Open Text Corporation

Thank you for standing by. This is the conference operator. Welcome to the Open Text Corporation second quarter fiscal 2024 financial results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, simply press star then one on your touchtone phone. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to OpenTech's second quarter fiscal 2024 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. Today's call is being webcast live and recorded with a replay available shortly thereafter on the Open Text Investor Relations website. Earlier today, we posted our press release and investor presentation online. These materials will supplement our prepared remarks and can be accessed on the Open Text Investor Relations website, investors.opentex.com. I'm pleased to inform you that Open Text Management will be participating at the following upcoming conferences. Bernstein's Tech Media and Telecom One-on-One Forum on February 28th in New York, Morgan Stanley's Technology Media and Telecom Conference on March 4th in San Francisco, and JMP Security's Technology Conference on March 5th in San Francisco. And now on to our Safe Harbor Statement. 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 are 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 OpenText are contained in OpenText 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'm very pleased to hand the call to Mark.

Thank you, Harry, and thank you to everyone joining today's call. Welcome to calendar 2024 and the second half of our fiscal year. OpenText is more relevant than ever as we enter the new era of business AI. We have significant momentum as we transform into a cloud growth company, as we expand our mission in information management, and as we accelerate private and public cloud consumption. Artificial general intelligence is a once-in-a-generational opportunity, and OpenTech is in a very strong position to lead the way in information management. We continue to accelerate our investments in products, services, and go-to-market, and we are seeing the results. Q2 was a spectacular quarter and showcases our strategy and performance progress with the following. Record revenues of 1.3 billion or 71% year-over-year growth, strong organic growth, our 12th consecutive quarter of ARR growth in constant currency. Record enterprise cloud bookings of 236 million or 63% year-over-year growth, and we're just getting started. We are winning with cloud additions, our business clouds. We are winning with data security and trust requirements. SAS and Micro Focus just coming online, as well as business AI with Open Text Aviators. We had record adjusted EBITDA of $566 million, or 37%, and 66% year-over-year growth, and strong free cash flows of $305 million, or 87% year-over-year growth. I'm so proud of our colleagues and partners. And this great success is enabled and powered by our innovation investments, strong customer momentum, and operational excellence. Let me highlight a few amazing customer partnerships. Carl Zeiss is leveraging the Open Text Content Cloud for a global information management platform and a single source of truth across the entire company, integrating business applications from SAP, Salesforce, and Microsoft into the Open Text Cloud. Philips Healthcare is leveraging our OpenTex Aviator platform, Vertica, for its mission-critical medical imaging system for high availability and proactive field maintenance to ensure patients receive optimal clinical performance. BMW has selected the OpenTex cybersecurity cloud, Fusion, for what is called root of trust information management and data governance. FedEx Express, the world's largest cargo airline, has been a strategic partner with OpenTex for over a decade. And that partnership expands now by leveraging the OpenText IT Operations Cloud, or OpsBridge, monitoring and autonomically responding to a very dynamic topology, ensuring the highest possible flexibility and resiliency in support of their mission. We had 48 cloud wins, over one million in new contract value in Q2, with many impressive customer stories just like these. Today marks our first full year of owning Micro Focus. And our focus is on cloud growth, AI, customer success, and being number one in information management. Micro Focus contributed revenues of $601 million in Q2. And we should end the fiscal year with renewal rates in the high 80s. The amazing work from our colleagues and partners and with the trust of our customers, we shaped a shrinking business into a winning and growing innovator. We're doing exactly what we said we would do. Further, we're on track to complete the AMC divestiture by the end of the fiscal year, subject to standard regulatory approvals and customary closing conditions, which will allow us to go even faster in AI in the cloud. We intend to use the proceeds to reduce net leverage to less than 3x and ahead of schedule, providing us the flexibility to resume share buybacks and to pursue strategic M&A. and to drive future cloud and AR organic growth. We have all the ingredients we need for a fantastic 2024, and to achieve our F26 aspirations of 7% to 9% cloud organic revenue growth. And with our strong cloud bookings growth of 63% this quarter, your visibility into our cloud growth increases. And as a reminder, and as we like to say, we're an annual business. So let me turn to our fiscal 24 outlook. We're maintaining our total cloud revenue outlook of $5.85 billion to $5.95 billion. We are raising our cloud bookings growth target to 25% to 30% growth, up from 15% plus. We're within our adjusted EBITDA range, but tightening the range to 36% to 37% given our investments in cloud and security and AI. We have both medium and long-term opportunities to increase margins. But right now, our focus is driving bookings and cloud revenue growth. We're also raising the lower end of our free cash flow range and now expect stronger full-year results of between $825 million to $900 million of free cash flow. And with our workforce optimization complete and the majority of the micro-focus restructuring complete, our attention and energy are focused now on customer transformation, innovation, and growth. Information automation plus AI will be an essential part of our competitive advantage. OpenText will completely embed AI in all our products. I've received very positive customer feedback on our information management business cloud, aka cloud edition, and our business AI, aka aviators. We are working with a major apparel company to apply AI's invoices, a major bank to detect fraud, a major manufacturer for complex compliance, and a major food company to consolidate billions of supply chain transactions and documents to create the next generation of sustainable foods. We are making strong and steady AI progress. We are differentiated in the market, and we are winning business. Our differentiated advantages include managing active and large data sets. We believe in integrating automation and AI together. protecting data privacy, security and trust. Focusing on AI assist and personas and being cost reasonable. We are clearly progressing from discussion to delivery and from vision to value. Aviators 23.4 and 24.1 are delivered and soon 24.2. We have 800 engineers working on AI and we're delivering new capabilities now every 90 days. We have numerous customers in our Earn Your Wings program and our bookings growth is benefiting from customers consolidating and preparing for AI. We built a powerhouse services organization, and we're ready to engage with customers for our talent to help them do AI transformations. And further, we're focused on enabling our engineers to go even faster with business AI. I'm announcing today that we've begun a significant internal AI transformation and how our engineers create open tech software. We're creating a new platform called Platform Athena that will be our trusted platform to generate software and to assist our engineers in creating our products. Athena will significantly accelerate our innovations, accelerate time to market, attract the next generation of talent, and raise our productivity and efficiency. Our first Athena-generated products are expected to be in the market with Cloud Editions 25.2, and we'll keep you updated along the way. Our Q2 results tell our story. And let me conclude with saying how excited I am about the second half of the fiscal year of our momentum in information management, cloud, AI, and information security and trust. There's so much runway ahead of OpenTest for growth. Our investments are the fuel for that momentum. Our operational experience will help us realize higher profits and cash flows from those higher revenues. And our accelerated path under 3x leverage will create stronger capital allocation and capital return opportunities. The Open Text Cloud is an information cloud, and great information management is a key ingredient to business AI. Trust is an essential element in automation and AI, and we're earning our customers' trust every day. This is why we were the first Canadian company to join Canada's Voluntary Code of Conduct on the responsible development and management of advanced generative AI systems. And as I said last year, and you heard it here first, our customers' data is not our product. A big thank you to my OpenTex colleagues, customers, and partners for this momentum. I also want to thank our shareholders for their support of the Micro Focus acquisition. It is your capital. We manage that responsibility with the utmost care, and we are doing exactly what we said we would do, provide growth, cash flows, and returns. Our top core value of OpenText is being deserving of trust, and we look forward to your feedback and continued support. May the one that brings peace bring peace for all. Let me turn the call over to Madhu.