Q2 2023 Open Text Corp Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the open text Corporation second quarter fiscal 2023 financial results Conference call.
As a reminder, all participants are in listen only mode.
Conscientious being recorded.
After the presentation, there will be an opportunity to ask questions. They joined the question simply press Star then one on your Touchtone phone.
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I would like to turn the conference over to Harry Blount Senior Vice President Investor Relations. Please go ahead Sir.
Thank you operator, and good afternoon, everyone and welcome to open text second quarter fiscal 2023 earnings call with me on the call. Today are open text, Chief Executive Officer, and Chief Technology Officer, Mark J, <unk>, and our executive Vice President and Chief Financial Officer, Madhu Rangan 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 press release and Investor presentation online.
These materials will supplement our prepared remarks and can be accessed on the open text Investor Relations website at investors don't open tax dot com.
I'm pleased to inform you that open text management will be participating at the following upcoming conferences Bernstein's technology media Telecom and consumer one on one forum on March 1st in New York and Scotia Bank's TMT conference on March seven in Toronto.
And now on to 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 statements additional information about the material factors that could cause actual result.
It's 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 current most directly comparable GAAP measures may be found within our public filings and other.
Reals, which are available on our website and with that I'll hand, the call over to Mark.
Thank you Harry and welcome everyone to our fiscal 'twenty, three Q2 call Madhu.
But you and I are delighted to be hosting today's call from Ottawa Tomorrow, We rang the opening bell at the NASDAQ lives in the Nations capital. It is nasdaq's first opening from Canada and Tomorrow is a recognition in celebration of Canada and open text, leading role in global technology innovation.
Or differentiate at young company and we're just getting started.
We get right to the most important points today.
<unk> had a truly superb Q2, achieving overall constant currency revenue growth of seven 8%.
Which reflects very strong cloud revenue growth of 16% excellent renewals performance and continued focus on efficiency with 37, 7% adjusted EBITDA margin, even as many of our team members also worked very hard to prepare for the close and integration of micro focus.
Many of the same secular factors that contributed to our growth have only increased our confidence in the potential that we see in the acquisition of micro focus specifically in an increasingly connected and data intensive world our customers need actionable insights and information strong security and continue.
And for our innovation and the tools that they need to accelerate the digital evolution of their complex business environment in order to securely deliver on their customers' expectations and do so efficiently.
We are on track to deliver on every commitment we made at the time of the micro focus acquisition announcement I'll elaborate later.
But we are more confident than ever about the value, we can create for our shareholders customers and our employees and the performance we can realize by applying the open text business system.
<unk> experienced integrators, we have a proven track record that has been refined through the course of integrating many large acquisitions over the last decade. In addition, you'll hear today that we're on a path to deliver $6 billion in annual revenues of $2 billion cloud revenue business and over 2 billion and adjusted <unk>.
But of dollars with upper quartile free cash flows.
On the trust of our customers.
There's five specific topics I want to cover today, one our vision, our differentiation and how we plan to win in our markets to delivering on our expanded information management mission and growth programs third multi year financial milestones and aspirations, including Asta Apart Q2 results.
Fiscal 'twenty three growth targets well that's discussed today are preliminary F. 'twenty four growth targets and even stronger at 26 aspirations will also talk about our strong capital allocation approach and plan and how we intend to create value with the open text business system.
Get into it.
First our vision, our differentiation and how we plan to win in our markets markets are never static through time, we've expanded information management to include many types of content experiences and business networks.
Well the micro focus acquisition open text corporate mission expands again this time to help enterprise professional secure their operations gained more sat into their information more insight to their information and better manage increasingly hybrid and complex digital fabric with a new generation of tools that include.
Cyber security digital operations management applications automation, and AI and analytics.
Digital life is life and this is generation digital.
We call this business 2030.
Organizations can only achieve their strategic aspirations by becoming digital leaders and top economic performers already investing disproportionately in digital capabilities were on the cusp of a new world are up driven by digital new productivity and harnessing the world assets on locking human potential the reshaping of our call.
Enemies by the frictionless flow of goods people capital ideas and the new uses of technologies that will drive the next big arena of value and competition basis 2030 will be achieved through for digital transformations total enterprise win Yep reinvention every industry totally true.
Formed by digital a new workforce led by generation Y and Z and only a digital mindset, new digital paradigm to sustainability climate Trust, and social Justice and new digital requirements and extend it reality voice and facial interfaces diverse and AI.
Organizations will continue to lead the process advantage of course, which they receive from ERP and CRM vendors, but the process advantage requires data and actual insights customers need the information advantage, which they receive from open text forged by digital.
I speak with a lot of customers and their business operations are getting more complex as they operate across many countries.
Many regulatory authorities platforms endpoint and cloud, including the rocketing security and industry compliance requirements process and information sprawl is increasing for business information and automation that spans commerce supply chain service management asset management payment systems financial.
Systems Communications and service management, the more connected business becomes the more complex the business operations.
At open text, we have the end to end software and cloud capabilities to help customers make this transformation rapidly and cost effectively. This is why I like to say, we are the platform of platforms, where information management costs.
Customers need a single real time view of information across these complex business infrastructure says intelligent connected and secure and responsible that is what we do and it is unique.
This is the open text information advantage specifically, we believe there are six key markets required to enable the information advantage and deliver the high impact digital transformations required for business 2030, and winning in this new digital era. The six markets are these number one content services.
Which include experiences number two business that works third cyber security fourth application automation, which includes 80 M&A M C.
Digital operations management formally I, Tom and six analytics and AI.
We are organizing around this strategic and growing totally addressable market of 200 billion plus and well keep you updated on our progress our progress and these six market areas secondly.
Second thing I want to talk about today is delivering on our expanded information management vision and growth programs and it's been a great first week speaking with micro focus employees and customers and we have already completed our leadership structural and keep people integrations, there was enormous amount of energy and excitement.
Please recall the transactional financial highlights are as follows we paid an enterprise value of $5 8 billion financed with cash and debt.
This equates to a revenue multiple of approximately two three times and adjusted EBITDA multiple of six seven times, a very attractive multiple and the business is immediately accretive to adjusted EBITDA dollars. Moreover, we loved the amazing talent marquee customers and great products, including.
Idle in the content space verdict, and AI, fortify and vantage a voltage and security.
Smacks, and digital operations and load runner and value edge and applications automation, including critical mainframe technologies that power of the global 10000 today and tomorrow.
We also intend to fix the things that need fixing.
Accelerate to the cloud.
The invention of the customer engagement with the open text love model centralizing renewals and implementing O T best practices and right sizing the organization for speed impacting growth.
On growth, let me summarize a few key programs.
<unk> delivered 90 or 95% renewal rate for off cloud in Q2.
We expect to make steady progress in transforming the customer experience with micro focus products and raising the low eighty's renewal rate to ours by the end of fiscal 'twenty five or sooner.
Rapid innovation, the highest correlation to high renewal rates as product value and we are taking several actions to accelerate innovation to all our customers. Specifically, we are immediately engaging customers to migrate to the open text private cloud for all major microfocus offerings.
And transitioning micro focus toward 90 day release cycles to accelerate innovation.
Within the six markets customers will benefit from some fantastic new product value our growth strategy is to win the six markets and go deep in it and each space with select strategic cross market integrations that include cloud AI and security, let me highlight some of those growth areas and our fixed market.
In the content space.
We intend for programs to help customers expand the areas of digital potential we're going to leverage our new Idaho capabilities to incorporate new business workloads that leverage voice video imaging and facial recognition. These are all new workloads, we can bring our content into well go off of the open text private cloud.
All of these to all micro focus customers to accelerate innovation.
We're going to deliver the most secure content platform in the market with our new voltage and with titanium gain larger share and SAS ECM market, we're on track with titanium.
And the business that workspace integrate our new vertical advanced analytics and machine learning capabilities and to the open text trading grid to provide massive data and analytics to drive the next generation of supply chain transformations and leverage our new digital operation a Spanish bank capabilities to increase the speed of change the rate of change.
<unk> within the supply chain.
Security is job number one and cyber security with the acquisition of Carbonite Zacks and micro focus security products open text is now one of the largest cyber security businesses in the World. We've created a single go to market motion covering enterprise SMB and consumer are providing a complete site.
Our security stack in the marketplace from endpoint forensics identity encryption and cloud based application security, we intend to invest in cyber security gained share and ensure this is a top driver of customer value from open text with our applications automation space, We've added significant new Dev ops.
Abilities and performance quality and application testing within our with our cloud scale and experience, we will turn up the volume and helping customers use these new tools to migrate and modernize into the cloud.
Even faster.
New digital operations management space will help customers increased service levels and customer experiences by integrating extended ECM and digital operations. We ran this play very successfully with S. H P applications will run it again with E E C M and digital operations and in analytics and AI.
We believe vertical is a gem, we have two clear value place.
Great Magellan in a new vertical for Standalone, AR, AI and analytics and the two products already have their initial integration and we demo. It live this week and embed it vertically and all are making a major offerings from our content business network and security.
Information management, and the cloud secured intelligent and at scale customers will benefit from prompt some fantastic new products value.
On our cost reduction programs, we can foresee we confirm our approach to removing 400 million of combined company cost over the next 18 months by reducing overlapping work removing inefficiencies.
Eliminating redundant facilities and automating work Mcgill will speak more about this on a few moments earlier. This week, we announced our plan to right size, our combined workforce from 25000 employees at 23000 employees, an approximate reduction of 8% within fiscal 'twenty. Three this reduction is solely driven by the acquisition.
And we still plan for strategic hiring of key roles in select geographies to help us drive growth and innovation. This is going to be a rapid value accretive integration.
Third thing I wanted to talk about today is our growth plans financial milestones that aspirations.
As I said at the start we had a superb Q2 or integrating micro focus from a position of strength.
Let me walk through some of our Q2 highlights and year over year constant currency, it's our eighth consecutive quarter of cloud in a or our organic growth.
We delivered 945 million in total revenues or seven 8% growth $423 million of cloud revenues are 16% growth and with micro focus our cloud revenues are going to approach 2 billion a year.
We reported a enterprise cloud bookings growth of 12% and our adjusted EBITDA was 37, 7% on a reported basis, we delivered $163 million of free cash flow and adjusted EPS of <unk> 89 cents or <unk> 94 cents in constant currency I couldn't be more pleased about what we have accomplished.
With and for our customers this quarter.
We had strong customer adoption of cloud additions within the quarter R. R. Donnelley layer Royal Bank of Canada, Los Alamos National Laboratory a M D.
Defense Health agency and transport of London.
We're excited to partner with these leaders as they accelerate their digital transformation and look to own their digital capabilities.
You know in an uncertain environment, we continue we see continuing high customer engagement and strong demand for our solutions.
Last quarter I talked about the concurrent compounding challenges in our world and inclusive of currency wage and goods inflation fuel prices Russia's worn Ukraine supply chain constraints skill shortages and more many of these trends continue.
The only answer is digitalization to deliver insights improve efficiency and lower costs in our strong Q2 results reflect the corresponding increasing need of businesses to partner with open text.
It is clear that technology is playing a significant role in boosting productivity in the face of these challenges and technology is a greater portion of GDP today Itc's research makes it clear that technology budgets are growing they forecast it spend will grow 5% in 2021 'twenty two 'twenty three this year software span.
And at 8% and software as a service stand at 15%.
Transitioning to our financial outlook, we promised more visibility and we are providing it today.
In our Investor presentation, we have provided our updated F. 'twenty three targets F. 'twenty four preliminary targets and our F. 'twenty six aspirations each include micro focus.
Let me summarize and year over year terms and in constant currency. Our F. 'twenty. Three targets include total revenues up 28% to 30% or 4.47 billion to $4 five 5 billion with micro focus contributing between $870 million to $920 million.
Our continued enterprise cloud bookings growth of 15% plus but total company is expected to grow organically adjust.
Adjusted EBITDA dollars between 1.46 billion and 1.52 billion or adjusted EBITDA margin of 32, 5% to 33, 5%.
Reported cash flow of 500 to 600 million impacted from integration spend.
Would be a year of cloud acceleration and Onboarding micro focus.
Let me provide a preliminary F 'twenty four targets.
Total revenues up 33% to 35% or $5 7 billion to $5 9 billion of total revenues enterprise cloud bookings growth of 15% plus.
The total company is expected to grow organically.
Adjusted EBITDA dollars between 2.1 billion to $2, two 4 billion or between 36% to 38%.
Approximately 800 to 900 million of reported free cash flow and let me spend a moment on micro focus in fiscal 'twenty four.
We are baseline microfocus revenues to our financial quarters and to our standards and expectations. We want to make this simple unclear for Ya they and if their last fiscal year at approximately $2 5 billion in revenues and declining mid single digits.
Our revenue baseline for fiscal 'twenty four is approximately $2 3 billion in annual revenues and that is what we've modeled into our F. 'twenty four preliminary targets. The F. 'twenty four baseline includes transitioning from I F. R. S to U S GAAP transitioning to our reporting periods our seasonality.
The complete exiting of Russia, their previous sale of digital safe and stopping some nonstrategic items.
To be clear that is all history now the baseline for fiscal 'twenty four is a stable $2 3 billion from which we intend to grow organically and physical twenty-five now if you want to do the Ford map the Ford metrics on the purchase price that is 2.5 times forward revenues at the midpoint of adjusted EBITDA.
The 6.8 times this is an outstanding value purchase.
We are replacing our F 'twenty five three or aspirations with R. F twenty-six aspirations total company organic growth.
2% to 4% enterprise cloud bookings continue at 15% plus adjusted EBITDA margin expansion to 38% to 40% and reported free cash flows of 1.5 billion plus.
Fourth thing I want to talk about today is our capital allocation approach and plan.
We have a strong three year plan and we have the leadership talent and tools to deliver.
We're on a clear path to a built a $2 billion cloud revenue business in 2 billion plus in adjusted EBITDA dollars based on this our capital allocation approach can be summarized as followings. Following a rapid delevering program starting in fiscal Q4, we expect to pay down our debt by a minimum of $150 million a quarter.
At over eight quarters until we are under three X leverage continuance of our dividend program, we intend to grow our dividend as our free cash flows grow the open deck board approved a cash dividend of 24.2 99 cents per share with a record date of March 30, and a payment date of March 23rd share count or long term.
Plan is to hold our share count constant.
Our business model is being designed to have a 20% plus conversion rate from revenue to free cash flow. This is upper quartile performance and we're on that path before I wrap up let me just speak to how we create value with the open text business system. The company is focused on growth profits and creating value we see three key.
Eric holder groups in the open text business system customers employees and shareholders for 125000 enterprise customers 1 million SMB businesses, and 8 million home users. It starts with World class delivery Trust in our products and cloud and the open text loved model land operate value expand and creating a customer.
For life for employees, we invest in three areas performance achievement and learning and for our shareholders total revenue growth that includes organic and acquired revenues like our superb Q2 <unk>.
Reinvestment strategy for growth with customer informed R&D and sales and marketing building a digital business that removes cost improves productivity via high automation upper quartile adjusted EBITA margins strong free cash flow with a yield of 20% plus our capital allocation plan as I previously noted and continued.
Acquisition acquisitions, no, we intend to acquire strategic assets that create value leveraging the open text business system as we just did with micro focus.
This is our virtuous cycle, how we create value using the open text business system.
Let me express something beyond our numbers and our business system I have strong confidence in our business team and plan and I'll keep you updated in the coming quarters as to our progress I've always liked the model from the great state of Missouri.
<unk> state.
Our results will speak for themselves.
In summary open text is a unique company because we understand the complexity of our customers and we help them reliably manage that complexity.
As a result, we have earned their trust every day and we deliver demonstrable value with the information of advantage I'll end my prepared remarks by reviewing.
The comments, we made at the time of the micro focus acquisition announcement.
One we are reaffirming.
Returning microfocus products to organic growth of.
The five months of fiscal 'twenty, four or beyond boarding F. 'twenty for a year of returning to constant and that's 25 organic growth accelerated cloud growth on a combined basis expect enterprise cloud bookings growth of 15% plus we expect to transform the micro focus customer engagement and renewal model as previously noted the.
<unk> is dollar accretive from day, one and contribute significantly more as we integrate take cost out improve renewal rates and returned to organic growth upper quartile adjusted EBITDA.
EBITDA margin of 36% to 38% in fiscal 'twenty, four and 38% to 40% in fiscal 'twenty six upper quartile free cash flows of $800 million to $900 million in fiscal 'twenty, four 1.5 billion plus in fiscal 'twenty six.
Rapid delevering continuation of our dividend program and enhanced visibility as we're doing today and we'll continue to do so we're on track to deliver on every commitment we made.
Let me express my deepest gratitude to our customers that place their trust in open texts everyday my deepest gratitude to our open text colleagues, who did an outstanding who did outstanding work over the last six months completing the acquisition delivering an amazing Q2 and strong momentum into the second half of this fiscal year and doing the hard work to prepare for.
We're applying our proven integration playbook and finally, a huge and warm welcome for 11000, new colleagues from micro focus customers and value added partners, we will grow and innovate as United Open text.
The one that brings peace spring piece, we're all let me turn the call Paul over to Madhu Ragen, often open text CFO at my business partner Madhu.
Thank you Mark and thank you all for joining us today.
All references are in millions of USD and compared to the same period in the prior fiscal year and are on a reported basis unless I state otherwise.
During Q2 at open text, we need to find one more time, what consistent and solid execution means we delivered a superb quarter results better than the expectations of our target growth strategy shared with you on the last earnings call and proceeded towards closing micro focus acquisition on the 31st in line with that.
Planned timing open, Texas entering an exciting new phase of quieting micro focus from our solid position of strength with momentum and confidence in our total growth and integration plan.
On Q2 results. We are very pleased with our Q2 revenue performance on a year over year basis enterprise cloud bookings of 145 million up 12% year over year and foreign exchange in Q2 was a revenue headwind of $48 million approximately 45% in customer support and 31% and cloud cloud.
Cloud revenue of 409 million up 12% as reported and 16% in constant currency strong renewals. So it's 94% enterprise cloud and 95% in a flat E. R. Our annual recurring revenue of 725 million up three 6% as reported and eight.
One 7% in constant currency and representing 81% of total revenue.
Total revenue of 897 million up two 4% as reported and seven 8% in constant currency Q2 was the eighth consecutive quarter of organic growth in constant currency for both cloud and are up.
And moving to other financial metrics GAAP net income of 259 million up from 88 million due to a noncash mark to market benefit on microphone cause related derivatives and lower debt extinguishment cost notes that the mark to market benefit in Q2 is a reversal of Q1 loss partially reflective of the.
Currency movements of Udall and T V P to the U S dollar.
GAAP gross margin of 71% versus 70% led by improved cloud margins.
Adjusted EBITDA of 341 million, a 38% of revenue versus 344 million or 39, 2% down four 8% as reported up three 7% in constant currency cost of sales and operating expenses were up 24 million on a non-GAAP basis, all related to revenue growth.
Ration of sex and growth related investments in R&D and sales and marketing our organic growth rate trends are a testament to the benefits accruing from continued investments in products and go to market.
On operating cash flows we generated 195 million in operating cash flows in Q2 three.
Free cash flows in the quarter of 163 million or 18% of revenue Dsos of 47 days versus 44 days in the prior year Q2, DSO is reflective of December quarter seasonality with high annual billings relating to our renewal business, our working capital performance remained strong.
Yeah to the U F. C. F was also impacted by a front end loaded capex investments.
On enterprise cloud bookings, a trailing 12 month cloud bookings were a strong $511 million up 25% the highest in our history.
We continue to see steady demand in large cloud deals an average minimum cloud contracts value increases in content, we saw strength in insurance engineering construction and telecommunications in business network, we saw strength in wholesale retail and banking sectors.
Experience saw strength in telecommunications regionally, our international market such as those in APAC saw key cloud wins are full quota cloud pipeline growth is trending strongly upwards with solid growth in key industries, such as government health care and banking.
And moving to balance sheet and liquidity. Please do refer to page 15 of our Investor presentation. We ended the December quarter was 2.8 billion of cash which includes 919 million in net proceeds from the senior notes offering completed on December 1st 2022, our net leverage ratio was two times the Q2.
Turning to outlook targets and aspirations, we plan our business in constant currency and present, our business on a constant currency basis for our quarterly factors total build strategy and medium term aspirations the financial visibility that Mark provided earlier it reflects our integration and business planning.
First of all the micro focus financial consolidation starts on February 1st and will be included for five months. During our current fiscal year ending June 30th 2023 that means microfocus revenues that included the two months in our March quarter, and three months of full quarter for the June quarter in our <unk>.
Look we have fully aligned ifr as to gap and reporting periods I will share more details.
Given the partial year inclusion we are providing insights for five months relating to micro focus, which we have provided a slide 17 to 21 of our investor presentation.
Looking at fiscal 'twenty, four and beyond we view open text in aggregate and we will speak to entire company as well as our products in the six markets that mark outlined in his commentaries.
So regarding micro focus is adjusted EBITDA profile we.
Acquired a high EBITDA margin business.
Converting from Ifr as to U S. GAAP will burden microfocus adjusted EBITDA due to the following items the revenue timing relating to license renewals R&D capitalization and lease accounting.
The baseline for mitral focused commencing February 1st with financial consolidation. It fully includes the ifr as to U S. GAAP conversion during our integration period and beyond we expect to gain operational efficiencies in the combined company as you can see the margin targets for the combined company are at 36 due to <unk>.
38% for fiscal 'twenty, 'twenty, four and a solid 2 billion plus in adjusted EBITDA dollars.
Next let me provide details with respect of significant items in our outlook that relate to the overall expense structure.
Cost reduction interest expense integration expense and special charges.
First of all on cost reductions, we remain confident to execute towards our $400 million cost reduction plan.
This week on January 31st we announced a restructuring plan that will impact our global workforce. Following the micro focus acquisition in an effort to further streamline our operations. The total size of the plant is expected to result in a reduction of the combined workforce of approximately 8% of 2000 employees with an estimate.
Cost of $70 million to $80 million, we expect to complete the plan by the end of our current fiscal 2023.
We also expect to eliminate redundant global facilities with the acquisition of micro focus and we will provide further details when they become available.
Lastly, we have several programs to optimize the usual duplicative efforts, including automation and procurement vendor consolidation all as part of our operational integration. These savings span several quarters and are fully reflected in our outlook.
Turning to interest expense is based on our debt service arrangements and are included in our free cash flow outlook, our capital structure and initial mixed between fixed and floating debt was very intentional to have the ability to make repayments delever and reduce interest expense over time.
On integration expenses approximately 80 million are included in the outlook for our non-GAAP or adjusted results for fiscal 'twenty, three and 'twenty four.
Special charges and alignment of global entities for an organization of our scale they require significant investments and ranging from $380 million to $420 million are also included in our outlook for fiscal 'twenty three and 'twenty. Four these estimates will continue to be refined as we stop the integration efforts.
Let me draw your attention to the free cash flow slide number 10 in our Investor presentation, you will notice our targets of 500 to 600 million for fiscal 'twenty, three and 800 to 900 million for fiscal 'twenty, four and a rapid growth trajectory to one 5 billion in fiscal 'twenty six.
Expenses and investments I, just outlined face significant draw during fiscal 'twenty, three and 24, while our cost reduction programs and continued working capital improvements will drive a highly efficient organization at scale with upper quartile adjusted EBITDA and free cash flows.
So let me transition to our debt levels and Delever plan with the closing of the micro focus acquisition on January 31st we will finished March quarter with approximately $9 3 billion in debt excluding cash this pro forma debt structure reflects the senior secured note financing the acquisition term loan Amendment completed December .
First 2022, and the subsequent draw down from our revolver of $450 million during January our pro forma debt structure has a 5.9 year weighted average maturity at a 6.3% weighted average interest rate and a net leverage ratio of 3.8 times approximately half our debt is fixed.
We are planning a debt repayment of a minimum of 175 million per quarter, It's 175 million per quarter commencing Q4 fiscal 'twenty three ending June 30th 2023 over eight quarters to bring the leverage to lower than three times as shed since the since the initial announcement.
The micro focus acquisition, we remain committed to within eight full quarters to bring the net leverage ratio to less than three times, we have a solid delever plant.
I would also refer you to slide 15, and 23 in our Investor presentation for details on our debt towers and our deleveraging program.
So with respect to outlook targets and explanations, let me amplify Mark's commentaries on the same topics and I will highlight on Q3 quarterly factors and Q3 fiscal 'twenty target model.
On Q3 quarterly factors in constant currency page 18 of the Investor presentation. We expect revenue of 1.18 billion to $1. Two 2 billion inclusive of 310 to 325 million of microphone because revenues.
Our our <unk> 96 billion to 1 billion inclusive of $245 million to $260 million of microphone cause revenues at exchange rates being forecasted FX would be a headwind of 30 to 35 billion adjusted EBITDA on a year over year basis margin percentage down 600 to 700.
Basis points deflecting Microfocus integration cost, excluding Microsoft because adjusted EBITDA dollars and margin would be constant.
As shared in our communications microphone because it means immediately accretive from an EBITDA dollar perspective.
Expect FX to be an adjusted EBITDA headwind of less than 5 million.
On Q3 fiscal 'twenty target model.
Target model ranges of usually provided for annual and fiscal years for this quarter only we are providing our Q3 fiscal 'twenty three target model to reflect in our system Microfocus Onboarding. Please refer to page 19 of the Investor presentation, all figures in constant currency and as a percent of total revenue.
We expect cloud revenue to be 35% to 37% of total revenue E. R. R to be 82% to 84% on license revenue, 9% to 11% non-GAAP gross margin of 74% to 76% R&D of 17% to 19% sales and marketing of 'twenty one to 'twenty.
3% G&A of 9% to 11% total operating expenses, 52% to 54% interest expense of $115 million to $125 million.
With respect to preliminary fiscal 'twenty four financial targets. Please refer to page 17 of the Investor presentation, and the commentary shared earlier by Mark.
With respect to our fiscal 'twenty six medium term aspirations. Please refer to page 22 of our investor deck and the common shared earlier by Mark as you can surmise, our targets and aspiration is strong and its scale. The horsepower of the combined company to generate upper quartile cash flows is strong.
Fiscal 'twenty six aspirations of 38% to 40% adjusted EBITDA and free cash flow of $1 5 billion plus they fully reflect continued open text stroke, particularly club club and returned to organic growth by Microfocus completion of the cost reduction program and the integration program with its related investments.
In summary, consistent and solid execution are core to the open text business system and our operating DNA.
That came to life as people and operations delivered a superb Q2 and achieve an unprecedented readiness to close the transformative acquisition of micro focus during the last 48 hours since we announced the close our teams have kicked off a highly successful onboarding of a global organization of 11000 professionals to open.
Next another testament of the open text execution engine that is well poised to continue the momentum on behalf of open text I would like to thank our shareholders our loyal customers partners and team members as we embark on the exciting journey ahead I will now open the call for your questions operator.
Thank you.
Now begin the question and answer session anyone who wishes to ask a question you May press star and one under Touchtone telephone to join the question queue.
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The first question comes from Paul Treiber of RBC. Please go ahead.
Got it thanks very much good afternoon, just a couple of open ended questions.
First on the product roadmap and you sound very excited about the combined product roadmap.
Among all the acquisitions that you did that open text is done now.
How would you rate the the product fit and the potential revenue synergy opportunity just coming from products alone between these two companies.
Yeah, Paul Thanks for thanks for the question Great to hear your voice the.
Well. This is the largest expansion of information management that we've done.
Document.
Effectively bought market share and some capabilities in a couple of industries G. Excess certainly put us in a business that works and we've added to that over time like liaison.
And or acquisition of Carbonite index put us gave us a footprint a solid footprint and cyber security.
So this is the largest expansion of our mission large expansion of information management.
You know as I noted in my remarks.
This has created a cyber security business of scale.
That will rival our content business in terms of of scale and in resources.
We're entering a whole new application automation space space, which we think is essential for the needs of all of digitalization digital operations management and we're bringing on.
Global 10000 and critical technologies.
We're the market leader in Adi, we're gonna be the market leader.
And mainframe technologies, and bringing those workloads to distributor so Paul and then of course vertical.
And some and some other tools. So it's the largest expansion brings our tam up to over 200 billion.
And it you know at this scale I'll I'll bridge back to what I said on our fiscal 'twenty four plan.
You know well.
On this growth rate you know, we're looking to generate $2 1 billion to $2, two 4 billion and adjusted EBITDA. So it's also the largest expansion of being able to generate a profit and inhibitor. So it's the largest step forward we've made.
That's great to hear the.
There's a lot of work obviously with the integration that you need to chew through over the next couple of quarters or maybe years what are the most important factors that need to happen in your view for this acquisition to to work out very well for shareholders here.
Yeah against that I think thank you Paul we're off to a great start I mean, the energy and excitement in turn internally has.
In week, one has just been electric.
We wanted to put out there our F. 'twenty four preliminary plant and then I then I.
And look it's the I I have confidence in what we're doing and the results we're going to speak for themselves and you know in our F. 'twenty four plan, we're looking to deliver five to $5 75 billion to five 8 billion in total revenues.
2.1 to 2.24 billion and adjusted Ebitdas and up to $900 million of free cash flow supporting that are.
The beginning of the transformation of how they engage customers and getting their renewal rate to ours.
The and and underneath that is an accelerated product roadmap every 90 days underneath that is long term value accelerating customers to the private cloud than more public cloud.
So it's just as we outlined Paul all of the game play the game play we outlined pre close is the same post close and it's relatively straightforward get the renewal rate up how do you do that highest correlation is product innovation.
The other piece, where we feel that our open text can add the most value is our private cloud accelerate innovation and then more publix at our cloud services, we know how to run. This play it's the same pre announcements as it is today and we have the confidence to present to you today our F. 'twenty four plan of $2 2 billion.
2.24 billion and adjusted EBITDA, 15% enterprise cloud bookings growth and revenue was up to five 8 billion.
Thank you our pipeline.
The next question comes from Steve and there's of Citi. Please go ahead.
Hi, This is George on for Steve Congrats on closing the deal. It's very very exciting I wanted to talk about the FY2023 guide I'm understanding correctly. The organic revenue growth guide came down a couple of points. Despite you know really strong quarter. So I guess I'm wondering you know how much macro essentially baked in there how much concern.
If it isn't if you could just talk through that.
Change thank you.
Yep. Thank you again for your nuclear commented Madhu here. So when you look at Cisco now when you know when you look at fiscal 'twenty three the open text growth's trajectory Theres no change in that right as we bring micro focus on for the five months and when you look at it in aggregate are we are bringing micro focus on act a base.
Lying in fiscal 'twenty for <unk> of $2 3 billion, we shared and we've also given you. The five months numbers I would also urge that we are it's not gonna be reasonable to annualize. The five month number just given their own seasonality and how their license and other aspects operated which we understand quite well and hence is able to provide that.
The baseline for fiscal 'twenty for so I would say open text organic growth rate is strong our cloud revenue growth rate. It remains strong and it's really the micro focus piece that we're incorporating to the five months.
Got it that makes sense. Thank you and then one quick follow up you announced this head count reduction costs with cost savings plan.
I'm just wondering if so is that fully.
According to your your acquisition you know pre planned costs out or is there any element of kind of responding to some of the same pressures that some of your peers are facing that are going through similar programs. Thank you.
Yeah, Mark do you want to take that and I can add as needed yeah sure George Thanks for the question.
We announced a conjunctive with our announcement of our intent to acquire micro focus we said, we'd take out $400 million.
And after closing here work confirming were going up.
Take out $400 million of expense.
And our 8% where rip out reduction rebalancing of the workforce is completely do.
To the acquisition our cloud bookings growth is growing 15% plus because you can see we had a stellar superb Q.
Q2 <unk>.
And you know it's interesting.
When you look at the economy and the factors out there my best way to describe it is it's uneven are there very specific issues to companies.
And are they need to you know I'll talk about their own companies in relation to open taxed our demand is strong.
Digitalization is the only answer and you're seeing that in our 16% cloud revenue growth seven of a near 8% total revenue growth.
And our increased confidence in growing enterprise cloud bookings at 15% plus the factors exist out there for sure.
But it's it's it's uneven and disproportional and digitalization is the only answer and we're doing well in this volatile time.
Yeah, and thank you Mark I was just going to add that you know before COVID-19. During COVID-19. The open text operating model has always been very thoughtful and measured adding of resources that is very conjunctive with growth and innovation.
So the factors you are you shared outside are absolutely not applicable to us even now the rebalancing the workforce as mark shared in his comments, we'll continue to hire in the sales and the product innovation areas.
Great. Thanks for taking the questions.
Yeah. Thank you George.
The next question comes from Kevin question Christian Rodney from Scotiabank. Please go ahead.
Hey, there are good evening and congrats on the on the deal are very exciting times are just a question for you on the your outlook 24, 26 at a glut and improving organic growth profile. There I'm just wondering a lot of different moving pieces, there, but how do we think about sort of the contributions of say call. It straight up cross sell.
Versus you know, helping microfocus b means better cloud enabled when it gets onto a cloud a private cloud platform versus renewal rate sort of improvements and walked through the different pieces and what might be the bigger contributors to the improving organic growth rates over the next few years.
Yeah. Thank you thank you Kevin.
The first is as I outlined in my remarks, we want to win each of the markets.
And so I.
I don't think of that as cross selling per se, but winning that stack, we want to win the cyber security full stack it suite selling.
When the cyber security suite.
When the content suite, when the business network suites, and that and that is a straightforward growth on ramp for us to win the stack and each of those six markets.
Second is select strategic integrations across the six markets like vertical and Magellan across the six security across the six private cloud our cloud AP is across the sex. So it's a very straightforward play for us.
We've actually organize the company around that a tad in enterprise sales practice.
Well, we're giving cyber security a lot of focus practice, leading cyber.
Cyber security, we have James Hooke early leading enterprise sales Paul Duggan.
All worldwide, our renewals are through customer success.
And Kristina, leading our corporate our corporate sales. So we are you know structure follows strategy and we put that structure underneath that.
That growth play of winning each now there are some very select things that we think are going to.
Stand out.
Idle and in content services, our ability to compete against filenet.
Box Highland and others by incorporating facial recognition.
Voice imagery, we're gonna states take a big step up with this capability at its it's a gem and being able to integrate security voltage into content and having the most secure content platform. So the play number one is when the stack number two select integrations and.
And then three you're fixing the things that need fixing up microfocus acceleration private cloud get the renewal rate up as we outlined.
And Kevin it's a pretty straightforward run of play easy to articulate.
And Oh, we're putting it all in motion.
Thanks for that color Mark maybe just a follow up there then you know as you start these integrations sound really a really a unique and interesting I'm wondering how do we think about you know once they're integrated and up and running and being offered to customers is the opportunity more that they are opening up new Tam or new use cases or are these are you being or.
These better competitive.
Products and you're displacing just how do you think about you know where and how the Windsor are coming when youre looking at the other end.
Yeah, I mean, the these markets are bringing us to a.
Our Galactic Tam of 200 billion right. So we don't need Tam expansion that it says we've got a big playing field in front of US at 200 billion plus its two things we have new use cases, we can go after hum.
Smart cities Smart transportation.
As we move Gen y X and Y move from using their fingers.
And using more voice, we're in a great position to capture that so theres just new use cases.
And I'm, just giving one and content.
New markets cyber security for us or you will be oh will be larger than some brand names out there like RSA with as a combined a comprehensive stack that we have in our competitive position is going to increase its the same competitors out there our position against filenet.
<unk> just got stronger our position against box just got stronger our position against Sterling Commerce, just got stronger our our our position against some of the security providers just got stronger. So it's new use cases, we loved it.
Tam don't need to expand it win win the full stack.
Stronger against our competitors and will spend more time on that and in Investor day and in another presentation layout that competitive landscape.
But it's really interesting question and and thanks for it.
Great look forward to the progress in the congrats again I'll pass the line.
Thank you.
The next question.
Question comes from Stephanie price of CIBC. Please go ahead.
Good evening, Thanks for taking my question.
Afternoon.
Hi, I wanted to to probably sit on that fiscal 'twenty, three and fiscal 'twenty four target markets or I'm, sorry target model and maybe talk a little bit about what you're potentially taking some conservativism and and what's what do you think kind of gets you to exceed potentially the targets that you've set out, especially on the margin side.
Yeah is there a if there's any tour a model question and a target I'd hand that to Madhu first and then I can take maybe the second part any any questions on the model you want to go through stuff.
Is it just more generally on where you might have baked in some conservatism in that fiscal 'twenty, three and fiscal 'twenty four target model just thinking about upside from here.
Yeah for sure I'll take that us.
It's Stephanie so a couple of things, whether it's conservatism or not where we have a very educated baseline for micro focus like that's actually number one and we've shared that explicitly the five months, there's plenty of seasonality.
To support us and to support two we've shared where we see since you're asking about fiscal 'twenty three the microphone because numbers come in visa visa historical adjusted EBITDA. It is getting burdened by the three items I outlined including some of the license renewals and second the lease accounting and and also.
The.
R&D capitalization. So the entry point for micro focus coming in is definitely from EIOPA to see U S. GAAP and we've made sure we've aligned that as well in fiscal 'twenty three as you look at our annual annual model ranges. We continue to have enterprise cloud bookings at 15% plus and our cloud revenue, including micro focus.
<unk> is actually at 11% to 13% and.
Previously it was 8% to 10% from an open text only so it means so again as we see the demand strong about the cloud bookings in cloud revenue the target model I would say you know fully represents what we see now what we see in the market and integration begins and Ive shed color on some of the integration costs that we are going to incur them and we factored in the factory.
All of those in.
And Stephanie I believe and I would amplify or rather amplify I'd add two things right to the great comments from Madhu.
You know things I think about to deliver these great targets right or I say, you know they are conservative or exceed them, but to deliver these great targets, we put out there I'm very confident in the pace and speed.
Given our.
Our track record over the last decade of many large acquisitions, but to the extent we can go faster Hum are the results would thus be accelerated.
I'd be very pleased with landing between two one and 2.24 billion and adjusted EBITDA for 24, but it was a little faster the results should improve second thing I actually like our euro exposure of our business.
And.
With open tax then and now the micro focused customers are a part of open text.
A rising euro rises open text and so I also like the mix of business that we have geographically.
And so to the extent that the euro goes up.
We're in a good place.
Yeah.
Thanks for that just just one final one for me just curious about the R&D and how you think about the combined R&D in the business. What areas are you looking to prioritize post he puts microfocus acquisition.
Yeah, well on as we as we bring the two as we brought the two organizations together already.
You'll note in fiscal 'twenty three on our target model range engine, our engineering investment is between 14% to 16% and a passion to get on the partial year and you can expect that on a combined basis to.
Tick up from the previous open text model right. So its not just up on a combined basis it up because we wouldn't be investing to accelerate cloud.
Continue to accelerate cloud, 15% plus 15.
15% plus bookings growth and you can see our F 'twenty six aspirations.
Of of or so you'll get the organic so get the 7% to 9% of 7% to 9% organic cloud revenue growth in F. 'twenty six that's a big number very important number of strategic set of initiatives for us. So you can see a N that R&D percent up 15% plus.
Our bookings growth and 7% to 9% organic cloud revenue growth as we approach.
Twenty-six, so where that investment's going to go it's going to go right to where I'll highlight it in my script today I won't repeat it but it will go back to the transcript I outlined a quite precisely.
All were where the priority is going to be and Mark I was just going to add and you can certainly amplify S. Definitely the global footprint of R&D professionals. We are acquiring a note to add to the open text team is is quite incredible.
Okay.
And then it's going to be somebody to 8000 people, who have a huge concentration in India, now and including our Canada, Germany et cetera. So I mean, I was just going to add the quality and caliber and the skill sets of the R&D professionals as it is.
It's really going to be very strong.
Great. Thank you very much.
Thank you.
Yeah.
The next question comes from Sandoz was kaplowitz of BMO capital markets. Please go ahead.
Hi, good afternoon.
<unk> can you clarify.
The difference between <unk> to U S. GAAP that you referenced on the licenses is it that they were booking upfront license on multiyear terms and you're going to recognize it ratably or what's the dynamic there as you know my first yeah.
Yeah of course happy to I, specifically mentioned the license renewals, which means the ifr. It allows you to take it up on signing of a renewal contract whether it's in the U S. GAAP you you start to take revenue.
Obviously on a ratable basis upon the official data the renewal when you start delivering the services. So that's our that's the big difference and the other two pieces as I mentioned I have thought it allows a higher rate of R&D capitalization than U S. GAAP to us and these accounting in U S. GAAP is treated as rent. So it goes into the operating expense.
Hello.
As opposed to depreciation.
Right.
And then just to clarify since its hard for us to do an apples to apples comparison.
If we look at your FY2023 revenue contribution from micro focus.
Apples to apples is that sort of imply a single digits type of organic decline.
Or might it be larger than that initially because of some of the near term integration.
Yeah is that question panels for micro focus because if you look at our our target model open text the organic build we're still maintaining at a bunch of 2% was your question specific to micro focus.
Civic to the Microfocus contribution implying fiscal 'twenty three guidance is that a suit Apple staff, yes.
Yeah, I would say the best reference for the micro focus contribution is what we've shared an eight 7% to 920, and then calling the baseline at $2 3 billion for fiscal 'twenty for instead of taking the narrative out of Ah is there like how much is it over or under and this is our completely educated estimate of 80 789.
20 for the year for the partial year, and then $2 3 billion baseline for revenue in fiscal 'twenty four.
Yeah, So what I'll say to add to that yeah to add to that look I'm expecting.
Solid performance from micro focus of these five months.
It's really tough and I don't actually think it's meaningful to look at those five months a year ago, because they didn't run the business that way.
And they don't have an end of March right. They didn't have an end of March had an end of April we have in end of March. They didn't have an end of June right. They had at the end of October So we're gonna get them onboard to our periods.
And we're gonna drive performance hard the teams quite motivated right. So I'm expecting solid performance as Madhu highlighted 878 to 920 do not annualize that number.
Because they they didn't they didn't run.
That's in Iff's reporter every six months to our periods.
So we get all that period stuff out of the way immediately we get all that noise out of the system and we are aligned to our calendar and we wanted to make it easy.
Well for you and say its 820 <unk>.
I am sorry, eight 7% to 920 and next year are the baseline is as 2.3.
But we expect strong performance strong customer wins.
And I.
Can't wait to shout them out one now when we close the quarter.
Perfect appreciate all that and I appreciate all the.
Guidance and the skills, we provide us thanks.
Thank you. Thank you.
The next question comes from Richard <unk> of National Bank Financial. Please go ahead.
Yes, yes, thanks for providing all of that color. That's super helpful. In terms of kind of helping us forecast the outlook I. Just have one question you know it looks like a great transaction from a valuation standpoint everything.
If there were any potential blind spots, where would they be sort of based on your kind of past experience with previous acquisitions.
Yeah.
Yeah sure.
You know a fair fair.
Fair enough.
Look always top of the house is our talent, which were off to a to a great start on.
Understanding customer needs and that's gonna be Ah Ah Ah Ah.
Big outreach from for Us now.
The system side in this case, we're integrating tower systems.
And I appreciate all the work that they've done historically, but.
We're taking their product line and we're gonna great into our SAP P. All integrated into our sales force.
And integrated into our <unk> hundred 65 teams environment will integrate into our our information system. So typically there could be surprises on the system side, but we'll be integrating into our into our world class AD Tech stack that Iran and scales of open text. So I think it's a usual.
Markers that we're going to continue to pay obviously very close attention to people customers.
And in systems.
Okay, great. Thank you.
The next question comes from Daniel Chan of TD Securities. Please go ahead.
Hey, Mark now that the deal is closed I'm, hoping you can give us more color on how some of those early conversations are going with micro focus as customers on being able to cross sell cost services into their installations.
Yeah are early days.
Feedback from customers I've Ah Ah ha, obviously, a busy week I've spent oh I've spoken to almost a dozen customers. This week.
And the over our overarching theme is we love where the products have landed a incredible talent incredible products, we love where micro focused product landed.
Two lots of joint opportunity odd on integration. So a lot of interesting use cases.
And and potential coming out and a real reaffirmation.
Where we feel the value drivers are.
Faster integration now.
Now mind you they they they haven't had this innovation culture per se right, we have our CEO and CTO, we have a great head of engineering Ah. We organize you know one of our if our heart has four valves one of those valves is innovation.
And getting to our every 90 days accelerated innovation they have an amazingly talented engineering organization and now they are more pools to lever our leverage as do all parts of engineering. So a real affirmation of great people, great products move faster what Sheila.
90 day cycles and provide more cloud options private cloud for many is the destination.
Some are more API work as well so Dan I'd say this is a and it was a very strong affirmation.
Of all our strategic rationale.
It sounds good thanks for that.
And then maybe switching gears to the renewals business based on our prior conversations it sounds like you had some pretty big structural shifting and changing micro focuses renewals business. So what's the timeline on completely revamping that business and how long do you think it'll take before we start seeing those renewal rates start to improve.
So their renewal rates were in the low eighties, you saw ours in the mid nineties are for a Q2.
You know our business practices has taken our renewals rate over time to an expansion business and I do hope over time to talk expansion rates are versus renewal rates.
And that's that's the that's the big price on the Hill right is advancing as we get more and more as we.
This $2 billion cloud business and beyond our narrative will change from renewal rates to an expansion rate.
But that said for a moment, we had strong performance in the mid nineties are operating in the low eighties. We're in full motion on on deploying the open text love model land operate value expand centralization of our renewals.
Our new procedures, new authorities a P. A.
I'm doing this direct not through not through partners and we expect to uplift them two are.
Renewal rates.
By the end of F 'twenty five.
And make steady progress along the way.
You know renewals happen in one year cycles, all will start to integrate and it's really the things below that the renewal rate is a lagging indicator. It is not a leading indicator. So as we get on our 90 day release cycles as we get private cloud as we accelerate public cloud as we build more confidence.
We put all the procedural places things in place.
Hum.
We will see steady progress.
But that landing zone of getting to all kind of our rate. We believe will land there by the end of F. 'twenty five with steady progress along the way and we'll keep you updated along the way.
Thank you.
The next question comes from Steven Li of Raymond James. Please go ahead.
Hey, guys, Hi, Maritime I do.
So I understand <unk> has an impact on it.
But the free cash flow or should it looks a bit off so what I'm looking at these open tax on its own TTM generated $800 million.
The free cash flow, we micro focus for 2020 free is below that and for 2020 full is 800 to 900 and I already had open tax at that range. So my question is why is micro focus not additive to free cash flow for the first six quarters.
Yes, it's a great question. Thank you is steep.
So.
If I could just refer back to the category of expenses I talked about right. So so so you know certainly the $400 million cost reduction is at play again, when we think of fiscal 'twenty, three and fiscal 'twenty for and add onto that is the special charges. The integration charges I wanted to clear what is non-GAAP , but otherwise.
All of these cost impact free cash flow and we are having about $80 million in integration expense somewhere in the $380 million to $420 million on special charges cash outflow as well as how we rationalize you know global entities. The combined company is going to be pretty large and complex in terms, if it's global ops.
<unk> and sort of rationalizing that is usually it requires investments in expensive strike. So no like like whether you think the open text legit or the micro focus ledger and of course, you have a significant interest expense as well so during fiscal 'twenty three and 'twenty four if you put aside interest expense that is the period of time.
Jim when all of these charges are coming into the cash flows and then we recover pretty quickly from there to get to the one 5 billion plus you would start to see the recovery coming in the early part of fiscal 'twenty five from a working capital perspective, it's important to note that throughout this process. The model assumes that would actually improving Microsoft.
Focus working capital very steadily from from day, one and we're maintaining the open cat like open text working capital performance as well.
Right and and Madhu just to clarify.
Micro focus when we acquired H P. D. H B I said they had this should we rushmore restructure is that in your numbers, which year does it go away does it is it already expired.
It's gone does not exist. It's it's it's their history does not exist that open tech.
Oh God I was just going to add that our our efforts and this is gonna be grounded up a brand new taking what they have today and looking at the opportunities for optimization ahead, but I agree with Mark and the reverse Morris Trust question, Yeah, absolutely gone doesn't exist Stephen if I can.
I just want to note something right. So we're being crystal clear on what our free cash flow targets are right, a $500 million to $600 million in F. 'twenty three.
800 million to 900 million of F. 'twenty, four and $1 5 billion plus in fiscal 'twenty six. So I know you can see that players will be crystal clear right that we're providing that visibility today as been do noted I do want to make.
Three pieces of emphasis that in fiscal 'twenty, four or we're not reaching our free cash flow potential yet because we're reaching our EBITDA potential of $22 1 billion in EBITDA to 2.24 billion and adjusted EBITDA, but we have three things going on that are really important one is the integration expenses as Madhu spoke.
About were going for a rapid integration and were going for simplification right. We're going to simplify this business and want to do it upfront.
Our legal entity structure is all the things Madhu talked about the word is simplification and three or investing in our cloud, 15% plus cloud bookings growth.
7% to 9% or Gannett cloud revenue growth in F. 'twenty six and that takes investment those are the three things that we've decided on to make as you say over the next six months six quarters.
Thank you very helpful. Martin with you.
Thank you as well.
Thank you I'll now hand, the call back over to Mr. Barry shape for closing remarks.
Alright. Thank you everyone I know today's call ran a little longer than usual in our scripts are bit more fulsome than most.
But madhu and I felt it was very important to provide this level of visibility and simplification are too on how we're looking at the micro focus business and and and and the and their products combined into a into open text and I hope you'll join US live tomorrow as we owe.
Often the NASDAQ.
From the National Art Center here in Ottawa and have a good evening.
Thank you Dustin.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
Yeah.
Hum.
Hum.
Yes.
Yeah.
Yes.