Open Text Corporation

Thank you for standing by. This is the conference operator. Welcome to the Open Text Corporation fourth quarter fiscal 2023 financial results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, simply press star then one on your touchstone phone. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. I would like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to Open Tech's fourth quarter fiscal 2023 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 Ranganathan. Today's call is being webcast live and recorded with a replay available shortly thereafter on the OpenText Investor Relations website. Earlier today, we posted our earnings press release and investor presentation online. These materials will supplement our prepared remarks and can be accessed on the OpenText Investor Relations website, investors.opentext.com. I'm pleased to inform you that OpenText Management will be participating at the following upcoming conferences, the Virtual Oppenheimer Technology Internet and Communications Conference on August 9th, Deutsche Bank's Technology Conference on August 30th in Dana Point, California, and Citi's Global Technology Conference on September 7th in New York. And now on to 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 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 that may project future performance results of open text are contained in open text recent Forms 10-K and 10-Q, as well as in our press release that was distributed 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, I am pleased to hand the call over to Mark.

Thank you, Harry, and good afternoon, everyone, from Richmond Hill. As you can see, Q4 was another fantastic quarter and great end of the year, highlighted by record financial results, the successful integration of the Micro Focus acquisition, delivery of Cloud Editions 23.2, Project Titanium, announcement of Cloud Editions 25, Project Titanium X, and today's announcement of OpenText.ai. We are a global leader in information management. Information management is essential for the next gen of AI and the next gen of business transformation. And just as the Internet changed everything, with AI, everything must change. Before I get to the numbers, I'd like to go over the journey that got us here. Three years ago, we were delivering around $3 billion in revenues, and I said we would transform information management by significantly expanding our mission, become a cloud-centric company, grow organically, double the business over the next five years, and that we would return capital in a value-accretive manner via dividends at a rate of approximately 20% trailing 12 months free cash flow per year. Well, as you can see, this has played out. I'm so proud of the team on delivering to our aspirations. In constant currency, Q4 revenues were 1.5 billion, and F23 revenues were 4.6 billion, or 32% total growth, led by cloud organic growth of 3.9%, ARR organic growth of 2.3%, and total organic revenues of 1.2%. Looking ahead, and in constant currency, fiscal 24 target revenue ranges are between $5.85 billion to $5.95 billion, or 30% plus total revenue growth. For F24, we are targeting positive organic growth, including a positive organic contribution from Micro Focus a year earlier than expected. Today, we announced a $1 per share annualized dividend program, or 25 cents a quarter, subject to approvals up from 31 cents annualized when we started our dividend program. We remain committed to our F26 aspirations, which include total organic growth of 2% to 4%, cloud organic growth of 7% to 9%, adjusted EBITDA margin expansion up to 40%, and the doubling of our free cash flows to $1.5 billion plus. The confidence in our targets reflect the agility and operational rigor of of the OpenText business system. Within five months of closing Micro Focus, we have completed the business, the product, customer, and organization integration. As we kick off fiscal 24, we are one company focused on customer success and innovation that creates intelligent growth. Our momentum is driven by three fundamental advantages over our competitors. Our ability to deliver comprehensive and differentiated information management technology. second, giving customers complete choice in how they deploy and consume our software, and third, delivering best-in-class customer experience through our unique love model. This has been our journey, and let me speak to our competitive advantages and the relative sizes of our businesses. On content and business network are popular among customers as we are the information management standard to integrate business systems from SAP, Salesforce, Oracle, NetSuite, ServiceNow, Epic, Microsoft, and hundreds more, while also integrating the business transactions between them. Content in BN represents approximately 60% of our business. Our cybersecurity solutions are actively protecting governments, defense organizations, and enterprises of all sizes, from identity through physical and soft assets. It's a fantastic platform, has significant opportunity for growth, and is approximately 20% of our business. Our ITOM solutions are all about architecting and changing the flow of information across customer-critical hybrid assets and service experience. This is approximately 5% of our business. Our application automation is centered on helping highly trained professionals to use their precious time more efficiently by enhancing the developer experience and seamlessly modernizing off-cloud workloads by moving, running, and operating them in the cloud. This is approximately 10% of our business today. This differentiation has placed us in a fantastic position to further innovate with AI and help our customers transform yet again by combining a set of very important factors, such as leveraging large data sets from our content platform, transactions from our business network, test scripts from our applications automation, and IT and service information from ITOM, from helping customers consolidate competitive platforms into our business cloud, and momentum key AI technologies from Open Text and others, and now implementing new models. To be successful in AI, you need automation, large data sets, and new models. The better the automation, the better the data. The better the data, the better the AI. No data, no AI. We have implemented AI machine learning and vector databases for many years prior to the current AI breakthroughs. And our AI platform technology, such as Magellan, Capture machine learning and new capabilities we added with Micro Focus acquisition, including Vertica and Idle. We have deep improvement experience with many customers running these technologies. Presently, AI and analytics are approximately 5% of our business. Today, we announced OpenText.AI, OpenText Aviator, an OpenText Aviator private cloud, and an elevation of our AI platform technologies. OpenText.AI is our expanded AI strategy and roadmap. Please visit OpenText.ai to learn more as we continue this journey with our customers. OpenText Aviators are Gen AI capabilities built into each of our business clouds that will allow customers to use large language models and to train their private data from OpenText Information Management and to do so with trust and security. OpenText Aviator Private Cloud offers customers the ability to leverage Aviator with highly specialized learning models in a secure private cloud environment. OpenText Aviator will initially support Google's Vertex and Palm II and open source language models such as OpenAssist. We intend to support many specialized learning models, applying the right model for the right job. Here are the six initial aviators. OpenText Content Aviator, supporting conversational search and large-scale document analysis. OpenText Experience Aviator, transforming customer communications. OpenText Business Network Aviator, generating business-to-business integrations. OpenText Cybersecurity Aviator, enhancing threat management through behavioral analysis. OpenText DevOps Aviator, generating test platforms and generating trusted software. And OpenText ITOM Aviator, redefining level one support experiences. Our AI platform technologies, which I mentioned earlier, are available today. Aviator and Aviator private cloud capabilities will begin to be available with cloud editions 23.4 and be part of our 90-day release cycles. At OpenText, AI will be built in, and we will progress with each release. Our initial AI R&D and capital investments are factored into our F24 R&D investment range of 14% to 16%. At present, we have not factored any aviator revenues into our F24 plan, and once we see clear revenue signals, we'll update you. We believe the AI opportunity over the long term is significant. OpenTX has a large role to play in AI, and we intend to play it. Now I'll turn to Q4 and fiscal 23 results. Madhu will provide deeper insights, but let me touch on a few key highlights in constant currency. For Q4, $1.5 billion in total revenues, up 66.5%. $455 million in cloud revenues, up 10.6%. Strong adjusted EBITDA margins of 31%. Our enterprise and cloud renewal rates in the mid-90s, with micro-focused renewal rates showing clear improvements into the mid-80s. I want to thank FEMA, DHL, BNP Petrobras, CNA, Renesas, Warta, Vertex, and Dakin, for selecting open technology during the quarter. For FEMA and DHL, we're providing cybersecurity. For CNA and Renesas, our content platform is essential to their business. BNP, a new DevSecOps platform with Value Edge, a micro-focused cloud win. And Warta AI, information platform for content tailoring. For the year, fiscal 23 in constant currency, 4.6 billion in total revenues. of 32.2%, 1.7 billion in cloud revenues of 13.3%, 1.5 billion in adjusted IBA dollars, or 32.4%, and free cash flows of 655 million. These results reflect the strength of our solutions in addressing these specific needs of customers across content, supply chains, developers, cloud migrations, IT operations, and growing climate and sustainability needs. Now, before I finish, Let me provide some initial thoughts for fiscal 24. On page 18 of our investor presentation, you'll see that we have delivered three consecutive years of accelerating organic cloud growth in constant currency. You'll note from our F24 targets and F26 aspirations, we continue, we expect to continue this trend. We are targeting enterprise cloud bookings of 15% plus in 24, up from 9.5% we delivered in 23. Let me note that we grew enterprise cloud bookings by $57 million sequentially from Q3 to Q4, or $108 million to $164 million. Q4 bookings growth was strong at 12% year-over-year, and we have solid momentum to the 15% plus. The expected acceleration is based on our pipeline, growing demand for the cloudification of micro-focused products, and our previous investments in titanium. F24 is going to be an unprecedented year as customers consume more information management capabilities, consolidate away from competitive platforms, move more workloads into the open text cloud, adopt security, digital operations and application automation, and as customers begin to look to next-gen AI capabilities. Further, the Micro Focus products have expanded our information management vision and provided foundational AI tools. Customer confidence is back, renewal rates expanding, and we expect to return Micro Focus to organic growth this fiscal year, that is, to exceed the $2.3 billion in revenues. I plan to show you our Micro Focus progress every quarter this fiscal year. Now, on to our F24 outlook highlights in constant currency. Total revenues between $5.85 billion to $5.95 billion, or 30% plus growth, Total organic growth of 1% to 2%, or up 90 million of new organic revenues in the year. To note, in fiscal 23, we added 41 million of new organic revenues, and this year we expect to add up to 90 million of new organic revenues. Total cloud growth of 6% to 8%, enterprise cloud bookings of 15% plus, adjusted EBITDA margin of 36% to 38%, and growth of our free cash flow to a range of 800 to 900 million. There remains much news this earnings season on macro issues and demand environment. OpenText is well positioned to help our customers capture the next gen of transformation with our information management business clouds, our cloud editions, and OpenText.ai. Our internal dashboards remain consistent with previous quarters, and we are playing offense right now to advance our unique opportunities. Once again, our F-24 targets do not yet have any aviator revenues built in. I want to thank our customers for making Fiscal 23 such an enormous success and for your partnership and the trust you place in us. I want to thank our employees for advancing our customers' mission through innovation for their incredible and transformational work on the micro-focus acquisition and providing an exemplary customer experience. We accomplished so much in fiscal 23. To our customers, to our partners, to our new employees, to employees who have been with us for many years, I think you can all see we're in an amazing place. And the best days remain ahead of OpenText and OpenText.ai. You're the source of our inspiration. I'd like to thank you again and I'd like to highlight that today we published our fourth annual corporate citizenship report. I'd encourage you to read it. The report reflects our core values and our culture, as well as our commitments as we strive for a more sustainable and inclusive world and as we strive to create an even better company. We see corporate citizenship as both an imperative and a tremendous opportunity. And may the one that brings peace brings peace for all. And with that, I'd like to turn the call over to Madhu.