Q3 2025 Open Text Corp Earnings Call

Yes.

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

Speaker Change: Thank you for standing by this is the conference operator welcome to the open text Corporation third quarter fiscal 2025 financial results Conference call.

Operator: Welcome to the Open Text Corporation third quarter fiscal 2025 financial results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an analyst Q&A session. To join the question queue, simply press star then 1 on your touchtone phone. Should anyone need assistance during the conference call, they may signal an operator by pressing star then zero.

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

Speaker Change: 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: Should anyone need assistance during the conference call that they may signal, an operator by pressing Star then zero.

Greg Secord: I would now like to turn the conference over to Greg Secord, Head of Investor Relations. Please go ahead. Thank you, Gaylene. And good morning, everyone.

Speaker Change: I would now like to turn the conference over to Greg Secord head of Investor Relations. Please go ahead.

Speaker Change: Thank you Kevin and good morning, everyone. Welcome to open tax third quarter fiscal 2025 earnings call with me on the call. Today are open text, Chief Executive Officer, and Chief Technology Officer, Mark J <unk>.

Greg Secord: Welcome to Open Text third quarter fiscal 2025 earnings call. With me on the call today are Open Text Chief Executive Officer and Chief Technology Officer Mark Barrenechea and Open Text Executive Vice President and Chief Financial Officer Chadwick Today's call is being webcast live and recorded with replay available shortly thereafter. All this is available on Open Text Investor Relations website which as a reminder is investors.opentext.com. On today's webcast, we're trying something new, and we'll have our prepared remarks coordinated with the slides from our Q3 financial results presentation.

Chadwick Westlake: If a tax executive Vice President and Chief Financial Officer Chadwick Westlake.

Chadwick Westlake: Today's call is being webcast live and recorded with the replay available. Shortly thereafter all of this is available on open text Investor Relations website, which as a reminder, as investors don't open text Dot com.

Chadwick Westlake: Today's webcast, we're trying something new and we will have our prepared remarks coordinated with the slides from our Q3 financial results presentation. This presentation is available on the IR website to download and please note that if you are logged in for the live webcast are already set up for the slideshow.

Greg Secord: This presentation is available on the IR website to download, and please note that if you're logged in for the live webcast, you're already set up for I'll also point out that there are two presentations posted on our IR website, the Q3 Fiscal 25 IR Financial Results Slideshow that will be used during the call, and our broader Q3 Fiscal 25 Investor Presentation, which is posted for reference throughout the quarter and used during our investor meeting.

Chadwick Westlake: I'll also point out that there are two presentations posted on our IR website. The Q3 fiscal twenty-five IR financial result side show so that will be used during the call and our broader Q3 fiscal 'twenty five investor presentation, which is posted for referenced throughout the quarter and used during our investor meetings.

Greg Secord: Now turning to upcoming investor events, Open Text will be participating in the following investor conferences. On May 8th, the Needham Technology Media and Consumer Virtual Conference. On May 20th, the Barclays Leveraged Finance Conference in Austin, Texas. On May 22nd, the CIBC Technology Conference in Toronto. May 29th, Jeffrey's Public Technology Conference in Newport Coast, California. And the BMO Bank of Montreal Virtual Software Conference on June 9th.

Chadwick Westlake: Now turning to upcoming Investor events open text will be participating in the following investor conferences on May 8th the Needham Technology media and consumer Virtual conference on May 20th Barclays Leveraged Finance conference in Austin, Texas on May 22nd the CIBC Technology Conference in Toronto May 29th Jefferies Public Technology Conference.

In Newport Coast, California.

Chadwick Westlake: And the BMO Bank of Montreal Virtual software conference on June 9th finally back in Toronto on June 12th for the RBC technology, Internet media and telecommunications symposium it.

Greg Secord: Finally, back in Toronto on June 12th, for the RBC Technology Internet Media and Telecommunications It will be a busy quarter. We look forward to it.

Chadwick Westlake: It will be a busy quarter, we look forward to meeting with you and now for the reading of our Safe Harbor statement.

Greg Secord: And now for the reading of our safe harbor. During this call, we'll be making 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. Additional information about the material factors that could cause actual results to differ materially from such forward-looking statements, as well as risk factors that may impact future performance results of Open Text, are contained in Open Text's recent forms 10-K and 10-Q, as well as in our press release that was distributed last night.

Chadwick Westlake: During this call, we'll be making forward looking statements relating to the future performance of Overtaxed. 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.

Chadwick Westlake: Additional information about the material factors that could cause actual results to differ materially from such forward looking statements as well as risk factors that may impact future performance results of open text are contained in open text recent forms 10-K, and 10-Q as well as in our press release that was distributed.

Greg Secord: Each of these can be found on our IR website. We undertake no obligation to update these forward-looking statements unless required to do so by law. In addition, our conference call may include discussions of certain non-GAAP financial measures and 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 also available on our website.

Chadwick Westlake: Last night on.

Chadwick Westlake: Each of these can be found on our IR website, we undertake no obligation to update these forward looking statements unless required to do so by law. In addition, our conference call May include discussions of certain non-GAAP financial measures and 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 all.

Mark Barrenechea: And with that, I will hand the call over to Mark. Thank you, Greg, and good morning and welcome everyone to our Q3 earnings call. There are three key areas I plan to cover this morning. First, I want to refresh our listeners on why Open Text is so distinct. Designed to perform across business cycles, it is critically significant to organizations across industries and geographies. There may be external factors we cannot control that makes revenue harder to forecast, but we intend to perform in the areas we do control, like EBITDA, earnings, free cash flow and capital return.

Chadwick Westlake: So available on our website and with that I'll hand, the call over to Mark. Thank you, Greg and good morning, and welcome everyone to our Q3 earnings call.

Mark J: There are three key areas I plan to cover this morning.

Mark J: First I want to refresh our listeners on wide open text is so distinct designed to perform across business cycles.

Mark J: Critically significant organizations across industries and geographies geographies. There may be external factors, we cannot control that makes revenue harder to forecast, but we intend to perform in the areas. We do control like EBITDA earnings free cash flow and capital return seconds.

Mark Barrenechea: Secondly, I'll take you through some important product, customer, and financial updates for the quarter, as well as my perspective on market volatility and how Open Text is positioned to help our customers create value through this deep uncertainty. This includes discussing the transformative expansion of our business optimization plan, which is led by AI First. Third, I'll confirm progress on our three strategic priorities, including competitive advantage, total revenue growth, and operational excellence. Our differentiation is getting stronger through AI first, and this will help us, this will help lead us to upper quartile returns.

Mark J: Secondly, I'll take you through some important product customer and financial updates for the quarter as well as my perspective on market volatility and how open text is positioned to help our customers create value through this deep uncertainty. This includes discussing the transformative expansion of our business optimization plan, which is led by AI first.

Mark J: Third I'll confirm progress on our three strategic priorities, including competitive advantage total revenue growth and operational excellence, our differentiation is getting stronger through AI first and this will help us. This will help lead us to upper quartile returns before I start I'd like to thank Madhu for seven years.

Mark Barrenechea: Before I start, I'd like to thank Madhu for the seven years of service to Open Text and for the transition, excuse me, over the last few months. All the best in her continued journey.

Mark J: Service to open text and for their transition.

Mark J: Excuse me over the last few months all the best in her continued journey, let me formally welcome our new CFO and business partner Chadwick Westlake Chadwick joined us.

Mark Barrenechea: Let me formally welcome our new CFO and business partner, Chadwick Westlake. Chadwick joined us from Publicly Traded EQ Bank in Canada, and as you know, he is an employee recognized as one of this year's best executives in Canada by the Globe and The leadership team and I look forward to working with him as we bring Open Text to its next level of performance and value potential. Chadwick will speak to the highlights of the quarter here shortly.

Shattuck: From publicly traded EQ Bank in Canada, and as you know he is an outstanding executive and it was just recognized as one of this year as best executives in Canada by the Globe and mail the leadership team and I look forward to working with him as we bring <unk> to its next level of performance and value potential Shattuck, who will speak to the highlights of the quarter here shortly.

Mark Barrenechea: Let me jump right in. Open Text will celebrate its 35th anniversary this summer, and our potential remains limitless. By choice and origin, we are proudly Canadian, helping the world's largest organizations deliver products and services that benefit the lives of hundreds of millions of people every day across the world from Canada. At our core, Open Text is an information management company. We've empowered the knowledge worker over the last three decades, and now we are creating the digital knowledge worker of the future. We operate a portfolio of cloud products centered on enterprise content and process automation, securing and integrating that content across business applications and business networks, delivering exceptional services to the users of that content, and doing this at scale.

Shattuck: Let me jump right in open text will celebrate its 35th anniversary this summer and our potential remains limitless like choice and origin. We are proudly Canadian helping the world's largest organizations deliver products and services that benefit the lives of hundreds of millions of people every day across the world from <unk>.

Shattuck: Canada.

Shattuck: At our core open text is an information management company, we empower them, we've empowered the knowledge worker over the last three decades and now we're creating the digital knowledge worker of the future.

Shattuck: We operate a portfolio of cloud products centered on enterprise content and process automation, securing and integrating that content across business applications and business networks delivering exceptional services to the users of that content and doing this at scale.

Mark Barrenechea: We are now redefining the value of that information through our new AI platform, Aviator. Our ability is unmatched to solve global and strategic problems for our customers by universally linking information agnostic to platform or infrastructure or language model or information format. We have always centered on building lifetime value for our customers through a raison d'etre of we always deliver. No one else can do what we do. This is the key to our resilience. Our capabilities are far-reaching. Open text is likely part of your daily life, and you may not even realize it. For example, where did you get your milk this morning to put in your coffee or your breakfast?

Shattuck: We are now redefining the value of that information through our new AI platform aviator R.

Shattuck: Our ability is unmatched to solve global and the strategic problems for our customers by universally linking information agnostic platform or infrastructure or language model or information format. We have always centered on building lifetime value for our customers through our raison d'etre of we always deliver.

Shattuck: No one else can do what we do this is the key to our resilience.

Shattuck: Our capabilities are far reaching open text is likely part of your daily life and you may not even realize it for example, where did you get your your your your milk or breakfast Oh, what did you get your milk. This morning to put in your coffee or your breakfast did you read the morning newspaper using cellular data how did you process family payments did you stopped for gas.

Mark Barrenechea: Did you read the morning newspaper using cellular data? How did you process family payments? Did you stop for gas? Did you see a doctor or take medicine? Or simple as turning on your lights, turning on your TV, or watching a streaming movie or the National Hockey League? Open Text is the platform behind the scenes. for the brands that you trust every day, making all of this It is important for our investors to understand that we allocate capital to deliver the best value. We are both an offensive and defensive investment opportunity in Canadian technology, with significant reasons to hold, buy, and buy more of our stock.

Shattuck: S did you see a doctor or take medicine or simple as turning on your lights, turning on your T V or watching a streaming movie all the National Hockey League.

Shattuck: Open text is the platform behind the scenes for the brands that you Trust every day, making all of this work.

Shattuck: It is important for investors to understand that we allocate capital to deliver the best value.

Shattuck: We are both an offensive and defensive investment opportunity in Canadian technology with significant reasons to hold buy and buy more of our stock. The team is excited about winning in F. 'twenty six with a new product cycle relevant to strategic needs of cloud security and AI, we aren't AI led organization with a trans.

Mark Barrenechea: The team is excited about winning in F26. with a new product cycle relevant to strategic needs of cloud security in AI. We are an AI led organization with a transformative business optimization. The external distractions of XAMC, DXC, XRoyalty are now behind us this quarter and a clear return to capital flexibility as you can see from our cash flow engine and our cash flow results in Q2. You can expect us to resume our traditional programmatic approach to growth through tuck-in acquisitions when they align with our strategic priorities. We'll also carry out programmatic divestitures when that is the best opportunity to monetize long-term returns for mature products.

Shattuck: Formative business optimization plan.

Shattuck: External distractions of ex AMC Dxd ex royalty are now behind us this quarter and a clear return to clap capital flexibility as you can see from our cash flow engine.

Shattuck: And our cash flow results in Q3, you can expect us to resume our traditional programmatic approach to growth through tuck in acquisitions, while our when they align with our strategic priorities will also carry out programmatic divestitures when that is in the best when that is the best opportunity to monetize long term returns for mature products.

Mark Barrenechea: Our primary use of capital is approximately 50% of free cash flow to dividends and buybacks, and as free cash flow grows, so should our capital return. But also please recall, when we introduced this, we also said we will remain flexible and allocate our capital to the highest return scenario that is in front of us. Expect us to continue to allocate capital in a flexible manner, but always for the highest return. Bottom line, our total shareholder return proposition keeps getting stronger.

Shattuck: Our primary use of capital is approximately 50% of free cash flow to dividends and buybacks and that's free cash flow growth social social our capital return, but also please recall when we introduce this we also said we will remain flexible and allocate our capital to the highest return scenario that is in front of us expect us.

Shattuck: To continue to allocate capital in a flexible manner, but always to the highest return.

Shattuck: Bottom line, our total shareholder return proposition keeps getting stronger.

Mark Barrenechea: Before I get into the quarter highlights, I want to speak about the market volatility. You may have heard other companies talk about two demand scenarios and thus two outlooks, and some companies are even pulling guidance. You are all very aware of what is happening, and let me add our color to recent events. There was clearly a demand shock in the second half of fiscal Q3, driven by the sudden announcements of tariffs, which then became rolling tariffs. There was so much tariff information for our customers to understand, and some of that information, quite candidly, was reliable, and some of it was not.

Shattuck: Before I get into the quarter highlights I want to speak about the market volatility.

Shattuck: You may have heard other companies talk about to demand scenarios, and thus two outlooks and some companies or even pulling guidance you were all very aware of what is happening and let me add r-color two recent events.

Shattuck: There was clearly a demand shock in the second half of fiscal Q3, driven by the sudden announcements of tariffs, which then it became rolling tariffs. There was so much tariff information for our customers to understand some of the information quite candidly was reliable and somewhere it was not we are seeing our customers move beyond these disappointments in disbelief.

Mark Barrenechea: We are seeing our customers move beyond these disappointments and disbelief to now take in control. They are continuing with their strategic priorities, even if in some cases reduced near-term— even in some cases, reducing near-term spend. I'd like to highlight an important positive trend that we are seeing, where customers are looking to deploy in local clouds, while reducing their dependencies on U.S. technology. This introduces new opportunities for Open Text, given our Canadian roots and local presence in key regions around the world. For further, customers are continuing the consolidation to the cloud, creating programs to gain more efficiency, and doing this through information management, AI, and new digital workers.

Shattuck: So now taking control.

Shattuck: They are continuing with their strategic priorities, even if in some cases reduced near term event.

Speaker Change: Even in some cases, reducing near term spend I'd like to highlight an important positive trend that we are seeing where customers are looking to deploy and local clouds, while reducing the dependencies on U S. Technology. This introduces new opportunities for open text, given our Canadian roots and local presence in key regions around the world.

Speaker Change: Further customers are continuing their consolidation to the cloud creating programs to gain more efficiency and doing this through information management AI and new digital workers are digital worker approaches rest any like AI and machine is due to the work. This is a low cost unlimited workforce that will benefit all organizations in all industries.

Mark Barrenechea: Our digital worker approach is resonating. Let AI and machines do the work. This is a low-cost and limited workforce that will benefit all organizations in all industries. As we demonstrated at Open Tech Summits in Europe a few weeks ago, with our new cloud additions, AI Aviators and MyAviator, we can take human tasks that require dozens of screens and work and days of work and reduce that down to a dialog box in minutes.

Speaker Change: As we demonstrated open tech summits in Europe, a few weeks ago with our new cloud editions AI aviators and my aviator, we can take human tasks that required dozens of screens and work and days of work and reduce that down to a dialogue box in minutes instead.

Mark Barrenechea: In summary, no one can predict how long the volatility will last, but we are well positioned to help organizations reposition globally, deploy locally in our private and sovereign clouds, and gain extreme efficiency through deploying a new digital workforce using our AI.

Speaker Change: In summary, no one can predict how long the volatility will last but we are well positioned to help organizations reposition globally deploy locally in our private and sovereign clouds and gain extreme efficiency through deploying a new digital workforce using our AI shifting.

Mark Barrenechea: Shifting to RQ3. In a normal world, we were fully expecting to deliver to our business plan and revenue range of $1.26 billion to $1.3 billion, but given the large volatility, we did not meet our expectations on revenue and new bookings, and we ended up 50 basis points below our target range. Once tariffs were announced, including 25% auto tariffs, as well as US government spending cutbacks, customers paused to assess the impact on their business. And our book of business was disrupted in the range of $40 to $50 million. During COVID, we saw impact on travel, transportation, retail, and it all came back.

Speaker Change: Shifting to our Q3.

Speaker Change: In a normal world, we were fully expecting to deliver it to our business plan and revenue range of 1.26 billion to $1 3 billion, but given the large volatility we did not meet our expectations on revenue and new bookings and we ended up 50 basis points below our target range.

Speaker Change: Once tariffs were announced including 25% auto tariffs as well as U S government spending cut backs customers paused to assess the impact on their businesses and our book of business was disrupted in the range of $40 million to $50 million.

Speaker Change: We're in Covid, we saw impact on travel transportation retail and it all came back and this disruption we are seeing impact in auto materials energy government and some retail and it too will come back with.

Mark Barrenechea: And this disruption, we are seeing impact in auto, materials, energy, government, and some retail, and it too will come back. With that said, we executed extremely well in our operations across adjusted EBITDA, adjusted EPS, free cash flow, and our share of purchase program. In Q3, XAMC, and in constant currency, we delivered $1.27 billion of total revenues, down 2.9%, down 1% when factoring in IP rights and DXC. New cloud bookings were $151 million, down 8% due to the demand disruption. We expect to show Q4 growth in enterprise cloud bookings and for the fiscal year. Bookings growth in Q4 is unlikely to be enough to get us to our 20% to 25% annual target.

Speaker Change: What does that week, we executed extremely well in our operations across adjusted EBITDA, adjusted EPS free cash flow and our share repurchase program.

Speaker Change: In Q3 ex AMC and in constant currency, we delivered 1.2 dollars 7 billion of total revenues down two 9% down 1% when factoring in IP rights in D C.

Speaker Change: New cloud bookings were $151 million down 8% due to the demand disruption, we expect to show Q4 growth in enterprise cloud bookings and for the fiscal year bookings growth in Q4 is unlikely.

Mark Barrenechea: Rather, we expect the fiscal year to be in the mid-teens for growth. I would continue to encourage investors to focus on RPO and CRPO as the most effective go-forward metrics, as these will have more clear benefit with year-over-year metrics as of Q4. As I noted up front, while we may not be able to predict the headlines in the coming weeks and months, we will control well that which we can control, including EBITDA, earnings-free cash flow, and capital return. Looking at Q3, positively within the quarter, cloud revenues grew 3% year-over-year in constant currency, our 17th consecutive quarter of organic growth.

Speaker Change: To be enough to get us to our $20 to 25% annual target rather we expect the fiscal year to be in the mid teens for growth.

Speaker Change: I will continue to encourage investors to focus on <unk> and C. R. P O as the most effective go forward metrics as these will have more clear benefit with year over year metrics.

Speaker Change: As of Q4.

Speaker Change: As I noted upfront, while we may not be able to predict the headlines in the coming weeks and months, we will control well that which we can't control, including EBITDA earnings free cash flow and capital return looking at Q3 positively within the quarter card revenues grew 3% year over year in constant currency, our 17th consecutive quarter of organic.

Mark Barrenechea: Adjusted EBITDA was strong at $395 million, or a 31.5% margin, up year-over-year, excluding AMC. Adjusted EPS was $0.83 in constant currency, up year-over-year, excluding AMC. We had record-free cash flow of $374 million, up 7% year-over-year. We scaled our repurchase program by 50% in the quarter. We repurchased and retired 4.4 million shares for $115 million, for total outstanding shares of approximately $260 million, the lowest since September of 2016, and cash ended up at nearly $1.23 billion.

Speaker Change: Growth adjusted EBITDA was strong at $395 million or 31, 5% margin up year over year, excluding a M C G.

Speaker Change: EPS was <unk> 83 cents in constant currency up year over year, excluding AMC, we had record free cash flow of $374 million up 7% year over year, we scaled our repurchase program by 50% in the quarter, we repurchased and retired $4 4 million shares for $115 million for total outstanding standing shares of approximate.

Speaker Change: $260 million the lowest since September of 2016, and cash ended up at nearly 1.23 billion.

Mark Barrenechea: Q3 was a strong product and customer quarter. Customer wins included ABN AMRO for application security, Fornari International for digital commerce, Japan Topako for application automation, the US Air Force for secure identity, and Pacific Life for digital information management. These wins were led by our next generation cloud platform, Titanium X, where we are winning with AI First, our business cloud suites, our new security technology for identity protection, and threat detection and response. TitaniumX with AI is now delivered, launched last month from our European customer summit. And this is a game changer for us. Combined with our business cloud suites, we can help customers make faster and more accurate decisions, deliver a step change in productivity, and simplify multi cloud complexity.

Speaker Change: Q3 was a strong product and customer quarter customer wins included ABN Amro for application security for international for digital Commerce, Japan tobacco for application automation. The U S Air Force for secure identity and Pacific Life for digital information management. These wins were led by.

Speaker Change: Our next generation cloud platform titanium X, we are where we are winning with AI first our business cloud suites, our new security technology for identity protection and threat detection and response.

Speaker Change: Max with AI is now delivered launched last month from our European customer Summit and this is a game changer for us combined with our business cloud suites, we can help customers make faster and more accurate decisions deliver a step change in productivity.

Mark Barrenechea: We have a very ambitious multi-quarter roadmap, leading with AI first. And every customer is an opportunity to upgrade and expand with Titanium X.

Speaker Change: And simplify multi cloud complexity, we have a very ambitious multi quarter roadmap, leading with AI first and every customer has an opportunity to upgrade and expand with titanium X.

Mark Barrenechea: Let me turn to our expanded business optimization plan, which we announced today as outlined on slide 13, where AI First is now the central part of our corporate DNA and culture. New hires must have AI skills. AI will be part of our performance and talent reviews. AI is now turned on in various forms for all our employees to use. And we will only hire new talent where the work cannot be done by AI. We are using AI in engineering, support, professional services, and sales, and for the general knowledge here. We have progressed so rapidly with AI, we can now see the path to a significant reset in our cost structure through our expanded plan and other related initiatives.

Speaker Change: Let me turn to our expanded business optimization plan, which we announced today as outlined on slide 13.

Speaker Change: First is now the central part of our corporate DNA and culture.

Speaker Change: New hires must have AI skills.

Speaker Change: I will be part of our performance and talent reviews. AI has now turned on in various forms for all our employees to use and we will only hire new talent, where the work cannot be done by AI.

Speaker Change: We are using AI and engineering support professional services and sales and for the general knowledge worker.

Speaker Change: We have progressed so rapidly with AI, we can now see the path to a significant reset in our cost structure through our expanded plant and other related initiatives.

Mark Barrenechea: We expect the new annualized savings to be up to $400 million, including an incremental net reduction of 1,600 employees. And when combined with what we have previously announced and actioned, this is a total annualized savings of $490 million to $550 million, and a net reduction of 2,000 employees when fully implemented. Approximately 50% of the new savings are to be realized in Fiscal 26, with the remaining benefit to be realized in Fiscal 27. This is transformative and strategically aligned to our AI-first culture and initiatives.

Speaker Change: We expect the new annualized savings to be up to 400 million, including an incremental net reduction of 600 employees and when combined with what we have previously announced an action. This is a total annualized savings of 490 million to $550 million and a net reduction of 2000 employees when fully implemented.

Speaker Change: Only 50% of the new savings are to be realized in fiscal 'twenty six with the remaining benefit to be realized in fiscal 'twenty seven.

Speaker Change: <unk> is transformative and strategically aligned to our AI first culture and initiatives will provide more clarity on this in our queue.

Mark Barrenechea: We'll provide more clarity on this in Q4, conjunctive with our F26 targets, including what to expect in margin improvement, reflective of the initiatives, and our scaling investments in innovation and growth.

Speaker Change: On this in Q4 conjunctive with our F 'twenty six targets, including what to expect in margin improvement reflective of the initiatives in our scaling investments in innovation and growth, Let me turn to outlook, let me speak to our F. 'twenty five targets.

Mark Barrenechea: Let me turn to Outlook. Let me speak to our F25 targets. Look, the easiest thing we could do is say there's so much volatility, we are pulling our guidance. But we have a job to do, and our job is to respond to whatever is thrown at us. We are not changing our adjusted EBITDA, free cash flow, and capital return targets. In fact, we're going to work harder to get to the high end of our free cash flow ranges. In a normal world, we would be holding to our previous revenue targets. However, with the volatility, it is not possible to fully predict total revenue.

Speaker Change: Look the easiest thing we could do is say, there's so much volatility we are pulling our guidance, but we have a job to do and our job is to respond to whatever is thrown at us we are not changing our adjusted EBITDA free cash flow and capital return targets. In fact, we're going to work harder to get to the high end of our free cash flow ranges.

Speaker Change: In a normal world, we would be holding to our previous revenue targets. However, with the volatility it is not possible to fully predict total revenue and we could be below the current low end of our range. So we think it's prudent to communicate in F. 'twenty five revenue target of 5.1 to $5, one 7 billion versus the previous range.

Mark Barrenechea: And we could be below the current low end of our range. So we think it's prudent to communicate an F25 revenue target of $5.1 to $5.17 billion versus the previous range of $5.17 billion to $5.27 billion. If we do better, that is upside to the range. This approach reflects our ability to manage earnings across business cycles like we did in COVID.

Speaker Change: A 5.17 billion to $5 billion to $7 billion, if we do better that as upside to the range.

Speaker Change: This approach reflects our ability to manage earnings across business cycles like we did in Colby let.

Mark Barrenechea: Let me wrap up my prepared remarks by going a little deeper in our three strategic priorities and why these remain as constant priorities. First, increasing our competitive advantage through our new product cycle and leading with AI-first business cloud suites and new security. We can see the momentum from industry analysts, customer engagement, pipeline expansion, customer and partner wins, coupled with the market timing for consolidation, efficiency gains, local deployments, enabling a new digital workforce. This is how organizations win. Second, our priority on total revenue growth. Our narrative is AI first, no longer XAMC. We're entering an exciting new product cycle, as noted, entering new market areas such as security, and we have completed seller excellence training across our sales force.

Speaker Change: Let me wrap up my prepared remarks by going a little deeper in our three strategic priorities and why these remain at constant priorities.

Speaker Change: First.

Speaker Change: Increasing our competitive advantage through our new product cycle, and leading with AI first business cloud suites and new security.

Speaker Change: We can see the momentum from industry analysts customer engagement pipeline expansion customer and partner wins, coupled with the market timing for consolidation efficiency gains local deployments, enabling a new digital workforce. This is how organizations when second our priority on total revenue growth our narrative is.

Speaker Change: AI first no longer ex AMC.

Speaker Change: We are entering an exciting new product cycle as noted entering new market areas, such as security and we have completed sales excellence training across our sales force and for the first time and with titanium ex partners are now allowed and enabled to sell our cloud offerings.

Mark Barrenechea: And for the first time, and with TitaniumX, partners are now allowed and enabled to sell our cloud offer. And we have new clear capital flexibility. Our strategic partners across SAP and Hyperscale keep getting stronger. Customers are getting control in a time of disruption. We are seeing high renewal rates in our cloud and off cloud and cloud rates were up 100 bps quarter over quarter. The third on our strategic focus is operational excellence, which means upper-quartile margins, free cash flow, earnings, and capital return. With the transformative expansion of our business optimization, we're confident that we can generate more profits from higher revenues by lowering our cost curve and setting a new milestone level of free cash flow generation over the next couple of years.

Speaker Change: And we have new clear capital flexibility, our strategic partners across S&P and Hyperscale is keeps getting stronger customers gaining control in a time of disruption we are seeing high renewal rates in our cloud and off cloud and cloud rates were up 100 bps quarter over quarter.

Speaker Change: Third on our strategic focus is operational excellence, which remains well, which means upper quartile margins free cash flow earnings and capital return with a transformative expansion of our business optimization. We're confident that we can generate more profits from higher revenues by lowering our cost curve and setting a new milestone level of.

Chadwick Westlake: With that, let me turn the call over to Chadwick. Since joining the team in March, listening has been job well. Spent my first couple weeks meeting with our shareholders, capital markets analysts, and partners. I understand the opportunities and am enthusiastic about the growth journey ahead.

Chadwick Westlake: Free cash flow generation over the next couple of years with that let me turn the call over to Chad way.

Chadwick Westlake: Thanks, Mark and good morning, as a very proud Canadian I'm pleased to now be serving as a proud Canadian company.

Speaker Change: Since joining the team in March listening has been job one.

Speaker Change: I spent my first couple of weeks meeting with our shareholders capital markets analyst and partners I understand the opportunities and I'm enthusiastic about the growth journey ahead.

Chadwick Westlake: As Mark referenced, in Q4, we will introduce fiscal 2026 targets and reframed medium-term aspirations. There should be no surprises. You will continue to see targets on what you know is best. including adjusted EBITS emergence, free cash flow, and adjusted EBS growth, capital returns, and our expectations for annual total revenue. We will simplify more performance metrics and look to add increasing transparency. This includes for how more of our businesses are performing, particularly ones that are outperforming in revenue.

Speaker Change: As Mark referenced in Q4, we will introduce fiscal 2026 targets and Reframed medium term aspirations.

Speaker Change: There should be no surprises.

Speaker Change: We will continue to see targets on what you know, what's best for including adjusted EBITDA margin free cash flow and adjusted EPS growth capital returns and our expectations for annual total revenue growth.

Speaker Change: We will simplify more performance metrics and look to add increasing transparency. This includes for how more of our businesses are performing particularly ones that are outperforming and revenue growth.

Chadwick Westlake: For today, I'll focus on Q3 results with brief added context on enterprise cloud bookings, revenue, adjusted EBITDA margin, free cash flow, and overall earnings. As you reviewed in our material, total enterprise bookings were $151 million, down 8.4% year While below expectations, I would contextualize the outcome in a few ways. We had good results in a few key segments, importantly in content management bookings from the financial services and technology sectors. We won more competitive business and tangible pipeline momentum. As Mark indicated, our bookings difference to target was primarily attributed to the macro disruption in the quarter, which resulted in some pauses to later quarters.

Speaker Change: For today I'll focus on Q3 results with brief added context on enterprise cloud bookings Rev.

Speaker Change: Adjusted EBITDA margin free cash flow and overall earnings.

Speaker Change: As you reviewed in our material total enterprise bookings were $151 million down eight 4% year over year.

Speaker Change: While below expectations I would contextualize the outcome in a few ways we.

Speaker Change: We had good results in a few key segments importantly, and content management bookings from the financial services and technology sectors, we want more competitive business intangible pipeline momentum.

Mark J: As Mark indicated our bookings difference to target was primarily attributed to the macro disruption in the quarter, which resulted in some pauses to later quarters.

Chadwick Westlake: And on the cloud net renewal rate, a metric we introduced in Q1, we expanded again 100 beeps sequentially to 90. You may recall we introduced Total RPO and CRPO last quarter. Once we have that year-over-year comparable in Q4, you'll have a trend and we'll add more content. Shifting to revenue for the quarter, where we had solid annual recurring revenue of 82%, higher year-over-year excluding annual. Cloud revenues were $463 million, up nearly 2% year-over-year, and represented about 37% of total Q3 revenues. That marks 17 quarters of cloud organic growth driven by AI readiness and strong demand for our content cloud.

And on the cloud net renewal rate a metric we introduced in Q1, we expanded again 100 bps sequentially to 96%.

Mark J: You May recall, we introduced total RPM and CRP last quarter. Once we have that year over year comparable in Q4, you'll have a trend and we'll add more context.

Mark J: Shifting to revenue for the quarter, where we had solid annual recurring revenue of 82% higher year over year, excluding AMC.

Mark J: Cloud revenues were $463 million up nearly 2% year over year and represented about 37% of total Q3 revenue.

Mark J: That marks 17 quarters of cloud organic growth driven by AI readiness and strong demand for our content cloud non-GAAP cloud margin increased approximately 300 basis points to 62, 7% year over year.

Chadwick Westlake: Non-GAP cloud margin increased approximately 300 basis 62.7% year Customer Support or Maintenance Revenue was $567 million, coming in slightly below our expectation. We are making progress here. And non-GAAP gross margin remains strong at 89.3%. Overall, non-GAAP gross margin for Q3 was 75.7%, which excluding AMC, remained consistent year-over-year. As you see on slide 19, important to note, we are working to expand our revenue disclosure. This is intended to add more clarity and context for our businesses where revenue is outperforming, such as content, as you see on the left, that is compared to our businesses where we expect to perform and continuously improve on the right side.

Mark J: Customer support or maintenance revenue was $567 million coming in slightly below our expectation, we are making progress here and non-GAAP gross margin remained strong at 89, 3% overall.

Mark J: Overall non-GAAP gross margin for Q3 was 75, 7%, which excluding AMC remained consistent year over year.

Mark J: As you see on slide 19 important to note we are working to expand our revenue.

Mark J: <unk>.

Mark J: This is intended to add more clarity and context for our businesses, where revenue is outperforming such as content as you see on the left that as compared to our businesses, where we expect to perform and continuously improve on the right side. We look forward to publishing this data for you in Q4 and regularly.

Chadwick Westlake: We look forward to publishing this data for you in Q4 and regularly. Now to adjusted EBITDA margin, which was ahead of our target range at 31.5%. While revenue was lower, expense actions in approving our operations translated well. This was a good outcome for Q3, and it takes our year-to-date Adjusted EBITDA margin to 34.7%. compared to our annual target of 33 to 34%. As a reminder, our fiscal Q3 is a calendar Q1, and our adjusted EBITDA margin would always be lower sequentially. So the difference you see to Q2 is entirely seasonal, both in revenue bookings and expenses.

Mark J: Now the adjusted EBITA margin, which was ahead of her charter range at 31, 5%.

Mark J: While revenue was lower expense actions and improving our operations translated well.

Mark J: This was a good outcome for Q3 and it takes our year to date adjusted EBITDA margin to 34, 7% compared to our annual target of 33% to 34%.

Mark J: As a reminder, our fiscal Q3 is a calendar Q1.

Mark J: And our adjusted EBITDA margin would always be lower sequentially.

Mark J: So the difference you see into Q2 is entirely seasonal both in revenue bookings and expense increases, including annual reset categories, such as annual merit increases vacation and benefits that take effect January one.

Chadwick Westlake: Including annual reset categories, such as annual merit increases, vacation, and benefits that take effect January 1st. Total headcount declined slightly from Q2, but you will see that come down further in Q4 as part of the announcement. Expenses for Q3 were down year-over-year, importantly attributed to the completion of the first phase of the Business Optimization Plan announced last year. Open Text is exceptional at consistently generating strong and recurring free cash. As mentioned earlier, our free cash flows increased 7% year-over-year to $374 million on a reported basis. I knew high water mark in a quarter with a 30% free cash flow.

Mark J: Total head count declined slightly from Q2, but you will see that come down further in Q4 as part of the announcement today.

Mark J: Expenses for Q3 were down year over year importantly attributed to the completion of the first phase of the business optimization plan announced last summer.

Mark J: Open text is exceptional at consistently generating strong and recurring free cash flows as.

Mark J: As mentioned earlier, our free cash flow has increased 7% year over year to $374 million on a reported basis, a new high watermark in a quarter with a 30% free cash flow margin.

Chadwick Westlake: Q3 each year is typically the highest due to the timing of maintenance annual renewals. But two items of note. In Q3 last year, we had the benefit of free cash flows from AMC, which is now gone. And in Q3 this year, we had a total one-time benefit of $48 million, as disclosed in our 10Q, related to the collection of a UK state aid.

Mark J: Q3, each year is typically the highest due to the timing of maintenance annual renewals with two items of note.

Mark J: In Q3 last year, we had the benefit of free cash flows from AMC, which is now gone.

Mark J: And in Q3. This year, we had a total onetime benefit of $48 million as disclosed in our 10-Q related to the collection of a U K state aid receivables.

Chadwick Westlake: Mark touched on our capital allocation strategy, and I will reinforce and expand on this a little more. We expect our businesses will continue to generate strong and growing free cash. And in turn, we allocate that to the highest capital return scenarios, thus reserving flexibility in our strategy. On a primary basis, we look to deploy it by investing back into our businesses and customer innovation, as well as always rewarding our investors with a steady dividend. Secondary to that, flexible to the environment and opportunity, we will deploy it to acquire tuck-in companies that align to our current strategy, and we will repurchase shares, particularly at these valuations.

Speaker Change: Mark touched on our capital allocation strategy, and I will reinforce and expand on this a little more.

Speaker Change: We expect our businesses will continue to generate strong and growing free cash flows and in turn we allocate that to the highest capital return scenarios, thus reserving flexibility and our strategy.

Speaker Change: On a primary basis, we look to deploy it by investing back into our businesses and customer innovation as well as always rewarding our investors with a steady dividend.

Speaker Change: Secondary to that flexible to the environment and opportunity, we will deploy it to acquire tuck in companies that align to our current strategy and we will repurchase shares, particularly at these valuation levels for example, based on that opportunity.

Chadwick Westlake: For example, based on that opportunity, we saw us increase our current repurchase program by 50% up to $450 million in March. It is very important we will remain strategic and flexible in this capital allocation. Moving to Adjusted EPS, which was strong again in Q3 at $0.82. The report of that is down 13% year rear, but excluding the AMC divestiture, it was up Contributing to this outcome was the benefit of repurchasing and cancelling 14.3 million shares over the trailing 12 months. With purchases completed to the end of March, we had approximately 184 million capacity remaining in our 450 million dollar program.

Speaker Change: You saw us increase our current repurchase program by 50% up to $450 million in March this year.

Speaker Change: It is very important we will remain strategic and flexible in this capital allocation sequence.

Speaker Change: Moving to adjusted EPS, which was strong again in Q3 at ADT diluted.

Speaker Change: Reported that is down 13% year over year, but excluding the AMC divestiture it was up year over year.

Speaker Change: <unk> did this outcome was the benefit of repurchasing and cancelling 14 3 million shares over the trailing 12 months.

With purchases completed at the end of March we had approximately 184 million capacity remaining in our $450 million program, we intend to continue our program.

Chadwick Westlake: We intend to continue.

Chadwick Westlake: In closing, we are focused on executing in Q4. building long term value for our customers and shareholders. As an investor, you might want to hold OTEC stock as the best defensive name in Canadian technology with our world-class install base, loyal customers, moats around our key businesses, and a strong earnings profile and return of capital stress. You should want to buy OTAC stock because of the opportunity to participate in our growth in this more than $200 billion of total addressable market. We are a significant cash generator with scale and efficiency to reinvest in our growth products across businesses.

Speaker Change: In closing we are focused on executing in Q4 building long term value for our customers and shareholders.

Speaker Change: As an investor you might want to hold <unk> stock is the best defensive name and Canadian technology with our World class install base loyal customers moats around our key businesses and a strong earnings profile and return of capital strategy.

Speaker Change: You should want to buy <unk> stock because of the opportunity to participate in our growth and it's more than $200 billion of total addressable market.

Speaker Change: We are a significant cash generator with scale and efficiency to reinvest in our growth products across business cycles.

Chadwick Westlake: And you should want to buy more of the stock because of the significant discount in our valuation to key metrics as compared to our history and comparable. It's an exceptional time to participate in the earnings growth engine.

Speaker Change: And you should want to buy more of the stock because of the significant discount in our evaluation to key metrics as compared to our history and comparable firms.

Operator: We're With that, Gaylene, can you please open the line to our equity analysts? Certainly. We'll now begin the analyst question and answer session. Any analyst who wishes to ask a question may press star then one on their touchtone phone to join the question queue. You'll hear a tone acknowledging your request. If you're using a speakerphone, please ensure you lift your handset before pressing any keys. If you wish to remove yourself from the question queue, you may press star then two. And the analyst who wishes to join the queue may press star then one at this time.

Speaker Change: It's an exceptional time to participate in the earnings growth engine, we're building.

Speaker Change: With that scaling can you. Please open the line to our equity analysts for Q&A.

Speaker Change: Certainly we will now begin the analyst question and answer session and the analysts who wishes to ask a question you May Press Star then one on their touched on some of them to join the question queue, you'll hear a tone acknowledging your request.

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

Speaker Change: And he analyst tuition to trying to kill May Press Star then one at this time.

Raimo Lenschow: Our first question is from Raimo Lenschow with Sparkly's. Please go ahead. Perfect, thank you.

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

Mark Barrenechea: Mark, I have two questions, one for Mark, one for Chadwick. Mark, first one, if you look at the performance this quarter, obviously you pointed out some of the uncertainty, but we also have seen other guys in the space report numbers and kind of did kind of in relative terms slightly better than you guys. Can you talk a little bit about, you know, maybe there were some geographic or vertical kind of split that is different for you than for other guys to try to understand that a little bit better? Thank you on that one.

Speaker Change: Perfect. Thank you.

Speaker Change: Mark two questions one for Mark one for Checkmate Mark first one if you look at the performance this quarter.

Speaker Change: Pointed out some of the uncertainty.

Speaker Change: But we also have seen very good.

Speaker Change: Guys in this space report numbers and kind of it's kind of in relative terms slightly.

Speaker Change: Better than you guys can you talk a little bit about maybe there were some geographic or vertical kind of.

Speaker Change: Split that is different for you than for other guys to try to understand that a little bit better.

Chadwick Westlake: And then, Chadwick, now with you having joined, can you talk a little bit about your priorities now that you are in this eta and thinking about capital structure, you know, portfolio of the different products, et cetera? Thank you very much. Yeah, thanks, Raimo. Appreciate the question. Well, as we know, we ended up 50 bps below our range, and actually in the low end of the range in constant currency. But for us, demand was disrupted. And I think the tipping point for us was the auto tariffs and the rumor of them and the actualization of them around March 12.

Chadwick Westlake: And that one and then Chadwick now with you having joined can you talk a little bit about your priorities and now that you're in the seat and thinking about capital structure portfolio, all the different products et cetera. Thank you very much.

Chadwick Westlake: Yes, thanks very much I appreciate the question well as we noted we ended up 50 bps below our range and actually in the low end of the range in constant currency, but for us demand was or was disrupted and I think the tipping point for US was the auto tariffs and the rumor.

Chadwick Westlake: Of them in the actualization of them.

Mark Barrenechea: And so, you know, we have exposure in auto materials, U.S. government, and energy. And that Q4 impact, as I said on the call, was $40 to $50 million. Roughly, I'd say two-thirds of that was bookings, one-third was revenue. And in a normal world, we were on target to be right within that range. But, you know, we acquired Coviscent. We've always had a very important business in auto, auto parts, auto ecosystem, materials, U.S. government, and energy. On the government side, you know, you just read the headlines, National Institute of Health, U.S. AID, Department of Education, and we have some business in there.

Speaker Change: Around March 12.

Chadwick Westlake: And so we.

Chadwick Westlake: We have exposure and auto materials U S government and energy.

Chadwick Westlake: And that Q4 impact as I said on the call was $40 million to $50 million.

Chadwick Westlake: Roughly I would say two thirds of that bookings one third was revenue.

Chadwick Westlake: And in a normal world, we were on target to be right within our within that range.

Chadwick Westlake: But we we we acquired Culberson, we've always had a very important business in auto auto parts auto ecosystem.

Chadwick Westlake: Materials U S government and energy on the government side.

Speaker Change: No you just read the headlines National Institute of Health.

Chadwick Westlake: Our U S a.

Speaker Change: The department of Education.

Mark Barrenechea: So, as we've said, you know, on the $40 to $50 million, roughly two-thirds bookings to one-third revenue. You know, with some of the relief in auto tariffs announced this week or rumored, still data being worked out, some of our auto customers are reengaging deeply now that they can manage and predict. And if you can't kind of predict your spend, you don't know how to invest. So, like we said, if we can't control the top line in the volatile times, we will control well that which we can control. And we did an extraordinary job, the company did, on its expenses, margin, earnings, record free cash flow with our operations.

Speaker Change: And we have some business in there so as we've said the $40 million to $50 million roughly two thirds bookings are one third revenue.

Speaker Change: With some of the relief and auto tariffs announced this week are rumored.

Speaker Change: Still data being worked out of some of our auto customers are we engaging deeply that now that they can manage and predict and if you can kind of predict your spend you don't know how to invest so like we said if we can't control the top line and the volatile times, we will control well that which we can't control.

Speaker Change: And we did an extraordinary job.

Speaker Change: The company did on its expenses margin earnings record free cash flow with our.

Mark Barrenechea: Yes, we had a one-time item in there, but we still performed extremely well. And the business will come back. I'm confident it will all come back just like it did during COVID.

Speaker Change: Operations, Yes, we had a one time item in there, but we still performed extremely well.

Speaker Change: The business will come back.

Chadwick Westlake: Maybe Chadwick, over to you for the second part? Yeah, sure. Thank you, Mark. Thanks for the question.

Speaker Change: It will all come back just like it did during Covid, maybe charter over to you for the second part yes sure. Thank you Mark Thanks for the question.

Chadwick Westlake: Three things I would say briefly, and again, I'm not at the two-month mark, but I'd say three things very simply. Number one, capital allocation maximization, and working together with Mark and our great leadership team to making sure we're picking the top choices for where our free cash flow and capital is going. And that's why you heard us speak about that even more today, and more to the tradition of Open Text where our strengths are. But number one, capital allocation. Number two, importantly, on the reframe guidance and how we're simplifying and providing more clarity and more transparency going forward to help our investors and analysts understand the business, understand where we're outperforming, as we said, and understanding where we're going to continuously improve, and within all that, executing that guidance.

Speaker Change: Three things I would say briefly and again I'm not at the two month, Mark, but I would say three things very simply number one capital allocation maximization of working together with Merck and our great leadership team to making sure we're picking the top choices for where our free cash flow and capital is going and that's why we you heard us.

Speaker Change: Speak about that even more today and more to the tradition of open tax where our strengths are but number one capital allocation number two importantly on the reframe guidance and how we're simplifying and providing more clarity and more transparency going forward to help our investors and analysts understand the business understood understood.

Speaker Change: We're we're outperforming as we said and understand where we're going to continuously improve and within all of that executing that guidance consistently period.

Chadwick Westlake: consistently, period. And then three, I'd say listening and simplifying, so I'll continue to listen.

Speaker Change: And then three I'd say listening and simplifying so I'll continue to listen continue.

Chadwick Westlake: I'll now take questions by co-host and it looks like we can move on to the next item. Thank you and very clear. Thank you.

Continue to work with our businesses understand the business, but I will be listening engaging as a top priority with our investors shareholders and teammates. So those three would be top early priorities.

Stephanie Price: The next question is from Stephanie Price with CIDC. Please go ahead. Hi, good morning.

Speaker Change: Thank you very clear thank you. Thanks.

Rob: Thanks, Rob.

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

Chadwick Westlake: Maybe start off once with you, Chadwick, just on the restructuring and the expanded scope. Press release noted annualized savings of about $400 million starting in fiscal 26. Just trying to understand if you expect these to be additive to current margins, or should we think about a portion of the savings being reinvested back into the business?

Rob: Yes.

Stephanie Price: Hi, good morning.

Speaker Change: Maybe start off one with you Chad just on the restructuring.

Stephanie Price: And its scope.

Speaker Change: Press release noted annualized savings of about 400 million starting in fiscal 'twenty six.

Speaker Change: I understand if you're expecting to be additive to current market and just should we think about a portion of the savings being reinvested back into the business and then maybe just a little bit more in terms of where the restructuring will be done it sounds like there's some technology work being done on the AI side.

Chadwick Westlake: and maybe just a little bit more in terms of where the restructuring will be done. It sounds like there's some technology work being done on the AI.

Chadwick Westlake: Yeah, maybe I'll go first, but then Mark, I think should answer the second part of that question. What I would just say, simply, we will provide more clarity in Q4 in terms of how that business optimization benefit will show up. You will see some of the costs that we noted incurred in Q4, all within our existing outlook. And then you'll see more of that clarity come again in Q4. But for now, it's still a good compass on the kind of equals between F26 and F27 for that benefit realization right across the board, though, right? This is, and that headcount is a net number, so there's a gross impact and there's a net reinvestment aspect, especially in the top products and countries of focus for centers of excellence.

Speaker Change: Yeah, maybe I'll go first and then Mark I think should answer the second part of that question. What I would just say simply what we will provide more clarity in Q4 in terms of how that business optimization benefit will show up you will see some of the costs that we noted incurred in Q4.

Speaker Change: All within our existing outlook and then youll see more of that clarity come again in Q4, but for now it's still a good campus on the kind of equally split between F. 'twenty six 'twenty seven for that benefit realization rate across the board, though right. This is.

Mark J: And that that head count is a net number. So there is a gross impact and then theres, a net reinvestment aspect, especially into top products and countries a focus for centers of excellence, but I think mark should take some of the AI first component, which is future yeah. Stephanie. Thanks for the question. Thanks, Chadwick, Yeah, I mean, the business optimization and our AI strategy.

Mark Barrenechea: But I think Mark should take some of the AI first component, which is here. Yeah, Stephanie, thanks for the question. Thanks, Chadwick. Yeah, I mean, the business optimization and our AI-first strategy go hand in hand, Stephanie. Our business optimization is transformative. And it's reflective of we're building an AI operating model.

Speaker Change: Go hand in hand, Stephanie.

Mark J: Our business optimization as transformative.

Mark Barrenechea: So if you'll allow me, just talk a little bit about our AI-first strategy. Look, leadership is a choice and we've decided to lead in AI. We're building a great AI products and company. We're helping our customers transform with AI. And we're going to operate like an AI-centric company. And with, excuse me, and centering on this business optimization program. So we've been moving very rapidly. You know, we created the Knowledge Worker over the last three decades and with TitaniumX, we've introduced 100 digital workers. With Aviator Studio coming out in the summer, we'll introduce a tool where customers can now create their own digital workers and thus now have tools built on our platform to create limitless digital workers, not just within our software, but across other software companies.

Speaker Change: And it's and it's reflective of what we're building an AI operating model. So if you'll allow me just talk a little bit about our AI first strategy leadership as a choice and we've decided to lead in AI.

Speaker Change: We're building a great AI products and company, helping our customers transform with AI and we're going to operate like an AI centric company.

Speaker Change: And with.

Speaker Change: Excuse me.

Speaker Change:

Speaker Change: And centering on this business optimization program. So we've been moving very rapidly we created the knowledge work over the last three decades with titanium X. We've introduced 100 digital workers.

Speaker Change: With Abi aviator studio coming out in the summer, we will introduce a tool where customers can now create their own digital workers.

Speaker Change: And thus now have tools built on our platform to create limitless digital workers not just within our software but across other software companies.

Mark Barrenechea: We've begun to partner with Microsoft and Copilot, and building on their incredible success with our security offering. And we've now created an AI-first corporate operating plan with AI turned on for our employees. And as I said in the call, we're no longer going to hire roles that could be done with AI. AI is part of our hiring skills, learning, and performance. And through that lens, we looked at expanding our business optimization plan, which is AI-led, taking out up to $400 million of new expense over the next two years. We're focused on roles like the general knowledge worker, support, document generation, QA, entry-level program, administrative work, help desks, everything that can be accomplished through AI.

Speaker Change: We've begun to partner with Microsoft and Copilot and building on their incredible success with our security offering and we've now created an AI first corporate operating plan with AI turned on for our employees.

Speaker Change: And.

Speaker Change: As I said on the call.

Speaker Change: Along with the higher roles that can be done with AI AI is part of our hiring skills learning and performance and through that lens right. We looked at expanding our business optimization plan.

Speaker Change: Which is AI led taking out up to $400 million of new expense over the next two years.

Speaker Change: We're focused on roles like the general knowledge worker support Dod.

Speaker Change: Occupant generation QA entry level program administrative work help desks everything that can be accomplished through AI.

Mark Barrenechea: And we had many wins in Q3. So the AI-first lens and building an operating model around AI-first is really central to us and the expanded view of the business.

And we had many wins in Q3 so.

Speaker Change: The AI first land and building an operating model around AI first is really central to us and the expanded view of the business optimization.

Mark Barrenechea: Thanks for that.

Stephanie Price: And maybe one more for me just on the customer support side of the business. We calculated a 6.4% organic decline in that business in the quarter. And I know the DXC contract and maybe impacted that a little bit. Could you just dig into what's going on in that customer support line?

Speaker Change: Thanks for that and then maybe one more for me just on the customer support side of the business, we calculated a six 4% organic decline in that business in the quarter and I know the DXP contract on maybe impacted that a little bit could you just talk to what's going on in that customer support line. Thanks.

Chadwick Westlake: Absolutely. So let me just start with it is an amazing business, remains a pillar of strength, and I'm confident that we're going to return maintenance to growth in the future. You know, as you were noting a bit, the maintenance business here is primarily under pressure due to ITOM and ADM license performance, DXC, some FX, and some goodness of customers transitioning to the cloud. But without DXC, our renewal rate for off-cloud would actually be moving up quarter over quarter, not down, if you take out DXC. And that's going to be behind us as we enter fiscal 26.

Speaker Change: Absolutely. So let me just start with it is an amazing business remains a pillar of strength and I'm confident that we're going to return maintenance to growth in the future.

Speaker Change:

Speaker Change: You were noting a bit the maintenance business here is primarily under pressure due to item and ADM license performance Dx see some FX.

Speaker Change: And some goodness of.

Speaker Change: Customers transitioning to the cloud.

Speaker Change: But without <unk>, our renewal rate for off cloud would actually be moving up quarter over quarter not down if you take out <unk> and thats going to be behind us as we enter fiscal of 'twenty six.

Chadwick Westlake: The core operating metrics, Stephanie, and the business are very positive, APA up, past due down, cancel rate down, and quarter renewal rates up, the year-over-year decline in cost and currency is cut in half again without DXC, cut in half in cost and currency without DXC. So, in F26, we're definitely going to improve the business, and the rate of decline is slowing. And when we get to our F26 outlook in August, we will provide those specifics.

Stephanie Price: Core operating metrics Stephanie in the business are very positive up past due down.

Stephanie Price: Cancel rate down in quarter renewal rates up year over year decline in constant currency is cut in half again without <unk> cut in half in constant currency without dfc.

Stephanie Price: And that's 26, we're definitely going to improve the business and the rate of decline is slowing.

Stephanie Price: And when we get to our F. 'twenty six outlook in August we will.

Stephanie Price: Thank you very much.

Stephanie Price: Provide provide those specifics.

Thanos Moschopoulos: The next question is from Thanos Moschopoulos with BMO Capital Markets. Please go ahead. Hi, good morning. Um, Mark, could you perhaps expand on on what you're doing within ITOM and ADM to work towards further stabilizing those? Yeah, absolutely. So thanks, Thanos. Let me throw security in there first. We're on an incredible trajectory with security. And, you know, we showed live last month from Europe, our new threat detection and response platform, deeply integrated into Microsoft technology, including co-pilot. And we're going deeper in our integration. So, you know, as Microsoft, obviously, continues to gain success in AI, just as we partner with SAP in their success, we're going to partner with Microsoft in their success, and bringing threat detection and response into their AI and into their install base.

Stephanie Price: Thank you very much.

Stephanie Price: Stefan.

Speaker Change: The next question is from Mcdonalds, most coppola with BMO capital markets. Please go ahead.

Mark J: Hi, good morning, Mark.

Speaker Change: Mark could you, perhaps expand on what youre doing with a nighttime and ATM to work towards further stabilizing those working with us.

Speaker Change: Yeah, absolutely. So thanks, Dennis let me throw a security in their first were on an incredible trajectory what security.

Speaker Change: And we showed.

Speaker Change: Live last month from Europe.

Speaker Change: Our new threat detection and response platform.

Speaker Change: Deeply integrated into Microsoft technology, including co pilot.

Speaker Change: And we're going deeper in our integration so as Microsoft.

Speaker Change: <unk> continues to gain success in AI.

Speaker Change: Just as we partner with SAP.

Speaker Change: And their success with our partner, Microsoft and their success and bringing threat detection and response.

Mark Barrenechea: So we are, we got security right on track where we want it to be. In relation to ITOM, we're making really good progress. We are, you know, I always like to think that if you can run the platform at scale yourself, then everyone else should. We've just completed going live across discovery, observability, and service management. So I believe we have ITOM on a very good trajectory. The product is there, Salesforce expanded and trained, Titanium X in the market, the cloud offerings are there, new wins on SaaS. We've also studied our biggest competitor extremely well, ServiceNow, and where we feel that we can differentiate and win on the service management side is in regulated industries.

Speaker Change: Into their AI and into their install base. So we are we got security right on track, where we want it to be.

Speaker Change: In relation to item, we're making really good progress.

Speaker Change: We are.

Speaker Change: I always like to think that if you can run the platform at scale yourself than everyone else should be.

Speaker Change: Should be able to and we've just completed going live across discovery observer ability and service management.

Speaker Change: I believe you have I, Tom on a very good trajectory of the product is there.

Speaker Change: Salesforce expanded and trained titanium acts in the market. The cloud offerings are there new wins on SaaS. We've also studied our biggest competitor extremely well service now and where we feel that we can differentiate and win on the service management side is in regulated industries.

Mark Barrenechea: And that's, I don't know, 10 billion part of the tab, and so we're very happy to go after these very regulated industries that need content management, that need security, need process automation, and really go into our core strengths. So I feel we have ITOM on a good trajectory, and it's going to contribute to our improved performance in fiscal 26.

Speaker Change: And that's I don't know 10 billion part of the tab and so we're very happy to go. After these very regulated industries that need contact management that needs security need process automation and really go into our core strengths. So I feel we have item on a good trajectory and its going to contribute.

Mark Barrenechea: And ADM is going to take a couple more quarters. We have focused ADM on the top end of the market to really go after the top thousand software companies in the world. Every company is a software company today, but auto, financial services, insurance, biotech, the next generation of software companies as well. So that's going to take us another couple quarters or so to get the ADM engine really performing at its best. But I love where we are in security. We just, we're in the right swim lane. Our swimmers are now in the pool with ITOM given our deployment in Titanium X.

Speaker Change: To our improved performance in fiscal 'twenty six.

Speaker Change: And in ADM is going to take a couple more quarters.

Speaker Change: We have focused ADM on the top end of the market to really go after the top thousand software companies in the World. So every company is a software company today, but auto financial services.

Speaker Change: Services insurance biotech the next generation of AV software companies as well. So we've been that's going to take us another couple of quarters or so to get the ADM mentioned really performing at its best but I love, where we are in security. We just we're we're in the right swim Lane.

Speaker Change: Our swimmers are now in the pool with Ita I Tom.

Mark Barrenechea: And the swimmers are approaching the pool on ADM to use the swimming lane analogy.

Speaker Change: Given our deployment in titanium apps and the swimmers are approaching the pool.

Mark Barrenechea: So that's a quick insight into ITOM and ADM. I appreciate the color.

Speaker Change: <unk> use a swimming lane analogy.

Mark Barrenechea: And then just secondly, you have a meaningful government business. Just curious whether you're seeing any impact from the DOJ. Yeah, um, there's no doubt there's some impact from the US government expense reduction. And, but it's not as significant as the tariffs, right? So there's, in the normal world, we'd just be absorbing this, but we are calling out a little bit. But it's really secondary to our message on tariffs. And look, at the end of the day, the US government, governments are a great partner of ours. We provide critical services and defense intelligence and running critical citizen applications.

Speaker Change: So that's a quick insight into item in ADM.

Speaker Change: I appreciate the color and then just secondly, you haven't meaningful government business. Just curious what are you seeing any impact from the dose cuts.

Speaker Change: Yeah.

Speaker Change: Theres no doubt theres some impact from the U S government.

Speaker Change: <unk> reductions.

Speaker Change: And but it's not as significant as the tariffs. So there is.

Speaker Change: In the normal World, we would just be absorbing this but we are calling out a little bit, but it's it's really secondary to our message on on tariffs.

Speaker Change: And look at the end of the day the U S. Government governments are a great partner of ours, we provide critical services and defense intelligence and running critical citizen applications.

Mark Barrenechea: But the effects have been de minimis, and we're still very optimistic on that. Great, across the line, thank you.

Speaker Change: But the effects have been de Minimis and and we're still very optimistic on that business.

Samad Samana: The next question is from Samad Samana with Jeffreys, please go ahead. Hey, good morning. Thanks for taking my questions and chatting with me about the new role.

Speaker Change: Great I'll pass the line. Thank you.

Speaker Change: The next question will come from Ed.

Speaker Change: Amanda with Jefferies. Please go ahead.

Mark Barrenechea: Maybe, Mark, I'll kick off with you. If we think about last year, we've seen deals getting longer, going for maybe three to four years in terms of duration. And now you're calling out some disruption with what happened with Tariff. How would you characterize, if it had not been for Tariff, would you say that the demand environment was better this year than last? And maybe just how were customers chatting before then? To get a sense of what it could look like if this all goes away, or if we hit a pause on Tariff and that one falls together.

Amanda: Hey, good morning, Thanks for taking my call.

Speaker Change: Got it.

Mark J: On the new role, maybe Mark I'll kick off with you if we think about.

Speaker Change: Last year, we've seen.

Mark J: Getting longer maybe.

Speaker Change: Four years in terms of <unk>.

Speaker Change: And now you're calling out some exceptions.

Speaker Change: How would you characterize that.

Speaker Change: Had that been input tariff would you say that need demand environment was better this year than last and maybe how we're constantly chatting before and then again a sense of what that looked like the following.

Mark Barrenechea: Yes, sounds great. Thanks. Thanks, Samad.

Speaker Change: Or if we had a pause on Ontario.

Mark Barrenechea: The, look, the, the deal cycle, deal terms and ramping has stabilized. So we're not seeing kind of a change of deals getting longer or more effects to ramping, if you will. That was sort of a kind of a little bit of a it's stabilized. So there's there's no there's no real real changes there. Well, customers are still spending. Clearly, I mean, this is it was it was a shock when you put out 25% auto tariffs. And there was so, and then this list of countries, and companies paused. They had to assess the information. Some of the information was accurate.

Speaker Change: Yes.

Speaker Change: Yes, it sounds great. Thanks, so much.

Speaker Change: But the the deal cycle.

Speaker Change: Deal terms.

Speaker Change: And ramping has stabilized so we're not seeing kind of a change of deals getting longer or more effects to ramping if you will that was sort of.

Speaker Change: Kind of a little bit of a.

Speaker Change: It's stabilized so there's no there's no there's no real changes there well customers are still spending.

Speaker Change: And clearly I mean this is a it was it was a shock when you put out 25% auto tariffs.

Speaker Change: And in there so and then and then this list of countries.

Mark Barrenechea: Some of it was marketing. Some of it was just wrong, right? So I know I paused on spending, right, until I could just understand the landscape. I also think there's a dynamic, as I highlight it in the script. More Canadian companies. And we love all our markets. And in the non-US markets, if you will, customers are over their disappointment.

Speaker Change: And companies past.

Speaker Change: They had to assess the information some of the information was accurate so what was marketing.

Speaker Change: Rob right, so I paused on spending right until I could just understand the landscape.

Speaker Change: I think theres, a dynamic as I highlighted in the script.

Speaker Change: We're a Canadian company.

Speaker Change: And we are we love all of our markets.

Speaker Change: And in the non U S markets, if you will customers.

Mark Barrenechea: I'm going to speak candidly. They're over their disappointment. They're over their disbelief. And they are in full action mode to take control because they got businesses to run. And I'm personally in dozens and dozens of conversations of how we can support our customers in France. in France, and not rely on US technology, because they just don't know what's coming next, right? And whether rational or irrational, based on, you know, prudent economic theory or not, they're going to take control because they got their priorities. So we're going to help our business in France, our customers in France, run and deploy France.

Speaker Change: Our over their disappointment I guess be candidly other over their disappointment.

Speaker Change: There are over their disbelief and they are in full action mode to take control because they've got businesses to run.

Speaker Change: And I am personally and dozens and dozens of conversations of how we can support our customers in France.

Speaker Change: In France.

Speaker Change: And not rely on U S technology, because they just don't know, what's coming next and whether rational or irrational based on prudent economic theory or not they're going to take control because they got their priorities. So we're going to help our our business in France, our customers in France run and deploy France.

Mark Barrenechea: We're going to help our customers in Germany run and deploy in Germany. Same in UK. Same in Canada. Same in Japan. Same in Australia. Same in South Korea. Same in Singapore. Same in India. All across the world. We'll help our US customers run and deploy in the US as well.

Speaker Change: We're going to help our customers in Germany, one in deploying Germany same in U K.

Speaker Change: Same in Canada same in Japan same in Australia famous South Korea same.

Mark Barrenechea: So, and I also think coupled with, we got momentum in AI. So this is a very different scenario. If you want to make comparisons like COVID, right, this is a very different scenario for us. Customers are spending, they're going to spend differently locally. I think this, I hope that tariffing rationalizes and normalize. If it does, it's, you know, game back on fully. And we're in a nice place being able to help customers deploy locally and create efficiency through the digital worker. So it feels different, and positive different, actually, for us. Great, appreciate that caller.

Speaker Change: Same in Singapore same in India, all across the World all of our U S customers want to deploy in the U S as well.

Speaker Change: And I also think coupled with we got momentum in AI.

Speaker Change: So this is a very different scenario, if you want to make comparisons like Covid right. This is a very different scenario for us customers are spending they're going to spend differently locally.

Speaker Change: I think this I hope the tariff thing Rationalises and normalize if it does it came back on fully.

Speaker Change: And we're in a nice place being to help customers deploy locally and create efficiencies through the digital worker. So it feels good.

Speaker Change: Different and positive different actually for us.

Chadwick Westlake: And then Charles, maybe just appreciate all those days and you're still early in executing the game plan. But if you think about the different components of capital management, what would you say are the hierarchy is it on being more aggressive with a buyback? Is it on some of the divestitures that you mentioned, maybe tactically? How are you thinking about where your early focus will be? Thanks Samad. I think, excuse me, we outlined it well where flexibility is number one. And it's going to depend on the environment at the time and the opportunities at the time.

Speaker Change: Great I appreciate that color and then maybe just.

Speaker Change: I appreciate it.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Bill.

Speaker Change: Early in executing the game plan, but if you think about the different components of capital management, what would you say are the <unk>.

Speaker Change: Higher RPM.

Speaker Change: What are your thoughts on being more aggressive.

Speaker Change: Is it on some of the divestitures that you mentioned maybe tactically.

Speaker Change: Yeah.

Speaker Change: What are your early focus will be.

Speaker Change: Thanks, so much.

Speaker Change: Excuse me, we outlined it well were flexibility is number one.

Chadwick Westlake: So that's why it was so key in the last quarter, you saw some of the greatest opportunity for us was to continue to buy back and buy back more for a heavily discounted share price. So we were doing that. As smart, aligned opportunities come up on the M&A front, certainly we're going to look at those tuck-ins when they come up. And same thing with, as Mark indicated very clearly, more mature products or portfolios. If there's better opportunities to monetize those, we'll take those as they come up. But it's going to be that sequence. So we're going to continue to invest in the business as we are.

Speaker Change: And it's going to depend on the environment at the time and the opportunities at the time. So that's why it was so key in the last quarter you saw some of the greatest opportunity for us to continue to buyback and buyback more heavily discounted share price.

Speaker Change: So we were doing that as.

Speaker Change: Smart aligned opportunities come up on the M&A front, certainly we're going to look at those those tuck ins when they come up and.

Speaker Change: And same thing with <unk>.

Mark J: As Mark indicated very clearly.

Speaker Change: More mature products or portfolios, if theres better opportunities to monetize those we'll take those as they come up but it's going to be that sequence. So we are we're going to continue to invest in the business as we are.

Chadwick Westlake: We're going to reinvest in the business. We're going to focus on our innovation. We're going to pay that dividend. But then it's flexibly month by month, quarter by quarter as the opportunities are rolling for the other two. No, extremely well said.

Speaker Change: We're going to reinvest in the business, we're going to focus on our innovation and we're going to pay that dividend, but then it's flexibly month by month quarter by quarter as the opportunities are rolling for the other two are market Theres anything you want to add.

Mark Barrenechea: I mean, our execution, our performance, And the addition of our transformative business optimization plan returns us back to capital flexibility. And, you know, I these are the levers we've traditionally had when we've traded our highest multiple. And so we're excited to bring these lovers back as we come into 26.

Speaker Change: Extremely well said I mean the.

Speaker Change: R.

Speaker Change: Our execution our performance and the addition of our transformative business optimization plan returns us back to <unk>.

Speaker Change: Capital flexibility yes.

Speaker Change: And these.

Speaker Change: These are the levers we've traditionally had when we've traded our highest multiples and so we're excited to bring these are these levers back as we come in at 26.

Richard Tse: The next question is from Richard Tse with National Bank Financials. Please go ahead. Yes, thank you. So obviously a big push here on AI.

The next question is from Richard Tse National Bank Financial Please go ahead.

Mark Barrenechea: Just wondering if you may be able to provide some metrics, just really to help us understand how that's being adopted, you know, by your base, like, I don't know if you sort of have numbers on aviator that you could sort of share, just kind of any growth metrics, so we can kind of get a sense of that trajectory. Thanks, Richard. Thanks for being with us. And thanks for being on the call. As I noted, leadership is a choice and we've decided to lead in AI. And it's, you know, starting with building our AI product. it's it's having a 3,000-person professional service organization that everyone is trained on AI and helping transform our customers' AI.

Richard Tse: Yes. Thank you so obviously a big push here on AI.

Richard Tse: Just wondering if you maybe able to provide some metrics just purely to help us understand how that's being adopted by your base like I don't know if you have.

Richard Tse: Numbers on aviator that you could sort of share just kind of any growth metrics. So we can kind of get a sense of.

Richard Tse: That trajectory.

Richard Tse: Yeah, Thanks, Rick Richard and thanks for.

Richard Tse: Well, thanks for being with us and thanks for being on the call as I noted.

Richard Tse: <unk>.

Richard Tse: Leadership is a choice and we've decided to lead in AI.

Richard Tse: And it's and it's starting with building our AI products.

Richard Tse: It is having a.

Richard Tse: 3000 person professional service organization that everyone is trained on AI and helping transform our customers' Les I. It's.

Mark Barrenechea: It's creating an operating model inside of Open Text that is AI-centric and a new model for us that the business optimization is kicking off. Um, and So I look at metrics around, first, adoption. Is adoption on the rise? Adoption is on the rise everywhere across what we're doing. is our frequency of use up, right? Our frequency of use is skyrocketing internally. We only hire people that have AI skills now. It's part of our interviewing. If you don't know AI skills, if you're not using them, if you don't know how to prompt, then we just disqualify you.

Richard Tse: It's creating an operating model inside of open text that AI centric.

And a.

Richard Tse: And a new model for us that the business optimization is kicking off.

Richard Tse: And.

Richard Tse: So I look at metrics around first adoption is the adoption on the rise.

Richard Tse: Adoption is on the rise everywhere across what we're doing.

Richard Tse: As our frequency of use up right or frequency of use is skyrocketing internally, we only hire people that.

Richard Tse: That have AI skills now as part of our interviewing.

Richard Tse: If you don't know AI skills, if you're not using them. If you don't know how to prompt if you.

Mark Barrenechea: We are training. We've turned tools on for all our employees. So frequency of use is up. I think another measurement is reduction of expenses. And I think we couldn't be clearer with our expanded business optimization plan that we're going to lead first and then we're going to lead our 100,000 customers. That reduction of expense. Win rates are increasing for us of where we engage because of AI. If we look at the wins in the quarter that we those. Our partnerships are up with Microsoft. Just as we've had an amazing partnership with SAP, we have an incredible joint value proposition of product to their install base.

Then we just disqualify you.

Richard Tse: We are training we've turned tools on for all of our employees. So frequency of uses up.

Another measurement is reduction of expenses and I think we couldnt be clearer what our expanded business optimization plan that we're going to lead first and then we're going to lead our 100000 customers.

Richard Tse: That is a reduction of expense when rates are increasing for us of where we engage because of AI. If we look at the wins in the quarter that we have in our deck crypto ABN GTI, we're all AI led and winning those.

Richard Tse: Our partnerships are up with Microsoft.

Richard Tse: Just as we've had an amazing partnership with SAP, we have incredible joint <unk>.

Mark Barrenechea: We're about to do the same. Layering in on their incredible success in AI with our security.

Richard Tse: Proposition of product to their into their installed base, we're about to do the same.

Richard Tse: Layering and other incredible success in AI.

Richard Tse: With our security and that hopefully in instead of.

Mark Barrenechea: And then So look, adoption, frequency, reduction of expense, win rates, new partnerships, that's how we're measuring right now. And as we get into 26, we can think about, we'll keep talking about customer wins, booking rates, et cetera, Richard. But I think those are some of the metrics I've been looking at as this race goes on. Okay, great. So my second question, I don't know if it's for Chadwick or yourself. But as you make that shift, are you considering shifting the revenue model to more sort of usage or value based pricing similar to some of your competitors?

Richard Tse: Jen said will be Gen revenue.

Richard Tse: As we as we lead into AI first.

Richard Tse: So.

Richard Tse: Look I adoption frequency reduction of expense win rates.

Richard Tse: A new partnerships that that's how we're measuring right now.

Richard Tse: And as we get into 'twenty six we can think about it we will keep talking about.

Richard Tse: Customer wins booking rates et cetera, Richard but I think those are some of the metrics I've been looking at.

Richard Tse: As this race goes on.

Richard Tse: Okay, Great. So my second question.

Richard Tse: I don't know if this is for Chadwick herself.

Richard Tse: But as you make that shift are you considering shifting the revenue model to more sort of usage or value based pricing similar to some of your competitors.

Mark Barrenechea: And how should we expect if you do that the relative impact would be on to the current model? Yeah, um...

Richard Tse: Should we expect if you do that the relative impact would be on to the current model.

Mark Barrenechea: We're not looking at a disruptive pricing model, excuse me, a disruptive change in how we commercially engage with our customers. We have... A couple additional pieces to bring to market. Next quarter, we're bringing MyAviator to market, which is, if you think on every screen you use today, you have a search button that hourglass, you have what I call the hamburger, those three lines of menuing, I call it the hamburger. We're going to have a MyAviator button. It's a personal digital assistant that every user of Open Text software, regardless of screen, regardless of BU, regardless of product, just like you have the hamburger, the search button, the search glass, you'll have a MyAviator.

Richard Tse: Yeah.

Richard Tse: We're not looking at a disruptive pricing model excuse me, a disruptive change and how we commercially engage with our customers.

Richard Tse: We have.

Richard Tse: A couple additional pieces to bring to market.

Richard Tse: Next quarter, we're bringing my aviator to market.

Speaker Change: Which is if you think on every screen you used today you have a search button that our class you have what I call. The hamburger those three lines that menu waiting I call. It the Hamburger we're going to have my aviator Budd.

Speaker Change: Personal digital assistant that every user of open text software.

Speaker Change: Regardless of screen, regardless of Bu, regardless of product just like you have the hamburger the search button.

Mark Barrenechea: And we'll bring up a personal digital worker for you to be able to do rag-style capabilities across one document, across 100 documents, complex cases, things you're working on, how do you collaborate. We also have a very important new capability with Aviator Studio, where we're going to now allow our customers to create their limited digital workforce. That is a step function. where they can create their own digital world. And we're also going to be introducing, conjunctive with that, what we call an always-on AI platform. Today, you have to go through some work to turn AI on.

Speaker Change: Search glass Youll have a my aviator and will bring up a personal digital worker for you to be able to.

Speaker Change: Do rag style capabilities.

Speaker Change: Cross one document across 100 documents complex cases things Youre working on how do you collaborate.

Speaker Change: We also have.

Speaker Change: A very important new capability, what aviator studio, where we're going to now allow our customers great third limited digital workforce that is a step function for us where they can create their own digital workers and we're also going to be introducing conjunctive with that what we call and always.

Paul Treiber: We will have it always-on inside our SaaS and inside our private cloud. So we're going to think through how to keep monetizing that. But I think it's too early to say, but I don't think we're going to do something radical in a move from, you have to commit to just a consumptive model. But more to follow on that. And it's going to really follow this very aggressive and impactful roadmap of my Aviator, Aviator Studio, and always-on Aviator. The next question is from Paul Treiber with RBC Capital Markets. Please go ahead. Well, thanks very much. Good morning.

Speaker Change: Always on AI platform today, you have to go through some work to turn AI on.

Speaker Change: We will have it always on inside our SaaS and inside our private cloud. So we're going to we're going to think through how to keep monetizing that.

Speaker Change: But I think it's too early to say, but I don't think but I don't think were going to do something radical in a move from you have to commit to just a consumptive model.

Speaker Change: More to follow on that.

Speaker Change: I don't really follow this very.

Speaker Change: Aggressive and impactful roadmap.

Speaker Change: My aviator aviators studio and always on aviator.

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

Paul Treiber: Question on AI. And then and then also the magnitude of the reductions that you're doing. So it does sound like you're seeing good usage and traction of AI internally. But how did you arrive at the magnitude of these headcount reductions? And did you contemplate a slower move and sort of, you know, dip your toe in the water as you make the transition more towards AI internally? Yeah, Paul, thanks. Thanks for the question. We appreciate it. We've been at this for over a year. So and we're moving at just an incredible pace. So when we look across how Aviator has advanced Some of our partners' AI tools have advanced, like Microsoft, SAP.

Paul Treiber: Hello, Thanks, very much and good morning question on AI.

And then and then also the magnitude of the reductions that you're doing so it does sound like Youre seeing good usage and traction of AI internally, but how did you arrive at the magnitude of these head count reductions.

Paul Treiber: And.

Paul Treiber: Did you contemplate a slower move in and sort of.

Paul Treiber: It dipped your toe in the water as you make the transition more towards AI internally.

Paul Treiber: Yes, Paul Thanks. Thanks for the question. We appreciate it we've been at this for over a year.

Paul Treiber: So and we're moving at just an incredible pace. So when we look across how.

Paul Treiber: Aviator has advanced some of our partners AI tools have advanced like Microsoft.

Mark Barrenechea: And looking at the totality of our usage, we've looked, we can already see productivity gains in sales, pre-sales, professional services, education, onboarding, general productivity, and very specifically in roles of customer support, documentation, QA, general administrative work, and the general knowledge work. And so we've been doing a very deep analysis of what roles we can, the work still needs to be done, it's just going to be done with a machine, via AI. And this shows the totality, right, look, I remember when ERP came into the market many years ago, you know, as a leader in Oracle applications, really bringing ERP to market.

Paul Treiber: SAP.

Paul Treiber: And in looking at fatality of our usage.

Paul Treiber: We've looked we can already see productivity gains in sales pre sales.

Paul Treiber: Professional services education, Onboarding general productivity, and very specifically and rolls of customer support document data documentation.

Paul Treiber: <unk> <unk>.

Paul Treiber: General administrative work and the general knowledge worker.

Paul Treiber: And so we've been doing a very deep analysis of what rolls we can.

Paul Treiber: The work still needs to be done, it's just going to be done with a machine.

Paul Treiber: AI and this shows the totality right look I remember I remember with ERP came into the market.

Mark Barrenechea: We took GNA expats in the ERP world, from upper teens... right, to low single, to mid to high single digit. That was a step function. This is a step function, AI is a step function, and be able to reduce expense in companies over time. And, look, you know, you can count what percent of off access is going to reduce for Open Text or other companies, but ERP was a step function of high teens. to High Single Digit. AI is a step function of expense efficiency. So we're leading the way in doing it in our business optimization.

Paul Treiber: Many years ago.

Paul Treiber: <unk>.

Paul Treiber: As a leader in Oracle applications really bringing ERP to market, we took G&A expense in the ear.

Paul Treiber: ERP world from upper teens.

Paul Treiber: Alright to low singles to mid to high single digit that was a step function.

Paul Treiber: This is a step function AI as a step function and be able to reduce expense and companies over time.

And.

Paul Treiber: Yes.

Paul Treiber: You can you can count it.

Paul Treiber: What percent of Opex. This is going to reduce for open tax or other companies, but ERP was a step function of high teens.

Paul Treiber: To high single digit.

Paul Treiber: AI is a step function.

Paul Treiber: Of of expense efficiency, so we're leading the way.

Mark Barrenechea: And look, I think this, if you'll allow me, Paul, I think this goes into, you know, how we're going to think about F-26 a little bit. You know, we're going to provide F-26 guidance in August. And maybe just a little bit, I won't go into it. If there's an F-26 question, I'm happy to answer it. Some of this will flow to the bottom line, for sure. Some of this will be reinvested in the business. It'll be reinvested back into AI, be reinvested into sales. So let me just pause there, Paul. But I'm going to keep talking about this analogy of ERP as a step function in G&A expense.

And doing it.

Paul Treiber: And our business optimization.

Paul Treiber: And look I think this if you'll allow me Paul I think this goes into how we're going to think about F. 'twenty six a little bit we're going to provide about 26 guidance.

Paul Treiber: August.

Paul Treiber: And maybe just a little but I won't go into F. 'twenty six question I'm happy to answer it.

Paul Treiber: Some of this will flow to the bottom line for sure. Some of this will be reinvested.

Paul Treiber: In the business it will be reinvested back into AI be reinvested into sales. So let me just pause there Paul but.

Paul Treiber: Uh huh.

I'm going to I'm going to keep talking about this analogy of ERP as a step function in.

Chadwick Westlake: Thanks for that explanation. Second question, just for Chadwick, one of the metrics that you're considering giving guidance on is going forward is EPS, which is a metric that the company hasn't guided for in the past. Can you just elaborate on the philosophy around EPS as a metric that you would guide for? Sure. Well, I think we are strong, very strong and distinctly strong at growing profitably. And at the end of the day, how does that translate to your earnings per share, which is very consistent no matter what company, no matter what sector. And that shows also the benefits of when we're deploying our capital strategically, they also repurchase shares, right?

Paul Treiber: And G&A expense AI is the same.

Paul Treiber: Thanks for that explanation.

Paul Treiber: Question, just for a child with one of the metrics that youre, considering giving guidance on us going forward as in EPS.

Paul Treiber: Which is a metric that the company hasn't guided for in the past can you just elaborate on the philosophy around Etfs as a metric that you guide for.

Paul Treiber: Sure well I think we are a strong very strong distinctly strong are growing profitably.

Paul Treiber: And at the end of the day, how does that translate to your earnings per share, which is very consistent no matter what company no matter what sector.

Chadwick Westlake: How are we deploying every dollar capital, period? EPS is a bottom line strength, period. So I think it is valuable to show that and have some expectations. And frankly, at the level we're growing, I don't think we're getting credit for it compared to many businesses in many sectors. So it's just a good, consistent guide.

Paul Treiber: And that shows also the benefits of when we're deploying our capital strategically. They also repurchase shares right. How are we deploying every dollar capital period.

Paul Treiber: <unk> as a bottom line strength period, so I think it is valuable.

Paul Treiber: To show that and have some expectations and frankly at the level. We're growing I don't think were getting credit for it compared to many businesses in many sectors. So it's just a good consistent guidepost from my perspective.

Kevin Krishnaratne: The next question is from Kevin Krishnaratne with Scotiabank. Please go ahead. Hey there, good morning. I do have a question on guidance. I know we're going to get more detail in August, but on one of your slides, and I think you talked about in the script, an expectation of a return to organic growth in 26. Can you just, you know, what gives you the sort of confidence there? I know you've got the RPO, maybe some of the drivers to get there. And then the second thing you point out is striving for a milestone of a billion in free cash flow.

Paul Treiber: Okay.

Kevin Krish: The next question is from Kevin Krish <unk> with Scotiabank. Please go ahead.

Kevin Krish: Hey, there good morning, I I do you have a question on guidance I know, we're going to get more detail.

Kevin Krish: In August one on one of your slides and I think he talked about in the script that unexpected.

Kevin Krish: Turn to organic growth in 2006 can you just.

Kevin Krish: What gave you that sort of the call.

Kevin Krish: It's there I know you've got the RP O maybe some of the drivers to get there and then the second thing I'd point out is striving for.

Mark Barrenechea: Is the expectation that you'll do the billion plus in 26? I'm just trying to think about some of the puts and takes there with restructuring and just a shift in the business. Thanks. Yeah, thanks, Kevin. Thanks for that. Thanks for the question.

Kevin Krish: Also another 1 billion in free cash flow.

Kevin Krish: Is the expectation that you'll you'll do the 1 billion plus in 26 I'm just trying to think about some of the puts and takes there with restructurings and as the shift in the business. Thanks.

Mark Barrenechea: Look, as you start it, we will provide our F-26 guidance in August. But with that said, F-26 is a very different year than F-25. I couldn't be happier that the phrase XAMC is done. And with F-26, it's about AI first. And we have some very positive lovers coming in to FDIC. Product Site. Transformative Business Optimization Plan, which is going to allow flexibility, continued flexibility and strength in our capital model for new AI investments. The business optimization, look, some will drop to the bottom line, some will be reinvested in the business, but it's going to return us to this capital flexibility.

Kevin Krish: Thanks, Kevin and thanks for the thanks for the question.

Kevin Krish: As you start it we will provide our F 'twenty six guidance in August.

Kevin Krish: But with that said F. 'twenty six is a very different year than F. 'twenty five.

Kevin Krish: I couldnt be happier that the phrase ex AMC is done.

Kevin Krish: And with F. 'twenty six it's about AI first.

Kevin Krish: And we have some very positive levers coming into F. 'twenty six.

Kevin Krish:

Kevin Krish: Product cycle.

Kevin Krish: Transformative business optimization plan, which is going to allow flexibility.

Kevin Krish: Continued flexibility and strength in our capital model for new AI investments.

Kevin Krish: The business optimization look some will drop to the bottom line some will be reinvested in the business, but it's going to return us to this.

Mark Barrenechea: But expect some positives, right? When we talk about F26 in August, we will have improved growth rates year over year. We will have improved maintenance year over year. We expect to have higher free cash flows, and we'll talk about all the dials that get us there when we get into 26. As Chadwick mentioned, we'll continue to have strong capital return in our buyback in our dividend program. This flexibility is going to allow us to return to programmatic M&A. And we are, as we've noted, going to consider divestitures of more mature offerings that will create a greater return and or increase our growth rate or both.

Kevin Krish: Capital flexibility, but expect some positives right.

Kevin Krish: When we when we talk about F. 'twenty six in August we will have improved growth rates year over year.

Kevin Krish: We will have improved maintenance year over year.

We expect to have higher free cash flows and we'll talk about all the dials that get us there when we get into 'twenty six.

Chadwick Westlake: As Chad mentioned, we will continue to have strong capital return in our buyback.

Kevin Krish: And our dividend program this.

Chadwick Westlake: This flexibility is can allow us to return to programmatic M&A.

Chadwick Westlake: And and we are as we've noted going to consider.

Chadwick Westlake: Consider divestitures of more mature offerings that will create a greater return.

Mark Barrenechea: And these are the levers we've traditionally had when we traded at our highest multiples. And we expect to have these levers back in 26. So it's a very different year. AI first. And we want to finish out the year, and we, as we traditionally do when we get our August call, we'll outline what F-26 will look like, but expect it to be very different. Got it. Appreciate that.

Chadwick Westlake: <unk> increase our growth rate or both.

Chadwick Westlake: And these are the levers we've traditionally had when we traded at our highest multiples.

Chadwick Westlake: And we expect to have these levers back in 26 so.

Chadwick Westlake: It's a very different year.

Chadwick Westlake: First.

Chadwick Westlake: And.

Chadwick Westlake: We want to finish out the year and we as we traditionally do when we get our August call, we'll outline what F. 'twenty six 'twenty six look like but expect it to be very different.

Mark Barrenechea: One final one then, you know, we talked about the enterprise booking softness, but about 10% of your revenue base is SMB. So I'm wondering, you know, what, what the trends are looking like there? You know, that's a sensitive part of the, you know, the business when, when, when there's uncertainty. So just curious. Absolutely. As I said in the call, we had given this sudden, you know, shock to the system of tariffs, 25% auto tariffs, and then rolling tariffs. We did have a bookings impact in Q3, as we noted. And, you know, we're unlikely to get to our aspirations of 20, of our targets of 20% plus, but we are looking to be in mid-teens growth for the year, which means a strong Q4.

Speaker Change: Got it I appreciate that one final. One then you know we talked about the enterprise book.

Speaker Change: Booking softness, but 10% of your everyday basis SMB.

Speaker Change: So I'm wondering you know what what the trends are looking like there.

Speaker Change: The sensitive part of the.

Speaker Change: The business win win when there is uncertainty so just curious.

Speaker Change: Okay.

Speaker Change: Absolutely as I said on the call we had given this sudden.

Speaker Change: Shock to the system of tariffs of 25% auto tariffs and then rolling tariffs.

We did have a bookings impact in Q3 as we noted.

Speaker Change: And we're unlikely to get to our aspiration of 20 of our targets of 20% plus but we are looking to be in mid teens growth.

Mark Barrenechea: So, we actually have strong visibility into the bookings. Todd and Paul in the field are executing to the deals in front of us. I think the news on the week of maybe lightening some auto tariffs is helpful. But it still remains a little unpredictable, and so we're still at the, it's still volatile, but we think we're going to execute well in the volatility.

Speaker Change: For the for the year, which means a strong Q4, so we actually have strong visibility into the bookings.

Speaker Change: Todd and Paul in the field are executing.

Speaker Change: So the deals in front of us I think the.

Speaker Change: The news on the week.

Speaker Change: Of Lightning some auto tariffs is helpful.

Speaker Change: But it still remains a little unpredictable.

Speaker Change: And so we're still at it.

Mark Barrenechea: I'll now hand the call back over to Mr. Barrenechea for closing remarks. All right. Well, thank you, everyone. Chadwick, welcome. And thank you, everyone, for joining us today. We have just three things I'd end with. It's a whole new narrative for us with AI First and everything from product initiatives through building an operating model centered on AI. We're very excited about F26 and all the positive levers that are in front of us. And we look forward to very strong direct and candid engagement in the quarter. As Greg noted, Chadwick and the team and myself will be out in the field spending time with you, and we look forward to hearing your voice.

Speaker Change: It's still volatile, but we think we're going to execute well and the volatility.

Speaker Change: I'll now hand, the call back over to Mr. Bernstein for closing remarks.

Speaker Change: Alright, well, thank you everyone Shadrick welcome and.

And thank you everyone for joining joining us today, we have.

Speaker Change: Three things I'll add and with.

Speaker Change: It's a whole new narrative for us with AI first.

Speaker Change: And everything from product initiatives.

Speaker Change: Through building an operating model centered on AI, we're very excited about F 'twenty six and all the positive.

Speaker Change: <unk> that are in front of us and we look forward to very strong.

Speaker Change: Directing candidate engagement.

Speaker Change: In the quarter as Greg noted will chatter with the team and myself will be out in the field spending time with you and we look forward to hearing your voice. Thanks.

Mark Barrenechea: Thanks for joining today's call. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. [music] © The Ultimate Parody Site! Open Text Open Text © BF-WATCH TV 2021 Copyright © 2020 Mooji Media Ltd. All Rights Reserved.

Speaker Change: Thanks for joining today's call.

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

Speaker Change: Sure.

Speaker Change: [music].

Speaker Change:

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Hum.

Speaker Change: Hum.

Speaker Change: Mhm.

Speaker Change:

Speaker Change: [music].