Welcome to the Open Text Corporation Fourth Quarter and Fiscal 2021 Earnings 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 to ask questions. [Operator Instructions] I would like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. On the call today is OpenText Chief Executive Officer and Chief Technology Officer, Mark J. Barrenechea; and our Executive Vice President and Chief Financial Officer, Madhu Ranganathan. We have some prepared remarks which will be followed by a question-and-answer session. This call will last approximately 60 minutes, with a replay available shortly thereafter. I would like to take a moment and direct investors to the Investor Relations section of our website, investors.opentext.com, where we have posted our consolidated investor presentation that will supplement our prepared remarks today. The presentation includes information and financials specific to our quarterly results, notably our updated quarterly factors on page 9 as well as a strategic overview. I am pleased to announce that OpenText management will be participating at the following upcoming conferences: the Oppenheimer Technology Internet & Communications Conference on August 10; the BMO Technology Summit on August 25; the Deutsche Bank Technology Conference on September 10; the Citibank Global Technology Conference on September 14; and the Jefferies Software Conference on September 15. We look forward to virtually meeting with investors in the coming weeks. I will now proceed with the reading of our Safe Harbor statement. Please note that during the course of this conference call, we may make statements relating to the future performance of OpenText that contain forward-looking information. While these forward-looking statements represent our current judgment, actual results could differ materially from a conclusion, forecast or projection in the forward-looking statements made today. Certain material factors and assumptions were applied in drawing any such statement. Additional information about the material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information as well as risk factors including in relation to the current global pandemic that may project future performance results of OpenText are contained in OpenText’s recent 10-Q and 10-K, as well as in our press release that was distributed earlier this afternoon, which may be found on our website. We undertake no obligations 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. And reconciliations of any non-GAAP financial measures to this most directly comparable GAAP measures may be found within our public filings and other materials which are available on our website. And with that, I’m pleased to hand the call over to Mark.

Thank you, Harry. Good afternoon to everyone and thank you for joining today's call. I'm thrilled with our progress. We're on the offensive and let me walk you through it. Throughout fiscal 2021, I've spoken about the economy reopening, a growing number of green shoots in our business and OpenText being on the offensive. Our amazing fiscal 2021 Q4 and annual results are another proof point of the OpenText of the future. We doubled the company over the last seven years to revenues of $3.39 billion and adjusted EBITDA dollars of $1.3 billion. We can double OpenText again over the next five to seven years. We have the vision, the market, the products, the talent, the business model, and the capital generation engine to double again. I am so proud of my OpenText colleagues for their incredible dedication, smart and hard work. I said we are ready for all scenarios a few calls ago, and these were not just words. It was action. And that is evidenced in our announced results of today. We have returned to organic growth and organic growth is here to stay. The company is focused on accelerating our rate of organic growth. And you'll see that in our ambitions 2024 with our aspiration to achieve up to 4% total organic revenue growth. That 4% organic growth rate is without acquisitions. We also intend to continue to acquire smartly and strategically as a driver of future organic growth to achieve greater long-term competitive gains and even higher cash returns. Our balance sheet is solid and strengthens with every quarter. We ended the year at 1.45 times leverage. Our margin profile is upper quartile. We ended the year at 38.8% adjusted EBITDA. And we are ready for the next transformative acquisition. OpenText just turned 30. And we…

Great. Thank you, Mark. And thank you, all, for joining us today. Our record Q4 and fiscal 2021 results have set a solid foundation for continued momentum into fiscal 2022. As you just heard in Mark's excellent commentary. I will speak to Q4, to fiscal 2021, our quarterly factors, our fiscal 2022 total growth strategy, our fiscal 2022 annual target model ranges, and our long-term aspiration; all as outlined in our Q4 investor presentation that is posted on our IR website today. All references will be made in millions of USD and compared to the same period in the prior fiscal year, and let me start with revenues. Q4 total revenues for the quarter were $893.5 million, up 8.1% or up 4% on a constant currency basis. For fiscal 2021, total revenues were $3.386 billion, up 8.9% or up 6.3% on a constant currency basis. There was a favorable FX impact to revenue of $34.1 million in Q4 and $81.3 million in fiscal 2021. The geographical split of total revenues in the year was Americas 61%, EMEA 31%, and Asia Pacific 8%. Q4 annual recurring revenues were $694.4 million, up 5.6% or up 2.2% on a constant currency basis. And fiscal 2021 annual recurring revenues were $2.741 billion, up 12.7% or up 10.4% on a constant currency basis. As a percent of total revenues, ARR was 78% for the quarter and 81% for fiscal 2021, up from 78% in fiscal 2020. Q4 cloud revenues were $360.2 million, up 8.3% or up 6% on a constant currency basis. For fiscal 2021, cloud revenues were $1.407 billion, up 21.6% or up 20% on a constant currency basis. Our cloud renewal rate, excluding Carbonite, was approximately 93%. Q4 customer support revenues were $334.3 million, up 2.9% or down 1.8% on a constant currency…

[Operator Instructions] The first question comes from Thanos Moschopoulos from BMO Capital Markets. Please go ahead.

Just looking at the strength in licenses, kind of surprised to see that. Could you clarify was that driven by customers playing on premise or is that more a function of people deploying on third-party cloud infrastructure, in which case you might be looking into the license line?

Yes, Thanos. Thank you for the question. Let me start at the high level which is the direction of our business remains the same. We have a great slide in our investor deck that talks about our proven business. It's called a proven durable business model that shows over the last eight, nine years of our recurring revenue going from 54% up to 81%; our license business going from 24% to roughly 11% of our business on an annual basis. So the trend remains more cloud. We had some strong platform wins in the quarter that were, oh, could be as long as a decade-long platform win. And so that drove a bit more license revenue in the quarter. So again, the trend is more cloud on an annual basis. We're hoping to keep license relatively constant in terms of its absolute quantum. There's no change in our in our strategy at all. And those licenses can be deployed off cloud or in our cloud, if you will. So we will certainly see some additional services that follow from those licenses as we deploy them.

Okay. And then on the…

As deploy them as - as we deploy them on behalf of our customers, right.

Yes.

Yes.

Okay. On the gross margin side, you're guidance some gross margins to be relatively consistent year-over-year. I would have thought we may have seen a bit of gross margin expansion. So just to clarify, is that just any conservatism on your part? Is it maybe some pandemic-related costs that are coming back or is it reinvestments expecting pandemic?

Thanos, this is Madhu. I can take the question. Actually if you look at our target model, we're going from 75% to 77% at the outset. It's the first time we put a 77% on the outer end of the boundaries, so I would say that. And you are going to see improvements in gross margins both on the cloud side as well as the customer support side, not just standing to your point the investment that we talked about in the commentaries that we will be making. But definitely take note of the 77% of the outer of the gross margin target model.

Okay. And then finally, Mark, in terms of the timing for I guess, provides capital allocation strategy and share buybacks. Maybe just to clarify if that’s a function of a higher recurring revenue mix in the past, maybe stronger cash flow profile, is that what's driving the timing of this or we'll just look at that? Thanks.

Yes. I think it's a combination of things that just brings us to the confidence in our increased cash flow generation. We spent the last five years building up revenue scale in a very efficient company. And from a dollar revenue to free cash flow, that conversion rate is upper quartile in the industry. And we extrapolate that out five years in a pretty straight line method from where we are. We see the ability to generate upwards to $6 billion in free cash flow over the next five years based on all the hard work that's going on over the last few years. So with that, we decided to expand our return strategy from 20% per year to 33% per year. We'll maintain the optionality that when the - in the 70 - in the 66% gives us all the strategic flexibility we need. But if we need more than that, we reserve the right for that transformative deal. We like also holding our share count constant so we can better measure returns on a constant share basis. So for all those reasons of improved cash flow, stronger engine, our confidence looking out of $6 billion of a capital build, the strong present value in the - in those $6 billion as well, we increased our return strategy from 20% to 33%.

The next question comes from Stephanie Price of CIBC. Please go ahead.

Thanks. Maybe just to follow on to Thanos’s question. Just in terms of the M&A environment and whether we should read anything in terms of the increase in return capital to shareholders in the near-term M&A environment here.

Yes. Thanks, Stephanie. No. I think we can do two things at the same time, right? We - there is nothing to read into the M&A. I - we - we’re increasing our capital return strategy as I said. It’s really built on the foundation and confidence of the strength of that capital generation engine, $6 billion over - upwards of $6 billion over five years. And so here, here in the short term going from 20% to 33% provides more value back to shareholders. We're going to remain an acquirer, a strategic acquirer that drives future organic growth. And we'll maintain all the optionality that when that M&A opportunity presents itself above the 66% that we have, that we will dial that other 13 points right back to M&A. So, nothing to read into it. We're not changing our strategy. We're going to continue to acquire, we're looking for businesses that drive future organic growth. But we're always going to be returning value to you to our shareholders. And this is another tool available to us right now.

Okay thanks, that's helpful. And then in terms of constant currency cloud growth, it looks like it rose slightly in the quarter. Can you talk a bit about what you're seeing in that business and what the big driver of the increase was whether it was new sales or cloud migration.

Yes, it's - we're on the, we're on the other side of the - we're on the other side of the pandemic at this point. And I would note that over the last 90 days and it takes a while to there isn't necessarily a direct correlation to revenue but over time it does translate into revenue or cloud. Volumes are up 20 to 30 percent 25% to 30% over the last 90 days. And that increased network traffic it’s really driven by what we've talked in the past about more regionalization. and a move to more trusted suppliers. So there's a lot of activity right now going on within the business network. So where we had those industries affected that way - a year ago we talked about industries affected, we're on the other side of that. We've seen volumes return. It will turn - it will turn into revenue going forward. The revenue growth is around key wins, as we talked about, volumes returning and also off cloud customers moving into the cloud. So it's a combination of those of those things, Stephanie.

The next question comes from Paul Steep from Scotia Capital. Please go ahead.

Mark, could you talk a little bit about where you've seen in the cloud transition maybe the greatest engagement and thinking about the next product cycle, which of the five CE products we'd expect to maybe be the leading drivers of growth coming into 2022? And I have two quick follow-ups.

Yes. Sounds great. We - I'm going to highlight three things. The first will be Cloud Editions 21.4 which will push out and across our infrastructure October, November. And we're on target. We’re delivering 21.4 Cloud Editions and we will be at parity for all feature functions of content services in the cloud as we were off cloud. So 21.4 is a very important release. I've talked about customers will never have to upgrade again once we push 24 - 21.4 out into the market and we're on track to do that. So that's a very important milestone for us. When we look at a business like Box we're going to be at complete parity for records management, archive, capture, workflow our application layer, a regulatory platform that will be available in SaaS, public cloud, 21.4 so that's a big release. Second is 22.2 which is April of next year still in this fiscal year which will have the same experience for our experience cloud. So everything we do for our digital experience platform will be on parity in the cloud, public cloud SaaS as we have off cloud. And the third is I'm getting pretty - we're making good progress on our developer cloud. If you go to developer, you may not go there but developer.opentext - developer.opentext.com we now have our 30 robust API’s available and this is a future growth driver for us. And I think these are the three Paul that I would pay attention to is this movement - within this fiscal year we will have delivered public cloud SaaS versions at parity to all off cloud and we will have opened up a new go-to-market via API services of what companies like Twilio do in the marketplace.

Great. The last two here. The first one would be on the capital allocation strategy. Can you just either reiterate or sort of put in context? Has there been any change to your level of comfort in terms of overall leverage relating to M&A i.e., should we read into this that given greater capital returns to people, you're willing to actually maybe stretch a little bit more on the balance sheet side? And then the second one just for Madhu, can you just confirm that the normal Q4 to Q1 seasonality which obviously got interrupted for all of us last year, should we be thinking that that normal seasonality pre-COVID applies? Thanks, guys.

Yes. I'll take the first one and then give the second one to Madhu. So Paul, I still like our up to 3 times. And but as our quantum of adjusted EBITDA grows, so does the leverage dollars. So we have 2.4% on the balance sheet today heading up to 3 times of 1.3, that's another $4 billion. And in an increasing rate, you could even add more. So we have plenty of capital by both cash and committed on the balance sheet. Plenty in the future flows both in that five-year, $6 billion of free cash flow or 3 times adjusted EBITDA. We’re not - we are not capital constrained to double the company again over the next five to seven years. Not capital constrained at all. If we needed go above 3x, sure we’d do it. And we have a track record to bring it down. Here we are sitting at 1.4 times, but I still like the 3 times of ratio. Madhu?

Thank you, Mark. So Paul, on your question, the pre-COVID seasonality Q4 to Q1, I would say still remains when you think about all this and everyone wants to take more vacations this summer than they did last summer. And there's still some uncertainty out there so that has been factored into two factors. I would also point out, but not quite seasonality, our expense structure is different for all the reasons I outlined. We just had some COVID-related savings in Q1 of last year that we propped back on [indiscernible] employees other investments, and we see that in the start. But for all of this, I would focus on organic growth. What we've shared for a few factors of Q1, the range of revenue increases, ARR increases are all organic growth on a year-over-year basis, and we're quite excited about it.

The next question is Richard Tse from National Bank Financial. Please go ahead.

Yes. Thank you. So on the acquisitions, you guys have opened up a bunch of product lanes over the past 10 years, Business Network with GXS and then security with Carbonite. So as we look forward, are you planning on going deeper into some of these product lanes, or is there sort of an option here to sort of open up a new lane?

Richard, thanks for the question. I'm happy with the markets we're in. So I look at information management, $84 billion, 8% CAGR. I don't need to - we don't need to expand the market definition of information management right now. Over time, we have. But we have plenty of open space within our chessboards, within each of these market segments. So we're staying very focused on the current definition of information management.

Okay. And then on page, I think - is it - I think it’s page 8 on your deck.

Yes.

You shared some of the wins that you've had. I'm just trying to get a grasp on the competitive landscape. And maybe if I look at this slide - the question is, are these new projects that you're taking on are these new projects that you're taking on or they’re replacing incumbents in terms of pushing out another player here?

Yes, I'd say I mean everything is competitive of course VMware is a new platform. I look at EDF. This is a fantastic win for us. It's a decade long decision and it's a, it's a great expansion of our current platform. And I look at Revlon competitive with IBM, California State Hospitals competitive with Adobe. Cerner expansion of our current platform. So, it's a mixture of some open space, some competitive wins and expansion of our, of our of our capabilities.

Okay. And just the last one, we're already in the tight labor markets here in tech particularly. How are you seeing that in terms of your turnover and then perhaps the impact on your financials here going forward? Thanks.

Yes, thanks, Richard. It's a great topic. And it is a, it's an unusual time in a time where you need to lean in as a as a CEO and a leadership team. And we consider ourselves a very purpose driven organization, a very intentional one, one with high customer centricity. Pre pandemic we were far below the industry average in turnover. And there are just articles in the Globe and Mail in National Post this week about half of employees don't want to return to work and financial institution as other industries just go on overdrive hiring tech people and that hiring looks toward successful companies to do recruiting. So, we’re doing better than the industry average on retention. We got a great mission and purpose-driven culture. You heard me do speak about, we've done a special bonus to our employees for their incredible results. We've accelerated a merit round. We have high flexibility in our work culture and work location. And we hold ourselves together via our mission and purpose of helping others excel. So we're doing - we’ll be in the industry average and we're going to keep investing in our people and in our product.

[Operator Instructions] The next question comes from Paul Treiber of RBC Capital Markets. Please go ahead.

Wanted to help understand your assumptions for the year and also maybe to put Q4 into a better perspective. So, the quarter saw a higher growth both for organic revenue and cloud, organic cloud revenue, what’s in your outlook. How do we sort of think about Q4 relative to the outlook for fiscal 2022?

Yes, I'll take I'll take that Paul and Madhu may want to jump in as well. We're very focused on increasing our rate of organic growth. And I look at our fiscal 2024 aspirations and I think that is an important milestone for us where we want to see total revenue growth, total revenue growth of 2% to 4%, and cloud would be much stronger underneath that. And so, our investments are here to gradually accelerate that rate of organic growth. And thus that led us to our fiscal 2022 outlook of 3% to 4% organic cloud growth and 1% to 2% of total revenue organic cloud growth. So, we liked those estimates right now while investing and gradually accelerating the rate of organic growth. And I'll say it's still a pandemic and there's still volatility out there. And I think you just got to be mindful of that. We're kicking off our fiscal year. Others kicked off their fiscal year in January, right? So, we're also mindful that it's still a pandemic. So, I like our - the 3% to 4% cloud organic growth for the year and accelerating the 2% to 4% total revenue growth by fiscal 2024. And if the economy does a little better we'll do better as well. A couple financial questions for, Madhu, first is on travel and entertainment. For the last year, what's been the uplift from the lack of travel and entertainment on EBITDA margins? And then with a reopening over the next year or so, what's our expectations for or how much travel entertainment are you building back into the coming year?

Yes. Thank you for the question. So, on travel and entertainment, the direct correlation to EBITDA just think about it in a way, it is an important number but we intend to see - intend a significant, I would say, people payroll are sort of more than two thirds of that expense. Okay? So, think about it that way and what I would say. Well, I think we sell a lot of impact as marketing events, sales events there. All of it was done virtually. And we saw productivity increase and performance increase in those stats. As we look into fiscal 2022, it is volatile with the Delta variants and everything else. But we have built in back to being together. If a customer wants us to be there, our sales team will be there and same thing with actually professional services. So we have increased the amount of being in person dollars. At the same time we're balancing with the productivity we saw we have during COVID. So expect more digital but do expect some in-person. But all of that has been baked into our target model numbers.

And for this past year though, the impact of the lack of travel is it immaterial or is there any number to call out?

And maybe I would say, the savings - the COVID related savings, we didn't bank it all. We actually deducted - reallocated them to what we've been referring to as digital automation initiatives to allow better and better working to the remote environment. So the savings, we used them again for all other reasons.

Okay. That's helpful. And then just one last one, just on the tax rate. Just to clarify.

Yes.

So you’re talking the low 20% adjusted tax rate but no change in the cash tax rate. Is that right? Is that correct? And then why - what's driving that?

And from a cash tax perspective as I’ve said, we see the numbers in our cash flow statement. And the cash taxes have actually range in $80 million to a $100 million and slightly over a $100 million as you see in our cash flow statement in the last few years. Of course, higher income there will be a higher cash taxes. So, the primary reason for that is our IT position in Canada, we do have a cash tax benefit in Canada. And that continues as we look ahead. And that would be the key drivers plus the several optimization programs that continue to be involved in from a various set of tax initiatives globally but also would help optimize the net cash outflow on taxes.

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

Very good. Thank you and thank you for joining us today. We’re thrilled with our progress and as we look out over the next few years - the next five to seven years, we believe we can double the company again. We doubled over the last seven years. We think we can double over the next five to seven. And we've also pivoted to organic growth and organic growth is here to stay. And we look forward to seeing you at our upcoming conferences at Oppenheimer, BMO, Deutsche, Citi and Jefferies. We have a big engagement plan for the coming weeks ahead and we look forward to you attending our AGM as well. I'll be in person in Waterloo if you're in the neighborhood. Thanks for joining today. And that concludes today's call.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.