Q3 2024 Open Text Corp Earnings Call

Operator: Thank you for standing by. This is the conference operator. Welcome to the Open Text Corporation third 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 hour's Q&A session. To join the question queue, simply press star then 1 on your touchtone phone. Should anyone need assistance during the conference call, name and signal an operator by pressing star, then zero on your telephone. I would like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. Please go ahead.

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

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

Harry Edward Blount: After the presentation, there will be an analyst Q&A session.

Operator: And the question simply press Star then one on your Touchtone phone.

Operator: Should anyone assistance during the conference call and you May signal, an operator by pressing Star then zero on your telephone.

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

Harry Edward Blount: Good afternoon, everyone, and welcome to Open Text's third 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 Open Text's President, Chief Financial Officer in Corporate Development, Madhu Ranganathan. Today's call is being webcast live and recorded, with a replay available shortly thereafter on the Open Text Investor Relations website. Earlier today, we posted our press release and investor presentation online.

Harry Edward Blount: Good afternoon, everyone and welcome to open text third quarter fiscal 2024 earnings call with me on the call today are open tax Chief Executive Officer, and Chief Technology Officer, Mark J bear in shape and open texts, President President and Chief Financial Officer, and corporate development Madhu Regen Nathan today's call is being webcast live.

Harry Edward Blount: <unk> 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 Dot open text dot com I'm pleased to inform you that open text management will be participating at the following upcoming conferences.

Harry Edward Blount: 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. Needham Technology Media and Consumer Conference on May 14th in New York. Barclays Leverage Finance Conference on May 21st in Austin. CIBC Technology and Innovation Conference on May 22nd in Toronto, Jeffrey Software Conference on May 30th in Newport Beach, and Bank of America Global Tech Conference on June 6th in San Francisco.

Harry Edward Blount: Needham Technology media and consumer conference on May 14th in New York.

Harry Edward Blount: Barclays Leveraged finance conference on May 21st in Austin.

Harry Edward Blount: CIBC technology and innovation conference on May 22nd in Toronto Jefferies Software Conference on May 30 <unk>.

Harry Edward Blount: Short Coast and Bank of America Global Tech Conference on June six in San Francisco.

Harry Edward Blount: And now on to our Safe Harbor Statement. During this call, we will make forward-looking statements relating to the future performance of Open Text. These statements are based on current expectations, assumptions, and other material factors that are subject to risks and uncertainties, and actual results could differ materially from the forward-looking statements made today. Additional information about the material factors that could cause actual results to differ materially from such forward-looking statements, as well as risk factors that may impact 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.

Harry Edward Blount: And now onto our Safe Harbor statement. During this call we will make forward looking statements relating to the future performance of open text. These statements are based on current expectations assumptions and other material factors that are subject to risks and uncertainties and actual results could differ materially from the forward looking statements made today additional information.

Harry Edward Blount: In addition, our conference call may include discussions of certain non-GAAP financial measures. Reconciliations of any non-GAAP financial measures to their most direct comparable GAAP measures may be found in our public filings and other materials, which are available on our website. And with that, I'm pleased to hand the call over to Mark. Thank you, Harry.

Mark: About the material factors that could cause actual results to differ materially from such forward looking statements as well as risk factors that may impact future performance results of open text are contained in <unk> 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.

Harry Edward Blount: 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 direct comparable GAAP measures may be found within our public filings and other materials, which are <unk>.

Harry Edward Blount: Available on our website and with that I'm pleased to hand, the call over to Mark.

Mark J. Barrenechea: Thank you, Harry, and welcome to today's call. Let me kick off the call with a statement.

Mark: Thank you Harry and welcome to today's call.

Mark: Let me kick off the call with a statement.

Mark J. Barrenechea: The strategic value of Open Text to our customers has never been higher. We continue to build cloud momentum with our business clouds, business AI, and business technology. And we see proof points of this as evidenced by our continued strength with large multi-year cloud contracts and our upward revisions in future cloud bookings expectations. And, with the AMC divestiture now complete, we have increased our capital flexibility to accelerate growth in the $200 billion information management addressable market.

Mark: The strategic value of open text to our customers has never been higher.

Mark J. Barrenechea: We continue to build cloud momentum with our business clouds business, AI and business technology, and we see proof points of death as evidenced by our continued strength with large multi year cloud contracts and our upward revisions in future cloud bookings expectations.

Mark J. Barrenechea: And with the AMC divestiture now complete we have increased our capital flexibility to accelerate growth in the 200 billion information management addressable market.

Mark J. Barrenechea: Long-term, we expect our business to deliver mid-single-digit total revenue growth through a balanced approach of cloud-led organic growth plus M&A comprised of 20% plus enterprise cloud bookings growth, 7-9% organic cloud growth, 2-4% total organic growth, and 1-2% M&A growth, powerful cash flows at 20% plus of revenues, and a new return of capital framework comprised of 50% of trailing 12-month free cash flows returned to shareholders in And to jumpstart this new return of capital program, we are announcing today a $250 million share buyback over the next 12 months and our intention to return $450 to $500 million of capital to shareholders in fiscal 2025. Let's get started!

Mark J. Barrenechea: Long term, we expect our business to deliver mid single digit total revenue growth through a balanced approach of cloud led organic growth plus M&A comprised of 20% plus enterprise cloud bookings growth.

Mark J. Barrenechea: 7% to 9% organic cloud growth, 2% to 4% total organic growth and 1% to 2% M&A growth.

Operator: Thank you for standing by, this is the conference operator.

Mark J. Barrenechea: Powerful cash flows at 20% plus of revenues.

Operator: Welcome to the Open Text Corporation, third quarter of fiscal 2024 financial results conference call. As a reminder, all participants are in listen only mode, and the conference is being recorded.

Mark J. Barrenechea: New alternative capital framework comprised of 50% of trailing 12 month free cash flows returned to shareholders in the form of dividends and share buybacks and 50% for cloud M&A and.

Operator: After the presentation, there will be an Allen's Q&A session. To join the question, Q is simply press star than one on your touchstone phone. Should anyone be the sister in the conference call, naming signal an operator by pressing star than zero on your telephone.

Mark J. Barrenechea: And the jumpstart this new return of capital program, we are announcing today, a 250 million share buyback over the next 12 months and our intention to return 450 to 500 million of capital to shareholders in fiscal 'twenty five let's get started you'll see in our investor deck today are for.

Harry Blount: I would like to turn the conference over to Harry Blount, senior vice president, investor relations, please go ahead. Good afternoon everyone and welcome to Open Text, third quarter fiscal 2024 earnings call. With me on the call today, our Open Text Chief Executive Officer and Chief Technology Officer, Mark J. Barreneche, and Open Text President, Chief Financial Officer and Corporate Development, Madhu Ranganathan. Today's call is being webcast live and recorded with a replace available shortly thereafter on the Open Text Investor Relations website.

Mark J. Barrenechea: You'll see in our investor deck today our four-point strategy for building shareholder value. Point one of the strategy is to continue to live the Open Text Business System, with a relentless focus on execution. Simply said, an Open Texter always puts customers first, innovates, cares about people, and strives for exceptional performance. Our culture sets us apart.

Mark J. Barrenechea: <unk> strategy to building shareholder value.

Mark J. Barrenechea: One of the strategy is to continue to live the open text business system with a relentless focus on execution simply.

Mark J. Barrenechea: Simply said, an open text or always puts customers first innovate curious about people and strives for exceptional performance.

Mark J. Barrenechea: Our culture sets us apart.

Mark J. Barrenechea: Point two, accelerate cloud growth. Our strategy to accelerate cloud growth is working. We've increased our R&D investment to an annualized 900 million, or 16% of fiscal 24 revenue.

Mark J. Barrenechea: Point to accelerate cloud growth our strategy to accelerate cloud growth is working.

Harry 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. Need him technology, median consumer conference on May 14th in New York. Barkley's leverage finance conference on May 21st in Austin, CIBC Technology and Innovation Conference on May 22nd in Toronto, Jeffrey Software Conference on May 30th in Newport Coast, and Bank of America Global Tech Conference on June 6th in San Francisco.

Mark J. Barrenechea: We've increased our R&D investment to an annualized 900 million or 16% of fiscal 'twenty four revenue.

Mark J. Barrenechea: This helped drive enterprise cloud bookings growth of 63% in Q2 and 53% in Q3. We've increased our F24 enterprise cloud bookings targets to 33% to 38%, and we're confidently projecting 20% plus cloud bookings growth in both F25 and beyond, up from prior targets of 15%. We expect our cloud revenue organic growth to reach between 7% and 9% by fiscal 27. And the best part is, we're just getting started on our AI and security journey. The Open Text Cloud opportunity continues to expand across our business clouds, business AI, and business technology.

Mark J. Barrenechea: This helped drive enterprise cloud bookings growth of 63% in Q2 and 53% in Q3.

Mark J. Barrenechea: We've increased our F 'twenty four enterprise cloud bookings targets to 33% to 38% and we're confidently projecting 20% plus cloud bookings growth in both F 'twenty five and beyond up from prior targets of 15%.

Mark J. Barrenechea: We expect our cloud revenue organic growth to reach between 7% and 9% by fiscal 'twenty seven and the best part is we're just getting started and our AI and security journey.

Harry Blount: And now on to our safe harbor statement. During this call, we will make forward-looking statements relating to the future performance of Open Text. These statements are based on current expectations, assumptions, and other material factors that are subject to risks and uncertainties and actual results could differ materially from the forward-looking statements made today. Additional information about the material factors that could cause actual results to differ materially from such forward-looking statements as well as risk factors that may impact future performance results of Open Text, are contained in Open Text recent forms 10K and 10Q as well as in our press release that was distributed earlier this afternoon, which may be found on our website.

Mark J. Barrenechea: The open text cloud opportunity continues to expand across our business clouds business AI and business technology, we are well aligned to gartner and customer spending priorities in cyber and information security data cloud platform and AI.

Mark J. Barrenechea: We are well aligned to Gartner and customer spending priorities in cyber, information security, data, cloud platforms, and AI. We're focused on winning more workloads for knowledge workers, business networks, and Customer Experience in Digital Operations.

Mark J. Barrenechea: We're focused on winning more workloads for knowledge workers business networks customer experience and digital operations, we're helping customers build and own their own capabilities in the private and public cloud and to do so securely.

Mark J. Barrenechea: We're helping customers build and own their own capabilities in the private and public cloud and to do so securely. We're unlocking new developer opportunities for large-scale software companies, and let's understand it. We're all software companies today, and we're rapidly adding IoT and AI capabilities. We see two huge opportunities in AI. First, to help our large installed base of customers prepare their operations and data through systems consolidations to our cloud edition. And second, to grow our aviator and thrust portfolio.

Mark J. Barrenechea: Unlocking new developer opportunities in large scale software companies unless they understand it we're all software companies today, and we're rapidly, adding Iot and AI capabilities, we see two huge opportunities in AI first to help our large install base of customers prepare their operations and data through systems can.

Harry Blount: 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-gap financial measures, reconciliation of any non-gap financial measures to their most direct, comparable gap measures may be found within our public filings and other materials which are available on our website.

Mark J. Barrenechea: <unk> two our cloud editions and second to grow our aviator thrift offerings.

Mark J. Barrenechea: We officially introduced Titanium X at Open Text World Europe a couple weeks ago, our next generation autonomous cloud. We demonstrated our latest aviator technology with Cloud Editions 24.2. We made business AI as easy as pressing a button. And we made clear the step function and productivity a knowledge worker can gain with learning models applied to information management.

Mark J. Barrenechea: We officially introduced titanium ex that open text World Europe, a couple of weeks ago, Our next generation autonomous cloud.

Mark Barrenechea: And with that, I'm pleased to hand the call over to Mark. Thank you, Harry, and welcome to today's call.

Mark J. Barrenechea: We demonstrated our latest aviator technology with cloud editions 24, DUC too we.

Mark Barrenechea: Let me kick off the call with a statement. The strategic value of Open Text to our customers has never been higher. We continue to build cloud momentum with our business clouds, business AI, and business technology. And we see proof points of this as evidenced by our continued strength with large, multi-year cloud contracts in our upward revisions in future cloud bookings expectations, and with the AMC divestiture now complete, we have increased our capital flexibility to accelerate growth from the 200 billion information management addressable market.

Mark J. Barrenechea: We made business AI as easy as pressing a button.

Mark J. Barrenechea: And we made clear the step function and productivity.

Mark J. Barrenechea: Each worker can gain with leap learning models applied that formation management.

Mark J. Barrenechea: Customer and analyst feedback is extremely positive, and while many customers are still researching and piloting, Aviator is helping us win now. We have unique capabilities to move enterprises into actionable business AI use cases, to securely exploit both unstructured and structured data and accelerate customer value through partnerships like SAP, Google, and Microsoft. Consider Pick and Pay, leveraging DevOps Aviator for scaling testing and quality, a leading global apparel company accelerating invoice intelligence with Content Aviator.

Mark J. Barrenechea: Customer and analyst feedback is extremely positive and while many customers are still researching and piloting aviator is helping us win now we.

Mark J. Barrenechea: We have unique capabilities to move enterprises into actionable business AI use cases to securely exploit both unstructured and structured data and accelerate customer value through partnerships like Google.

Mark J. Barrenechea: Google and Microsoft consider picking pay leveraging Dev ops aviator for scaling testing of quality, a leading global apparel company accelerating invoice intelligence with content aviator Zurich Airport, leveraging our SaaS service management and Universal discovery and the cloud Please watch and open text Dot com.

Mark J. Barrenechea: Zurich Airport, leveraging our SaaS service management and universal discovery in the cloud. Please watch on opentext.com the recap of our Open Text World Europe, where I demonstrated Open Text Content Cloud 24.2 with Content and Search Aviator, running the United States National Transportation Security Board data archive.

Mark Barrenechea: In the cloud growth, 2 to 4% total organic growth, and 1 to 2% M&A growth, powerful cash flows at 20% plus of revenues, and a new return of capital framework comprised of 50% of trailing 12-month-free cash flows returned to shareholders in the form of dividends in share of buybacks and 50% for cloud M&A. And to jumpstart this new return of capital program, we are announcing today a 250 million share buyback over the next 12 months and our intention to return 450 to 500 million of capital to shareholders in fiscal 25.

Mark J. Barrenechea: Tom the recap of our open text World Europe wide demonstrated open text content cloud 24, dot two with content and search aviator running the United States National Transportation Security Board data archive. It shows the power of automation, plus AI, providing clear and bankable productivity gains for any knowledge.

Mark J. Barrenechea: It shows the power of automation plus AI, providing clear and bankable productivity gains for any knowledge worker. You can also hear directly from our customers at the event, including Nationwide, Carl Zeiss, Uniper, Frottome, and Critio. Point three of our four-point strategy, powerful free cash flow generation. We are targeting an F-24 free cash flow of $725 million to $800 million and our medium-term aspiration by fiscal 27 of $1.2 billion to $1.3 billion, or 20% plus of free cash flow as a percent of revenue.

Mark J. Barrenechea: Worker you can also hear directly from our customers of nationwide Carl Zeiss Unicorp Frost for told me and Creteil at the event.

Mark J. Barrenechea: 0.3 of our four point strategy powerful free cash flow generation.

Mark Barrenechea: Let's get started. You'll see in our investor deck today our four point strategy to building shareholder value. Point one of the strategy is to continue to live the open text business system with a relentless focus on execution. Simply said, an open texter always puts customers first, innovates, cares about people, and strives for exceptional performance. Our culture sets us apart. Point two, accelerate cloud growth. Our strategy to accelerate cloud growth is working.

Mark J. Barrenechea: We are targeting in F. 'twenty four free cash flow of 725 million to $800 million and our immediate term at and our medium term aspiration by fiscal 'twenty seven of $1 2 billion to $1 3 billion or 20% plus of free cash flow as a percent of revenue we.

Mark J. Barrenechea: We expect to achieve these higher free cash flow aspirations through a series of actions. Adjusted EBITDA Margin Expansion from a technology-enabled business by leveraging our data, automation, and AI. We are just getting started in deploying AI internally.

Mark J. Barrenechea: We expect to achieve these higher free cash flow aspirations through a series of actions adjusted EBITA margin expansion from a technology enabled business through leveraging our data automation and now we are just getting started and deploying AI internally completing all microfocus integration expense lower spec.

Mark J. Barrenechea: Completing all micro-focus integration... lower special charges over time, lower interest charges, and potentially lower rates. It is a combination of margin expansion, more technology enablement, elimination of integration, and a reduction in the interest burden that is the path to our free cash flow aspiration. Disciplined Capital Allocation We expect to pay down our debt on May 6th by 2 billion U.S. dollars, and with our net leverage ratio now below 3x, we are increasing our return of capital to shareholders by introducing a $250 million buyback and reentering the M&A market with a new framework that is future-oriented while leveraging the best parts of our operational discipline.

Mark Barrenechea: We've increased our R&D investment to an annualized 900 million or 16% of fiscal 24 revenue. This helped drive enterprise cloud bookings growth of 63% in Q2 and 53% in Q3. We've increased our F-24 enterprise cloud bookings target to 33 to 38% and we're confidently projecting 20% plus cloud bookings growth in both F-25 and beyond up from prior targets of 15%. We expect our cloud revenue organic growth to reach between 7 to 9% by fiscal 27, and the best part is we're just getting started in our AI and security journey.

Mark J. Barrenechea: You'll charges over time, lower interest charges and potentially lower rates over time.

Mark J. Barrenechea: It is a combination of margin expansion more technology enablement elimination of integration expense and a reduction in interest burden that is the path to our free cash flow aspirations.

Mark J. Barrenechea: Four.

Mark J. Barrenechea: Disciplined capital allocation, we expect to pay down our debt on may six by $2 billion U S dollars and with our net leverage ratio now below three X. We are increasing our return of capital to shareholders by introducing a $250 million buyback and reentering the M&A market with a new framework that is.

Mark Barrenechea: The open text cloud opportunity continues to expand across our business clouds, business AI, and business technology. We are well aligned to Gartner and customer spending priorities and cyber, information security, data, cloud platforms, and AI. We're focused on winning more workloads for knowledge workers, business networks, customer experience, and digital operations. We're helping customers build and own their own capabilities in the private and public cloud and to do so securely. We're unlocking new developer opportunities in large-scale software companies and let's understand it.

Mark J. Barrenechea: Future oriented while leveraging the best parts of our operational discipline.

Mark J. Barrenechea: You will see in our investor presentation today our capital allocation strategy comprised of two elements, primary and additional allocation. For the primary, we intend to allocate 50% of our trailing 12-month free cash flow to dividends and buybacks. We have a strong dividend track record, as you know, returning $1.9 billion over the last decade. I'm now pleased to add a buyback program to that return strategy.

Mark J. Barrenechea: You will see in our Investor presentation today, our capital allocation strategy comprised of two elements.

Mark J. Barrenechea: Primary and additional.

Mark J. Barrenechea: Allocation for the primary we intend to allocate 50% of our trailing 12 month free cash flow to dividends and buybacks. We have a strong dividend track record as you know returning $1 9 billion over the last decade I'm now pleased to have a buyback program to that return strategy.

Mark J. Barrenechea: As noted, our target is 50% of trailing 12-month free cash flow allocation, and we're going to start higher with a $250 million buyback, and we intend to return again between $450 to $500 million to shareholders in fiscal 25. In addition, we intend to allocate the other 50% of trailing 12-month free cash flows to cloud-based M&A. Further, we are excited about the M&A opportunity for information management in the cloud for higher recurring revenue. We intend to cast a wide net across information management for established technologies with proven customer value propositions.

Mark Barrenechea: We're all software companies today and we're rapidly adding IoT and AI capabilities. We see two huge opportunities in AI. First, help our large install base of customers prepare their operations and data through systems consolidations to our cloud of data. Editions, and second to grow our Aviator and Thrust offerings. We officially introduced Titanium X that opened Text World Europe a couple weeks ago, our next generation Autonomous Cloud. We demonstrated our latest Aviator technology with Cloud Editions 24.2.

Mark J. Barrenechea: Our target is 50% of trailing 12 month free cash flow allocation and we're going to start higher wood, a $250 million buyback and we tend to return again between 450 to 500 million to shareholders in fiscal 'twenty five for the additional part we intend to allocate the other 50% of trail.

Mark J. Barrenechea: 12 months free cash flows to cloud based M&A.

Mark J. Barrenechea: Further we are excited about the M&A opportunity for information management in the cloud for higher recurring revenues, we intend to cast a wide net across information management for established technologies with proven customer value propositions.

Mark Barrenechea: We made business AI as easy as pressing a button, and we made clear the step function and productivity a knowledge worker can gain with learning models applied to information management. Customer analyst feedback is extremely positive, and while many customers are still researching and piloting, Aviator is helping us win now. We have unique capabilities to move enterprises into actionable business AI use cases, to securely exploit both unstructured and structured data and accelerate customer value through partnerships like SAP, Google, and Microsoft. Consider, pick and pay, leveraging DevOps Aviator for scaling testing and quality, a leading global apparel company accelerating invoice intelligence with content Aviator, Zurich Airport leveraging our staff service management and universal discovery in the Cloud.

Mark J. Barrenechea: We're looking for small to medium-sized cloud companies that will benefit from our business system, general operations, benefit from our distribution, and benefit from our multi-billion dollar cloud foundation and cloud operations. You can expect us to complete multiple M&A transactions in the coming year while growing organically. Let me turn to our financials and our medium-term aspirations. For Q3, our results reflect strong execution and strong customer trust. On cloud bookings, $165 million, up 53% year-over-year. We also more than doubled our $1 million-plus wins year-over-year from 13 to 28. Average cloud deal size is up 30%, and contract terms are longer.

Mark J. Barrenechea: We're looking for small to medium sized cloud companies that will benefit from our business system General operations benefit from our distribution and benefit from a multibillion dollar cloud Foundation and cloud operations will always seek value and organic growth you can expect us to complete multiple M&A transactions.

Mark J. Barrenechea: In the coming year, while growing organically.

Mark J. Barrenechea: Let me turn to our financials and our medium term aspirations for Q3, our results reflect strong execution and strong customer trust.

Mark J. Barrenechea: Cloud bookings of $165 million up 53% year over year.

Mark J. Barrenechea: More than doubled our $1 million plus wins year over year from 13 to 28 average cloud deal sizes up 30% contract terms are longer.

Mark Barrenechea: Please watch on OpenText.com, the recap of our Open Text World Europe. We demonstrated OpenText Content Cloud 24.2 with content and search Aviator, running the United States National Transportation Security Board Data Archives. It shows the power of automation plus AI, providing clear and bankable productivity gains for any knowledge worker. You can also hear directly from our customers of nationwide crawlsice, uniper, frot for Tomay, and in critio at the event.

Mark J. Barrenechea: Customers are increasing their commitments for long-term durations with ramps to full value. Our investment is also up to fuel that growth, to get customers ramped up, and to introduce new capabilities like AI and IoT. We had total revenues of $1.4 billion, up 16% year-over-year. We ended the year with cash of $1.1 billion and free cash flow of $348 million, up 14%. And just had fantastic wins at Akamai, Nestle, Shell, Tyson Foods, BAE Systems, and Mons.

Mark J. Barrenechea: <unk> are increasing their commitments for long term durations with ramps to full value. Our investment is also up to fuel that growth to get customers ramped and to introduce new capabilities like AI and Iot.

Mark J. Barrenechea: Total revenues of $1 4 billion up 16% year over year, we ended cash of $1 1 billion in free cash flow of $348 million up 14% and just had fantastic wins at Akamai definitely shell Tyson foods, B E systems and Mountain Brook.

Mark Barrenechea: 0.3 of our four-point strategy, powerful free cash flow generation. We are targeting an F-24 free cash flow of 725 million to 800 million in our media term, in our medium term aspiration by fiscal 27 of 1.2 billion to 1.3 billion, or 20% plus a free cash flow as a percent of revenue. We expect to achieve these higher free cash aspirations through a series of actions. Adjust the EBITDA margin expansion from a technology enabled business through leveraging our data, automation, and AI.

Mark J. Barrenechea: Recall, we're an annual business, and for a full fiscal year of 24, our targets include cloud bookings growth between 33% to 38%, 6% to 8% cloud growth, total revenues between $5.7 billion to $5.795 billion and pre-cash flows between $725 million to $800 million, up from $655 million last year. Today we're also presenting preliminary F-25 targets, which are subject to change. These preliminary targets are without the A

Mark J. Barrenechea: Recall, we're an annual business and for full fiscal 'twenty four our targets include cloud bookings growth between 33% to 38%, 6% to 8% cloud growth total revenues between five seven.

Mark J. Barrenechea: 574, 5 billion to $5 $7 95 billion and free cash flow is between 725 million to $800 million up from $655 million last year.

Mark Barrenechea: We are just getting started in deploying AI internally, completing or microfocus integration expense. Lower special charges over time, lower interest charges, and potentially lower rates over time. It is a combination of margin expansion, more technology enablement, elimination of integration expense, and a reduction in interest burden that is the path to our free cash flow aspirations.

Mark J. Barrenechea: We're expecting enterprise bookings of 20% plus, cloud revenues of up to $1.9 billion, total revenues between $5.3 and $5.4 billion, and free cash flow is between $575 million and $650 million, which includes, really important, a one-time $250 million tax payment for the AMC divestiture.

Mark Barrenechea: 0.4 Disciplined Capital Allocation. We expect to pay down our debt on May 6th by $2 billion US dollars, and with our net leverage ratio now below 3X, we are increasing our return to capital to shareholders by introducing a $250 million buyback and reentering the M&A market with a new framework that is future oriented while leveraging the best parts of our operational disciplines. You will see in our investor presentation today our capital allocation strategy comprised of two elements, primary and additional allocation.

Mark J. Barrenechea: Excluding our tax payment from divestiture, our free cash flow would be growing again year over year, and Madhu will talk more about this. And again, a return of capital between $450 million and $500 million.

Mark J. Barrenechea: We're excited about our cloud business, Cloud Editions, Titanium X, our next generation autonomous cloud, security, SaaS, and aviators. Our cloud bookings are strong and growing faster than the market, and it's a leading indicator of our cloud momentum. We're also maintaining our medium-term aspirations, but moving them from 26 to 27. Why?

Mark J. Barrenechea: Customers are trending more and more to sign larger contracts with longer-term commitments of four-plus years that also include ramps. This is driven by industry trends and our strong multi-year roadmap of capabilities. This is positive news. Customers are increasing their commitments to Open Text for longer durations. You also see this positive trend from other cloud providers, such as SAP, Google, Microsoft, and AWS, our most important partners. Our F27 aspirations include enterprise cloud bookings of 20% plus.

Mark Barrenechea: For the primary, we intend to allocate 50% of our trailing 12 month free cash flow to dividends and buyback. Max. We have a strong dividend track record as you know, returning $1.9 billion over the last decade. I'm now pleased that a buyback program to that return strategy. As noted, our target is 50% of trailing 12 months free cashflow allocation and we're going to start higher with a $250 million buyback and we tend to return again between $450 to $500 million to shareholders and fiscal $25.

Mark Barrenechea: For the additional part, we intend to allocate the other 50% of trailing 12 months free cashflow is to cloud-based M&A. Further, we are excited about the M&A opportunity for information management in the cloud for higher recurring revenues. We intend to cast a white net across information management for established technologies with proven customer value propositions. We're looking for small to medium-sized cloud companies that will benefit from our business system, general operations, benefit from our district distribution and benefit from our multi-billion-dollar cloud foundation and cloud operations. We'll always seek value in organic growth. You can expect us to complete multiple M&A transactions in the coming year while growing organically.

Mark J. Barrenechea: Total revenues of $5.7 to $5.9 billion, cloud organic growth of 7 to 9 percent, total organic growth of 2 to 4 percent, adjusted EBITDA of 36 to 38 percent, and free cash flow between $1.2 and $1.3 billion, reflecting strong continuous growth and M&A will contribute to these aspirations. Now, let me wrap up and thank you for joining us today, and let me conclude my remarks where I started. The strategic value of Open Text to our customers has never been higher.

Mark J. Barrenechea: We're increasingly confident about our business, our ability to grow in the cloud and produce higher profits from these higher revenues. And that's reflected in our increased visibility today that we are providing. To recap, Open Text has a highly attractive financial model with a predictable, resilient, and growing revenue stream up per quartile adjusted EBITDA margins and growing free cash flows and a very strong balance, Our four-point strategy is designed to build shareholder value and to create a long-term recurring revenue and highly profitable business model, and we're excited to reduce our debt by $2 billion, execute to a $250 million buyback and a new return of capital strategy, return to M&A, and deliver a stellar F24 of 6% to 8% cloud growth.

Mark Barrenechea: Let me turn to our financials and our medium term aspirations. For Q3, our results reflect strong execution and strong customer trust. On cloud bookings, $165 million of 53% year over year, we more than doubled our $1 million plus wind year over year from 13 to 28. Average cloud deal sizes up 30%, contract terms are longer. Customers are increasing their commitments for long-term durations with ramps to full value. Our investment is also up to fuel that growth, to get customers ramped and to introduce new capabilities like AI and IoT.

Mark J. Barrenechea: I want to express my deepest appreciation to the entire Open Text executive team and my colleagues for always putting customers first, innovating, caring about people, and for their exceptional performance. I'm delighted to welcome Todd Tsion, President of Worldwide Sales, responsible for all new sales. Let me congratulate Paul Duggan, President and Chief Customer Officer, responsible for all renewals, professional services, and support. And Madhu Ranganathan, President and CFO, responsible for finance, operations, and corporate development. Please visit opentext.com to read about our exceptional leadership team ready for the next growth chapter in our business clouds, business AI, and business technology.

Mark Barrenechea: We have total revenues of $1.4 billion, up 16% year over year. We ended cash of $1.1 billion and free cash flow of $348 million, up 14%. And just had fantastic winds that accomi, deskly, shell, Tyson Foods, BAE systems, and Mon. For call or an annual business, and for a full fiscal of $24, our targets include cloud bookings, growth between $33 to $38%. 6 to 8% cloud growth, total revenues between $5.75 billion to $5.795 billion, and free cash flows between $725 million to $800 million, up from $655 million last year.

Mark J. Barrenechea: May the one that brings peace bring peace for all. Let me turn the call over to Madhu, but before I do, I want to wish Madhu a very happy birthday. Madhu. Great. Thank you, Mark.

Mark Barrenechea: Today, we're also presenting preliminary F-25 targets and subject to change. These preliminary targets are without the AMC business. We're expecting enterprise bookings of 20% plus, cloud revenues of up to $1.9 billion, total revenues between $5.3 and $5.4 billion. Free cash flows between $575 million to $650 million, which includes really important, which includes a one-time $250 million tax payment for the AMC divestiture. Excluding our tax payment from divestiture, our free cash flow would be growing again year over year, and we do talk more about this.

Madhu Ranganathan: Great. Thank you, Mark. And we appreciate all of you joining us today. So, let me start with a few key points. In Q3, we successfully achieved our operating goals while focusing on initiatives for growing our cloud business. This was our 13th quarter of organic cloud growth. We announced yesterday, May 1st, that we have successfully completed divesting the AMC assets. This transaction returns us to capital flexibility. Last quarter, I mentioned that Micro Focus will be on our operating model, both adjusted EBITDA and free cash flows, as well as returning to organic growth by the end of fiscal 2024. We are on track to achieving that.

Madhu Ranganathan: Our outlook, targets, and aspirations fully reflect the opportunity in front of Open Text, with enterprise cloud bookings leading the way as our customers prepare for AI. Mark spoke about our Q3 results and let me share some additional comments. During the call, I will refer to the investor presentation posted on our IR website. 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.

Mark Barrenechea: And again, a return of capital between 450 to 500 million. We're excited about our cloud business, cloud additions, titanium X, our next generational autonomous cloud, security, staff and aviators. Our cloud bookings are strong and growing faster than the market, and it's a leading indicator of our cloud momentum. We're also maintaining our medium term aspirations, but moving them from 26 to 27. Why? Customers are trending more and more to sign larger contracts with longer term commitments of four plus years that also include ramps.

Madhu Ranganathan: On a year-over-year basis, Q3 cloud revenue was $455 million, up 4.4%, as well as 4.4% in constant currency. Our enterprise cloud business is doing extremely well, with 53% year-over-year bookings growth in the quarter increasing our visibility toward cloud revenue growth. Q3 ARR, Annual Recurring Revenue, of $1.146 billion, up 13.3% and 13.1% in constant currency. That represents approximately 79.2% of total revenue. And now, moving to other financial metrics.

Madhu Ranganathan: Gap Net Income was $98.3 million, reflecting increased interest expense, amortization, and special charges that relate to the broader acquisition of Micro Focus driving Gap EPS of $0.36. Gap gross margin was 73%, up from 70.3%, also reflecting a healthy revenue contribution from our customer support and licensing. Non-Gap Gross Margin of 76.7%, up from 75.8%, also reflecting increased relative contribution from a revenue standpoint from customer support and licensing. Adjusted EBITDA was 463.7, an increase of 27% and 26.4% in constant currency. Our adjusted EBITDA margin was 32% as we continue to make solid progress bringing micro-focus to our operating model. Adjusted EPS was $0.94, was up 28.8%, and the same in constant currency.

Mark Barrenechea: This is driven by industry trends and our strong multi-year roadmap of capabilities. This is positive news. Customers are increasing their commitments to open text for longer durations. You also see this positive trend from other cloud providers such as FAP, Google, Microsoft and AWS are most important partners. Our F27 aspirations include enterprise cloud bookings of 20% plus total revenues of 5.7 to 5.9 billion. Plot organic growth of 7 to 9% total organic growth to a 4% adjusted EBITDA of 36 to 38% and free cashflow between 1.2 and 1.3 billion, reflecting strong continuous growth and M&A will contribute to these aspirations.

Mark Barrenechea: Well, let me wrap up and thank you for joining today and let me conclude my remarks where I started. The strategic value of open text or customers have never been higher. We're increasingly confident about our business, our ability to grow in the cloud and produce higher profits from these higher revenues, and that's reflected in our increased visibility today that we are providing. To recap, open text has a highly attractive financial model with a predictable, resilient and growing revenue stream up per cloth tile adjusted EBITDA margins and growing free cash flows in a very strong balance sheet.

Madhu Ranganathan: Our overall working capital performance remained strong, with our DSOs at 45 days, which was consistent with Q3 of the prior year. We generated $384.7 million in operating cash flows and $348.2 million in free cash flows in the quarter. Turning to the balance sheet, we finished Q3 with $1.125 billion in cash. Our net leverage ratio on March 31 was 3.8 times.

Mark Barrenechea: Our four point strategy is designed to build shareholder value and to create a long-term recurring revenue and highly profitable business model and we're excited to reduce our debt by 2 billion. Execute to a 250 million buyback and a new return of capital strategy returned to M&A and deliver a stellar F-24 of 6 to 8% cloud growth. I want to express my deepest appreciation to the entire open text executive team and my colleagues for always putting customers first, innovating, caring about people, and for their exceptional performance.

Madhu Ranganathan: With the successful completion of the AMC divestiture, we have provided notice of our intent to prepay $1.060 billion of the acquisition term loan, as well as to prepay in full the $940 million outstanding principal balance of term loan B. That is a total of $2 billion debt repayment that we expect to make on May 6, which will bring our net leverage ratio to less than three times. The repayment will reduce our debt from $8.5 billion to $6.5 billion and our annual interest expense from $537 million to $383 million, a reduction of $150 million.

Mark Barrenechea: I'm delighted to welcome Todd Cion, President of Worldwide Sales, responsible for all new sales. Let me congratulate Paul Duggan, President and Chief Customer Officer, responsible for all renewals, professional services, and support. And to Madhu Raganathan, President and CFO, responsible for finance, operations, and corporate development.

Harry Blount: Please visit OpenText.com to read about our exceptional leadership team, ready for the next growth chapter in our business clouds, business AI, and business technology. May the one that brings peace, bring peace for all. And let me turn the call over to Madhu, but before I do, I want to wish Madhu a very happy birthday. Day. Thank you, Mark. And we appreciate all of you joining us today.

Madhu Ranganathan: We're extremely satisfied with the outcome and well-positioned to execute on our capital allocation program given this flexibility. Now, regarding M&A, our capital allocation model leaves ample room to invest in strategic M&A to drive future cloud growth. In my expanded role as president, I'm excited to lead our corporate development function.

Madhu Ranganathan: As Mark noted, we expect to do multiple deals targeting small to medium-sized cloud businesses. We have fully outlined our cloud M&A strategy on page 26 of our investor deck. Turning to the dividend program, on April 30th, the Board of Directors also approved a quarterly cash dividend of $0.25 per common share. The record date for the next quarterly dividend is May 31st, 2024, and the payment date is June 18th, 2024. Open Text Ex-AMC.

Madhu Ranganathan: So let me start with a few key points. In Q3, we successfully achieved our operating goals while focusing on initiatives for growing our cloud business. This was our 13th quarter of organic cloud growth.

Madhu Ranganathan: We announced yesterday May 1st that we have successfully completed divesting the AMC assets. This transaction returns us to capital flexibility. Last quarter, I mentioned that micro focus will be on our operating model. Both adjusted EBITDA and free cash flows as well as returning to organic growth by the end of fiscal 2024. We are on track to achieving that. Our outlook, targets and aspirations fully reflect the opportunity in front of Open Text with enterprise cloud bookings leading the way as our customers prepare for AI.

Madhu Ranganathan: Yesterday, after we announced the divestiture completion of AMC Business, we also filed pro forma statements to provide a historic view of how our business looked from July to December 2023 without AMC. I'll walk through a few points to ensure your financial models and year-over-year comparisons are accurate. Please also refer to slide 32.

Madhu Ranganathan: Mark spoke to our Q3 results and let me share some additional comments. During the call, I will refer to the investor presentation posted on our IR website. 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, Q3 cloud revenue was 455 million up 4.4% as well as 4.4% in constant currency. Our enterprise cloud business is doing extremely well with 53% year-over-year bookings growth in the quarter increasing our visibility towards cloud revenue growth.

Madhu Ranganathan: For fiscal 2023 actuals, AMC revenue is approximately $225 million, and primarily represents the five months of AMC business since the original close of acquisition. For Fiscal 2024, AMC Business Annualized is approximately $528 million in revenue. Given completion of divestiture on May 1st, earlier than our previous target of June 30, 2024, we are reducing our fiscal 2024 target model by approximately $100 million, the expected AMC revenue contribution for the months of May and June 2024. There will be no AMC revenue in fiscal 2025 and beyond.

Madhu Ranganathan: Q3 ARR annual recurring revenue of 1.146 billion up 13.3% and 13.1% in constant currency, that represents approximately 79.2% of total revenue. And now moving to other financial metrics, gap net income was 98.3 million reflecting increased interest expense, amortization and special charges that relates to the broader acquisition of micro focus driving gap EPS of 36 cents. Gap growth margin of 73% up from 70.3% also reflecting a healthy revenue contribution from our customer support and license businesses.

Madhu Ranganathan: And now let me turn to our outlook, starting on page 36. Starting with our Q4 fiscal 24 quarterly factors in our investor presentation, revenue on a year-over-year basis is expected to be $1.39 billion to $1.44 billion. ARR of 1.08 billion to 1.12 billion, a slight FX headwind. Adjusted EBITDA margin between 32.5% and 33.5%. Our assumptions today include the following, AMC's divestiture close as of May 1st and removing two months of AMC business from Q4, including a reduction in Q4 and fiscal 24 revenue of approximately $100 million, as I mentioned earlier. AMC divestiture-related expenses are now included in Q4.

Madhu Ranganathan: Non-gap growth margin of 76.7% up from 75.8% also reflecting increased relative contribution from a revenue standpoint from customer support and license. At Justin EBITDA 463.7 an increase of 27% and 26.4% in constant currency. Our adjusted EBITDA margin was 32% as we continue to make solid progress bringing micro focus toward operating model. At Justin EPS was 94 cents, was up 28.8% and the same in constant currency. Our overall working capital performance remains strong with our DSOs at 45 days that was consistent with Q3 of the prior year.

Madhu Ranganathan: And regarding our cloud business, we now have a second consecutive data point with strong cloud bookings of 53% growth in the third quarter and greater than 60% growth in our second quarter. The longer-term customer commitments and ramps we are seeing are now factored into the Q4 revenue projection. We have also now further increased our cloud investments in SaaS, in IoT, and security. Last but not least, our AI and customer investments, which will be further increased in Q4, as we see continued benefit from the cloud. Our Fiscal 24 Target Model in Constant Currency is provided on page 38. Thus, building on my prior comments, the target model ranges for fiscal 24 reflect only ten months of contribution from AMC.

Madhu Ranganathan: We generated 384.7 million in operating cash flows and 348.2 million free cash flows in the quarter. Turning to the balance sheet, we finished Q3 with 1.125 billion in cash. Our net leverage ratio on March 31 was 3.8 times. With the successful completion of AMC Devastiture, we have provided notice of our intent to prepare 1.60 billion of the acquisition term loan as well as to prepare info the 940 million outstanding principal balance of the term loan beef.

Madhu Ranganathan: Total revenues between $5.745 billion and $5.795 billion. Total revenue growth of 27%, with organic growth in the range of 1-2%. Cloud Revenue Growth 6-8% Enterprise Cloud Bookings, growing 33% to 38%; annual recurring revenue up 23.5% to 25.5%. Adjusted EBITDA margins in the range of 33.5% to 34.5%, again reflecting higher investments in AI and cloud, cloud sales and marketing, expenses related to the AMC divestiture, and micro-focus integration expenses. We expect full fiscal 24 free cash flows of $725 to $800 million, again reflecting the AMC divestiture close two months earlier than expected.

Madhu Ranganathan: That is a total of 2 billion debt repayments that we expect to make on May 6th, which will bring our net leverage ratio to less than three times. The repayment will reduce our debt from 8.5 billion to 6.5 billion and our annual interest expense from 537 million to 383 million a reduction of 150 million. We are extremely satisfied with the outcome and well positioned to execute on our capital allocation program given this flexibility.

Madhu Ranganathan: Now regarding M&A, our capital allocation model leads ample room to invest in strategic M&A to drive future cloud growth. In my expanded role as president, I'm excited to lead our corporate development function. As Mark noted, we expect to do multiple deals, targeting small to medium sized sub businesses. We have fully outlined our cloud M&A strategy on page 26 of our investor deck.

Madhu Ranganathan: This excludes the two-month cash flow we would have seen from AMC of approximately $50 million and divestiture-related expenses of $40 million with a slight positive offset of lower interest. On page 39, we have laid out our preliminary Fiscal 2025 targets and Fiscal 2027 aspirations. As Mark mentioned, we're maintaining our medium-term aspirations but moving from fiscal 26 to 27, driven by the cloud acceleration of our business. We have now increased our expected growth in cloud workings to 20% plus annually. We continue to watch the markets closely on interest rates and currency, noting that our long-term models today do not assume any interest rate benefit or improvements in the Euro or the Yen.

Madhu Ranganathan: Turning to the dividend program, on April 30, the Board of Directors also approved a quarterly cash dividend of 25 cents per common share.

Madhu Ranganathan: The record date for the next quarterly dividend is May 31, 2024, and the payment date is June 18, 2024. Open Text XAMC. Yesterday, after we announced the Investiture Completion of AMC Business, we also filed for a format statement to provide a historic view of how our business looked from July to December 2023 without AMC. I'll walk through a few points to ensure your financial models and year over your comparisons are accurate.

Madhu Ranganathan: Both will positively benefit our model should they materialize. We expect total revenue in Fiscal 25 to be $5.3 to $5.4 billion in constant currency, with cloud growing to $1.85 to $1.9 billion. Our adjusted EBITDA will be lower in the 32% to 33% range in fiscal 2025, and that reflects spend on our cloud and AI growth programs, as well as some trailing expenses from the micro-focus acquisition. Free cash flows in fiscal 2025 will be in the $575 million to $650 million range and include the one-time tax payment of $250 million relating to the gain on the AMC divestiture. Without the tax payment, FCF in Fiscal 2025 would grow year over year.

Madhu Ranganathan: Please also refer to slide 32. For fiscal 2023 actual AMC revenues, approximately 225 million and primarily representing the five months of AMC Business since original close of acquisition. For fiscal 2024, AMC Business annualized is approximately 528 million of revenue. Given completion of the Investiture on May 1, earlier than our previous target of June 30, 2024, we're reducing our fiscal 2024 target model by approximately 100 million that expected AMC revenue contribution for the months of May and June 2024.

Madhu Ranganathan: The tax payment is expected to be made in Q1 of Fiscal 2025 and will be reflected in our Q1 and Fiscal 2025 free cash. The path to our fiscal 27 free cash flow aspirations of $1.2 to $1.3 billion is highlighted on page 24 of our materials. Our goal to improve free cash flows to 20% of revenue is supported by greater scale and efficiencies, including automation and AI. An example is Project Athena, utilizing our own AI technology to automate development.

Madhu Ranganathan: There will be no AMC revenues in fiscal 2025 and beyond.

Madhu Ranganathan: And now let me turn to our outlook starting on page 36. Starting with our Q4 fiscal 24 quarterly factors in our Investiture presentation, revenue on a year-over-year basis, we expect 1.39 billion to 1.44 billion. ARR of 1.08 billion to 1.12 billion, a slight FX headwind. Adjusted EBITDA margin between 32.5% and 33.5%. Our assumptions today include the following. AMC Devastiture close as of May 1 and removing two months of AMC Business from Q4, including a reduction in Q4 and fiscal 24 revenue of approximately 100 million as I mentioned earlier.

Madhu Ranganathan: The following key improvements in Fiscal 2027 create a clear path in our planning towards reaching these 2027 aspirations: adjusted EBITDA margin expansion of 36% to 38%; interest expense post deleveraging coming down approximately $150 million; Special Charges Reduction of approximately $30 million, and the one-time $250 million AMC tax charge that will be completed in Fiscal 25.

Madhu Ranganathan: Interest expense post deleveraging coming down approximately 150 million special charges reduction down approximately $30 million and the one time 250 million AMC tax charge that will be completed in fiscal 'twenty five with all of this we expect continuous future year over year growth in free cash flows.

Madhu Ranganathan: AMC Devastiture related expenses now included in Q4. And regarding our cloud business, we now have a second consecutive data point with strong cloud bookings of 53% growth in the third quarter and greater than 60% growth in our second quarter. The longer-term customer commitments and ramps we are seeing are now factored into the Q4 revenue projections. We have also now further increased our cloud investments in SaaS, in IoT, and security. Last is our AI and customer investment, which are further increased in Q4, as we see continued benefit to cloud bookings.

Madhu Ranganathan: With all of this, we expect continuous future year-over-year growth in free tax revenue. So, in summary, when we talk about the Open Text financial profile, investors should think about a mid-single-digit growing software company led by cloud revenue growth plus small to mid-cloud M&A. Shareholders can expect us to complete M&A transactions in the coming years. We have established our return on capital framework to complement our dividends previously at 20% of trailing 12-month cash flows to 50% overall return on capital by leveraging a new shared buyback program.

Madhu Ranganathan: So in summary, when we talk about the open text financial profile investors should think about a mid single digit growing software company led by cloud revenue growth plus small to mid cloud M&A shareholders can expect us to complete M&A transactions in the coming year.

Madhu Ranganathan: We have established a return on capital framework to complement the dividends previously at 20% of trailing 12 month cash flows to 50% overall return on capital by leveraging a new share buyback program, we raised enterprise cloud bookings from 15% to 20% and have a clear path to growing free cash close to 20% plus of revenues in fiscal 'twenty.

Madhu Ranganathan: Our fiscal 24 target model in constant currencies provided on page 38. So building on my prior comments, the target model ranges for fiscal 24 to reflect only 10 months of contribution from AMC. William, Total Revenue Growth of 27% with Organic Growth in the range of 1 to 2%. Cloud Revenue Growth, 6 to 8%. Enterprise Cloud Bookings, growing 33 to 38%. And your recurring revenue up 23.5% to 25.5%. Adjusted EBITDA margin in the range of 33.5% to 34.5%, again reflecting higher investments in AI and cloud sales and marketing, expenses related to the AMC divestiture and micro focus integration expenses.

Madhu Ranganathan: We raised enterprise cloud bookings from 15% to 20% and have a clear path to growing free cash flows to 20% plus of revenues in fiscal 27. On behalf of Open Text, I would like to thank our shareholders, our loyal customers and partners, and all the Open Text team members. I will now request the operator to open the call for your questions.

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

Madhu Ranganathan: Later.

Madhu Ranganathan: Yeah.

Operator: We will now begin the analyst question and answer session. Anyone who wishes to ask a question may press star then 1 on their touchtone telephone 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 key. If you wish to remove yourself from the question queue, you may press star then 2. Anyone who has a question may press star then 1 at this time. The first question comes from Daniel Chan of TV Coed. Please go ahead.

Speaker Change: We will now begin the analyst question and answer session.

Daniel Chan: The ones, who wishes to ask a question maybe for instance, arms and one on your Touchtone telephone.

Daniel Chan: The question queue.

Daniel Chan: It's funny acknowledging your request if youre.

Operator: We're using the speaker phone. Please ensure you lift your handset before pressing any keys.

Operator: You wish to remove yourself from the question queue. You May Press Star then two.

Daniel Chan: And you wanted to ask a question May Press Star then one at this time.

Madhu Ranganathan: We expect full fiscal 24 free cash stores of $7.25 to $800 million, again reflecting AMC divestiture close two months earlier than expected. This excludes two months cash flow we would have seen from AMC of approximately $50 million and divestiture related expenses of $40 million with a slight positive offset of lower interest.

Operator: The first question comes from Daniel Chan of TD Cowen. Please go ahead.

Daniel Chan: Hi guys, just want to get some clarification on the push out of the midterm aspirations from fiscal 26 to fiscal 27. Sounds like there's a lot of demand, a lot of strength, a lot of traction here. Just trying to understand why that pushes the aspirations out a year rather than pulling them forward.

Daniel Chan: Hi, guys.

Daniel Chan: Just wanted to get some clarification on the push out of the mid term aspirations for fiscal 'twenty six months of fiscal 2007, it sounds like.

Daniel Chan: There's a lot of demand a lot of strength a lot of traction here just trying to understand why that pushes the aspirations outer year, rather than pulling it forward.

Madhu Ranganathan: On page 39, we have laid out our preliminary fiscal 2025 targets and fiscal 2027 aspirations. As Mark mentioned, we are maintaining our medium term aspirations but moving from fiscal 2026 to 27 driven by the cloud acceleration of our business. We now have increased our expected growth in cloud booking to 20% plus annually. We continue to watch the markets closely on interest rates and currency noting that our long term models today do not assume any interest rate benefit or improvements in the euro or the end.

Mark J. Barrenechea: Dan, Mark here. Thanks for the question. I'll just start, obviously, with the headline, which is we're divesting $528 million of revenue via the divestment. And as I noted in my remarks, we're signing larger, longer-term cloud contracts that have ramps in them, ramps to full value, supported by StrongMulti or Roadmap.

Daniel Chan: Yes, Dan Mark here and thanks for the question.

Mark J. Barrenechea: Just start obviously with the headline which is we're divesting $528 million of revenue I fear the divestiture.

Mark J. Barrenechea: And as I noted in my remarks, we're signing larger longer term cloud contracts that have ramps in them ramps to full value.

Mark J. Barrenechea: Supported by strong multiyear roadmaps.

Mark J. Barrenechea: We're also seeing and hearing from others in the industry, like SAP, Microsoft, and Google, who are seeing various trends. Now, we have various accelerants that are not factored into those aspirations yet, like faster cloud adoption, aka, can we grow faster than 20%, and can we get faster RAM? We haven't factored in yet AI taking off. We haven't factored in M&A. We haven't factored in the Euro rebounding and helping customers spend more in Europe, if you will. So those are the reasons for maintaining the aspirations but seeing them as part of F-27, not part of F-22.

Mark J. Barrenechea: We're also seeing and hearing from others in the industry like SAP, Microsoft Google, we're seeing various trends.

Madhu Ranganathan: Both will positively benefit our model should they materialize. We expect total revenue in fiscal 25 to be 5.3 to 5.4 billion in constant currency with cloud growing to 1.85 to 1.9 billion. Our adjusted EBITDA will be lower in the 32 to 33% in fiscal 25 and that reflects spend on our cloud and AI growth programs as well as some trailing expenses from the micro focus acquisition. Free cash flows in fiscal 25 will be in the 5.75 to 650 million range and include the one-time tax payment of 250 million relating to the gain and AMC divestiture.

Mark J. Barrenechea: Now we have various accelerants that are not factored into those aspirations yet.

Mark J. Barrenechea: Like faster cloud adoption AK can grow faster than the 20% and can we get faster ramps.

Mark J. Barrenechea: We haven't factored in yet AI, taking off we haven't factored in M&A.

Mark J. Barrenechea: We haven't factored in.

Mark J. Barrenechea: The euro rebounding in helping customers spend more in Europe, if you will.

Mark J. Barrenechea: So those are the reasons for maintaining the aspiration, but seeing seeing them as part of F. 'twenty seven not part of F. 'twenty six.

Madhu Ranganathan: Okay, thanks for that, Mark. And then on the margin guide for next year, if I back out AMC from fiscal 24, it looks like EBITDA margin this year is expected to be about 32.5% as well based on your fiscal 24 target. So Madhu, you called out additional AI investments and AMC divestment having an impact on some of those margins. Can you help break down what is driving it, and how much is coming from each of those?

Speaker Change: Okay. Thanks for that Mark.

Madhu Ranganathan: Without the tax payment, FCF in fiscal 25 will grow year-over-year. The tax payment is expected to be made in Q1 of fiscal 25 and will be reflected in our Q1 and fiscal 25 free cash flows. The path to our fiscal 27 free cash flow aspirations of 1.2 to 1.3 billion is highlighted on page 24 of our materials. Our goal to improve free cash flows to 20% of revenue is supported by greater scale inefficiencies including automation and AI.

Madhu Ranganathan: And then on the margin guide for next year, if I back out AMC from fiscal 'twenty four it looks like EBITDA margin. This year is expected to be about 32, 5% as well based on your fiscal 'twenty four targets.

Madhu Ranganathan: So do you called out additional AI investments AMC divestment, having an impact on some of those margins can you help breakdown what is driving how much is coming from each of those how much more are you accelerating R&D for AI investments, that's causing that flattish EBITDA margin trajectory versus how much of it.

Madhu Ranganathan: How much more are you accelerating R&D for AI investments that's causing that flattish EBITDA margin trajectory versus how much of it is gonna come from additional expenses from the AMC divestment? Thank you. Yeah, thank you again. The AMC divestiture expenses...

Madhu Ranganathan: An example is Project Athena utilizing our own AI technology to automate development. The following key improvements in fiscal 27 creates a clear path in our planning towards reaching these 20 to 27 aspirations. Adjusted EBITDA margin expansion of 36 to 38%. Interest expense post-deliveraging coming down approximately 150 million. Special charges reduction down approximately 30 million and a one-time 250 million AMC tax charge that will be completed in fiscal 25. With all of this, we expect continuous future year-over-year growth and free cash flows.

Madhu Ranganathan: It's going to come from additional expenses from AMC divestment. Thank you yeah.

Madhu Ranganathan: Thank you again. The AMC divestiture expenses are predominantly in Q4, and if your question is about fiscal 25, the categories would be, as I mentioned earlier, it is certainly investing towards the cloud bookings growth, and you'll see those investments predominantly in cost of sales and some below the line as well. When it comes to below the line, yes, we are definitely investing in R&D as well as sales and marketing, but also keep in mind fiscal 25 adjusted EBITDA is growing from a year-over-year perspective.

Speaker Change: Yeah. Thank you again, the AMC divestiture expenses are predominantly in Q4.

Madhu Ranganathan: And if your question is about fiscal 'twenty five the categories would be as I mentioned earlier it is suddenly investing.

Madhu Ranganathan: Towards the cloud bookings growth and Youll see those investments predominantly in cost of sales and some below the line as well when it comes to below the line. Yes, we are absolutely investing in R&D line as well as.

Madhu Ranganathan: As well as sales and marketing, but also keep in mind fiscal 'twenty five adjusted EBITDA is growing from a year over year perspective.

Madhu Ranganathan: So in summary, when we talk about the open-text financial profile, investors should think about a mid-single-digit growing software company led by cloud revenue growth plus small to mid-cloud M&A, shareholders can expect us to complete M&A transactions in the We have established our return on capital framework to complement our dividends previously at 20% of trailing 12 month cash flows to 50% overall return on capital by leveraging a new shared buyback program. We raised enterprise cloud bookings from 15% to 20% and have a clear path to growing free cash flows to 20% plus of revenues in fiscal 27.

Speaker Change: Thank you.

Speaker Change: Yeah. Thank you.

Steven Lester Enders: The next question comes from Steve Enders of Citi.

Madhu Ranganathan: The next question comes from Steve Enders of Citi.

Steven Lester Enders: Please go ahead.

George Michael Kurosawa: Thanks for taking the question. This is George on for Steve, and congrats on a great quarter. A lot going on, not least of which, happy birthday, Madu. Thank you.

Steven Lester Enders: Thanks for taking my question. This is George on for Steve and Congrats on a great quarter a lot going on.

George: Not least of which are happy birthday Madhu.

George: Maybe just.

George Michael Kurosawa: Just to start, the cloud bookings number, you know, the second really impressive growth number. Obviously impacted by duration, and they bumped up your long-term target to 20%. Maybe if you could just help us kind of tease apart, bumping that up, you know, how much of that is kind of the underlying strength versus what you're seeing on the duration side.

George: To start.

Madhu Ranganathan: On behalf of Open Text I would like to thank our shareholders, our loyal customers and partners and to all the Open Text team members.

George Michael Kurosawa: And you bumped up your long term target to 20%, maybe you could just help us kind of tease apart bump.

Operator: I will now request the operator to open the call to your questions. Operators?

George Michael Kurosawa: Bumping that up you know how much of that is kind of the underlying strength versus what you're seeing on the duration side.

Operator: We will now begin the analyst question and answer session. Anyone who wishes to ask a question may press stars in one on their touchstone telephone to join the question queue. You will hear its own acknowledging the request. If you're using your speaker phone, be sure you'll lift a hand set before pressing any keys. If you wish to remove yourself from the question queue, you may press stars in two. Anyone who has a question may press stars in one at this time.

Mark J. Barrenechea: Yeah, George, thank you for the question. No, it's definitely the strength of the portfolio, the long-term roadmap. I encourage everyone to watch our demonstration of the United States National Transparency and Security Board data archive and just the power of having aviator or business AI integrated into information management. It's helping us win now. So it's the strength of the underlying business. These are large numbers, 63% growth in Q2, and 53% in Q3. We continue to see a strong pipeline for cloud bookings.

Speaker Change: Yes, Charles Thank you for the question no. It's definitely the strength of the portfolio long term road map.

Mark J. Barrenechea: I encourage everyone to watch our demonstration of the United States National Transportation Security Board data archive and just the power of having.

Mark J. Barrenechea: Aviator business AI integrated on to information management and is helping US win now so it's the strength of the underlying business. These are.

Daniel Chan: The first question comes from Daniel Chan of TD Cohen. Please come ahead. Hi guys, I just want to get some clarification on the push out of the midterm aspirations from fiscal 26 to fiscal 27. Sounds like there's a lot of demand, a lot of strength, a lot of traction here. Just trying to understand why that pushes the aspirations out of you rather than pulling it forward. Yes, Dan Mark here, and thanks for the question.

Mark J. Barrenechea:

Mark J. Barrenechea: A large number of 63% growth in Q2, 53% in Q3, we continued to see a strong pipeline on the cloud bookings and like I noted I mean, the duration is longer.

Mark J. Barrenechea: And like I noted, the duration is longer. Average deal size was up in Q3, 30%. Contract terms are longer. We more than doubled our $1 million wins year-over-year from 13 to 28. So it's reflective of the strength of the product. And that's the underlying reason.

Mark J. Barrenechea: Uh huh.

Mark J. Barrenechea: Average deal size was up in Q3, 30% the contract terms are longer we more than doubled our $1 million wins year over year from 13 to 28, so it's reflective of the strength of the product.

Daniel Chan: I'll just start obviously with the headline, which is we're divesting 528 million of revenue via the divestiture. As I noted in my remarks, we're signing larger, longer-term cloud contracts that have ramped in them, ramped to full value, supported by strong multi-year road maps. We're also seeing and hearing from others in the industry like SAP Microsoft Google, who are seeing various trends. We have various accelerants that are not factored into those aspirations yet, like faster cloud adoption, a.k.c, and grow faster than 20 percent, and can we get faster ramps?

Mark J. Barrenechea: That's the underlying reason.

George Michael Kurosawa: Got it. That makes sense.

Speaker Change: Got it that makes sense.

Speaker Change: I wanted to ask about what youre seeing from from customers on AI budgeting, I think you've kind of framed it in the past as you know kind of early spend really being about preparing data as states. So that they can ultimately make the best use out of their data assets. Maybe if you could just talk about where customers are at on their journey of making <unk>.

George Michael Kurosawa: Preparations and you think about kind of a leading edge versus more of the medium customer.

Mark J. Barrenechea: And I wanted to ask about what you're seeing from customers on AI budgeting. I think you kind of framed it in the past as, you know, kind of early spend really being about repairing data estates, you know, so that they can ultimately make the best use of their data assets. Maybe if you could just talk about where customers are on their journey of making those preparations. And, you know, if you think about kind of the leading edge versus more the median customer.

George Michael Kurosawa: Yes.

Daniel Chan: We haven't factored in yet AI taking off. We haven't factored in M&A. We haven't factored in the euro rebounding and helping customers spend more in your own, if you will. Those are the reasons for maintaining the aspirations, but seeing them as part of F-27, not part of F-26. Thanks for that, Mark. Then on the margin guide for next year, if I back out AMC from fiscal 24, it looks like you've done margin this year is expected to be about 32.5 percent, as well, based on your fiscal 24 targets.

Mark J. Barrenechea: And as I said as I said in my remarks.

Mark J. Barrenechea: It's in every discussion.

Mark J. Barrenechea: Yeah, it's, as I said in my remarks, it's in every discussion. It's in every discussion, and it's real.

Mark J. Barrenechea: We are... In some customers, they are exploring vision. We have other customers piloting some of the strength of the larger, longer, with ramped cloud contracts is about, we get it. And so we're going to buy into the cloud bookings, but there's going to be a ramp to it over time. No doubt we're seeing customers consolidate and preparing for AI as well. Because you don't want to go through all this spend on. Fragmented systems and fragmented data.

Speaker Change: We are.

Mark J. Barrenechea: And some customers they are.

Mark J. Barrenechea: Flooring vision, we have other customers piloting.

Mark J. Barrenechea: Some of the strengths of the larger longer with ramped cloud contracts is about we get it.

Mark J. Barrenechea: So we're going to we're going to buy into the cloud bookings, but theres going to be a ramp to it over time no doubt, we're seeing customers consolidate and preparing for AI as well because you don't want to you don't want to you don't want to go through all the spend on.

Daniel Chan: Do you call out additional AI investments, AMC divestment, having an impact on some of those margins? Can you help break down what is driving, how much is coming from each of those? How much more are you accelerating R&D for AI investments that's causing that flatish EBITDA margin trajectory versus how much of it is going to come from additional expenses from AMC divestment? Thank you. Yeah, thank you again. The AMC divestiture expenses are predominantly in Q4, and if your question is about no fiscal 25, the categories would be, as I mentioned earlier, it is certainly investing towards the cloud bookings growth, and you'll see those investments predominantly in cost of sales and some below the line as well.

Mark J. Barrenechea: Fragmented systems and fragmented data. So there is some pre work we have some pre work we needed to do internally and some of our systems as well before we apply the.

Mark J. Barrenechea: So there's some pre-work. Heck, we have some pre-work we need to do internally in some of our systems as well before we apply the higher productivity value of a language model. So, you know, it's in every conversation. Aviator is helping us win now. You're seeing it reflected in the bookings. Pick and Pay is live on DevOps Aviator. So it's starting to move now into production.

Mark J. Barrenechea: Higher productivity value of a language model so.

Mark J. Barrenechea: It's in every conversation.

Mark J. Barrenechea: We are aviator is helping us win now youre seeing it reflected in the bookings.

Mark J. Barrenechea: It's starting to move now into.

Mark J. Barrenechea: Into production.

George Michael Kurosawa: Great, thanks for taking the questions.

Speaker Change: Great. Thanks for taking the questions.

Daniel Chan: When it comes to below the line, yes, we're absolutely investing in R&D line as well as sales and marketing, but also keep in mind fiscal 25, which is an EBITDA is growing from a year over year perspective. Thank you.

Speaker Change: Yes, Thank you George.

George Michael Kurosawa: Okay.

Paul Michael Treiber: The next question comes from Paul Treiber of RBC Capital Markets. Please go ahead.

George Michael Kurosawa: The next question comes from Paul Treiber of RBC capital markets. Please go ahead.

Paul Michael Treiber: First question, just on the M&A strategy, you mentioned being more cloud-oriented, but you can also remain a value buyer. Can you just elaborate on what you mean and how you bridge those two? I mean, how should we think about valuations that you consider deploying capital at versus what you typically deployed it at in the past?

Paul Michael Treiber: Thanks, so much and good afternoon.

Paul Michael Treiber: First question is just on the M&A strategy, you mentioned to be more cloud oriented. But then also you can remain a value buyer can you just elaborate on what you mean and how you bridge those two I mean, how should we think about valuations that you would consider deploying capital.

Steve Enders: The next question comes from Steve Enders of City. Please go ahead. Steve, you're taking the question.

George Iwanyc: This is George on for Steve and congrats on a great quarter of a lot going on, not least of which, Happy Birthday, Madhu. Thank you. Maybe just to start with the cloud bookings number, you know, second, really impressive growth number. Obviously impacted by duration and you bumped up your long term target to 20%. Maybe if you just help us kind of tease apart, bumping that up, you know, how much of that is kind of the underlying strength versus what you're seeing on the duration side.

Paul Michael Treiber: Versus what you typically in the past deploy to that.

Mark J. Barrenechea: Yeah, we think the two are synergetic. We're going to continue, Paul, to seek value and organic growth. It's all about the future. We have learnings from the past, for sure, but the framework that the company is announcing, that Madhu is heavily influenced by having CorpDev as part of Madhu's team, it's all future-oriented. And so we're seeking cloud revenues, high recurring revenues. We're not seeking licenses... And these are businesses, you know, if you think of our learnings from the past, which are interesting, but not about, it's all about playing it forward.

Speaker Change: Yes, we think the two are.

Mark J. Barrenechea: Our synergetic right where you.

Mark J. Barrenechea: We're going to continue to seek value and organic growth, it's all about the future.

Mark J. Barrenechea: I mean, we have learnings of the past for sure.

Mark J. Barrenechea: But the framework that the company is announcing them reduce heavily influenced in.

Mark J. Barrenechea: Having corp, Dev as part of reduced team on all future oriented.

George Iwanyc: Yeah, George, thank you for the question. No, it's definitely the strength of the portfolio, long term roadmap. I encourage everyone to watch our demonstration of the United States National Transparency Security Board data archive and just the power of having aviator or business AI integrated into information management and it's helping us win now. So it's the strength of the underlying business. These are large numbers, 63% growth in Q2, 53% in Q3, we continue to see a strong pipeline on the cloud bookings.

Mark J. Barrenechea: And so we're seeking cloud revenues high recurring revenues.

Mark J. Barrenechea: It's not about it's all about playing it forward.

Mark J. Barrenechea: You know, we're able to leverage our maintenance and the license scale of the 80 license acquisitions we did. We now have close to a $2 billion cloud platform, and that's the leverage going forward. Yes, we'll get the general operating synergies of acquiring companies, but we're really excited about bringing in cloud companies who can leverage our operational scale in the cloud and get those synergies of growth. And we're going to remain value-oriented. I'm not here to put multiples out on a call, but we're going to seek small to medium-sized companies that are value-oriented that can leverage our operating discipline, our general distribution, and the very large cloud operational scale. Muddu, anything you'd like to add to that?

Mark J. Barrenechea: Able to leverage our maintenance.

Muddu: And our operator.

Muddu: License scale of the 80 license acquisitions, we did.

Mark J. Barrenechea: We now have close to a $2 billion cloud platform.

Muddu: And that's the leverage going forward, yes, we will get the.

Muddu: The general operating synergies of acquiring companies, but we're really excited about bringing cloud companies, who can leverage our operational scale in the cloud and get those synergies of growth.

George Iwanyc: And like I noted, I mean, the duration is longer, average deal size was up in Q3, 30% contract terms are longer, we more than doubled our $1 million wins year over year from 13 to 28. So it's reflective of the strength of the product. That's the underlying reason. Got it, that makes sense. And I wanted to ask about what you're seeing from customers on AI budgeting. I think you kind of framed it in the past as, you know, kind of early spend really being about preparing data estates, you know, so they can ultimately make the best use out of their data assets.

Muddu: And we're going to remain value value oriented I'm not here to put multiples out right on a call.

Muddu: But we're going to seek small to medium sized companies.

Muddu: <unk> oriented that can leverage our.

Muddu: Operating discipline, our general distribution.

Muddu: The very large cloud operation cloud operational scale, we do anything you'd like to add to that.

Madhu Ranganathan: Thank you, Mark. I'm completely aligned and, as I said, looking forward to putting these assets in motion.

Muddu: Thank you Mark and completely aligned and as I said and are looking forward to.

Muddu: Putting these assets in motion.

George Iwanyc: And maybe if you could just talk about where customers are at, kind of on their journey of making those preparations and, you know, if you think about kind of a leading edge versus more of the median customer. Yeah, it's, as I said, as I said in my remarks, it's in every discussion, it's in every discussion and it's real. We are in some customers, they are exploring vision. We have other customers piloting some of the strengths of the larger, longer with ramped cloud contracts is about we get it.

Mark J. Barrenechea: And expect us to close multiple transactions over the next 12 months?

Muddu: And I expect us to close multiple transactions over the next 12 months.

Mark J. Barrenechea: Okay.

Paul Michael Treiber: And thanks for that. The second question is just on, like, longer term free cash flow conversion.

Muddu: Thanks for that.

Muddu: What do you see like how would you rank them in terms of the most material ones.

Muddu: That you'd see executing on in the near term to drive it up.

Muddu: Yeah, I'll pick that up Paul and Mark Let me chime in look I think first of all all the.

Paul Michael Treiber: You mentioned a couple of drivers that will help improve it, but what do you see? Like, how do you rank them in terms of the most material ones that you see executing on in the near term of driving?

Paul Michael Treiber: When you get to fiscal 2007 the growth in the cloud revenue at scale is going to contribute to adjusted EBITDA margin expansion, but built in there. We also think the investments we're making in the cloud we are making predominantly 24 also 25, when we will pay higher returns when we get to 27% So expect cloud gross margin.

Madhu Ranganathan: Yeah, I'll pick that up, Paul and Mark, certainly chime in. Look, I think first of all, when you get to fiscal 27, the growth in cloud revenue at scale is gonna contribute to just a little bit of margin expansion, but built in there, we also think the investments we're making in the cloud, we are making predominantly in 24, also 25, will pay higher returns when we get to fiscal 27. So expect cloud gross margin, without giving quantitative ranges, to also improve between now and then, and that's gonna help adjust EBITDA margin.

George Iwanyc: And so we're going to, we're going to buy into the cloud bookings, but there's going to be a ramp to it over time. No doubt we're seeing customers consolidate and preparing for AI as well, because you don't want to, you don't want to, you don't want to go through all this spend on fragmented systems and fragmented data. So there's some pre-work, we have some pre-work we need to do internally in some of our systems as well, before we apply the higher productivity value of a language model.

Madhu Ranganathan: And certainly from a free cash flow perspective, the interest savings we are getting from de-levering are gonna sustain itself then. As we said, we're not making any interest rate improvements yet. The special charges will be slightly down, and the AMC taxes on the other side as well.

George Iwanyc: So, you know, it's in every conversation. We are aviators helping us win now. You're seeing it reflected in the bookings. Pick and pay live on DevOps aviator. So it's starting to move now into production. Great, thanks for taking the questions. Yeah, thank you, George.

Madhu Ranganathan: Taxes on the other side as well, but built into all of this I will say, we make a note of it our greater scale in 2007.

Madhu Ranganathan: But built into all of this, I will say we make a note of at our greatest scale in 27, we are gonna get efficiency through automation AI within OpenText. And Project Athena is just one example, and we are in the very early stages, we are at the end of fiscal 24, in creating those plans across the company with respect to automation AI. Mark, anything to add? Yeah, sure. And thank you, Madhu.

Mark: We are going to get efficiencies through automation and AI within open text and project. Athena is just one example, and we're in the very early stages. We are at the end of fiscal 'twenty four.

Mark: In creating this plans across the company with respect to automation and AI.

Mark: Mark anything to add yes sure. Thanks.

Mark J. Barrenechea: Look, Paul, I'm really excited about our three presidents, with Todd leading up our entire sales force, and Paul leading up after the sale for Renewals. PS and support, and Madhu taking on more operations. That is freeing my time up to focus on building a more efficient and scaled company through many things, one of which is this aspect of a technology-led business. Shannon Bell has joined us recently, our new CDO and CIO, and I just want to double click on the. It's like being a new company again with AI tools, and what is that next level of efficiency?

Mark: Look Paul I'm really excited about our three president structure.

Paul Treiber: The next question comes from Paul Treiber of RBC Capital Market. Please go ahead. Oh, thanks very much and good afternoon.

Mark J. Barrenechea: Paul leading up after sale for renewals.

Paul Treiber: First question, is this on the M&A strategy? You mentioned to be more cloud-oriented, but then also you can remain a value buyer. He does elaborate on what you mean and how you bridge those two. I mean, how do you think about valuations that you consider deploying capital at versus what you typically in the past deployed it at? Yeah, we think the two are Senator Jack, right? We're going to continue Paul to seek value and organic growth.

Mark J. Barrenechea: To focus on building, a more efficient and scaled company.

Mark J. Barrenechea: Through our many things one of which is this aspect of a technology led business.

Mark J. Barrenechea: And Bell has joined US recently, our CD, our new CTO and CIO and I just want to double click on the.

Mark J. Barrenechea: <unk>.

Mark J. Barrenechea: It's like being a new company again with AI tools and what is that next level of efficiency, we see opportunities in support of that work.

Paul Treiber: It's all about the future. Right? I mean, we have learnings of the past for sure, but the framework that the company is announcing that Madhu is heavily influenced and having Corp Dev as part of Madhu's team, it's all future oriented. And so we're seeking cloud revenues, higher current revenues. We're not seeking license businesses. And these are businesses. If you think of our learnings from the past, which are interesting, but not about, it's all about playing it forward, we're able to leverage our maintenance and our license scale of the 80 license acquisitions we did.

Mark J. Barrenechea: We see opportunities in support, and we're going to go architect. We see opportunities in pre-sales. We see opportunities in generated code, as we highlighted it with Athena. We're going to have a new approach to full digital renewals. So it's a new day of leveraging AI internally. I just want to double-click on the other aspect to get us to our 1.2 to 1.3 billion F27 aspirations of really leading with this technology-led business with automation, data, and AI.

Mark J. Barrenechea: So it's a new day of leveraging AI internally. So I just wanted to double click on the other aspect to get us to our one two to $1 3 billion F. 'twenty seven aspirations are really leading with this technology led business with automation data and AI.

Speaker Change: Thanks for taking the questions.

Speaker Change: Thank you.

Paul Treiber: We now have close to a $2 billion cloud platform. And that's the leverage going forward. Yes, we'll get the general operating synergies of acquiring companies, but we're really excited about bringing cloud companies who can leverage our operational scale in the cloud and get those synergies of growth. And we're going to remain value oriented. I'm not here to put multiples out right on a call, but we're going to seek small to medium sized companies.

Mark J. Barrenechea: Okay.

Samad Samaneh: The next question comes from Samad Samaneh of Jeffries. Please go ahead.

Billy Fitzsimmons: Hey, everyone. This is Billy Fitzsimmons on for Samad from Jefferies.

Samad Samaneh: Hi, everyone. This is joey on for some odd from Jefferies last quarter, you both talked about strength in the large enterprise, but maybe some potential weakness in SMB, which informed the guide it sounds like the enterprise strength continued but any changes there quarter over quarter in terms of the SMB market.

Billy Fitzsimmons: Last quarter, you both talked about strength in large enterprise but maybe some potential weakness in SMB, which informed the guide. Sounds like the enterprise strength continued, but any change there a quarter over quarter in terms of the SMB market? And then what did the 4Q guide assume in terms of macro? And obviously, it's still very early, but what did you assume around macro when putting together that initial fiscal 2025 guide?

Billy Fitzsimmons: What did the <unk> guide assume in terms of macro and obviously, it's still very early but what did you assume around macro with putting together that additional fiscal 2025 guide.

Paul Treiber: Value oriented that can leverage our operating discipline, our general distribution and the very large cloud operational scale. We'll do anything you'd like to add to that. And thank you Mark, and completely aligned. And as I said, looking forward to putting these assets in motion. And expect us to close multiple transactions over the next 12 months. And thanks for that.

Mark J. Barrenechea: Let me take the first part. Thanks for the question on SMB. We're expecting an SMB uptick in fiscal 2020. We have Microsoft, who's obviously our largest ecosystem partner here, pushing the entire market with Azure, Dynamics, and Full Pilot. We're also upgrading our own partner platform, really important; we've codenamed it El Dorado. And we'll be upgraded to this new platform that we've built later this year that's going to allow us to bring more products to market more quickly and go across more countries because we're primarily a U.S.-based SMB platform.

Speaker Change: Yes, let me take the first part and thanks for the question on SMB before we're expecting an SMB uptick in fiscal 'twenty five.

Mark J. Barrenechea: We have Microsoft who is obviously, our largest ecosystem partner pushing very good market with Azure dynamics and full pilot.

Paul Treiber: The fact questions is on like a longer term pre-catchable conversion. And you mentioned a couple of drivers that will help improve it. But what do you see? Like how do you rank them in terms of the most material ones that you see executing on in the near term to drive it up? Yeah, I'll pick that up, Paul and Mark, slightly chime in. Look, I think first of all, when you get to fiscal 27, the growth in the cloud revenue at scale is going to contribute to a just a little bit of margin expansion.

Mark J. Barrenechea: And we will be up will be upgraded to this new platform that we built.

Mark J. Barrenechea: Later this year, that's going to allow us to bring more product to market more quickly and go across more countries now because we're primarily a U S based SMB platform.

Mark J. Barrenechea: We're also seeing higher partner engagement right now, especially with Cloud Editions 24.2 and what's coming in El Dorado. We're also seeing some churn among SMB resellers. I don't necessarily want to call them out, but some of the larger ones, we're seeing some churn. So we're actually excited about SMB. I know we've shouted out the last few quarters, we've had some modest headwinds, but we see it now back on an uptick starting in Q1 with the things I just outlined. Can Madhu, anything you want to shout out on Q4 macro? Yep.

Paul Treiber: But built in there, we also think the investments we're making in the cloud, we are making predominant in 24, also 25, will pay higher returns when we get to 27. And expect cloud growth margin without giving quantitative ranges to also improve between now and then. And that's going to help adjust the EBITDA margin. And so from a pre-catchable perspective, the interest savings we are getting from delivering is going to sustain itself then.

Mark J. Barrenechea: <unk>.

Madhu Ranganathan: And we do anything we want shot on Q4 macro yes, so on the macro side from an externality perspective, we've certainly considered the geopolitical aspects.

Madhu Ranganathan: Yeah, so on the macro side, from an externality perspective, we've certainly considered the geopolitical aspects, and as you know, we have a very global business. And look, lower GDP growth is everywhere, and how that affects some of the customer decisions, we've really factored that in.

Paul Treiber: As said, we're not baking in any interest rate improvements yet. The special charges will be slightly down and the AMC taxes on the other side as well. But built into all of this, I will say we make a note of at our greater scale in 27, we are going to get efficiencies through automation AI within open text. And Project Athena is just one example and we are in the very early stages.

Madhu Ranganathan: Look the lower GDP growth is everywhere and how that affects some of the customer decision to be really factored that in.

Madhu Ranganathan: And inflation is high, and we expect that to continue, right? And two other pieces, if you consider the interest rate environment and the FX impact, as I outlined in my commentaries. We're not assuming any benefit from the interest rate environment at this point. And also, we have a strong European business and an Asia business, so with respect to the Euro and the Yen, which are the key drivers for some of that revenue, we're also not assuming an improvement in those currencies. And of course, if there's an improvement there, our customers in those regions would also feel better about buying, but we're not assuming those benefits in our model.

Madhu Ranganathan: And inflation is high and we expect that to continue right and two other pieces. If you consider the interest rate environment, and Andy and the FX impact as I outlined in my commentary.

Paul Treiber: We are at the end of fiscal 24 in creating this plan across the company with respect to automation AI. Yeah, Mark, anything to add? Yeah, sure, and thank you, Madhu. Look, Paul, I'm really excited about our three President's structure. With Todd leading up our entire sales force, Paul leading up after sale for renewals, PS and support, and Madhu taking on more operations. That is freeing my time up to focus on building a more efficient and scaled company through many things, one of which is this aspect of a technology led business.

Madhu Ranganathan: We are not assuming any benefit from the interest rate environment. At this point and also we have a strong European business and in Asia business. So with respect to the euro and the yen, which are the key drivers for some of that revenue, but also not not assuming improvement in those currencies and of course it is improvement that our customers in those regions, but also feel better about buying.

Madhu Ranganathan: But we're not assuming those benefits in our in that model.

Madhu Ranganathan: Sure.

Billy Fitzsimmons: Super helpful. And then, if I can sneak in a second question here, Mark, maybe building on some of the prior questions and answers around your aviators' investments and opportunity. Given that you highlighted that aviators are helping Open Techs win now, and given what you've seen with the Get Your Wings program, maybe you could share some anecdotes or just general feedback from early customers who have adopted or tried these solutions.

Speaker Change: Super Helpful. And then if I could sneak in a second question here Mark maybe building on some of the prior questions and answers round your aviators investment opportunity given that you highlighted that aviator is helping our pretax win now and given what you've seen with it they get your wings program, maybe you could share some anecdotes or just general feedback.

Paul Treiber: Shannon Bell has joined us recently, our new CDO and CIO. I just want to double click on the, it's like being a new company again with AI tools, and what is that next level of efficiency. We see opportunities in support that we're going to go architect. We see opportunities in presales. We see opportunities in generated code as we do highlight it with Athena. We're going to have a new approach to full digital renewals.

Billy Fitzsimmons: Back from early customers, who have adopted or trading solutions.

Mark J. Barrenechea: Yeah. I'm very happy to.

Mark: Yes, very happy to Eni.

Mark J. Barrenechea: And I... Look, seeing is believing. And I encourage everyone, we've posted some short clips on opentext.com of applying our content cloud plus content aviator and search aviator to the U.S. National Transportation Security Board data archive. And that was the centerpiece of our demonstrations in Europe two weeks ago in London, Munich, and Paris.

Mark J. Barrenechea: Seeing is believing and I encourage everyone we've posted.

Mark J. Barrenechea: Kind of some short clips on open text dot com.

Mark J. Barrenechea: Of applying our content cloud plus content aviator.

Mark J. Barrenechea: And search aviate or to the U S National Transportation Security Board data archive and that was the centerpiece of our demonstrations in Europe, two weeks ago and I just I encourage everyone to watch it Cassini is believing and we had thousands of people across <unk>.

Paul Treiber: So it's a new day of leveraging AI internally. So I just want to double click on the other aspect to get us to our 1.2 to 1.3 billion F27 aspirations, a really leading with this technology led business with automation data in AI. Thanks for taking the questions. Thank you.

Mark J. Barrenechea: There was literally standing room only to watch that demonstration of applying a language model to a very rich data archive. And you can just obviously see, as a knowledge worker, your life with just automation and your life with automation and AI. And what would take three weeks of a knowledge worker? We got down to three.

Mark J. Barrenechea: London.

Mark J. Barrenechea: Munich, Paris was literally standing room only to watch that demonstration of applying a language model to a very rich data archive and you can just obviously C. As a knowledge worker your life on just automation and your life with automation and AI.

Samar: The next question comes from Samar and Jeffries.

Billy Fitzsimmons: Please go ahead. Hey everyone, this is Billy Fitzsimmons on for Samar from Jeffries. Last quarter you both talked about strength in large enterprise, but maybe some potential weakness in SMB which informed the guide. Sounds like the enterprise strength continued, but any change there a quarter of a quarter in terms of the SMB market. And then what did the 4Q guide assume in terms of macro? And obviously it's still very early, but what did you assume around macro when putting together that initial fiscal 2025 guide?

Mark J. Barrenechea: And what would take three weeks of a knowledge worker, we got down to three hours.

Mark J. Barrenechea: And so I think seeing is believing, so check out the video, and the demonstration was live. It's our shipping product, it's the published NTSB data, and it was literally us pressing a button. So, look, everyone saw that, and you can see our progress every 90 days. So pick and pay, using a different aviator for testing in QA, a large apparel company, expecting invoices, a large manufacturer, doing contract compliance, but we think that the heart of what we're going to do and when is that knowledge worker.

Mark J. Barrenechea: And so I just I think seeing is believing go check out the video and.

Mark J. Barrenechea: The demonstration was live it was start shipping product, it's the published NTSB data.

Mark J. Barrenechea: It was literally just pressing a button.

Mark J. Barrenechea: Look everyone saw that.

Mark J. Barrenechea: And you can see our every 90 day progress.

Mark J. Barrenechea: So.

Mark J. Barrenechea: Pick and pack using a different aviator for testing and QA.

Billy Fitzsimmons: Yeah, let me take the first part. Thanks for the question on SMB. But we're we're expecting an SMB uptick in fiscal 25. We have Microsoft who's obviously our largest ecosystem partner here pushing very limited market with a sure dynamics in full pilot. We're also upgrading our own partner platform, really important. We've codenamed it El Dorado and we'll be upgraded to this new platform that we fill later this year that's going to allow us to bring more product to market more quickly and go across more countries now because we're primarily a US-based SMB platform.

Mark J. Barrenechea: A large apparel company on inspecting invoices a large manufacturer.

Mark J. Barrenechea: Doing contract compliance, but we think that the heart of what we're going to do and when is that knowledge worker.

Mark J. Barrenechea: And just like we went from no automation to content management to digital folders to search to metadata, now this is the next progression in the evolution of knowledge management to bring in a language model. So, obviously, you can hear the excitement in my voice, but seeing is believing. Go watch the demo and draw your own conclusions.

Mark J. Barrenechea: And just like we went from no automation the content management digital folders to search to metadata. Now. This is the next progression in the evolution of knowledge management to bring in a language model.

Mark J. Barrenechea: So obviously you can hear the excitement in my voice, but seems believing.

Mark J. Barrenechea: <unk> the demo.

Mark J. Barrenechea: And draw your own conclusions.

Billy Fitzsimmons: We're also seeing higher partner engagement right now, especially with cloud additions 24.2 and what's coming in El Dorado. We're also seeing some churn and SMB resellers, no one necessarily called them out, but some of the larger ones were seeing some churn. So we're actually excited about SMB. I know we've shot it out the last few quarters. We've had some modest headwinds, but we see it now back on an uptick starting in Q1 with the things I just out.

Billy Fitzsimmons: Super helpful. Thank you for both very much. Thank you.

Speaker Change: Super helpful. Thank you for both very much.

Speaker Change: Thank you. Thank you.

Billy Fitzsimmons: Yeah.

Adhir Kadve: The next question comes from Adhir Kadve of 8 Capital. Please go ahead.

Midyear Cosby: The next question comes from midyear Cosby.

Adhir Kadve: Eight capital. Please go ahead.

Adhir Kadve: Great, thanks for taking my question, guys. Mark, you mentioned that a lot of your customers continue to test different use cases. Obviously, you've given some anecdotes on what customers are using right now, but in your conversation with those customers, you also mentioned that a lot of them are doing the pre-work to kind of really kind of full-scale deploy AI. How long do you see that pre-work taking and how are they in that journey? And how long do you see until those full-scale deployments kind of take place? Yeah,

Adhir Kadve: Great. Thanks for taking my question guys. Mark you mentioned that a lot of your customers continue to test different use cases, obviously, you've given some.

Adhir Kadve: Anecdotes on what consumers are using right now, but in your conversations with those customers. You also mentioned that a lot of them are doing the pre work to kind of really kind of full scale deploy AI. How long do you see that pre work, taking and kind of early in that journey and what and how long do you do you see until those full scale deployments.

Mark Barrenechea: And we do anything we want to shout out on Q4 macro. Yeah, so on the macro side from an externality perspective, we've certainly considered the geopolitical aspects. And as you know, we have a very global business. And look, the lower GDP growth is everywhere and how that affects some of the customer decisions we've really factored that in. And inflation is high and we expect that to continue. Right. And two other pieces, if you consider the interest rate environment and the and the effects impact as I outlined in my commentaries, we're not assuming any benefit from the interest rate environment at this point.

Adhir Kadve: Kind of take place.

Mark J. Barrenechea: Yeah, a great question. One of the strengths of having a market-leading professional services organization, I mean, we have close to 2,000 billable consultants at Open Text covering every major theater in the global 10,000, is putting in place our Earn Your Wings program across that breadth. And, you know, 10. Our first aviator.

Speaker Change: Yeah, Great question. So one of the one of the strengths of having.

Mark J. Barrenechea: Our market, leading professional services organization I mean, we have close to 2000 billable consultants that open text covering every major theater.

Mark J. Barrenechea: In the global 10000.

Mark J. Barrenechea: Is.

Mark Barrenechea: And also we have a strong European business and Asia business. So with respect to the euro and the end, which are the key drivers for some of that revenue, we're also not not assuming improvement in those currencies. And of course with this improvement there are customers in those regions would also feel better about buying, but we're not assuming those benefits in our model.

Mark J. Barrenechea: Putting in place are earn your wings program across that breadth.

Mark J. Barrenechea: And since.

Mark J. Barrenechea: I think we've collected over 100 use cases, right, across all our customer interactions. So there are probably three categories: there are those who are going to just continue to lightly experiment and understand. There are those that are going to take a very long view. Let me consolidate, get down to one, and purify my data.

Mark J. Barrenechea: I think we've collected overall 100 use cases.

Mark J. Barrenechea: Right across all our customer interactions.

Mark J. Barrenechea: So there's probably three categories or those who are going to just continue to lightly experiment and understand.

Mark Barrenechea: Super helpful. And then if I if I can sneak in a second question here, Mark, maybe maybe building on some of the prior questions and answers around your aviators investments and opportunity, given that you highlighted that aviators helping Open Text win now and given what you've seen with the get your wings program, maybe you could share some anecdotes or just general feedback from early customers who have adopted or tried these solutions.

Mark J. Barrenechea: There are those that are going to take a very long view.

Mark J. Barrenechea: Let me consolidate get down to one purify my data.

Mark J. Barrenechea: And then there's probably the third case, which is that they're going to go now because they can see the productivity gains in very specific ways. So we're seeing success reflected in bookings. There's a ramp time, as we've noted, and look, I'm going to keep you updated every quarter on that progress, but I certainly would hope to see that next step up in revenue contribution in fiscal 25, even though in our preliminary numbers we're not factoring that in.

Mark J. Barrenechea: And then there is probably the third case, which is they are going to go now because they can see the productivity gains and very specific use cases.

Mark J. Barrenechea: No.

Mark J. Barrenechea: We're seeing success reflected in bookings there is a ramp time as we've noted.

Mark Barrenechea: Yeah, very happy to and I'm looking is believing and I encourage everyone we've posted some short clips on Open Text.com of of applying our content cloud plus content aviator and search aviator to the US National Transportation Security Board Data Archive. And that was the center piece of our demonstrations in Europe two weeks ago. I first everyone to watch it because seeing is believing. And we had thousands of people across London, Munich, Paris is literally standing room only to watch that demonstration of applying a language model to a very rich data archive.

Mark J. Barrenechea: And look I am going to keep you updated every quarter on that progress.

Mark J. Barrenechea: I certainly would hope to see that next step up in revenue contribution in fiscal 'twenty five even though in our preliminary numbers, we're not factoring that in yet.

Adhir Kadve: Okay, great. And, of course, all the talk about the cloud is great to hear. My second question will be around micro focus and how that and that product feed play into all of your cloud growth aspirations. Yeah.

Speaker Change: Okay, Great and of course, all the talk about how it is great to hear my second question would be around micro focus and how that plays and that product suite plays into all of your cloud growth aspirations.

Mark J. Barrenechea: Yeah, for sure. So, three large areas. The first is ITOM, or Digital Operations, plus their service manager. And we're just very excited about a whole new set of big data, whether it be contracts, whether it be employees, whether it be invoices. ITOM, or Digital Ops, opens up a couple big data sets for us, IT data and service data. So we really like having that hybrid digital operations and service management as part of the portfolio. The next piece of data is the developer. And I don't think we reach our full potential.

Speaker Change: Yeah for sure so.

Mark J. Barrenechea: Three three large areas.

Mark J. Barrenechea: The first is <unk> or digital operations.

Mark Barrenechea: And you can just obviously see as a knowledge worker your life on just automation and your life with automation and AI and what would take three weeks of a knowledge worker. We got down to three hours. And so I just I think seeing is believing go check out the video and the demonstration was live. It was our it's it's our shipping product. It's the published NTSB data and was literally expressing a bun.

Mark J. Barrenechea: Plus our service management and we're just very excited about a whole new sets of big data right. We've always followed big data at open text, whether it be contracts, whether it be employees, whether it be invoices.

Mark J. Barrenechea: And.

Mark J. Barrenechea: Hi, Tom or digital ops opens up a couple of big datasets for us IP data and service data.

Mark J. Barrenechea: So we really like having.

Mark Barrenechea: So look everyone saw that and they you can see or are every 90 day progress. So pick and pay using a different aviator for testing in QA. A large apparel company, inspecting invoices, a large manufacturer doing contract compliance. But we think that the heart of what we're going to do and when is that knowledge worker. And just like we went from no automation, the content management, the digital folders, to search, to metadata.

Mark J. Barrenechea: That hybrid digital operations and service management as part of the portfolio.

Mark J. Barrenechea: Next piece of data is the developer.

Mark J. Barrenechea: And.

Mark J. Barrenechea: I don't think we reach our full potential I know, we don't reach our full potential unless we can open up the developer.

Mark J. Barrenechea: I know we don't reach our full potential unless we can open up the developer community. If you look at how Oracle became Oracle, Microsoft became Microsoft, and SAP became SAP, they built robust developer communities. And so not only do we have an ADM product line, but we're also going to open up the developer, thus our strategy around our thrust services, our strategy around Athena, our strategy around complete developer management. Now we're winning business at scale, a very large software company. And that's why we're focusing the ADM organization on large-scale software developers in the automotive, Financial Services, banking, biotech, and healthcare. So we're quite, I'll just shout out those two as places we're very excited about.

Mark J. Barrenechea: You look how Oracle became Oracle, Microsoft became Microsoft SAP U S.

Mark J. Barrenechea: They build robust developer communities and so not only do we have an ATM product line.

Mark J. Barrenechea: But we're also going to open up the developer thus our strategy around our thrust services our strategy around Athena our strategy around complete developer management now, we're winning business at scale, a very large software companies and thats.

Mark Barrenechea: Now this is the next progression and the evolution of knowledge management to bring in a language model. So obviously you can hear the excitement in my voice. But seeing believing I go watch the demo and and and draw your own conclusion.

Mark Barrenechea: Thank you for both very much.

Mark Barrenechea: Thank you.

Mark J. Barrenechea: We're focusing the ADM organization on large scale software developers and auto.

Mark J. Barrenechea: Financial services banking biotech healthcare so we're quite.

Adhir Kadve: The next question comes from Adhir Kadve, eight capital. Please go ahead. Great, thanks for taking my question, guys. Mark, you mentioned that a lot of your customers continue to test different use cases. Obviously, you've given some anecdotes on what customers are using right now, but in your conversation with those customers, you also mentioned that a lot of them are doing the pre-work to really full-scale deploy AI.

Adhir Kadve: Great, thanks a lot, guys. I'll pass the line.

Speaker Change: Great. Thanks, a lot guys. So pestilent.

Adhir Kadve: Yeah.

Thanos Moschopoulos: The next question comes from Thanos Moschopoulos of BMO Capital Markets. Please go ahead.

Speaker Change: The next question comes from panels, coupled with BMO capital markets. Please go ahead.

Thanos Moschopoulos: Hi, good afternoon. A couple for Madhu, and happy birthday, by the way. Thank you. Madhu, can you remind us what your thoughts are on target leverage? So after you pay down the $2 billion, how high or not might you take leverage up again for future M&A?

Mark Barrenechea: How long do you see that pre-work taking and how long do you see until those full-scale deployments take place? Yeah, a great question. One of the strengths of having a market-leading professional services organization, I mean, we have close to 2,000 billable consultants at Open Text covering every major theater in the global 10,000, is putting in place our Earn Your Wings program across that breadth. And since our first aviator, I think we've collected over 100 use cases across all our customer interactions.

Thanos Moschopoulos: A couple of affirmative and happy birthday by the way.

Thanos Moschopoulos: Thank you Madhu can you can you remind us what your.

Thanos Moschopoulos: Thoughts on target leverage so after you pay down the $2 billion.

Thanos Moschopoulos: How high are not like you take leverage up again for future M&A.

Madhu Ranganathan: Yeah, absolutely. Perhaps I'll answer the question with respect to what we said about where we're targeting for M&A, right? Cloud, ARR, small to medium sizes. So, being under three pretty imminently, I do think we will come back to around three. Our M&A, the capital allocation program, as you saw, when we say primary, we refer to dividends and buybacks, but the second bucket is really the remainder of the 50% is M&A.

Madhu Ranganathan: Cloud <unk>.

Madhu Ranganathan: I do think we will.

Madhu Ranganathan: I'll come back to around three ish.

Madhu Ranganathan: Our M&A capital allocation program as you saw but the primary would affect the dividend and buybacks.

Madhu Ranganathan: The second bucket is really the remainder the 50% is M&A so.

Madhu Ranganathan: So at the moment, I think with the $6.5 billion of debt, our own cash flows, and the strategy around the acquisitions being small to mid-sized, I think we expect to remain around the three times. And the last thing I'd say is the strategy around small to mid-sized cloud M&A is about those assets contributing to growth in the future. That also is going to again contribute to our free cash flow target of 1.2 to 1.3 for fiscal 27. So again, that's how we're seeing it at this point in terms of M&A and leverage.

Mark Barrenechea: There's probably three categories. There are those who are going to just continue to lightly experiment and understand. There are those that are going to take a very long view. Let me consolidate, get down to one, purify my data. And then there's probably the third case, which is they're going to go now, because they can see the productivity gains in very specific use cases. So we're seeing success reflected in bookings. There's a ramp time, as we've noted.

Madhu Ranganathan: At the moment I think with the $6 5 billion of debt our own cash flows the strategy around the acquisitions being small to mid I think actually is expected to remain around the three times and the last thing I'd say is the strategy around the small to mid cloud M&A is about those assets contributing to growth in the future right.

Madhu Ranganathan: That also is going to again contribute to our free cash flow target of one two to $1 80 for fiscal 'twenty seven so again, that's how we're seeing it at this point.

Madhu Ranganathan: In terms of M&A and your leverage.

Mark Barrenechea: And look, I'm going to keep you updated every quarter on that progress. But I certainly would hope to see that next step up in revenue contribution in fiscal 25, even though in our preliminary numbers were not factoring that in yet.

Thanos Moschopoulos: Great. And just a point of clarification, the transition services agreements related to AMC, are those neutral to margins?

Thanos Moschopoulos: The transfer transition services agreements.

Madhu Ranganathan: Yes, yes, that is neutral to margins, I mean at this point.

Thanos Moschopoulos: Okay, great. And then, maybe one for Mark. Just in terms of micro-focus, outside of the AMC business, it seems like it's stabilizing based on the Temp's View disclosure, but commentary there in terms of how close you are to that returning to organic growth and how much work may or may not need to be done in that regard. Yeah, sounds great. Thanks, Thanos, and thanks for the question.

Speaker Change: Okay, Great and then finally, maybe one for Mark.

Mark Barrenechea: Okay, great. And of course, all the talk about cloud is great to hear.

Mark: Just in terms of Microfocus outside.

Mark: Outside of the AMC business.

Mark Barrenechea: My second question will be around micro focus and how that plays and that product seed plays into all of your cloud growth aspirations. Yeah, for sure. So three, three large areas. The first is item or digital operations, plus their service management. And we're just very excited about a whole new set of big data, right? We've always followed big data that open text, whether it be contracts, whether it be employees, whether it be invoices.

Mark: It seems like it's stabilizing based on the 10-Q disclosure but.

Mark: Commentary there in terms of.

Mark: How close you are to that returning to organic growth how much work you may not need to be done in that regard.

Mark J. Barrenechea: Yeah, sounds great. Thanks, Danos.

Mark J. Barrenechea: Thanks for the question. Yeah, we expect Micro Focus to deliver organic growth this year. And we're also doing extremely well on the renewal side, right? Micro Focus was in the high 80s in Q3, our best rate since the acquisition, and we'll be in the high 80s again this quarter, which is great news. And, you know, with the divestiture of the mainframe, we're now focused on the three big businesses, right? ITOM, which is, you know, digital operations and service management. We're focused on the developer and, of course, security, right, which are the three big businesses.

Mark J. Barrenechea: And we're also doing extremely well on the renewal side micro focus was in the high <unk> in Q3, our best rate since the acquisition.

Mark J. Barrenechea: In the high <unk> again, this quarter, which is which is which is great news.

Mark Barrenechea: And item or digital ops opens up a couple big data sets for us, IT data and service data. So we really like having that hybrid digital operations and service management as part of the portfolio. Next piece of data is the developer, and I don't think we reach our full potential. I know we don't reach our full potential unless we can open up the developer. If you look how Oracle became Oracle, Microsoft became Microsoft, SAP, SAP, they build robust developer communities.

Mark J. Barrenechea: And there are with the divestiture of the mainframe.

Mark J. Barrenechea: We're now focused on the three big businesses right.

Mark J. Barrenechea: Tom which is.

Mark J. Barrenechea: Digital operations and service management, we're focused on the developer and of course security right, which are the three three big businesses there.

Mark J. Barrenechea: Okay.

Kevin Krishnaratne: The next question comes from Kevin Krishnaratne of Scotiabank. Please go ahead.

Speaker Change: The next question comes from Kevin Krishna Rodney.

Kevin Krishnaratne: Hey, good evening. Just a couple of smaller ones for me. I noticed in the deck that the cloud renewal rates inched down 92% from 93%. Just wondering what happened there and whether that will ramp back up in Q4.

Kevin Krishnaratne: Hey, good evening, just a couple of small ones for me I noticed in the deck at the cloud renewal rates inched down 92% from 93% I'm just wondering what happened there and does that ramp back up in Q4.

Mark Barrenechea: And so not only do we have an ADM product line, but we're also going to open up the developer, thus our strategy around our thrust services, our strategy around Athena, our strategy around complete developer management. Now we're winning business at scale of very large software companies. And that's, we're focusing the ADM organization on large scale software developers in auto, financial services, banking, biotech, healthcare. So we're quite, I'll just shout those two as places we're very excited about.

Kevin Krishnaratne: Yeah, thanks. Kevin, thanks for the question. I'm actually I'm actually going to take that one.

Kevin Krishnaratne: Yes.

Speaker Change: Kevin Thanks for the question IMAX, I am actually going to take that one.

Speaker Change: I just wanted to note that the cloud.

Mark J. Barrenechea: I just want to note that the cloud Renewal Rate We Publish is a gross measure of cancellation. It does not include the net impact of upsells or downturns. Now, our peers in the industry when you look across the larger cloud companies. Dolezal.

Mark J. Barrenechea: It does not include the net impact of Upsells or Dallas up or down.

Mark J. Barrenechea: Now our peers in the industry when you look across the larger cloud companies.

Mark J. Barrenechea: Thank you. Thank you, multi-billion dollar scale. They report it more like off-cloud, which includes the effect of upsells and downfills. So if we reported it this way in our cloud, and we didn't report it that way, we would be in the high 90s in Q3.

Mark J. Barrenechea: So.

Mark J. Barrenechea: They.

Mark J. Barrenechea: They report.

Mark Barrenechea: Great, thanks a lot guys, I'll pass the line.

Mark J. Barrenechea: More like off cloud.

Mark J. Barrenechea: Which includes the effect of Upsells and down cells. So if we reported this way in our cloud and we don't report that way.

Thanos Moschopoulos: The next question, from some Thanos Moschopoulos, of BMO Capital Markets, please go ahead. Hi, good afternoon.

Speaker Change: We would be in the high nineties and Q3. So you can expect us kicking off F. 'twenty five that we want to kind of align to the industry.

Mark J. Barrenechea: So you can expect us, you know, kicking off F-25, that we want to kind of align with the industry. This is just, don't make it just a gross cancellation rate, which it is today. You need the effects, plus or minus, of upsells and downfills.

Thanos Moschopoulos: A couple of firm adieu and happy birthday, by the way. Thank you. Medieu, can you, can you remind us of your thoughts on target leverage? So after you gave down the two billion, how high or not, might you take leverage up again for future M&A? Yeah, absolutely. Perhaps I'll answer the question with respect to what we said on where we're targeting for M&A, right? Cloud, ARR, small to medium sizes, right? So being under, under three, pretty imminently, I do think we will come back to around the three-ish.

Mark J. Barrenechea: You need the effects plus or minus of Upsells and down cells. So the industry reports that way, we report that way on off cloud like the industry does but if we report that way we'd be 998. So.

Kevin Krishnaratne: So the industry reports that way. We report that way on off-cloud, like the industry does. But if we reported it that way, we'd be in the high 90s. So we're going to align to those new metrics starting in 25. And we'll continue to share insights along the way.

Kevin Krishnaratne: So we're going to align to those new metrics starting in 'twenty five.

Kevin Krishnaratne: Okay, good stuff. That's super helpful.

Speaker Change: Okay. Good stuff, that's super helpful and the other one that I have is just on the on the updated guidance for 'twenty four.

Kevin Krishnaratne: The other one that I have is just on the updated guidance for 24. You know, when you look at the license growth and the customer support growth, they come down. I know that some of that is related to the AMC divestiture, but I have a couple questions. One, can you just remind us of what the mix is for AMC in terms of license versus customer support? And then second, just looking at the business excluding AMC, are there any changes there in your views on your ability to, you know, land the high number of bookings for license revenue that typically falls in Q form?

Thanos Moschopoulos: Our M&A, the capital allocation program, as you saw, and they primarily would refer to dividend and buybacks. But the second bucket is really the domain of the 50% is M&A. So at the moment, I think with a 6.5 billion of debt, our own cash flows, the strategy around the acquisitions being small to mid, I think expect to remain around the three times. And the last thing I'd say is the strategy around the small to mid cloud M&A is about those assets contributing to growth in the future, right?

Kevin Krishnaratne: When you look at the license growth in the customer support growth they come down I know I know that some of that is related to two the A&P divestiture, maybe a couple of quick questions. One can you just remind us of what the mix is for AMC in terms of.

Kevin Krishnaratne: License versus customer support and then second just looking at your business. Excluding AMC is there any changes there on your views on your ability to.

Kevin Krishnaratne: Just wondering if everything is sort of the status quo when you were looking at Q2 versus, you know, the business today in terms of just the health of the business excluding AMC.

Thanos Moschopoulos: That also is going to again contribute to our free cash flow target of 1.2 to 1.3 for fiscal 27. So again, that's how we're seeing it at this point in terms of M&A and your leverage. Great. And just a point of clarification, the transition services agreements related to AMC, is that neutral to margins? Yes, yes, that is neutral to margins. I mean, at this point. Great.

Kevin Krishnaratne: You're looking at when you were looking at Q2 versus the.

Kevin Krishnaratne: The business today in terms of just to.

Kevin Krishnaratne: The health of the business excluding AMC.

Madhu Ranganathan: Yeah, so I'll take the first one on the AMC components of revenue. We've shared this before. Cloud is still very small, or zero from an AMC perspective. And PS is small, so it's predominantly license and customer support.

Madhu Ranganathan: She had this before cloud is still very small.

Speaker Change: Zero from an AMC perspective.

Mark Barrenechea: And then finally, maybe one for Mark. Just in terms of micro focus outside of the AMC business. It seems like it's stabilizing based on the times you disclosure, but commentary there in terms of how close you are to that, returning to organic growth, how much work. We may not leak you down that regard. Yes, sounds great. Thanks, Thanos. And thanks for the question.

Madhu Ranganathan: Got it. What's the mix, though, between the license and customer support? Between the license and customer support, I'm not sure.

Speaker Change: Got it.

Madhu Ranganathan: What's the mix, though between the license and customer support license customer support I'm not sure we've shared that.

Madhu Ranganathan: Licensing and Customer Support. So it is in our 305 filing, I believe. So you can certainly take a look at that. We can follow up offline. Yeah, and we can actually follow up offline. Oh, yeah, I'll take a look. Yeah, so it's predominantly licensing and customer support given zero cloud and a very small PS.

Madhu Ranganathan: But.

Madhu Ranganathan:

Madhu Ranganathan: So it is in a three or five filing I believe so you can see you can need is suddenly take a look at that we can follow up and we can actually offline. Okay got it yeah. So it's predominantly licensed and customer support given sito cloud and very small P. F. I presume that those sports larger than life support would be larger than the license yet and I think when you're a second piece in terms of <unk>.

Mark Barrenechea: Yeah, we expect micro focus to return organic growth. Fisher, and we're also doing extremely well on the renewal side. Micro focus was in the high 80s and Q3, our best rate since the acquisition and will be in high 80s again this quarter, which is great news. We're now focused on the three big businesses, right, ITAM, which is digital operations and service management. We're focused on the developer and of course security, right, which are the three big businesses there.

Madhu Ranganathan: I presume that the support is larger than the license. The support would be larger than the license, yes. And on your second piece, in terms of Q4, what are we assuming as far as the license business goes?

Unknown Executive: Thank you.

Kevin Krishnaratne: The next question comes from Kevin Krishnaratne, let's close it back. Please go ahead.

Madhu Ranganathan: Q4, what are you assuming as far as the license business goes is that to your second question.

Kevin Krishnaratne: Is that your second question? Correct. Yep, that's it. Yeah. So Mark, you... No, I'm sorry, please.

Kevin Krishnaratne: Correct, Yeah, that's it yes.

Speaker Change: So mark you know Im sorry, yes, so the Q4 from a license perspective, both micro focus on open text are behaving quite similarly, if you actually look at about 18 months ago. When they had a completely different year end quarter end et cetera, as part of integration. We have set a synergize the compensation plan. The regional focus all of that I believe we are there.

Madhu Ranganathan: Yeah, so the Q4, from a licensed perspective, look, both Microfocus and Open Text are behaving quite similarly, right? If you actually look at about 18 months ago, when they had a completely different year-end, quarter-end, et cetera, as part of integration, we've sort of synergized the compensation plan, the regional focus, all of that. So I believe we are there. So expect the general business strength and focus for open tax and, of course, for micro-focus now, XAMC, to be quite consistent. Yeah, I mean, they're on the mothership cadence at Open Text, right? So they're well aligned to the end of our fiscal year and will be well aligned to our kickoff July 1.

Madhu Ranganathan: Sure.

Madhu Ranganathan: So expect that general business strengthened focus far open text and of course, the micro focus now ex AMC and to be quite consistent yes.

Kevin Krishnaratne: Hey, good evening. Just a couple of smaller ones for me. I noticed in the deck at the cloud renewal rates in down 92% from the 93%. I'm just wondering what happened there and is that ramp back up in Q4? Yeah, thanks. Kevin, thanks for the question. I'm actually going to take that one. I just want to note that the cloud renewal rate we publish is a gross measure of cancellation only. It does not include the net impact of upsells or downsells.

Madhu Ranganathan: The <unk> Tom.

Madhu Ranganathan: The mothership cadence that open text right. So.

Madhu Ranganathan: They are well aligned to the end of our fiscal year and well aligned to our kick off July one.

Kevin Krishnaratne: Great, thanks a lot. I'll pass the line. Thank you. Yeah, thank you, Kevin. The next question is from Stephanie Price of Cibc. Please go ahead. Hi, good evening, and happy birthday.

Madhu Ranganathan: Great.

Speaker Change: Thanks, a lot I'll pass the line. Thank you.

Stephanie Doris Price: The next question comes from Stephanie Price of CIBC. Please go ahead. Hi, good evening, and happy birthday, Madhu. Thank you, Stephanie.

Kevin Krishnaratne: Now our peers in the industry, when you look across the larger cloud companies, those of multi-billion dollar scale, they report more like off cloud, which includes the effect of upsells and downsells. So if we reported this way in our cloud and we don't report that way, we would be in the high 90s in Q3. So you can expect us kicking off F-25 that we want to kind of align to the industry.

Stephanie Doris Price: Thank you Stephanie.

Stephanie Doris Price: I was hoping you could talk a little bit about the microfocus cost savings realization have there been any surprises in the process and how should we think about the quantity quantify that micro integration on the fiscal 'twenty five adjusted EBITA margin outlook.

Madhu Ranganathan: Yeah, so it's actually gone very well, and I would say from a supply perspective, it's gone as we expected when we did the diligence and when we formulated the plan. Now Micro Focus, as I mentioned, is very much on track being on the open text operating model from an adjusted EBITDA perspective. Again, EBITDA is impacted obviously by us reducing the churn and returning micro focus to organic growth. But from an expense standpoint, we've continued to optimize Mark's earlier comments about applying AI internally, whether it's micro focus or open text as one environment. But beyond that, I would say our design plan, whether we hit the facilities or the vendors or other just pure operating excellence, we've pretty much been very much on target. Thanks.

Stephanie Doris Price: Yes.

Speaker Change: It's actually gone very well and.

Madhu Ranganathan: It's I would say from a supply perspective, it's gone as we expected when we did the diligence and when we formulated the plan.

Madhu Ranganathan: Now micro focus as I mentioned.

Madhu Ranganathan: He is.

Kevin Krishnaratne: This is just don't make it just a gross cancellation rate, which it is today. You need the effect plus or minus of upsells and downsells. So the industry reports that way. We report that way on off cloud like the industry does. But if we report that way, we'd be in the high 90s. So we're going to align to those new metrics starting in 25. And we'll continue to share insights along the way. Okay, good stuff. That's super helpful.

Madhu Ranganathan: The other one that I have is just on the updated guidance for 24. You know, when you look at the license growth and the customer support growth, they come down. I know that some of that is related to the AMC, the vestiger. Maybe a couple of questions. One, can you just remind us of what the mix is for AMC in terms of license versus customer support. And then second, just looking at your business, excluding AMC.

Madhu Ranganathan: We've pretty much been very much on target.

Stephanie Doris Price: And then maybe another one for you, Madhu, just on the cost of cloud services line. It seems to be taking off here. Wondering how we should think about the prices. Yeah, absolutely.

Madhu Ranganathan: Again, I'll speak to the cost side, and certainly Mark can chime in more from our environment and platform perspective. Look, it's really driven by the, I mean, as we said, our second strong data point is the 53% cloud bookings growth in the third quarter, and second quarter was over 60%.

Madhu Ranganathan: Yes, absolutely again, I'll speak to the cost side and Mark can chime in water environment and platform perspective look it's really driven by that I mean, as we said a second strong data point is at 53% cloud bookings growth in the third quarter and second quarter was.

Madhu Ranganathan: Is there any changes there on your views on your ability to, you know, land that the high number of booking for license revenue that typically falls in Q form, just wondering if if everything is sort of the status quo of what you're looking at when you were looking at Q2 versus, you know, the business today in terms of just the help of the business, excluding AMC. Yeah, so I'll take the first one on the AMC components of revenue.

Madhu Ranganathan: With over 60% if you take the prior four to six quarters. There was healthy growth, but this is a very strong second data point and we are realizing that to continue to keep up with that momentum and we've upped our ranges in the future as well, we do need to invest in the investments are primarily internal cloud infrastructure investment.

Madhu Ranganathan: If you take the prior four to six quarters, there was healthy growth, but this is a very strong second data point. And we are realizing that to continue to keep up with that momentum, and we've upped our ranges, in the future as well, we do need to invest. And the investments are primarily internal cloud infrastructure investments; investments are with our partners and high-scalers. And there is a ramp, but there is a fair amount of cost.

Madhu Ranganathan: We've shared this before. Cloud is still very small or zero from an AMC perspective, and PS is small. So it's predominantly license and customer support. God, is it what's the mix between the license and customer support? The license and customer support. I'm not sure we've shared that, I'm just, so it is in a 305 filing, I believe, so you can see you can need to certainly take a look at that. And we can actually go offline.

Madhu Ranganathan: Yeah, so it's predominantly license and customer support given zero cloud and very small P.S. Yeah, I presume that the support larger than the license. Yeah, and I think on your second piece in terms of Q4, what are we assuming as far as the license business goes, is that your second question? Correct. Yeah, yeah, yeah. So Mark, you, I'm sorry. Yeah, so the Q4 from a license perspective, look, both microphones focus and open text are behaving quite similarly, right?

Madhu Ranganathan: In the past, Markers outlined in the calls about just the growing list of compliance and certifications, including security, that we have to do for our cloud business and are happy to do so, but that does require a certain amount of earlier investments. Maybe you'll add one of the comments.

Madhu Ranganathan: There was an earlier question about margins in fiscal 27. These investments at scale will optimize themselves so that we have higher benefit when we look at 27, right? So these are not linear investments. They are certainly a step function.

Madhu Ranganathan: In fiscal 'twenty seven these investments at scale will will optimize themselves. So that we have higher benefit when we look at 'twenty seven right. So these are not lenient investment definitely a step function investment.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Mark J. Barrenechea: I will now hand the call back over to Mr. Barrenechea for his closing remarks.

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

Mark J. Barrenechea: Very good. Well, let me thank everyone for joining us today. As you can see, we're extremely excited about our cloud and AI path ahead of us.

Barrenechea: Very good well, let me thank everyone for joining us today.

Mark J. Barrenechea: And Madhu, happy birthday. Thank you. And thank you all for joining us today. That ends.

Barrenechea: As you can see were.

Mark J. Barrenechea: <unk> really excited about our cloud and AI path in front of us.

Madhu Ranganathan: If you actually look at about 18 months ago, when they had a completely different year and quarter and et cetera, as part of integration, we've sort of synergized the compensation plan, the regional focus, all of that. So I believe we are there. So expect a general business strength and focus for open text. And of course, for micro focus now, XAMC and to be quite consistent. Yeah, I mean, the, the item security and developer business units are on the mothership cadence that open text. Right. So they're well aligned to the end of our fiscal year and you'll be well aligned to our kickoff July one.

Mark J. Barrenechea: In today's call.

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

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

Operator: Yeah.

Operator: [music].

Mark Barrenechea: Great. Thanks a lot, I'll pass one. Thank you.

Stephanie Price: Yeah, thank you, given. The next question comes from Stephanie Price of CIBC. Please go ahead.

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Unnamed: Yeah.

Madhu Ranganathan: Hi, good evening and happy birthday, Medoo. Thank you, Stephanie. I was hoping you could talk a little bit about the micro focus, cost savings, realization. Have there been any surprises in the process? And how should we think about the quantity, quantify the micro integration on the fiscal 25 adjusted EBITDA margin outlook? Yeah, so it actually gone very well. And it's I would say from a supply perspective, it's gone as we expected when we did the diligence and when we formulated the plan.

Unnamed: Yeah.

Unnamed: Yeah.

Madhu Ranganathan: Now micro focus, as I mentioned, is very much on track being on the open text operating model from an adjusted from an adjusted EBITDA perspective. Again, the EBITDA has impacted obviously by us reducing the churn and the turning micro focus to organic growth. But from an expense standpoint, we'll continue to optimize to max earlier comments about applying AI internally, whether it's micro focus or open text is one environment. But beyond that, I would say our design plan, whether we hit their facilities or the vendors or other just the pure operating excellence. We've pretty much been very much on target. Okay, thanks.

Unnamed: Yeah.

Unnamed: Yeah.

Madhu Ranganathan: And then maybe another one for you, Medoo, just on the cost of cloud services line, it seems to be taking up here. Wondering how we should think about the puts and takes? Yeah, absolutely. Again, I'll speak to the cost side and certainly mark and chime in more from an environment and platform perspective. Look, it's really driven by the, I mean, as we said, our second strong data point is the 53% cloud booking growth in the third quarter.

Madhu Ranganathan: And second quarter was over 60%. If you take the prior four to six quarters, there was healthy growth, but this is a very strong second data point. And we are realizing that you continue to keep up with that momentum and we've upped our ranges in the future as well. We do need to invest and the investments are primarily internal cloud infrastructure investments. Investments are with our partners and our scalers. And there is a ramp, but there is a fair amount of cost.

Madhu Ranganathan: And in the past, Mark has outlined in the calls about just the growing list of compliance and certifications, including security that we have to do for our cloud business and happy to do so. But that does require a certain amount of earlier investments. Maybe I'll add one of the common, there was an earlier question about margin in fiscal 27. These investments at scale will, will optimize themselves for that. We have higher benefit when we look at 27, right? So these are not linear investments. They are certainly a step function investment.

Madhu Ranganathan: Great. Thank you.

Mark Barrenechea: I will now hand the call back over to Mr. Barrenechea for closing your marks. Very good.

Operator: Well, let me thank everyone for joining us today. As you can see, we're extremely excited about our cloud and AI path in front of us. And Madhu, happy birthday. And thank you all for joining us today. That ends today's call. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.