OpenText(OTEX)2024-05-02 23:47Financial Data and Key Metrics - Total revenues for Q3 were 165 million, up 53% year-over-year [18] - Free cash flow in Q3 was 98.3 million, with GAAP EPS of 463.7 million, up 27% year-over-year [26] - Adjusted EBITDA margin was 32% [26] - Annual recurring revenue (ARR) was 1.125 billion [27] Business Line Data and Key Metrics - Cloud revenue in Q3 was 1 million+ cloud deals year-over-year, from 13 to 28 [18] - Average cloud deal size increased by 30% [18] - The company is targeting 20%+ enterprise cloud bookings growth in fiscal 2025 and beyond [11] Market Data and Key Metrics - The company is focused on winning workloads in knowledge workers, business networks, customer experience, and digital operations [12] - OpenText is aligned with Gartner and customer spending priorities in cybersecurity, information security, data, cloud platforms, and AI [12] - The company is seeing longer-term customer commitments, with contracts now including ramps to full value over four-plus years [20] Company Strategy and Industry Competition - The company’s strategy focuses on four key areas: leading the OpenText business system, accelerating cloud growth, generating powerful free cash flow, and disciplined capital allocation [11][14][16] - OpenText is investing 900 million annually in R&D, representing 16% of fiscal 2024 revenue [11] - The company is targeting 20%+ free cash flow as a percentage of revenue by fiscal 2027 [14] - OpenText is re-entering the M&A market, focusing on small to medium-sized cloud companies that can leverage its operational scale [16][17] - The company is leveraging partnerships with SAP, Google, and Microsoft to accelerate customer value in AI and cloud [13] Management Commentary on Operating Environment and Future Outlook - Management is confident in the company’s ability to grow in the cloud and produce higher profits from higher revenues [21] - The company expects mid-single-digit total revenue growth long-term, driven by cloud-led organic growth and M&A [10] - OpenText is targeting 1.2 billion to 100 million [30] - OpenText plans to repay 250 million share buyback program and plans to return 500 million to shareholders in fiscal 2025 [10][16] Q&A Session Summary Question: Why are the mid-term aspirations pushed out to fiscal 2027 instead of fiscal 2026? - The pushout is due to the divestiture of $528 million in revenue from the AMC business and the trend of customers signing larger, longer-term cloud contracts with ramps to full value [40] Question: What is driving the flattish EBITDA margin trajectory for fiscal 2025? - The flattish margin is due to increased investments in AI and cloud growth programs, as well as trailing expenses from the Micro Focus acquisition [45] Question: What is the outlook for SMB market strength in fiscal 2025? - The company expects an uptick in SMB market strength in fiscal 2025, driven by Microsoft’s push in the market and upgrades to OpenText’s partner platform [65] Question: How is AI adoption progressing among customers? - AI is a key focus in customer discussions, with some customers piloting AI solutions and others consolidating systems in preparation for AI adoption [51] Question: What is the M&A strategy for cloud-focused acquisitions? - The company is targeting small to medium-sized cloud businesses that can leverage OpenText’s operational scale and distribution network [55] Question: What are the key drivers for improving free cash flow conversion? - Key drivers include cloud revenue growth at scale, adjusted EBITDA margin expansion, interest savings from deleveraging, and efficiencies through automation and AI [58] Question: How is the Micro Focus integration progressing? - Micro Focus is on track to return to organic growth by the end of fiscal 2024, with strong renewal rates and focus on ITOM, developer, and security businesses [86]