Open Text Corporation

Thank you for standing by. This is the conference operator. Welcome to the Open Text Corporation first quarter fiscal 2025 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 for analysts to ask questions. To join the question queue, simply press star then one on your touch tone phone. Should anyone need assistance during the conference call, they may signal their operator by pressing star, then zero. I would now like to turn the conference over to Greg Secord, Vice President, Investor Relations. Please go ahead.

Good morning, everyone, and welcome to OpenTech's first quarter, fiscal 2025 earnings call. With me on the call today are OpenTech's Chief Executive Officer and Chief Technology Officer, Mark J. Baranchay, and OpenTech's President and Chief Financial Officer, Madhu Ranganathan. Today's call will be webcast live and recorded with replay available shortly thereafter on the Open Text Investor Relations website. That's investors.opentext.com. Before today's call, we posted press release and investor presentations online. These materials will supplement our prepared remarks and can also be accessed on the Open Text Investor Relations website. I'd like to take the opportunity to invite institutional investors and financial analysts to join our Open Text World 2024 investor track. It's on Tuesday, November 19th in Las Vegas. The Open Text World conference is a great opportunity for investors and financial analysts to learn about the latest product innovations with full conference access, allowing open dialogue with leadership, customers, and partners on site. The investor track will be available to investors attending in person. and virtually by webcast or live streaming and replay. You can contact myself or the Investor Relations team for more details and to register. In addition, please inform you that OpenText will be participating in the following upcoming investor conferences, including the TD Technology Conference on Monday, November 25th in Toronto with Mark, Wealth Fargo's Technology, Media, and Telecommunications Summit on December 4th in Rancho Palos Verdes, and Barclays Global Technology Conference on Thursday, December 12th in San Francisco with Madhu. And now onto the reading of our Safe Harbor Statement. During this call, we'll be making forward-looking statements relating to the future performance of OpenText. These statements are based on current expectations, assumptions, and other material factors that are subject to risks and uncertainties, and actual results may differ materially from the forward-looking statements made today. Additional information about the material factors that could cause actual results to differ materially from such forward-looking statements, as well as risk factors that may impact 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 morning, 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. Reconciliation of any non-GAAP financial measures to their most directly comparable GAAP measures may be found within our public filings and the other materials which are available on our website. And with that, I'll hand the call over to Mark.

Thank you, Greg. And welcome, everyone, to today's call. Let me start with, in Q1, we delivered to our revenue quarterly factors as well as exceeded expectations in adjusted EBITDA and adjusted EPS. We grew our adjusted EBITDA percent year over year to 35%, and this growth comes from sustained efficiency gains even after the divestiture of the ultra-high margin AMC business. Over the last two quarters, we purchased and canceled 7.72 million shares at an average price of $30.43. Expect us to continue purchasing our shares. And in Q2, I'm deeply excited about our momentum. We are strengthening our competitive advantage with TitaniumX, our next generation autonomous information management platform powered by AI and security, coupled with strong investments we are making in our enterprise and SMB go-to-market, strategic partners, and customer success organizations, all of which leads us to a stronger second half of the fiscal year. Further, we are reaffirming our fiscal 25 targets in our outer year aspirations. On to Q1. Our Q1 results include delivering $1.27 billion in revenues, well within our quarterly factor range of $1.25 billion to $1.3 billion. Q1 is a seasonally lower quarter, yet it was the largest Q1 of enterprise cloud bookings in our history, up 10% year-over-year and up 53% over three years. As it relates to our cloud business, Q1 marked our 15th consecutive quarter of organic growth of $457 million, or revenues up 1.3%, and we expect this to ramp throughout the year. We also had strong customer wins at Raytheon, FedEx, Virgin Mobile, Alaska Airlines, Nippon Gas, the European Medicines Agency, and Dick's Sporting Goods, across content, business network, digital operations, and security. Financial services, technology, public sector, healthcare and biotech, and consumer packaged goods were top industries for our book of business. Revenue by GEO, America is 57%, with a majority in the United States. EMEA, 33%, and APAC in Japan, 10%. We had 38 deals over $1 million, the majority being cloud-based deals. We had 20 wins related to our Gen AI Aviator offering. We keep building strength and progress every 90 days. More aviators, more agents, easier to use, and less expense to operators. We see AI as a long-term opportunity and a key priority for the company. Net cloud renewal rate of 94%, and of course, adjusted EBITDA of 35%, which is year-over-year percent growth inclusive of the AMC business. This is incredible progress and reflects our deep focus on capturing the large margin opportunity ahead of us. And adjusted EPS of 93 cents, well above expectations. Looking ahead into Q2, We expect total revenues of $1.29 billion to $1.34 billion, supported by a strong pipeline and customer engagement, continued adjusted EBITDA strength of 34% to 35%, continued enterprise booking strength ramping towards our annual target of 25% growth, and we will expand on our outlook here in a few moments. Q2 is a tougher year-over-year compare, given the large AMC contribution and the license revenue from grants of certain IP rights in Q2 of last year. The business is executing well, and as I kicked off the call saying, we are reaffirming today our fiscal 25 targets of total revenues of $5.3 billion to $5.4 billion, that's a $100 million spread, XAMC. This is constant to 1% growth. Annual adjusted EBITDA of 33% to 34%. free cash flow of $575 million to $625 million, and we're on track to return approximately $570 million of capital via our dividend and share buyback programs. It will be a record year of capital return for OpenText. Further, as you can see from our comments today, we're expecting a stronger second half to our fiscal year, driven by four factors. Expect demand for TitaniumX, our next-generation autonomous information management platform, led by our business clouds, business AI, and security. Second factor, realizing our new go-to-market investments led by Todd and the sales organization. Third factor, expanding partner contribution led by Sandy Ono. And our fourth factor, realizing our new customer service investments led by Paul and the Renewals Professional Services and Customer Success teams. Let me expand on these drivers more and how they point to a stronger second half. First, our competitive advantage clearly gets stronger with TitaniumX or Cloud Edition 25.2, and we are on track for the final delivery in the second half of this fiscal year. Information is the heartbeat of every organization. It flows through every process, every workflow, every innovation, every experience. It touches all roles. It enables the modern organization. TitaniumX will elevate our customers' capabilities in significant ways. OpenDecks World 2024 in November will bring this all to life, and we hope to see you there. As a preview, customers and partners will see key differentiation and compelling reasons to adopt the new TitaniumX. First, a modern SaaS platform for core information solutions. As I like to say, everything downstream of SaaS is goodness. It's faster time to revenue. It's easier to expand capabilities, and it's higher margin. Second key piece. a private cloud that is global, secure, trusted, and autonomous. We've obviously made significant progress here over the last few years. And once in our private cloud, we keep customers current on the latest versions, latest security, and the latest AI. So customers are free to run their business and evaluate our new innovations we provide every 90 days. Third is our compelling new capabilities in each of our business clouds. For example, in the content world, in content cloud, it's all about SaaS, AI, and in integrated security and deep integration into business applications. In our business network, it's about being global, global supply chains, global invoicing, a global supply chain control tower that can see across all your suppliers, and new traceability applications from being able to determine cobalt fields in Africa to finished electric vehicles in Germany, as an example. Security, we are delivering a full stack of protection from users, applications, email, network, and clouds. We call it XDR as a service. TitaniumX is a major step forward for enterprise and SMB security, a composable approach in the cloud to identify, detect, and respond against active threats. We will demonstrate our next generation XDR as a service at OpenTX World. Security, trust, compliance is a major investment area for OpenTX. Other compelling areas, ITOM, discovery and observability, at our new corporate help desk, expanding to include HR, IT, and all internal CXO organizations, and to one unified corporate health desk, all focused on elevating the employee experience. ADM, we're introducing DevSecOps for large-scale software organizations. And at SMB, we are already live on our next-generation secure cloud platform. for the partner community to easily transact with. You may have seen some of our social media last week and going live in SecureCloud. And then lastly, Wave 2 GenAI aviators, built for every industry and embedded everywhere in OpenTech software. TitaniumX will have 15 aviators and over 100 agents. As we like to say, never bring a human to do the work of a machine. We'll be announcing support for Microsoft Copilot, in addition to Google Vertex and BYOM, Bring your own language models into our private cloud. So you'll see all of this at Open Text World 2024. It's a packed agenda of innovation and the value that comes at the right time for our customers in Open Text, for Open Text to bring this all together for them in a powerful way. I hope to see you there at Open Text World. Next, let me expand on our new go-to-market investments led by Todd Sione and the sales organization. As mentioned in our last earnings call, we're making investments in our go-to-market across three priority areas, people, customers, and innovation. On people, we continue to find much success attracting new sales talent. We are right on our AE and SE capacity targets. In addition, our new unified global sales organization structure has allowed us to launch unified programs to the entire organization on a global basis, all within this dynamic marketplace of cloud, AI, and security. And the first program we've launched is cross-selling security across all of our AIs, and particularly important with our new XDR as a service coming out. OpenText always puts customers first, and we are finding very strong momentum and engagement. Our cloud AI pipeline is the largest it's ever been, and up 20% year over year. On sales innovation, we have deployed internally OpenText AI. We're now live. We call it Oli.ai, to act as a sales aviator for the sales force. I'll be demoing live our new OLLI.AI tool at OpenText World and how we are using aviators internally to generate proposals, accelerate sales velocity, and win more. We are seeing very favorable impact in our sellers' ability to build effective account plans, articulate value propositions, and build compelling business cases now live on OpenText AI. Third, in support of a stronger second half, is moving on to expanding partner contribution. The demand signals for information management are strong. Our customers see the growing availability of business AI from many places, including the importance of effective information management solutions. You need strong data management to have strong AI. I've talked about how we help companies operate in the world of the internet of disconnected clouds. You'll hear at OpenText our next big steps in this area on how OpenText makes multi-cloud work. You see, all enterprise customers have many cloud providers. This is the new normal. I can't meet a customer, I can't find a customer that only has one cloud provider. Our customers have many cloud providers. And no customer standardizes just on one cloud provider. So further, customers will have multiple AI suppliers as well. It is a multi-cloud world. We see a growing role for OpenText where we make multi-cloud work for one source of truth for data, user authentication across all these systems, workflow across all the clouds, search across all the clouds, governance across all these clouds. We make multi-cloud work. In achieving this, our strategic partnerships are more important than ever. They have all layers of the enterprise stack, from the app layer to infrastructure to security and to the supply chain. For example, on SAP, we continue to work closely to remain day one current across all their amazing cloud solutions. On Google, we've expanded our support to include their full AI stack and services. On Microsoft, we've expanded our partnership to now include Copilot for security. We continue to work with Salesforce that our business clouds work in tandem with their business clouds. TitaniumX has integrations across content security and ITOM for Salesforce. We recently added Content Cloud for Guidewire to expand our presence in the insurance industry. And for Amazon, our business network better integrates and leverages their commerce platform. We'll continue to foster our strategic partnerships to ensure open tech solutions are at the center of the multi-cloud world. We make multi-cloud work. And then finally, in support of a stronger second half, we will increasingly see returns on our customer success investments. On our last call, we informed that we would be building a new digital renewal center and going live July 1. And we went live July 1. We'll continue to take humans out of the renewal process. And in doing so, our business scales with lower friction, lower cost, and our best people can help our customers expand consumption. This team had an incredible first quarter and exceeded our expectations. So a lot more to follow in this particular area. I'd like to conclude with two items. First, join us at Open Text World and see the momentum we see and engage with our customers, partners, leadership, and product teams directly. My Tuesday keynote will center on demonstrating TitaniumX with AI embedded everywhere, as well as our new security and multi-cloud capabilities. We have over 150 sessions and speakers describing how they are using our business clouds, business AI, and business technologies, including security. See how customers are redefining their relationship with their data, staying secure in the age of increasing cyber attacks and what's needed to leverage the next generation of cloud and AI. We also have a special investor analyst track that Greg can sign you up for, so just feel free to reach out to Greg or the IR team. Second comment in conclusion is we have a strong belief in our four-point strategy to create shareholder value. Strengthening our competitive advantage, accelerating cloud growth, capturing the large margin opportunity in front of us, and strong capital returns via cash flow expansion, dividends, and share buybacks. Of course, these four factors assume stable externalities and positive economic drivers. We continue to monitor the economies in Europe, North America, APAC, and Japan, and we're prepared to adjust our approach if we need to. The team is focused on delivering to our F-25 targets. building a strong, longer-term business, and creating value for all our stakeholders. Our fundamentals remain strong, demand is there, and we have the innovation our customers need. This is a winning strategy, and we see our path very clearly today. With that, I'd like to thank you for joining us today, and may the one that brings peace bring peace for all. I'd like to turn the call over to Madhu.