Open Text - Earnings Call - Q4 2025

Executive Summary

• Q4 FY25 delivered $1.311B revenue (-3.8% YoY; +4.5% QoQ) and non-GAAP EPS of $0.97; both exceeded S&P Global consensus ($1.301B revenue; $0.83 EPS). GAAP EPS was $0.11 due to special charges and FX in “other income (expense)”.*
• Cloud revenue rose to $474.5M (+2.1% YoY), cloud bookings surged 32.3% YoY to $238M, and cloud renewal rate held at 96%, underpinning FY26 outlook for 3–4% cloud growth and 1–2% total revenue growth.
• Margins remained resilient: GAAP gross margin 72.3% (-20 bps YoY), non-GAAP gross margin 76.2% (-30 bps YoY), and adjusted EBITDA margin 33.9% (flat vs Q4 FY24) despite divestiture headwinds and FX volatility.
• Capital returns: dividend raised 5% to $0.275/share; new $300M repurchase program. OTEX also agreed to divest eDOCS for $163M cash to sharpen focus on core AI/cloud/security portfolio.

What Went Well and What Went Wrong

• What Went Well

  • “Cloud bookings growth surged to 32%, driven by demand for our new AI-driven Titanium X platform… FY26 outlook of 3% to 4% cloud revenue growth and 1% to 2% total revenue growth.” – CEO Mark J. Barrenechea.
  • “Operational discipline and excellence… sustained margin and free cash flow growth.” – CFO Chadwick Westlake; adjusted EBITDA margin 33.9% in Q4, 34.5% for FY25.
  • Strong renewal metrics: cloud renewal rate 96% in Q4; cloud RPO up 13% YoY (current portion +8%, long-term +17%), providing visibility into FY26 growth.

• What Went Wrong

  • Topline pressure: total revenue -3.8% YoY; customer support revenue declined 7.6% YoY in Q4 amid maintenance headwinds ex-AMC and macro volatility.
  • GAAP EPS compressed to $0.11 (vs $0.91 in Q4 FY24) driven by special charges ($79.7M) and FX in other income (expense) (-$89.2M).
  • Free cash flow down 14.6% YoY in Q4 ($124M vs $145M) due to lower operating cash flow and higher capex; sequentially also down vs Q3’s seasonal high.

Transcript

Speaker 6

Thank you for standing by. This is the conference operator. Welcome to the OpenText Corporation Fourth Quarter Fiscal 2025 Financial Results 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 analyst Q&A session. To join the question queue, simply press star then one on your touch-tone phone. Should anyone need assistance during the conference call, they may signal an operator by pressing star then zero on their telephone. I would like to turn the conference over to Greg Secord, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, Rocco, and good morning, everyone. Welcome to OpenText Fourth Quarter and Fiscal Year 2025 Earnings Call. With me on the call today are OpenText Chief Executive Officer and Chief Technology Officer, Mark J. Barrenechea, together with Chadwick Westlake, our Executive Vice President and Chief Financial Officer. We have Todd Cione, our President of Worldwide Sales. We have Paul Duggan, our President and Chief Customer Officer. Also joining, we have Cosmin Baloda, who's our Senior Vice President and Chief Accounting Officer. Today's call is being webcast and recorded with replay available shortly thereafter. All of this information and all of the presentations today are available on the Investor Relations website at OpenText, and that's investors.opentext.com. On today's webcast, we'll have our prepared remarks coordinated with slides on the Q4 financial presentation. This presentation is available, of course, on the website.

Please note that if you're logged into the live webcast, you're already set up for the slideshow. I'll also point out that there are two presentations on our website, the Q4 Fiscal 25 IR Results that we'll be using during the call, and the investor presentation that we use for investor meetings. Turning to the safe harbor statement. During this call, we'll make forward-looking statements relating to future performance of OpenText. These statements are based on current expectations, assumptions, and other material factors that are subject to risks and uncertainties, and actual results could differ materially from the forward-looking statements that are made today.

Additional information about the material factors that could cause actual results to differ materially from such forward-looking statements, as well as the risk factors that may impact future performance results of OpenText, are contained in our recent forms 10-K and 10-Q, as well as the press release that was distributed yesterday afternoon, which may be found, of course, on our website. We undertake no obligation 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 their most directly comparable GAAP measures may be found in our public filings and other materials, which again are available on the investor section of our website. With that, I'll turn the call over to Mark.

Speaker 7

Thank you, Greg, and welcome everyone to the start of our new fiscal 2026, and a big welcome from Waterloo. As you know, every fiscal year has its journey. For OpenText in fiscal 2025, that included completing a material divestiture of our mainframe business, a large business optimization program, the acceleration of our margin opportunity, significant new AI cloud and security innovations, and our strongest year of capital return.

As you'll hear today, fiscal 2026 is a completely different year, led by growth in a strong product cycle and a strong financial outlook that includes total revenue growth of 1 to 2%, cloud growth of 3 to 4%, adjusted EBITDA expansion of 50 to 100 basis points, free cash flow expansion of 17 to 20%, and continued strong capital allocation with a dividend raise of 5% and a new $30 million share repurchase program, as well as a return to M&A. Let's get into the call. Our priorities for building a stronger and more competitive OpenText remain clear and consistent. To expand our competitive advantage through our business AI, our business clouds, and business security, our new OpenText™ MyAviator will bring business AI to every OpenText end user.

Deliver total revenue growth through compelling solutions, great distribution, and transformative customer success, led by our cloud growth and increasing contributions from business AI and security, as well as upper quartile operating excellence, which means continued margins and free cash flow expansion and value-creating capital allocation. Our previously announced business optimization has accelerated our margin opportunity, and our medium-term business model is about approaching the rule of 40. You are seeing the results of these clear and consistent priorities. Q4 was the first full quarter of TitaniumX in the market, and we ended fiscal 2025 with strong performance, as you saw in the numbers we published yesterday. Total revenues of $1.31 billion, and we grew organically year over year, excluding the impact of AMC, IP rights, and DXC. Our cloud bookings surged to $238 million, or 32% year over year growth, all of which flows directly into cloud RPO.

Cloud revenue of $475 million, or 2% growth. License revenue of $173 million, or 77% growth, ex-AMC. Adjusted EBITDA dollars of $444 million, or 34% margin up strongly, ex-AMC. We had amazing cloud wins this quarter across banking, automotive, healthcare, biotechnology, and retail, including 43 cloud deals over $1 million. Todd will speak about these in a little more detail in a moment. For the full fiscal year 2025, total revenues of $5.17 billion, less AMC, down 3%, and less IP rights and DXC, down approximately 1%. You can see in our investor presentation a three-year trend at slide, on a reported basis to help illustrate the magnitude of the total revenues, cloud revenues, and cloud growth rates for our business. The new insights are all singularly focused on our cloud business. Cloud revenues were $1.86 billion for the year, up 2%.

I would also like to add some further color to our cloud business and revenue performance by business area. On an approximate basis, year over year, cybersecurity is 30% of our cloud revenues, BN is 30%, content 25%, OSM and DevOps 10%, and the others make up the remaining 5%. Content, OSM, and DevOps each grew faster than 10% year over year. BN remains constant. Cybersecurity was negative 4%, which we expect to return to growth this fiscal year. Please note we have rebranded our ITOM business to Observability and Service Management, or OSM, and we have renamed Application Automation, which is now DevOps. Cloud bookings were $773 million, up 10% and right in our outlook range. Total RPO up 9%. Total cloud RPO was up 13%. The total cloud position in the current cloud portion was up 8%, while the long-term portion up 17%.

Our cloud renewal rate was 96% ending Q4. Just an amazing amount of cloud expansion. Adjusted EBITDA dollars of $1.8 billion, or 34.5%, up strongly, ex-AMC. Adjusted EPS of $3.82, up strongly, ex-AMC, and free cash flows of $687 million above the high end of our range, and ending cash of $1.156 billion. For the year, we allocated a record amount of our cash, or $683 million to capital return, where we returned $272 million via dividends, and we purchased $411 million of our stock, canceling 14.5 million shares at an average price of $28.29. Let me close our fiscal 2025 with a few final thoughts. In addition to all the strength and accomplishments, and we had many, fiscal 2025 was also one of challenges. There was, of course, the unprecedented and unpredictable trade and territorial in the markets and the geopolitical forces the industry traversed.

It was also an extraordinary year of a large and global mainframe business divestiture for us and transitioning that business to the buyer, which has teamed it flawlessly. We built a lot of corporate muscle through that process. We were focused on rebuilding our margin post-divestiture, modernizing the Micro Focus platform, executing a large and strategic business optimization, delivering TitaniumX, and creating an AI foundation for the future. Make no mistake, we are disappointed that the full fiscal year had negative growth. As you can see on slide 10, it is a clear exception for a very long track record of growth. We thank you for your feedback throughout this past year. We'll continue to be better communicators, and I will continue to increase the business insights we share so investors can see both the challenges and our opportunities equally, like we are doing today. Time to look forward.

Looking ahead, I am confident in the trajectory of the business. Fiscal 2026 is a different year, a different outlook, and an important period of growth that the company is entering into. Our priorities for building a stronger, more competitive OpenText remain clear, and as noted earlier, we're excited about the next wave of innovation. For business AI, with OpenText™ MyAviator and Aviator Studio, an agentic user platform for building digital workers, and with OpenText™ MyAviator, a personal digital worker for every knowledge worker to be used everywhere for anything. For our business clouds, we'll core content SaaS, new verticals like insurance, OpenText™ Observability and Service Management (OSM), corporate help desk for employee experience. On the business technology side, our focus is on threat detection and response, SaaS identity and access management, and our new go-to-market partnership with Microsoft.

We're a portfolio company, and we expect all our businesses to perform. We can see immediate paths for outperformance this year in content security and observability and service management. Our M&A pipeline across our core BUs is building again. To reiterate, we'll consider divestitures as and when they make strategic sense to drive overall higher growth rates, optimize our business, or to return investor dollars for better returns. The organization has momentum in its focus. Let me discuss the key elements in our fiscal 2026 outlook and reported dollars in the year-over-year terms. On the macro, global customers are investing, and they are taking control of their platforms and capabilities via sovereign clouds. They are also de-risking their businesses from tariffs and trade volatilities. Customers are investing in AI, cloud, and security. Fiscal 2025 taught us to expect the unexpected curveball on tariffs and trade.

It drives you to focus on managing exceptionally well that which you control, and it's prudent to be conservative given the geopolitical and public sector trends. With that macro backdrop, our fiscal 2026 outlook with year-over-year compares to the following: total revenue growth of 1 to 2% and growth in constant currency. Total cloud revenue growth of 3 to 4% supported by our strong current RPO backlog. New cloud bookings growth of 12 to 16%. Adjusted EBITDA margin growth of 50 to 100 basis points. Free cash flow growth of 17 to 20%. We plan to grow our annual dividend by 5%, and further, we plan to repurchase and to purchase and retire $300 million of our stock this fiscal year. There are a few more comments I'd like to provide on our outlook.

First, cloud revenue, ARR, and cloud CRPO truly lead the future of our business and our outlook. We expect ARR to return to growth in 2026, and within that, cloud growth will outpace the maintenance business. Second, we'll make strong progress on our customer support business and expect to cut the rate of decline in half from negative 4% ex-AMC in fiscal 2025 to negative 2% in fiscal 2026, and return the business back to growth in fiscal 2027, the moment Paul will speak to our support business and the opportunity. Third, AI, SaaS, and security are well positioned to contribute more to our revenues, and we see security being a positive contributor to our growth rate this year. Todd will speak more about this in a moment. Lastly, our outlook positions the company to exceed expectations based on stronger demand, stronger adoption, stronger execution, and less macro unpredictability.

As for Q1 estimates, please remember our business is an annual business. We plan, operate, and make key decisions within the context of our annual plan. Our quarterly estimates are meant to provide short-term insights, and our quarterly estimates will vary within our annual plan. For Q1, our estimates include total revenue growth of constant to 1% and adjusted EBITDA of 35 to 35.5%. I'd also like to introduce today our thoughts on where we are driving our business model over the next three years, which we call our medium-term business model. Our medium-term business model looks like this: Rule of 40 growth, delivering the combination of total revenue growth plus adjusted EBITDA margin percent to approach 40. Efficiency, continuous year-over-year improvements on margin while landing adjusted EBITDA in the mid to high 30s and balancing margin expansion with the growth investment opportunities that we see.

Free cash flow, for every dollar of free cash flow, we look at two key metrics: grow free cash flow over revenue into the high teens and to continue to grow free cash flow over our outstanding shares. Capital allocation, continuing to strategically and flexibly deploy our capital across M&A, dividends, buybacks, and divestitures with one lens, creating long-term shareholder value. We'll keep you updated on our progress along the way. Let me wrap up my prepared comments today. F26 is an important period of growth for the company, and that confidence starts with our cloud business. We're in a strong product cycle with TitaniumX, business AI, and business security. Content, OSM, and DevOps each grew faster than 10% last year. We have new accelerators for growth with AI security and business network.

Our RPO was up to, our cloud RPO was up 13%, current portion of 8%, long-term portion of 17%. Our cloud renewal rates are strong at 96% and getting stronger. Our outlook is 3 to 4% organic cloud revenue growth, new bookings growth of 12 to 16%, and we expect continued cloud RPO expansion with strong renewal rates and continued new bookings growth. I want to thank all OpenTexters for their strong performance in Q4, for the momentum heading into fiscal 2026, as well as to thank our customers for their continued trust. We have an amazingly strong finance organization, and we welcome Cosmin Baloda, who is currently, who's on the call with us today, who will serve as interim CFO starting August 15th. Our CFO search is in full motion, and we're excited about what an open market search will bring to the business.

I'd like to thank Chadwick for his service to OpenText and wish him well and all the best on his continued journey. He's going to make a great CEO. Let me turn the call over to Todd and Paul, and then Chadwick. Todd, over to you. Thank you, Mark. It is clear that we have momentum coming out of Q4 and entering F26. We're experiencing Mark's demand. Our worldwide commercial team is executing. Our partner ecosystem is more impactful than ever, and our pipeline is strong and growing. Mark referenced the very dynamic global economic environment. This environment is driving enterprises to double down on clear and measurable business justification before proceeding with technology investments. This environment aligns well to the specialized capabilities of our worldwide commercial team to guide our customers effectively.

We're successfully translating OpenText's TitaniumX platform in a quantifiable business case value for existing and new customers, and customers are increasingly depending on us. In Q4, we had some great customer wins, including BMO, Clarins Group, Hargassner, Rightmove, and I'd like to walk you through several strategic wins in our business clouds to give you a sense of how we're winning against the competition. First, the OpenText™ Content Cloud. One of Europe's largest healthcare and life sciences companies chose OpenText as a key part of their SAP cloud migration project, benefiting clearly from our SAP cloud-first partnership. A large Canadian financial services firm utilized OpenText's Content Cloud to power its unstructured data vault in support of mission-critical business systems. One of the largest and nationally ranked U.S. hospital networks chose OpenText™ Observability and Service Management (OSM) in direct competition with ServiceNow.

This is a really tremendous new logo win for us. A Fortune 100 pharmaceutical and biotechnical company chose OpenText™ DevOps Cloud and e-signature solution over the competition to reduce regulatory and compliance risk, while also supporting their move to cloud and AI initiatives. This win continues our momentum, helping large, highly regulated enterprises build, deploy, and manage compliant applications. One of Europe's leading forensic research institutions selected OpenText's Fortify application security platform to strengthen the security of its business-critical software. This very highly competitive new logo win underscores our growing leadership in enabling secure development within high trust, high compliance public sector environments. Lastly, a top five global automotive manufacturer further scaled their dependence on OpenText™ Business Network Cloud to manage their treasury management and global supply chain. Many of these customer wins relied heavily on OpenText partnerships.

Our existing and new partnerships are playing an increasingly major role in our growing commercial momentum. The SAP partnership, as an example, remains strategic and continues to accelerate across co-selling, reselling, and joint engineering. The impact is contributing meaningfully to our content management cloud growth. We're excited in Q1, we've expanded this partnership to our experience cloud to also be resold by SAP. Our Microsoft partnership is growing, and we're now live with a launched cybersecurity threat detection and response offering. We refer to it as TDR. It's being actively sold now with and through Microsoft's ecosystem, and it integrates seamlessly with Microsoft Defender, Microsoft Entra ID, and is part of the Microsoft Security Copilot ecosystem. Our GSI partnerships are contributing to growth with larger and more strategic deals.

For example, with Capgemini, we've just launched a digital government solution to serve government agencies across our OpenText content, experience, and security clouds. We're also collaborating with HPE to deploy database management and information governance solutions on HPE GreenLake. For our technology and ISV partnerships, they're enabling us to bring differentiated vertical industry solutions to market. As an example, with Guidewire, we've introduced a joint solution actively targeting the worldwide insurance marketplace. We're going to continue to invest to scale further into the financial services sector with ISV ecosystem partnerships. As you've heard Mark mention, we're doubling down on sovereign cloud and sovereign AI. We're super excited to have announced our partnership recently with TELUS, offering the Canadian market a secure private cloud for information management with a trusted Canadian infrastructure provider. We continue to see growing demand and execution through our overall channel partner ecosystem.

It's helping us scale OpenText's distribution into the SMB segment, into public sector, and into emerging markets globally. Lastly, our sales marketing and partner execution, it's created a solid and growing full-year pipeline. In fact, our pipeline for license is up over 10% over prior year, and our pipeline for cloud is up nearly 30% year over year. We're seeing pipeline conversion rates improve, and in Q4, we delivered the highest account executive productivity we've seen in the last eight quarters. We're adding even more sales capacity now to convert our growing pipeline. Now, to summarize, I'm really, really proud and thankful for our worldwide commercial team's Q4 performance. In early July, we launched the new year with a fast start at our worldwide company and sales kickoff here in Waterloo. Our team has a ton of energy fueling F26 execution ongoing right now.

Our partnerships are contributing substantially with growing impact, and we built a strong pipeline with a growing conversion rate, and we're adding sales capacity to start fast in F26. Paul, over to you.

Speaker 1

All right, thank you, Todd. It's great to be here with you and Mark and the rest of the team here in Waterloo. Today, I'll speak briefly about three areas: the highlights of the prior quarter as we close out F25, where our team is focused to bring a stronger outcome to F26, and what to expect for our maintenance business in the year ahead. Let's jump right in. First, Q4 was a solid quarter for the business. The OpenText renewals flywheel continues to be stable and predictable with a net renewal rate of 96% for cloud and 91% for off-cloud, improving 100 basis points quarter over quarter. Our core operating metrics across our recurring revenue business are positive. Past due is down, on-time renewals is up, and APA, or our annual price adjustment, is up.

In fact, we set all-time records in several of these areas and finished the year well ahead of our plan on bookings, including some very large early renewals on the cloud side as customers work to lock in pricing over the next several years. That all adds energy to the flywheel and creates momentum into F26. Growth remains job number one for the team, and that drives a single overriding mission for the business: customer centricity. At its core, customer centricity is a business mindset and an operating model where every decision starts from a deep understanding of what creates value for the customer. It's not just about good service; it's about anticipating customer needs. It's not solving problems; it's doing this proactively and shaping our offerings to deliver outcomes. We're focused on three areas in F26. Number one, the performance of our maintenance business through lifetime value.

Number two, expanding post-sales offerings. Number three, customer success through our love model, land, operate, value, expand. Just a few examples. For lifetime value, we reorganized our PS sales team by practice area and have them focused on TitaniumX upgrades, targeting off-cloud customers several releases back to bring them current to the latest version of the products. For our love model, or land, operate, value, expand, we are in year two of our new cloud customer success offering rollout, which added incremental bookings to F25 and contributes to cloud ARR. For post-sale, this quarter we launched advanced customer support, or ACS, which expands our portfolio of support subscription offerings and puts a new and dedicated sales team behind it to build new inflows to maintenance revenues. These are just a few of the new programs that will contribute to growth in fiscal 2026.

The customer is at the center of all this, and growth is the result for doing that consistently and doing that well. That brings me to my last point, which is what to expect for maintenance in fiscal 2026. Let me just start by reaffirming our messages from last year. We see strength and stability in the core operating metrics of our maintenance business. Excluding AMC, we ended fiscal 2025 at a decline rate of 4%. Our Q4 decline rate was 3%, a large improvement from Q3. Our outlook for fiscal 2026 is a decline of 2%, cutting that decline in half year on year. Further, and this is a key point, we expect ARR to return to growth in fiscal 2026, and within that, cloud growth will outpace the maintenance business.

We can see clearly the momentum we have in returning the maintenance business back to growth, which we expect by fiscal 2027. Our operational metrics are bright green. We have growth programs adding new revenue channels to maintenance, and as we sell new licenses, that will also add incremental maintenance revenues. Looking out further, as cloud continues to grow, it'll be an opportunity to expand this business discussion to focus more on ARR, RPO, and CRPO, inclusive of maintenance. In summary, our confidence grows stronger with our Q4 results. I see momentum in the business, and there is a lot to be excited about in the year ahead. With that, I'll hand the call over to Chad.

Speaker 7

Thank you, Paul, and good morning. I will briefly touch on more context for Q4 results and OpenText's growth momentum into fiscal 2026. It was a great outcome at $238 million of enterprise cloud bookings in Q4, up 32.3% year over year, closing out fiscal 2025 within our annual target range at 10.1% total growth. Our results include full-year RPO and CRPO with year-over-year comparisons. This captures the strength of our cloud backlog. When looking at our cloud business, we think about four core metrics: cloud revenue growth, enterprise cloud bookings expansion, cloud renewal rates, as well as new cloud bookings. Cloud CRPO is a subcomponent of RPO, and it provides visibility into the current portion of cloud RPO that is committed over the next 12 months. This includes all our cloud product groups, enterprise and SMBC, new and renew, and provides greater visibility into our cloud business.

With the bookings progress for Q4 and F26 expectations, OpenText is positioned for growth. We reported solid annual recurring revenue of approximately 81% in Q4, up approximately 20 basis points year over year. As you see in the table on slide 22 for Q4, cloud revenues were $475 million, up 2.1% year over year, representing about 36.2% of total revenue. Q4 marks 18 quarters of cloud organic growth, driven by AI readiness and strong demand for our Content Cloud. Non-GAAP cloud gross margin increased approximately 40 basis points to 63.2% year over year. Customer support or maintenance revenue was $581 million, and the full year closed at $2.334 billion, coming in slightly above our expectations. We are making progress here, and Q4 non-GAAP maintenance gross margin remains strong at 89.2%, up 20 basis points year over year. Overall, non-GAAP gross margin for Q4 was 76.2%.

We added some additional disclosures to offer deeper context to where our cloud revenue growth outperformed in F25, particularly in content, DevOps, and Observability and Service Management. Moving towards the bottom line, we achieved a strong quarter in an overall F25 adjusted EBITDA margin of 34.5%, 50 basis points above the top end of our target range of 33 to 34%. This was achieved with the benefit of business optimization progress, as well as higher revenue in the quarter. Last quarter, we expanded our business optimization plan. When fully implemented, we expect to generate total annualized savings of approximately $490 to $550 million. We successfully realized approximately 35% of these savings during fiscal 2025. Our F26 outlook captures an additional 35% of these benefits, and after reinvestment, we expect continued adjusted EBITDA margin expansion.

We've spent approximately $128 million to date, and the plan is expected to be substantially completed by the second quarter of F27, up to a total spend of approximately $260 million. In Q4, we generated $687 million of free cash flow, $37 million above our target range. In the quarter, our interest expense declined year over year, and again, you see the benefit of the business optimization savings here. The resilience of the OpenText operating model, revenue growth, ARR durability, and expanding margin of free cash flow provide us the flexibility to strategically deploy our capital across M&A, dividends, and share buybacks. The board of directors has approved a cash dividend of $0.275 per share for the first quarter of fiscal 2026, with a record date of September 5, 2025, payable on September 19, 2025. We will remain strategic and flexible in our capital allocation.

Adjusted EPS was strong again in Q4 at $0.97 diluted. Reported that it's down 1% year over year, but adjusted EPS increased year over year after normalizing for the impact of the AMC divestiture. Contributing to this outcome was the benefit of repurchasing and canceling 14.5 million shares in fiscal 2025. This momentum will continue with our announcement of a new $300 million share buyback program in fiscal 2026. In closing, I'll echo my sentiment from last quarter. As an investor, this is a good time to hold and buy OpenText stock. We are leaders in information management with a large install base, loyal customers, strong core businesses and earnings profile, plus a clear return of capital strategy. I am confident in OpenText's ability to reinvest strategically in outperforming products while generating meaningful returns for investors.

I would like to thank Mark and all my OpenText colleagues for the opportunity to work with such an extraordinary group. This is an iconic Canadian company, and it's been a privilege to serve our stakeholders. With that, Rocco, can you please open the line to our equity analysts for Q&A?

Speaker 6

Absolutely. We will now begin the analyst question and answer session. Analysts who wish to ask a question may press star then one on their touch-tone phone to join the question queue. You will hear a tone acknowledging your request. If you are using a speakerphone, please ensure you lift a handset before pressing any keys. If you wish to remove yourself from the queue, you may press star then two. Anyone who has a question may press star then one at this time. Our first question today comes from Raymond Lenshaw with Barclays. Please go ahead.

Thank you, and thanks for all the clarity in the presentation. Mark and team, obviously there's the stuff that you can do, but then there's the stuff that kind of is given to you in terms of the economy. You talked a lot about, like, you know, what you're doing at the moment. What are you seeing, though, from end demand, customer behavior, etc., at the moment, given all the uncertainties? Maybe just kind of break it down by region. I had one quick follow-up.

Speaker 7

Sure. Raymond, thanks for the question. I'll start with, we are seeing a strong and positive trend towards sovereign cloud. We are in a unique position as a global company, a company that's invested strategically in its operations and cloud infrastructure, and with our cloud partners to be able to provide local control. We are engaged in France to deploy sovereign France. We're engaged in Germany to deploy sovereign Germany. We're engaged in the UK to deploy sovereign UK, and keep going around the globe: Canada, Japan, Singapore, Australia. We see sovereign cloud as an opportunity in our business and have factored that into looking at strong bookings growth here in fiscal 2026, of 12% to 16%. We also see customers looking to take more control to deploy on-premise. We've been in a position always to provide that customer choice.

We actually see that the volatility creating a demand driver that can be a bit of a tailwind for us heading into 2026. Balancing that a bit is some customers on the supply chain side, as you saw in our cloud revenues, our Business Network was constant, that are just taking a little longer to make some decisions. It's actually a net positive for us, Raymond, and we're helping customers take their control back and continue with their strategic projects.

Okay, perfect. I like the additions to talking about maintenance a little bit. Bringing that to that 2% decline line, is that how much of that is kind of operations? Is there also an element that you can do think about pricing? Thank you.

Speaker 1

Hey, Raymond, Paul Duggan. Thanks for the great question. There's a short answer and a long answer. The short answer is the rate of decline on maintenance is improving really due to the focus of the performance and growth programs we've had over the past year or two. The longer answer, you know, it really centers on three core areas that I see. It will always come down, any maintenance business will always come down to the core operating metrics. That's going to be the single most important indicator of motion and strength of the install base. You can see, you know, parts of it, right? Q4 NR is up 100 basis points quarter on quarter. Our cancels are down. Past due and on-time are improving dramatically. We're setting records, and it's common to set records each quarter at this point. APA, our annual price adjustment, was up in Q4.

It's been up multiple quarters in a row now. One way to think about that is it's a proxy for value that customers see in our roadmap. To add to that value, we've launched new Advanced Customer Services, or ACS, this quarter, which will create some new upselling focus areas for us and the premium services that attach on top of the maintenance space. Finally, I'd say, you know, we talked a little bit about the last couple of quarters last year, is look, we had some challenges in license, in OpenText™ Observability and Service Management, and a few other areas, as well as a couple of one-time setbacks, DXCs, one we've talked about. The fact of the matter is the core business here is improved.

As we loop the track on some key items and we see the positive impact of things like ACS, I believe pretty strongly that you're going to see a continued impact possibly on the maintenance business.

Okay, perfect. Thank you. Good luck.

Thank you.

Speaker 6

Thank you. Our next question comes from Samad Samana with Jefferies. Please go ahead.

Hey guys, this is actually Billy Fitzsimmons on for Samad. The new disclosures on cloud growth and cloud as the percentage of revenue are very helpful for us. Can we dig into those numbers a little more? What cloud or business units are seeing outsized growth simply because of accelerated on-prem to cloud migrations in the base? What are seeing growth from solid end customer and product demand? At this point, what are some of the businesses where you believe there's kind of extra work to be done to get growth higher? Thank you.

Speaker 7

All right, thanks, Billy. I appreciate the question. Look, all of our disclosure and new disclosure is centered on providing a singular insight into our cloud business and opportunity. It's about this strategic alignment and insight into that opportunity, right? A year ago, we started with our RPO disclosure. We decided a year ago to start with RPO, even though we didn't have the history to disclose. We knew it looped the track four quarters later, and here we are. Total cloud RPO was $2.5 billion and grew 13%. Total cloud current RPO was $1.2 billion and grew 8%. Total long-term RPO was $1.1 billion and grew 17%. That was the new disclosure started a year ago. We looped the track. We can now see the power of the backlog of our business. Cloud renewal rate, right, which we're talking about, 96% ending Q4 and getting stronger.

ARR, returning to growth in 2026, which means that the cloud, the additive cloud dollars are more than the maintenance decline dollars. That is exactly where we want the business to be in 2026 and forever more. Bookings, we're going to continue to show you bookings that come in to fill the top of the bucket. Some companies don't disclose bookings. We disclose bookings. We're going to continue to disclose bookings because it fills the top of the bucket. $773 million in 2025 or 10% growth and our outlook of 12% to 16% growth in 2026 on a very large base of $773 million. Obviously, the revenue of 2% in 2025 and then our outlook of growing faster in 2026 of 3% to 4% cloud growth.

The new cloud disclosures that you touched on, all in the context of the alignment, where cybersecurity is approximately 30% of our cloud revenues, BN 30% of our cloud revenues, content 25% of our cloud revenues, OSM and DevOps 10%, and the others all make up the remaining 5%. Content, OSM, and DevOps each grew faster than 10% last year. We're not providing an outlook per business cloud, if you will, in 2026, just into the total cloud number. BN remains constant, and we feel we're going to be boosting that growth in 2026 via AI and our new control tower technologies. Cyber was negative 4% growth. We've talked that we're going to talk about our opportunities and our challenges equally and transparently. Cybersecurity was negative 4% growth in the cloud last year, mainly driven by the SMBC business. To be clear, we expect this business to return to growth.

That's why we expect it to outperform in security this year and expect this business to return to growth with our Microsoft partnership, both in the enterprise and the mid-market, as well as threat detection and response, identity and access management in the cloud, and other new tools. In the other bucket, we have a new HPE partnership that Todd Cione talked about with GreenLake in our new vertical as a service to help that other bucket as well. I hope that's helpful. I wanted to maybe just resummarize the totality of the disclosure, all with a singular purpose and insight onto the cloud.

Speaker 6

Thank you. Our next question today comes from Richard C. with National Bank Financial. Please go ahead.

Yes, thank you. Thanks for all those disclosures. With respect to the fiscal 2026 growth numbers, how much of that is already visible in your RPO?

Speaker 7

Yeah, Richard, great to hear your voice, and thanks for the question. We have an illustrative slide in Chadwick's portion that shows the bookings flowing in kind of a constant level, if you will, for CRPO. Our cloud current RPO in fiscal 2026 is roughly 60% of our revenues. We have that's sort of going to come right off the balance sheet flowing into the revenue stream. Over time, we hope to raise that 60% guarantee, if you will, higher. Within the year, we got, as Todd talked about, our cloud pipeline is up 30%. We will expand the opportunity within the install base. We will drive expansion capabilities. We'll win new business and deliver new revenues from that. We have strong visibility, pipeline up, 60% current CRPO guaranteed, which gives us very strong confidence of the 3 to 4% organic cloud revenue growth, Richard.

Okay. A second question here. It was sort of interesting to hear your comments on restarting M&A. What conditions would sort of have you doing that? Would it be delivering the balance sheet more? You noted sort of divestitures and then subsequent to those conditions. What type of assets would you be sort of looking to focus on? Like you're obviously doing well in content management. Would you sort of lean into that market more? Are you kind of looking at sort of new potential sort of opportunities outside of that?

Thanks for the question. We think our balance sheet is ready for the right acquisition. Look, we're mainly interested in cloud and continuing to support the areas of our business that are outperforming. The team is ramping up. The pipeline is getting stronger. It's got to be both a strategic fit and the right financial and strategic platform for us. We're going to continue to consider divestitures as and when they make sense to drive a higher growth rate. You can clearly see from the strength of the balance sheet, our free cash flow, our approach to capital return in 2026, that we have the ability to do a small to medium size acquisition if it's the right company at the right price and right strategic sense.

Speaker 6

Thank you. Our next question today comes from Stephanie Price at CIBC. Please go ahead.

Hi, good morning. Thanks as well for the additional disclosures this morning. Just curious, as you think about the different business segments, where are you investing the most at this point, and where do you see the most opportunity going forward?

Speaker 7

Steph, thanks for the question and thanks for being on the call today. We want all our businesses to perform. When you manage a portfolio like any large company, you come into the year and see opportunities to outperform in certain categories. We are going to look to outperform in content, security, and OSM coming into the year. We also see opportunities to bring business network from constant back to growth, as we talked about, and just an outsized contribution to cybersecurity over the long term. Those are the areas we're most focused on here, Steph, coming into 2026.

Thanks for the color. Maybe switching over just to the expanded restructuring initiatives, it looks like the timeline's changed a bit. It looks like you've had some earlier wins than maybe you were expecting. If you could talk a little bit about what you've accomplished so far with the restructuring and what remains to be done.

Yes, Steph. I mean, we remain on plan and on time. No timelines have changed. We have accelerated some opportunities, and we're off to a fast start where we sort of achieved 35% in 2025, expect to have another 35% here in 2026, and then the balance complete in the first half of fiscal 2027. We moved very quickly on the people restructuring rebalancing. It freed up our ability to reinvest in the business. You've heard Todd speak about his Salesforce expansion, product expansion as well on AI and security. We moved promptly on the people side, and we're also making strong internal progress on using our own AI tools and other partner AI tools. That's just going to continue to fuel that productivity boost for the company to help us deliver that 35% here in 2026.

Thank you.

Speaker 6

Thank you. Our next question today comes from Paul Treebeer with RBC Capital Markets. Please go ahead.

Thanks very much, and good morning. The comments on the pipeline growth, both for cloud and license, are quite encouraging. You know, obviously, you've seen the trend for a while in terms of pipeline. What's changed now that's fundamentally driving the improvement? Could you comment on the sustainability or durability of that uplift in pipeline?

Speaker 7

Yeah, Paul, thanks for being on the call and great to hear your voice. I'll start and then hand it over to Todd. TitaniumX had its first full quarter in the market. We've talked, you know, TitaniumX was the largest engineering project in the history of the company over a two-year runway of building out security, AI, trusted cloud, sovereignty. Q4 was the first full quarter of having TitaniumX in the market. Really, our first full quarter of being live and being able to demonstrate our robust AI platform. That drove the surge in bookings, as well as the pipeline expansion. Let me hand it over to Todd.

Yeah, thanks, Paul. The pipeline comes from only a few places: marketing demand, Salesforce demand, partner demand. Across those functions, we're executing very well. You have to convert that pipeline. Our Salesforce, our partners are very adept, as I referenced in my prepared comments, at converting TitaniumX into value and quantifying that value through business cases in this macroeconomic climate that we are participating in right now. We're excited about the trends that we're seeing both top of the funnel and then converting it into value.

Thanks for those comments. Just a second question.

Maybe Paul, if you answer your second question, we'll make sure you do. I also want to thank Paul and Todd. They've been incredible business partners. We've put in place a two-President structure, and I couldn't be more pleased with their leadership, their direction, their execution, both on the new business side and the post-sale side, which is also giving me the opportunity to work more strategically and on our product. I'd be remiss to highlight this incredible trifecta of an execution team that we put in place last year as well.

That's great to hear about the team. Just on my second question, just on free cash flow, the 17% to 20% growth for 2026 is great to see. Are there any headwinds per se or one-time items that we should take into account when we think about free cash flow conversion in 2026?

Yeah, Paul, thanks, Fred. Maybe I'll start, and Chadwick, is there anything you want to add? Look, I could only say this directly that 17, with an outlook of 17 to 20% free cash flow growth, I don't know where I come from, that sounds pretty healthy, if you will, year over year. We had a big one-time item last fiscal year, which was a $250 million tax on the gain of the divestiture. I think on some analyst models that may not have been perfectly modeled coming into 2026, or maybe we haven't perfectly communicated all the elements around that. Maybe it's a combination of both. I'm real pleased with our outlook coming into 2026. I'm going to sound like I'm from the Midwest here, but you know, where I come from, 17 to 20% free cash flow growth year over year sounds pretty good. Yeah, Chadwick?

Speaker 1

No, I echo that. I think, Paul, the only other sentiment we've had is any other things to think about on the tax side and any changes in the U.S. tax side, but we've assumed constant for now in terms of the tax levels coming out of Q4, whether there's any headwinds or tailwinds. We're pretty comfortable with the assumptions we've made. Otherwise, it's a good core model.

Speaker 7

Yeah, you look at the adjusted rate in the K, we believe we can maintain that. We don't see any extraordinary items, right, here in 2026. It's really clean execution running room for us. Our outlook is 17% to 20% expansion year over year.

Speaker 6

Thank you. Our next question today comes from Kevin Krishnaratne with Scotiabank. Please go ahead.

Hey there, good morning. I joined a bit late. Apologies if some of these are mass, but thanks also for the disclosure on the cloud breakdown. I just want to clarify, are you saying that you will grow cybersecurity this year, or do you hope to grow that in time? Is it a goal for this year that that'll be positive? Also, related on the slide, can you remind us on the business network 30%, how much of that is transactional based?

Speaker 7

Thank you for the question. We're looking to take the negative 4% growth and turn that into positive growth here in 2026, real simple. On the business network side, I don't know how to answer the question, what's transactional. Maybe we can take that off the call and better understand the question.

Okay, no worries. The second question that's gone here, capital allocation, you provided the midterm sort of guide. Can you talk about the divestitures element, sort of what you're thinking about there? I know on your last call, you kind of broke down the business perform and outperform. Just wondering if you can talk us through the thought process there, timing and valuations and things of that nature. Thanks.

Yeah, sure thing. Thanks for the question. We're going to continue to consider divestitures if and when they make the strategic sense for us. The rationale is very simple: accelerate our growth rate. There are elements inside the portfolio that we want everything to perform. We think everything should be performing. There are categories, market conditions, timing, product cycles where categories can outperform. When you manage a portfolio business, that's the way to think of it. You want everything to perform. You want certain categories to outperform. We'll have opportunities like we did on the mainframe business. The mainframe was EBITDA rich for sure, but not strategically important going forward for us and growing our cloud. Everything is singly focused on accelerating cloud. We had 2% revenue growth in 2025, outlook 3 to 4%. How do we keep accelerating our cloud growth rate?

Kevin, that's how I would kind of look at the lens of M&A, divestiture. Our strategy is to keep accelerating our organic cloud growth rate.

Speaker 6

Thank you. Our next question today comes from Seth Gilbert at UBS. Please go ahead.

Yeah, thanks for taking the questions. Maybe to start, you know, free cash flow in 4Q was a bit stronger than we modeled. I was wondering if you could talk about some of the drivers here and if there's anything one-time in 4Q, knowing that there's nothing one-time in FY26, but maybe there was an early renewal pull forward or something else. Thank you.

Speaker 1

I think it was pretty aligned to expectations, a little bit better, really driven by, to be honest, the core revenue coming in even stronger and progress on the business optimization. No real one-times. This was core operating progress, Seth. I think it's a great catch, but a great outcome that we're really proud of.

Got it. Maybe as a follow-up, I'll echo the positive sentiment around the additional cloud growth disclosures. With those in mind, I was wondering if you could talk through the drivers of what's leading to the cloud acceleration. Is it the 35% of the business, which is the content, OpenText™ Observability and Service Management (OSM), and OpenText™ DevOps Cloud, kind of like continuing to accelerate, or the business network, cyber, and others turning around, which of course represents a larger piece of the pie?

Speaker 7

Yeah, I mean, thanks for the question. If we look at content, DevOps, and OSM, kind of maintaining that greater than 10% rate, that's a very, very double-digit growth rate, is very healthy. Getting business network back from in the black to in the green, if you will. We have a great new AI translation tool, and we're stepping up to some bigger wins. You heard me and Todd talk about very large, many large wins over $1 million. AI and control tower driving BN growth, and then cybersecurity going from minus 4% to green. That's the run of play here for 2026.

Speaker 6

Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Barrenechea for closing remarks.

Speaker 7

Thank you, Rocco. As you can see, fiscal 2026 is a year of expansion and growth. I look forward to spending more time to discuss the year ahead, listening, and driving stronger performance. I will be personally attending the following conferences and events. I look forward to spending time together at Oppenheimer Virtual Technology Conference, August 11, National Bank Financial Montreal Roadshow and group lunch, August 14. I look forward to being in Montreal. Citibank's Global Tech Conference in New York City, September 4. BMO's Tech Conference in Toronto on September 9. I look forward to a great quarter of listening and engagement. Thanks for your time today. That ends today's call.

Speaker 6

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