Q4 2024 Open Text Corp Earnings Call

Open Text Corp Open Text Corp

Speaker Change: Thank you for standing by. This is the conference operator. Welcome to the Open Text Corporation fourth quarter fiscal 2024 financial results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator: After the presentation, there will be an analyst Q&A session. To join the question queue, simply press star then one on your touchtone phone.

Speaker Change: After the presentation, there will be an analyst Q&A session. To join the question queue, simply press star, then 1 on your touch-tone phone.

Operator: Should anyone need assistance during the conference call, they may signal an operator by pressing star then zero on their telephone. I would now like to turn the conference over to Harry Blount, the Virtual Oppenheimer Technology Internet and Communications Conference on August 12th, Virtual Morgan Stanley NASDAQ Investor Asia Conference on August 20th and 21st, Deutsche Bank's Technology Conference on August 29th, and Citi's Global Technology Conference on September 5th in New York. And now on to our Safe Harbor Statement.

Should anyone need assistance during the conference call, they may signal an operator by pressing star then zero on their telephone. I would now like to turn the conference over to Harry Blount.

Harry Blount: Senior Vice President Investor Relations

Speaker Change: Please go ahead.

Speaker Change: Good afternoon, everyone, and welcome to Open Text's fourth quarter fiscal 2024 earnings call. With me on the call today are Open Text's Chief Executive Officer and Chief Technology Officer, Mark J. Barrenechea, and Open Text President, Chief Financial Officer and Corporate Development, Madhu Ranganathan.

Speaker Change: Also joining us are Todd Cione, President, Worldwide Sales, and Paul Duggan, President and Chief Customer Officer.

Speaker Change: Today's call is being webcast live and recorded with a replay available shortly thereafter on the Open Text Investor Relations website.

Speaker Change: Earlier today we posted our press release and investor presentations online. These materials will supplement our prepared remarks and can be accessed on the Open Text Investor Relations website, investors.opentext.com. I'm pleased to inform you that Open Text Management will be participating at the following conferences.

The Virtual Oppenheimer Technology Internet and Communications Conference on August 12th.

Speaker Change: Virtual Morgan Stanley NASDAQ Investor Asia Conference on August 20th and 21st, Deutsche Bank's Technology Conference on August 29th,

Operator: 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.

and Citi Global Technology Conference on September 5th in New York.

Speaker Change: And now on to our Safe Harbor Statement.

Harry Blount: During this call, we will make forward-looking statements relating to the future performance of Open Text.

Speaker Change: 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.

Speaker Change: Additional information about the material factors that could cause actual results to differ materially from such forward-looking statements.

Harry Blount: 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. We undertake no obligation to update these forward-looking statements unless required to do so by law.

Speaker Change: are contained in Open Text's recent Forms 10-K and 10-Q, as well as in our press release that was distributed earlier this afternoon, which may be found on our website. We undertake no obligation to update these forward-looking statements unless required to do so by law.

Harry 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 directly comparable GAAP measures may be found in our public filings and other materials, which are available on our website. And with that, I'm pleased to hand the call over to Mark.

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

Mark Barrenechea: Thank you, Harry, and thank you all for joining us today. We kick off Fiscal 25 with the launch of Open Text 3.0, Information Reimagined. Simply put, our vision is to be the best information management company in the world, and our strong belief is that information elevates every individual and organization to be their best. We're very excited about our market today and the significant opportunities directly in front of us. I'll speak to our Q4 results and outlook in a moment, but I want to start today's call by clearly outlining our top priorities.

Mark: Simply put, our vision is to be the best information management company in the world, and our strong belief is that information elevates every individual and organization to be their best. We're very excited about our market today and the significant opportunities directly in front of us.

Mark: I'll speak to our Q4 results and outlook in a moment, but I want to start today's call by clearly outlining our top priorities.

Mark Barrenechea: First, build an even stronger competitive advantage with information management business clouds, business AI, and business technology. Competitive advantage is everything, and information management is the center of business transformations today led by data-driven decisions, next-gen cloud automation, foundational information security, and promising AI. Titanium X, or our Cloud Editions 25.2, is on target for delivery in fiscal 25.

Mark: Information management is the center of business transformations today, led by data-driven decisions, next-gen cloud automation, foundational information security, and promising AI.

Mark Barrenechea: This is our next-generation autonomous cloud, strengthening our competitive advantage and the platform for information-based transformation. We deliver free cash flows of $808 million in fiscal 24, with 23% year-over-year growth. In fiscal 25, our free cash flow is expected to grow mid to high single digits, excluding our one-time tax payment from the AMC divestiture gain. The leadership team and company are focused on the fiscal year ahead, Fiscal 25, delivering on our exciting future and implementing programs that lead to higher performance. And we're attracting and retaining the next generation of great talent.

Mark: Second, accelerate cloud revenue growth. We delivered 7% cloud revenue growth in Fiscal 24. We're targeting up to 5% organic cloud growth in Fiscal 25, and with a laser focus on key growth programs, strategic partnerships, and Titanium X.

Mark: We are building to 7% to 9% organic cloud revenue growth in fiscal 27. I'll get to our growth programs in a minute. Third, drive upper quartile margins and capture the large margin opportunity we have over the next four to eight quarters.

Mark: We expect Fiscal 26 to be in the range of 35% to 36% while investing in innovation, go-to-market, and with a higher cloud revenue mix.

Mark: Our capital allocation strategy is expressed as primary allocation and additional allocation. Our primary allocation is to return 50% of trailing 12-month free cash flows for dividends and buybacks.

Mark: Our additional allocation of free cash flow, which is continuously assessed, is to allocate our additional capital to the highest return areas across dividends, buybacks, debt reduction, or M&A.

Mark: Our fiscal 27 free cash flow aspirations remain unchanged at $1.2 to $1.3 billion.

Mark: This is over 90% of F-25 free cash flows allocated to dividends and share repurchases, because we believe this is of the highest return.

Mark: stronger competitive advantage and cloud growth, value creation for our shareholders, an elevated bar with higher goals, and for the next three years we expect to grow annually adjusted EBITDA, adjusted EPS, free cash flow, and our return of capital.

Speaker Change: Highest performance begins and ends with our talent of living the open text business system with a relentless focus on execution. An open texter always puts customers first, innovates, cares about people, helps teams succeed, and strives for exceptional performance.

Mark: We start here because great people make great software companies.

Mark Barrenechea: We're a global and diverse organization. The majority of the company's talent is now Gen Y and Zed. And 90% of our employees are outside of Canada, and our employee retention rates are at a record high of 92% plus. Today, we published our annual Corporate Citizenship Report. We believe in being a responsible and responsive company for the environment, for the communities we work and live in, and that diversity and inclusion of people and ideas are essential to innovation. Our annual Corporate Citizen Report reflects our commitment to a practical and impactful mindset to all our stakeholders. Our leadership team is the strongest it's ever been.

Mark: And we're attracting and retaining the next generation of great talent. We're a global and diverse organization. The majority of the company's talent is now Gen Y and Zed. And 90% of our employees are outside of Canada. And our employee retention rates are at a record high of 92% plus.

Mark: Our annual Corporate Citizen Report reflects our commitment with a practical and impactful mindset to all our stakeholders.

Mark Barrenechea: We have Todd Thione joining us today, President of Worldwide Sales. We have Paul Duggan joining us today, President, Chief Customer Officer. We have Madhu Ranganathan, of course, our President, CFO, and Corporate Head of Corporate Development joining us today. Moui Mazoub, our Chief Product Officer. Sani Ono, Chief Marketing Officer. Shannon Bell recently joined us as CDO and CIO. And the rest of our highly skilled and expert

Mark Barrenechea: We have the talent and next-generation mindset to be the best information management company in the world and to create a powerful future. What supports our cloud revenue growth are new bookings built on the foundation of strong renewal rates and consumption expansion. Paul will speak a bit about this.

Speaker Change: In fiscal 24, we delivered $5.77 billion in revenues for 29% year-over-year growth, including positive organic growth. Our cloud revenues were $1.8 billion with 7% year-over-year growth.

Mark Barrenechea: At fiscal 24, we signed the largest cloud contracts in our history, our cloud renewal rate was in the low 90s, and we delivered 701 million in new cloud bookings, or 33% year-over-year growth. Our cloud momentum continues as we expect to grow bookings 25% in fiscal 25, higher than our previous target, and stronger, enricher aviator and AI use cases, also lower cost in AI, spending in time to value with ease. For example, we're working with Robert Bosch in North America to help them use aviators to connect with their data sets in whole new ways. Cloud growth, stronger execution with unified sales and field organization, higher renewal rates driven by digital renewals, and expanded services. And you'll hear from Todd and Paul, as I said, just in a moment.

Mark: At fiscal 24, we signed the largest cloud contracts in our history. Our cloud renewal rate was in the low 90s, and we delivered 701 million of new cloud bookings or 33% year-over-year growth.

Mark: Our cloud momentum continues as we expect to grow bookings 25% and fiscal 25% higher than our previous target.

Mark: On accelerating cloud revenue growth, here are the key drivers for us in Fiscal 25.

Mark: First is just driving expansion of our business clouds led by content, business network, and ITOM. Customers are deeply focused on reimagining knowledge workers, consolidating the digital cores and operations, deeper value and resiliency from their supply chains.

Mark: Attaching new SaaS services to existing workloads.

Mark: We're continuing to invest and trust global security, compliance, and industry certifications across many industries, financial services, pharma, biotech, health care, government, and more. Customers are beginning to seek alternatives after the recent global security events.

Mark: Our Partner Ecosystem Expansion with Microsoft, Google, SAP, Salesforce.

Mark: Also, lower cost in AI and spending time to value with ease. For example, we're working with Robert Bosch, North America, to help them use aviators to connect with their data sets in whole new ways.

Speaker Change: Cloud growth, stronger execution with unified sales and field organization, higher renewal rates driven by digital renewals and expanded services, and you'll hear from Todd and Paul, as I said, just in a moment. Let me provide a few remarks on Q4 results and Q1 outlook.

Speaker Change: Total revenues was $1.36 billion. Ex AMC total revenue was down 4%, centered on license.

Speaker Change: CloudGuru 3%

Speaker Change: Strong free cash flows of $145 million are up 59%.

Speaker Change: We repurchased $150 million of our shares for cancellation at an average price of $29.57. We delivered $445 million of adjusted EBITDA dollars with strong operations.

Speaker Change: And we have significant customer wins in content, in AI, Nestle, in BN in AI, Johnson & Johnson, in ITOM, Six Sensor Intelligence, in ADM, California EDD, in experience, Sutter Health.

Mark Barrenechea: Let me highlight two important dynamics in Q4. First, our license-to-cloud transition continues, and you see this in our Q4 financial results, with cloud and free cash flow that are up, and licenses down. We had great cost optimization in the quarter. Second, we had two strategic corporate programs in the quarter that required significant corporate attention, the divestiture of the AMC business and business optimization planning. Let me wrap up with a few final thoughts.

Mark: Let me highlight two important dynamics in Q4.

Mark: First, our license-to-cloud transition continues, and you see this in our Q4 financial results, with cloud and free cash flow that are up and license down. We had great cost optimization in the quarter.

Mark: Second, we had two strategic corporate programs within the quarter that required significant corporate attention, the divestiture of the AMC business and the business optimization planning.

Mark: These strategic programs will have positive impact in Fiscal 25 and beyond, but impact at Q4. To recap the two strategic programs that we have now concluded,

Mark: This was a large divestiture, the company's first, and the team executed incredibly well.

Mark: On Q1 Outlook, we're excited about the start of the new fiscal year. Open Text 3.0 launch, our healthy pipeline, our strategic corporate programs complete behind us.

Mark: Titanium X and our new leadership team ready to go. And to reiterate, we manage our business annually and quarters will vary. Our Q1 outlook has a path to growth and margin expansion.

Mark: We're expecting revenues between $1.25 billion to $1.3 billion. At the higher end of our range, we are growing year-over-year XAMC. Our adjusted EBITDA range between 32 to 33 percent. Our adjusted EBITDA dollars are expected to grow year-over-year XAMC.

Mark Barrenechea: We're proud of what we accomplished in fiscal 24, 29% total growth, 7% cloud growth, organic growth, $2 billion in adjusted EBIT dollars, and $417 million of capital return to shareholders. Information Management Competitive Advantage is everything, and with the Titanium Act, it is. We are excited about Fiscal 25, focused on delivering on our annual targets, and focused on building shareholder value through cloud growth, margin expansion, and the strongest capital return in our corporate history. We'll keep you updated on our primary and supporting metrics throughout the year. And may the one that brings peace bring peace for all.

Mark: Let me wrap up with a few final thoughts. We're proud of what we accomplished in the fiscal 24, 29% total growth, 7% cloud growth, organic growth, $2 billion in adjusted EBIT dollars, and $417 million of capital return to shareholders.

Speaker Change: Information management competitive advantage is everything and with Titanium X, aviators, security, our competitive advantage grows stronger.

Mark: We are excited about Fiscal 25, focused on delivering to our annual targets, focused on building shareholder value through cloud growth, margin expansion, and the strongest capital return in our corporate history.

Mark: We'll keep you updated on our primary and supporting metrics throughout the year.

Mark: The operational improvements we deliver in Fiscal 25 will put us in a position to raise the bar in Fiscal 26.

Mark: And again, I want to emphasize, for the next three years, year over year, we expect to grow annually, adjusted EBITDA, adjusted EPS, free cash flow, and our capital return.

Mark: We thank our shareholders for their feedback and continued input. We've listened.

Mark: And we believe this is a strong plan to deliver value to you and to all our stakeholders. A huge thank you to my colleagues and fellow Open Texters for the amazing talents and contributions and to our customers for placing your trust in Open Text.

Mark Barrenechea: Let me hand the call over to Todd Thion, Open Text President of Worldwide Sales. Todd, welcome. Thank you, Mark. I am excited and grateful to be a part of the Open Text team. Over my first 100 days in the company, I've worked to bring my learnings and experiences from 30 years in the technology industry at Microsoft, Oracle, Apple, and a few others to contribute to Open Text 3.0, and I've immediately prioritized my time to connect with, learn from, and execute alongside our team, our customers, and our partners. And it's these early relationships and experiences that directly shaped our F-25 plan with our worldwide sales team. First and most importantly, my top priority is:

Todd Thion: And may the one that brings peace, bring peace for all. Let me hand the call over to Todd Thion, Open Text President of Worldwide Sales. Todd, welcome. Thank you, Mark. I am excited and grateful to be a part of the Open Text team.

Todd Thion: to contribute to Open Text 3.0. And I've immediately prioritized my time to connect with, learn from, and execute alongside of our team, our customers, and our partners.

Todd Thione: I'm a believer that there's a direct correlation between great people and great results. We have a very strong foundation of people, and it's my ambition to build the highest performing and most efficient sales force in the world and for the Best Information Management Company. We now have one unified worldwide sales team with continued global coverage, and this means we have an aligned approach globally to everything that we do, while we still enable flexibility to serve our customers locally.

Speaker Change: First and most importantly, my top priority is people.

Todd Thion: I'm a believer that there's a direct correlation between great people and great results. We have a very strong foundation of people, and it's my ambition to build the highest performing and most efficient sales force in the world, and for the best information management company in the world.

Todd Thion: We've already made several changes in Salesforce that are now complete and we're off to a fast start.

Todd Thion: We now have one unified worldwide sales team with continued global coverage. And this means we have an aligned approach globally to everything that we're doing, while we still enable flexibility to serve our customers locally.

Todd Thione: We've also moved quickly to attract new and elevate existing talent within worldwide sales. We're attracting outstanding sales talent who have proven backgrounds at leading technology companies like Apple, Tricentis, Microsoft, and Salesforce. I've worked with many before, and there are more.

Todd Thion: We've also moved quickly to attract new and elevate existing talent within worldwide sales. We're attracting outstanding sales talent who have proven backgrounds at leading technology companies like Apple, Tricentis, Microsoft, and Salesforce.

Todd Thione: With the broader sales team, we're building a structured approach to refine the consistent and modern commercial capabilities needed to win in this dynamic marketplace of cloud, AI, and security. And we've doubled down on our business cloud specialization within the worldwide sales team. Second, as Mark highlighted, Open Textor always puts customers first.

Todd Thion: I've worked previously with many and there's more to come.

Todd Thion: With the broader sales team, we're building a structured approach to refine the consistent and modern commercial capabilities needed to win in this dynamic marketplace of cloud, AI, and security.

Todd Thion: and we've doubled down on our business cloud specialization within the worldwide sales force.

Todd Thion: Fully expect the outcome of these people efforts to directly contribute to improve Salesforce productivity in F25.

Todd Thion: And for our worldwide sales team, earning the trust of our customers is a priority. This includes how we segment the marketplace to ensure we deploy the right resources to the right customer exactly at the right time.

Todd Thione: Our largest customers we consider strategic. The enterprise business is essentially the global 10,000, and it's a very heavy focus. And as our customers are increasingly interested in reinventing knowledge work, resilient supply chains, engaging with their data in new ways, being more secure, moving workloads to the cloud, and having machines do the work via AI and automation, our specialized worldwide sales force will translate our technology into value directly aligned to customer business priorities. And we're scaling this right now, and we have some outstanding examples. As an example, while in Europe recently, I met with Karsten Trapp, the CIO of the Zeiss Group, a leading global high-tech manufacturer.

Todd Thion: Our largest customers we consider strategic accounts, and for these accounts we've invested in global account directors to manage the holistic Open Text relationship.

Todd Thione: Karsten is relying on the value of our Open Text business cloud to modernize Zeiss's processes. The outcome of these customer-focused efforts will directly contribute to our accelerated growth. Third and lastly, rigor is a priority for worldwide sales. This means bringing fundamental and Modern Innovation to our commercial strategy, processes, and tools, all to support our worldwide... Now, with the Olympics ongoing right now, I think a sports analogy might be appropriate. The U.S. men's college basketball coach with the most national championships in history is John Wooden.

Todd Thion: Third and lastly, rigor is a priority for worldwide sales. This means bringing fundamentals and modern innovation to our commercial strategy, processes, and to our tools, all to support our worldwide sales force.

Speaker Change: Now, with the Olympics ongoing right now, I think a sports analogy might be appropriate. The U.S. men's college basketball coach with the most national championships in history is John Wooden, and Coach Wooden once said, I believe in the basics.

Todd Thione: And Coach Wooden once said, Open Text Corp. I totally agree with Coach Wood, and I believe this philosophy directly applies to sales. We are committed to being brilliant at this, refining how we manage our business, how we empower and support our sellers, and how we deliver compelling value. We're also committed to innovating in our sales processes, and as an example, we've already launched projects to leverage Open Text AI internally to support RFP responses and proposal generation.

John Wooden: Attention to and perfection of tiny details that might commonly be overlooked. They are the difference between champions and near-champions.

Speaker Change: I totally agree with Coach Wooden and I believe this philosophy directly applies to sales. We are committed to being brilliant at the basics.

John Wooden: in refining how we manage our business, how we empower and support our sellers, and how we deliver compelling value propositions to our customers.

John Wooden: We're also committed to innovating in our sales motions and as an example we've already launched projects to leverage Open Text AI internally to support RFP responses and proposal generation.

Todd Thione: And we have an exciting lineup of additional internal innovations to be launched. The outcome of this commitment to rigor will directly boost Salesforce productivity, predictability, and efficiency. As Mark noted in his opening remarks, renewal performance is the foundation on which we build growth, and there's no question Open Text has a long history of predictable and sustained performance despite some of the world's most disruptive events over the past decade. F24 was no exception.

John Wooden: The outcome of this commitment to rigor will directly boost Salesforce productivity and predictability in F25.

John Wooden: Now, in closing, these priorities of people, customers, and rigor.

John Wooden: for our unified worldwide sales force, make the foundation.

John Wooden: of our F-25 plan. And as I've mentioned, this plan is already being executed now and we've started fast.

John Wooden: I couldn't be more excited about the journey ahead in F25 and beyond with this team to accelerate Open Text 3.0 in the marketplace.

Paul Duggan: Now I'm going to hand the call over to my colleague, Paul Duggan. Over to you, Paul. Todd, thank you. I'm thrilled to be joining the call today to provide an update on the renewals business at Open Text.

Paul Duggan: Today, I'll address two areas, F-24 update, including micro focus, and our key priorities in the year ahead for F-25. Let's start with F-24.

Paul Duggan: Our renewal rates finished at 95% for off-cloud and 92% for cloud, excluding micro-focus. And on that note, I'd like to briefly make two comments on metrics. First, renewal rates are a primary instrument in any recurring revenue business. There are also different variants of this rate.

Speaker Change: As Mark noted in his opening remarks, renewal performance is the foundation on which we build growth. And there's no question Open Text has a long history of predictable and sustained performance, despite some of the world's most disruptive events over the past decade.

Paul Duggan: On our cloud business, we have been publishing a gross renewal rate, or GRR, which does not include any expansion or upsell on those renewals. In F-25, we intend to publish Net Renewal Rates, or NRR, which aligns better with large cloud vendors' approaches. Second, we have other primary instruments beyond renewal rates. These include on-time renewal rates, annual price adjustments, cancellations, and past due rates.

John Wooden: First, renewal rates are a primary instrument in any recurring revenue business. There are also different variants of this rate.

John Wooden: This will capture insight into consumption and expansion and give you a more complete view of our performance.

Speaker Change: Factoring in these dynamics will highlight rates that are even stronger. For example, had we applied this methodology in Q4, the cloud renewal rate would have been in the mid to high 90s.

John Wooden: Second, we have other primary instruments beyond renewal rates. These include on-time renewal rates, annual price adjustments, cancellations, and past due rates. Taken together, these metrics tell a story about the motion of the business.

Paul Duggan: Taken together, these metrics tell a story about the business's movement. And over time, if they're in the green and in agreement with each other, then one can expect continued strength. And I'm pleased to say that that is the profile we saw in F-24 and during our fourth quarter. In our MicroFocus off-cloud renewal business, our top priority remains unlocking new value. F24 was all about the rapid execution of our standards and programs, and we did this very well.

John Wooden: And over time, if they're in the green and in agreement with each other, then one can expect continued strength. And I'm pleased to say that that is the profile we saw in F-24 and during our fourth quarter.

John Wooden: On our micro-focus off-cloud renewal business, our top priority remains unlocking new value. F24 was all about the rapid execution of our standards and programs, and we did this very well.

Paul Duggan: As we end the year, the MicroFocus renewal rate was at a record high, into the high 80s, as we planned. Our sights are set on moving into the 90s in F-25. The path there is laser-focusing on the next set of products that have a meaningful installed base and a renewal rate below our standard, then prioritizing the product roadmap, support programs, and sales plays that influence renewal decision factors. This is our proven open text playbook for lifting renewal rates. We did it with Documentum, and we will do it with microphotos.

John Wooden: As we end the year, the micro focus renewal rate was at a record high, into the high 80s as we planned.

John Wooden: Our sights are set on moving into the 90s in F-25. The path there is laser focusing on the next set of products that have a meaningful install base and a renewal rate below our standard.

John Wooden: This is our proven open text playbook for lifting renewal rates. We did it with Documentum, and we're doing it with Micro Focus. It's already lifted us from the low 80s to the mid to high 80s, and will ultimately lift us into the 90s.

Paul Duggan: It's already lifted us from the low 80s to the mid to high 80s and will ultimately lift us into the 90s. As you heard from Mark and Todd, F25, it's all about growth and expansion. F24 was a record year for incremental bookings in our cloud business, and we expect this to continue in F25. For off-cloud, we added new offerings like premium support last year, and we expect this to grow in the year ahead as well. In terms of what's new, two things. First, we formed a new digital renewal center on July 1.

Paul Duggan: This is a strategic segmentation model and structure that brings together all customers, cloud, and off-cloud, and all product areas at a specific spending level and is focused on a mission of automation and self-service. This will unburden the rest of the team from transactional work and allow us to reinvest that time and energy into growth programs in the middle and top spend segments. Second, we launched new cloud success service tiers in July. These tiers give all customers access to our digital assets through a portal starting at our standard level.

Paul Duggan: Success Plan Templates, Best Practice Documents, and Checklists, then the fee-based option to move to higher tier levels, Premier and Signature, which add dedicated customer success managers, workshops, and technical success managers. We've already closed several deals in the run-up to the launch, and we're very excited about the new cloud revenue opportunities this program brings. So, in summary, F-24 was a strong year for Reynolds.

Speaker Change: success plan templates, best practice documents, and checklists. Then the fee-based option to move to higher tier levels, Premier and Signature, which add dedicated customer success managers, workshops, and technical success management.

John Wooden: We've already closed several deals in the run-up to the launch and we're very excited about the new cloud revenue opportunities this program brings forward.

Paul Duggan: We have confidence in F-25 and a clear plan we are already executing. This will give us the platform to raise the bar even further into F-26. I always like to close by saying thank you to our customers. We know your trust is earned and not given, and we are committed to delivering on the promises we make to you every day. And with that, I will hand the call over to Madhu.

John Wooden: So, in summary...

Madhu: We know your trust is earned and not given, and we are committed to delivering on the promises we make to you every day. And with that, I will hand the call over to Madhu.

Madhu Ranganathan: Thank you, Paul, and thank you all for joining us today. During Q4, we executed very well on our operational efficiency. Today we are expanding our margin targets for Fiscal 2025 and providing insights into adjusted EBITDA for Fiscal 2025. Please refer to our press release and two sets of IR materials. First, the financial results and fiscal 2025 targets, and second, a business overview, as well as our Form 10-K that was filed today. We have simplified our investor relations materials, and you will see that as you read through all the information.

Madhu: Thank you, Paul, and thank you all for joining us today.

Madhu: During Q4, we executed very well on our operational efficiencies.

Madhu: Today, we're expanding our margin targets for Fiscal 2025 and providing insights into adjusted EBITDA for Fiscal 2026.

Madhu: Please refer to our press release, two sets of IR materials, first, the financial results and fiscal 2025 targets, and second, business overview, as well as our Form 10-K that was filed today. We have simplified our investor relations materials, and you will see that as you read through all the information.

Madhu Ranganathan: So let me walk through the financial results on an as-reported basis, understated otherwise. Starting with Q4, Q4 cloud revenue was $464.9 million, up 2.9% as well as 3.3% in constant currency. Our enterprise cloud bookings were $179.8 million, or 10.3% year-over-year growth. ARR, annual recurring revenue, of $1.093 billion, down 5.5% and 5.2% in constant currency, and represents approximately 80.3% of total revenue compared to 77.6% of total revenue in the year-ago quarter, primarily due to AMC divestment.

Speaker Change: So let me walk through the financial results on an as-reported basis, unless stated otherwise.

Madhu: Starting with Q4, Q4 cloud revenue was $464.9 million up 2.9% as well as 3.3% in constant currency.

John Wooden: Our enterprise cloud bookings was $179.8 million or 10.3% year-over-year growth.

John Wooden: ARR, Annual Recurring Revenue, of $1.093 billion, down 5.5% and 5.2% in constant currency, and represents approximately 80.3% of total revenue compared to 77.6% of total revenue in the year-ago quarter, primarily due to AMC divestiture.

Madhu Ranganathan: Q4 total revenue of $1.36 billion was down 8.6% and 8.3% in constant currency, primarily due to the AMC divestiture and lower license revenue offset by growth in cloud services. Our Q4 results reflect continued customer adoption of the cloud. Moving to other financial metrics, Gap net income was $248.2 million, or $0.91 diluted EPS, inclusive of a gain of $429 million from the AMC divestiture.

John Wooden: Q4 total revenue of $1.36 billion was down 8.6% and 8.3% in constant currency, primarily due to the AMC divestiture and lower license revenue offset by growth in cloud services. Our Q4 results reflect continued customer adoption of the cloud.

Speaker Change: and moving to other financial metrics. Gap net income was $248.2 million or $0.91 diluted EPS, inclusive of a gain of $429 million from the AMC divestiture.

Madhu Ranganathan: Gap gross margin of 72.5% was up from 71.4% year-over-year and reflects operational improvements in cloud and professional services as well as a reduction of amortization related to the divestiture of AMC. Non-gap gross margin of 76.4% compared to 76.9%. Non-gap cloud gross margin of 62.8% was the highest during the fourth quarter as we saw efficiencies in cloud deployment driven by our cloud investment. Adjusted EBITDA of $445.4 million, or 32.7%, reflects the operational efficiencies during the quarter, inclusive of bringing micro-focus to our upper quartile adjusted EBITDA model. Non-GAAP diluted EPS was $0.98, up 7.7% and 8.8% in constant currency.

Madhu: Gap gross margin of 72.5% was up from 71.4% year-over-year and reflects operational improvements in cloud and professional services as well as a reduction of amortization related to the divestiture of AMC.

Speaker Change: Adjusted EBITDA of 445.4 million or 32.7% reflects the operational efficiency during the quarter, inclusive of bringing micro focus to our upper quartile adjusted EBITDA model.

Madhu Ranganathan: Our overall working capital performance remains strong with our DSOs at 43 days, an improvement of two days from 45 days in Q3. Now Micro Focus is fully on our working capital model. We generated $185.2 million in operating cash flows and $145.2 million in free cash flows in the quarter.

Speaker Change: Our overall working capital performance remains strong with our DSOs at 43 days and improvement of 2 days from 45 days in Q3. Now Micro Focus is fully on our working capital model.

Madhu Ranganathan: For full-year fiscal 2024, on a year-over-year basis, our cloud revenue was $1.82 billion, up 7.1%, as well as 6.8% in constant currency. Our enterprise cloud business delivered strong annual bookings of $701.4 million, up 32.9% year-over-year. ARR annual recurring revenue of $4.53 billion was up 25.4% and 24.6% in constant currency and represents approximately 78.6% of total revenue, compared to 80.6% in the prior year.

Speaker Change: For full year fiscal 2024 on a year-over-year basis, our cloud revenue is $1.82 billion, up 7.1%, as well as 6.8% in constant currency.

Speaker Change: Our enterprise cloud business delivers strong annual bookings of $701.4 million up 32.9% year-over-year.

Madhu Ranganathan: Total revenue of $5.77 billion, up 28.6% and 27.7% in constant currency. With respect to Micro Focus, we had an excellent year of execution from our sales, products, and renewals team to turn around a declining business. We met our plan for fiscal 2024. In other financial metrics for the year, GAAP net income was $465.1 million, or $1.71 per share, inclusive of the gain on the AMC divestiture of $429 million

Speaker Change: With respect to Micro Focus, we had an excellent year of execution from our sales, products, and renewals team to turn around a declining business. We met our plan for fiscal 2024.

Speaker Change: In other financial metrics for the year, GAAP net income was $465.1 million, or $1.71 per share, inclusive of the gain on AMC divestiture of $429 million.

Madhu Ranganathan: Gap gross margin of 72.6% was up from 70.6% and reflects reduced amortization on AMC intangibles from the divestment. Non-GAAP gross margin of 77.3% was up from 76.1% and reflects improvements in professional services margin. Adjusted EBITDA of 1.97 billion, a year-over-increase in dollars of 33.8% and 31.6% in constant currency. Our adjusted EBITDA margin was 34.1%, up from 32.8% year-over-year as we continue to drive operational efficiencies across the organization. Non-GAAP EPS was $4.17, up 26.7% and 24% constant currency. We generated $968 million in operating cash flows and $808 million in free cash flows for the fiscal year. Turning to Outlook,

Speaker Change: non-GAAP gross margin of 77.3% was up from 76.1% and reflects improvements in professional services margins.

Speaker Change: We generated $968 million in operating cash flows and $808 million free cash flows for the fiscal year.

Madhu Ranganathan: Starting on slide 11 of our Financial Results and Targets presentation, let me speak to Q1 Fiscal 2025 quarterly factors. We expect $1.25 billion to $1.30 billion of total revenue, and ARR of $1.04 billion to $1.07 billion. We expect a just EBITDA margin between 32 and 33 percent.

Madhu Ranganathan: We are presenting our fiscal 2025 model today on slide 12 of our financial results and targets presentation. We are reaffirming our preliminary targets shared in May, while increasing the targets for enterprise cloud bookings and adjusted EBIT data. Cloud revenue of $1.85 billion to $1.9 billion. Annual recurring revenue of $4.25 billion to $4.3 billion. License revenue excluding AMC at constant to fiscal 24, plus or minus 1%.

Speaker Change: We expect just an EBITDA margin between 32 and 33 percent.

Speaker Change: Cloud revenue of $1.85 billion to $1.9 billion. Annual recurring revenue of $4.25 billion to $4.3 billion. Licensed revenue excluding AMC at constant to fiscal 24, plus or minus 1%.

Madhu Ranganathan: Total revenues between $5.3 to $5.4 billion. Total revenue growth of constant to 1%, excluding AMC, are enterprise cloud bookings growing at 25%. Note this is an increase from our preliminary target of 20% plus. We're increasing our adjusted EBITDA margin range to 33% to 34%, up from our preliminary range of 32% to 33%. We have updated our preliminary targets on free cash flows to a range of $575 to $625 million to reflect special charges related to our business optimization plan.

Speaker Change: Total revenue is between $5.3 to $5.4 billion.

Speaker Change: Total revenue growth of constant to 1% excluding AMC.

Speaker Change: Our Enterprise Cloud Booking is growing at 25%.

Madhu Ranganathan: As you may recall, we will record the one-time tax payment on AMC gains of approximately $250 million in our fiscal 2025 cash flows. This relates to the proceeds of $2.275 billion from the AMC divestiture. This tax payment will be a Q1 cash outflow.

Madhu Ranganathan: Excluding the tax payment, we expect to grow free cash flows mid to high single digits during fiscal 2025. Now, let me expand on the growth of adjusted EBITDA during fiscal 2025 and 2022. We have programs and projects to deploy, and we made incredible progress in our fourth quarter, where, ex-AMC, our operating expenses were lower year-over-year by approximately $100 million across all functional areas. In early July, we announced a business optimization plan that is now allowing us to expand adjusted EBITDA to 33% to 34% by 100 basis points in Fiscal 2025. Also, Fiscal 2025 includes an additional 800 new hires in sales and services as further investment in the business. During the fourth quarter, non-gap cloud gross margin was 62.8 percent, 310 basis points higher compared to Q3.

Speaker Change: Early July , we announced a business optimization plan that is now allowing us to expand adjusted EBITDA to 33% to 34% by 100 basis points in Fiscal 2025. Also Fiscal 2025 includes additional 800 new hires in sales and services as further investment into the business.

Madhu Ranganathan: For the full year fiscal 25, we are modeling a constant level of hyperscaler costs, giving us non-gap cloud gross margins in the low 60s. Lastly, during Fiscal 25, we will complete the simplification pieces of the GNA integration, such as legal entity rationalization, which will also provide cost savings. Higher EBITDA of 35-36% in fiscal 26 will build upon the key drivers Mark outlined in his remarks, higher revenues, lower cloud costs, more automation, and leveraging AI internally, also locating great talent in the right places.

Speaker Change: Higher EBITDA of 35-36% in fiscal 26 will build upon the key drivers Mark outlined in his remarks, higher revenues, lower cloud cost, more automation, and leveraging AI internally, also locating a great talent in the right places.

Madhu Ranganathan: Our fiscal 2025 and 2026 progress will set us up well to meet our fiscal 2027 aspirations of 36 to 38% adjusted EBITDA and 1.2 to 1.3 billion free cash flows. The higher EBITDA will support free cash flow growth given the strides we've made on working capital and capex efficiency. Turning to the Dividend Program, On July 31st, the Board of Directors also approved a quarterly cash dividend of $0.2625 per common share. The record date for the next quarterly dividend is August 30th, 2024, and the payment date is September 20th, 2024.

Speaker Change: Our fiscal 2025 and 2026 progress will set us up well to meet our fiscal 2027 aspirations of 36 to 38% adjusted EBITDA and $1.2 to $1.3 billion free cash flows.

Madhu Ranganathan: As you heard from Mark, Todd, and Paul today, we are focused on delivering a strong Fiscal 25 through competitive differentiation, cloud growth, margin expansion, and the strongest year of capital return in our history. We remain well positioned to meet our targets and aspirations. To all the Open Text team members, thank you for your incredible efforts during Fiscal 2024, and here's to a great Fiscal 2025. On behalf of Open Text, I would like to thank our shareholders, our loyal customers, and partners for your continued support. I will now request the operator to open the call to questions. Operator?

Speaker Change: To all the Open Text team members, thank you for your incredible efforts during Fiscal 2024 and here's to a great Fiscal 2025. On behalf of Open Text, I would like to thank our shareholders, our loyal customers, and partners for your continued support. I will now request the operator to open the call to questions. Operator?

Operator: Thank you. We will now begin the analyst question and answer session. Analysts who wish to ask a question may press star, then 1 on their touchtone phone to join the question queue. You will hear Stone acknowledging your request. If you're using a speakerphone, please ensure that you lift your handset before pressing any keys. If you wish to remove yourself from the question queue, you may press star, then two.

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

Speaker Change: Analysts who wish to ask a question may press star then 1 on their touchtone phone.

Speaker Change: Please join the question queue. You will hear a tone acknowledging your request. If you are using a speakerphone, please ensure to lift your handset before pressing any keys. If you wish to remove yourself from the question queue, you may press star, then two.

Operator: Anyone who has a question may press star then 1 at this time. The first question comes from Raimo Lenschow with Barclays. Thank you for the detailed outlook from you guys, congratulations, and I'm looking forward to an exciting future. Could we just spend a minute on Q4 and try to dissect that? Because, you know, obviously, I listened to your comments that there was, you know, some level of disruption.

Speaker Change: Anyone who has a question may press star then 1 at this time.

Speaker Change: First question comes from Raimo Lenschow with Barclays. Please go ahead.

Raimo Lenschow: Thank you for the detailed outlook from you guys, congratulations, and I'm looking forward to an exciting future.

Raimo Lenschow: Can I, could we just spend a minute on Q4 and try to dissect that because, you know, obviously, you know, I listened to your comments that there was, you know, some level of disruption.

Raimo Lenschow: You also had like, you know, the license to cloud migration, which is impacting numbers. Could you help us understand a little bit more about how much of what we saw in Q4, especially on the license side, was macro-related versus kind of internal things that kind of impacted the quarter? And then I have one follow-up.

Speaker Change: You also had like a, you know, the...

Speaker Change: the license to cloud migration, which is impacting numbers.

Speaker Change: Like, could you help us understand a little bit, like, how much of what we saw on Q4, especially on the license side, was macro-related versus kind of internal things that kind of impacted the quarter?

Mark Barrenechea: Yeah, sounds great, Raimo. Thanks for the question, Mark here. No, it's not macro related.

Raimo Lenschow: And then I have one follow-up. Yeah, sounds great, Raimo. Thanks for the question, Mark, here. No, it's not macro-related. We, you know, as we noted in our remarks, it's our continued license-to-cloud transition.

Mark Barrenechea: We, you know, as we noted in our remarks, it's our continued license to cloud transition. We're an annual business as well, so quarters will vary. We note that our cloud is up, we have strong free cash flow, and our operations were just stellar in Q4, but the two strategic programs were very unique for us.

Speaker Change: We're an annual business as well, so quarters will vary. We note that our cloud is up, we have strong free cash flow. Our operations were just stellar in Q4. But the two strategic programs were very unique for us. The first is the divestiture.

Mark Barrenechea: The first is the divestiture. I know the world sees a press release that we've divested our mainframe business, but the work was strategic, concluded in the quarter, but we had a transition, and there were 800 employees. We had to split out systems, transition service agreements, and we had our sales force and PS force talking to a lot of customers because they're mutual customers, and that had an impact. We also took our managers and our leaders and did very detailed business optimization planning. The execution is complete and was completed in early July, but this is all towards a stronger Open Text and a stronger F25. And so it's on us. It's not on the macro.

Speaker Change: And I know the world sees the press release that we've divested our mainframe business.

Speaker Change: But the work...

Speaker Change: was strategic, concluded in the quarter, but we had a transition, there were 800 employees.

Speaker Change: We had a split out systems, a transition service agreement, and we had our sales force and PS force talking to a lot of customers because they're mutual customers.

Speaker Change: and that had an impact. We also took our managers and our leaders and did very detailed business optimization planning. The execution is complete and was complete in early July .

Speaker Change: But this is all towards a stronger Open Text and a stronger F-25.

Mark Barrenechea: It's complete. And as we look here into the year, as Madhu highlighted, we think the licensed business will be constant, plus or minus one percent. Organic cloud up five percent this year. And, you know, up to 34 percent adjusted EBITDA in 2025, up to 36 percent in 2026, and up to 38 percent in fiscal 27. Yeah, perfect.

Speaker Change: And so it's on us. It's not on the macro. It's complete.

Speaker Change: And as we look here into the year, as Madhu highlighted, we think the licensed business will be constant, plus or minus 1%.

Madhu: Organic cloud up 5% this year and up to 34% adjusted EBITDA in 2025, up to 36% in 2026 and up to 38% in fiscal 27.

Raimo Lenschow: Thank you. And then on that, if you think about the, the margin progression you outlined for the coming years, like, how much of that is kind of efficiency gains that you can still drive forward versus like, just growing revenue, kind of on a kind of control cost base that is driving that forward? Thank you. Yeah, just a small point. It's over the next four to eight quarters, right?

Speaker Change: Yeah, perfect. Thank you. And on that, if you think about those, the margin progression you outlined for the coming years, like...

Speaker Change: How much of that is kind of efficiency gains that you can still drive forward versus like just growing revenue kind of on a kind of control cost base that is driving that forward?

Speaker Change: Thank you.

Mark Barrenechea: So, not seven years, right? So, look, there's no doubt that we're going to—just to recap, you know, in 2025, we're looking up to 34% adjusted EBITDA, in 2026, up to 36%, and in fiscal 2027, up to 38%. So, we're not resting at all.

Speaker Change: 4 to 8 quarters, right? So that's over a year. So yeah, yeah, right. So look, there's no doubt that we're going to Just to recap

Speaker Change: In 2025, we're looking up to 34% adjusted EBITDA, in 2026 up to 36%, and in fiscal 2027 up to 38%.

Mark Barrenechea: I mean, we're running right through the numbers. How do we get there? There's no doubt that higher revenues are going to help. Continued talent design and location balancing. We have opportunities to improve cloud margin. Titanium X, we have some incredible autonomous features that are going to let the machines do the work and not the humans, and the machines are less expensive, if you will.

Speaker Change: So we're not resting at all. I mean, we're running right through the numbers.

Speaker Change: How do we get there?

Speaker Change: There's no doubt that higher revenues are going to help. Continued talent design.

Speaker Change: and location balancing. We have opportunities to improve cloud margin.

Speaker Change: Titanium X, we have some incredible autonomous features.

Speaker Change: Thank you.

Mark Barrenechea: We've deployed our first versions of AI, as Todd talked about. We have our sales force responding to RFPs, customer requirements, and tech support as well, which will drive down costs. And, most notably, we're going to be adding more SaaS workloads that are at a higher margin. So, it's a collection of things that will get us back into the high 30s, which we've historically operated in, and we see a clear path to getting back to, even at a larger scale and even with a higher cloud. Okay, perfect, thank you, well done. The next question comes from Steve Enders with Citi. Please go ahead. Hey, this is George Kurosawa on behalf of Steve.

Speaker Change: We've deployed our first versions of AI, as Todd talked about. We have our sales force responding to RFPs, customer requirements, tech support as well, which will drive down costs.

Speaker Change: And, most notably, we're going to be adding more SAS workloads that are at a higher margin. So it's a collection of things.

Speaker Change: that will rise us back into the high 30s, which we've historically operated in, and we see a clear path to getting back to, even in larger scale and even with a higher cloud mix.

Speaker Change: Okay, perfect. Thank you. Well done.

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

George Kurosawa: Maybe just to start with macro, I know you described that there wasn't really a macro impact, but maybe just under the hood, you know, if the aggregate environment was stable, were there any kind of sub areas within your portfolio where you saw, you know, relatively, relatively stronger, weaker, anything kind of moving up or down the priority stack? Yes, that's great. Welcome, George.

Speaker Change: Hey, this is George Kurosawa on for Steve. Maybe just to start with on macro, I know you described that

Speaker Change: Madhu Ranganathan, Harry Blount

Mark Barrenechea: A couple comments from us. As you go through our IR materials, as Madhu noted, the team's done a fantastic job simplifying the materials. You'll also see in the materials that we're showing AMC revenues. So when we start to speak about ex-AMCs and comparisons, it's just very clear. You'll also see in the materials that we also, on an annual basis, show by our business areas the percent of

Speaker Change: Yes, that's great. Welcome, George. A couple comments from us.

Madhu Ranganathan: As you go through our IR materials, as Madhu noted, the team has done a fantastic job simplifying

Speaker Change: on the materials. You'll also see in the materials.

Speaker Change: We're showing...

Speaker Change: AMC revenues. So when we start to speak about ex-AMC and comparisons, it's just very clear. You'll see in the materials, we also, on an annual basis, show by our

Mark Barrenechea: You'll see the strength in content. Our content business is going incredibly strong. I look into the year ahead, content business network and ITOM are going to be standouts for us on that up to 5% cloud organic growth. Look, we all read the same reports, and we factor this into our outlook for the year. I mean, the IMF's got a great report out in July that talks about GDP for advanced economies around 2 percent, and Europe sub-1 percent.

Speaker Change: Our business area, the percent of revenue. You'll see the strength in content.

Speaker Change: Our content business is going incredibly strong. I look into the year, content business network and ITOM, I believe, are going to be standouts for us on that up to 5% cloud organic growth.

Speaker Change: Look, we all read the same reports, and we factor this into our outlook for the year. I mean, the IMF's got a great report out in July .

Speaker Change: that talks about GDP.

Mark Barrenechea: But we have factored this all in, and to the extent the lights become greener, our path is even more upward than what we're presenting for Fiscal 25. Okay, great.

Speaker Change: For advanced economies around 2%, Europe sub 1%, but we have factored this all in and to the extent the lights become greener, our path is even more upward than what we're presenting for fiscal 25.

George Kurosawa: And then just a follow-up on kind of cloud booking strength and how that translates over to revenue. I think last quarter you mentioned this phenomenon was kind of ramping deals and that, you know, maybe pushing out revenue recognition. How did that kind of trend in this quarter?

Speaker Change: Okay, great. And then just a follow-up on kind of cloud booking strength kind of and how that translates over to revenue. I think last quarter you mentioned this phenomenon with kind of ramping deals and that, you know, maybe pushing out revenue recognition. How did that kind of trend in this quarter and any updated thoughts there?

Mark Barrenechea: And any updated thoughts? Yeah, I would say it's consistent, sort of quarter over quarter, with more awareness. I think we're going to improve on it quite candidly, but we ended the year at 33% bookings growth. Translating into our renewal rates plus new bookings, up to 5% cloud organic growth in 2025. We've upped our bookings target to 25% this quarter. We'll update along the way, but we're pleased coming out of the gate in Q1 at 25% bookings growth and up to 5% organic. Todd, anything you want to add to that?

Speaker Change: Yeah, I would say it's consistent, sort of quarter over quarter, with more awareness. I think we're going to improve on it, quite candidly. But we ended the year at 33% bookings growth.

Speaker Change: and translating into our renewal rates plus new bookings.

Speaker Change: Up to 5% cloud organic growth in 2025. We've upped our bookings target.

Speaker Change: to 25% here in the quarter. We'll update along the way.

Speaker Change: But we're all pleased coming out of the gate in Q1 at 25% bookings growth and up to 5% organic. Todd, anything you want to add to that? No, we're just excited about executing the F25 plan. We have a healthy pipeline and we've started fast.

Todd Thione: No words, just excited about executing the F25 plan. We have a healthy pipeline, and we've started fast. Right on. Thank you, George.

George Kurosawa: Thanks for taking the question. The next question comes from Thanos Moschopoulos with CMO Capital Markets. Please go ahead. Hi, good afternoon. Mark, given your comments on your plans for capital return over the upcoming year, should we take that to mean that you'll be putting M&A into a bit of a backseat, relatively speaking? Yes, Thanos, thanks for the question.

Speaker Change: Right on. Thank you, George.

Speaker Change: Thanks for taking the questions.

Speaker Change: The next question comes from Thanos Moschopoulos with CMO Capital Markets. Please go ahead.

Speaker Change: Hi, good afternoon. Mark, given your comments on your plans for capital return over the upcoming year, should we take that to mean that you'll be putting M&A into a bit of a backseat, relatively speaking? Wrong interpretation.

Thanos Moschopoulos: Well, I'll start with, it's all about the highest-returning capital. And as we look into F25 right now, we're buying our stock at www.opentextcorp.com. M&A will remain a part of our strategy; we'll assess how to deploy that additional capital; we've assessed it coming into the year, and to a degree, we're buying ourselves, so I'd include that in our M&A strategy as well. Great.

Mark: Yes, Thanos, thanks for the question. Well, I'll start with, it's all about the highest returning capital.

Speaker Change: And as we look into F-25 right now, we're buying our stock.

Speaker Change: You know, or said a little differently, we're buying ourselves and that's of the highest return. You'll see in our investor materials, M&A remains a part of our strategy.

Speaker Change: But heading into F25, we're focused on cloud organic growth, capturing large margin opportunity that we outlined, and delivering to our shareholders the largest capital return in our history. And that's our focus.

Speaker Change: M&A will remain a part of our strategy. We'll assess how to deploy that additional capital. We've assessed it coming into the year, and to a degree, we're buying ourselves, so I'd include that in M&A strategy as well.

Mark Barrenechea: And can you give us maybe more color in terms of what you're seeing with the Aviator and just generally, you know, customer interest in content management at the stage for subsequent AI? I guess the feedback from, you know, a lot of the industry has been that there are a lot of experimentation pilots happening, not a lot as far as large-scale deployments. Is that consistent with what you're seeing right now?

Speaker Change: Great. And can you give us a bit more color in terms of...

Speaker Change: What you're seeing with Debeviator and just generally, you know, customer interest in content management is at the stage for subsequent AI. I guess the feedback from, you know, a lot of the industry has been that there's a lot of experimentation pilots happening, not a lot as far as large-scale deployments. Is that consistent with what you're seeing right now?

Mark Barrenechea: Yeah, it's going to be steady progress. You know, it's going to be steady, steady, steady, then we're going to see a step up. There is no doubt that this technology and approach is adding value, and we're engaged in literally hundreds of discussions around AI, hundreds of discussions. And it's helping us win.

Speaker Change: Yeah, it's going to be steady progress, you know.

Speaker Change: It's going to be steady, steady, steady, steady, then we're going to see a step up. There is no doubt that this technology and approach is adding value.

Speaker Change: And we're engaged literally in hundreds of discussions around AI, hundreds of discussions.

Mark Barrenechea: You're seeing this reflected in our strength in our cloud bookings, in our confidence, in our getting to high single-digit organic cloud revenue growth. And the costs are coming down. The time to value is coming down, the use cases are getting crisper, and if you look at the evolution of content management, first you digitize things, and we put them into folders. We are then able to search. Then we need to be able to exchange that information outside of firewalls.

Speaker Change: And it's helping us win. You're seeing this reflected in our strength for our cloud bookings, in our confidence, in our getting to high single-digit organic cloud revenue growth. And the costs are coming down.

Speaker Change: The time to value is coming down. The use cases are getting crisper.

Speaker Change: And, you know, if you look at that kind of the evolution of content management, you know, first you digitize things and we put them into folders. We then were able to search. Then we got to be able to exchange that outside of firewalls.

Mark Barrenechea: Then it moved to the cloud, and now the next evolution of knowledge workers is about engaging with that content in whole new ways. So we're making progress. We're driving down costs. We've got more use cases. We're embedding it more.

Speaker Change: Then it moved to the cloud, and now that next evolution of knowledge workers is about engaging with that content in whole new ways.

Speaker Change: So we're making progress. We're driving down costs. We've got more use cases. We're embedding it more. We're engaged in more conversations. And we have customers speaking with us.

Mark Barrenechea: We're engaged in more conversations, and we have customers speaking with us, Nestle with their content and AI, Johnson & Johnson in the supply chain, Robert Balsh, North America, engaging with their content platform. I think the strength will come from content. It will come from the business network, and it will come from ITOM. And that's the next wave that we see. But it's gonna be steady progress, more use cases, and then there'll be some inflection point where it steps up, but it continues to be very real. Great job, Dr. Blount!

Speaker Change: Nestle and their content in AI, Johnson & Johnson in the supply chain, Robert Bosch, North America engaging in their content platform. I think the strength will come from content.

Speaker Change: It will come from the business network, and it will come from ITOM, and that's where the next wave that we see. But it's going to be steady progress, more use cases, and then there will be some inflection point where it steps up, but it continues to be very real.

Thanos Moschopoulos: Thank you. The next question comes from Tamal Kumara, Jesse. Please go ahead.

Speaker Change: Great job, Dr. Blount. Thanks.

Speaker Change: The next question comes from Tamal Kumara, Jesse. Please go ahead.

Tamal Kumara: Hi, good evening, thanks for taking my question. So maybe first, Mark, just since you mentioned it, my ear's perked up a little bit. You talked about a global outage.

Mark Barrenechea: You didn't mention the specific vendors, so I won't do that either, but you said that it's leading people to seek alternatives. So can you maybe help us understand, is that something specific to Open Text where it's driving alternatives as in business for you, or is that just you thinking through what the consequences are? Help us understand what you meant by that. Yeah, I mean, the outage may be over, but the impact is not. Our cloud was unaffected, our company was unaffected. I'm not here to throw names, so I won't.

Tamal Kumara: Hi, good evening. Thanks for taking my questions. So, maybe first, Mark, just since you mentioned it, my ear's perked up a little bit. You talked about a global outage.

Tamal Kumara: You didn't mention the specific vendors, so I won't do that either, but you said that...

Speaker Change: It's leading people to seek alternatives. So can you maybe help us understand, is that something specific to Open Text where it's driving alternatives as in business for you? Or is that just you thinking through what the consequences are? Help us understand what you meant by that.

Speaker Change: Yeah, I mean, the outage may be over, but the impact is not.

Speaker Change: Our cloud was unaffected. Our company was unaffected.

Speaker Change: I'm not here to throw names, so I won't. And we weren't affected because we use our own software.

Mark Barrenechea: And we weren't affected because we use our own software, and we deploy best practices. And so conversations are beginning around what are the alternatives to that particular vendor because of their lack of quality, their lack of process, and their technology deficiencies. And top of the stack for us coming into the year on the product side is content, BN, ITOM, and driving security across everything we do, driving AI across everything we do. So yeah, it's beginning to drive new conversations with our AEs about our security portfolio. Thanks for sharing that.

Speaker Change: and we deploy best practices.

Speaker Change: And so conversations are beginning around what are the alternatives to that particular vendor in their lack of quality, their lack of process.

Tamal Kumara: And then, as I think about the up to 5% cloud revenue growth, when you think about the, if you could give us some guardrails around that with the building blocks. And what I'm trying to ask is, when you think about that, the net retention number versus, call it like new products being introduced versus, I guess, you know, again, pumping the prime inside of the base and bookings that you've already got this year, how should we think about where that range lands?

Speaker Change: Thanks for sharing on that. And then as I think about the up to 5% cloud revenue growth,

Tamal Kumara: What's the biggest flex factor in there that gets you to that 5% number or somewhere below? Yeah, so up to 5% organic growth and driving towards high single-digit growth by 27. So we're not resting in the up to 5% organic.

Speaker Change: Yeah, so up to 5% organic growth.

Speaker Change: and driving towards high single-digit by

Mark Barrenechea: So let me highlight a couple things and maybe go to Paul on the renewal rate and maybe talk a little bit about what he's seeing in the field. The first is just driving the expansion of our business clouds. And again, our content business, business network, and ITOM business are going to lead the way. You know, customers can see this reinvention, the reimagining of knowledge work. Second, with Titanium and TitaniumX, the main driver is our SaaS portfolio, and adding more SaaS to off-cloud workloads or existing private cloud workloads or just independent SaaS deployments is going to be incredibly helpful.

Speaker Change: 27, so we're not resting in the up to 5%.

Speaker Change: You know, customers can see this reinvention, the reimagining of knowledge workers.

Speaker Change: Second is...

Speaker Change: With Titanium and Titanium X, the main driver is our SaaS portfolio.

Speaker Change: And adding more SAS to off-cloud workloads or existing private cloud workloads or just independent SAS deployments are going to be incredibly helpful.

Mark Barrenechea: We have partner ecosystem expansion. We're working at new strategic levels with Microsoft, SAP, new relationships with Salesforce, Google, of course, and then just driving security and AI across all that we do, and that's going to lead us to that higher end of the range that we talked about. Maybe, Paul, a little bit on the cloud renewal side, and Todd, your views on the field. Thanks, Mark.

Speaker Change: We've got partner ecosystem expansion. We're working at new strategic levels with Microsoft, SAP, new relationships with Salesforce, Google, of course.

Speaker Change: and then just driving against security and AI across all that we do.

Paul Duggan: And, you know, that's going to lead us to that higher end of the range that we talked about. Maybe, Paul, a little bit on the cloud renewal side? Yeah. And Todd, your views on the field? Yeah, thanks, Mark. I guess, let me first say, again, our gross renewal rate

Paul Duggan: I guess, let me first say again our gross renewal rate, For more information, please visit www.opentextcorp.com to raise commitments for our consumption-based renewals, and three, adding new services like the customer success, and premium support offerings I mentioned. So those strategies drive significant expansion on rules and are in addition to actually a large number of lead paths opportunities that we do as well for cross-sell opportunities that flow into Todd's team. So it's gonna give you a better representation of the business performance on that foundation that Mark talked about, on which we build the growth. And then, with my partner here, Todd, we'll build. Yeah, Paul, you had me at CrossSell.

Todd: for the cloud, really understates.

Todd: The strength of the business performance that we have. So for that reason, now that we have a scaled cloud, we're moving to this industry standard of using NRR. And through that lens, again, in Q4, we'd be in the mid to high 90s. Let me tell you about how we expand on the renewal side. So our strategy there is really three-pronged.

Todd: our pricing policies and controls.

Todd: to raising commitments for our consumption-based renewals.

Todd: and three, adding new services like the customer success.

Todd: and premium support offerings I mentioned. So those strategies drive significant expansion on roles.

Todd: and are in addition to actually large numbers of repass opportunities that we do as well for cross-sell opportunities that flow into Todd's team.

Todd: It's going to give you a better representation of the business performance in that foundation that Mark talked about, on which we build the growth, and then with my partner here, Todd, we'll build.

Todd Thione: That's a big opportunity and something we're executing right now across our specialized business cloud sales force. So we have great customers who depend on our content business, who depend on business networks, ITOM, and our cybersecurity business. And we have a great opportunity to CrossSell. And we've launched programs to be able to accelerate that now in F25. And I think the pipeline is great.

Todd: Yep, Paul you had me at cross sell. That's a big opportunity in something we're executing right now across our specialized

Todd Thione: by Business Cloud Salesforce. So we have great customers.

who depend on our content business, who depend on business networks, on ITOM and our cyber security business. We have a great opportunity to cross-sell and we've launched programs to be able to accelerate that now in F-25 and I think the pipeline reflects it.

Tamal Kumara: Appreciate the comprehensive answer, everybody. Thank you. Thank you. Thank you. The next question comes from Paul Treiber with RBC Capital Markets. Please go ahead. Thanks very much, and good afternoon.

Speaker Change: Very good. Great. Appreciate the comprehensive answer, everybody. Thank you. Thank you.

Paul Treiber: Firstly, just a clarification question. In light of the revised capital allocation strategy, with more flexibility there, there's no change in the 27 revenue. Open Text Corp. Transcribed by https://otter.ai/Paul, you broke up a little bit, so I couldn't hear it fully.

Todd: The next question comes from Paul Treiber with RBC Capital Markets. Please go ahead.

Paul Treiber: Thanks very much and good afternoon. Firstly, just a clarification question, just in light of the revised capital allocation strategy or the more flexibility there,

Paul Treiber: There's no change in the 27 revenue aspirations, which implies that that's organic. Is that the case, in that you're not assuming acquisitions to make those targets?

Madhu Ranganathan: Yeah, when you mentioned, Paul, this is Madhu here, the F-27, could you just repeat that part of the question? If the F-27 asks... Yeah, so, um, you know, again, I've stated our F25 strategy, right? The F-27 number is all ways to revenue over the next three years, and we have many paths to get there. We are focused on the highest return on capital, which is returning up to $570 million this year, or 90% of our free cash, and driving up the 5% cloud organic growth and accelerating that into the high single digits. So, is there some M&A in the 27 number? There could be some M&A in the 27 number, but that's not the focus at all, right? It's not the focus at all.

Madhu Ranganathan: Paul, you broke up a little bit, so I couldn't hear it fully. Yeah, when you mentioned, Paul, this is Madhu here, the F-27, could you just repeat that part of the question? If the F-27, the <expletive> versions, is that...

Todd: purely organic, and could you confirm it doesn't include acquisitions?

Paul: Yeah, so, you know, again, I've stated our F-25 strategy, right?

Paul: The F27 number is all ways to revenue over the next, right, three years.

Madhu Ranganathan: It's all ways to revenue, and we have many paths to get there. But Paul, be very clear in 2025, very clear in 2025, that our...

Paul: We are focused on the highest return of capital.

Madhu Ranganathan: which is returning up to $570 million this year or 90% of our free cash flows.

Todd: and driving up the 5% cloud organic growth and accelerating that into the high single digit.

Madhu Ranganathan: So, is there some M&A in the 27 number? There could be some M&A in the 27 number.

Paul Treiber: Our focus is driving our 25 cloud organic growth, continuing that expansion rate, and obviously, in the model, the vast majority of fiscal 27 would be organic. So I think that's the best way to answer it. Okay, thanks for that. The second question... Is that clear? I mean, is there anything to play back?

Speaker Change: But that's not the focus at all, right? It's not the focus at all. Our focus is driving our 25 cloud organic growth, continuing that expansion rate. And obviously in the model, the vast majority of Fiscal 27 would be organic.

Todd: So, I think that's the best way to answer it.

Paul Treiber: Is that clear? Is 25 clear? Yes, definitely. Okay, I just want to make sure. So, the second question, and just with the focus on return metrics that you've emphasized with the capital allocation, how should we think about it? Maybe I need to wait for the circular, but how should we think about incentives for management compensation? Would it also align or incorporate more return mechanisms?

Speaker Change: Okay, thanks for that.

Paul Treiber: Is that clear? I mean, is there anything to play back? Is that clear? Is 25 clear?

Speaker Change: Yes, definitely, definitely clear.

Speaker Change: Okay, I just want to make sure, so. The second question, and just with the focus on return metrics that you've emphasized with the capital allocation.

Speaker Change: How should we think about, and maybe I need to wait for the circular, but how should we think about incentives for management compensation? Would it also align or incorporate more return metrics?

Mark Barrenechea: You'll see the plan. We're actually making four disclosures in the CEDNA. We've listened intently to our shareholders. The committee and the board have listened intently. The talent and comp committee and the board have made four disclosures as to advancements in our comp program. You'll see it in the CEDNA.

Speaker Change: You'll see the plan. We're actually making four disclosures in the CEDNA. We've listened intently to our shareholders. The committee and the board has listened intently. The talent and comp committee and the board have...

Speaker Change: We're making four disclosures as to advancements in our comp program. You'll see it in the CD&A.

Paul Treiber: The standard approach to attracting senior talent is based on revenue and margins. But is that right? And so you'll see revenue and margin in our annual compensation, and then a longer-term bonus is tied to getting the stock up, as benchmarked to the NASDAQ. Thanks for taking the call. Yep. Thank you. The next question comes from Stephanie Price with CIDC; please go ahead. Hi, good evening. Thank you for the additional disclosure with the quarter. Madhu, maybe this is one for you.

Todd: The standard approach to attracting senior talent is based on revenue and margin.

Todd: Right, and so you'll see a revenue and margin in our annual compensation and then a longer-term compensation is tied to getting the stock up as benchmarked to the NASDAQ.

Todd: Thanks for taking the questions. Yep. Thank you.

Speaker Change: The next question comes from Stephanie Price with CIBC. Please go ahead.

Stephanie Price: I noticed in the PowerPoint that overall constant currency organic growth was roughly flat in fiscal 24, and you do mention that Micro Focus had organic growth during the year. Can you give us a little bit more color on Micro Focus here and maybe also just excluding AMC and how we should think about organic growth at Micro Focus post-meeting?

Stephanie Price: Hi, good evening. Thank you for the additional disclosure with the quarter.

Speaker Change: Madhu, maybe this is one for you. I noticed in the PowerPoint that overall constant currency organic growth was roughly spotted in fiscal 24.

Stephanie Price: And you do mention that Micro Focus had organic growth during the year. Could you give us a little bit more color on Micro Focus here and maybe also just excluding AMC and how we should think about organic growth and Micro Focus post-AMC divestiture?

Madhu Ranganathan: Yeah, so I would say let's recall back to where we had set the micro Focus baseline at 2.3. And vis-a-vis that, given the renewal rate performance in Fiscal 2024 for the entire year, we did organically grow Micro Focus. We met our plan. I think the ex-AMCs, including AMC, what I will say is that we had the AMC asset for 10 months, right? It's not like we had the AMC asset for two months.

Madhu Ranganathan: Yeah, so I would say let's recall back to where we had set the micro focus baseline at 2.3 billion, right?

Madhu Ranganathan: And, you know, vis-a-vis that, given the renewal rate performance in fiscal 24 for the entire year, we did organically grow Micro Focus. We met our plan.

Madhu Ranganathan: I think the ex-AMC, including AMC, what I will say is that we had the AMC assets for 10 months.

Madhu Ranganathan: So I think it's important to measure Micro Focus organic growth at the end of June 2024 more holistically as Micro Focus, including AMC. And we actually not only brought down declining rates in many different product lines and portfolios, but we also did very well with the AMC business. So, putting all of that together, Stephanie, we did meet our plan for Micro Focus organic growth.

Madhu Ranganathan: It's not like we had the AMC asset for two months. So I think it's important to measure, you know, micro-focus organic growth at the end of June 2024 more holistically as micro-focus including AMC. And we actually not only brought down the declining rates in many different...

Madhu Ranganathan: product lines and portfolios. We also did very well with the AMC business. So yes, putting all of that together, Stephanie, we did meet our plan for Micro Focus Organic Growth.

Stephanie Price: And then maybe, I guess another one actually from you, Madhu, just on the restructuring that you announced a few weeks ago, can you talk a little bit about the areas where the cost savings are coming from and how you think about the timing there? I think we might have calculated a slightly higher margin benefit, so I just wonder if you can walk through, you know, whether there is reinvestment along with the restructuring? Yeah, so a couple of things. One is, and I let Mark take a part of the question as well, so where did it come from?

Stephanie Price: Great to hear. Okay. And then maybe, I guess another one actually from you, Madhu, just on the restructuring that you announced a few weeks ago, can you talk a little bit about the areas where the cost savings are coming from and how you think about the timing there? I think we might have calculated a slightly higher margin benefit, so just wondering if you can walk through, you know, is there reinvestment along with the restructuring as well?

Stephanie Price: Yeah, so a couple of things. One is, and I'll let Mark take a part of the question as well, so where did it come from? Again, think of this as continued efficiencies and talent, talent structure, regions, right? As Mark mentioned, placing a talent in the right regions where a lot of talent exists and the cost differential is really meaningful for us from a cost structure and profitability perspective. And certainly took a look at layers of management, at all levels, and that was part of the restructuring as well. Now, to the question of why not more EBITDA expansion of the unit restructure, one comment I'll share, which was in our Form 8 case in Todd's area, as well as in Paul's, we are going to

Madhu Ranganathan: Again, think of this as continued efficiencies and talent, talent structure, and regions, right? As Mark mentioned, placing talent in the right regions where a lot of talent exists and the cost differential is really meaningful for us from a cost structure and profitability perspective. And certainly took a look at layers of management, right, at all levels, and that was part of the restructuring as well. Now, to the question of why not more EBITDA expansion of the restructuring, one comment I'll share, which was in our Form 8 case in Todd's area as well as in Paul's, we are going to be investing in 800 positions.

Madhu Ranganathan: And we're going to be investing earlier in the year to benefit Fiscal 25 and going into 26, and that's 800 positions in sales and services. So with all of that investment and the restructuring, which again we did in the early part of July to benefit the entire year, we are able to, on a net basis, increase EBITDA by 100 basis. Mark, did you want to share any thoughts? Yeah, Stephanie, I would just add one piece.

Mark Barrenechea: We'll also be investing in 800 positions.

Madhu Ranganathan: And we're going to be investing earlier in the year to benefit Fiscal 2025 and going into 2026, and that's 800 positions in sales and services. So with all of that investment and the restructuring, which again we did in early part of July to benefit the entire year, we are able to, on a net basis, increase EBITDA by 100 basis points.

Mark Barrenechea: I read your report, and thank you for the report. We kind of viewed the starting point a little differently than you did, which is when you look at micro focus and you take out AMC. Their adjusted EBITDA profile is extremely low-thirsty.

Madhu Ranganathan: Mark, did you want to share any thoughts? Yeah, Stephanie, I would just add one piece. I read your report, and thank you for the report. We kind of viewed the starting point a little different than you do.

Mark Barrenechea: which is when you look at micro focus and you take out AMC. Their adjusted IBIDA profile is extremely low 30s.

Stephanie Price: So your starting point is lower, and I think you need to factor that in when you look at our target for fiscal 25 of up to 34%. So you also have to get, what's your starting point, right? So I think when you look at Micro Focus XAMC, their adjusted EBITDA starting point is in the low-30s, so the step up is a little higher, plus all the investments and good things that Madhu has talked about. Thank you for the information. Thank you.

Stephanie Price: So your starting point is lower.

Madhu Ranganathan: And I think you need to factor that in when you look at our target for fiscal 25 up to 34 percent. So you also have to get, what's your starting point, right? So I think when you look at micro focus XAMC.

Stephanie Price: Their adjusted EBITDA starting point is very low 30s, so the step up is a little higher.

Stephanie Price: plus all the investments and good things that Madhu has talked about. So up to 34% in 2025, up to 36% in 2026, and up to 38% in 2027.

Speaker Change: Great, thank you for the color.

Richard Tse: Thank you. The next question comes from Richard Tse with National Bank Financials. Please go ahead.

Speaker Change: Thank you. Thank you.

Operator: Oh, thank you. I don't know if Todd's still on the line, but I had a question for you. Yes, he is.

Speaker Change: The next question comes from Richard Tse with the National Bank Financial. Please go ahead.

Todd Thione: Okay, great. So, presumably, you were brought on to help add and Open Text for Organic Growth Aspirations. Open Text Corp. What do you think really has been the challenge? Yeah, thanks for the question, and I'm excited to be a part of the team. You know, I think the challenges are really just big opportunities. We've got a great foundation, we've got a fantastic installed base, we've got products that provide customers with really deep value, and we've got a lot of upcoming innovation as well. So, I see huge upside opportunities.

Speaker Change: Oh, thank you. I don't know if Todd's still on the line, but I had a question for you. Yes, he is. Okay, great. So, presumably, you were brought on to help add to Open Text's organic growth aspirations.

Speaker Change: You've been there a hundred days, you said, like as an outsider, what do you think really been the challenges from your vantage point to accelerate organic growth here?

Todd Thione: Yeah, thanks for the question and I'm excited to be a part of the team. You know, I think the challenges are really just big opportunities. We've got a great foundation. We've got a fantastic install base. We've got products that provide customers with

Todd Thione: really deep value. And we've got a lot of upcoming innovation as well. So I see huge upside opportunities. There's a unified worldwide sales force that we now have.

Richard Tse: There's a unified worldwide sales force that we now have that we do things a lot more consistently while we're still balancing execution locally. And, you know, we've kept that deep business cloud specialization in place as well, and you couple that with some exciting talent that we're promoting from within and attracting from the outside, and we're pretty excited about the growth. And Richard, before you get to the second part of your question, I'll give my perspective, too.

Richard Tse: that we're doing things a lot more consistently while we're still balancing executing locally. And, you know, we've kept that deep business cloud specialization in place as well, and you couple that with

Richard Tse: Some exciting talent that we're promoting from within, we're attracting from the outside, and we're pretty excited about the growth potential.

Richard Tse: Okay, and it's like a related question. And Richard, before you get to your second part of your question, I'll give my perspective too. You know, companies as you scale, you reach certain inflection points.

Mark Barrenechea: You know, companies, as you scale, you reach certain inflection points. And as we approach $6 billion in revenues, we've reached our inflection point. And it's such a delight to have Todd on board as our President of Worldwide Sales to drive that consistency across all our selling theaters and teams and processes.

Mark Barrenechea: And, you know, as we approach $6 billion in revenues...

Mark Barrenechea: We've approached our inflection point.

Mark Barrenechea: And it's such a delight of having Todd on board as our President of Worldwide Sales to drive that consistency across all our selling theaters and teams and processes.

Richard Tse: And obviously, we expect great things in our partnership, Paul's promotion to President, Chief Customer Officer, and Madhu's promotion as well in operations and corporate development. So I think you've reached a point in your evolution, and we're not stopping at where we are in our evolution by any means, but we've gotten to a point of scale where we should have, and need a single leader with a strong vision for leading a single sales organization. Great, thanks. I do have a sort of follow-up question on that.

Richard Tse: And obviously we expect great things in our partnership. Paul's promotion on President-in-Chief Customer Officer and Madhu's promotion as well with operations and corp development. So I think you reach a point in your evolution.

Madhu Ranganathan: And we're not stopping where we are in our evolution by any means, but we've gotten to a point of scale where we should have, need a single leader with a strong vision on leading a single sales organization.

Todd Thione: So you laid out a fairly detailed plan at the beginning. Of that plan, what would you consider sort of the biggest driver? Yeah, I think, thanks for that follow-up question, people. People, people, people, people. So having the right people, really focused in the right roles, with the right enablement, empowered, and focused. That's where we're going to get, I think, a significant step up as well. And, you know, again, we have great customers that depend on Open Text technology.

Todd Thione: Yeah, I think, I think, thanks for that follow-up question, that people.

Todd Thione: People, people, people, so having the right people.

Todd Thione: Empowered.

Todd Thione: and Focus. That's where we're going to get, I think, a significant step up as well. And, you know, look, again, we have great customers that depend on Open Text technology, and the more that we will consistently make sure that we're connecting and demonstrating a clear value proposition.

Todd Thione: And the more that we consistently make sure that we're connecting and demonstrating a clear value proposition consistently globally, I think we get a significant return. The next question comes from Adhir Kadve with Ape Capital. Please go ahead. Hey guys, thanks for taking my question here. Maybe one for Todd or, potentially, maybe for Paul.

Speaker Change: consistently globally, I think we get a significant return there as well.

Todd Thione: Great, thank you. Thank you, Richard.

Speaker Change: The next question comes from Adhir Kadve with Ape Capital. Please go ahead.

Adhir Kadve: You know, you've talked a lot about people today. Given that the macro continues to be somewhat uncertain, you know, budgets are continually scrutinized. Todd or Paul, how have you guys kind of altered your approach to the sales organization versus those, you know, previous cycles that you guys have kind of worked through? Yeah, I don't know that I would say a significant alteration.

Speaker Change: Yeah, I don't know that I would say significant alterations.

Todd Thione: Other than making sure that we're excellent at the basics, like I described, rigor is a really big part of what we're focused on. And that also includes innovation, you know, in allowing our teams to be more efficient by leveraging technology like our own AI internally, as I mentioned, for RFPs and proposal generation. We've got a long list of other internal innovations that we'll launch this year that will boost their efficiency as well. So I think those are key elements. Paul, anything else?

Todd Thione: other than making sure that we're excellent at the basics like I described.

Todd Thione: You know, rigor is a really big part of what we're focused on, and that also includes innovation, you know, and allowing our teams to be more efficient by leveraging technology, like our own AI internally, as I mentioned, for RFPs and proposal generation.

Todd Thione: We've got a long list of other internal innovations that we launch this year that will boost their efficiency as well.

Paul Duggan: You know, I guess to tack on to that, one of the areas that comes to mind that we've adjusted a bit is in professional services. So as we look ahead to next gen, we look ahead to AI and the talent market that's out there that all of our customers are looking to source this unique skill set from. We know that if we can build that up in a rapid way, kind of internally and also pulling in some outside talent as well, we're going to have a differentiator in those conversations. These are tough resources to find.

Paul Duggan: So I think those are those are key parts, Paul, in any way.

Paul Duggan: I guess to tack on to that, one of the areas that comes to mind that we've adjusted a bit is in professional services. So as we look ahead to next gen, we look ahead to AI and the talent market that's out there that are all of our customers.

Paul Duggan: are looking to source this unique skill set in. We know that if we can build that up in a rapid way, kind of internally and also pulling in some outside talent as well, that we're gonna have a differentiator in those conversations.

Adhir Kadve: So having that within Open Text, having that as a seat at the table in our partnerships with our customers and giving them access to that skill is an important priority for us in the year ahead. And just as a quick follow-up, maybe just on AI, Mark, you continue to say that, you know, researching and piloting, what's the gating factor there that's kind of stopping customers from really kind of really pushing the accelerator on their AI? Yeah, we're also winning, right?

Adhir Kadve: These are tough resources to find. So having that within Open Text...

Adhir Kadve: Having that as a seat at the table in our partnerships with our customers.

Adhir Kadve: and giving them the access to that skill is an important priority for us in the year ahead.

Speaker Change: Great, and just as a quick follow-up, maybe just on AI, Mark, you know, you can see you say that, you know, researching and piloting, what's the gating factor there that's kind of stopping customers from really kind of really pushing the accelerator on their AI deployments?

Adhir Kadve: So just our bookings growth, there's unequivocally AI wins in there, and AI-related wins. I think an interesting dynamic that I'm seeing is that if I look at our, A couple hundred interactions, right, and detailed conversations, and our active work going on right now, they're around big projects. They're not around small gains.

Adhir Kadve: yeah we're also winning right so I just our bookings growth there's unequivocally AI wins in there and AI related wins I think an interesting dynamic that I'm seeing is that if I look at our

Adhir Kadve: You know, a couple hundred interactions, right, and detailed conversations.

Mark Barrenechea: They're around big gains with our customers. It's an interesting dynamic that this is a problem set that requires investment, but customers are not thinking of small problems. They're approaching AI with solving some of their biggest challenges that they want, looking at billion-dollar supply chains and optimizing billion-dollar supply chains, looking at $50 billion in contracts and how to optimize them, looking at every single trade in the United States at a particular moment.

Mark Barrenechea: and our active work going on right now.

Mark Barrenechea: They're around big projects.

Madhu Ranganathan: They're not around small gains, they're around big gains.

Mark Barrenechea: What Are Customers? It's an interesting dynamic.

Mark Barrenechea: that this is a problem set that requires investment.

Mark Barrenechea: But customers are not thinking of small problems. They're approaching AI.

Mark Barrenechea: with solving some of their biggest challenges that they want.

Mark Barrenechea: Looking at billion-dollar supply chains and optimizing billion-dollar supply chains, looking at

Mark Barrenechea: 50 billion in contracts and how to optimize them, looking at every single trade in the United States at a particular moment.

Mark Barrenechea: So it's an interesting dynamic that is about big data sets and solving big problems. And I would have said that a year ago, but I think that's a pattern. And so as the cost goes down, and the ease of deployment goes down, I think we'll also see maybe smaller use cases.

Mark Barrenechea: So, it's an interesting dynamic that is about big data sets and solving big problems. And, you know, I wouldn't have said that a year ago, but I think that's a pattern. And so, as the cost goes down, the ease of deployment goes down, I think we'll also see maybe smaller use cases.

Adhir Kadve: So that's a dynamic all throughout there, and when we get to that point, we're in a premier position to just solve big problems for our customers. Great, thanks guys, I'll pass it along. Thank you. I will now hand the call back over to Mr. Barrenechea for his closing remarks, please. Yeah, fantastic. I'd just like to go back to two questions and wrap it up. On the comp and cDNA, I made a point. I may have made it too fast.

Madhu Ranganathan: So that's a dynamic all throughout there and when we get to that point, we're in a premier position to just solve big problems for our customers.

Speaker Change: Great. Thanks, guys. I'll pass it along.

Speaker Change: Thank you.

Mr. Barrenechea: I will now hand the call back over to Mr. Barrenechea for closing remarks, please. Yeah, fantastic. I'd just like to go back to two questions and wrap up. On the comp and cDNA, I made a point, I may have made it too fast. One is, we're doing something very unique this year when you look at our cDNA or compensation discussion analysis. We're making four disclosures.

Mark Barrenechea: One is, we're doing something very unique this year. When you look at our cDNA, our compensation discussion analysis, we're making four disclosures. And in that, you're going to see that the talent and comp committee and the board have set higher bars on leadership, both on growth and margin. I think that's the key takeaway.

Mark Barrenechea: And in that, you're going to see that the talent and comp committee and the board have set higher bars on leadership.

Mark Barrenechea: And so we're doing a forward disclosure, and we're setting higher, and the board and the committee are setting higher bars. We look forward to your feedback. On the F27 plan, I want to be very clear, it's completely in our hands. And it is manifestly organic growth, and there should be no ambiguity about that.

Mark Barrenechea: both on growth and margin. I think that's the key takeaway.

Mark Barrenechea: And so we're doing a four disclosure, and we're setting higher, and the board and the committee are setting higher bars.

Mark Barrenechea: We look forward to your feedback. On the F-27 plan, I want to be very clear, it's completely in our hands. And it is manifestly organic growth. And there should be no ambiguity about that.

Mark Barrenechea: In terms of a wrap-up, I'd like to just end where we started. We're extremely focused on advancing our competitive advantage because competitive advantage is everything. And we're on track with TitaniumX, which is the next big step up. We're focused on delivering cloud revenue growth of 7% in 2024, up to 5% organic growth in 2025, and 7% to 9% growth in 2027. We are focused on capturing the significant margin opportunity in front of us, from up to 34% in 2025, 36% in 2026, and up to 38% in 2027.

Mark Barrenechea: In terms of a wrap-up, I'd like to just end where we started. We're extremely focused on advancing our competitive advantage because competitive advantage is everything.

Mark Barrenechea: And we're on track with TitaniumX, which is the next big step up. We're focused on delivering cloud revenue growth. 7% in 2024, up to 5% organic growth in 2025, and 7% to 9% growth in 2027.

Mark Barrenechea: We are focused on capturing the significant margin opportunity in front of us.

Mark Barrenechea: from up to 34% in 25, 36% in 26, up to 38% in 27.

Mark Barrenechea: And we're excited about our disciplined capital return and having the highest capital return in our history this year of up to $570 million, with our new $300 million buyback and our dividend raise of 5%. Thank you all. We look forward to seeing you at our upcoming conferences at Oppenheimer, Morgan Stanley, and Deutsche Bank in late August and Citi's Global Tech Conference in New York City on September 5th. That ends today's... concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Mark Barrenechea: And we're excited about our disciplined capital return and having the highest capital return in our history this year of up to $570 million with our new $300 million buyback and our dividend raise of 5%.

Mark Barrenechea: Thank you all. We look forward to seeing you at our upcoming conferences at Oppenheimer, Morgan Stanley in late August , Deutsche Bank late August , and and Citi's Global Tech Conference in New York City September 5th. Thank you for joining us today. That ends today's call.

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

Mark Barrenechea: [inaudible]