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 a conference call, they may signal an operator by pressing star then zero on their telephone. I would like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. Please go ahead.

Thank you for standing by this is the conference operator.

Harry Edward Blount: Come 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: They joined the question simply press Star then one on your Touchtone phone.

Speaker Change: Does 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 Tse Barrenechea, and Open Text's President, Chief Financial Officer, and 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.

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

Harry Edward Blount: Earlier today, we posted our press release and Investor presentation online.

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's Software Conference on May 30th in Newport Beach, and Bank of America Global Tech Conference on June 6th in San Francisco.

Harry Edward Blount: These materials will supplement our prepared remarks and can be accessed on the open text Investor Relations website investors Dot open text dot com.

Harry Edward Blount: Im 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.

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

Harry Edward Blount: CIBC technology and innovation conference on May 22nd in Toronto Jefferies Software Conference on May 30 in Newport Coast and Bank of America Global Tech Conference on June six in San Francisco and.

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.

Harry Edward Blount: 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: <unk> 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: 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 cloud business, AI and business technology, and we see proof points of this is 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.

Mark J. Barrenechea: 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 the form of dividends and share buybacks, and 50% for Cloud M&A.

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% to 4%.

Mark J. Barrenechea: Total organic growth and 1% to 2% M&A growth.

Mark J. Barrenechea: For cash flows at 20% plus of revenues and a 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.

Mark J. Barrenechea: 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: 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.

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. 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: You'll see in our investor deck today, our four point 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.

Mark J. Barrenechea: Simply said an open text are always putting 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.

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 <unk>, 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.

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 platforms 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.

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.

Mark J. Barrenechea: We're all software companies today, and we're rapidly adding IoT and AI capabilities. We see two huge opportunities for 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: <unk> two our cloud editions and second to grow our aviator thrift offerings.

Mark J. Barrenechea: We officially introduced TitaniumX 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 J. Barrenechea: We demonstrated our latest aviator technology with cloud editions 24 DUC too.

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: College worker can gain with leap learning models applied to information 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 pick and 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 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, such as Nationwide, Carl Zeiss, Uniper, Frottomei, and Critio, at the event. 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 is $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 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 yeah. 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 over time. It is a combination of margin expansion, more technology enablement, elimination of integration expense, and a reduction in the interest burden that is the path to our free cash flow aspiration. [inaudible] Disciplined Capital Allocation We expect to pay down our debt on May 6th by $2 billion U.S., 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 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 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 at 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 J. Barrenechea: 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 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 month 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 J. Barrenechea: We are 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.

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: 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. 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: Cloud bookings of $165 million up 53% year over year, we 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 customers are increasing their commitments for long term durations with Ram.

Mark J. Barrenechea: <unk> 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. We had 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.

Mark J. Barrenechea: <unk> just had fantastic wins at Akamai definitely shell Tyson foods, B E systems and man.

Mark J. Barrenechea: For a 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 $5.7 billion to $5.795 billion and free 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 AMC business.

Mark J. Barrenechea: Paul 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 7%.

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 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. Excluding our tax payment from divestiture, our free cash flow would be growing again year over year. Madhu will talk more about this.

Mark J. Barrenechea: And again, a return of capital between $450 million and $500 million. 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 ramp-up. This is driven by industry trends and our strong multi-year roadmap of capabilities. This is positive news.

Mark J. Barrenechea: Customers are increasing their commitments to Open Text for a longer duration. 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. 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. Well, let me wrap up and thank you for joining us today, and let me conclude my remarks where I started.

Mark J. Barrenechea: The strategic value of Open Text to our customers has 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 the 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 to per quartile adjusted EBITDA margins and growing free cash flows with a very strong balance sheet.

Mark J. 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 on 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 value.

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.

Mark J. Barrenechea: 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. Let me turn the call over to Madhu, but before I do, I want to wish Madhu a very happy birthday. Thank you.

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 discussed our Q3 results and let me share some additional comments. During the call, I will refer to the inductor presentation posted on our IR website.

Madhu Ranganathan: 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. For example, 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. Q3 ARR, Annual Recurring Revenue, of $1.146 billion, up 13.3% and 13.1% in constant currency.

Madhu Ranganathan: 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 relate to the broader acquisition of Micro Focus, driving Gap EPS of $0.36.

Madhu Ranganathan: Gap gross margin of 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, which was up 28.8% and the same in constant currency.

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 31st was 3.8 times.

Madhu Ranganathan: With the successful completion of the AMC divestiture, we have provided notice of our intent to prepay $1,060,000,000 of the acquisition term loan, as well as to prepay in full the $940,000,000 outstanding principal balance of term loan B. That is a total of $2 billion debt repayment 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.

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: Yesterday, after we announced the destruction of the completion of AMC's 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 your comparisons are active. Please also refer to slide 32.

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 30th, 2024, we're 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: 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: 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 currencies provided on page 38. So, building on my prior comments, the target model ranges for Fiscal 24 reflect only 10 months of contribution from ANWR.

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 of 6% to 8%. Enterprise cloud bookings growing 33% to 38% Annual recurring revenue up 23.5% to 25.5%.

Madhu Ranganathan: 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. 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.

Madhu Ranganathan: 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 now have increased our expected growth in cloud baking 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: 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 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 $575 to 650 million range and include a one-time tax payment of $250 million relating to the gain on the AMC divestiture.

Madhu Ranganathan: Without the tax payment, FCF and fiscal 25 would 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 flow.

Madhu Ranganathan: 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: The following key improvements in fiscal 27 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 down approximately 30, 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: With all of this, we expect continuous future year-over-year growth in free cash. So, in summary, when we talk about the Open Tech financial profile, investors should think about a mid-single-digit growing software company led by cloud revenue growth plus small to mid-cloud MNA. Shareholders can expect us to complete MNA transactions in the coming year. 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 flows of 20% plus of revenues in fiscal 'twenty.

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.

Madhu Ranganathan: Seven.

Madhu Ranganathan: On behalf of open text I would like to thank our shareholders, our loyal customers and partners and to all of 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 and then 1 on their touchtone telephone to join the question queue. You will hear a tone acknowledging your request. If you are using a speakerphone, please ensure you lift the handset before pressing any key.

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

Operator: Anyone who wishes to ask a question maybe for instance, arms and one on your Touchtone telephone.

Operator: Join the question queue.

Operator: You will hear it sort of acknowledging your request.

Operator: If youre using a speakerphone. Please ensure you lift your handset before pressing any keys, if you wish to remove yourself from the question queue. You May Press Star then two.

Operator: 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.

Operator: And you wanted to ask a question press Star then one at this time.

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 pushout of the midterm aspiration for fiscal 'twenty six months of fiscal 2007. It 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 outer year, rather the pulling forward.

Mark J. Barrenechea: Dan, Mark here, and thanks for the question. 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 strong multi-year roadmaps. 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.

Mark J. Barrenechea: Yeah Dan.

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

Speaker Change: 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 multi year roadmaps.

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

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

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

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

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: 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 and a half percent 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.

Mark J. Barrenechea: 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 divestments, 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.

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: It is going to come from additional expenses from AMC divestment. Thank you.

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

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

Madhu Ranganathan: 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 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.

Speaker Change: Thank you.

Speaker Change: Yeah. Thank you.

Operator: The next question comes from Steve Enders of Citi. Please go ahead.

Madhu Ranganathan: The next question comes from Steve <unk> 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, Madhu. Thank you.

Operator: Thanks for taking the question. This is George on for Steve and Congrats on a great quarter a lot going on.

George: Maybe just.

Mark J. Barrenechea: Just to start, the cloud bookings number, you know, the second really impressive growth number. Obviously impacted by duration, and you 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: Just to start.

George: The cloud bookings number in a second I'm really impressive growth remember.

Mark J. Barrenechea: Obviously impacted by duration.

Mark J. Barrenechea: You bumped up your long term target to 20%, maybe you could just help us kind of tease apart.

Mark J. Barrenechea: Bumping that up how much of that is kind of the underlying strength versus what you're seeing on the duration side.

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 Transpatient 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, George 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.

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: 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.

Mark J. Barrenechea: <unk>.

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

Mark J. Barrenechea: Got it, that makes sense. And I wanted to ask about what you're seeing from customers in terms of 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 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.

Speaker Change: Got it that makes sense.

Mark J. Barrenechea: 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 their journey of making.

Mark J. Barrenechea: Those preparations and you think about kind of a leading edge versus more of the medium customer.

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: Yes.

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

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

Mark J. Barrenechea: It's in every discussion and it's real.

Mark J. Barrenechea: We are... At some customers, they are exploring vision. We have other customers piloting some of the strength of the larger, longer, with ramped cloud contracts. 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. Fragmented systems and fragmented data. So there's some pre-work involved.

Mark J. Barrenechea: We are in.

Mark J. Barrenechea: And some customers they are.

Mark J. Barrenechea: <unk> 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 and 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.

Mark J. Barrenechea: You don't want to you don't want to go through all the spend on.

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: 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. We are. 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. Great.

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

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

Mark J. Barrenechea: Into production.

Operator: Great, thanks for taking the questions.

Speaker Change: Great. Thanks for taking the questions.

Speaker Change: Yes, Thank you George.

Operator: Okay.

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

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

Mark J. Barrenechea: 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've typically deployed it at in the past?

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

Mark J. Barrenechea: First question 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 the valuations that you would consider deploying capital.

Mark J. Barrenechea: 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 are.

Mark J. Barrenechea: We're going to continue to seek value and organic growth. It's all about the future right. 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: All future oriented.

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

Mark J. Barrenechea: We're not seeking license businesses.

Mark J. Barrenechea: And these are businesses. If you if you think of our learnings from the past, which are interesting, but not or not.

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

Madhu Ranganathan: 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, right, on a call. But we're going to seek small to medium-sized companies, value-oriented, that can leverage our operating discipline, our general distribution, and the very large scale of the cloud operational scale. Can we do anything you'd like to add to that?

Madhu Ranganathan: And our operator and our licensed scale of the 80 license acquisitions, we did.

Madhu Ranganathan: We now have close to a $2 billion cloud platform.

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

Madhu Ranganathan: The general operating synergies of acquiring company, 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 remain value value oriented I'm not here to put multiples out on a call.

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

Speaker Change: Value oriented that can leverage our.

Madhu Ranganathan: Operating discipline, our general distribution and the very large cloud operation cloud operational scale, we do anything you'd like to add to that.

Mark J. Barrenechea: And thank you Mark, I'm completely aligned and, as I said, looking forward to putting these assets in motion.

Speaker Change: Putting these assets in motion.

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

Speaker Change: And expect us to close multiple transactions over the next 12 months.

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

Speaker Change: And thanks.

Mark J. Barrenechea: Thanks.

Paul Michael Treiber: Second question is just on like longer term free cash flow conversion you mentioned a couple of drivers that will help improve it.

Speaker Change: But what do you see like how do you rank them in terms of the most material one.

Paul Michael Treiber: Youll see executing on in the near term to drive it up.

Speaker Change: Yeah, I'll pick that up colonoscopy chime in look I think first of all all the.

Madhu Ranganathan: 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?

Madhu Ranganathan: 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 in 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 going to contribute to just a little bit of margin expansion. But built in there, we also think the investments we're making in the cloud, which we are making predominant in 24, also 25, will pay higher returns when we get to 27, so expect cloud gross margin without giving quantitative ranges to also improve between now and then.

Madhu Ranganathan: Without giving quantitative ranges to also improve between now and then and that's gonna help adjusted EBITDA margin.

Madhu Ranganathan: And that's going to help adjust EBITDA margin. And certainly from a free cash flow perspective, the interest savings we are getting from de-levering are going to sustain themselves then. As I 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.

Madhu Ranganathan: And certainly from a free cash flow perspective, the interest savings we are getting from Delevering is going to sustain itself. Then I've 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 it operator.

Mark J. Barrenechea: But built into all of this, I will say at our greater scale in 27, we are going to get efficiency through automation AI within open text. 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 this plan across the company with respect to AI. Mark, anything to add? Yeah, sure. And thank you, Madhu.

Mark J. Barrenechea: Scale in 2007.

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

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

Mark: Mark anything to add yeah sure. Thank you Madhu.

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 as our new CDO and CIO.

Mark J. Barrenechea: With Todd leading up.

Mark J. Barrenechea: Our entire sales force.

Mark J. Barrenechea: PFS and support and we do taking on more operations that is freeing my time up.

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 <unk>, our new CTO and CIO and I just want to double click on the.

Mark J. Barrenechea: And I just want to double click on 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 pre-sales. We see opportunities in generated code, as we do highlight it in Athena. We're going to have a new approach to full digital renewals, so it's a new day for 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: <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.

Mark J. Barrenechea: Then go architect we see opportunities in pre sales, we see opportunities and generated code as we do highlight at what Athena.

Mark J. Barrenechea: We're going to have a new approach to full digital renewals.

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.

Mark J. Barrenechea: Okay.

Speaker Change: Thanks for taking the questions.

Speaker Change: Thank you.

Mark J. Barrenechea: Okay.

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

Mark J. Barrenechea: The next question comes from some months Simona of Jefferies. Please go ahead.

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

Operator: Hi, everyone. This is Billy Fitzsimmons for some odd from Jefferies last quarter, you both talked about strength in the large enterprise, but maybe some potential weakness in SMB, which which informed the guide it sounds like the enterprise strength continued but any changes there quarter over quarter in terms of the SMB market and then what did the <unk>.

Madhu Ranganathan: 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 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: You guide assume in terms of macro and obviously, it's still very early but what did you assume around macro would putting together that initial fiscal 2025 guide.

Mark J. Barrenechea: Yeah, let me take the first part. Thanks for the question on SMB. Look, we're expecting an SMB uptick in fiscal 2020. We have Microsoft, who's obviously our largest ecosystem partner here, pushing the whole-end 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 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 US-based SMB platform.

Speaker Change: Yeah, Let me take the first part thanks for the question on SMB, but we're we're expecting an SMB uptick in fiscal 'twenty five.

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

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

Mark J. Barrenechea: We're also seeing higher partner engagement right now, especially with Cloud Edition's 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 outlawed. Can we do anything we want to shout down on Q4 macro? Yep.

Mark J. Barrenechea: We're also seeing higher partner engagement right now, especially with cloud editions 24, dot too and what's coming in El Dorado. We're also seeing some churn.

Mark J. Barrenechea: We've had some modest headwinds.

Mark J. Barrenechea: But we see it now back on an uptick starting in Q1.

Mark J. Barrenechea: The things I just outlined.

Mark J. Barrenechea: If 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. 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.

Madhu Ranganathan: And as you know we have a very global business.

Madhu Ranganathan: And 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 Andy and the FX impact as I outlined in my commentary.

Madhu Ranganathan: We're 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 the currencies and of course it is improvement that our customers in those regions, but also feel better about buying.

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

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 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.

Speaker Change: Super helpful. And then if I if I can 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 aviators, helping open text to win now and given what you've seen with it but get your weeks program, maybe you could share some anecdote.

Billy Fitzsimmons: So just general feedback from early customers, who have adopted or trading solutions.

Mark J. Barrenechea: Yeah, I'm very happy to, 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. I encourage everyone to watch them because seeing is believing.

Mark: Yes, very happy to Eni.

Mark J. Barrenechea: <unk>, 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 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.

Mark J. Barrenechea: That was the centerpiece of our demonstrations in Europe, two weeks ago, and I, just I encourage everyone to watch it casinos, believing and we had thousands of people across.

Mark J. Barrenechea: And we had thousands of people across London, Munich, Paris; 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: Unit parishes 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.

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 just think seeing is believing. Go check out the video. And the demonstration was live. It was our, it's our shipping product. It's published NTSB data.

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

Mark J. Barrenechea: The demonstration was live it was our it's our shipping product.

Mark J. Barrenechea: Published NTSB data.

Mark J. Barrenechea: 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 is expecting invoices, a large manufacturer is 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 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: It was literally as pressing a button so look everyone saw that.

Mark J. Barrenechea: You can see our every 90 day progress so.

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

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 the content management, the digital folders to search to meta data now. This is the next progression in the evolution of knowledge management to bring in a language model.

Operator: Super helpful. Thank you for both very much. Thank you.

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

Operator: Go watch the demo.

Operator: And draw your own conclusions.

Operator: Super helpful. Thank you for both very much.

Speaker Change: Thank you. Thank you.

Operator: Yeah.

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

Speaker Change: The next question comes from the tier Cadby.

Adhir Kadve: Eight capital. Please go ahead.

Mark J. Barrenechea: 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 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 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.

Mark J. Barrenechea: Some 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 J. Barrenechea: 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 Tech covering every major theater in the global 10,000 are putting in place our Earn Your Wings program across that breadth. And, you know, 10. Our first aviator.

Mark J. Barrenechea: Yeah, a great question 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 J. Barrenechea: Putting in place our earn your wings program across that breadth.

Mark J. Barrenechea: And.

Mark J. Barrenechea: Our first aviator.

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 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 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. But 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's 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 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 were not factoring that in yet.

Mark J. Barrenechea: 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 suite play into all of your cloud growth aspirations.

Speaker Change: Okay, Great and of course, all the talk about how it is great to hear my second question will 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, right? We've always followed big data at Open... whether it be contracts, whether it be employees, whether it be invoices. And 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 of 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 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 data sets for us.

Mark J. Barrenechea: Data and service data.

Mark J. Barrenechea: So we really like having.

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 won't reach our full potential unless we can open up the developer community. If you look at how Oracle became Oracle, Microsoft became Microsoft, 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 service, 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 because we're focusing the ADM organization on large-scale software developers in the auto industry. Financial Services, banking, biotech, and health care. So we're quite, I'll just shout out those two as places we're very excited about.

Mark J. Barrenechea: If you look how Oracle became Oracle, Microsoft became Microsoft SAP SAP.

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

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

Mark J. Barrenechea: I'll just shout out those two as places we're very excited about.

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

Speaker Change: Great. Thanks, a lot guys. So pest line.

Adhir Kadve: Okay.

Adhir Kadve: Okay.

Operator: 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?

Thanos Moschopoulos: Hi, good afternoon.

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 make 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: Yeah, absolutely, perhaps I'll answer the question with respect to what we said on where we are targeting for M&A right.

Madhu Ranganathan: Cloud <unk> are small to medium sizes, right, so being under under three pretty imminently.

Madhu Ranganathan: I do think we will come back to around three ish.

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

Madhu Ranganathan: Second bucket is really the remainder the 50% is M&A. So at the moment I think with the $6 5 billion of debt our own cash flows the strategy around.

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.

Madhu Ranganathan: The acquisitions being small to mid I think I think we expect it to remain around 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 that also is going to again contribute to our free cash flow target of one two to $1 80 for fiscal 'twenty seven.

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

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

Speaker Change: Great and.

Speaker Change: Just a point of clarification.

Madhu Ranganathan: Brooklyn to AMC is that neutral to margins.

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

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: Yes, sounds great. Thanks, Thanos, and thanks for the question.

Mark: Yes, it sounds great. Thanks, Dino so thanks for the question.

Mark J. Barrenechea: Yeah, we expect Micro Focus to return organic growth, and we're also doing extremely well on the renewal side. 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 with the divestiture of the mainframe, we're now focused on the three big businesses. ITOM, which is digital operations and service management, we're focused on the developer, and, of course, security, which are the three big businesses.

Mark: Yes, we expect micro focus to return organic growth this year.

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 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: Yeah.

Speaker Change: Great I'll pass along thanks. Thank.

Speaker Change: Thank you. Thank you.

Mark J. Barrenechea: Okay.

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

Speaker Change: The next question comes from Kevin Krishna Rodney <unk> of Scotiabank. Please go ahead.

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 smaller ones for me I noticed in the deck.

Kevin Krishnaratne: Cloud renewal rates inched down 92% from 93% I'm just wondering what happened there.

Kevin Krishnaratne: That ramp back up in Q4.

Mark J. Barrenechea: Yeah, thanks. Thanks for the question. I'm actually I'm actually going to take that one.

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 downsells. Now, our peers in the industry when you look across the larger cloud companies. [inaudible] on a multi-billion dollar scale.

Speaker Change: Renewal rate, we publish as a gross measure of cancellation only.

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

Mark J. Barrenechea: Those are multibillion dollar scale.

Mark J. Barrenechea:

Mark J. Barrenechea: They report more like off-cloud, which includes the effect of upsells and downsells. 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: They report a 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.

Mark J. Barrenechea: We would be in the high <unk> in 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 F25, 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 downsells.

Mark J. Barrenechea: 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.

Mark J. Barrenechea: 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.

Kevin Krishnaratne: 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. Maybe a couple of questions.

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 of 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: 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 Q4? I'm 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.

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 land.

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

Kevin Krishnaratne: The health of the business excluding empty.

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.

Speaker Change: Yeah, So I'll take the first one on the AMC components of revenue.

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

Madhu Ranganathan: Zero from an AMC perspective, and PFS, it's small so it's predominantly license and customer support.

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

Madhu Ranganathan: Got it.

Speaker Change: What's the mix, though between licensing customer support license customer support I'm not sure we've shared that.

Madhu Ranganathan: I'm not sure we've shared that, but 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. Yeah, I'll take a look. Yeah, so it's predominantly license and customer support given zero cloud and very small PS.

Madhu Ranganathan:

Madhu Ranganathan: Yeah. So it's predominantly licensed and customer support given sito cloud and very small tier and I presume that supports larger than life, it's upward would be larger than the license yet and I think when you're a second piece in terms of Q4, what are you assuming as far as the license business goes is that to your second question.

Madhu Ranganathan: I presume that the support is larger than the license cost. The support would be larger than the license cost, yes.

Madhu Ranganathan: 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. Yep, that's it. Yeah.

Madhu Ranganathan: Correct, Yeah, that's it yeah.

Madhu Ranganathan: Yeah.

Madhu Ranganathan: So Mark, in Q4 from a license perspective, both Micro Focus 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, etc. 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. The ITOM. Security and Developer Business are 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: So expect the general business strengthened focus far open text and of course, the micro focus now ex AMC and to be quite consistent.

Madhu Ranganathan: Security and developer business units are on.

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

Madhu Ranganathan: There 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. Yes. Thank you, Kevin. The next question comes 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: Thank you Kevin.

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

Stephanie Doris Price: Hi, good evening and happy birthday Madhu.

Operator: Thank you Stephanie.

Stephanie Doris Price: 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.

Stephanie Doris Price: Yeah, so it's actually gone very well, and I would say from a supply perspective, it went 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 to be 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, in line with 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: Now micro focus as I mentioned.

Stephanie Doris Price: He is very.

Stephanie Doris Price: We'll continue to optimize to marks earlier comments about applying AI internally, but it's Microsoft <unk> environment.

Stephanie Doris Price: But beyond that I would say our design plan, whether we hit the facilities or the vendors or other just the pure operating excellence.

Stephanie Doris Price: <unk> pretty much been very much on target.

Madhu Ranganathan: And then maybe another one for you, Madhu, just on the cost of cloud services. It seems to be taking off here. Wondering how we should think about the potential. Yeah, absolutely. Again, I'll speak to the cost side, and Mark can 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 bookings growth in the third quarter. And the second quarter was over 60%.

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

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 for the future as well, we do need to invest. And the investments are primarily internal cloud infrastructure investments; the investments are with our partners and hyperscalers. And there is a ramp, but there is a fair amount of cost.

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 investments.

Madhu Ranganathan: And there is a jam, but there is a fair amount of cost and in the past markets outlined in the call is about just the growing list of compliance 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 Elliott investments, maybe I'll add one other comment there was another question about <unk>.

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 we're happy to do so, but that does require a certain amount of earlier investments. Maybe I'll add one other comment.

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: Margins in fiscal 'twenty seven these investments at scale will will optimize themselves. So that we have higher benefit when we looked at 2007 right. So these are not lenient investments. They are certainly a step function investment.

Speaker Change: Thank you.

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

Paul Michael Duggan: 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. Madhu, happy birthday, and thank you all for joining us.

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

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

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Operator: Okay.

Operator: Yeah.

Operator: Yeah.