Thanos Moschopoulos

Thanos Moschopoulos sought clarification on whether cloud migrations from the installed base are primarily hosted on OpenText infrastructure or public cloud, and asked about the reasons for cybersecurity enterprise being more challenged this quarter.

Answer

Interim CEO James McGourlay clarified that OpenText is generally moving towards hyperscalers for cloud migrations, while also exploring sovereign cloud options. Regarding cybersecurity, Mr. McGourlay attributed the quarter's lumpiness to a tough comparison against a strong Q2 2025 and a strong Q1 this year, expecting improvement with a robust pipeline for the next two quarters.

Thanos Moschopoulos inquired about OpenText's resilience to AI disruption, the progress and valuation of divestitures, the new CEO's strategic mandate, and the dynamics of cloud bookings versus revenue growth. He also asked about Aviator adoption, the nature of cloud migrations for the installed base, and the performance of the cybersecurity enterprise segment.

Answer

Executive Chair and Chief Strategy Officer Tom Jenkins clarified that OpenText's role in feeding curated, permission-controlled content to agentic AI positions it uniquely against disruption, confirmed strong divestiture valuations and pipeline, and noted congruence with the new CEO's strategic vision. Interim CEO James McGourlay discussed strong license bookings, customer engagement in cloud migrations, and attributed cybersecurity's performance to lumpiness and tough prior-year comparisons. EVP and CFO Steve Rai explained the interplay between cloud bookings, RPO, and revenue guidance, highlighting seasonality.

Thanos Moschopoulos asked for an update on efforts to stabilize the ITOM and ADM businesses and questioned the impact of U.S. government spending cuts on OpenText's government-focused revenue.

Answer

CEO Mark Barrenechea explained that the security business is on an excellent trajectory with Microsoft integration. He sees ITOM on a good path, now targeting regulated industries, while ADM will require a few more quarters to optimize. Regarding government spending, Barrenechea acknowledged a minor impact but stated it was secondary to the disruption from tariffs and considered it 'de minimis,' remaining optimistic about the sector.

Thanos Moschopoulos from BMO Capital Markets questioned the nature of the challenges in the ADM and ITOM businesses and requested more details on the new 'OpenPass' licensing model.

Answer

CEO and CTO Mark Barrenechea clarified that the ADM and ITOM challenges were concentrated in license and maintenance revenue, not cloud. He explained the strategy involves relaunching ITOM with Titanium X and refocusing ADM on large-scale organizations. He also detailed that the 'OpenPass' model, launched in January, allows on-premise customers an unlimited usage license for a fee uplift, which also includes cloud credits to incentivize future migration.

Thanos Moschopoulos questioned whether the heightened focus on capital returns implies M&A will be deprioritized and asked about the current state of customer interest and deployment scale for the Aviator AI platform.

Answer

CEO and CTO Mark J. Barrenechea explained that for fiscal 2025, the highest return on capital is through shareholder returns, including buybacks, and organic growth initiatives, though M&A remains a part of the long-term strategy. Regarding AI, he described steady progress with hundreds of active customer discussions helping to secure wins, noting that customers like Nestlé and Johnson & Johnson are engaging with Aviator to solve large-scale, high-value problems rather than for minor experiments.

Thanos Moschopoulos inquired about qualitative churn trends within both Lightspeed's core (growth) and efficiency markets, asking if they are remaining stable or showing positive/negative shifts.

Answer

CFO Asha Bakshani stated that Lightspeed is heavily focused on optimizing the efficiency portfolio, and churn management has been successful, contributing to the overall net increase of 2,000 locations. She noted that software and payments revenue in efficiency markets have been flat to slightly up, indicating effective portfolio optimization.

Thanos Moschopoulos inquired about Lightspeed's strategy and expected pace for growing its Lightspeed Capital business, given its strong growth and profitability. He also asked for qualitative insights into churn trends, both positive and negative, within Lightspeed's core growth markets and efficiency markets.

Answer

CFO Asha Bakshani stated that Lightspeed Capital is expected to maintain similar levels of growth (over 30%) in the future, with prudent expansion focused on creditworthy customers to maintain low-single-digit default rates and high gross margins. Regarding churn, Ms. Bakshani reported positive trends, particularly in the efficiency portfolio, where effective management has contributed to overall location growth and stable software and payments revenue despite tempered new business efforts.

Thanos Moschopoulos from BMO Capital Markets inquired about the same-store sales dynamics, comparing retail versus hospitality. He also asked which specific verticals were responding best to the company's vertical marketing strategy.

Answer

CFO Asha Bakshani explained that same-store sales in European hospitality saw double-digit growth, outperforming North American retail's low single-digit growth, partly due to favorable foreign exchange. Founder and CEO Dax Dasilva added that the vertical marketing strategy is resonating well across their eight key retail verticals, such as outdoor sports, through trade shows and customer events which create a 'halo effect' on both inbound and outbound sales.

Thanos Moschopoulos asked for color on same-store sales growth dynamics across different markets and verticals amid the current macro environment. He also inquired about the drivers of software ARPU growth and the expected trajectory for upsell activity.

Answer

CFO Asha Bakshani acknowledged same-store sales pressure across the board, particularly in the highly penetrated North America hospitality vertical, but noted trends stabilized in April and May. President J.D. Saint-Martin attributed the 11% software ARPU growth to both completed pricing adjustments and strong adoption of new modules like KDS for hospitality and Insights for retail, stating he expects this upsell momentum to continue.

Thanos Moschopoulos asked about the timing of price increases and when their full impact would be realized, and also inquired about any key differences in the growth profiles (LTV/CAC, TAM, churn) of the two core markets.

Answer

CFO Asha Bakshani clarified that Q3 saw a partial impact from price increases, with the full benefit expected in Q1 of fiscal 2026 after a final wave in Q4. Regarding the core markets, she stated that while more details will be shared at the Investor Day, these segments have the highest LTV-to-CAC ratios and a large addressable market, justifying the focused investment.

Thanos Moschopoulos asked about progress in migrating customers to flagship platforms and whether the pace of payments penetration would accelerate toward its 50% target.

Answer

CEO Dax Dasilva explained that non-flagship platforms remain profitable, so the company is creating incentive-based migration paths rather than forcing moves. CFO Asha Bakshani noted that while payments penetration will continue its upward trajectory as all new customers adopt it, the pace will be affected by GTV seasonality and may not be linear.

Thanos Moschopoulos asked about the margin trajectory, considering the mix shift with enterprise becoming a larger part of the CCS segment, and whether this implies potential compression in CCS margins or if there are offsets.

Answer

Mandeep Chawla (CFO) stated that tremendous growth in enterprise is underway, accelerating into Q1 and expected to continue through 2026 and into 2027 with next-generation programs. He does not expect a large mix headwind due to strong operating leverage and disciplined cost management, noting that the 2026 margin expansion of 30 basis points is a floor. Rob Mionis (President and CEO) added that strong networking demand (400G, 800G, 1.6T) running concurrently also helps operating leverage and mix.

Thanos Moschopoulos asked about the margin trajectory, specifically if the mix shift with enterprise becoming a larger part of the CCS segment would lead to margin compression in CCS as the year progresses into 2027, or if there are offsetting factors.

Answer

CFO Mandeep Chawla stated that despite strong enterprise growth, they don't expect a large mix headwind due to operating leverage and cost management, anticipating strong profitability. He noted the 2026 outlook projects a 30 basis point margin expansion as a floor. CEO Rob Mionis added that strong networking demand across 400G, 800G, and 1.6T concurrently helps operating leverage and mix.

Thanos Moschopoulos asked for color on the expected growth in CCS outside of hyperscalers and digital natives (e.g., OEMs, enterprise campus-type opportunities) for 2026 and beyond, specifically if it's forecast to grow meaningfully or if growth is primarily driven by core hyperscalers.

Answer

Rob Mionis (President and CEO) mentioned scale-up as a large market with traction, growing opportunities in merchant-based AI/ML systems, and fully orchestrated rack-level solutions. Mandeep Chawla (CFO) clarified that growth is primarily underpinned by hyperscalers leaning into switching and compute, but other parts of the portfolio like a large Optical program and a 1.6T switch with an OEM are also growing.

Thanos Moschopoulos asked for color on the expected growth in CCS outside of hyperscalers and digital natives (e.g., OEMs, enterprise campus) for 2026 and beyond, and whether 2026 growth is primarily driven by core hyperscalers.

Answer

Rob Mionis (President and CEO) and Jason Phillips (President of Connectivity and Cloud Solutions) highlighted scale-up, merchant AI/ML solutions, and fully orchestrated rack-level solutions as incremental opportunities. Mandeep Chawla (CFO) clarified that growth is primarily underpinned by hyperscalers, but other parts of the portfolio, like a large Optical program and a 1.6T switch built for an OEM, are also growing.

Thanos Moschopoulos asked about the potential for continued improvement in cash cycle days and the near-term margin trajectory for the CCS segment, given the mix shift from the enterprise business ramping back up.

Answer

CFO Mandeep Chawla expressed confidence in cash generation, raising the free cash flow outlook to $400 million, and noted that while they are investing in working capital for growth, they expect to maintain strong inventory turns. He also stated that while enterprise demand is improving, communications demand remains strong, and the overall outlook reflects a high-confidence view amidst uncertainties.

Thanos Moschopoulos asked about Celestica's capacity and speed to shift production to the U.S. and Mexico if tariffs were to be reinstated, including potential CapEx costs.

Answer

President and CEO Rob Mionis stated that the Richardson and Monterrey facilities could triple their current revenue of ~$800 million each without needing more space. CFO Mandeep Chawla added that customers are currently reaffirming plans for regions outside North America due to established capabilities, which is why significant moves are not yet happening.

Thanos Moschopoulos questioned the progress of the enterprise segment's AI/ML program transition with a major customer, asking if Q1 represented the trough for that business. He also sought commentary on the strength of the pipeline for new custom server and RAC opportunities.

Answer

CFO Mandeep Chawla confirmed the enterprise program transition is on track, with the new program ramp scheduled for Q3 2025, which should return the segment to year-over-year growth by year-end. President and CEO Rob Mionis added that the pipeline for additional proprietary compute server opportunities is 'very strong.'

Thanos Moschopoulos from BMO Capital Markets questioned why the 2025 operating margin guidance is projected to be flat at 6.7% despite expected revenue growth and operating leverage. He also asked for commentary on the performance of the non-hyperscaler business within the CCS segment.

Answer

CFO Mandeep Chawla explained that while they are confident in the 6.7% margin, potential mix impacts and the back-end loaded nature of ATS margin improvements are factored in. He noted it is a high-confidence view for October and will be updated. President of CCS Jason Phillips addressed the non-hyperscaler business, highlighting strong growth prospects in portfolio solutions and services, expecting both the portfolio solutions and ITAD businesses to triple over the next three years, citing a recent major win with a large retailer as a proof point.

Thanos Moschopoulos questioned the holdback in clients fully implementing AI initiatives despite strong ROI, asking if it's due to CFO budget constraints or a need for more education. He also asked if CGI is already seeing material margin improvement from its internal use of AI.

Answer

François Boulanger, CEO, attributed the holdback to the complexity of AI implementation, data quality issues, and the need for foundational work, noting that CFOs see costs before outcomes. Steve Perron, EVP and CFO, added that internal AI use brings efficiency, contributing to margin improvements in many SBUs despite ongoing investments and one-time costs.

Thanos Moschopoulos questioned the factors holding back clients from accelerating AI initiatives despite strong ROI, specifically if CFO budget constraints or a need for more education were primary drivers. He also asked about the material margin improvement CGI is capturing from its own internal use of AI.

Answer

François Boulanger, CEO of CGI Inc., attributed client holdbacks to the complexity of AI, challenges with data quality, and CFOs seeking clear outcomes before significant investments, also noting broader macro concerns in Europe. Steve Perron, EVP and CFO, and Mr. Boulanger confirmed internal AI use is driving efficiency and some savings, with margin improvements seen in specific SBUs despite one-time costs.

Thanos Moschopoulos asked about the key client geographies driving growth in the Asia Pacific (APAC) business unit and sought clarification on the reasons for the revenue decline in the U.S. Federal segment.

Answer

President and CEO François Boulanger identified North America and Germany as key drivers for APAC growth, with clients from both regions utilizing CGI's delivery centers in India for managed services and global capability centers. For the U.S. Federal decline, he confirmed the primary cause was lower volumes in a large BPO contract for visa processing, a direct result of reduced travel to the U.S.