OTEX.TO - Earnings call 2 2023 | Open Text Corporation

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Operator

Thank you for standing by. This is the conference operator. Welcome to the OpenText Corporation Second Quarter Fiscal 2023 Financial Results Conference Call. [Operator Instructions] After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. sir. ahead, go Please

Harry Blount

Technology and shortly Good on XXXX These at and on on inform earnings OpenText's and New conferences; Bernstein's the I'm OpenText and today operator. the Consumer our is we website OpenText Barrenechea; Please second the Investor Relations Technology, pleased Media, Vice accessed Executive the to quarter will forward-looking of Telecom website. Earlier are you TMT President Chief today, Officer Executive Today's fiscal at Forum call. call, the in Financial Officer, management live Chief Toronto. And prepared to can Mark OpenText March safe recorded statements afternoon, X and you, relating J. welcome on and everyone, Chief Madhu OpenText's call call Officer, Thank remarks With on March Ranganathan. investors.opentext.com. contain online. with thereafter of and participating our investor now press following be that in supplement One-on-One future course the our York during our to upcoming performance release Investor statement. Conference posted be Scotiabank's webcast OpenText X materials this being a presentation replay available and and Relations may will that make that to harbor information. we on conference me note

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Mark Barrenechea

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Let me partner. Ranganathan, business turn Madhu? the call over OpenText to and Madhu my CFO

Madhu Ranganathan

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Operator

Paul first of RBC. [Operator question Instructions] The comes Treiber from

Paul Treiber

of questions. couple open-ended a Just

combined excited the and these between about products would OpenText has Among from -- that you Just product map. done, revenue road first, on how the product the X road all rate coming that potential opportunity map, product acquisitions synergy the the you sound fit you companies? just very alone

Mark Barrenechea

Carbonite Yes. largest couple -- information to is share your capabilities Paul, thanks solid the market certainly footprint well, acquisition hear we've that management for added the put effectively put of of us in in and of business us bought gave cybersecurity. this and we've a some GXS And that done. us our footprint, The voice. over industries. Zix Documentum, networks, liaison. like in a and Great question. time, -- expansion to a

largest information So, largest this is management. expansion of expansion of mission, our the

We're We're workloads to application of XXXXX that think needs and is of leader will whole in going in market a new noted be those leader has scale remarks, content the of entering space, digitalization, management. We're distributed. this As bringing And my in digital rival created we which the our I business a resources. business in and we're bringing automation cybersecurity terms technologies. on critical for operations market technologies the essential Global mainframe scale EDI.

and -- and other then, So, course, Vertica some Paul of tools.

in our 'XX TAM our And growth adjusted $X.XX So, this back on it's the looking -- said bridge largest to $X.X brings We'll expansion, over billion. to rate, to we're billion plan. billion to on at $XXX what generate up this fiscal I EBITDA. scale, I'll

So, it's also the largest generate EBITDA. expansion of and being able profit to

made. forward step we've largest the it's So,

Paul Treiber

to to work maybe over or happen important There's need factors in are the that need of through next quarters you view the acquisition chew shareholders for that here? with a What this the years. for your of obviously, work, lot well integration very couple to out most

Mark Barrenechea

transformation private to that cash are Supporting how $X.XX billion total and road map of million billion $X.XX the customers $X.X of Yes. it's plan. rate and and Underneath free customers up put in revenues, to engage billion there long-term than accelerated an speak And that plan, in flow. 'XX look, days. to confidence cloud. F our public more Again, We're looking energy they their in And and we're for billion that, EBITDA to wanted to renewal of great product start. adjusted preliminary -- value, to -- getting themselves. doing I in to And are Paul. internally F the $X.X it's thank electric. in 'XX excitement we we're every I to results -- cloud underneath deliver have X XX off what to been the to has accelerating going you, has I $XXX And look, a week our the beginning ours. mean the is and out just

to how gameplay -- where Get that do you So, same the innovation. add the is is enterprise accelerate piece today outlined, Private as Paul, then pre-announcement pre-close and it's you growth have the OpenText billion and adjusted how bookings it the $X.X to outlined, We public confidence revenues to relatively ] cloud, up do It's in up, the straightforward. is know of services. same our to to is XX% we billion plan The our innovation it's EBITDA, most just value that? feel billion. more gameplay cloud present post-close, $X.X run we play. rate and the $X.XX the as renewal today, cloud correlation [ can of we this and 'XX product we private F

Operator

Steve Citi. from comes question Enders of next The

Unknown Analyst

strong a This is I quarter. very couple Steve. revenue guide. growth for talk George It's despite exciting. deal. understanding closing on 'XX the organic points about If wanted the down the on guide FY came correctly, a Congrats to really I'm

potentially macro in just change? So, how I guess much if How wondering there? I'm could you that baked conservatism, talk through is much

Madhu Ranganathan

here. It's you your Madhu Yes. comments. again for Thank

that and we X-month able given growth reasonable quite look and operate, fiscal shared, aggregate, and the the numbers. the 'XX. Focus it, to for urge a fiscal aspects to just how well in you on OpenText going would there's Micro are right? not at we their on annualize X -- at hence, given seasonality we've and bring own baseline we also also provide Focus you X-month As in other So, fiscal I fiscal the billion change no we 'XX, months understand we to which look the it's number trajectory, their -- license be baseline $X.X at 'XX at of look in for when bringing when and you Micro when it you

So, rate I organic is would say OpenText strong. growth

we're the X the growth piece revenue focus cloud remains it's incorporating to micro really that Our and months. rate strong

Unknown Analyst

And then one follow-up. quick

facing of is element programs? headcount of same is the this are just there plan. announced peers are fully of any that out? to I'm some responding You just to wondering, pre-planned cost reduction similar kind Or your some pressures that of acquisition savings your that through cost according going

Madhu Ranganathan

take Yes. Mark, that as and you want I can to do needed. add

Mark Barrenechea

acquisition. of announced said confirming the with take our we're here, the $XXX conjunctive to We acquire to X% for to workforce Yes, question. reduction, expense. after going out Micro million. out $XXX announcement of rebalancing take our And due we'd And the we we're Focus, million sure. intent is our closing George, thanks of -- completely

Digitalization And strong. bookings factors increased the enterprise for the Our specific uneven. There their see. you near to look cloud as about issues growth at XX%-plus. it's can when growing it there, is exist talk only is and all the XX%-plus, to well is digitalization doing a uneven to growing disproportional. and companies is total in best you revenue time. factors And XX% are and growth, volatile need to and out answer demand bookings is We had only that X% QX. and very companies. the But our And economy relation way it's The our growth we're in In there, interesting sure. cloud superb answer. you're at cloud it's out seeing this own confidence OpenText, revenue in my describe they our

Madhu Ranganathan

resources Mark. measured growth innovation. of very just COVID and very during that has or the before adding going Yes. And was to I thank you, that been is with thoughtful always COVID, model and add operating OpenText conjunctive

Even not to absolutely we'll are his as So, the sales continue and factors the Mark innovation us. workforce, in in the outside the shared hear rebalancing hire product the now comments, you applicable to areas.

Operator

comes from Krishnaratne Scotiabank. Kevin question next The from

Kevin Krishnaratne

times. exciting the deal. Congrats Very on

sort cloud-enabled might Just question profile cross-sell but Just the about how over rates of the wondering, of when better improving the differing different cloud versus outlook, 'XX, to 'XX, helping it, lot contributors cloud, it -- your got you and an do few sort we the Micro on your bigger say, it's renewal growth Focus platform walk be years? private through what improving pieces I'm for straight there. growth versus a the just think up the organic organic to pieces of, rate improvements? of contributions call next maybe there, a be on gets

Mark Barrenechea

Kevin. you, Thank Yes.

win is, remarks, we The first each as the of in to want outlined my markets. I

don't We I business winning the per the network but win want the markets. to growth that cross-selling suite the win for stack, Win in each stack. content so, And full think suite, And cybersecurity as us of cybersecurity straightforward is suite. of se, on-ramp win X that those the win suite, stack that a its selling. to

across the X Magellan cloud across across like X, X, markets X. our private is Second across and strategic security APIs select the the integrations Vertica cloud, the

and straightforward sales; McGourlay around Duggan, leading lot very giving play all corporate through have sales. So, in us Kristina focus, we're for where cybersecurity success; Ted that. customer we've company running leading of a and enterprise sales; cybersecurity; renewals Paul James Prentiss, organized Prentiss actually leading worldwide it's we our the a enterprise

we've strategy winning we follows play each. and growth underneath put So, -- of that structure structure that

to and there's going out, Now very that stand some select things content think we IDOL are services.

Voltage platform. Our It's facial this ability a gem. take others capability. recognition, integrate having to most We're Box, compete and against a FileNet, secure going And incorporating into content and voice, Hyland they with the content to step to security, big by would imagery. up like

we're outlined. fixing a and it's motion. the So, as the run that it integrations. play, at Micro X, pretty private X, putting to win we #X easy play Kevin, select Number straightforward And in need up renewal stack. things the is cloud, acceleration articulate all Focus, then And of get fixing rate

Kevin Krishnaratne

follow-up Maybe then. a there just

think interesting. TAMs Or better about they're that saw end? think to they're opportunity how and these integrated you the You these and once new Just really you at unique or customers, coming displacing? and wins cases? are the these wondering we you're when more opening sound looking -- being the do about running where and up are how is I'm are and how products offered competitive integrations up and new are do use other being -- you're

Mark Barrenechea

-- $XXX are So, markets billion, front big to X we things. a a galactic us of Yes. we $XXX bringing field don't these says It's I mean at This in us right? expansion. the billion-plus. need TAM of got TAM playing

go can we We Smart cases smart transportation. cities, after. use have new

move using position more from As great them. using we're a and -- in fingers voice, Y X we move to and their capture

So, our there's competitive we just comprehensive market, stack to new cybersecurity that than use just there And us. larger It's have. And be cases. for the same this We'll brand some with there. out in RSA one I'm going out names giving content, new position increase. is like competitors

against stronger. positioning just Our FileNet got

just Box against position got Our stronger.

just got against stronger. position Our Sterling Commerce

some just position the security against providers Our stronger. of got

expand don't and another So, it's the landscape. our that Investor new We an we'll thanks a love TAM, it. cases. more at Day it, win and need that it's full to interesting to out for stack But question, presentation competitive time competitors. use really lay the against stronger on And spend

Kevin Krishnaratne

the to congrats progress forward Look again. and

Operator

question next Price Stephanie The from of comes CIBC.

Stephanie Price

potentially on the targets about target markets some I exceed kind margin wanted you've 'XX and fiscal 'XX out, -- in baked set And talk bit model. that that where maybe think you to what you or gets the just little fiscal conservatism to sorry, focus target in a of you especially side? and potentially on

Mark Barrenechea

go Yes. If the to target, Any then on there's questions any first, to take on Madhu I maybe question the I'd through, and part. hand that you want Steph? model can model second

Stephanie Price

some 'XX on where in and conservatism Just more fiscal model. have might baked you in fiscal that 'XX generally target

about thinking here? Just upside from

Madhu Ranganathan

sure. I'll for that take Stephanie. Yes,

asking of and also Focus, historical by support license Vis-a-vis EBITDA, to lease accounting in. burdened couple I just us have is a you're since not, X we've number the shared we've shared and one. 'XX, fiscal capitalization. the -- X to months. outlined, things, items Micro renewals That's plenty you, actually right? we for seasonality it very whether R&D and Micro about of the baseline And explicitly see we very the the or Focus adjusted some the support it's numbers So educated conservative where a second come including of getting There's

cloud definitely in for is X% entry And our an model is look and Micro cloud continue GAAP, 'XX, our to the to annual made IFRS point to it Focus, So, have sure as U.S. that ranges, well. only. from OpenText we've at aligned XX%-plus. actually coming from we previously, bookings as XX% In XX%. you Micro was And we've Focus fiscal to XX% revenue, including at enterprise

begins, factored revenue, the And and strong factored mean, I bookings cloud represents we shared to those so cloud see on say, we integration demand I are again, So, about that would the target fully and model, color of see integration of in market. as I've we what we the the in. and some and we all going costs the incur

Mark Barrenechea

deliver thus was not things, go in would last pace Stephanie, targets, in to ] amplify, a results But improve. I'm out very extent The I pleased and amplify rather from great billion speed And $X.XX to I it But great they're but the over should these right, to targets deliver given between to or track adjusted I'd the be comments Madhu. or decade these faster. the our and I'd accelerated. the large many of very would EBITDA right, think great -- we faster, or the say, Things add X.X record I put with [ we 'XX, landing acquisitions. confident X exceed about conservative there, for little be them. can results

rising and like our Focus of our business euro OpenText, now a OpenText. exposure of actually customers, part with Micro euro and OpenText rises I thing, Second the

And have business so I of we geographically. mix like the that also

that in place. And extent the we're up, the so a euro to goes good

Stephanie Price

for one final me. one Just

think in prioritize Focus and the R&D looking you R&D the What the Micro business. how about post acquisition? combined to curious the are Just the areas about you

Mark Barrenechea

we XX% already, range, XX%. as to you'll between our bring X, model X as note our fiscal -- the in on target on Well, brought Yes. 'XX engineering we've organizations is the together investment

Madhu Ranganathan

year. partial a On

Mark Barrenechea

see basis, year. partial going we're expect XX%-plus, a bookings our aspirations the combined to not to it's up the accelerate cloud, F you growth. -- be the from to you it tick accelerate a 'XX organic.. basis model, And cloud. because right? up OpenText investing see can combined On And can up of it's to just continue XX%-plus on or So, on previous

Madhu Ranganathan

to Yes, X%. X%

Mark Barrenechea

a big a a 'XX. X% X% revenue very growth for in set F to us. cloud strategic number, organic number, initiatives That's of important

up X% to cloud So, revenue XX%. you XX%-plus X% approach percent at as growth can organic see that R&D we growth and bookings

I So, where the is will going I in priority I but is won't to transcript. highlight investment go to back It's it I outlined go go? going it, right to script precisely to quite today. going to where where the my repeat that be.

Madhu Ranganathan

team then going it's add quite acquiring the somewhere X,XXX And Mark, is OpenText we to of new and incredible. And going R&D, I are global the definitely was just add footprint be to to to professionals amplify, people. to

a now huge India and including have in now Germany, We cetera. concentration Canada, et

mean the the and add very be I skill to it's of going and caliber was R&D So, the just really to going quality I strong. sets professionals,

Operator

The next BMO question Markets. comes of from Capital Thanos Moschopoulos

Thanos Moschopoulos

you're the the Is booking on between it Madhu, they as to going license clarify dynamic the can you terms IFRS that IFRS you GAAP? U.S. licenses? upfront ratably? you recognize on Or it were that GAAP difference to to what's and there referenced multiyear go from

Madhu Ranganathan

of the a whether U.S. obviously to the course, of you the take it the I to IFRS renewals, start services. means upon delivering renewal to. the of contract, official when signing a allows upon you take in start date you basis which renewal it's the mentioned revenue ratable license on happy Yes, GAAP, specifically

as And X U.S. pieces, So, U.S. difference. GAAP mentioned, lease other goes opposed a depreciation. rent, rate that's GAAP I treated accounting the the capitalization expense R&D as into model so in the big higher operating allows is it does. than as of IFRS to And

Thanos Moschopoulos

of revenue organic that larger be decline to does then of some the that your to or us initially 'XX FY might we Focus, single-digit sort of And of comparison. at from If an since type near-term it's a for apples-to-apples because do Micro clarify, just contribution apples-to-apples, imply than look integration? hard

Madhu Ranganathan

the Thanos we're you growth still question look our maintaining if Yes. Micro target Is X% at OpenText, Was to model, at Focus? specific that question, X%. to Focus? Because organic for Micro your

Thanos Moschopoulos

Specific yes. in is of 'XX guidance, the the fiscal contribution that to Focus apples-to-apples, Micro implied assume sort

Madhu Ranganathan

revenue $X.X $XXX narrative out Yes, taking million say best the for 'XX, of shared $XXX Micro in sort what I at Focus would billion of to the completely million fiscal over and the baseline million the and for we've calling the then reference under our year is $XXX and for is fiscal $XXX how $X.X it like 'XX. billion for in educated is this much to estimate or year -- then baseline of contribution million for the partial

Mark Barrenechea

expecting They March, have run that, Yes, of end meaningful add the to for And an don't an to don't They and to June, October. didn't of solid March, at end they didn't Micro those that, a yes, they April, an Focus had way. right? It's months. look ago Thanos, March. have performance just look, to X end didn't I an had end that actually of right? to we year have add X an I'm because months business end from of think these an And really have it's of tough. They of end they

highlighted, our we're to because as to number So, an team hard. The get million performance months do reporter didn't $XXX that them million, expecting to X quite going onboard solid Madhu every to annualize they going as to run not and periods our I'm performance, is period. IFRS drive $XXX So, we're right? motivated,

of all to we've out to So, it easy all to for of are wanted to that our make we way the aligned the out we calendar. system, get is And And going get and to and strong customer that noise $X.XX we're you performance, going of period stuff the quarter. wait say But million million the [ out I billion baseline it's, wins. we strong year, some $XXX to shout ]. $XXX I'm immediately, we next when can't close expect sorry,

Operator

The Financial. from Tse next Bank Richard of question National comes

Richard Tse

acquisitions? any valuation just If providing of kind standpoint, a It sort were everything. Yes. That's color. a question. great from previous Thanks helpful forecast of outlook. past based on like I super all one where there be spots, of like looks with have for your that potential blind us would in the of transaction helping terms they experience kind

Mark Barrenechea

that's start Yes, going which our a outreach is fair great on. I for us. talk always be talent, enough. off Look, the a house customer Understanding to needs we're and to big to

our we're systems. in they've all On Teams into integrate system. line work We'll integrate into to integrate side, into We'll ingrate integrating taking going their historically, information our we're the our this MXXX product but we're And done that the system SAP. environment. and I our sales We'll force. appreciate to case, into

be be surprises side, could tech our that system there we'll scales typically, So OpenText. and in run but world-class integrating stack on the into

going markers to pay, I usual continue to very customers So, that and obviously, think we're close to the attention systems. people, it's

Operator

Daniel TD question comes Securities. next of The from Chan

Daniel Chan

their I'm going give cross-sell how now can cost customers color on some being Focus' is are you conversations those us that hoping Mark, able into services the to early installations? on with deal closed, more of Micro

Mark Barrenechea

I've week. from -- joint almost this theme the a of love where on Yes, customers, customers opportunity spent have week. where lots products. -- Incredible We is I've dozen love Micro And obviously I've Feedback early landed. incredible spoken integration. products days. to talent, a X, landed. Focus we the products overarching busy

So, a Faster And lot where value are. use of out. drivers reaffirmation real the interesting potential feel integration. a cases coming and we

right? Now this and they se, had mind culture you, We have haven't per innovation CTO. a CEO

one great now pools our an Head has Engineering. We to of -- and one engineering they have getting leverage And a as heart innovation. We innovation. days, of valves, all organization amazingly of talented X every to those have if organized parts They accelerated do our engineering. of XX is have more valves

affirmation real our cloud cycles the move XX-day people, great great well. a cloud provide for which Private of is API is options. work destination, as So, more many faster, and products, more

I'd say a Dan, So it strategic this affirmation -- a is strong was our very rationale. of

Daniel Chan

switching And our renewals on structural Micro prior to some like Focus' the then business. it conversations, Based you gears sounds changing in big renewals maybe shifts pretty business. had

long how line seeing it business? rates the revamping start renewal that we will what's improve? to So, time before you take And start think those completely do on

Mark Barrenechea

are rates renewal in low-XXs. the the So,

ours saw You for QX. in the our mid-XXs

steady new OpenText L.O.V.E motion centralization And to hill, not renewals, land, in a the -- uplift performance right, over this of by procedures, more of our full renewal billion And the approach APA, below moment, have low-XXs. that, mid-XXs. advancing operate expand, indicator. They're it's on authorities, change prize a beyond, practice we expansion the in from to lagging rates we along business. deploying And expect right? Renewals 'XX business really rate We'll and to end that's will renewal a the talk our them in It's narrative rates things the get that expansion hope I on to cloud indicator. rate happen time leading the We're model, is strong value, we $X not an Our through cycles. the expansion new But and direct, renewals integrate. partners. renewal business to as renewal for And versus FY the in more the is said, way, and rates X-year rate. big to we doing progress operating do over an time our has as taken make start this rates.

our So, confidence, we get private cycles, as things put we cloud, build the cloud, as as all get on release XX-day procedural as we accelerate public place. we we in more place

rate, by to believe you the see keep updated will land there but of zone end our along way. getting along F we'll the progress, we progress steady we'll steady way, of kind landing 'XX with of We and the that

Operator

comes from of James. Steven next Raymond The Li question

Steven Li

free So, but the it, looks I flow on impact GAAP bit cash off. an has also IFRS a understand

TTM is $XXX And for $XXX I the million, at XXXX looking OpenText OpenText flow below $XXX its cash is And on Micro Focus that. that free with I'm own in what is So, for range. generated million already had to million. XXXX,

flow my So, X Focus the is, first question to cash Micro why additive not quarters? is free for

Madhu Ranganathan

great Thank a question. you, It's Steve. Yes.

clear Again, fiscal So, expenses or 'XX of is the we about we impact think And 'XX cost special wanted non-GAAP right? So of integration just having costs all of I million expense these add the cash to $XXX is what integration and to back refer somewhere reduction usually free operations pretty $XXX its $XXX global well on large the well. charges, are flow. we is global in to in expense rationalize million if otherwise, I going to category Focus Micro So, I charges. $XX the when it of ledger think at as charges, the that interest certainly, investments as company million is rationalizing could fiscal talked OpenText the entities. to right? and combined about, requires million of as cash and ledger be course, or have sort like and terms -- the -- the complex in you you of is how expenses, significant on and special whether that outflow The and like play.

to that if of So, charges during And recover the are we interest the period from $X.X get pretty day of to the working in early you From we're capital the perspective, into as from coming process, and throughout actually to aside very important see fiscal Focus these to when 'XX you'll Micro steadily then a 'XX. and expense, 'XX, billion-plus, assumes capital it's well. model recovery OpenText that start put time is there improving quickly coming maintaining we're working capital working the that all of performance cash the flows. X fiscal part note the this

Steven Li

Micro Madhu, HPE it they expired? Is which when go to it clarify, reverse already just had that numbers, does away? year but structure. Is asset, And this in mortgage they your acquired HPE, Focus the

Mark Barrenechea

does exist. It's OpenText. gone, does It's history, not exist not at their

Madhu Ranganathan

for is what that question. opportunities efforts the today mortgage going But was the brand going I have on Steve optimization taking to reverse add, agree and this just up, on be at our Mark new ahead. I looking grounded to they with

Mark Barrenechea

on million I So, crystal we're right? million want something, are, what exist. to $X.X in clear can, million F $XXX million fiscal flow cash gone. 'XX, Doesn't Yes. just $XXX 'XX and $XXX our billion-plus 'XX. F Steven, Absolutely I free right? if being note targets $XXX to to in in

want visibility be to today. I that, you crystal just right, So, I can providing know but see we're that clear, that

business we emphasis to in because that about. going do reaching yet to potential for billion do do rapid X integration simplify want adjusted expenses, 'XX, have simplification, that it going kind Madhu EBITDA, we're EBITDA reaching We're are we're really $X.X make I our we not billion free as potential of to our the to fiscal of flow pieces are upfront. X is it, in spoke $X.XX and going this things EBITDA on We and note for but important. One going a we're going cash in As we're integration of right?

X to decided Our XX%-plus F things quarters. in legal you as cloud. that investment. X 'XX, the takes over that organic and do, simplification. we entity our X% structures, next talked all cloud the growth, -- bookings say, things the the investing Those in on And is three, growth months to are revenue we've we're X cloud about, word X% make,

Operator

closing call hand Thank the now Mr. remarks. for to will over you. I back Barrenechea

Mark Barrenechea

a important products Center tomorrow everyone. simplification you, combined and I and than to as is and call us script into to how usual at we're Thank level it National Madhu a today's I looking good and Focus visibility most. fulsome felt the And Micro the very hope open evening. business right. Nasdaq than All ran our a Have from live we their this bit know I here more you'll OpenText. longer little in the join Ottawa. provide of was But

Operator

This call. Thank concludes today's conference you.

a your disconnect pleasant for Thank may you lines. and have You participating day.

Open Text (OTEX) 2 Feb 232023 Q2 Earnings call transcript