Open Text Corp. Q2 FY2025 earnings call

• Focus shifted from margin to growth post-Micro Focus acquisition and AMC divestiture. - Installed base opportunity: 120,000 enterprise customers with potential to upgrade to TitaniumX, with multiyear opportunity. - Content and AI: Large SaaS wins in Q2 at SAP, BASF, etc., driving growth in intelligent content management. - Security business: Mui Mizuh focused on security, new security cloud spanning multiple areas and integrated with Microsoft. - ITOM and ADM: ITOM focused on observability and service management, ADM reoriented to top-of-market strategy with wins at Pfizer and Lilly. - Partnerships: Expanded role of hyperscale partners like Microsoft, GCP, Azure for cloud growth. - RPO and CRPO disclosures: Detailed insights into cloud RPO and CRPO, including current and future recognition percentages.

In Q2, OpenText delivered $501 million of adjusted EBITDA (37.6% adjusted EBITDA margin), $307 million of free cash flow, and $1.33 billion in revenue (down 4.9% excluding AMC). Cloud revenues grew 2.7% with $250 million of new cloud contract value. Total RPO was $4.1 billion, with cloud RPO at $2.3 billion and maintenance/RPO at $1.8 billion. Cloud CRPO (Current RPO) had approximately 50% to be recognized in the next twelve months.

• Revised FY25 revenue range: $5.175 billion to $5.27 billion (down $130 million). - Cloud revenue range unchanged. - Adjusted EBITDA target unchanged. - Free cash flow range raised to $600 million to $650 million. - Expect Q4 to have bright line total revenue growth, positioning for FY26. - Cloud bookings growth range 20% to 25% for second half and beyond.

• Impact of tariffs, currency, and US policy creating business uncertainty. - End of DXC alliance affecting near-term renewals and maintenance revenue, but positioning for 2026 growth. - FX and DXC impacts affecting ADM and ITOM segments. - Technical performance of certain AI models like DeepSeq not outperforming current alternatives in initial testing.

Q: How did different regions perform in Q2?

A: Europe growth is elusive but in good industries; pro-growth US initiatives in SMB and manufacturing are positive, with FX challenges due to US currency focus.

Q: Where does OpenText play in ITOM and observability compared to competitors?

A: Differentiated in observability (discovery, vulnerabilities, IT/service management) and expanding to corporate service management, pre-integrating XDR into content and business network platforms.

Q: Updates on go-to-market changes and progress?

A: Heavy investment in Salesforce capability, improvement in AE productivity, and roadshows in various markets to drive sales excellence.

Q: Challenges in ADM and ITOM and plans to address?

A: $65-70 million challenge in ADM and ITOM related to license and maintenance; ITOM focused on relaunching observability/service management cloud with Titanium X, ADM refocused to top-of-market for large-scale developer organizations.

Q: Thoughts on AI investments and cost reduction?

A: Internal AI initiatives like Athena for developers to explain code, fix bugs, generate code, with productivity uplift expected but no quantum yet; applaud open-source model trends for cost reduction.

Q: Upgrade journey to TitaniumX and migration plans?

A: TitaniumX delivered next quarter, starting with customers on older versions, engaging PS for upgrade programs, with goal to have entire install base move over time.

Q: Cloud business guidance and drivers?

A: Cloud revenue range unchanged, driven by large SaaS wins, strong pipeline, partnerships, and delivery of TitaniumX.

Q: Government exposure and US opportunities?

A: Public sector ~15% of revenues globally, excited about US mid-market and manufacturing investments, with presence in US government efficiency programs.

Q: Aviators performance and RPO disclosure feedback?

A: Aviators part of win strategy with SaaS wins, feedback on net expansion rate considered for future disclosures