Open Text Corporation

thank you for standing by this is the conference operator welcome to the open text corporation second quarter fiscal 2022 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 then one on your touchtone phone should anyone need assistance during the conference call They may signal an operator by pressing star and zero on their telephone. I would now like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to OpenTech's second quarter fiscal 22 earnings call. With me on the call today are OpenTech's Chief Executive Officer and Chief Technology Officer, Mark J. Baranchay, and our Executive Vice President and Chief Financial Officer, Madhu Ranganathan. Please note that we have shortened our prepared remarks this quarter to allow more time for the question and answer session. Today's call is being webcast live and recorded with replay available shortly thereafter on the Open Text Investor Relations website. Earlier today, we posted our inaugural quarterly shareholder letter along with our press release and investor presentation. These materials will supplement our prepared remarks and can be accessed on the OpenText Investor Relations website, investors.opentext.com. Before I proceed with the reading of our Safe Harbor Statement, I would like to inform investors that OpenText 2022 Investor Day will take place virtually on March 1st. Registration for the event will be available in the coming days on our Investor Relations website. In addition, Open Text Management will be participating at the Scotiabank TMT Conference on March 8th and the Morgan Stanley TMT Conference on March 9th. 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 Open Text 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 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 GAAP measures may be found within our public filings and other materials which are available on our website. And with that, it's a great pleasure to hand the call over to Mark.

Thank you, Harry. A good afternoon to everyone, and thank you for joining today's call. Today, we are introducing our new call format. Earlier today, we published our inaugural quarterly shareholder letter in addition to our press release and investor presentation, all available on investors.opentext.com. The three documents are intended to provide more insight into our strategy, aspirations, growth programs, and results over short, medium, and long-term horizons. Going forward, you can expect a quarterly shareholder letter and shorter prepared remarks from Madhu and myself, leaving more time for Q&A. Today, we'll spend a bit more time in our remarks to ensure a smooth transition to our new format. We welcome your continued feedback on how to improve our communications. On to Q2 accomplishments. We had an amazing quarter, financially and strategically. We provided demonstrable progress towards our longer-term fiscal 24 aspirations of up to 4% organic growth, 38% to 40% adjusted EBITDA margin, and free cash flows of 1.2 billion plus. Today, we increased our fiscal 22 targets to include total growth of up to 4% and cloud revenue growth of up to 10%. This reinforces our aspirations to generate over 6 billion in cumulative cash flows over the next five years. Please recall, our plan to return 33% of free cash flow to investors in the form of dividends and buybacks while investing the majority of our cash in organic growth and corporate purposes, primarily M&A. Our capital return strategy has two fundamental pillars. One, returning 20% of trailing 12-month free cash flow via dividends. And two, keeping our share count constant via our buyback program. We believe our cash generation prospects and capital allocation strategy puts us in a stellar position to create sustained long-term value. I listed our quarterly accomplishments in the shareholder letter, but let me call out just a few. We bettered our best and delivered the strongest Q2 revenue quarter in the history of the company at $876.8 million, up 2.5% year over year, cloud up 4.1% year over year, with bright line organic growth. It was a very strong cloud bookings quarter with double-digit year-over-year growth, adjusted EBITDA of 39.2%. We're expecting strong year-over-year annual growth in our free cash flows. We view our business as annual. We make decisions, many decisions based on that, while driving upper quartile adjusted EBITDA and free cash flow on an annual basis. I'm very proud of the recent talent recognitions our teammates received, including Canada's most admired cultures, Canada's top employer for young people, and being named one of Forbes best employers. The pandemic strengthened our culture and results. We announced the Open Tech Zero initiative with bold ESG objectives. We plan to lead here. To our core, We believe the future of growth at OpenText is both inclusive and sustainable. By 2030, we are setting out to achieve zero barriers, zero waste, and zero net emissions. These are our three pillars to the OpenText Zero Initiative. Specifically, on zero barriers, we are actively striving to become a majority diverse company and to expand our leadership to a total of 40% female leadership as defined as manager and up. I'll comment on mid-market and ZIX and enterprise growth programs and partners in a moment. Simply said, ZIX significantly improves our mix. It was an exceptional quarter across the board. We entered Q3 with increased visibility, both near-term and over the longer horizon. And open text, best days are ahead. Let me tell you why. Businesses of all sizes are transforming, and they are transforming into the cloud, and by digitizing processes, but more importantly, they are transforming through information, or as I like to call it, information-led transformations. This includes the way their employees work and how we're all mastering modern work. This includes the way they manage their supply chains and digitizing supply chains. It includes the way we sell and go to market and how we power modern experiences and the way we secure our digital infrastructures and strengthen cyber resilience. We are the information management market leader, and our cloud edition offerings are optimized to help our customers, regardless of their size or where they are in their transformation journey. We are going to take market share through organic growth and acquisitions on our path to doubling the company over the next five to seven years. We had amazing wins in the quarter. You can read the detail in our investor presentation. Some of those wins include Volkswagen, Kimberly Clark, the U.S. Army Corps of Engineers, Raytheon Space and Intelligence, and Amazon's new PillPack, and many more. Let me turn to ZIX, our enterprise growth programs and partners, each strategic points of emphasis within my prepared remarks. I'm ZIX. We see an amazing opportunity to expand our information management leadership in the enterprise and the SMB market. Nearly 50% of US GDP is generated by small and medium-sized businesses, and most need a secure and scalable digital presence. We just started our third year as a scaled provider of information management in SMB. And with the acquisition of Zix, we have market-leaning platforms for data protection, data and email security, as well as being a top Microsoft cloud solution provider for mid-market solutions. By bringing together Carbonite, WebRoot, Zix, and CloudAlly, plus our strategic relationship with the most important endpoint company on the planet, Microsoft, we are able to offer the industry's most complete total protection and security platform to RMMs and to 23,000 MSPs direct from OpenText. We intend to lead, grow, and win information management by addressing the high compliance and cyber resilience needs for small and medium businesses. And you can expect us to continue to acquire in the SMB market. On to the enterprise. In the enterprise and for larger businesses, we have a fantastic direct sales force and high-impact strategies to drive profitable growth. First, One of our most important recent investments is to cover our top 100 customers direct with global account managers. This program is now in place. Second, one of our important recent investments is to cover direct the top 20 supply chain companies. This program is now in place. And as the large get larger and more global, we have a clear opportunity to grow the top of the market and we are investing to do just that via our top 100 customer GAM program and our top 50 supply chain program. On partners, third, I want to speak about partners here as we are building a remarkable business model with enterprise partners. We are fully committed to this model, and partners are a force multiplier over the long term. Google, we announced today a greatly enhanced partnership to bring our joint content and experience solution to enterprise customers. Microsoft, we have massively expanded our SMB and security relationship. Amazon and AWS is the core data platform for our protection cloud. SAP, we are a leading cloud partner with SAP with near 3 million cloud users already and strong product and selling momentum heading into the new calendar year. ServiceNow is a new opportunity for us. to bring extended ECM to their large and expanding install base. Here's the even greater macro point. Via our API cloud, our developer cloud, we have the opportunity to win the next generation set of cloud app vendors for their information management needs through content services, metadata, workflow, capture, supply chain, threat intelligence, and more via our developer and API cloud. I'm delighted with our Q2 results and our strategic progress with cloud additions, SMB and ZIX, and our enterprise growth programs and partners. We believe our outlook heading into calendar 22 is vastly more positive than the previous two years. Open tax is on the offensive as it relates to inflation, because the best answer to inflation is to remove labor where you can, reduce your friction costs, and create new just-in-time supply chains through the digitalization, of global processes and to do this smartly through information-led transformation. We intend to help our customers beyond the offensive as it relates to inflation. Let me conclude by saying I'm humbled by the resilience, courage, and unstoppable nature of my colleagues through this pandemic. We used the last two years to transform into a cloud company with 80% annual recurring revenue And today we are raising our cloud growth target to up to 10%. The leadership team is excited to present at our March 1 investor day. And they plan to detail our next generation of cloud capabilities and our business journey to achieve increased market share, customer success, and financial aspirations. Let me leave you with two things. Targeting up to 10% cloud growth and Zix improves our mix. Now let me turn the call to Madhu. to provide the financial commentary on the quarter, ZIX, and our outlook. Madhu?