Open Text Corporation

Thank you for standing by. This is the conference operator. Welcome to the Open Text Corporation fourth quarter and fiscal 2021 earnings 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 opportunity to ask questions. To join the question queue, simply press star and 1 on your touchtone phone. Should anyone need assistance during the conference call, aiming signal and operator by pressing star and zero on your telephone. I would like to turn the conference over to Harry Blount, Senior Vice President, Investment Relations. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. On the call today is Open Tech's Chief Executive Officer and Chief Technology Officer, Mark J. Berenshade, and our Executive Vice President and Chief Financial Officer, Madhu Ranganathan. We have some prepared remarks, which will be followed by a question and answer session. This call will last approximately 60 minutes with a replay available shortly thereafter. I would like to take a moment and direct investors to the investor relations section of our website, investors.opentex.com, where we have posted our consolidated investor presentation that will supplement our prepared remarks today. The presentation includes information and financial specific to our quarterly results, notably our updated quarterly factors on page nine, as well as a strategic overview. I am pleased to announce that Open Text Management will be participating at the following upcoming conferences, the Oppenheimer Technology Internet and Communications Conference on August 10th, the BMO Technology Summit on August 25th, the Deutsche Bank Technology Conference on September 10th, the Citibank Global Technology Conference on September 14th, and the Jefferies Software Conference on September 15th. We look forward to virtually meeting with investors in the coming weeks. I will now proceed with the reading of our Safe Harbor Statement. Please note that during the course of this conference call, we may make statements relating to the future performance of OpenText that contain forward-looking information. While these forward-looking statements represent our current judgment, actual results could differ materially from a conclusion, forecast, or projection in the forward-looking statements made today. Certain material factors and assumptions were applied in drawing any such statements. Additional information about the material factors that could cause actual results to differ materially from a conclusion, forecast, or projection in the forward-looking information, as well as risk factors, including in relation to the current global pandemic, that may project future performance results of OpenText are contained in OpenText's recent forms 10-K and 10-Q, as well as in our press release that was distributed earlier this afternoon, which may be found on our website. We undertake no obligation to update these forward-looking statements unless required to do so by law. 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 available on our website. And with that, I'm pleased to hand the call over to Mark.

Thank you, Harry. Good afternoon to everyone, and thank you for joining today's call. I'm thrilled with our progress. We're on the offensive, and let me walk you through it. Throughout fiscal 21, I've spoken about the economy reopening, a growing number of green shoots in our business, and open text being on the offensive. Our amazing fiscal 21 Q4 and annual results are another proof point of the open text of the future. We doubled the company over the last seven years to revenues of $3.39 billion and adjusted dividend dollars of $1.3 billion. We can double OpenText again over the next five to seven years. We have the vision, the market, the products, the talent, the business model, and the capital generation engine to double again. I am so proud of my OpenText colleagues for their incredible dedication, smart and hard work, I said we were ready for all scenarios a few calls ago, and these were not just words. It was action, and that is evidenced in our announced results of today. We have a return to organic growth, and organic growth is here to stay. The company is focused on accelerating our rate of organic growth, and you'll see that in our ambitions 2024 with our aspiration to achieve up to 4% total organic revenue growth. That 4% organic growth rate is without acquisitions. We also intend to continue to acquire smartly and strategically as a driver of future organic growth to achieve greater long-term competitive gains and even higher cash returns. Our balance sheet is solid and strengthens with every quarter. We ended the year at 1.45 times leverage. Our margin profile is upper-quartile. We ended the year at 38.8% adjusted EBITDA, and we are ready for the next transformative acquisition. OpenTech just turned 30, and we are a unique company with a proven, differentiated business model that we call the OpenTech business system. You know, there are three key points I want to make right up front. First, information management. OpenText created the information management market, a $34 billion market, growing at an 8% CAGR. We are the leader. The market is young, large, growing, and still fragmented. It delivers transformative value for customers of all sizes, and OpenText has presented the most meaningful vision and products, and we intend to lead all the way in this market. Market leaders tend to hold a significant percentage of their TAM, the lion's share of the profit, and we have a large set of growth ambitions ahead of us. So this leads me to my second point, our approach to growth. We believe in intelligent growth, which incorporates total growth and profitable growth. Total growth means growing our highest value business, cloud, the fastest, and unlocking accelerants to continuously improve our rate of growth. Total growth means moving beyond renewals and renewal rates and moving to growth and expansion rates in our feature and security update services. It's not just a maintenance update business anymore. And the second part of intelligent growth is profitable growth. Look, some companies grow at all costs. They consume bad business and lose money. We view that as a dangerous long-term proposition because it creates unhealthy cultures and unsustainable businesses. There's good cholesterol and bad cholesterol. Growth at any cost is bad cholesterol. At OpenText, we seek profitable growth. We always have. We always will. This is the good cholesterol, and we seek the lion's share of the market's profits in information management and a resilient long-term business model. This is intelligent growth. This leads me to my third point. When you bring together our $84 billion PAM plus our intelligent growth model, we can double open text again over the next five to seven years. I can say this with confidence. We are patient and steady and forward thinkers. We do the basics really well. And we believe competing and winning is not about being a great sprinter. Rather, it's excelling at triathlons, where you run, swim, and bike over great and long distances. We intend to put every dollar of capital we earn to work, to create value, through growth, both organically and through M&A, through innovation, through cash flow expansion, and through capital returns to shareholders. The more capital we generate, the more capital we intend to put to work. So I'm so excited about fiscal 22 and the years ahead. The best days of OpenTex are certainly in front of her. Let me turn to the here and now and the overview of our Q4 and Fiscal 21 results. Fiscal 21 was a stellar year of innovation, organic growth, margin expansion, and cash flow improvement. Customers are accelerating their investment in owning their digital capabilities, from modern work to digital-first supply chains to cyber resilience. We finished the year strong with an exceptional Q4 highlighted by record revenue, ARR, and cash flows. These Q4 results are on a year-over-year basis as reported unless dated otherwise. Record revenue of $894 million, up 8% organically, up 4% in constant currency. Record ARR of $694 million, representing 78% of total revenue, up 6% organically, up 2% in constant currency. Record cloud revenue of $360 million, up 8% organically, up 6% in constant currency. License revenue of $133 million, an increase of 25%, the strongest Q4 since 2018. adjusted EBITDA of $315 million and 35.2% on a margin basis. Operating cash flows were $296 million and free cash flows were $269 million. At our immediate disposal is approximately $2.4 billion in cash and committed liquidity. We saw strong momentum in cloud edition adoption, accelerated cloud bookings, and a rebound in licenses. We won new business at VMware, EDF, Revlon, Frenary, Deutsche Bank, Dell, and T-Mobile. These are in addition to the amazing wins throughout fiscal 21 at NIH, J&J, PG&E, Maersk, and Nestle. At EDF, we are the information platform for nuclear power. At VMware, we are part of their analytical, legal tech, and cyber resilience platform. At Deutsche Bank, we are their regulatory platform. At Revlon, we're digitizing their internal operations. At Dell, we are the connective tissue for the heart of their business, their supply chain. At T-Mobile, we are the digital record for 100 million customers from entitlement to billing. At the NIH, we are the digital and collaboration hub for infectious disease research and grant management. We're very grateful for our customers. Information management is transformative. We're helping our amazing customers create digital capabilities across modern work, supply chains, modern experiences, and to be cyber resilient. To compete and win in the fourth industrial revolution, information management is a strategic requirement. During the quarter, we purchased 2.5 million shares for a total consideration of 119 million. The share we purchased reflects the confidence and visibility in our business and outlook and future cash flows. I will now move to – I will have more to share on our future capital generation in a few minutes. Let me talk about the full fiscal year of 21, which was a record on the financial metrics that matter. These annual results are on a year-over-year basis as well, and as reported, unless stated otherwise. Record revenue of $3.39 billion, up 8.9% with positive organic growth. Record ARR of $2.7 billion, representing 81% of total revenue, up 13%, and up 2.7% organically. Record cloud revenue of $1.4 billion, up 21.6%, and up 3.2% organically. Record adjusted EBITDA of $1.3 billion, a margin of 38.8%, up 15% in dollars. and the highest full-year margin dollars and margin percent in our history. Operating cash flows were $876 million, and free cash flows were $812 million. Both measures include the impact of the $300 million IRS payment. Let me move on to annual targets, capital allocation, and our forward aspirations. Today we are providing our fiscal 22 targets and our fiscal 24 aspirations, which reflect our long-term confidence in a steady acceleration in organic growth. As a reminder, we run open text with an annual view, not a quarterly view. While we are still in a pandemic, and while the global economy is recovering, there are still near-term challenges, such as the Delta variant and other variants, inflation, supply chain shortages, and other structural changes. The world is still volatile. We have confidence in our fiscal 2022 targets, and our confidence extends to our ability to steadily accelerate organic growth to deliver our fiscal 24 aspirations and long-term strategy. For fiscal 22, we expect to deliver 3% to 4% organic cloud growth, 1% to 2% total organic revenue growth, and adjusted EBITDA targets of 37% to 38% as we increase our investments in our cloud and our people. If the economy continues to improve, we expect to do better. For fiscal 24, our aspirations include annual total revenue organic growth of 2% to 4%, 85% ARR, 38% to 40% adjusted EBITDA margins, and $1.2 billion plus in free cash flow. Earlier in my remarks, I spoke to our ambitions on doubling the company again, over the next five to seven years and our capital generation engine. Let me highlight that capital generation engine. With these ambitions, we expect to generate upwards of $6 billion in cumulative free cash flow over the next five years. We have been building revenue scale and revenue to cash high efficiency conversion over the last few years. and we will now see the fruit of that hard and smart work in this expected large-scale capital generation. Let's step back, and here is how I think about this. We have worked hard and smart to gain revenue scale and high efficiency in converting revenue to free cash flow. Today is another important inflection point. As we look forward over the next five years, we have the potential of generating up to $6 billion in free cash flows, and there are three key points. One, there is significant present value in that $6 billion. Two, we have a stellar track record of delivering returns on invested cash. And three, we intend to put every dollar to work. We are also announcing today an expanded shareholder return strategy. Our strategy has been to return approximately 20% of trailing 12-month cash flow, free cash flow to shareholders via dividends. We feel it's a good time to accelerate returns given the strength of our business and our new strategy is thus to target 33% of trailing 12-month free cash flows via dividends and now share buybacks. With our new strategy, we expect to keep share count constant. Let me also highlight when a transformative M&A opportunity presents itself, we reserve the optionality to shift our capital allocation strategy towards that opportunity. To date, we are announcing a 10% dividend increase to 22.09 cents per share. Let me transition and speak a bit to the underpinnings of our organic growth confidence, and that is our corporate program, Grow with OpenTax. This is our narrative for the year ahead, and I'll be returning back to this in our calls and our meetings ahead. We are early in a new product cycle with Open Text Cloud Editions. Our five cloud editions are focused on key strategic needs for large, medium, and small companies that create and are on the information management digital journey. Number one, master modern work via our content cloud. digital business networks via our business network cloud, power modern experiences via our experience cloud, be cyber resilient via our security and protection cloud, and build the API economy via our developer cloud. We also have important secular trends that are helping the business, continued remote work, the need to digitize, the need to be global, to be in the cloud, and to be secure. This translates into key programs to drive organic growth. They include a strong focus on our install base to help customers gain full value from their investment and expand their investments and transition to the cloud faster. Christina Langell joined us last year from Salesforce, and Christina is leading all our customer success teams and programs, including professional services. We have recently brought together all our renewal teams under Paul Dugan. Paul ran a $6 billion-plus renewal business at Oracle. We're also putting more of an emphasis on our international business, China, Japan, APAC, Latin America, Africa, Middle East. James McGurley, an open tech veteran, is now leading international sales. We also see an opportunity to grow our largest accounts and partners faster, as well as opening new opportunities with our developers and our developer cloud. This is led by an OpenText veteran, Ted Harrison, who also oversees all enterprise sales from North America and Europe, our largest market. Prentice leads our initiative to expand our mid-market presence, and this is all supported by our key investments in digital and automation to scale OpenText at less cost to create frictionless experiences between the company and our customers, which we call DNA 2.0, led by Renee McKenzie, our newly appointed CIO. It's an exciting year ahead. Grow with OpenText. We are aligned to our largest growth opportunities. We see clear positive secular trends. We have strong programs, and our leadership team is structured to drive growth. Let me now turn to corporate citizenship. OpenText has always upheld high standards of ethics, integrity, and business practices. It's important to do good while doing well, and those in a position to effectuate positive change should in the context of the business strategy. At Open Tech, we call this corporate citizenship. This is not a program. It's part of our DNA. Corporate citizenship is at the nexus of what we believe, our corporate purpose, how we run our company, and the transparent standards we set for ourselves, how we do business and how we conduct business, and a culture that is intentional, innovative, objective, and thus inclusive in always advancing. This is why corporate citizenship or ESG is so important. Today we released our second annual corporate citizenship report. It's a report to provide insight into the objectives we are setting for ourselves to be transparent on our goals and advancements and to hold a mirror to ourselves where we are not making progress fast enough. I'm pleased with the progress we've made, but we still have many kilometers to go. You'll see in the open text 2021 Corporate Citizen Report, we've adopted this year the GRI framework. We've defined our top four citizenship priorities of culture and human capital development, equity, diversity, and inclusion, data privacy and information security, and financial performance. We've also strengthened our human rights statement, supplier code of conduct, and tax transparency statement. and we expanded our data collection and processes to inform future goals and objectives. Further, today we are announcing a partnership with Lakehead University in northern and central Ontario. We intend to create a next-generation internship program for Indigenous students and fully fund this year up to 25 internships. I look forward to the partnership, offering a compelling pathway to digital jobs and learning from students, as they have much to teach us. We welcome your feedback on corporate citizenship. Let me wrap up my comments. It was a stellar year. We grew 8.9% to 3.39 billion in revenues and delivered 3.2% organic growth in the cloud. We generated 1.3 billion in adjusted dividend dollars with 38.8% margin. It's a stellar market, information management. It's strategic. in the fourth industrial revolution. Its size is $84 billion, with a CAGR of 8%. Organic growth is here to stay. We're investing, and we have incredible proof points with EDF, VMware, Dell, NIH, T-Mobile, and more. We have over 100,000-plus customers. We run 24 of the top 30 supply chains. We have greater than 50% penetration in the global 10,000, and we have more than 25% penetration with MSP partners. We have the Vision Talent Market and Capital Engine to double open text again over the next five to seven years. And we're focused on creating value, value for shareholders, customers, employees, and that centers on innovation, growth, profits, capital generation, and corporate citizenship. Let me thank our 14,000 employees plus. our customers, and our partners who are helping make fiscal 21 our best year ever and for creating a business built to last where the best years are in front of us. Stay healthy and stay safe. And it's my pleasure to turn the call over to Madhu Raghunathan, Open Tech's Chief Financial Officer and my great business partner. Madhu?