Solves open source intake challenges WATERLOO, ON, April 29, 2024 /PRNewswire/ -- OpenText™ (NASDAQ: OTEX), (TSX: OTEX), today announced an innovative solution to long-standing open source intake challenges. Developers spend a significant amount of time searching for open source libraries that comply with their company intake policies. OpenText Debricked Open Source Select is a unique start left solution to this age-old problem. It guides developers in selecting the right open source components—those that m ...

Financial Data and Key Metrics Changes - The company reported record adjusted EBITDA of $566 million, representing a 37% margin and 66% year-over-year growth [96] - Strong free cash flows of $305 million, reflecting an 87% year-over-year increase [96] - Q2 cloud revenue reached $450 million, up 10.1% year-over-year, with annual recurring revenue (ARR) of $1.15 billion, up 58% [115] Business Line Data and Key Metrics Changes - Enterprise cloud bookings grew by 63% year-over-year, reaching $236 million [99] - License revenue increased by 168% year-over-year, driven by contributions from Micro Focus and an increase in large deals [115] - The company closed 48 cloud deals greater than $1 million in Q2, compared to 23 in the previous year [116] Market Data and Key Metrics Changes - The SMB market is significant, with a $370 billion spend for companies with 1,000 employees or less, and the company aims to benefit from this market [3] - 60% of the company's business is in North America, with strong demand in public sector, energy, financial services, and manufacturing [4] Company Strategy and Development Direction - The company is focused on transforming into a cloud growth company and expanding its mission in information management [95] - Investments are being made in AI, cloud infrastructure, and private cloud offerings to drive future growth [18][64] - The company plans to return to strategic M&A focused on ARR and cloud assets post AMC divestiture [64] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for cloud services and AI, noting a reasonable economy to execute their strategy [4] - The outlook for cloud bookings growth has been raised to 25% to 30% for the year, up from a previous target of 15% [102] - Management highlighted the importance of AI integration in all products and the positive customer feedback received [105] Other Important Information - The company is on track to complete the AMC divestiture by the end of the fiscal year, which will allow for faster investments in AI and cloud [97] - The company has established a new platform called Platform Athena to enhance software development and productivity [107] Q&A Session All Questions and Answers Question: Can you expand on the SMB market and the enterprise spending environment? - Management noted that the SMB market is a massive part of the U.S. economy and expressed confidence in benefiting from this market in the medium and long term [3] Question: What drove the strong cash conversion performance? - Management indicated that cash conversion has remained steady and strong, particularly following the integration with Micro Focus [13][14] Question: What is driving the EBITDA margin guidance for the full year? - Management explained that Q3 is typically a seasonally lower EBITDA quarter, with higher expenses expected, but Q4 is anticipated to be stronger [15][16] Question: What areas are the investments in cloud AI focused on? - Management highlighted investments in private cloud infrastructure, compliance, data security, and AI capabilities [18] Question: What contributed to the strong cloud bookings growth? - Management attributed the growth to customers consolidating away from competitors and the strength of their private cloud offerings [22]

Part I [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Open Text Corporation's unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, with accompanying notes for detailed explanations [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a slight decrease in total assets to **$16.44 billion** and total liabilities to **$12.41 billion** as of December 31, 2023, primarily due to asset reclassification and debt reduction Condensed Consolidated Balance Sheet Highlights (in thousands of U.S. dollars) | Account | December 31, 2023 (unaudited) | June 30, 2023 | | :--- | :--- | :--- | | **Total current assets** | $4,083,990 | $2,275,231 | | *Assets held for sale* | $2,051,116 | $— | | **Goodwill** | $7,604,409 | $8,662,603 | | **Acquired intangible assets** | $2,773,220 | $4,080,879 | | **Total assets** | **$16,443,264** | **$17,089,200** | | **Total current liabilities** | $2,959,175 | $3,219,614 | | **Long-term debt** | $8,474,599 | $8,562,096 | | **Total liabilities** | **$12,412,917** | **$13,067,096** | | **Total shareholders' equity** | $4,030,347 | $4,022,104 | - As of December 31, 2023, the company has classified **$2.05 billion** in assets and **$222.8 million** in liabilities as held for sale, related to the proposed divestiture of its Application Modernization and Connectivity (AMC) business[11](index=11&type=chunk)[32](index=32&type=chunk) [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Total revenues surged **71.0%** to **$1.53 billion** for the three months ended December 31, 2023, primarily due to the Micro Focus acquisition, though net income significantly decreased to **$37.7 million** Income Statement Summary (in thousands of U.S. dollars, except per share data) | Metric | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Total revenues | $1,534,868 | $897,440 | +71.0% | | Gross profit | $1,129,120 | $635,747 | +77.6% | | Income from operations | $253,867 | $184,663 | +37.5% | | Net income attributable to OpenText | $37,675 | $258,486 | -85.4% | | Diluted EPS attributable to OpenText | $0.14 | $0.96 | -85.4% | - For the six months ended December 31, 2023, total revenues were **$2.96 billion**, a **69.2%** increase from **$1.75 billion** in the prior year period. Net income was **$118.6 million**, down from **$141.6 million**[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to **$397.8 million** for the six months ended December 31, 2023, while financing activities used **$532.9 million**, resulting in a net cash decrease of **$228.5 million** Cash Flow Summary for Six Months Ended Dec 31 (in thousands of U.S. dollars) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $397,774 | $327,129 | | Net cash used in investing activities | ($96,868) | ($69,412) | | Net cash provided by (used in) financing activities | ($532,925) | $869,561 | | **Increase (decrease) in cash** | **($228,480)** | **$1,127,007** | - The significant swing in financing cash flow from a large inflow in 2022 to an outflow in 2023 is due to the **$1.0 billion** in proceeds from long-term debt in the prior year period for the Micro Focus acquisition, which did not recur, combined with debt repayments in the current period[22](index=22&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures supporting the financial statements, covering accounting policies, revenue recognition, acquisitions, divestitures, long-term debt, and significant contingencies like the CRA tax dispute - **Revenue Disaggregation**: For the six months ended Dec 31, 2023, the Americas represented **58.4%** of total revenue, EMEA **32.1%**, and Asia Pacific **9.5%**. Recurring revenues (Cloud services and Customer support) constituted **77.5%** of total revenues[38](index=38&type=chunk)[39](index=39&type=chunk) - **Micro Focus Acquisition**: On January 31, 2023, the company acquired Micro Focus for a total purchase price of **$6.2 billion**. The preliminary purchase price allocation includes **$3.4 billion** in goodwill[30](index=30&type=chunk)[187](index=187&type=chunk)[190](index=190&type=chunk) - **Proposed AMC Divestiture**: On November 28, 2023, the company agreed to sell its Application Modernization and Connectivity (AMC) business for **$2.275 billion** in cash. The transaction is expected to close in Q4 Fiscal 2024. Assets and liabilities of the AMC business have been classified as held for sale[31](index=31&type=chunk)[195](index=195&type=chunk) - **Long-Term Debt**: As of December 31, 2023, total principal debt outstanding was **$8.72 billion**, including various Senior Notes, a Term Loan B, and an Acquisition Term Loan[70](index=70&type=chunk) - **CRA Tax Contingency**: The company is in a dispute with the Canada Revenue Agency (CRA) over transfer pricing for fiscal years 2012-2016, with a potential liability of approximately **$79 million** in penalties and interest. A separate dispute for fiscal years 2017-2019 could result in a non-cash income tax expense of up to **$470 million**[132](index=132&type=chunk)[136](index=136&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=44&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's Q2 Fiscal 2024 financial performance, highlighting the Micro Focus acquisition's impact on revenue and expenses, alongside liquidity, capital resources, and the AMC business divestiture [Executive Overview](index=46&type=section&id=Executive%20Overview) This overview summarizes OpenText's strong Q2 Fiscal 2024 performance, with total revenue growing **71.0%** to **$1.53 billion** due to the Micro Focus acquisition, alongside debt repayments and the AMC business divestiture agreement Q2 FY2024 Financial Highlights (YoY) | Metric | Q2 FY2024 | YoY Change | | :--- | :--- | :--- | | Total Revenue | $1,534.9M | +71.0% | | Annual Recurring Revenue | $1,145.9M | +58.0% | | GAAP Net Income | $37.7M | -85.4% | | Non-GAAP Net Income | $338.5M | +40.9% | | GAAP Diluted EPS | $0.14 | -85.4% | | Non-GAAP Diluted EPS | $1.24 | +39.3% | | Adjusted EBITDA | $566.3M | +66.1% | - The company entered into a definitive agreement to sell its Application Modernization and Connectivity (AMC) business to Rocket Software for **$2.275 billion** in cash, with the transaction expected to close in Q4 Fiscal 2024[232](index=232&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) This section details financial performance, attributing substantial year-over-year increases in revenue and operating expenses to the Micro Focus acquisition, which significantly impacted Q2 FY2024 results - The Micro Focus acquisition was the primary driver of financial changes. For the three months ended Dec 31, 2023, it contributed **$601.4 million** to revenue and **$513.0 million** to costs and operating expenses[245](index=245&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk) Revenue by Product Type - Q2 FY2024 vs Q2 FY2023 (in thousands) | Revenue Stream | Q2 FY2024 | Q2 FY2023 | YoY Change | | :--- | :--- | :--- | :--- | | Cloud services and subscriptions | $450,091 | $408,674 | +10.1% | | Customer support | $695,762 | $316,508 | +119.8% | | License | $289,238 | $107,960 | +167.9% | | Professional service and other | $99,777 | $64,298 | +55.2% | Operating Expenses - Q2 FY2024 vs Q2 FY2023 (in thousands) | Expense Category | Q2 FY2024 | Q2 FY2023 | YoY Change | | :--- | :--- | :--- | :--- | | Research and development | $220,220 | $109,700 | +100.7% | | Sales and marketing | $280,263 | $177,171 | +58.2% | | General and administrative | $173,264 | $77,603 | +123.3% | [Use of Non-GAAP Financial Measures](index=61&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) The company reconciles GAAP to Non-GAAP financial measures, including Non-GAAP net income of **$338.5 million** for Q2 FY2024, to provide a clearer view of core operational performance by excluding specific items Reconciliation of GAAP to Non-GAAP Net Income - Q2 FY2024 (in thousands) | Description | Amount | | :--- | :--- | | **GAAP-based net income, attributable to OpenText** | **$37,675** | | Amortization | $184,709 | | Share-based compensation | $40,175 | | Special charges (recoveries) | $54,166 | | Other (income) expense, net | $68,784 | | Tax adjustments | ($47,054) | | **Non-GAAP-based net income, attributable to OpenText** | **$338,455** | Reconciliation to Adjusted EBITDA - Q2 FY2024 (in thousands) | Description | Amount | | :--- | :--- | | **GAAP-based net income, attributable to OpenText** | **$37,675** | | Add back: Taxes, Interest, D&A, etc. | $528,595 | | **Adjusted EBITDA** | **$566,270** | [Liquidity and Capital Resources](index=70&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) As of December 31, 2023, the company held **$1.0 billion** in cash and **$8.5 billion** in long-term debt, with operating cash flow of **$397.8 million** for the first six months of Fiscal 2024, indicating sufficient liquidity for the next twelve months - Cash and cash equivalents stood at **$1.003 billion** as of December 31, 2023, a decrease of **$228.5 million** from June 30, 2023[364](index=364&type=chunk) - For the six months ended Dec 31, 2023, the company generated **$397.8 million** in cash from operations, used **$96.9 million** in investing, and used **$532.9 million** in financing activities, primarily for debt repayment and dividends[365](index=365&type=chunk) Contractual Obligations Summary (as of Dec 31, 2023, in thousands) | Obligation | Total | Next 6 Months | 2024-2026 | 2026-2028 | Beyond 2028 | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $11,584,399 | $303,321 | $2,042,458 | $2,896,912 | $6,341,708 | | Operating leases | $364,641 | $52,754 | $151,528 | $94,124 | $66,235 | | Purchase obligations | $427,043 | $106,237 | $301,550 | $19,256 | $— | [Quantitative and Qualitative Disclosures About Market Risk](index=82&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rate fluctuations, with a 100 basis point increase potentially raising annual interest payments by **$9.4 million** and **$34.7 million** on specific term loans, and foreign currency exposure on **$390.1 million** in cash - **Interest Rate Risk**: A 100 basis point adverse change in interest rates would increase annual interest payments by approximately **$9.4 million** on the Term Loan B and **$34.7 million** on the Acquisition Term Loan[458](index=458&type=chunk)[459](index=459&type=chunk) - **Foreign Currency Risk**: As of December 31, 2023, the company held **$390.1 million** in cash and cash equivalents denominated in foreign currencies. A uniform **10%** weakening of these currencies against the U.S. dollar would result in a reported decrease of **$39.0 million** in cash[467](index=467&type=chunk) [Controls and Procedures](index=84&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective[468](index=468&type=chunk) - No material changes to the internal control over financial reporting were identified during the fiscal quarter ended December 31, 2023[469](index=469&type=chunk) Part II [Risk Factors](index=85&type=section&id=Item%201A.%20Risk%20Factors) This section introduces new risk factors related to the proposed AMC business divestiture, including transaction completion uncertainty, potential business disruptions, and the risk of not achieving anticipated strategic and financial benefits - The proposed divestiture of the AMC business is subject to closing conditions and regulatory approvals, and there is a risk it may not be consummated on the current timeline or at all[474](index=474&type=chunk) - The divestiture process could disrupt the company's remaining business, divert management attention, and negatively impact relationships with customers and employees[477](index=477&type=chunk) - The company may not realize the anticipated benefits of the divestiture, such as enhanced focus on Cloud and AI or the full value from repaying debt with the proceeds[478](index=478&type=chunk) [Other Information](index=86&type=section&id=Item%205.%20Other%20Information) This section confirms that no officers or directors adopted or terminated any Rule 10b5-1 trading plans or non-10b5-1 trading arrangements during the three months ended December 31, 2023 - During the quarter, no officers or directors adopted or terminated any Rule 10b5-1 trading plans[480](index=480&type=chunk) [Exhibits](index=87&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q report, including the AMC business divestiture purchase agreement, a credit agreement amendment, and CEO/CFO certifications - Exhibits filed with the report include the Purchase Agreement for the AMC business divestiture and certifications from the CEO and CFO[482](index=482&type=chunk)

Key Points Company and Industry * **Company**: Open Text Corporation (NASDAQ:OTEX) * **Industry**: Information Management, Content Management, Cybersecurity, IT Operations, Application Development Core Views and Arguments * **Mission**: To power and protect information, ensuring data accessibility, security, and compliance across various systems and regulatory requirements. * **Market Leadership**: OpenText is the market leader in enterprise content management, with IBM's FileNet as the primary competitor. Box is considered a smaller competitor in the content management space. * **Business Segments**: The company operates across six distinct businesses, including content management, business network, cybersecurity, IT operations, and application development. * **Digital Transformation**: OpenText's solutions support digital transformation initiatives, ensuring data accessibility throughout the transformation process. Acquisition of Micro Focus * **Acquisition**: OpenText acquired Micro Focus in January 2023, a move aimed at expanding its market reach and addressing various buying groups within enterprises. * **Benefits**: The acquisition filled gaps in OpenText's offerings, providing solutions for CTOs, application developers, and cybersecurity officers. It also enabled the company to cloudify its products and address faster-growing deployment options. * **Integration**: OpenText expects Micro Focus to achieve organic growth in fiscal 2024, returning to organic growth in fiscal 2025. The company aims to reduce net leverage to less than 3 times by the end of fiscal 2025 or sooner. * **Renewal Rates**: OpenText has improved Micro Focus' renewal rates from the low 80s to the upper 80s, with a target of reaching the mid-90s by fiscal 2025. This improvement is expected to add over $200 million in incremental revenue to the top line. Financial Outlook * **Fiscal 2024**: OpenText expects to achieve a stronger second half of fiscal 2024 compared to the first half, driven by the integration of Micro Focus and the growth of cloud-based products. * **Free Cash Flow**: The company expects free cash flow to ramp up to over $1.5 billion by fiscal 2026, with an uplift of over $5 per share at that point in time. * **Macroeconomic Factors**: OpenText has historically been resilient to macroeconomic factors, with long sales cycles and cloudification benefits. The only notable headwind mentioned is the small and medium business component, which is less than 10% of revenue. AI and Product Roadmap * **AI Integration**: OpenText has integrated AI and machine learning into its product offerings, leveraging its existing content management solutions. * **Generative AI**: The company has introduced new products, including Vertica and IDOL, to support generative AI initiatives. * **Product Roadmap**: OpenText plans to continue expanding its AI product suite, with a focus on content management, vectorization, and large language models. Capital Allocation * **Debt Reduction**: OpenText aims to reduce leverage to less than 3 times by the end of fiscal 2025 or sooner, with a minimum quarterly principal payment of $175 million. * **Capital Allocation**: The company's capital allocation priorities include paying down leverage, maintaining a 20% free cash flow dividend, and potentially reinstating share buybacks as leverage approaches the target level. * **Organic Growth**: OpenText has shifted its focus from M&A to organic growth, targeting a 2% to 4% increase in total organic growth and a 7% to 9% increase in cloud organic growth by fiscal 2026.

Financial Data and Key Metrics Changes - The company reported record Q1 revenues of $1.43 billion, representing a year-over-year growth of 67.3% and 65.4% in constant currency [78][88] - Adjusted EBITDA was $495 million, an increase of 62.8% year-over-year, with an adjusted EBITDA margin of 34.7% [109] - Free cash flows for the quarter were $10 million, with expectations to grow year-over-year in each subsequent quarter, targeting $800 million to $900 million for fiscal '24 [7][89] Business Line Data and Key Metrics Changes - Micro Focus contributed $563 million in revenue for the quarter, with expectations to return to organic growth this fiscal year [21][58] - Enterprise cloud bookings were $121 million, up 8% year-over-year, with cloud revenue reaching $451 million, an increase of 11.5% [108] - The company expects to achieve adjusted EBITDA margins of 36% to 38% for Micro Focus by the end of the fiscal year [6][134] Market Data and Key Metrics Changes - The SMB market has been significantly impacted by the current macro environment, with a projected revenue headwind of $10 million to $15 million in Q2 [8][40] - Despite challenges in the SMB sector, the enterprise cloud business remains strong and is expected to grow organically in Q2 and the rest of the fiscal year [8][68] Company Strategy and Development Direction - The company is shifting from growth primarily driven by M&A to growth driven by product innovation and go-to-market execution, focusing on SaaS and AI as key areas for unlocking new value [98][130] - The strategic goal includes expanding competitive differentiation in information management and increasing customer consumption across various business clouds [79][99] - The company aims to achieve fiscal '26 aspirations of 40% higher revenues, 67% higher adjusted EBITDA, and 129% higher free cash flow compared to fiscal '23 [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving fiscal '24 targets, including total revenues of $5.85 billion to $5.95 billion and organic growth of 15% plus in enterprise cloud bookings [97][133] - The management highlighted the importance of customer trust and confidence, evidenced by strong renewal rates in the mid-90s [78][85] - The company is well-positioned to benefit from a rebound in the SMB market as PC shipments increase [41] Other Important Information - The company has completed approximately $560 million of debt repayment since the acquisition of Micro Focus, with a net leverage ratio of 3.6x for the quarter [89][90] - A quarterly cash dividend of $0.25 per common share was approved, with the next payment date set for December 20, 2023 [131] Q&A Session Summary Question: What has been the biggest driver to increasing Micro Focus's renewal rate? - The integration of Micro Focus into OpenText practices for renewals and the alignment of sales and renewal teams have been significant factors in improving renewal rates [112][137] Question: What is the current status of integrating the Micro Focus and OpenText channels? - The integration is progressing well, with a focus on aligning sales forces and defining market segmentation to enhance go-to-market strategies [119] Question: How does customer interest in AI products compare to previous product releases? - There is heightened customer interest in AI, with proactive engagement and a strong sales pipeline for new AI products, contributing to expected bookings growth [30][44]

Financial Performance & Targets - Q1 F'24 total revenue reached $1.43 billion, a 67% year-over-year increase[65] - Q1 F'24 cloud revenue was $451 million, up 59% year-over-year[65] - Annual Recurring Revenue (ARR) accounted for 81% of total revenues in Q1 F'24[65] - The company targets $5.85 billion to $5.95 billion in total revenues for F'24[8] - The company aspires to $6.2 billion to $6.4 billion in total revenues for F'26[8] - The company targets an A-EBITDA margin of 36% to 38% for F'24[8] - The company aspires to an A-EBITDA margin of 38% to 40% for F'26[8] - The company targets free cash flows of $0.8 billion to $0.9 billion for F'24[8] - The company aspires to free cash flows of $1.5 billion+ for F'26[8] Growth & Strategy - The company is shifting from M&A-driven growth to product innovation and go-to-market execution[36] - The company aims for 7% to 9% cloud organic revenue growth in F'26[38] - The company aims for 2% to 4% ARR organic growth in F'26[38]

Financial Performance - Total revenue for Q1 Fiscal 2024 was $1.4 billion, up 67.3% year-over-year, with a 65.4% increase after adjusting for foreign exchange impacts[210]. - Annual recurring revenue reached $1.1 billion, reflecting a 59.1% increase compared to the same period last year, or 57.5% after foreign exchange adjustments[210]. - Cloud services and subscriptions revenue was $451.0 million, an 11.5% increase year-over-year, or 10.9% after factoring in foreign exchange[210]. - GAAP gross margin improved to 71.4% from 69.7% in the prior year, while non-GAAP gross margin increased to 77.3% from 75.2%[210]. - GAAP net income attributable to OpenText was $80.9 million, a significant recovery from a net loss of $(116.9) million in the same period last year[210]. - Non-GAAP net income attributable to OpenText was $274.3 million, up from $206.8 million year-over-year[210]. - GAAP earnings per share (EPS) was $0.30, compared to a loss of $(0.43) in the same period last year[210]. - Non-GAAP EPS increased to $1.01 from $0.77 year-over-year[210]. - Adjusted EBITDA for the quarter was $494.8 million, compared to $304.0 million in the same period last year[210]. Revenue Contributions - The acquisition of Micro Focus on January 31, 2023, was completed for a total purchase price of $6.2 billion, significantly contributing to revenue growth[214]. - Total revenues for the three months ended September 30, 2023, increased by $573.4 million to $1.425 billion, primarily due to the Micro Focus acquisition, which contributed $562.9 million[225]. - Cloud services and subscriptions revenues reached $451.0 million, an increase of $46.4 million compared to the previous year, while customer support revenues rose to $697.7 million, up by $380.4 million[228]. - Customer support revenues surged by $380.4 million or 119.9% year-over-year, totaling $697.7 million, primarily driven by the Micro Focus Acquisition[239]. - License revenues rose by $110.5 million or 176.6% year-over-year, amounting to $173.0 million, also significantly influenced by the Micro Focus Acquisition[243]. - Professional service and other revenues increased by $36.2 million or 53.6% year-over-year, totaling $103.7 million, driven by the Micro Focus Acquisition[249]. Cost and Expenses - Operating cash flow decreased to $47.1 million, down 64.3% from $132.0 million in the prior year[210]. - The company invested $234.4 million in R&D, representing 16.4% of total revenue, aligning with its target for the fiscal year[217]. - Sales and marketing expenses rose by $104.6 million to $271.8 million, accounting for 19.1% of total revenues, a slight decrease from 20% in the previous year[256][257]. - General and administrative expenses increased by $53.1 million to $131.2 million, maintaining a stable percentage of 9% of total revenues[258][259]. - Total operating expenses reached $805.5 million, an increase of $358.2 million compared to the prior year[252]. Tax and Income - The effective tax rate for the three months ended September 30, 2023, was 11.3%, compared to (40.4)% in the same period of 2022[273]. - The company reported a provision for income taxes of $10,352,000 under GAAP, while the Non-GAAP-based provision was $44,665,000[290]. Cash Flow and Liquidity - Cash provided by operating activities decreased by $84.8 million to $47.1 million for the three months ended September 30, 2023, compared to $131.9 million in the same period of the prior year[304]. - As of September 30, 2023, cash and cash equivalents were $919.9 million, a decrease of $311.8 million from $1.2 billion as of June 30, 2023[303]. - Days sales outstanding (DSO) increased to 43 days in the first quarter of Fiscal 2024, compared to 40 days in the first quarter of Fiscal 2023, impacting cash flows by $15.8 million per day[309]. Debt and Financing - The Company issued $900 million in aggregate principal amount of 4.125% Senior Notes due 2030, with interest payable semi-annually[323]. - The Company issued $850 million in aggregate principal amount of 3.875% Senior Notes due 2029, with interest payable semi-annually[329]. - The Company issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028, with interest payable semi-annually[335]. - The company amended its revolving credit facility to increase total commitments from $450 million to $750 million, maturing on October 31, 2024[354]. - As of September 30, 2023, the company had long-term debt obligations totaling $11,967.3 million, with payments due of $478.1 million between October 1, 2023 and June 30, 2024[376]. Legal and Regulatory Matters - The company is contesting the CRA's reassessments and believes they are without merit, having filed a notice of appeal with the Tax Court of Canada[386]. - Realtime Data LLC filed a lawsuit against Carbonite alleging patent infringement related to cloud storage services[392]. - On August 2, 2023, the U.S. Court of Appeals for the Federal Circuit affirmed the invalidity of the patents asserted against Carbonite[392].

Open Text Corporation (NASDAQ:OTEX) Q4 2023 Earnings Conference Call August 3, 2023 5:00 PM ET Company Participants Harry Blount - Senior Vice President-Investor Relations Mark J. Barrenechea - Chief Executive Officer and Chief Technology Officer Madhu Ranganathan - Executive Vice President and Chief Financial Officer Conference Call Participants Richard Tse - National Bank Financial George Kurosawa - Citi Kevin Krishnaratne - Scotiabank Paul Treiber - RBC Capital Markets Stephanie Price - CIBC Thanos Mosch ...

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Financial Performance - For the fiscal year ended June 30, 2023, total revenues were comprised of 45% from Content Cloud, 20% from Cybersecurity Cloud, 15% from Business Network Cloud, 10% from Application Automation Cloud, 5% from IT Operations Management Cloud, and 5% from Analytics & AI Cloud[34]. - The length of the sales cycle can fluctuate significantly, potentially leading to revenue recognition variability from quarter to quarter[19]. - OpenText's existing customer base includes Global 10,000 companies, small and medium-sized businesses (SMBs), and consumers, highlighting its broad market reach[30]. - OpenText expects cloud services and subscriptions to be the largest driver of growth, supported by a global, scalable, and secure infrastructure[73]. - The Total Growth strategy aims to increase recurring revenues and expand profitability, ultimately driving cash flow growth and shareholder value[64]. Acquisitions and Investments - The acquisition of Micro Focus International Limited was completed on January 31, 2023, which is expected to enhance product offerings and accelerate digital transformation for customers[30]. - OpenText has efficiently deployed $13.4 billion on acquisitions over the last 10 fiscal years, viewing mergers and acquisitions as a leading growth driver[68]. - The company acquired Micro Focus for $6.2 billion on January 31, 2023, as part of its strategy to enhance digital transformation capabilities[99]. - The acquisition of Zix for $894.5 million in December 2021 expanded the company's offerings in SaaS-based email encryption and compliance solutions[99]. - The company continues to evaluate acquisition opportunities to increase the size and scope of its business, particularly following the Micro Focus Acquisition[170]. Research and Development - OpenText's investment in research and development (R&D) focuses on cloud and AI capabilities, aiming to improve product innovation and customer value[33]. - OpenText has invested a cumulative total of $1.5 billion in R&D over the last three fiscal years, representing 13.6% of cumulative revenue for that period, with an annual target of 14% to 16% of revenues on R&D expenses[66]. - Research and development expenses for Fiscal 2023 were $680.6 million, up from $440.4 million in Fiscal 2022, indicating a significant investment in innovation[92]. - OpenText's R&D investment strategy includes internal development, third-party licensing agreements, and potential technology acquisitions[91]. Cybersecurity and Compliance - OpenText's cybersecurity solutions are integrated across various layers, offering comprehensive protection and threat intelligence[29]. - OpenText's solutions are designed to help organizations manage compliance with growing privacy and regulatory requirements, enhancing security and efficiency[25]. - OpenText's Cybersecurity solutions provide AI-led threat intelligence to protect critical information and processes across various IT environments[41]. - The company faces risks associated with evolving data privacy laws and regulations, which may adversely impact business operations and increase compliance costs[204]. Market and Competitive Landscape - The Information Management market is expected to continue growing, with cloud services identified as the leading growth driver for the company[107]. - The competitive landscape is intensifying, with new entrants and existing competitors potentially impacting the company's market share and pricing strategies[156]. - Increased competition and regulatory changes in internet-based commerce may adversely affect the company's business and financial condition[147]. Employee and Operational Insights - As of June 30, 2023, the company employed approximately 24,100 individuals, with 9,700 of them joining through the Micro Focus Acquisition[111]. - The employee distribution is as follows: 38% in the Americas, 24% in EMEA, and 38% in Asia Pacific[111]. - The company aims for net-zero greenhouse gas emissions by 2040 and zero waste from operations by 2030[117]. - The company is facing increased competition for attracting and retaining top employees, which may lead to higher compensation costs[171]. Risks and Challenges - The company faces risks related to geopolitical instability, including the ongoing Russia-Ukraine conflict, which may impact business operations[24]. - Business disruptions from disasters or pandemics could adversely affect operations, highlighting the need for robust disaster recovery plans[148]. - Cybersecurity threats, including data breaches and unauthorized access, pose significant risks to the company's operations and customer trust[149]. - The company may experience disruptions to its business during the integration of acquisitions, which could adversely affect its financial condition[179]. Environmental, Social, and Governance (ESG) - The company is committed to maintaining its dividend while pursuing deleveraging goals following the Micro Focus acquisition[108]. - The company has established a global Equity, Diversity and Inclusion steering committee to guide related programs[123]. - The charitable giving program supports local and global activities, with employees receiving three paid days off to volunteer[118]. - The company is subject to evolving ESG-related regulations, which may result in additional compliance costs and impact its financial performance[174].