needs for the year specifically in places.
Like India and the Philippines.
That's great.
If I could just.
I'm sorry, if I could just add this is mackie here to your question on the bookings.
For the benefit of you and maybe I'll open the call as well when Mark explained organic. So these are new these are incremental.
Kudos to our sales team and this is what the sales team bring new business new contract value each year.
Again, I just wanted to expand into your question box and so is this new.
This organic 100%.
Okay.
Thanks, Greg milk carton, 100% organic.
We do.
Madhu if I just can't if you don't mind me, calling on you.
Back from India.
Maybe share your voice on your trip to India and team open text India.
Yeah fantastic well. Thank you Mark So as Mark said I was in India in June and we've had a long standing presence in India and pushed about it is it's great to be that they have amazing talent in the fields of engineering cloud operations and customer solutions group and everyone. Just valued at the time that time in person the appetite.
Therefore for learning a joke and that's the pride, they're sitting in India, and delivering to our marquee customer base around the globe product and innovation.
And as Mark said, we look forward to it.
Even going further in India.
That's great. Thank you.
Yes, Thanks Richard.
The next question comes from Santos was published from BMO Capital markets. Please go ahead.
Hi, good afternoon.
Mark Microsoft had called out some softness in the quarter.
Can you comment on what Youre seeing there I guess, both within <unk> and more broadly given the lessons to be a bit more macro.
Area.
I am sorry Santos there was a little breakup in the line I Couldnt hear the first part is yes, yes, yes, sorry, Mark I was saying Microsoft called out some softness and S&P during the quarter. So if you could comment on what youre seeing within snacks and more broadly in your SMB business and also in terms of the resiliency is expecting a downturn within SMB.
Yes fair enough so.
<unk>.
Yes.
Maybe starting at putting it all in context for us we've.
We created our SMB and <unk> business from zero to approaching your $700 million and this is just our second fiscal.
Fiscal year.
The business is growing it's growing organically, we've got gross margins in the high eighties.
And we're taking a very unique distribution model.
Don't help direct.
Smbs, we do Theres always a little bit around the edges, but the 90% plus of what we do.
Is trying to build this unique distribution model to MSP, and RMS and doing that through a unique platform. We've written the software.
We were in Salesforce dot com right for MSP, and RMS and we're expanding that massively to go out and attract rmm's, an MSP to come to our open Tech zone.
Register download try purchased distribute this software collect install base information from their customers to manage monitor what theyre doing.
So it's a very unique distribution strategy and we've got over 100 people right in software for.
For SMB.
To automate the selling.
We're looking our biggest partner of course is Microsoft It is all about a Microsoft ecosystem.
They are.
Just getting started on their new new commerce experience platform.
I wanted to speak about what were the expectations externally about when MTGE will start to ramp, but mtge's now in the market and where our top five partner for for their conversion to LTE. So when we're in a great position are right there with Microsoft.
<unk> is we see the opportunity to resell <unk> into the Carbonite install base, we see a lot of disruption with data.
We're investing in.
The zone, we got SMB and see M&A opportunities and are in our pipeline.
So we had a great second year.
We've only been at it for two years.
And.
We're going to we expect to grow and grow again organically piano here in fiscal 'twenty three.
Great just to clarify so then at this point not really seeing a slowdown in the macro within F&B.
No no we haven't we have a lot of great levers here because.
We can bring <unk> into the Carbonite installed base Green carbonite into the <unk> installed base. So those are the things unique to us.
That.
Our levers that others don't have.
<unk>.
Also there is some real disruption.
Data.
And we're going to be there too.
To be helpful to those our MSP.
And.
And Microsoft just getting started and their conversion to LTE and we're in the we're in the top five csp's to help them. So you put all that together and ensure there is some demand aspects out there but that altogether.
<unk> any demand noise that out there for us.
Okay. That's helpful. And then just a quick one for Madhu I think I heard you say in your prepared remarks that it was two 3% organic revenue growth from three 6% organic growth for the fiscal year is that correct or did I mishear that.
Yes, three 6%.
Constant currency.
Okay, I'm, sorry have you disclosed organic total revenue growth or no.
So we do have an appendix and.
As we do on an annual basis in our investor deck.
That spells out the organic cloud details have yet.
Okay, sorry, I missed that okay. Thanks for that one.
Yeah, great. Thank you.
The next question comes from Paul Treiber, RBC capital markets. Please go ahead.
Alright, thanks, very much and good afternoon.
China's dovetail a couple of things of your with your medium term outlook.
First obviously the enterprise cloud bookings is quite strong.
And particularly relative to your Tam is it a fair statement that within enterprise cloud you believe that you're gaining share relative to the Tam.
Yes.
Okay.
That's the starting point and then the second question is with in medium term growth.
The 8% organic cloud growth.
What point does that start driving up overall organic revenue growth because it's still in the 2% to 4% range or at what point does it reach a tipping point and start driving that.
You can start seeing faster growth and also related to that should we expect the other segments like license customer support professional services decline over the medium term as you do that transition.
Yeah, So Paul let me take a part of it and then hand to part two to Madhu <unk>.
I just wanted to be brief in my answer to you on the first part of taken share. So the short answer is yes, maybe just adding a center to that.
Look there's a real opportunity.
Time.
To standardize on companies like open tax then.
And it's the Darwin moment and technology.
Where it's time to Outcompete your rivals it's a darwinian moment.
So when I look at kind of these tier two and tier three competitors and I don't mind, calling them out Colfax, Thailand.
Sps commerce.
Filenet Sterling Commerce.
<unk> I think it is a darwinian moment too.
To be more aggressive.
To Outcompete your rivals.
So, yes I think.
I am very confident with this bookings growth.
This new value enterprise bookings growth.
We're taking share and it will flow into revenue as youre seeing it work through our model.
And we hit the if I look at our license business in the quarter and then I'll hand, the microphone over to Madhu on constant currency license was about 10% of our business remarkable right I mean down from almost a third of our business 10 years ago to 10%.
And cloud was up nine 8% or $137 million.
So even though even though license was down about $15 million.
In absolute dollars cloud was up $137 million.
And I think trading $17 million or $137 million, if you quote dances what Walt.
That's a good trade.
So we're going to continue to sell our license customers, who purchase license today are in three camps. They look for long term economic value. They look for some capacity expansion and they look for a very trusted deployment.
The license is also our largest cloud opportunity to convert that installed base over time. So a lot of our where we are methodically moving through that installed base. So there are a couple of real events to watch license falling below 10%.
That is a moment in time and we're getting real close.
Titanium public cloud at parity to everything else.
<unk> two events should be accelerators for us accelerants to more cloud growth.
Let me hand, the call over let me hand, the microphone over to Madhu.
So thank you Mark I think you shared.
And a great set of perspectives here I would just add saying if the question is how do we get beyond.
At the current levels of organics out in fiscal 'twenty five, but what we've stated I would just point out to what is getting bigger the annual recurring revenues at 82% going to 85%. So our focus really within back the beating without being cloud. That's what you said are focused on right and certainly you should look beyond that.
That's above the current ranges, but I would also point out one eight with them cloud constant currency fiscal 'twenty, 126% in fiscal 2000, and they're making a big leap to 6% to 8% organic growth in fiscal 'twenty five so I would just say as the 85% gets because right what's really going to drive the total is going to be that.
85% and within that it's going to the cloud.
Okay. That's helpful. One last one for me just with the outlook for this current year or Youre, calling for license revenue growth.
Track this year why do you see the turnaround in the short term for our license revenue.
Yes.
And so the nature of the visibility and pipeline Paul.
Where we see.
These are sales cycles that are <unk>.
<unk> multi quarter and we can see we have the visibility and pipeline of customers looking to build very fortified and.
Secured environments.
And so that just we're calling it like we see it through the visibility and pipeline.
No. It doesn't change the view that we think license is going to be relatively constant over time as we just said we disproportionately grow cloud.
But.
We're going to see a bit we expect to see.
A positive green carat next to license this year.
Okay. Thank you for taking my questions.
Thank you.
I will now hand, the call back over to Mr. Darren <unk> for closing remarks.
Alright, well.
Thank you everyone for <unk>.
Joining us today and it was real delight to.
To walk through our Q4 results our annual results our outlook for 'twenty three on our aspirations for F. 'twenty five please.
Please read our corporate citizenship report, we're very proud of it and we look forward to and we value your feedback and.
We look forward to being on the road and at our Investor conferences. This year to do myself, Harry and Greg I will personally be it.
Citibank Conference in New York.
And we'll be there in person and hope to see many of you there have a great afternoon, and thanks for joining the call today.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
Yes.
Yes.
Yes.