Q2 2024 Open Text Corp Earnings Call

Operator: Thank you for standing by. This is the conference operator. Welcome to the Open Text Corporation second quarter fiscal 2024 financial results 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. To join the question queue, simply press star, then one on your touchtone phone.

Thank you for standing by this is the conference operator welcome to the open text Corporation second quarter fiscal 2024 financial results Conference call.

As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation there'll be an opportunity to ask questions to join the question queue simply press Star then one on your Touchtone phone.

Operator: Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. Please go ahead.

Should you need assistance during the conference call and you May signal, an operator here by pressing Star then zero.

I would now like to turn the conference over to Harry Blount Senior Vice President of Investor Relations. Please go ahead.

Harry Edward Blount: Good afternoon, everyone, and welcome to Open Text's second quarter fiscal 2024 earnings call. With me on the call today are Open Text's Chief Executive Officer and Chief Technology Officer, Mark J. Barrenechea, and our Executive Vice President and Chief Financial Officer, Madhu Ranganathan. Today's call is being webcast live and recorded, with a replay, available shortly thereafter on the Open Text Investor Relations website.

Harry Edward Blount: Good afternoon, everyone and welcome to open text second quarter fiscal 2024 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 Ranga Nathan today's call us.

Harry Edward Blount: Being webcast live and recorded with a replay available shortly thereafter on the open text Investor Relations website.

Harry Edward Blount: 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, investors.opentext.com. I'm pleased to inform you that Open Text Management will be participating at the following upcoming conferences.

Harry Edward Blount: 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 investors that open tax dot com I'm pleased to inform you that open tax management will be participating at the following upcoming conferences.

Harry Edward Blount: Bernstein's Tech, Media, and Telecom One-on-One Forum on February 28th in New York, Morgan Stanley's Technology, Media, and Telecom Conference on March 4th in San Francisco, and JMP Security's Technology Conference on March 5th in San Francisco. 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 are applied in drawing any such conclusion.

Harry Edward Blount: Bernstein's Tech media and Telecom one on one forum on February 28th in New York, Morgan Stanley's Technology Media and Telecom conference on March 4th in San Francisco, and the JMP Securities Technology Conference on March 5th in San Francisco.

Harry Edward Blount: 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.

Harry Edward Blount: Shipments made today certain material factors and assumptions are applied in drawing any such statements 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 arc.

Harry Edward Blount: 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, is contained in Open Text's 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 in our public filings and other materials, which are available on our website. And with that, I'm very pleased to hand the call to Mark. Thank you, Harry.

Harry Edward Blount: Taint and 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 measure.

Harry Edward Blount: 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 am very pleased to hand, the call to mark.

Mark J. Barrenechea: And thank you to everyone joining today's call. Welcome to calendar 2024, the second half of our fiscal year. Open Text is more relevant than ever as we enter the new era of business AI. We have significant momentum as we transform into a cloud growth company, as we expand our mission in information management, and as we accelerate private and public cloud consumption. Artificial General Intelligence is a once-in-a-generational opportunity, and Open Text is in a very strong position to lead the way in information management.

Mark: Thank you Harry.

Mark: And thank you to everyone joining today's call welcome to calendar 2024 in the second half of our fiscal year.

Speaker Change: Open text is more relevant than ever as we enter the new era of business AI we.

Mark: We have significant momentum as we transform to a cloud growth company as.

Mark: As we expand our mission and information management, and as we accelerate private and public cloud consumption.

Mark: Artificial general intelligence as a once in a generational opportunity.

Open text is in a very strong position to lead the way in information management.

Mark J. Barrenechea: We continue to accelerate our investments in products, services, and go-to-market, and we are seeing the results. Q2 was a spectacular quarter that showcases our strategy and performance progress with the following. Record revenues of $1.3 billion, or 71% year-over-year growth.

Mark: We continue to accelerate our investments in products services and go to market and we are seeing the results Q2 was a spectacular quarter and showcases our strategy and performance progress with the following.

Mark: Record revenues of $1 3 billion or 71% year over year over year growth strong organic growth, our 12 consecutive quarter of growth and constant currency.

Mark J. Barrenechea: Strong organic growth, our 12th consecutive quarter of ARR growth in constant currency. Record enterprise cloud bookings of $236 million, or 63% year-over-year growth. And we're just getting started.

Mark: Record enterprise cloud bookings of $236 million or 63% year over year growth and we're just getting started we.

Mark J. Barrenechea: We are winning with cloud additions, our business clouds. We are winning with data security and trust requirements. SAS and Micro Focus are just coming online, as well as Business AI with Open Text Aviator. We had a record adjusted EBITDA of $566 million, or 37%, and 66% year-over-year growth. And strong free cash flows of $305 million, or 87% year-over-year growth. I'm so proud of our colleagues and partners, and it's a great success, enabled and powered by our innovation investment. Strong Customer Momentum and Operational Excellence. Let me highlight a few amazing customer partners. Carl Zeiss is leveraging the Open Text Content Cloud for a global information management platform and a single source of truth across the entire company, integrating business applications from SAP, Salesforce, and Microsoft into the Open Text Cloud. Philips Healthcare is leveraging our Open Text Aviator platform, Vertica, for its mission-critical medical imaging system for high availability and proactive field maintenance to ensure patients receive optimal clinical performance. BMW has selected Open Text Cybersecurity Fusion for what is called Root of Trust Information Management and Data Governance.

Mark: We are winning with cloud editions are business clouds, we are winning with data security interests requirements SaaS and micro focus just coming online as well as business AI with open text aviators, we had record adjusted EBITDA of $566 million or 37% and 66% year over year growth and strength and strong.

Mark: It's.

Strong free cash flows of $305 million or 87% year over year growth.

Speaker Change: I am so proud of our colleagues and partners.

Speaker Change: And this great success.

Speaker Change: Is enabled and powered by our innovation investment strong customer momentum and operational excellence, let me highlight a few amazing customer partnerships.

Speaker Change: Zeiss is leveraging the open text content cloud for a global information management platform and a single source of truth across the entire company integrating business applications from SAP Salesforce.

Speaker Change: Salesforce and micro focus that Microsoft into the open text cloud.

Speaker Change: Philips healthcare is leveraging our open text aviator platform verdict test for its mission critical medical imaging system for high availability and practice field maintenance to ensure patients receive optimal clinical performance.

Speaker Change: BMW has selected the open text cyber security cloud fusion for what is called the root of Trust information management and data governance Fedex Express the world's largest cargo airlines has been a strategic partner with open text for over a decade and that partnership expands now by leveraging the open text operations cloud Ops Bridge mom.

Mark J. Barrenechea: FedEx Express, the world's largest cargo airline, has been a strategic partner with Open Text for over a decade. And that partnership is now extended by leveraging the Open Text IT Operations Cloud, or OpsBridge, monitoring and autonomically responding to a very dynamic topology, ensuring the highest possible flexibility and resiliency in support of their mission. We had 48 cloud wins, over $1 million in new contract value, and many impressive customer stories just like these. Today marks our first full year of owning MicroFocus, and our focus is on cloud growth, AI, customer success, and being number one in information management. MicroFocus contributed revenues of $601 million in Q2.

Speaker Change: On a train and autonomic Lee responding to a very dynamic topology, ensuring the highest possible flexibility and resiliency and support of their mission.

Speaker Change: We had 48 cloud wins over $1 million in new contract value in Q2 with many impressive customer story just like these.

Today marks our first full year of owning micro focus and our focus is on cloud growth.

Speaker Change: AI customer success, and being number one and information management.

Speaker Change: We're focused contributed revenues of $601 million in Q2.

Speaker Change: <unk>.

Mark J. Barrenechea: And we should end the fiscal year with renewal rates in the high 80s. Thanks to the amazing work from our colleagues and partners and the trust of our customers, we reshaped a shrinking business into a winning and growing innovator. We're doing exactly what we said we would do.

Speaker Change: And we should end the fiscal year with renewal rates in the high eighties.

Speaker Change: The amazing work from our colleagues and partners with the trust of our customers, we reshaped a shrinking business and to a winning and growing innovator, we're doing exactly what we said we would do.

Mark J. Barrenechea: Furthermore, we're on track to complete the AMC divestiture by the end of the fiscal year, subject to standard regulatory approvals and customary closing conditions, which will allow us to go even faster in AI in the cloud, and we intend to use the process to reduce net leverage to less than 3x and ahead of schedule, providing us the flexibility to resume share buybacks and to pursue strategic M&A and to drive future cloud and AR organic growth. We have all the ingredients we need for a fantastic 2024 and to achieve our F26 aspirations of 7% to 9% cloud organic revenue growth. And with our strong cloud bookings growth of 63% this quarter, your visibility into our cloud growth increases. And as a reminder, and as we like to say, we're an annual business. So let me turn to our fiscal 24 outlook. We're maintaining a total cloud revenue outlook of $5.85 billion to $5.95 billion.

Speaker Change: Further we are on track to complete the AMC divestiture by the end of the fiscal year subject to standard regulatory approvals and customary closing conditions.

Speaker Change: It will allow us to go even faster and AI and the cloud.

Speaker Change: We intend to use the proceeds to reduce net leverage to less than three X and ahead of schedule, providing us the flexibility to resume share buybacks and to pursue strategic M&A and to drive future cloud and our organic growth.

Speaker Change: We have all the ingredients, we need for a fantastic 2024 and to achieve our F. 'twenty six aspiration of 7% to 9% cloud organic revenue growth.

Speaker Change: With our strong cloud bookings growth of 63% this quarter your visibility into our cloud growth increases.

Speaker Change: And as a reminder, and as we like to say, we're an annual business. So let me turn to our fiscal 'twenty outlook, we're maintaining our total cloud revenue outlook of $5 85 billion to $5 95 billion.

Mark J. Barrenechea: We are raising our cloud bookings growth target to 25% to 30% growth, up from 15% plus, within our adjusted emitter range but tightening the range to 36% to 37% given our investments in cloud and security and AI. We have both medium and long-term opportunities to increase margins. But right now, our focus is driving bookings and cloud revenue growth. We're also increasing the lower end of our free cash flow range. Now, they expect stronger full-year results of between $825 million and $900 million of free cash flow.

Speaker Change: We are raising our cloud bookings growth targets of 25% to 30% growth up from 15% plus.

Speaker Change: Within our adjusted EBITDA range, but tightening the range to $36, 36% to 37% given our investments in cloud and security and AI.

Speaker Change: We are both medium and long term opportunities to increase margin, but right now our focus is driving bookings and cloud revenue growth.

Speaker Change: We're also raising the lower end of our free cash flow range and now expect stronger full year results of between 825 million to $900 million of free cash flow.

Mark J. Barrenechea: And with our workforce optimization complete, and the majority of the micro-focus restructuring complete, our attention and energy are now focused on customer transformation, innovation, and growth. Information Automation plus AI will be an essential part of our competitive advantage. Open Text will completely embed AI in all our products. I've received very positive customer feedback on our Information Management Business Cloud, aka Cloud Edition, and our Business AI, aka Aviator. We are working with a major apparel company to apply AI invoices, a major bank to detect fraud, a major manufacturer for complex compliance, and a major food company to consolidate billions of supply chain transactions and documents to create the next generation of sustainable food.

Speaker Change: And with our workforce optimization complete and the majority of the micro focus restructuring complete our attention and energy are focused now on customer transformation innovation and growth.

Speaker Change: Information automation, plus AI will be in a central part of our competitive advantage open text will completely embed AI in all our products.

Speaker Change: I have received very positive customer feedback on our information management business clouds AI.

Speaker Change: K, a cloud edition and our business AI.

Speaker Change: Aviators we.

Speaker Change: We are working with a major apparel company to apply AI invoices, a major bank to detect fraud, a major manufacturer for complex compliance at a major food company to consolidate billions of supply chain transactions and documents to create the next generation of sustainable food.

Mark J. Barrenechea: We are making strong and steady AI progress, we are differentiated in the market, and we are winning business. Our differentiated advantages include managing active and large data sets. We believe in integrating automation and AI together, protecting data privacy, security, and trust, focusing on AI assist and personas, and being cost reasonable. We are clearly progressing from discussion to delivery, from vision to value. Aviators 23.4 and 24.1 are delivered, and soon 24.2.

Speaker Change: We are making strong and steady AI progress we are differentiated in the market and we are winning business or.

Speaker Change: Our differentiated advantages include managing active and large datasets, we believe in integrating automation and AI together.

Speaker Change: Protecting data privacy security and trust, focusing on AI assist and personas and being cost reasonable.

Speaker Change: We are clearly progressing from discussion to delivery from vision to that.

Speaker Change: Aviator was $23 $424, one or delivered in June 24 that too we have 800 engineers working on AI and we are delivering new capabilities now every 90 days.

Mark J. Barrenechea: We have 800 engineers working on AI, and we're delivering new capabilities now every 90 days. We have numerous customers in our Earn Your Wings program, and our bookings growth is benefiting from customers consolidating and preparing for AI. We built a powerhouse services organization, and we're ready to engage with customers for our talent to help them with their AI transformation. And furthermore, we are focused on enabling our engineers to go even faster with business AI. I'm announcing today that we've begun a significant internal AI transformation and how our engineers create open text software. We're creating a new platform called Platform Athena that will be our trusted platform to generate software and to assist our engineers in creating our products. Athena will significantly accelerate our innovation, accelerate time to market, attract the next generation of talent, and raise our productivity and efficiency. Our first Athena-generated products are expected to be in the market with Cloud Editions 25.2, and we'll keep you updated along the way.

Speaker Change: We have numerous customers in our earlier wings program and our bookings growth is benefiting from customers consolidating and preparing for AI.

Speaker Change: We built a powerhouse services organization, and we're ready to engage with customers for our talent to help them do AI transformation.

Speaker Change: And further we are focused on enabling our engineers to go even faster with business AI.

Speaker Change: Announcing today that we have begun a significant internal AI transformation and how our engineers create open text software, we're creating a new platform called platform Athena that will be our trusted platform to generate software to assist our engineers and creating our products.

Speaker Change: Dana will significantly accelerate our innovation accelerate time to market attract the next generation of talent and raised our productivity and efficiency.

Speaker Change: Our first Athena generated products are expected to be in the market with cloud editions 25 docked too and we will keep you updated along the way.

Mark J. Barrenechea: Our Q2 results tell our story, and let me conclude by saying how excited I am about the second half of the fiscal year for our momentum in information management, cloud, AI, and information security and trust. There's so much runway ahead of Open Text for growth.

Speaker Change: Our Q2 results to tell our story.

Speaker Change: Now, let me conclude with saying how excited I am about the second half of the fiscal year and our momentum in information management cloud AI and information security and trust. There is so much runway ahead of open text for growth.

Mark J. Barrenechea: Our investments are the fuel for that momentum, and our operational experience will help us realize higher profits and cash flows from those higher revenues. And our Accelerate Paths Under 3X leverage will create stronger capital allocation and capital return opportunities. The Open Text Cloud is an information cloud, and great information management is a key ingredient in business AI. Trust is an essential element in automation and AI, and we're earning our customers' trust every day.

Speaker Change: Our investments are the fuel for that momentum our operational experience will help us realize higher profits and cash flows from those higher revenues and our accelerated path to under three <unk> leverage will create stronger capital allocation and capital return opportunities.

Speaker Change: The open text cloud as an information cloud and great information management is a key ingredient to business AI Trust is an essential element in automation and AI and we're earning our customers' Trust every day. This is why we were the first Canadian company to join candidates voluntary code of conduct.

Mark J. Barrenechea: This is why we were the first Canadian company to join Canada's Voluntary Code of Conduct on the Responsible Development and Management of Advanced Generative AI Systems. And as I said last year, and you heard it here first, our customer's data is not our product. A big thank you to my Open Text colleagues, customers, and partners for this momentum. I also want to thank our shareholders for their support of the Micro Focus Acquisition. It is your capital, and we manage that responsibility with the utmost care, and we are doing exactly what we said we would do, providing growth, cash flows, and return. Our top core value at Open Text is being deserving of trust, and we look forward to your feedback and continued support. May the one that brings peace bring peace for all.

Speaker Change: On the responsible development and management of advanced generative AI systems.

And as I said last year and you heard it here first our customers' data is not our product.

Speaker Change: A big Thank you to my open text colleagues customers and partners for this momentum I also want to thank our shareholders for their support of the micro focus acquisition. It is your capital we manage that responsibility with the utmost care and we are doing exactly what we said we would do provide growth cash flows and.

Speaker Change: Returns are top core value of open taxes being deserving of trust and we look forward to your feedback and continued support.

Speaker Change: One that brings peace bring piece for all let me turn the call over to <unk>.

Madhu Ranganathan: Thank you, Mark, and thank you all for joining us today. So let me start with a few key points. In Q2, Open Text performed extremely well.

Speaker Change: Thank you Mark and thank you all for joining US today. So let me start with a few key points in Q2 open text executed extremely well with record Q2 revenues and cloud bookings at an all time high we have built an operations practice that strategically support the foundation of a solid.

Madhu Ranganathan: With record Q2 revenues and cloud bookings at an all-time high, we have built an operations practice that strategically supports the foundation of a solid, growing enterprise cloud business. During Q2, we also completed successfully our one-year commitment and delivery on MicroFocus to drive a creative integration. The one-year anniversary of MicroFocus is today.

Speaker Change: Growing enterprise cloud business.

Speaker Change: During Q2, we also completed successfully our one year commitment and delivery on micro focus to drive accretive integration.

Speaker Change: Most of you have Microsoft because this today.

Madhu Ranganathan: Our outlook fully reflects the opportunity in front of Open Text and the rapid progress we have made in growing micro-focused revenue, profitability, and free cash flows. Mark spoke about our Q2 results and let me share additional comments. Starting on page 23 of the investor presentation posted on our IR website, for the slides titled Q2 Fiscal 24 and trailing 12-month financial highlights, 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 stated otherwise. On a year-over-year basis, with Q2 cloud revenue of $450 million, up 10.1% and 9.2% in constant currency, Q2 ARR, Annual Recurring Revenue, of $1.15 billion, up 58% and 55.6% in constant currency.

Speaker Change: Our outlook fully reflects the opportunity in front of in front of open text and the rapid progress we have made in growing micro focus revenue profitability and free cash flows.

Speaker Change: Spoke to our Q2 results and let me share additional comments.

Speaker Change: Starting on page 23 of the Investor presentation posted on our IR website for the slide titled Q2 fiscal 'twenty, four and trailing 12 months financial highlights all references are in millions of USD and compared to the same period in the prior fiscal year and on a reported basis unless stated otherwise on a year over year basis with <unk>.

Speaker Change: Q2 cloud revenue of $450 million up 10, 1% and nine 2% in constant currency Q2, <unk>. Our annual recurring revenue of 1.15 billion up 58% and 55, 6% in constant currency that took us into approximately 75% of total revenue.

Madhu Ranganathan: That represents approximately 75% of total revenue. This was our 11th consecutive quarter of Enterprise Cloud Organic Growth in Constant Currency and our 12th consecutive quarter of Constant Currency Organic Growth in ARR. Our license revenue increased 168% year-over-year as reported and 163% in Constant Currency, and this reflects the incremental contribution from Micro Focus, an increase in the number of large deals, and the granting of certain IP rights. Now, let me comment on the large deals. For cloud, we closed 48 deals greater than $1 million in the quarter versus 23 in the earlier period. For license, we closed 35 contracts greater than $1 million in the quarter versus 15 in the year earlier.

Speaker Change: Yes.

Speaker Change: This was our 11th consecutive quarter of enterprise cloud organic growth in constant currency and our 12 consecutive quarter of constant currency organic growth in <unk>.

Speaker Change: License increased 168% year over year as reported and 163% in constant currency and this reflects the incremental contribution to micro focus and increase in the number of large deals and the granting of certain IP rights.

And let me comment to the large deals to cloud, we closed 48 deals greater than 1 million in the quarter versus 23 in the earlier period to license, we closed 35 contracts greater than 1 million in the quarter versus 15, India earlier.

Speaker Change: The deal sizes reflect the strategic importance of open text and cloud booking strength as our customers prepare for AI.

Speaker Change: And moving to other financial metrics GAAP net income was $38 million, primarily reflecting the increasing interest expense amortization and special charges related to the acquisition of micro focus driving GAAP EPS of <unk> 14.

Madhu Ranganathan: The deal sizes reflect the strategic importance of Open Text and cloud booking strength as our customers prepare for AR. Moving to other financial metrics, GAAP net income of $38 million, primarily reflecting the increasing interest expense, amortization, and special charges related to the acquisition of Micro Focus driving GAAP EPS of $0.14. Gap gross margin of 73.6%, up from 70.8%, reflecting increased relative revenue contribution from a licensee; non-cap gross margin of 78.6%, up from 76%, also reflecting increased relative revenue contribution from LIFE. And just a little bit of $566 million, an increase of 66.1% year-over-year and 61.2% in constant current. Our Adjusted EBITDA margin was 36.9%. As I mentioned earlier, we expect Micro Focus to be on our Adjusted EBITDA model by the end of the fiscal year.

Speaker Change: GAAP gross margin of 76% up from 78%, reflecting increased relative revenue contribution from our license business.

Speaker Change: non-GAAP gross margin of 78, 6% up from 76% also reflecting increased increase relative to revenue contribution from license.

Speaker Change: Adjusted EBITDA of $566 million, an increase of 6% to six 1% year over year and 61, 2% in constant currency. Adjusted EBITDA margin was 36, 9% as I mentioned earlier, we expect micro focus to be on our adjusted EBITDA model by the end of this fiscal year.

Speaker Change: Adjusted EPS of $1.24 continues to reflect this progress.

Speaker Change: <unk> is a 47 days flat from Q2 of the prior year and affecting highest seasonal billings and consistent with our expectations on overall working capital performance remained strong and micro focus continues to systematically perform hyatt on all working capital metrics.

Speaker Change: We generated a stellar $350 7 million in operating cash flows and $305 4 million and free cash flows during the quarter.

Madhu Ranganathan: Adjusted EPS of $1.24 continues to reflect this progress. Our DSOs are 47 days, flat from Q2 of the prior year, and reflect higher seasonal billings and are consistent with our expectations. Our overall working capital performance remains strong, and Micro Focus continues to systematically perform higher on all working capital metrics. We generated a stellar $350.7 million in operating cash flows and $305.4 million in free cash flows during the quarter. Turning to the balance sheet, please see page 25 of the investor presentation, we finished Q2 with $1 billion in cash. Our net leverage ratio was, as expected, at 3.7 times for Q2. After the quarter closed, we made an additional January repayment of $175 million on our acquisition term loan.

Speaker Change: Turning to the balance sheet. Please see page 25 of the Investor presentation. We finished Q2 with $1 billion in cash our net leverage ratio was as expected at three seven times for Q2. After the quarter close we made an additional January repayment of $175 million on an acquisition.

Speaker Change: Loan after this payment up in simple outstanding debt is $8 5 billion.

Speaker Change: Our micro focus integration. Please refer to page 34 of our Investor presentation. We are delighted to share that open text is on or ahead of plan on every commitment to leading to micro focus integration I'm highlighting a few accelerate microfocus cloud growth, which includes product and sales investment as we saw strong.

Speaker Change: Cloud results in Q2.

Madhu Ranganathan: After this payment, our principal outstanding debt is $8.5 billion. On microfocus integration, please refer to page 34 of our investor presentation, where we're delighted to share that Open Text is on or ahead of schedule on every commitment relating to microfocus integration. I'm highlighting a few. Accelerate Micro Focus cloud growth, which includes product and sales investment as we saw strong cloud results in Q2, and Return Micro Focus to Organic Growth, another strong quarter with 601 million in revenues. We were able to accelerate return to organic growth in fiscal 24. Improving micro-focus renewals is a key milestone for organic growth.

Speaker Change: And to turn Microfocus organic growth another strong quarter with $601 million of revenues, but able to accelerate the return to organic growth in fiscal 'twenty four.

Speaker Change: Improving Microsoft and renewables is a key milestone for organic growth, but on track for high 80% renewal rate in fiscal 'twenty four and.

Speaker Change: And lastly, micro focus will be on an operating model, both adjusted EBITDA and free cash flows during fiscal 'twenty four making significant contributions.

Speaker Change: On page 35 of our Investor presentation, we are providing a final one year anniversary update to the financial integration framework. We have now action $370 million of our 400 million targeted savings initiatives were increasing our restructuring advisory and facility expense special charges by $20 million, but do you.

Madhu Ranganathan: We're on track for a high 80s renewal rate in fiscal 24. And lastly, Micro Focus will be on an operating model, both adjusted EBITDA and free cash flows, during fiscal 24, making significant contributions. On page 35 of our investor presentation, we are providing a final one-year anniversary update on the financial integration framework. We have now actioned $370 million of our $400 million targeted savings initiatives. We're increasing our restructuring advisory and facility expense special charges by $20 million, but reducing expected technology tax and legal entity simplification costs by $100 million for a net reduction of $80 million. When combined with the expected reduction in interest expense following the AMC divest, there is increased visibility on the improvement in free cash flow we expect to see between now and our fiscal 26 aspirations. AMC Update

Speaker Change: <unk> expected technology tax and legal entity simplification costs by $100 million for a net reduction of $80 million when combined with expected reduction interest expense. Following the AMC divest that has increased visibility on the improvement in free cash flow, we expect to see between now and our fiscal 'twenty six aspirations.

Speaker Change: AMC update let me spend a moment on application modernization connectivity AMC. The business continues to perform well and we're on track for a successful close in Q4 to divest AMC to docket software. The net proceeds will reduce debt for our consolidated net leverage ratio of less than three times within <unk>.

Speaker Change: 90 days of closing.

Speaker Change: Our dividend program on February 1st our board of Directors approved a quarterly cash dividend of <unk> 25 cents per common share. The record date for the next quarterly dividend in March 2024, and the payment date is March 22024.

Speaker Change: So let me turn to our targets and expectations, starting with our Q3 fiscal 'twenty four quarterly factors on page 32 of our investor presentation on a year over year basis, we expect revenue of $1 4 billion to $1 45 billion.

Madhu Ranganathan: Let me spend a moment on Application Modernization and Connectivity, AMC. The business continues to perform well, and we're on track for a successful close in Q4 to divest AMC to Rocket Software. The net proceeds will reduce debt for a consolidated net leverage ratio of less than three times within 90 days of closing. Our Dividend Program. On February 1st, our Board of Directors approved a quarterly cash dividend of $0.25 per common share. The record date for the next quarterly dividend is March 1st, 2024, and the payment date is March 20th, 2024.

Speaker Change: Our annual recurring revenue of $1, one 3 billion to $1 6 billion, we expect FX to be constant adjusted EBITDA year over year margin between 32% and 33% that reflects microfocus integration cost and FX adjusted EBITDA to also be constant.

Speaker Change: At fiscal 'twenty four targets in constant currency are provided on page 33 of our Investor Relations presentation.

Speaker Change: As I build in marks comments I will also provide updates to the target model ranges to fully reflect our successful one year integration of micro focus.

Madhu Ranganathan: So let me turn to our targets and aspirations, starting with our Q3 fiscal 24 quarterly factors on page 32 of our investor presentation. On a year-over-year basis, we expect revenue of $1.4 billion to $1.45 billion. ARR, annual recurring revenue, of $1.13 billion to $1.16 billion. We expect FX to be constant.

Speaker Change: Our cloud revenue is expected to be up 6% to 8%.

Speaker Change: Customer support revenues up 43% to 45% year over year compared to our prior range of up 40% to 42%.

Speaker Change: Are up 25% to 27% compared to our prior range of up 24% 26%.

Speaker Change: License revenue up 68% to 70% compared to our prior range of up 71% to 73% and professional services revenue up 26% to 28% compared to our prior range.

Madhu Ranganathan: Adjusted EBITDA year-over-year, margin between 32% and 33% that reflects micro-focus integration costs. And FX adjusted EBITDA to also be constant. Our fiscal 24 targets and constant currency are provided on page 33 of our investor relations presentation.

Speaker Change: 29% to 31%.

Speaker Change: Total revenue growth of 30% plus with organic growth in the range of 1% to 2%.

Speaker Change: Total operating expenses of 42% to 44% of revenues non.

Speaker Change: non-GAAP gross margin range of 77% to 79% we are tightening our adjusted EBITDA margin range to 36% to 37% and that reflects higher investments in AI and cloud sales and marketing and expenses related to the AMC divestiture and micro focus integration expense.

Madhu Ranganathan: As I build on Mark's comments, I will also provide updates to the target model ranges to fully reflect our successful one-year integration of Microfocus. Our cloud revenue is expected to be up 6% to 8%, and customer support revenues are up 43% to 45% year-over-year compared to our prior range of up 40% to 42%.

Speaker Change: At current exchange rates, we expect FX to be $20 million to $40 million a tailwind.

Speaker Change: Net interest expense for the year to be $550 million to $570 million and non-GAAP effective tax rate of 14%.

Madhu Ranganathan: ARR up 25% to 27% compared to our prior range of up 24% to 26%. Our license revenue up 68% to 70% compared to our prior range of up 71% to 73%. And professional services revenue up 26% to 28% compared to our prior range of up 29% to 31%.

Speaker Change: As noted earlier, our enterprise cloud business is doing extremely well with solid revenue growth and 63% year over year bookings growth in the quarter, increasing our visibility we are a key Microsoft partner and as noted in their recent calls the SMB market is facing short term challenges this impacts our SMB business.

Speaker Change: We remain in a great position to continue to add products, where SMB business and benefit as the environment improves.

Madhu Ranganathan: Total revenue growth of 30% plus with organic growth in the range of 1-2%, total operating expenses of 42 to 44% of revenue, and a non-gap gross margin range of 77 to 79 percent. We are tightening our adjusted EBITDA margin range to 36 to 37%, and that reflects higher spending in AI and Cloud, Sales and Marketing, and Expenses Related to the AMC Divestiture and Micro Focus Integration Expense At current exchange rates, we expect FX to be $20 to $40 million a tailwind. Net interest expense for the year to be $550-570 million and a non-GAAP effective tax rate of $14,000.

Speaker Change: Turning to free cash flows, we expect free cash flow to grow year over year in both third quarter and fourth quarter, we're raising the lower end of our <unk> range and now expect stronger full year results between 825 million to $900 million.

Speaker Change: Fiscal 'twenty six explorations are included on page 36 of the Investor presentation and remain unchanged from our materials. We shared with you on November 28, when we announced the AMC divestiture, our fiscal 'twenty six exploration shows a highly predictable and growing business at scale led by cloud and Anr.

Speaker Change: So in summary, our open texts team members are proudly delivered a solid Q2 and a strong first half of the fiscal year and we remain on track to meet our fiscal 'twenty four targets and fiscal 'twenty six aspirations to micro focus integration is ahead of our commitments and we expect micro focus to receive important milestones in fiscal 'twenty for epic.

Madhu Ranganathan: As noted earlier, our enterprise cloud business is doing extremely well, with solid revenue growth and 63% year-over-year bookings growth in the quarter, increasing our visibility. We are a key Microsoft partner, and as noted in their recent call, the SMB market is facing short-term challenges. This impacts our SMB business. We remain in a great position to continue to add products to our SMB business and benefit as the environment improves. Turning to free cash flows, we expect free cash flow to grow year-over-year in both the third quarter and fourth quarter. We're raising the lower end of our FCF range and now expect stronger full-year results between $825 million and $900 million.

Speaker Change: Turn to organic growth and renewal rates in the high eighties, and micro focus business to be an open text operating model for adjusted EBITDA and free cash flows the AMC divestiture reinforces and sharpens, our focus sharpened our capital allocation and over time will allow for more resources to be allocated to drive more growth.

Speaker Change: And behalf of open text I would like to thank our shareholders, our loyal customers and partners I would now request the operator to open the call for your questions.

Speaker Change: Thank you.

Speaker Change: Now begin the question and answer session anyone who wishes to ask a question you May Press Star then one on your Touchtone phone to join the question queue.

Speaker Change: Tony acknowledging your request if you're using a speaker phone. Please ensure your handset before pressing and Keith if you wish to withdraw your question.

Madhu Ranganathan: Our Fiscal 26 aspirations are included on page 36 of the investor presentation and remain unchanged from the materials we shared with you on November 28 when we announced the AMC Divestiture. Our Fiscal 26 aspirations show a highly predictable and growing business at scale led by cloud and ARR. So in summary, our Open Text team members have proudly delivered a solid Q2 and a strong first half of the fiscal year, and we remain on track to meet our Fiscal 24 targets and Fiscal 26 aspirations. The MicroFocus integration is ahead of our commitments, and we expect MicroFocus to achieve important milestones in Fiscal 24, a return to organic growth and renewal rates in the high 80s, and MicroFocus business to The AMC divestiture reinforces and sharpens our focus, sharpens our capital allocation, and over time will allow for more resources to be allocated to drive more growth. On behalf of Open Text, I would like to thank our shareholders, our loyal customers, and partners. I will now request the operator to open the call for your questions.

Speaker Change: You May press Star then two.

Speaker Change: And when you have a question you May press Star then one at this time.

Speaker Change: My first question is from Richard Tse with National Bank Financial. Please go ahead.

Speaker Change: Thank you.

Richard Tse: I think you did talk about the SMB market.

Richard Tse: I'm not sure it is for Mark or Madhu, but wondering if you could sort of expand that and talk more broadly about the enterprise spending environment. It seems there's been some mixed messages out there as to whether it's kind of gone back to a normal pace or not.

Richard Tse: Hey, Richard Thanks for the question, let me take a part of that.

Speaker Change: Look on the SMB part.

Speaker Change: B.

Speaker Change: Massive part of the U S economy.

$370 billion in spend for companies with 1000 employees or less.

Speaker Change: We believe information management deeply relevant for this market.

Speaker Change: And as we know Microsoft Microsoft is a key partner in this space.

Speaker Change: Microsoft recently discussed some of our short term challenges and SMB.

Speaker Change: But they have also confirmed our long term strategic drivers for growth in SMB as well.

Speaker Change: So I think we're in a great position to benefit from SMB, both in the medium and long term and it will be a strong contributor to our 7% to 9% organic cloud growth.

Operator: Thank you. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and then one on their touchtone phone to join the question queue. You will hear a tone acknowledging your request. If you're using a speakerphone, please ensure you lift the handset before pressing any keys.

Speaker Change: Aspirations.

Speaker Change: As it relates to maybe a little more on the macro side.

We're going to combine any of the comments I hand over to Madhu I'll combine a bit of macro and competitors.

Speaker Change: We are benefiting from customer demand as customers look to consolidate away from competitors that are stock off cloud. They don't have a data security our trust platform and have weak a weak AI vision and low capabilities to deliver.

Richard Tse: If you wish to withdraw your question, you may press star then. And when you have a question, you press star then one at the end. Our first question is from Richard Tse with National Bank Financial. Please go ahead. Yes. Wondering if you could sort of expand that, to talk more broadly about the enterprise spending environment. Mixed messages out there as to whether it's kind of gone back to normal.

Speaker Change: We're in the right place today, 60% of our business is in North America public sector energy financial services manufacturing CPG apparel retail.

Mark J. Barrenechea: Open Text Corp. Yeah, Richard, thanks for the question. Let me take a part of that. SMB is a massive part of the U.S. economy. $370 billion spent on companies with 1,000 employees or less.

Speaker Change: So we've got some fantastic ecosystem partners, Microsoft S&P global.

Speaker Change: And Salesforce.

Speaker Change: <unk>.

Speaker Change: We're in the right places right now and it's about.

Speaker Change: Delivering value for our customers.

Mark J. Barrenechea: We believe information management is deeply relevant for this market, and as we know, Microsoft is a key partner in this space, and Microsoft recently discussed some of their short-term challenges in SMB, but they've also confirmed they're a long-term strategic driver for growth in SMB as well. So, I think we're in a great position to benefit from SMB, both in the medium and long term, and it will be a strong contributor to our 7-9% Arcana Cloud Growth aspiration. As it relates to maybe a little more on the macro side, I'm not going to combine any of the comments I hand over to Madhu.

Speaker Change: And so more.

Speaker Change: We see a reasonable economy out there to go execute.

Speaker Change: Yes, Thank you Mark and Richard I, just wanted to highlight specific to fiscal 'twenty. Four again, you saw the enterprise cloud bookings growth rate of 63% and we're also increasing the outlook for the year for cloud revenues in fiscal 'twenty for content revenue analytics 70 experienced revenue and business network, all doing very well, but we did want to call. It.

Speaker Change: The SMB as you look at the Q3 and the fiscal 'twenty four targets for cloud revenue per se.

Mark J. Barrenechea: I'll combine a little bit of macro and competitor. We are benefiting from customer demand as customers look to consolidate away from competitors that are stuck off the cloud. They don't have a data security or trust platform and have a weak AI vision and low capabilities to deliver.

Speaker Change: Okay, Great and then just separate question on aviator and know that that's probably one of your more exciting products right now.

Speaker Change: I don't know if its too early still but do you ever any sort of sense at this point in time.

Speaker Change: What a reasonable attach rate would be within your existing customer base and that sort of potential incremental revenue opportunity and I guess on the same note.

Mark J. Barrenechea: We're in the right place today. Sixty percent of our business is in North America, public sector, energy financial services, manufacturing. We're supporting CPG, apparel, and retail. We have some fantastic ecosystem partners, Microsoft, SAP, Google, and Salesforce. So we're in the right places right now, and it's about delivering value for customers. And so we see a reasonable economy out there to go execute.

Speaker Change: I think you had some sort of Oh, I forgot where those causes a trial up your your annual user conference.

Speaker Change: Good morning, we can sort of assuring stats in terms of the uptake on that trial.

Speaker Change: Yes sure thing Thank you again to Richard.

Speaker Change: We're making strong and steady progress and so.

Speaker Change: I will just start with we're differentiated in the market and we have one business.

Speaker Change: Now a differentiated as I noted in my prepared remarks on the datasets that are automation create we manage we believe that our business cloud automation and AI are integrated.

Madhu Ranganathan: Yeah, thank you, Mark. And Richard, I just wanted to highlight, specific to Fiscal 24, again, you saw the enterprise cloud booking growth rate of 63%, and we're also increasing the outlook for the year for cloud revenues in Fiscal 24, content revenue, analytics revenue, experience revenue, and business network, all doing very well. But we did want to call out S&B, as you look at the Q3 and the Fiscal 24 targets for cloud revenue per se. And I just have a question about Aviator NoDepth.

Speaker Change: And I also said on my prepared remarks, we are embedding AI everywhere.

Speaker Change: It will be a capability AI will have right next to automation and the long term.

Speaker Change: Youll have your automation screen, but youll have your AI assist right next to it.

Speaker Change:

Speaker Change: And we work on.

Speaker Change: Best way to describe it is we're moving from vision to showing the value in discussion to delivery.

Speaker Change: We have numerous customers today in our earn your wings program.

Speaker Change: Discussed a few in my remarks.

Speaker Change: In food.

Speaker Change: In.

Speaker Change: In apparel.

Speaker Change: <unk> manufacturing.

Speaker Change: And if you look at our bookings growth of 63%, 63% year over year growth, we have AI wins in that and also noted we raised our outlook on our bookings growth from 15% 25% to 30.

Richard Tse: That's probably one of your more exciting products right now. I don't know if it's too early still, but, you know, do you have any sort of sense at this point in time? What a reasonable attach rate. I guess on the same note. Thank you. You have, I forgot what it was called.

Speaker Change: So we're doing we're doing this the open text way it is a strong vision.

Speaker Change: Backed up by product, we're delivering every 90 days, we're moving from that vision to showing value, we're moving from discussion to delivery.

Mark J. Barrenechea: It was a trial. I'm wondering if you can sort of share any stats in terms of the uptake on that trial. Yeah, sure. Thanks. Thank you again, Richard.

Mark J. Barrenechea: We're making strong and steady progress, and Now, I'll just start with what's differentiated in the market, and we have won this. Now we're differentiated, as I noted in my prepared remarks, on the data sets that our automation creates and we manage. We believe that our business cloud automation and AI are integrated. And I also said it in my prepared remarks, we are embedding AI everywhere. It will be a capability; AI will live right next to automation in the long term. You'll have your automation screen, but you'll have your AI assistant right next to it.

Speaker Change: We have now progressed to just a fantastic bookings quarter.

Speaker Change: And raising our outlook for the year on bookings.

Speaker Change: And we move to the next step which is creating.

Speaker Change: Really a breakthrough idea on platform Bettina on how we're going to transform how we write our own software using our own platform. So I'm pleased with our progress we're going to keep making progress every 90 days.

Speaker Change: And.

Speaker Change: I strongly believe that your visibility into our 7% to 9% cloud organic.

Mark J. Barrenechea: And my best way to describe it is we're moving from vision to showing the value and discussion to delivery. We have numerous customers today in our Earn Your Wings program, and I discussed a few in my remarks about food and apparel manufacturing.

Speaker Change: Organic revenue growth significantly increases with what.

Speaker Change: The strong bookings outlook.

Speaker Change: Okay. Thank you I'll pass it on.

Speaker Change: Right.

Speaker Change: Thank you.

Speaker Change: The next question is from Daniel Chan with TD Colin. Please go ahead.

Daniel Chan: Alright, thanks cash flow conversion.

Mark J. Barrenechea: And if you look at our bookings growth of 63%, 63% year over year growth, we have AI wins in that. And also know that we raised our outlook on our bookings growth from 15% to 25% to 30%. So, you know, we're doing this the open text way.

Daniel Chan: Really took a step up in the quarter Q2 seems to be seasonally stronger for conversion anyway, but considering the ongoing integration does seem pretty good.

Daniel Chan: Is there anything to call out on that performance and should we expect that to continue.

Daniel Chan: Yes. Thank you Dan So what I would say is that as I've shared before the open text cash conversion has remained very steady and strong.

Mark J. Barrenechea: It is a strong vision, backed up by product. We're delivering every 90 days. We're moving from that vision to showing value. We're moving from discussion to delivery. We have now progressed to just a fantastic bookings quarter and raised our outlook for the year on bookings. So I'm, and we've moved to the next step which is, you know, creating really a breakthrough idea on platform Athena on how we're going to transform how we write our own software using our own platform. So I'm pleased with our progress. We're going to keep making progress every 90 days. And, I strongly believe that your visibility into our seven to nine percent cloud organic revenue growth significantly increases with the strong bookings outlook. Thank you. The next question is from Daniel Chan with TD Collins. Please go ahead.

Speaker Change: If you think about the elevation that we made with open text, we set out to do that with micro focus what I would say is that in Q2, we saw microscope because also respond.

Speaker Change: Very positively and.

Speaker Change: The cash conversion, but you're seeing Scott admitted sort of right in that keep in mind. They have different year ends and different quarters, and we're actually very delighted how we were able to converge their operating performance to our quarters et cetera do.

Speaker Change: Do we expect it to continue yes, we absolutely expect it to continue.

Speaker Change: Thanks Madhu.

Speaker Change: On the EBITDA margin guidance for the full year tightened it up next quarter I think it looks like it's going to take a step down to 32% to 33% just wondering what's driving that.

Daniel Chan: Hi, thanks. Cash flow conversion really took a step up in the quarter. Q2 seems to be seemingly stronger for conversion anyway, but considering the ongoing integration, this seems pretty good. Is there anything to call out about that performance, and should we expect that to continue?

Speaker Change: Yes.

If you recall Q3 for us is usually a seasonally lower EBITDA quarter.

Speaker Change: There are big factors I'd say for the remainder of the year as Mark and I, both called out that includes investment in AI and cloud just given the strong strong bookings, we see and we do have some AMC divestiture experienced men expenses and also some mitraclip or integration expense, but Q3, if I could just highlight from an employee perspective as Jay.

Madhu Ranganathan: Thank you, Dan. So, what I would say is that, as I've shared before, the Open Text task conversion has remained very steady and strong. If you think about the progress that we made with Open Text, we set out to do that with Micro Focus.

Speaker Change: It's in a January 1st a new year, we have higher benefits expense, we have higher sort of set of vacation expense et cetera. So that is more seasonal to Q2 and that also weighed down a bit the EBITDA margin.

Madhu Ranganathan: What I would say is that in Q2, we saw Micro Focus also respond very positively, and the task conversion that you're seeing is right there. Keep in mind, they have different year ends and different quarters, and we're actually very delighted how we were able to converge their operating performance to our quarters, etc. Do we expect it to continue? Absolutely. We absolutely expect it to continue. Thanks, Madhu. And then on the EBITDA margin guidance for the full year, we tightened it up, but next quarter, I think it looks like it's going to take us down to 32 to 33%. Just wondering what's driving that?

Speaker Change: But for the year. The 36 to 37 Q4 will remain a seasonally strong quarter.

Speaker Change: And Dan I think it's fair to say as we do noticed that Q3 is a.

Speaker Change: Seasonally low quarter in Q4 is a seasonally stronger quarter.

Dan: Okay I appreciate that the investments that youre, making into into cloud AI like we are.

Dan: Or the areas of focus for this added investment. Thank you.

Dan: Yes.

Speaker Change: Thank you Dan.

Speaker Change: <unk> noted some of them.

Speaker Change: We continue to build out our private cloud infrastructure, particularly around.

Madhu Ranganathan: Yeah, so if you recall, Q3 for us is usually a seasonally lower EBITDA quarter. There are big factors, I'll say, for the remainder of the year, as Mark and I both called out, that include investment in AI and cloud, just given the strong bookings we see, and we do have some AMC divestiture experience, expenses, and also some microprofit integration expenses. But Q3, if I could just highlight, from an employee perspective, it's January 1st, a new year. We have higher benefits expenses. We have higher vacation expenses, et cetera.

Speaker Change: Industry compliance data security Trust pregnancy.

Speaker Change: Sure.

Speaker Change: It's an investment in our SaaS offerings, as we talk about how to unlock future value.

We have established our private cloud platform as a standard globally.

Speaker Change: The next step is more public cloud SaaS consumption across our products and of course off aviator.

Speaker Change: Our AI, so those areas where.

Madhu Ranganathan: So that is more seasonal to Q2, and that also weighs down a bit the EBITDA margin. But for the year, the 36 to 37, Q4 will remain a seasonally strong quarter. And Dan, I think it's fair to say, as Madhu noted, that Q3 is a seasonally low quarter, and Q4 is a seasonally stronger quarter. Okay, I appreciate that. The investments that you're making into cloud AI, where are the areas of focus for this added investment? Thank you. Yes, thank you, Dan. Well, you noted some of them.

Speaker Change: We're applying that investment and doing that within the range, we talked at the beginning of the year, even though we tightened a little bit we're still within the range. We've got we've presented.

Speaker Change: Sounds good thank you.

Speaker Change: Thank you.

Speaker Change: The next question is from Steve Enders with Citi. Please go ahead.

Okay.

Steve Enders: Thanks for taking the question here.

Steve Enders: On the call.

Steve Enders: On bookings strength in the corner.

Steve Enders: Pretty impressive results there.

Steve Enders: Good.

Steve Enders: One of them particular.

Steve Enders: Great.

Steve Enders: There was it customers converting over Q2.

Speaker Change: Any concern there.

Mark J. Barrenechea: We continue to build out our private cloud infrastructure, particularly around industry compliance, data security, trust, and privacy. It's an investment in our SaaS offerings as we talk about how to unlock our future value. We have established our private cloud platform as a standard globally. The next step is more public cloud SaaS consumption across our products. And, of course, Aviator, our AI.

Speaker Change: And then I guess.

Do you think about the.

Speaker Change: That's helpful.

Speaker Change: The growth outlook on bookings for the year.

Speaker Change: AI contribution that you are kind of embedded in that.

Speaker Change: Okay. Thanks for the thanks for the question.

Speaker Change: As I said in my prepared remarks on the cloud side.

Speaker Change: Clearly, a very strong quarter, 63% year over year growth.

Speaker Change: And what are hard visibility, we see continued strength.

Speaker Change: And we raised our outlook from 15% cloud bookings growth to 25%, 30% cloud bookings growth for the year.

Mark J. Barrenechea: So those are areas where we're applying that investment and doing that within the range we talked about at the beginning of the year. Even though we tightened it a little bit, we're still within the range we presented. Sounds good.

Speaker Change: What's driving that.

Speaker Change: First is we see a lot of customers continuing to move to our cloud.

Speaker Change: And consolidating away from.

Steve Enders: Thank you. Thank you. The next question is from Steve Enders with Citi. Please go ahead.

Speaker Change: Competitors.

Speaker Change: Who who can't get to the cloud can't provide that data security and trust don't.

Mark J. Barrenechea: For my second question here, maybe to start off on the crowdbooking strength and the core, I mean, pretty, pretty impressive results there. What in particular kind of drove the upside there? Was it customers converting over, new use cases, how big of a contributor was AI? And then, I guess secondarily, as we think about the step-up in the growth outlook on cloud bookings for the year, what's the AI contribution that you're kind of embedding in that? Steve, thanks for the question.

Speaker Change: Don't have a credible.

Speaker Change: AI vision, let alone first products in the market.

Speaker Change: So just continued strength of our private cloud customers consolidating.

Speaker Change: Compliance data security.

Speaker Change: <unk> privacy remained top of the list.

Speaker Change: For the global 10000, that's a driver for us.

And AI.

Speaker Change: We've won we've won AI business.

Speaker Change: <unk>.

Speaker Change: As shown up in our bookings, we're not breaking out AI.

Speaker Change: AI or or security in prost or content or BN.

Mark J. Barrenechea: As I said in my prepared remarks on the cloud side, clearly a very strong quarter, 63% year-over-year growth. And with our forward visibility, we see continued strength. And we raised our outlook from 15% cloud bookings growth to 25-30% cloud bookings growth for the year. What's driving this? First, we see a lot of customers continuing to move to our cloud and Consolidating Away from competitors who can't get to the cloud, can't provide the data security and trust, don't have a credible AI vision, let alone first products in the market. So, just the continuous strength of our private cloud, That's the driver for us, and A.I. We've won A.I., and it's showing up in our bookings. We're not breaking out, you know, AI or security and trust or content or BN bookings at this point. We don't get down to that level.

Speaker Change: Bookings at this point, we don't get down to that level.

Speaker Change: But AI was a was a <unk>.

Speaker Change: Contributor.

Speaker Change: That 63.

Speaker Change: Percent cloud bookings growth and <unk>.

Speaker Change: And a factor in us raising our outlook.

Speaker Change: <unk> outlook for the year.

Speaker Change: Okay.

Speaker Change: Or maybe you can.

Speaker Change: The puts and takes on the growth outlook.

Speaker Change: The customer support.

Speaker Change: Yes.

Speaker Change: Maybe just give a little more color on.

Speaker Change: I went down a little bit in print services stepping down a little bit on the expectations from last quarter.

Yeah, So Steve I'll take that.

Speaker Change: The license in the quarter actually.

Steve Enders: Was significantly higher from a year over year basis, and the contribution that Jody is bringing micro focus into the 8 million to the play as you and I need to call. It Microfocus cloud momentum is strong, but it's still smaller from a cloud perspective in terms of bookings and revenue relative to of course open text and PFS revenues also grew.

Madhu Ranganathan: But AI was a clear contributor to that 63% cloud bookings growth and a factor in us raising our growth outlook for the year. Okay, that's helpful. Maybe, you know, taking some of the puts and takes of the dropout look, it's good to see customer support step up and maybe just get a little more color on the license, stepping down a little bit in the pro services, stepping down a little bit from the expectations from last quarter. Yes, Steve, I'll take that.

Steve Enders: In the quarter competitively I want to make sure I heard your question right both license and PFS did grow in the quarter.

Steve Enders: Yes.

Speaker Change: Yeah, I guess I want to just clarify just on the outlook.

Speaker Change: I think you said that.

Speaker Change: Things were down from prior expectations.

Speaker Change: On last quarters, I'm, just trying to understand.

Speaker Change: One of those two.

Speaker Change: Came down a little bit.

Speaker Change: Sure sure I missed that part in your.

Speaker Change: In your earlier comments so the adjustment of the ranges really reflects the strength of again micro focus from a customer support perspective, right and we've and we've adjusted that to the range and keeping the overall fiscal 'twenty four targets. The same from a license perspective, just considered that we have.

Madhu Ranganathan: License revenue in the quarter actually was significantly higher from a year-over-year basis, and the contribution there really is bringing micro-focus into the fray, as you call it, micro-focus. Cloud momentum is strong, but they're still smaller from a cloud perspective in terms of bookings and revenue relative to, of course, Open Text. And PS revenues also grew in the quarter comparatively.

Speaker Change: Q3 seasonality and license and that applies to micro focus as well, but it's but it's really the contributed there I would say is the better than new world for micro focused customer support. So we wanted to increase the range of customer support and obviously account for some inherent volatility in the license business.

Madhu Ranganathan: I want to make sure I heard your question right. Both licenses and PS did grow in the quarter. Yeah, I guess I want to just clarify just on the outlook, because I think you said that both of those were down from the prior expectations from last quarter. So just trying to understand why those two came down a little bit. Sure, sure. I missed that part in your earlier comment.

Speaker Change: Okay perfect. Thanks for taking the questions here.

Speaker Change: Okay. Thank you. Thank you.

Okay.

Speaker Change: The next question is from Kevin Krishna.

Kevin Krishna: With Scotiabank. Please go ahead.

Kevin Krishna: Hey, there just a couple of clarifications from me. So just on the cloud growth of 6% to 8% that was maintained so I just wanted to read is it just the fact that you've had the strong enterprise bookings, but theres still offset from SMB and that sort of the reason why.

Madhu Ranganathan: So, the adjustment of the ranges really reflects the strength of, again, micro-focus from a customer support perspective, right? And we've adjusted that for the range. And keeping the overall fiscal 2024 target the same from a license perspective, just consider that we have our Q3 seasonality and licenses, and that applies to micro-focus as well. But it's really the contributor there, I would say, is better renewals for micro-focus customer support. So, we wanted to increase the range of customer support and obviously account for some inherent volatility in the license. Okay, perfect.

Kevin Krishna: That range was maintained.

Speaker Change: Yeah, I'll take it first and then turn it over to Mark Thanks for the question.

Mark: So think about the cloud bookings as Marc mentioned, clearly increasing the visibility to the future, which would be fiscal 'twenty five in fiscal 2006, our cloud contracts on long and we've talked about that before and the time to deployment and to revenue are also long, but we are very delighted at the performance in the quarter.

Kevin Krishnarathne: Thanks for taking the questions there. Thank you. The next question is from Kevin Krishnarathne with Scotiabank. Please go ahead.

Mark: Just giving us that future forward visibility so take India for fiscal 'twenty four we're keeping it at 6% to 8% and within that enterprise cloud revenue analytics experience Deanne, all doing well and as we.

Madhu Ranganathan: Hey, there are just a couple of clarifications for me. So just on the cloud growth, 6% to 8%, that was maintained. So I just want to know if it's just the fact that, you know, you've had the strong enterprise bookings, but they're still offset from SMB. Is that sort of the reason why that range was?

Mark: And as we called out SMB, it's weighing down a bit so we wanted to kind of balance that and keep the revenues that at 6% to 8% and that revenue is really benefiting from our cloud bookings from our prior quarters, right and the cloud renewals rates et cetera. So.

Kevin Krishnarathne: Yeah, I'll take it first and turn it over to Mark. Thanks for the question. So think about the cloud bookings, as Mark mentioned, really increasing our visibility to the future, which would be fiscal 25 and fiscal 26. Our cloud contracts are long, and we've talked about that before, and the time to deployment and to revenue is also long, but we're very delighted at the performance in the quarter, just giving us that future forward visibility. So take a look here for fiscal 24, we're keeping it at 6% to 8%, and within that, enterprise cloud revenue, analytics, experience, BN, all doing well. And as we called out SMB, it's weighing down a bit, so we want to kind of balance that and keep the revenues at 6% to 8%.

Mark: So I just wanted to separate the strength of the cloud bookings here, which is really going to be positively impacting 25, and 26 and just the factors outlining fiscal 'twenty four.

Mark: Okay.

Speaker Change: Got it thanks for that and just the final other question here just on the bookings I know, sometimes you've announced the bookings and there can be a little bit of a delay I guess in the translation to revenue is the.

Speaker Change: I related bookings do those look any different do those do you think that those are going to be translated from from bookings to revenue at a faster pace just given the strong demand that your customers are.

Speaker Change: <unk> for the AI products.

Speaker Change: Yeah, Kevin Thanks for the question.

Speaker Change: No.

Speaker Change: The bookings related to AI.

Kevin Krishnarathne: And that revenue is really benefiting from our cloud bookings from the prior quarters, right, and the cloud renewal rates, et cetera. So I just want to separate the strength of the cloud bookings here, which is really going to be positively impacting 25 and 26, and just the factors underlying fiscal 24. Got it. Thanks for that. Just a final other question here on the bookings.

Speaker Change: <unk>.

Speaker Change: Our following the same characteristics as an enterprise bookings.

And so in the.

Speaker Change: SMB space, we tend to see one year, one year contracts in the enterprise space, we tend to see two to four year contract.

Speaker Change: So AI is following.

Speaker Change: That enterprise pattern, if you will and as we do notice that bookings number or have a clear impact positive impact in <unk> and 'twenty, five and 26, but right now it looks like.

Mark J. Barrenechea: I know sometimes, you know, you've announced the bookings, and there can be a little bit of a delay, I guess, in the translation to revenue. Are the AI-related bookings, do those look any different? Do you think that those are going to be translated from bookings to revenue at a faster pace, just given the sort of strong demand that your customers are, you know, seeing for the AI products? Yeah, Kevin, thanks for the question. No, the bookings related to AI follow the same characteristics as an enterprise book. And so in the.

Speaker Change: Our AI wins.

Speaker Change: I will follow up.

Speaker Change: Our traditional enterprise pattern.

Speaker Change: Got it great. Thanks, a lot of pipeline.

Speaker Change: Thank you.

Speaker Change: The next question is from a beer category.

Speaker Change: Right.

Beer Category: Capital. Please go ahead.

Beer Category: Hi, Good afternoon, guys. Thanks for taking my questions I wanted to talk a little bit about last quarter. You saw some initial bookings in this quarter you called out some strength there as well.

Kevin Krishnarathne: In the SMB space, we tend to see one-year contracts. In the enterprise space, we tend to see two- to four-year contracts. And so AI is following that enterprise pattern, if you will. And as we do notice, that bookings number will have a clear impact, a positive impact, in 2025 and 2026. But right now, it looks like our AI wins or will follow our traditional enterprise pattern. You got it.

Capital: How have customers really progressed in AI, mark you've kind of mentioned that.

Speaker Change: A lot of customers customers are still dipping their feet with the get your wings program, but are some of those early customers are they progressing faster to maybe more larger scale deployments or are they kind of still in the in the get your wins program get their feet wet types or deploy.

Abir Kadve: Great. Thank you. Our next question is from Abir Kadve with 8 Capital. Please go ahead.

Speaker Change: Deployment phase.

Speaker Change: Yes, Thanks, Rick Thanks for the question is progressing.

Abir Kadve: Hi, good afternoon, guys. Thanks. I wanted to talk a little bit about, you know, last quarter you saw some initial bookings in AI. This quarter, you called out some strength there as well.

Speaker Change: And.

Speaker Change: A couple.

Speaker Change: Why statements here, we're going to embed AI and all our products.

Speaker Change: It's clear that there's a path where you have your audit automation.

Mark J. Barrenechea: I just want to ask, how have customers really progressed with AI? Mark, you kind of mentioned that a lot of customers are still dipping their feet with the Get Your Wings program. But are some of those early customers, are they progressing faster to maybe larger-scale deployments? Or are they kind of still in the Get Your Wings program, getting their feet wet type of deployment phase?

Speaker Change: And you have the learning from our data and our approach is to provide AI assist these if we automated healthcare professionals there should be an.

Speaker Change: NII persona right next to that we automate a tech support specialist there should be an AI assist nextera we automated.

Speaker Change: Contract specialists, our loan specialist there should be an AI assist right next to it.

So we're going to embed AI everywhere.

Mark J. Barrenechea: Yeah, thanks for the question. It's progressive, and a couple of why statements here: we're going to embed AI in all our products. It's clear that there's a path where you have your automation and you have the learning from data. And our approach is to provide AI assist. If we automate a health care professional, there should be an AI persona right next to that.

Speaker Change: So discussion.

Speaker Change: Every RFP.

Speaker Change: And every RFP and some customers.

Speaker Change: In early stages of exploring.

Speaker Change: Some are medium.

Speaker Change: A handful or more advanced.

Speaker Change: But it's in every single discussion so it is certainly.

Mark J. Barrenechea: We automate a tech support specialist; there should be an AI assist next to it. We automate a contract specialist or a loan specialist; there should be an AI assist right next to it. So we're going to embed AI everywhere. It's a discussion topic in every RFP. In every RFP. And some customers are in the early stages of exploring, some are medium, a handful are more advanced, but it's in every single discussion. So it is certainly sort of separating out in the market those competitors who have not necessarily even moved to the cloud or let alone have the resources to deliver a robust AI platform. So we're seeing benefit from our very strong first waiver products and our vision, our skills now to be able to deploy a data management platform and to be able to vectorize and install a language model. So to be able to get customers in your early stage, earn your wings to actually be able to experiment either in the small or at scale, very differentiated in the markets.

Speaker Change: <unk>.

Speaker Change: Sort of separating out in the market those competitors, who have not necessarily even moved to the cloud our level have the resources to deliver a robust AI platform. So we're seeing benefit.

Speaker Change: From our very strong first wave of our products and our vision our skills now to be able to deploy.

Speaker Change: A data management platform and to be able to back the rise and install language models, so to be able to get customers and you earn your wings to actually be able to experiment.

Speaker Change: Other than the small scale very differentiated in the market why I called out R. R.

Speaker Change: Our services organization that we've been investing in for for a decade in building that service organization. So we're making steady progress work.

Mark J. Barrenechea: I called out our services organization that we've been investing in for a decade and building that service organization. So we're making steady progress. You know, we've gone from a vision to a first set of beta products, to our first version, through our first delivery, first customers using and getting value, bringing our services organization to higher capability, to a very strong bookings growth, raising our booking outlook, and seeing now how we can apply it internally on what we think is a breakthrough platform, co-platform, Athena. So I really like the progress that we're making. Okay, excellent.

We've gone from <unk>.

Speaker Change: <unk>.

Speaker Change: Two.

Speaker Change: First.

Speaker Change: <unk>.

Speaker Change: Data products to our first version.

Speaker Change: Through our first delivery first customers using and getting value.

Speaker Change: Bringing our are our services organization to hire.

Speaker Change: <unk> ability to have very strong bookings growth raising our booking outlook and dancing now how do we can apply it internally on what we think is a breakthrough platform called platform Athena. So I really like the progress that we're making.

Abir Kadve: And then I just wanted to touch on one comment you made, that customers are getting value. What are some early learnings from that value that customers are getting? How is it helping their organization using these AI products? Yeah, I did a few shout-outs in the script.

Okay excellent and then I just wanted to touch on one comment you made that the customers are getting value. What are some early learnings from that value that customers are getting how is it helping their organization using these AI products.

Speaker Change: Yes, it did have a few shout outs in the script.

Mark J. Barrenechea: One is particularly using our business network invoicing transactions, uh... under uh... uh... and some of the wider network metadata to understand the next generation of food and sustainability, going deep into contracts and understanding revenue opportunities and liabilities. But some of the early learnings are, one, you have to prepare, and you may need to consolidate systems, you may need to prepare your data a little bit. So preparation is important. Customers know what they want to do, right? There's not a lot of vagueness out there about what customers want to do, but they've got to prepare. Do not separate your automation and your AI. If you take data out of your automation, it immediately rots like a cabbage because you're getting data.

Speaker Change: One is particularly using.

Speaker Change: Our business network invoicing transactions.

Speaker Change: To under.

Speaker Change:

Speaker Change: And.

Speaker Change: Some of the wider.

Speaker Change: Network meta data.

Speaker Change: To understand next generation of food and sustainability.

Speaker Change: <unk> deep into into contracts and understanding revenue opportunities and liabilities, but some of the early learnings are one you have to prepare.

Speaker Change: And.

Speaker Change: You may need to consolidate systems, you may need to prepare your data a little bit so preparations important customers.

Speaker Change: Customers want what they want to do.

Speaker Change: There is not a lot of agonists out there and what customers want to do but they've got to prepare.

Speaker Change: Second is.

Speaker Change: Do not separate your automation and your AI.

Speaker Change: Take data out of your automation it immediately rocks like of Cabot's, because we get data.

Mark J. Barrenechea: So I think that's another big learning, and customers want to do it economically. And with more open source language models, more skills, we're still staying on traditional processors, if you will, to manage cost; customers want to do it reasonably. And this is just going to keep building on itself for Open Text.

Speaker Change: So I think that's another big learning and customers want to do it economically.

Speaker Change: And with more open source language models.

Speaker Change: More skills.

Speaker Change: We're still staying on.

Speaker Change: Traditional processors, if you will to manage cost that customers want to do it reasonably and this is just going to keep building on itself.

Mark J. Barrenechea: So those are some of our learnings. Excellent. Thanks a lot. I'll pass the line.

Speaker Change: For open text. So those are some of our learnings.

Speaker Change: Okay.

Speaker Change: Excellent Thanks, a lot Tom.

Speaker Change: Yeah.

Speaker Change: Okay.

Thanos Moscapolis: The next question is from Thanos Moscapolis with BMO Capital Markets. Please go ahead. Hi, good afternoon. Regarding the AMC business, are you seeing any kind of impact on that? www.opentextcorp.com. I think you're going to pull out in that regard. Yeah, thanks. Thanks for the question. No, steady as you go.

Next question is from Thanos basketball with BMO capital markets. Please go ahead.

Thanos: Hi, good afternoon.

Thanos: Regarding the E&C business are you seeing any kind of impact in that business stemming from the fact that you've publicly announced your plans to dispose it or.

Thanos: During the call out in that regard.

Thanos: Yeah. Thanks, Thanks for the question no steady as you go.

Mark J. Barrenechea: You know, these are products and customers who have been benefiting from decades of investment and understand the long-term nature of the platform. And it's steady as we go. And then just going back to the question regarding the slightly more conservative license outlook. Obviously, you know, licenses are a more volatile stream, harder to forecast. But is there anything else you would point to? Is it maybe a function of clients preferring a cloud deployment model to a greater extent than you were initially expecting? Or anything else you would call out in that regard? And Meena, I'll take it for Sparktanners.

Thanos: These are products and customers who.

Thanos: Have been benefiting from decades of investment.

Thanos: And I understand the long term nature of the platform.

Thanos: And it's steady as we go.

Speaker Change: Great that's going back to the question regarding the slightly more conservative license outlook.

Speaker Change: Obviously licenses more volatile stream harder to forecast, but.

Speaker Change: Is there anything else you would point to is it a function medium clients preferring.

Speaker Change: Cloud deployment model to a greater extent than you were initially expecting or anything else you would call out in that regard.

And I think this is Bob Dennis.

Madhu Ranganathan: In terms of the customer trends, we'll turn it over to Mark. Again, on the licenses, keep in mind Q3 has also been seasonally lower from a license standpoint, and that pattern also applies to Micro Focus in a licensed business. While, no wonder Micro Focus is doing very well.

Bob Dennis: In terms of the customer trends will turn it over to Mark again on the license keep in mind Q3 has also been seasonally.

Mark: Our lowest from a license standpoint, and that pattern also applies to micro focus and our licensed business. While the micro focus is doing very well as I said, we are returning them to organic growth this year.

Mark J. Barrenechea: As I said, we are returning them to organic growth this year. So that's really the Q3 seasonality that we are actually calling out. And also, we're seeing, you know, Micro Focus do very well with the renewal rates, etc. So really, we wanted to expand the customer support line, those ranges there, and keeping our annual revenue within the range and accounting for more license volatility is really what you see in the ranges. I'll also share that in my commentary, we shared the number of over-a-million-dollar deals, both on the cloud side, as well as on the license side, and both remain very strong, right? It's more the Q3 seasonality that you're seeing into the annual ranges.

Mark: So that's really the Q3 seasonality, but we are that's what actually calling out and also we're seeing.

Mark: Micro focus do very well with the renewal rates et cetera.

Mark: Really we wanted to expand the customer support line.

Mark: Those ranges, there and keeping our annual revenue within the range and and accounting for more of a licensed productivity is really what you've seen is <unk> seen the ranges I'll also share that in my commentary, we shared the number of over $1 million deals both on the cloud side as well as on the license side and both remain very strong.

Mark: It's more of a Q3 seasonality that you're seeing into the annual ranges.

Mark J. Barrenechea: Do you have any comments, Mark? Yeah, sure. License has a role, and we work in very secure environments. We work in deeply regulated environments and environments that have a very high bar on compliance. We want a fantastic nuclear platform that requires licenses in a private cloud. We want many customer security, DOD, and other community platforms that require licenses as well.

Mark: Many of the comments Mark you understand yes, sure license has a role.

Mark: And we work and very secure environments, we work and deeply regulated environments and environments that have very.

Mark: A very high bar on compliance.

Mark: We want a fantastic nuclear platform.

Mark: That requires license in a private cloud.

Mark: We want to.

Mark: Okay.

Mark: Many customer security.

Mark: And other community platforms.

Mark J. Barrenechea: But what's clear over time is that license has a role, and it's going to have a role in certain types of regulatory and deeply compliant environments, environments that require the utmost trust and security, a role in the private cloud as well. And we've sort of found our natural level, right, in our licensed business. So, Sanofi has a role, and it's also a place where we can integrate our hybrid cloud strategy. And a hybrid cloud strategy also means SaaS and private cloud. So, we're in the licensed business. It's got a role, but the role is clearer today than it was, you know, five years ago.

Mark: That require licenses as well both clear through time is that license has a role and it's going to have a role in certain types of of regulatory and deeply compliant environments environments that require the utmost trust.

Mark: And security has a role in the private cloud as well.

Mark: And we've sort of found our natural level like in our license business.

Mark: So Dan also it has a role.

Mark: And it's also a place where we can integrate to our hybrid cloud strategy in it.

Mark: A hybrid cloud strategy also means SaaS and private cloud.

Mark: So we're in the license business, it's got a role but the roll is clearer today than it was five years ago.

Mark: Okay.

Dan: Alright. Thanks.

Speaker Change: Thank you Dennis.

Speaker Change: The next question is from Raimo <unk> with Barclays. Please go ahead.

Paul Treiber: I ran out of time, thanks. Thank you. The next question is from Raymond Lenshaw with Barclays. Please go ahead. Great, thank you. This is Jeremy from RIMO.

Great. Thank you this is Jeremy on for Raimo.

Jeremy: Micro focus maybe focusing.

Jeremy: So just on a micro focus, maybe focusing on the product side, can you speak a bit about which areas of the business are seeing the most interest at the moment, whether it be, you know, EIDL, Vertica, or maybe some of the security products? Thank you. I'd be happy to. Thank you, Jeremy. So, look, it's been a great year one, and we're on to year two. Today marks the first year anniversary. And if you'll just allow me, we took a shrinking business and formed it into an innovative, growing one. And it was a first; it was a fantastic first year.

Jeremy: On the product side can you speak a bit.

Jeremy: Areas of the business are seem most interest at the moment whether it be.

Jeremy: Idaho verdict or maybe some of the security products. Thank you.

Speaker Change: Yes, I'd be happy to thank you Jeremy.

Speaker Change: So look it's been a great year, one and we're onto a year or two.

Speaker Change: Today marks the first year anniversary and if you'll just allow me we reshaped a shrinking business informed it into an innovative growing one.

Speaker Change: And it was at first it was a fantastic first Gen I want to thank everyone for their support.

Mark J. Barrenechea: I want to thank everyone for their support. In terms of innovation and growth, let me provide a few shoutouts. ITOM, our IT Operations Management. It's all about the next generation of products around observability and extending service management outside of the IT environment to corporate-wide service management. That's our priority. In terms of security, it's about bringing it into SAS, Identity Management, and to Edge Computing.

Speaker Change: Of innovation and growth.

Speaker Change: Provide a few shadows icon.

Speaker Change: Our it operations.

Speaker Change: Operations management.

Speaker Change: It's all about the next generation of products around observe ability.

Speaker Change: And extending service management outside of the IP environment to corporate wide service management, that's our priority in terms of security, it's about bringing us into SaaS.

Speaker Change: Identity management.

Speaker Change: And to edge computing.

Mark J. Barrenechea: Oh, it's about ADM and having that end-to-end life cycle, and our platform, Athena, has many components from ADM, so bringing business AI and aviators into the developer experience. We introduced a new IoT platform based on Cort, Vertica, and something called the GPath modules. You can find it on our website.

Speaker Change: It's about ADM and having that end to end lifecycle and our platform Athena has many components to from ADM So getting.

Speaker Change: Bringing AI business, AI and aviators and two into the developer experience.

Speaker Change: We introduced our new Iot platform based on court verdict hub.

Speaker Change: And something called <unk>.

Speaker Change: The <unk> modules.

Speaker Change: You can find it on our website and we're very excited to bring in a higher scale machine transaction data into our information cloud and then of course, all and then of course, all things cloud.

Mark J. Barrenechea: And we're very excited to bring in higher-scale machine transaction data into our information cloud. And then, of course, all things cloud. Private Cloud, SAS, and AI Embedded Across ITOM, Security, ADM, and IOT. I'll also note in my comments our 63% cloud bookings growth on our raised outlook for the year, the 25 to 30% cloud bookings growth, Microsoft. I keep calling them Microsoft.

Speaker Change: Private cloud SaaS.

Speaker Change: And AI embedded across I Tom.

Speaker Change: Security.

Speaker Change: Iot I'll also note.

Speaker Change: In my comments of our 63% cloud bookings growth on our raised outlook for the year to 25% to 30% cloud bookings growth Microsoft.

Speaker Change: I keep calling them, Microsoft So we didnt buy Microsoft bought micro focus.

Mark J. Barrenechea: So we didn't buy Microsoft; we bought Microfocus. I noted that Microfocus cloud booking has contributed to that 63% growth as well and will begin to contribute more over time. Got it, thank you.

Speaker Change: Sure.

Speaker Change: I noted that Microfocus cloud bookings all contributed to that 63% growth as well and will begin to contribute more over time.

Speaker Change: Yeah.

Got it thank you.

Jeremy: Thank you. I did not announce our acquisition of Microsoft today, so just to be clear. Thank you, Jeremy. The next question is from Stephanie Price with CIBC. Please go ahead.

I did not announce our acquisition of Microsoft such as frequently.

Speaker Change: Yeah.

Speaker Change: Yes, Thank you Jeremy.

Speaker Change: The next question is from Stephanie price with CIBC. Please go ahead.

Stephanie Price: Good afternoon, Mark. You mentioned M&A, so maybe I'll go there. Not Microsoft, but you did mention strategic M&A in your prepared remarks. So how should we think about the balance between M&A and organic investments and shareholder capital return here post the AMC divestment? Yes, sounds great, Seth. Thank you, Stephanie.

Stephanie Price: Good afternoon, Mark you mentioned M&A, so sometimes they will go down.

Stephanie Price: Not Microsoft, but you Didnt mentioned strategic M&A in your prepared remarks, so how should we think about the balance sheet, M&A and organic investments and shareholder capital return here.

Stephanie Price: Emt divestiture.

Speaker Change: Yes, it sounds great. Thanks, Stephanie.

Mark J. Barrenechea: We're excited to complete the divestiture, and as I noted, we're on track, subject to closing additions and regulatory approvals, and we expect to close by the end of our fiscal year. And when we do so, our intent is to de-leverage, bring our Leverage Under 3x, and return to a full-stack capital allocator. As you'll see in the investor materials, we're looking to return approximately 30% of our free cash flow via dividends and buybacks. And that allows 70% of our available capital to be used for other purposes, including M&A.

Speaker Change: Well look we are excited too.

Speaker Change: Complete the divestiture and as I noted we're.

Speaker Change: We're on track.

Subject to closing conditions and regulatory approvals.

Speaker Change: And we expect to close by the end of our fiscal year.

Speaker Change: And when we do so our intent is to.

Speaker Change: Delever.

Speaker Change: And bring our leverage under three X.

Speaker Change: And to return to full stack capital Allocator.

Speaker Change: And the Investor materials, we're looking to return.

Speaker Change: 30% of our approximately 30% of our free cash flow via dividends and buyback.

Speaker Change: And that allow us to 70% of our available capital available for other other purposes, including M&A and you should expect us to return to M&A and that M&A will be strategic they will be focused on.

Mark J. Barrenechea: And you should expect us to return to M&A. That M&A will be strategic. It will be focused on ARR and cloud assets that drive future organic growth. Okay. Thank you.

Speaker Change: Our.

Speaker Change: And.

Speaker Change: And cloud assets that drive future organic growth.

Speaker Change: Yes.

Speaker Change: Okay. Thanks, and then I wanted to circle back on investments in AI cloud and security.

Madhu Ranganathan: And then I also want to circle back on the investments in AI cloud and security. Should we think, as soon as these investments continue post fiscal 24, and how should we think about R&D as a percentage of revenue going forward? Yeah, absolutely. I'll take that, Stephanie.

Speaker Change: Assuming these investments continue post fiscal 'twenty, four and how should we think about R&D as a percentage of revenue going forward from here.

Speaker Change: Yes, absolutely I'll take that Stephanie.

Madhu Ranganathan: So today we're actually looking at, and we actually called out R&D as a percentage of revenue at 14% to 16%. So at the larger scale, expect that to continue. In terms of AI investments, it's both, it's R&D and sales and marketing. And for Fiscal 24, it is 18% to 20%.

Speaker Change: Today, we are actually looking at.

Speaker Change: We actually called out R&D as a percentage of revenue at 14% to 16%.

Speaker Change: So at the largest scale expect that to continue.

Speaker Change: In terms of AI investments, both in R&D, and sales and marketing and for fiscal 'twenty four it is 18% to 20%.

Madhu Ranganathan: So I would say expect us to keep in that range; obviously, at scale, the dollars will be higher as well. And also the deployment of R&D, as Mark mentioned, 800 engineers deployed for AI and related activities. So the teams are spending a lot of time not just on the investment but where the investments are going. Great, thank you very much.

Speaker Change: So I would say expect us to keep at that range, obviously I can scale the dollars would be higher as well and also the deployment of R&D as Mark mentioned.

Speaker Change: 800 engineers deployed towards AI and related activities to the teams are spending a lot of time not just on the investment, but we like where the investments are going.

Speaker Change: Great. Thank you very much.

Mark J. Barrenechea: Thank you, Stephanie. And just to amplify a point from Madhu, Platform Athena, so it's going to significantly raise our productivity and output. And I look through two decades, three decades of leading engineering organizations and how they've evolved over time and how organizations like Open Text have looked to balance our incredible talent globally through automation and through systems, through an open source wave, through better tools. There's another wave coming, which is called AI, and some companies will use it well; some may stumble along the way. For us, we have a very clear vision, and we're going to be building our proprietary platform internally to manage roughly a billion lines of software and how to auto-generate cases, how to auto-generate interfaces to APIs, how to accelerate learning. I think the talent we hire in the future in engineering is going to be radically different and radically elevated. Athena will be able to take descriptions and generate code.

Speaker Change: Yes. Thank you. Thanks, Thank you Stephanie and just to amplify a point from.

Speaker Change: Madhu.

Speaker Change: Platform Athena, so it's going to significantly raise our productivity and output.

Speaker Change: And the city.

Speaker Change: Look through two decades, three decades of leading engineering organizations and how they've evolved over time.

Speaker Change: And how organizations like open tax have looked to balance our incredible talent globally and through automation through systems.

Speaker Change: Through open going on open source wave through better tools there.

Speaker Change: There was another wave coming.

Speaker Change: AI.

Speaker Change: Some companies will use it well some may stumble along the way for US we have a very clear vision.

Speaker Change: And we're going to be building, our proprietary platform internally.

Speaker Change: To manage roughly a billion lines of software.

Speaker Change: And how to auto generate cases, how to auto generate interfaces to api's.

Speaker Change: To accelerate learning I think the talent, we hire in the future and engineering is going to be radically different and radically elevate it.

Speaker Change: Athena will be able to take descriptions and generate code. So that next wave of efficiency.

Mark J. Barrenechea: So that next wave of efficiency, and we'll talk more about that when we get to our F25 plan, the R&D expense percent, the nature of this in large-scale tech companies is going to change because there's a very interesting wave of AI coming, and how we're going to be building software. Yeah, and Stephanie, if I could just add one more, R&D is a very broad category, just given our spectacular cloud bookings growth, and we talked about visibility to 25 and 26. We are also investing in what we call information security, right? The CISO organization. We're also investing in cloud operations and cloud infrastructure, and sort of hyperscaler costs. So I did want to mention, in terms of investment, it's going sort of above the line and below the line as well. Great, thank you for the information. Thank you. The next question is from Paul Treiber with RBC Capital Markets. Please go ahead.

We will talk more about that when we get to 'twenty five.

Speaker Change: <unk>.

Speaker Change: The R&D expense percent the nature of this in large scale tech companies are going to change the because if there is a.

Interesting wave of AI coming and how we're going to be building software.

Speaker Change: And Stephanie if I could just add one more R&D is a very broad category just given R. R.

Speaker Change: A spectacular cloud bookings growth and we talked about visibility into 25% and 26. We are also investing in what we call information security right.

Speaker Change: So organization, we're also investing in cloud operations and cloud infrastructure.

Speaker Change: So the Hyperscale cost so I did want to mention in terms of investments, it's going sort of above the line and below the line as well.

Speaker Change: Great. Thank you for the color.

Speaker Change: Thank you.

Speaker Change: The next question is from Paul Treiber RBC capital markets. Please go ahead.

Paul Treiber: Oh, thanks very much and good afternoon. Your recent comments on Athena were very helpful in understanding what AI is and using AI to improve the productivity of your R&D team. Can, do you expect, or do you see improving productivity across the entire organization through AI over the next several years?

Paul Treiber: Thanks, very much and good afternoon.

Paul Treiber: Your recent comments on it you know were very helpful to understand what it is.

Paul Treiber: AI to improve the productivity of your.

Paul Treiber: R&D teams.

Paul Treiber: Do you expect or do you see improving productivity across the entire organization.

Paul Treiber: Through AI over the next several years is that something that we could expect going forward.

Mark J. Barrenechea: Is that something that we could expect going forward? Yeah, Paul. Good to hear your voice and thanks for being on the call. Absolutely.

Paul Treiber: Yes.

Speaker Change: Good to hear your voice and thanks for being on the call absolutely.

Mark J. Barrenechea: And as I noted, we have room to improve our margin right now. We're focused on bookings and revenue growth. And I only decided on the call today to go into one area, a very large area for us, a transformative area for us, which is the core of the company. We're an engineering firm, right? And we create IP and products.

Speaker Change: And as I noted, we have room to improve our margin right now we're focused on bookings and revenue growth and I only and I only decided on the call today to go into one area very large area for us.

Speaker Change: Formative area for us.

Speaker Change: Is the core of the company, we're an engineering firm and we create IP and products, but when we look across the entire company. We have other projects that we're working on and that will come to fruition in the coming years and increased productivity in our support organization.

Mark J. Barrenechea: But when we look across the entire company, we have other projects that we're working on that will come to fruition in the coming years and increase productivity in the support organization, the Pre-Sales Organization, and the Renewals Organization. So, we can talk more about where we look to deploy them, but I wanted to be very grounded in kind of the first transformative area that we have our concrete plans for, and it's sort of a multiplier, it's a force multiplier to be able to get our engineering team more productive, the next generation of talent, accelerate product to market. We think that's the area that will have the nearest termite term in Heiston. Thanks. And then just a second question, just more specifically on the Outlook for 24.

Speaker Change: And the pre sales organization and the renewals organization.

Speaker Change: So we can talk more about where we look to deploy them, but I wanted to be very ground, it and kind of the first transformative area.

Speaker Change: We have our concrete plans are and it is sort of a multiplier as a force multiplier to be able to get our engineering team more productive next generation of talent accelerating product to market and.

Speaker Change: We think thats the area that will have.

Speaker Change: Nearest term and highest impact.

Speaker Change: Thanks, and then just a.

Speaker Change: Second question, just more specifically on the outlook for 'twenty four and when you look at Q4, if you can back into what it implies for Q4 EBITDA margins I think the midpoint is at about 41.

Paul Treiber: And when you look at Q4, if you can back into what it implies for Q4 EBITDA margins, I think the midpoint is about 41.5% EBITDA margins, which is quite high, and it's close to an all-time high for the company. You know, what is driving that seasonality to the upside? And we talked a lot about Q3, but how do we think about Q4, the drivers there? No, Paul, thank you. It's Madhu here. It's a very important question.

Speaker Change: 5% EBITDA margins.

Speaker Change: Which is which is quite high and it's close to an all time high for the company.

Speaker Change: What is driving that seasonality to the upside and then we've talked a lot about Q3, but how do we think about Q4 the drivers there.

Speaker Change: No problem. Thank you it's Matthew he has become very important question. So a couple of things.

Madhu Ranganathan: So a couple of things. One, I spoke about the Q3 seasonality, which is actually very typical. So again, at the Uber level, we are making investments, but Q3 has its own seasonality in terms of people spend, payroll spend, benefits, etc., so Q4 is our seasonally strong quarter from a revenue perspective. And you will see that benefit the EBITDA margin as well. And some of the integration expenses we have for our micro focus for this fiscal year, you know, some of the spend is focused in Q3. We look to optimize some of those in Q4. So I would say the big contributor to Q4 EBITDA margin is going to be our seasonally strong revenue quarter and the tapering off of some of the expenses. And you're absolutely right. For the second half of the year, the Q4 EBITDA margin will be much stronger than Q3 to get to our annual target.

Matthew: I spoke about the Q3 seasonality, which is actually very typical so again at the EBA level, we are making investments, but Q3 has its own seasonality in terms of people spend payroll spend benefits et cetera. So Q4 is a seasonally strong quarter from a from a from a revenue perspective, and and you will see that benefit a benefit.

Matthew: The EBITDA margin as well and some of the integration expenses, we have for micro focus for this fiscal year.

Matthew: Some of the spend is focused in Q3, we look to optimize some of those in Q4. So I would say the big contributor to Q4, EBITDA margin, it's going to be a seasonally strong revenue quarter and a tapering off of some of the expenses and.

Matthew: No you're absolutely right for the second half of the year Q4, EBITDA margin will be much stronger than Q3 to get to our annual guidance.

Madhu Ranganathan: Thanks for taking the question. Thank you, Paul. I'll now hand the call back over to Mr. Barrenechea for his closing remarks. Very good.

Speaker Change: Alright, thanks for taking the questions.

Thank you Paul Thank you.

Paul Treiber: I will now hand, the call back over to Mr. Bernstein for closing remarks.

Mark J. Barrenechea: Thank you, everyone. Thanks for joining our call today. We're just delighted with our progress and our momentum. You heard us. We're investing for growth. We're expanding our competitive advantage, and strong financial updates, and we're focused on capital return. There in the room today, as well as Greg Seacourt, and we'd like to wish him a happy birthday. Yeah. Thanks, everyone, for joining us. And Madhu, myself, Harry, and Greg, we look forward to engaging with you in the coming days and weeks.

Bernstein: Very good. Thank you everyone. Thanks for joining our call today, we're just delighted with our progress and our momentum.

Paul Treiber: You heard us we're investing for growth, we're expanding our competitive advantage and strong financial update and we're focused on capital return in the room today as well as got Greg C Corp, and we'd like to wish him a happy birthday.

Speaker Change: Thanks to everyone for joining and Madhu myself, Harry and Greg We look forward to engaging in the coming days and weeks that ends today's call.

Operator: That concludes today's call and concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Speaker Change: Yeah.

Speaker Change: This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Speaker Change: You may disconnect. Your lines. Thank you for participating and have a pleasant day.