Open Text Corporation

Thank you for standing by. This is the conference operator. Welcome to the OpenTex Corporation first quarter fiscal 2022 earnings conference call. As a reminder, all participants are in listen only mode and the conference being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, simply press star and one on your touchstone phone. Should anyone need assistance during the conference call, mainly signal an operator by pressing star and zero on your telephone. I would like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and welcome to Open Tech's first quarter 2022 earnings call. With me on the call today are Open Tech's Chief Executive Officer and Chief Technology Officer, Mark J. Baranchay, and our Executive Vice President and Chief Financial Officer, Madhu Ranianathan. 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 investor presentation that will supplement our prepared remarks today. The presentation includes information and financials specific to our quarterly results, notably our updated quarterly factors on page six, as well as a strategic overview. Before I proceed with the reading of our safe harbor statement, I would like to inform you that we will be participating in several conferences in the coming weeks, including TD's Virtual Technology Conference on November 15th, RBC's Global TIMT Virtual Conference on November 16th, Needham's Virtual Tech Week on November 17th, NASDAQ's Investor Conference on November 30th, Credit Suisse Annual Technology Conference on December 1st, B of A's Leverage Finance Conference on December 2nd, Barclays Global TMT Conference on December 7th, and Raymond James Technology Investor Conference on December 8th. Please reach out to any member of our investor relations team if you are interested in joining our schedule. In addition, I'm also pleased to invite investors to OpenText's annual user conference, OpenText World, taking place on November 16th to the 18th. Investors are invited to explore our latest product innovations and information management during this three-day virtual tech event. To register for OpenText World, please reach out to the IR team at investors at OpenText.com. We look forward to our upcoming engagements with you. And now for 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 judgments, 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 statement 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. Reconciliations of any non-GAAP financial measures to their most directly comparable gap measures may be found within our public filings and other materials which are available on our website. And with that, I'll hand the call over to Mark.

Thank you, Harry. A good afternoon to everyone, and thank you for joining today's call. Fiscal 22 is off to a great start as we delivered record Q1 revenues powered by organic growth. And we are on track for our fiscal 22 annual targets of organic growth and longer term fiscal 24 aspirations. The open text approach to creating long term shareholder value is a balance between total growth, profitability, and capital returns. We are executing to our value creation approach. In Q1, we delivered 3.5% organic revenue growth, 38.9% adjusted EBITDA, And we estimate free cash flow as a percent of revenues will be in the high 20s for fiscal 22. And we expect free cash flow dollars to increase significantly fiscal 22 over fiscal 21. Consistent with what you have, consistent with what we have shared before, our bold ambitions remain to be the leader in information management. to double our revenues over the next five to seven years to $7 billion in annual revenues, to have at least 85% of our revenues recurring, to deliver an organic growth profile between 2% to 4% by fiscal 24, to maintain upper quartile adjusted EBITDA while investing any adjusted EBITDA above 40% back into growth, to generate $6 billion in cumulative free cash flows over the next five years. In return, 33% of our trailing 12-month free cash flows via dividends and buybacks. As our free cash flow grows, so does our dividend and our buyback. This is a winning formula. Our solid execution reinforces our ambitions. And over the last few quarters, we have returned to organic growth. We established our fiscal 24 aspirations that illustrate an acceleration in organic growth. We have increased our R&D investment targets up to 14% of revenues. We are making additional fiscal 22 investments in people, go-to-market, and digital initiatives to drive more future growth. And our trailing 12-month cloud bookings have now grown to double-digit rates. We've accomplished a lot since we spoke to you. Specifically, we continue to successfully execute our cloud-led total growth strategy. We continue to see adoption of cloud additions. Let me note, we added 89 new private cloud customers in Q1, such as CNA, Barnardo's in the UK, and Mitsui. We've expanded our relationship with Google and other hyperscalers. We've renewed our normal course issuer bid for up to $350 million of common shares. We are renewing and updating our shelf offering for up to $2 billion of debt and equity securities. And I'll discuss in a few minutes, we'll introduce the best and most comprehensive cloud products in the history at OpenText World in a few weeks. Let me transition to our results for a first quarter. Such results were powered, as I said earlier, by Organic Rift. We delivered record Q1 revenue of $832.3 million, up 3.5% year over year, or 2% in constant currency. Record Q1 annual recurring revenue, ARR, of $691.8 million, up 3.2% year over year, or 1.7% in constant currency, and 83% of our total revenue. Record Q1 revenue of $356.6 million, up 4.6% year-over-year, or 3.6% in currency. Adjusted EBITDA dollars of $323.4 million at a 38.9% margin. Free cash flow of $163 million, or 20% of revenue. Reflecting our increased investments in talent, innovation, and sales coverage, to fuel future organic growth. Let me speak to some amazing customer wins in the quarter. In the Open Text Content Cloud, notable customer wins included BDO, one of the world's largest global accounting firms selected the Open Text Extended ECM with integration to Microsoft M365 to improve information governance by centralizing all the content management systems into a single platform. the OpenText platform. Brenntag, an Essendermany-based global distributor of chemicals and chemical ingredients, selected OpenText Extended ECM for SAP and M365 to collaborate, approve, and process documents via digital workflows. And CNA Financial, very pleased with welcoming CNA to OpenText, one of the largest U.S. commercial property and casualty insurance companies, a former FinalNet customer, selected OpenText to prove leading edge content service capabilities. In the OpenText Business Network Cloud, notable customer wins included JCB, a Tokyo-based global payment company who selected our business network managed services to streamline processing and payment. MasterCard expanded our relationship, a global technology payments company with operations in more than 210 countries and territories selected the OpenText Trading Grid Managed Services to help connect with more partners and more banks. And PepsiCo, the global beverage and snack company, selected OpenText to be their platform for information underneath SAP's success factors. In the OpenText Experience Cloud, a notable customer win included AIA, the largest independent publicly listed pan-Asian life insurance group, selected OpenText Core Experience products to orchestrate their customer communication events for marketing campaigns across the entire customer lifecycle. And the OpenText Security Protection Cloud. Notable customer wins included the US Army Criminal Investigations Division. The primary federal law enforcement agency of the United States Army is now using OpenText NCASE forensics to find, decrypt, collect, and preserve forensic data for digital investigation. NTD, one of Canada's largest banks, is now utilizing our eVault products to migrate data out of their internal data centers to a secure cloud environment, the Open Text Cloud. And PG&E, California's largest utility, is now using our availability products to enable failover of call centers between data centers and the times of utmost urgencies, such as forest fires in California. On to Open Text World. You'll hear more from our customers, partners, and industry experts at our annual conference, and I'd like to personally invite you to attend the event the week of November 15th. As Harry noted, please contact and reach out to Harry or Greg, and we'll get you registered to attend the event. We have a great speaker lineup, including keynotes from Dr. Neil deGrasse Tyson, a host of cosmos and astrophysicists at the Hayden Planetarium. I spent a little time with Neil last week, As you noted, he's now my personal astrophysicist. He just has an amazing thought for us at Open Text World. And Arianna Huffington is also going to join us, the founder and CEO of the Thrive Global and the Huffington Post. Arianna has a very unique view of what the future of growth and the world looks like post-pandemic. You'll hear from some of our most important customers, including Shell, Dell, L'Oreal, and the Academy of Motion Pictures. In my keynote, I'm going to describe the five forces affecting every business. First, work is distributive and traditional models of authority and collaboration are rapidly and permanently changing. Second, every business transaction is going digital. Third, customers and consumers are looking for a tailored seven star experience. Fourth, for any business to thrive, security and privacy must be job number one. And the fifth force, and as we all define what the future of growth will look like, we know it needs to be inclusive and sustainable. And more on that in a moment. The response to these forces needs to be simplicity, which leads me to the theme of Open Text World, be digital. Let me touch on a few Open Text Cloud highlights. The OpenText Content Cloud empowers customers to master modern work. We were once again recognized as a leader in the content services by Gartner for the 17th consecutive year. At OpenText World, we'll be introducing the most comprehensive update of the OpenText Content Cloud in our history with Cloud Edition 21.4, designed to empower distributed workforce organizations which need to provide their employees with content in context. And the OpenText Content Cloud integrates with leading business applications from Salesforce to SAP to Oracle to dozens more, making it easy to collaborate and access information from anywhere in the organization, including Zoom, Teams, Chime, and Hookup. Some of the key highlights in this release is going to include expansion of core content, expansion with Salesforce, expansion to SAP S4HANA expansion, with Microsoft 365, all as a SaaS offering, strengthened e-signature archiving and enhanced e-discovery and information extraction capabilities. And we'll be providing a return to workplace playbook to manage all operational restart plans and procedures for companies. We'll be announcing new capabilities to the OpenText Business Network Cloud to help our customers digitize and modernize their supply chains. We were recently named again by IDC as a leader in the multi-enterprise supply chain commerce grid. At Open Text World, we'll be announcing new capabilities to our market-leading business cloud, new self-service capabilities that will make many of the enterprise products and features already being used by 24 of the 30 largest supply chains available to a broader class of small and medium-sized customers and increasing the serviceability components serviceable components of our overall TAM. Effectively, we're going to be taking our enterprise capabilities, making them self-service, thus consumable by smaller size businesses. And this is right in the SPS commerce competitive area. We'll also be adding new capabilities to support ethical supply chains and sustainability. The Open Text Experience Cloud helps our customers power modern work experiences for their customers. At Google Cloud Next 21, we announced a new offering that deeply integrates the Open Text Experience Cloud with Google's marketing platform and data. We're off to just a great response to what we're offering. And this new offering combines our experienced customer data platform and Open Text Extreme and Open Text Team site with Google's marketing platform. We hope to open up the entire click stream of Google to OpenText Experience Cloud customers. In our June quarter, we'll be announcing this fully integrates as a SaaS offering in 22.2 for deployment in public cloud environments. The OpenText Security Protection Cloud helps our customers strengthen cyber resilience, and we are significantly enhancing our capabilities and detection response offerings for the SMB market. Specifically, we have recently introduced an OpenText managed detection and response service also known as MDR, that pairs our best-in-class security with experienced security personnel. We are now providing MDR as a private cloud service. And we introduced this last quarter, and we're off to a great start with new wins at WebCorp, SurveyMonkey, and Ginkgo Bioworks. We've also introduced this service that combines the key capabilities of WebRoot, And we're integrating leading capabilities from security providers such as Blackpoint and Central. I'm very excited about our new MDR service in the security and protection cloud. Let me highlight the OpenText Developer Cloud, which is going to be front and center at OpenText World. It's the first information management as a service offering ready-made for enterprise workloads via APIs. Our Developer Cloud enables developers to build the API economy faster and smarter. And with our recent release, 21.4, we are now offering more services, more consumption-based pricing packages, and more privacy and security features. We have 20 available APIs from content, workflow, redaction, archive, content analysis, communications, threat analysis, and more. We'll be unveiling at Open Text World more capabilities in the cloud than off-cloud. It's an important milestone for us, more capabilities in the OpenText cloud than off-cloud. Given this amazing milestone, I expect even more adoption of the OpenText cloud in the future. Over the next few quarters, we'll be deeply integrating WebRoot and BrightCloud security services into our public and private clouds as well. I want to spend a moment on our API cloud, which I'm really excited about because it's starting to gain critical mass with our 20 fully featured services available in October alone, we processed 98 billion. 98 billion requests. And we just introduced even a new service called Magellan risk guard as a new API service. Magellan risk guard works just like bright cloud. Send us a content stream or file, and we'll return a real time risk score on that content. Does your content contain GDPR data? Does your content contain credit card information? Does your content contain critical and confidential information? Just stream it to our API and we'll return you back a risk score. You know, one low risk, 10 high risk, five medium risk. But I want to emphasize in October alone, we processed 98 billion requests to our 20 APIs. We will be an API company in the future. Customers who run their business in the OpenText API cloud now include companies such as CVS, Geico, Trinity Health, Novartis, the Government of Ontario, Impossible Burger, F5, and Aruba. As they look at our future roadmap of cloud editions 22.1 through 22.4, or basically next calendar year, we'll be doubling down on security, migrations to the OpenText cloud at low friction, scaling up our new MDR services, scaling up our API cloud services, more competitive replacements, and continuing to help our customers consume the way they want to, off cloud, private cloud, public cloud, and API cloud. We also believe with deep purpose, as I mentioned earlier, that the future of growth needs to be both inclusive and sustainable. And I'll be putting forth at Open Text World the Open Text Zero Initiative, An initiative focused on zero waste, zero barriers, zero net greenhouse gases, zero friction, and yes, zero IT. Because all companies really need is a router hanging on their wall connected to cloud-based services, such as the OpenText Cloud. We'll run our business this way. We expect those who partner with us to do the same. And we'll help others through the OpenText Cloud create and deliver to their bold ESG outcomes. Next, let me speak to Outlook and M&A. We're on target to grow organically in fiscal 22, and Madhu will provide an update on our financial targets and aspirations in her commentary. But let me spend a moment on some macro observations. Customers are managing more complexity today than a year ago. The continued COVID-19 crisis and the unevenness of it, global supply chain constraints, shipping and transportation costs, Sustained chip shortages, labor shortages in cost and inflation. A lot of complexity. The open text answer to our customers is be digital. Automate, automate, automate in the open text cloud. All challenges are opportunities, right? So they must be viewed through the lens of automation. Labor pressures, automate. Supply chain challenges, automate and gain visibility. Inflation costs, remove costs and automate. Manufacturing and transportation tightening, visibility, automate. The open text answer to the increasing complexity in the world is be digital, which means automate, automate, automate in the open text cloud. Let me spend a moment on M&A. We continue to be very busy, proactive, and ready to act for a target that meets our criteria. We have the management bandwidth and financial capacity to bring on new deals. We remain focused and disciplined and patient. In parallel, we continue to strengthen our balance sheet and continue to invest in products and systems to drive our organic growth and accelerate the integration and profitability of future acquisitions. Let me conclude my prepared remarks. We are building on the foundation to deliver to our long-term aspirations on doubling the company. It took us 30 years to achieve approximately $3.5 billion in revenues, and we hope to double again over the next five to seven years. That growth will deliver value and remain focused on a value creation approach that is a balance between total growth, profitability, and capital returns. It is imperative that the future of growth is both inclusive and sustainable, and we intend to lead here with the Open Tech Zero initiative. We had our best Q1 revenues in our history, and we expect to deliver a fantastic fiscal 22 with total growth, organic growth, upper quartile margins, and stated capital return goals. On behalf of Open Tech, I'd like to thank our shareholders, loyal customers, partners, employees, around the globe for their contributions to this success, and I'm so proud of our culture and resilience. And please join us at Open Text World the week of November 15th. It's my pleasure to turn the call over to Madhu Raghunathan, Open Text Chief Financial Officer. Madhu.