Open Text Corporation

This is the conference operator. Welcome to the Open Tax Corporation Fourth 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 analyst Q&A session. 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 then zero on their telephone. I would like to turn the conference over to Greg Secord, Head of Investor Relations. Please go ahead.

Thank you, Rocco, and good morning, everyone. Welcome to OpenText fourth quarter and fiscal year 2025 earnings call. And with me on the call today are OpenText Chief Executive Officer and Chief Technology Officer Mark J. Behrenship, together with Chadwick Wesley, our Executive Vice President and Chief Financial Officer. We have Todd Sione, our President of Worldwide Sales. We have Paul Duggan, our President and Chief Customer Officer, and also joining we have Cosmin Bellota, who's our Senior Vice President and Chief Accounting Officer. Today's call is being webcast and recorded with replay available shortly thereafter. All of this information and all of the presentations today are available on the Investor Relations website at OpenText, and that's investors.opentext.com. On today's webcast, we'll have our prepared remarks coordinated with slides. on the Q4 financial presentation. This presentation is available, of course, on the website. And please note that if you're logged into the live webcast, you're already set up for the slideshow. I'll also point out that there are two presentations on our website, the Q4 fiscal 25 IR results that we'll be using during the call and the investor presentation that we use for investor meetings. Turning to the safe harbor statement, during this call, will make forward-looking statements relating to future performance of open text. These statements are based on current expectations, assumptions, and other material factors that are subject to risks and uncertainties, and actual results could differ materially from the forward-looking statements that are made today. Additional information about the material factors that could cause actual results to differ materially from such forward-looking statements, as well as the risk factors that may impact future performance results of open text are contained in our recent forms 10-K and 10-Q, as well as the press release that was distributed yesterday afternoon, which may be found, of course, 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 in our public filings and other materials which again are available on the investor section of our website. With that, I'll turn the call over to Mark.

Thank you, Greg, and welcome everyone to the start of our new fiscal 26 and a big welcome from Waterloo. As you know, every fiscal year has its journey. For open tax in fiscal 25, that included completing a material divestiture of our mainframe business, a large business optimization program, the acceleration of our margin opportunity, significant new AI cloud and security innovations, and our strongest year of capital return. As you'll hear today, fiscal 26 is a completely different year, led by growth in a strong product cycle and a strong financial outlook that includes total revenue growth of 1% to 2%, cloud growth of 3% to 4%, adjusted EBITDA expansion of 50% to 100% BIPs, free cash flow expansion of 17% to 20%, and continued strong capital allocation with a dividend raise of 5% and a new $30 million share repurchase program, as well as a return to M&A. Let's get into the call. Our priorities for building a stronger and more competitive OpenText remain clear and consistent. To expand our competitive advantage through our business AI, our business clouds, and business security, our new MyAviator will bring business AI to every OpenText end user. deliver total revenue growth through compelling solutions, great distribution, and transformative customer success, led by our cloud growth and increasing contributions from business AI and security, as well as upper-quartile operating excellence, which means continued margins and free cash flow expansion and value-creating capital allocation. Our previously announced business optimization has accelerated our margin opportunity And our medium-term business model is about approaching the rule of 40. You are seeing the results of these clear and consistent priorities. Q4 was the first full quarter of TitaniumX in the market. And we ended fiscal 25 with strong performance, as you saw in the numbers we published yesterday. Total revenues of $1.31 billion. And we grew organically year over year, excluding the impact of AMC, IP rights, and DXC. Our cloud bookings surged to $238 million or 32% year-over-year growth, all of which flows directly into cloud RPO. Cloud revenue of $475 million or 2% growth. License revenue of $173 million or 77% growth, XAMC. Adjusted EBITDA dollars of $444 million or 34% margin up strongly, XAMC. And we had amazing cloud wins this quarter. across banking, automotive, healthcare, biotechnology, and retail, including 43 cloud deals over $1 million, and Todd will speak about these in a little more detail in a moment. For the full fiscal year 25, total revenues of $5.17 billion, less AMC down 3%, and less IP rights and DXC down approximately 1%. You can see in our investor presentation a three-year trended slide on a reported basis to help illustrate the magnitude of the total revenues. cloud revenues, and cloud growth rates for our business. The new insights are all singularly focused on our cloud business. Cloud revenues were 1.86 billion for the year, up 2%. I would also like to add some further color to our cloud business and revenue performance by business area. On an approximate basis year over year, cybersecurity is 30% of our cloud revenues, BN is 30%, content 25%, OSM and DevOps 10%, and the others make up the remaining 5%. Content, OSM, and DevOps each grew faster than 10% year over year. The end remained constant. Cybersecurity was negative 4%, which we expect to return to growth this fiscal year. And please note we have rebranded our ITOM business to Observability and Service Management, or OSM. And we have renamed application automation, which is now DevOps. Cloud bookings were $773 million, up 10%, and right in our Outlook range. Total RPO, up 9%. Total cloud RPO was up 13%. And the total cloud position in the current cloud portion was up 8%, while the long-term portion up 17%. And our cloud renewal rate was 96%, ending Q4. So just an amazing amount of cloud expansion. Adjusted EBITDA dollars of $1.8 billion or 34.5% up strongly XAMC. Adjusted EPS of $3.82 up strongly XAMC and free cash flows of $687 million above the high end of our range and ending cash of $1.156 billion. For the year, we allocated a record amount of our cash, or $683 million to capital return, where we returned $272 million via dividends, and we purchased $411 million of our stock, canceling 14.5 million shares and an average price of $28.29. Let me close our fiscal 25 with a few final thoughts. In addition to all the strengths and accomplishments, and we had many, fiscal 25 was also one of challenges. There was, of course, the unprecedented and unpredictable trade and tariff turmoil in the markets and the geopolitical forces the industry traversed. But it was also an extraordinary year of a large and global mainframe business divestiture for us and transitioning that business to the buyer, which had teamed it flawlessly. We built a lot of corporate muscle through that process. We were focused on rebuilding our margin post-investiture, modernizing the Micro Focus platform, executing a large and strategic business optimization, delivering TitaniumX, and creating an AI foundation for the future. But make no mistake, we are disappointed that the full fiscal year had negative growth. As you can see on slide 10, it is a clear exception for a very long track record of growth. We thank you for your feedback throughout this past year. We'll continue to be better communicators, and I will continue to increase the business insights we share so investors can see both the challenges and our opportunities equally like we are doing today. Time to look forward. So looking ahead, I am confident in the trajectory of the business. Fiscal 2026 is a different year, a different outlook, and an important period of growth that the company is entering into. Our priorities for building a stronger, more competitive OpenText remain clear and as noted earlier. We're excited about the next wave of innovation for business AI with MyAviator and Aviator Studio, an agentic user platform for building digital workers. And with MyAviator, a personal digital worker for every knowledge worker to be used everywhere for anything. And for our business clouds, we'll core content SaaS, new verticals like insurance, OSM, corporate help desk for employees, for employee experience. On the business technology side, our focus on threat detection and response, SaaS identity and access management, and our new go-to-market partnership with Microsoft. We're a portfolio company, and we expect all our businesses to perform, but we can see immediate paths for outperformance this year in content security and observability in service management. Our M&A pipeline across our core views is building again, And to reiterate, we'll consider divestitures as and when they make strategic sense to drive overall higher growth rates, optimize our business, or to return investor dollars for better returns. The organization has momentum and is focused. So let me discuss the key elements in our fiscal 26 outlook and reported dollars in the year-over-year terms. On the macro, global customers are investing. and they are taking control of their platforms and capabilities via sovereign clouds. Also, they are de-risking their businesses from tariffs and trade volatilities. Customers are investing in AI, cloud, and security. Fiscal 25 taught us to expect the unexpected curveball on tariffs and trade, so it drives you to focus on managing exceptionally well that which you control, and it's prudent to be conservative given the geopolitical and public sector trends. With that macro backdrop for our fiscal 26 outlook with year-over-year comparison is the following. Total revenue growth of 1% to 2% and growth in constant currency. Total cloud revenue growth of 3% to 4% supported by our strong current RPO backlog. New cloud bookings growth of 12% to 16%. Adjusted EBITDA margin growth of 50% to 100%. Free cash flow growth of 17% to 20%. We plan to grow our annual dividend by 5%. And further, we plan to purchase and retire 300 million of our stock this fiscal year. There are a few more comments I'd like to provide on our outlook. First, cloud revenue, ARR, and cloud CRPO truly lead the future of our business and our outlook. We expect ARR to return to growth in 26. And within that, cloud growth will outpace the maintenance business. Second, we'll make strong progress on our customer support business and expect to cut the rate of decline in half from negative 4% PECS AMC in fiscal 25 to negative 2% in fiscal 26 and return the business back to growth in fiscal 27. In a moment, Paul will speak to our support business and the opportunity. Third, AI, SaaS, and security are well positioned to contribute more to our revenues And we see security being a positive contributor to our growth rate this year. Todd will speak more about this in a moment. And lastly, Outlook positions the company to exceed expectations based on stronger demand, stronger adoption, stronger execution, and less macro unpredictability. As for Q1 estimates, please remember our business is an annual business. We plan, operate, and make key decisions within the context of our annual plans. Our quarterly estimates are meant to provide short-term insights, and our quarterly estimates will vary within our annual plan. For Q1, our estimates include total revenue growth of constant to 1% and adjusted EBITDA of 35 to 35.5%. I'd also like to introduce today our thoughts on where we are driving our business model over the next three years, which we call our medium-term business model. Our medium-term business model looks like this. Rule of 40 growth, delivering the combination of total revenue growth plus adjusted EBITDA margin percent to approach 40. Efficiency, continuous year-over-year improvements on margin while landing adjusted EBITDA in the mid to high 30s and balancing margin expansion with the growth investment opportunities that we see. Free cash flow. For every dollar of free cash flow, we look at two key metrics. Grow free cash flow over revenue into the high teams and to continue to grow free cash flow over our outstanding shares. Capital allocation. Continuing to strategically and flexibly deploy our capital across M&A, dividends, buybacks, and divestitures with one lens, creating long-term shareholder value. We'll keep you updated on our progress along the way. Let me wrap up my prepared comments today. F26 is an important period of growth for the company, and that confidence starts with our cloud business. We're in a strong product cycle with TitaniumX, business AI, and business security. Content, OSM, and DevOps each grew faster than 10% last year. We have new accelerators for growth with AI, security, and business network. Our cloud RPO was up 13%, current portion up 8%, long-term portion up 17%. Our cloud renewal rates are strong at 96% and getting stronger. Our outlook is 3% to 4% organic cloud revenue growth, new bookings growth of 12% to 16%, and we expect continued cloud RPO expansion with strong renewal rates and continued new bookings growth. I want to thank all open texters for their strong performance in Q4, for the momentum heading into fiscal 26, as well as to thank our customers for their continued trust. We have an amazingly strong finance organization, and we welcome Cosmin Bellota, who is on the call with us today, who will serve as interim CFO starting August 15th. Our CFO search is in full motion, and we're excited about what an open market search will bring to the business. I'd like to thank Chadwick for his service to OpenText and wish him well and all the best on his continued journey. He's going to make a great CEO. Let me turn the call over to Todd and Paul, and then Chadwick. So, Todd, over to you. Thank you, Mark.