Q4 2025 Open Text Corp Earnings Call
Speaker #1: Thank you for standing by. This is the conference operator. Welcome to the OPEN TEXT CORP 4th Quarter Fiscal 2025 Financial Results Conference Call. As a reminder, all participants are in listen-only mode.
Speaker #1: End the conference is being recorded. After the presentation will be an analyst Q&A session. To join the question queue, simply press star to 1 on your touchstone phone.
Speaker #1: Should anyone need assistance during the conference call, they may signal an operator by pressing star then 0 on their telephone. I would like to turn the conference over to Greg Secord, Head of Investor Relations.
Speaker #1: Please go ahead.
Speaker #2: Thank you, Rocco. And good morning, everyone. Welcome to OPEN TEXT 4th Quarter and Fiscal Year 2025 earnings call. And with me on the call today are OPEN TEXT Chief Executive Officer and Chief Technology Officer, Marc J.
Speaker #2: Barrenechea. Together, with Chadwick Wesley, our Executive Vice President and Chief Financial Officer, we have Todd Sion, our President of Worldwide Sales. We have Paul Duggan, our President and Chief Customer Officer, and also joining we have Cosmin Beloda, who is our Senior Vice President and Chief Accounting Officer.
Speaker #2: Today's call is being webcast and recorded with replay available shortly thereafter. All of this information and all of the presentations today are available on the Investor Relations website at OPEN TEXT.
Speaker #2: And that's investors.opentext.com. On today's webcast, we'll have our prepared remarks coordinated with slides. On the Q4 financial presentation, this presentation is available, of course, on the website.
Speaker #2: And please note that if you're logged into the live webcast, ou're already set up for the slideshow. I'll also point out that there are two presentations on our website.
Speaker #2: The Q4 Fiscal 25 IR results, and that we'll be using during the call, and the Investor Presentation that we use for Investor Meetings. Turn into the Safe Harbor statement.
Speaker #2: During this call, we'll make forward-looking statements relating to 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 that are made today.
Speaker #2: Additional information about the material factors that could cause actual results to differ materially from such forward-looking statements as well as the risk factors that may impact future performance results of OPEN TEXT are contained in our recent forms 10K and 10Q.
Speaker #2: As well as the press release that was distributed yesterday afternoon, which may be sound, of course, on our website. We undertake no obligation to update forward-looking statements unless required to do so by law.
Speaker #2: 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 asures may be found in our filings and other materials which, again, are available on the Investor section of our website.
Speaker #2: With that, I'll turn the call over to Marc.
Speaker #3: Thank you, Greg. And welcome, everyone, to the start of our new fiscal year 2026. And a big welcome from Waterloo. As you know, every fiscal year has its journey.
Speaker #3: For OPEN TEXT and Fiscal 25, that include completing a material divestiture of our mainframe business, a large business optimization program, the acceleration of our margin opportunity, significant new AI cloud and security innovations, and our strongest year of capital return.
Speaker #3: As you'll hear today, Fiscal 26 is a completely different year. Led by growth and a ong product cycle, and a strong financial outlook that includes total revenue growth of 1% to 2%, cloud growth of 3% to 4%, adjusted EBITDA expansion of 50% to 100 BIPs, free cash flow expansion of 17% to 20%, and continued strong capital allocation with a dividend raise of 5% and a new $30 million share repurchase program, as well as a return to M&A.
Speaker #3: Let's get into the call. Our priorities for building a stronger and more competitive OpenText remain clear and consistent. To expand our competitive advantage through our business AI, our business clouds, and business security, our new My Aviator will bring business AI to every OpenText end user.
Speaker #3: Deliver total revenue growth through compelling solutions, great distribution, and transformative customer success. Led by our cloud growth and increasing contributions from business AI and security, as well as upper quartile operating excellence, which means continued margins and free cash flow expansion and value-creating capital allocation.
Speaker #3: Our previously announced business optimization has accelerated our margin opportunity and our medium-term business model is about approaching the rule of 40. You are seeing the results of these clear and consistent priorities.
Speaker #3: Q4 was the first full quarter titanium X in the market. And we ended Fiscal 25 with strong performance, as you saw in the numbers we published yesterday.
Speaker #3: Total revenues of $1.31 billion and we grew organically year over year excluding the impact of AMC, IP rights, and DXC. Our cloud bookings surged to $238 million or 32% year over year growth, all of which flows directly into cloud RPO.
Speaker #3: Cloud revenue of 475 million or 2% growth, license revenue of $173 million or 77% growth, ex-AMC, adjusted EBITDA dollars of $444 million or 34% margin up strongly, ex-AMC, and we had amazing cloud wins this quarter across banking, automotive, healthcare, biotechnology, and retail, including 43 cloud deals over $1 million and Todd will speak about these in a little more detail in a ent.
Speaker #3: For the full fiscal year 25, total revenues of $5.17 billion, less AMC, down 3%, and less IP rights and DXC, down approximately 1%. You can see in our investor presentation a three-year trended slide.
Speaker #3: On a reported basis, help illustrate the magnitude of the total revenues, cloud revenues, and cloud growth rates for our business. The new insights are all singularly focused on our cloud business.
Speaker #3: Cloud revenues were $1.86 billion for the year, up 2%. I would also like to add some further color to our cloud business and revenue performance by business area.
Speaker #3: On approximate basis year over year, cybersecurity's 30% of our cloud revenues, BN is 30%, content 25%, OSM and DevOps 10%, and the others make up the remaining 5%.
Speaker #3: Content, OSM, and DevOps each grew faster than 10% year over year. BN remains constant, cybersecurity was negative 4%, which we expect to return to growth this fiscal year, and please note we have rebranded our ITOM business to Observability and Service Management, or OSM, and we have renamed application automation, which is now DevOps.
Speaker #3: Cloud bookings, with $773 million, up 10%, and right in our look range. Total RPO, up 9%. Total cloud RPO was up 13%. And the total cloud position in the current cloud portion was up 8%, while the long-term portion up 17%.
Speaker #3: And our cloud renewal rate was 96% ending Q4. So just an amazing amount cloud expansion. Adjusted EBITDA dollars of $1.8 billion or 34.5%, up strongly, ex-AMC, adjusted EPS of $3.82 up strongly, ex-AMC, and free cash flows of $687 million, above the high end of our range.
Speaker #3: And ending cash of $1.156 billion. For the year, we allocated a record amount of our cash, or $683 million, to capital return, where we returned $272 million via dividends, and we purchased $411 million of our stock, canceling 14.5 million shares at an average price of $28.29.
Speaker #3: Let me close our fiscal 2025 with a few final thoughts. In addition to all the strength and accomplishments we had, many fiscal 2025 was also one of challenges.
Speaker #3: There was, of course, the unprecedented and unpredictable trade and territorial dynamics in the markets and the geopolitical forces the industry traversed. But it was also an extraordinary year of a large and global mainframe business divestiture for us, and transitioning that business to the buyer, which the team did flawlessly.
Speaker #3: We built a lot of corporate muscle through that process. We were focused on rebuilding our margin post-divestiture, modernizing the micro-focus platform, executing a large and strategic business optimization, delivering titanium X, and creating an AI foundation for the future.
Speaker #3: But make no mistake, we are disappointed that the full fiscal year had negative growth. And as you can see on slide 10, it is a clear exception for a very long track record of growth.
Speaker #3: We thank you for your feedback throughout this past year. We'll continue to be better communicators, and I will continue to increase the business insights we share so investors can see both the challenges and our opportunities equally, like we are doing today.
Speaker #3: Time to look forward. So looking ahead, I am confident in the trajectory of the business. Fiscal 2026 is a different year, a different outlook, and an important period of growth that the company is entering into.
Speaker #3: Our priorities for building a stronger, more competitive OpenText remain clear, and as noted earlier, we’re excited about the next wave of innovation.
Speaker #3: For business AI with My Aviator and Aviator Studio and Agentic user platform for building digital workers, and with My Aviator, a personal digital worker for every knowledge worker to be used everywhere for anything, and for our business clouds with core content SaaS, new verticals like insurance, OSM, corporate help desk for employees for employee experience, and on the business technology side, our focus on threat detection and response, SaaS identity and access management, and our new go-to-market partnership with Microsoft.
Speaker #3: We're a folio company, and we expect all our businesses to perform. However, we can see immediate paths for outperformance this year, particularly in content security, observability, and service management.
Speaker #3: Our M&A pipeline across our core BUs is building again and to reiterate, we'll consider divestitures as and when they make strategic sense. To drive overall higher growth rates, optimize our business, order return investor dollars for better returns.
Speaker #3: Your organization has momentum in its focus. So let me discuss the key elements in our Fiscal 26 outlook and reported dollars in the year over year terms.
Speaker #3: On the macro, customer global customers are investing. And they are taking control of their platforms and capabilities via sovereign clouds. Also, they are de-risking their businesses from tariffs and trade volatilities.
Speaker #3: Customers are investing in AI, cloud, and security. Fiscal 25 taught us to expect the unexpected curveball on tariffs and trade so it drives you to focus on managing exceptionally well that which you control, and it's prudent to be conservative given the geopolitical and public sector trends.
Speaker #3: With that macro backdrop for fiscal our iscal 26 outlook, with year over year comparisons the following. Total revenue growth of 1% to 2% and growth in constant currency.
Speaker #3: Total cloud revenue growth of 3% to 4%, supported by our strong current RPO backlog. New cloud bookings growth of 12% to 16%. Adjusted EBITDA margin growth of 50% to 100 BIPs, free cash flow growth of 17% to 20%.
Speaker #3: We plan to grow our annual dividend by 5% and further, we plan to repurchase and to purchase and retire $300 million of our stock this fiscal year.
Speaker #3: There are a few more comments I'd like to provide on our outlook. First, cloud revenue, ARR, and cloud CRPO truly lead the future of our business and ur outlook.
Speaker #3: We expect ARR to return to growth in 26. And within that, cloud growth will outpace the maintenance business. Second, we'll make strong progress on our customer support business.
Speaker #3: And expect to cut the rate of decline in half. From negative 4%, ex-AMC, in Fiscal 25, to negative 2% in Fiscal 26. And return the business back to growth in Fiscal 27.
Speaker #3: In a moment, Paul will speak to our support business and the opportunity. Third, AI, SaaS, and security are well positioned to contribute more to our revenues and we see security being a positive contributor to our growth rate this year.
Speaker #3: Todd will speak more about this in a moment. Lastly, our outlook positions the company to exceed expectations based on stronger demand, stronger adoption, stronger execution, and less macro unpredictability.
Speaker #3: As your 1 estimates, please remember our business is an annual business. We plan, operate, and make key decisions within the context of our annual plan.
Speaker #3: Our quarterly estimates are meant to provide short-term insights. And our quarterly estimates will vary within our annual plan. For Q1, our estimates include total revenue growth of constant to 1% and adjusted EBITDA of 35% to 35.5%.
Speaker #3: I'd also like to introduce today our thoughts on where we are driving our business model over the next three years. Which we call our medium-term business model.
Speaker #3: Our medium-term business model looks like this: Rule of 40 growth. Delivering a combination of total revenue growth plus adjusted EBITDA margin percent to approach 40.
Speaker #3: Efficiency. Continuous year over year improvements on margin, while landing adjusted EBITDA in the mid to high 30s, and balancing margin expansion with the growth investment opportunities that we see.
Speaker #3: Free cash flow. For every dollar of free cash flow, we look at two key metrics: grow free cash flow over revenue into the high teens, and continue to grow free cash flow over our outstanding shares.
Speaker #3: Capital allocation. Continuing to strategically and flexibly deploy our capital across M&A, dividends, buybacks, and divestitures. With one lens, creating long-term shareholder value. We'll keep you dated on our progress along the way.
Speaker #3: Let me wrap up my prepared comments today. F26 is an important period of growth for the company, and that confidence starts with our cloud business.
Speaker #3: We're in a strong product cycle with titanium X, business AI, and business security. Content OSM and DevOps each grew faster than 10% last year.
Speaker #3: We have new accelerators for growth with AI security and business network. Our RPO was up to our cloud RPO was up 13%, current portion up 8%, long-term portion up 17%.
Speaker #3: Our cloud renewal rates are strong at 96% and getting stronger. Our outlook is 3% to 4% organic cloud revenue growth. New bookings growth of 12% to 16%.
Speaker #3: And we expect continued cloud RPO expansion with strong renewal rates and continued new bookings growth. I want to thank all OPEN TEXTERS for their strong performance in Q4, for the momentum heading into Fiscal 26, as well as to thank our customers for their continued trust.
Speaker #3: We have an amazingly strong finance organization, and we welcome Cosmin Beloda, who is currently on the call with us today, and will serve as interim CFO starting August 15th.
Speaker #3: Our CFO search is in full motion and we're excited about what an open market search will bring to the business. I'd ike to thank Chadwick for his service to OPEN TEXT and wish him well and all the best on his continued journey he's going to make great CEO.
Speaker #3: Let me turn the call over to Todd and Paul, and then Chadwick. So Todd, over to ou. Thank you, Marc. It is clear that we have momentum coming out of Q4.
Speaker #3: And entering F26. We're experiencing market demand our worldwide commercial team is executing, our partner ecosystem is more impactful than ever, and our pipeline is strong and growing.
Speaker #3: Marc referenced the very dynamic global economic environment. This environment is driving enterprises to double down on clear and measurable business justification before proceeding with technology investments.
Speaker #3: And this environment aligns well to the specialized capabilities of our worldwide commercial team, to guide our customers effectively. We're successfully translating OPEN TEXT's titanium X platform in a quantifiable business case value.
Speaker #3: For existing and new customers, and customers are increasingly depending on us. In Q4, we had some great customer wins. Including Vemo, Group A Clarins, PowerGuessner, RightMove, and I'd like to walk you through several strategic wins in our business clouds to give you a sense of how we're winning against the competition.
Speaker #3: First, the OPEN TEXT content management cloud. One of Europe's largest healthcare and life sciences companies. Chose OPEN TEXT as a key part their SAP cloud migration project.
Speaker #3: Benefiting clearly from our SAP cloud-first partnership. In a large Canadian financial services firm, utilized OPEN TEXT's content management cloud to power its unstructured data vault and support of mission-critical business systems.
Speaker #3: One of the largest and nationally ranked U.S. hospital networks chose OpenText's observability and service management cloud in direct competition with ServiceNow. This is a really tremendous new logo win for us.
Speaker #3: A Fortune 100 pharmaceutical and biotechnical company chose OPEN TEXT's DevOps cloud and e-signature solution over the competition to reduce regulatory and compliance risk while also supporting their move to cloud and AI initiatives.
Speaker #3: This win continues our momentum, helping large highly regulated enterprises build, deploy, and manage compliant applications. One of Europe's leading forensic research institutions, selected OPEN TEXT's Fortify application security platform to strengthen the security of its business-critical software.
Speaker #3: This very highly competitive new logo win, it underscores our growing leadership in enabling secure development within high trust, high compliance public sector environments. And then lastly, a top global top five global automotive manufacturer further scaled their dependence on OPEN TEXT's business network cloud to manage their treasury management, and global supply chain.
Speaker #3: Now, many of these customer wins relied heavily on OPEN TEXT's partnerships. Our existing and new partnerships are playing an increasingly major role in our growing commercial momentum.
Speaker #3: The SAP partnership, as an example, remains strategic. And continues to accelerate across co-selling, reselling, and joint engineering. The impact is contributing meaningfully to our content management cloud growth.
Speaker #3: And we're excited in Q1 we've expanded this partnership to our experience cloud to also be resold by SAP. Our Microsoft partnership is growing. And we're now live with a launched cybersecurity threat detection and response offering.
Speaker #3: We refer to it as TDR. It's being actively sold now with and through Microsoft's ecosystem. And it integrates seamlessly with Microsoft Defender, Microsoft Entra ID, and is part of the Microsoft Security Copilot ecosystem.
Speaker #3: Our GSI partnerships are contributing to growth with larger and more strategic deals. For example, with Capgemini, we've just launched a digital government solution to serve government agencies across our OPEN TEXT's content, experience, and security clouds.
Speaker #3: We're also collaborating with HPE to deploy database management and information governance solutions on HPE GreenLake. For our technology and ISV partnerships, they're enabling us to bring differentiated vertical industry solutions to market.
Speaker #3: And as an ample, with Guidewire, we've introduced a joint solution actively targeting the worldwide insurance marketplace. We're ing to continue to invest to scale further into the financial services sector with ISV ecosystem partnerships.
Speaker #3: And as you've heard Marc mention, we're doubling down on sovereign cloud and sovereign AI. We're super excited to have announced our partnership recently with TELUS.
Speaker #3: Offering the Canadian market a secure private cloud for information management with a trusted Canadian infrastructure provider. We continue to see growing demand and execution through our overall channel partner ecosystem.
Speaker #3: It's helping us scale OPEN TEXT's distribution into the SMB segment, into public sector, and into emerging markets globally. Now, lastly, our sales marketing and partner execution, it's created a solid and growing full year pipeline.
Speaker #3: In fact, our pipeline for licenses is up over 10% compared to the prior year. Additionally, our pipeline for cloud is up nearly 30% year over year.
Speaker #3: We're seeing pipeline conversion rates improve. And in Q4, we delivered highest account executive productivity we've seen in the last eight quarters. And we're adding even more sales capacity now to convert our growing pipeline.
Speaker #3: Now, to summarize, I’m really, really proud and thankful for our worldwide commercial team's Q4 performance. In early July, we launched the new year with a fast start.
Speaker #3: At our worldwide company and sales kickoff here in Waterloo. And our team has a ton of energy fueling F26 execution ongoing right now. Our partnerships are contributing substantially with growing impact.
Speaker #3: And we built a strong pipeline with a growing conversion rate and we're adding sales capacity to start fast in F26. Paul, over to you.
Speaker #3: All right. Thank you, Todd. It's great to be here with you and Marc and the rest the team here in Waterloo. Today, I'll speak briefly three areas.
Speaker #3: The highlights of the prior quarter as we close out F25. Where our team is focused to ing a stronger outcome to F26. And what to expect for our intenance business in the year ahead.
Speaker #3: So let's jump right in. First, Q4 was a solid quarter for the business. The OpenText renewals flywheel continues to be stable and predictable, with a net renewal rate of 96% for cloud and 91% for off-cloud, improving 100 basis points quarter over quarter.
Speaker #3: Our core operating metrics across our recurring revenue business are positive. Past due is down, on-time renewals are up, and APA, or our annual price adjustment, is up.
Speaker #3: In fact, we set all-time records in several of these areas and finished ahead at the year well ahead of our plan on bookings, including some very large early renewals on the cloud side as customers work to lock in pricing over the next several years.
Speaker #3: So that all adds energy to the flywheel and creates momentum into F26. Growth remains job number one for the team. And that drives a single overriding mission for the business: customer centricity.
Speaker #3: Now, at its core, customer centricity is a business mindset and an operating model where every decision starts from a deep understanding of what creates value for the customer.
Speaker #3: It's not just about good service. It's about anticipating customer needs. It's not solving problems. It's doing this proactively and shaping our offerings to deliver outcomes.
Speaker #3: We're focused three areas in F26. Number one, the performance of our maintenance business through lifetime value. Number two, expanding post-sales offerings. And number three, customer success through our love model land operate value expand.
Speaker #3: So just a few examples. For lifetime value, we reorganized our PS sales team by practice area and have them focused on titanium X upgrades, targeting off-cloud customers several releases back to bring them current to the latest version of the products.
Speaker #3: For our ove model, or land operate value expand, we are in year two of our new cloud customer success offering rollout, which added incremental bookings to F25 and contributes to cloud ARR.
Speaker #3: And for post-sale, this quarter we launched advanced customer support, or ACS, which expands our portfolio of support subscription offerings and puts a new and dedicated sales team behind it to build new inflows to maintenance revenues.
Speaker #3: So these are just a few of the new programs that will contribute to growth in Fiscal 26. The customer is at the center of all this.
Speaker #3: And growth is the result for doing that consistently and doing that well. So that brings me to my last point, which is what to expect for maintenance in F26.
Speaker #3: Let me just start by reaffirming our messages from last year. We see strength and stability in the core operating metrics of our maintenance business.
Speaker #3: Excluding AMC, we ended F25 at a decline rate of 4%. Our Q4 decline rate was 3%. And a large improvement from Q3. And our outlook for F26 is a decline of 2%.
Speaker #3: Cutting that decline in half year on year. And further, and is a key point, we expect ARR to return to growth in F26 and within that cloud growth will outpace the maintenance business.
Speaker #3: So we can see clearly the momentum we have in returning the maintenance business back to growth, which we expect by F27. Our operational metrics are bright green.
Speaker #3: We have growth programs adding new revenue channels to maintenance, and as we sell new licenses, that will also add incremental maintenance revenues. Looking out further, and it's cloud continues to grow, it'll be an opportunity to expand this business discussion to focus more on ARR, RPO, and CRPO inclusive of maintenance.
Speaker #3: So in summary, our confidence grows stronger with our Q4 results, I see momentum in the business, and there is a lot to be excited about in the year ahead.
Speaker #3: So with that, I'll hand the call over to Chadwick.
Speaker #4: Thank you, Paul. And good ning. I will briefly touch on more context for Q4 results. In OPEN TEXT's rowth momentum into Fiscal 2026, it was a great outcome at $238 million of enterprise cloud bookings in Q4, up 32.3% year over year.
Speaker #4: Closing out Fiscal 2025 within our annual target range at $10.1% total growth. Our results include full year RPO and CRPO with year over year comparisons.
Speaker #4: This captures the strength of our cloud backlog. When looking at our cloud business, we think about four core metrics: cloud revenue growth, enterprise cloud bookings expansion, cloud renewal rates, as well as new cloud bookings.
Speaker #4: Cloud CRPO is a subcomponent of RPO, and it provides visibility into the current portion of cloud RPO that is committed over the next 12 months.
Speaker #4: This includes all our cloud product groups, enterprise and SMBC, new and renew, and provides greater visibility into our cloud business. With the bookings progress for Q4 and FY26 expectations, OpenText is positioned for growth.
Speaker #4: We reported solid annual recurring revenue of approximately 81% in Q4, up approximately 20 basis points year over year. As you see in the table on slide 22 for Q4, cloud venues were $475 million, up 2.1% year over year.
Speaker #4: Representing about 36.2% of total revenue, Q4 marks 18 quarters of cloud organic growth, driven by AI readiness and strong demand for our Content Cloud.
Speaker #4: Non-GAAP cloud gross margin increased approximately 40 basis points to 63.2% year over year. Customer support or maintenance revenue was $581 million, and the full year closed at $2.334 billion, coming in slightly above our expectations.
Speaker #4: We are making progress here in Q4 with non-GAAP maintenance gross margin remains strong at 89.2%, up 20 basis points year over year. Overall, non-GAAP gross margin for Q4 was $76.2%.
Speaker #4: We added some additional disclosures, to offer deeper context to where our cloud revenue growth outperformed in F25. Particularly in content, DevOps, and observability and service management.
Speaker #4: Moving towards the bottom line, we achieved a strong quarter and an overall F25 adjusted EBITDA margin of 34.5%. 50 basis points above the top end of our target range of $33 to 34%.
Speaker #4: This was achieved with the benefit of business optimization progress. As well as higher revenue in the quarter. Last quarter, we expanded our business optimization plan.
Speaker #4: When fully implemented, we expect to generate total annualized savings of approximately $490,000 to $550,000,000. We successfully realized approximately 35% of these savings during Fiscal 2025.
Speaker #4: Our F26 outlook captures an additional 35% of these benefits. And after reinvestment, we expect continued adjusted EBITDA margin expansion. We've spent approximately $128 million to date.
Speaker #4: And the plan is expected to substantially completed by the second quarter of F27 up to a total spend of approximately $260 million. In Q4, we generated $687 million of free cash flow.
Speaker #4: $37 million above our target range. And the quarter, our expense interest expense declined year over year. And again, you see the efit of the business optimization savings here.
Speaker #4: The resilience of the OPEN TEXT operating model revenue growth, ARR durability, expanding margin of free cash flow, provide us the flexibility to strategically deploy our capital across M&A, dividends, and share buybacks.
Speaker #4: The board directors has approved a cash dividend of 27.5 cents per share for the first quarter of Fiscal 2026. With a record date of September 5, 2025, payable on September 19, 2025.
Speaker #4: We will remain strategic and flexible in our capital allocation. Adjusted EPS was strong again in Q4 at 97 cents diluted. Reported that is down 1% year over year.
Speaker #4: But adjusted EPS increased year over year after normalizing for the impact of the AMC divestiture. Contributing to this outcome was the benefit of repurchasing and canceling 14.5 million shares in Fiscal 2025.
Speaker #4: This momentum will continue with our announcement of a new $300 million share buyback program in Fiscal 2026. In closing, I'll cho my sentiment from last quarter.
Speaker #4: As an investor, this is a good time to hold and buy OPEN TEXT ock. We are leaders in information management. With a large install base, loyal customers, strong core businesses, and arnings profile, plus a clear return of capital strategy.
Speaker #4: I am confident in OPEN TEXT's ability to reinvest strategically and outperforming products will generate meaningful returns for investors. I would like to thank Marc, and all my OPEN EXT colleagues for the opportunity to work with such an extraordinary group.
Speaker #4: This is an iconic Canadian company. And it's been a privilege to serve our stakeholders. With that, Rocco, can you please open the line to our equity analysts for Q&A?
Speaker #5: Absolutely. We will now begin the analyst question and answer session. Analysts who wish to ask a question may press star one on their touch-tone phone to join the question queue.
Speaker #5: You will hear a tone acknowledging your request. If you are using a speaker phone, please ensure you lift the handset before pressing any keys.
Speaker #5: If you wish to remove yourself from the queue, you may press star then two. Anyone who has a question may press star then one at this time.
Speaker #5: And our first question today comes from Remo Lenshow with Barclays. Please go head.
Speaker #6: Thank you. And thanks for all the clarity in the ation. Marc and team D, obviously there's the uff that you can do, but then there's the stuff that kind is given to ou in terms of the economy.
Speaker #6: You talked a lot about like, you know, what ou're doing at the moment. What are you seeing though from end demand, customer behavior, et cetera, at the moment given all the uncertainties and, you ow, maybe this kind of break it down by region and then I had one quick follow-up.
Speaker #3: Sure. Remo, thanks for the question. I'll start with we are seeing a strong and positive trend towards sovereign cloud. And we're in a unique position as a global company.
Speaker #3: A company that's invested strategically in its operations and cloud infrastructure. And with our cloud partners to be able to provide local control. So we are engaged in France to deploy sovereign France.
Speaker #3: We're aged in Germany to deploy sovereign Germany. We're engaged in the UK to deploy sovereign UK. And keep going around the globe. Canada, Japan, Singapore, Australia.
Speaker #3: So we see sovereign cloud as an opportunity in our business. And have factored that into looking at strong bookings growth in the here in Fiscal 26 of 12 to 16%.
Speaker #3: We also see customers looking to take more control to deploy on-premise. And we've been in a position always to provide that customer choice. So we actually see that the volatility creating a demand driver that can be a bit of a tailwind for us heading into 26.
Speaker #3: Balancing that a bit is some customers on the supply chain side, as you saw in our cloud revenues. Our VN was constant. That are just taking a little longer to make some decisions.
Speaker #3: But it's actually a net positive for us, Remo. And we're helping customers take the control back and continue with their strategic projects.
Speaker #6: Okay. Perfect. And then the I like the additions to talk about maintenance a little bit. Bringing that to that 2% decline line, is that how much of that is kind of operations?
Speaker #6: And then is there also an element that you can do think about pricing? Thank you.
Speaker #3: Hey, Remo. Paul Duggan, thanks for the great question. There's a short answer and a long answer. This is a short answer. Is the rate of decline on maintenance is improving really due to the focus of the performance and growth programs we've had over the past year or two?
Speaker #3: The longer answer and it's really centers on three core areas that I see. It will always come down, any maintenance business will always come down to the core operating metrics.
Speaker #3: And that's going to be the single most important indicator of motion and strength of the install base. And you can see parts it, right?
Speaker #3: Q4 NR is up 100 bps, quarter on quarter. Our cancels are down. Past due and on time are improving dramatically. We're setting records and it's common to set records each quarter at this point.
Speaker #3: APA, our annual price adjustment, was up in Q4. It's been up multiple quarters in a row now. And one way to think about that is it's a proxy for value that customers see in our roadmap.
Speaker #3: And to add to that value, we've launched new advanced customer services or ACS this quarter, which will create some new upselling focus areas for us in the premium services that attach on top of the maintenance base.
Speaker #3: And then finally, I'd say we talked a little bit about last couple quarters last year. Look, we had some challenges in license in OSM and a few other areas, as well as a couple of one-time setbacks, DXCs when we've talked about.
Speaker #3: The fact of the matter is the core business here is approved. And as we loop the track on some key ems and we see the positive impact of things like ACS, I believe pretty strongly that you're going to see a continued impact positively on the maintenance business.
Speaker #6: Okay. Perfect. Thank you. Good luck.
Speaker #3: Thank you, o.
Speaker #5: Thank you. And our next question comes from Samad. Samad, with Jeffries. Please go head.
Speaker #7: Hey, guys. This is actually Billy with Simmons for Samad. The new disclosures on cloud growth and cloud as a percentage revenue are very helpful for us.
Speaker #7: But can we dig into those numbers a ittle more? What cloud or business units are seeing outsized growth simply because of accelerated on-prem to cloud migrations from the base?
Speaker #7: What are seeing growth from solid end customer and product demand? And at this point, what are some of the businesses where you believe there's kind of extra work to be done to get growth higher?
Speaker #7: Thank you.
Speaker #3: All right. Thanks, Billy. Appreciate the question. So look, all of our disclosure and new disclosure is centered on providing a singular insight into our cloud business and opportunity.
Speaker #3: And it's about this strategic alignment and insight into that opportunity. Right? So a year ago, we started with our RPO disclosure. And we decided a year ago to start with RPO even though we didn't have the history to disclose.
Speaker #3: And we knew it would loop the track four quarters later, and here we are. So total cloud RPO was $2.5 billion and grew 13%.
Speaker #3: Total cloud current RPO was $1.2 billion and grew 8%. And total long-term RPO was $1.1 billion and grew 17%. So that was the new disclosure started a year ago.
Speaker #3: We looped the track. We can now see the power of the backlog of our business. Cloud renewal rate, right, which we're talking about 96% ending Q4 and getting stronger.
Speaker #3: ARR, we're turning to growth. In 26, which means that the cloud the additive cloud dollars are more than the maintenance decline dollars. And that is exactly where we want the business to be in 26 and forever more.
Speaker #3: Bookings. We're going to continue to show you bookings that come in to fill the top of the bucket. So some companies 't disclose bookings.
Speaker #3: We disclose bookings. We're going to ue to disclose bookings. Because it fills the top of the bucket. $773 million in 25 or 10% growth.
Speaker #3: And our outlook of 12 to 16% growth in 26 on a very large base of 773 million. Obviously, the revenue of 2% in 25 and then our outlook of growing faster in 26 of 3% to 4% cloud growth.
Speaker #3: And then the new cloud disclosures that you touched on, all in the context of the alignment, where cybersecurity is approximately 30% of our cloud revenues.
Speaker #3: BN 30% of our cloud revenues. Content, 25% of our cloud revenues. OSM and DevOps, 10%. And the others all make an upper remaining of 5%.
Speaker #3: Content, OSM, and DevOps each grew faster than 10% last year. We are not providing an outlook per business cloud, if you will, in '26. Just into the total cloud number.
Speaker #3: BN remains constant. And we feel we're ing to be boosting that growth in 26 via AI. And our new control tower technologies. Cyber was negative 4% growth.
Speaker #3: We've talked about our opportunities and our challenges equally and transparently. So, cybersecurity experienced a negative 4% growth in the cloud last year.
Speaker #3: Mainly driven by the SMBC business. And to be clear, we expect this business to return to growth. That's why we expect the outperformance security this year and expect this business to return to growth with our Microsoft partnership.
Speaker #3: Both at the enterprise and the mid-market. As well as threat detection and response identity and access management. In the cloud and other new tools.
Speaker #3: And on the other bucket, we have a new HPE partnership that Todd talked about with GreenLake. And our new vertical as a service. To help that other bucket as well.
Speaker #3: So I hope that's pful. I wanted to kind maybe just resummarize the totality of the disclosure. All what a singular purpose and insight onto the cloud.
Speaker #5: Thank you. And our next question today comes from Richard C. with National Bank Financial. Please go ahead.
Speaker #8: Yes. Thank you. Yeah. Thanks for all those disclosures. With respect to the fiscal 26 growth numbers, how much of that is already visible in your RPO?
Speaker #3: Yeah, Richard, great to hear your voice. And thanks for the question. So we have an illustrative slide in Chadwick's portion that shows the bookings flowing in.
Speaker #3: Kind of a constant level, if you will, for CRPO. So our cloud current RPO in fiscal 26 is roughly 60% of our venues. And so we have that's sort of going to come right off the balance sheet flowing into the revenue stream.
Speaker #3: And over time, we hope to raise that 60% guarantee, if you will, higher. But within the year, we got, as Todd talked about, our cloud pipeline is up 30%.
Speaker #3: We will expand the opportunity within the install base. We will drive expansion capabilities. We'll win new business. And deliver new revenues from that. So we have strong visibility, pipeline up, 60% current CRPO guaranteed.
Speaker #3: Which gives us a very strong confidence of the 3% to 4% organic cloud revenue growth, Richard.
Speaker #8: Okay. And then a second question here. It was sort of interesting to hear your comments on restarting M&A. So what conditions would sort of have you doing that?
Speaker #8: Would it be delivering the balance sheet more? You noted sort of divestitures and then subsequent to those conditions. What type of assets would you be sort of looking to focus on?
Speaker #8: Like you're viously doing well on content management. So would you sort of lean into that market more? You're kind of looking at sort of new potential sort of opportunities outside of that.
Speaker #3: Yep. Thanks for the question. Well, we think our balance sheet is ready for the right acquisition. And look, we're mainly interested in cloud.
Speaker #3: And continuing to support the areas of ours that are outperforming. The team is ramping up, and the pipeline is getting stronger. It's got to be both a strategic fit and the right financial platform—the right financial and strategic platform for us.
Speaker #3: And we're going to continue to consider divestitures as and when they make sense to drive a higher growth rate. But you can clearly see from the strength of the balance sheet, our ree cash flow, our approach to capital return in 26, that we have the ability to do small to medium-sized acquisition if it's the right company at the right price and right strategic sense.
Speaker #5: Thank you. And our next question today comes from Stephanie Price at CIBC. Please go head.
Speaker #9: Hi. Good morning. Thanks as well for the additional disclosures this morning. Just curious, as ou think about the different business segments where you're investing the most at this point and you see the most opportunity going forward.
Speaker #3: Steph, thanks for the question. And thanks for being on the call today. We want all our businesses to perform. But when you manage a portfolio like any large company, you come into year and see opportunities to outperform in certain categories.
Speaker #3: So, we're going to look to outperform in content, security, and OSM coming into the year. We also see opportunities to bring the business network from constant back to growth, as we talked.
Speaker #3: And just an outsized contribution to cybersecurity over the long term. So those are the areas we're most focused on here, Steph, coming into Q4 2026.
Speaker #9: Thanks for the color. And then maybe switching over just to the expanded restructuring initiatives. It looks like the timelines changed a bit. oks like you've had some early wins and maybe you were expecting if you could talk a little bit about what you've accomplished so far with the restructuring and what remains to done.
Speaker #3: Yeah, Steph. I mean, we remain on plan and on time. There's no timelines have changed. We have accelerated some opportunities and we're off to a fast start.
Speaker #3: Where we sort of achieved 35% in 25, expect to have another 35% here in 26. And then the balance to complete in the first half of fiscal 27.
Speaker #3: So we moved very quickly on the people restructure rebalancing. It freed up our ability to reinvest in the business. You've heard Todd speak about his Salesforce expansion.
Speaker #3: Product expansion as well on AI and security. So we moved promptly on the people side. We're also making strong internal progress on user and our own AI tools.
Speaker #3: And other partner AI tools that's just going continue to fuel that productivity boost for the company to help us deliver that 35% here in 26.
Speaker #9: Thank you.
Speaker #5: Thank you. And our xt question today comes from Paul Treber with RBC Capital Markets. Please go head.
Speaker #10: Oh, thanks very much and good morning. Just the comments on the pipeline growth, both for cloud and license, are quite encouraging. You know, obviously, you've en the trend for a while in terms pipeline.
Speaker #10: You know, what's changed now that that's fundamentally driving the improvement? And then can you comment on like the sustainability or durability of that uplift in pipeline?
Speaker #3: Yeah, Paul, thanks for bringing the call. It's great to hear your insights. I'll start and then hand it over to Todd. Titanium X had its first full quarter in the market.
Speaker #3: And we've talked, you know, we've been a titanium X was the largest engineering project in the history of the company. Over a two-year runway.
Speaker #3: Of building out security, AI, trusted cloud, sovereignty, and Q4 was the first full quarter of having titanium X in the market. And really our first full quarter of being live and be le to demonstrate our robust AI platform.
Speaker #3: And that drove the surge in bookings. As well as the pipeline expansion. Let me hand it over to Todd. Yeah. Thanks, Paul. You know, pipeline comes from only a few places.
Speaker #3: Marketing demand, Salesforce demand, partner demand. And across those functions, we're executing very well. Then you have to convert that pipeline. Our Salesforce, our partners are very adept, as I referenced in my prepared comments, at converting Titanium X into value and quantifying that value through business cases in this macroeconomic climate that we are participating in right.
Speaker #3: So we're cited about the trends. That we're seeing both top of the funnel and then converting it into value.
Speaker #10: Thanks for those comments. Just a second question.
Speaker #3: And maybe, Paul, just to answer your second question, and we'll make sure you do. I also want to thank Paul and Todd, they've been incredible business partners.
Speaker #3: We've put in place a two-president structure. And I couldn't be more pleased with their leadership, their direction, their execution. Both on the new business side and the post-sale side.
Speaker #3: Which is also giving me the opportunity to work more strategically and on our product. So I'd be remiss to highlight this incredible trifecta of an execution team that we put in place last year as well.
Speaker #10: That's great to hear about the team. Just on my second question, regarding free cash flow, the $17 to $20 million growth for 2026 is great to see.
Speaker #10: Are there any, you ow, headwinds per se or one-time items that we should take into account when we think about free cash flow conversion in 26?
Speaker #3: Yeah, Paul, thanks for it. Maybe I'll start and chat with anything you want to add. Look, I can only say this directly. That 17 was an outlook of 17 to 20% free cash flow growth.
Speaker #3: I don't know where I come from; that sounds pretty healthy. If you will, you're over here. And look, we had a big one-time item last fiscal year.
Speaker #3: Which was a $250 million tax on the gain of the divestiture. And I think on some analyst models, that may not have been perfectly modeled.
Speaker #3: Coming into 2026, or maybe we haven't perfectly communicated all the elements around that. Maybe it's a combination of both. So, I'm really pleased with our outlook coming into 2026.
Speaker #3: And I'm going to sound like 'm from the Midwest here, but you know, where I come from, 17 to 20% free cash flow growth year over year sounds pretty good.
Speaker #3: Yeah, Chadwick? No, no. I echo that. I think, Paul, the only other sentiment we've had is any other things to think about on the tax side.
Speaker #3: And any changes in the U.S. tax side. But we've assumed constant for now. In terms of the tax levels coming out of Q4, whether there's any headwinds or tailwinds.
Speaker #3: But we're pretty comfortable with the assumptions we've made. Otherwise, it's an odd core model. Yeah. You look at the adjusted rate in the K; we believe we can maintain it.
Speaker #3: We can maintain that. And look, we don't see any extraordinary items right here in Q4. It's really clean execution, running room for us. So our outlook is 17% to 20% expansion year over year.
Speaker #5: Thank you. And our next question today comes Kevin, Chris, and Rodney with Scotiabank. Please go ahead.
Speaker #11: Hey there. Good morning. I joined a bit late. Apologies if some of these amassed. But thanks also for the disclosure on the cloud. Breakdown.
Speaker #11: I just want to clarify. Are you saying that you will grow cybersecurity this year, or do you hope to grow that in time? Is it a goal for this year that it'll be positive?
Speaker #11: And then also related to the slide, can you remind us on the business network 30%? How much of that is transactional based?
Speaker #3: Yeah. Thanks for the question. So, we're looking to take the negative 4% growth and turn that into positive growth here in 2026.
Speaker #3: Real simple. On the business network side, I don't know how to answer the question. What's transactional? Maybe we can take that off the call and better understand the question.
Speaker #11: Okay. No worries. And then in the second question, just on your capital allocation, you know, you provided the midterm sort of guide. Can you talk about the divestitures element?
Speaker #11: Sort what you know you're thinking there. I missed I know on your last call, you kind of broke down the business perform and outperform.
Speaker #11: Just wondering if you can talk us through the thought process there. You know, timing and valuations and things of that nature. Thanks.
Speaker #3: Yeah. Sure thing. Thanks for the question. We're going to ue to consider divestitures if and when they make the strategic sense for us. And look, there's the rationale is very simple.
Speaker #3: Accelerate our growth rate. There are elements inside the portfolio that we want to perform well; we believe everything should be performing. Additionally, there are categories—market conditions, timing, and product cycles—where certain categories can outperform.
Speaker #3: When you manage a portfolio business, that's the way to think of it. You want everything to perform. You want certain categories to outperform. But we'll have opportunities like we did on the mainframe business.
Content. Uh, devops and osm kind of maintaining that, uh, greater than 10% rate. That's a very very, uh, double digit growth rate is very healthy. Uh, getting business Network back, um, from, uh, uh, from in the black in the green, if you will, uh we have a new uh uh a great new age, AI translation Tool. Uh, and we're stepping up on some bigger wins. You heard me and Todd talked about um uh very large. Uh many large wins over over 1 uh uh uh 1 1 1, 1 million. So Ai and control tower driving bien growth, and then cyber security going from minus 4 to Green. Um, and that's the Run of play here for 26.
Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Barry for closing remarks.
Thank you, Rocco. And as you can see, fiscal 26, is a year of expansion and growth. And I look forward to spending more time, discussing the year ahead, listening and driving stronger performance. I'll be at, I will be personally attending the following conferences and events look forward to spending time together at Oppenheimer. Uh, Virtual Technology conference August 11th, the National Bank, uh uh uh uh, National Bank uh uh, Financial Montreal, a road show and group lunch, August 14th. Look forward to being in moffel Citi bank's Global uh Tech Conference in New York.
City, uh, September 4th and uh be most Tech Conference in Toronto on September 9th and look forward just to a great quarter of listening and engagement and uh thanks for thanks for your time. Today, that ends today's call
Thank you. This concludes today's conference call, you may now disconnect your lines, we thank you for participating and have a pleasant day.