Open Text Corp at Citi Global Technology Conference

Sep 05, 2019 PM UTC 查看原文
OTEX.TO - Open Text Corp
Open Text Corp at Citi Global Technology Conference
Sep 05, 2019 / 06:55PM GMT 

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Corporate Participants
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   *  Mark J. Barrenechea
      Open Text Corporation - Vice Chairman, CEO & CTO

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Conference Call Participants
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   *  Daniel William Jester
      Citigroup Inc, Research Division - VP

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Presentation
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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [1]
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 Thank you for joining us. My name is Dan Jester. I'm from Citi's Software team. I'm the newest member. And I'm very pleased to have today OpenText. We have Mark Barrenechea, who is the CEO and CTO. And we have also some of the OpenText's colleagues here as well in the audience. We're very happy to have you, and thank you for coming.

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Questions and Answers
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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [1]
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 So maybe just to kick off for those of us who are not as familiar with OpenText. You're leader in Enterprise Information Management. And can you just talk about a little bit for OpenText specifically some of the big themes and trends that you are taking advantage of in that market?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [2]
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 Yes. Sure thing. And Dan, thanks for the invitation. It's great to be part of the Citi Global Technology Conference this year, and this looks like a fantastic event, so thanks for the opportunity.

 Enterprise Information Management, this is infrastructure software and you have sort of the systems management and security side of the house you have structured data in the database management world and then you have this incredible opportunity around unstructured data. And we're a wide horizontal platform. We see it as a $100 billion TAM, and we set out to -- an ambitious goal to be the market leader in this $100 billion infrastructure market around managing, securing, providing insight to unstructured data.

 Some of the biggest trends right now is with the movement into cloud, its almost like 10-, 20-year unprecedented opportunity as enterprises replatform and retool into the cloud.

 And so our customers are rethinking about customer -- of around content services and how to experience their content. That's also creating information sprawl where content, like an unguarded zoo, all the animals are out wandering around for datas and Salesforce. It's in SuccessFactors, it's in DocuSign, it's in this plethora of places. So we're helping companies do that app-to-app integration to manage and minimize information sprawl. So we see opportunities in migration to the cloud, reconnecting with content in new ways, managing information sprawl are some of the top themes.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [3]
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 Fantastic. So if you take those themes and then drill down specifically to OpenText, maybe you can talk a little bit about 1 or 2 of the most popular solutions that you have and offer new clients?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [4]
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 Sure. Sounds great. We have some scale and we have scale in 3 areas and other places where we're incubating and growing. The first place of scale is our heritage, which is content services. We're the market leader here. And, again, big trends here are compliance, privacy, regulation, moving content into the cloud, new ways to store and secure it.

 Second big market for us is business networks. We're the market leader here. We compete largely against IBM in that space or it could IBM in the first space. And companies are retooling supply chains. They're trying to digitize everything. On one side, China could be a headwind and on other side, it's a tailwind because if you're moving your supply chain lets it digitize it while you're moving it.

 There is also a big opportunity here to support the new circular economy in ethical supply chain and building those features into the trading grid and your trading partner. We're $1 billion cloud today. We're $1 billion EIM cloud built from 0 over the last 7 years. So those are 3 big areas for us, while we are incubating and scaling up security and analytics.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [5]
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 Great. So this summer, you had 2 really big releases, EP6 and OT2, which I think that you've said were the 2 largest kind of simultaneous launches in the company's history. So we're a few months past that. Can you just give us an update on what specifically those 2 products and maybe just some of the key upgrade features, and then kind of client reception over the past few months?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [6]
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 Sure. So a few things there. So Release 16 is our kind of main product line today. And we've gone through a series of very rapid enhancement packs. We call them EP1, EP2, EP16 the latest, so the EP stands for an enhancement pack. So we've been out there with a steady drumbeat of new security features, new ways to integrate and hybrid workloads, the ability to containerization and just very feature-rich, very rapid releases in Release 16.

 OT2 is -- we weren't born cloud, some companies were born in cloud. We are reborn cloud, if you will, use that expression. An OT2 is -- stands for OpenText 2, the next generation of OpenText. And this is 20 years of experience, 20 years of IP, all our know-how natively in modern tech DACH SaaS platform for EIM.

 And OT2 is also opening up new markets. We are entering the microservices world where everything we've done from applications and being kind of visible to end-users, we're now trying to enable this API economy and being microservices and having organizations embed us in the workloads by just calling out to our cloud for things like intelligent capture, send us a million documents a day over the web, and we'll send you back all the metadata.

 Enable archive, instead of blasting all this data on-premise, just point the services into our cloud, and we're now your regulatory compliance platform. Those are the type of services we're offering. So it's very exciting for us to keep going through this rapid release of features and offering now in parallel this new reborn, built-from-the-ground up SaaS platform in the OpenText front.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [7]
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 Great. I want to come back to cloud but before we do that, you also made a couple announcements expanding your relationship with Google, expanding your relationship with SAP. Can you dive into those relationships and for OpenText, specifically, what can we see over the next 6 to 12 months from these expanded partnerships?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [8]
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 Yes, great question. So we're still a young company and I would like the world to keep understanding that. We're only 27 years old as a company. And as a 27 years old, we've -- last year, we delivered a $2.9 billion in revenue, and we're still a young company. Our target is the Global 10,000. We're only 40% penetrated today, which means this 60% in the market opportunity that we don't see directly.

 So we're still young, we've always had this philosophy of scaling efficiently, being one of the most productive software companies out there. You see us -- you see that in our margin, which means we rely on partners, right? To help us scale intelligently and continue to grow profitably.

 We've had a great relationship with SAP because that's also where a lot of the Big Data is, employee data, supply chain data, vendor data, asset data. So where the Big Data is we integrate. We've been their content platform off cloud and they've went through a big evaluation as to who they want to use in cloud. They evaluated Box, they evaluated Microsoft, they evaluated everyone in the market, and they chose OpenText. So we are their cloud platform for their new HANA workloads. For Concur, for SuccessFactors, for all their web properties, we're their next-generation cloud platform for content services. So that sort of the core of the SAP announcement. We also made an announcement recently with Google, where we're going to be leveraging the global Google Cloud Platform for things like FedRAMP in the U.S., disaster recovery, very important secondary workloads inside the enterprise. And we're going to integrate to many of their capabilities. The ability to real-time translate content, the ability to real-time transcribe content, leverage their facial recognition capabilities for the next generation of content and integrate into their clickstream for smarter in-context content.

 So these are 2 real important partnerships that we announced over the last 90 days.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [9]
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 Okay. And as we look forward, are there milestones we should be looking forward to, to kind of make sure that the relationship is progressing as anticipated?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [10]
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 Oh, sure. Let me just say it's progressing amazingly, right? And the first is the delivery of the product and we've already delivered the first cloud products in both of those. I just watch for great customer announcements, great customer benefits and the milestones will be real easy to track along the way.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [11]
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 Got you. Sticking to the cloud, you've also announced that starting next year, you'll be launching cloud editions.

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [12]
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 Yes.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [13]
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 Which I believe is going to be cloud-first but not cloud-only. So can you just talk about since you made that announcement, how has been the feedback from your customers and how is that progressing towards that launch that's going to be coming next year?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [14]
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 Yes. So another great question. So Release 16 has been our sort of main line product offering, Release 16 comes to an end. The next generation Release 16 is OpenText cloud editions.

 And it is a cloud-first option in all our technology. So we've taken all our OT2 work, all our learnings. We have 3,000 managed service customers in the cloud today. We have close to 50,000 customers running other types of cloud services from us. We've taken all that learning and just come to the next generation of Release 16. We call it cloud editions, fully containerized, fully native to the cloud and it is cloud-first.

 So we'll be leading with running in the OpenText Cloud, running in the Google Cloud, all the features you would expect in a cloud product and the reaction has been great. So it's not cloud-only. We're still going to sell a lot of license in the markets that we're in, but where is the emphasis, right? Is it on-prem in cloud or is it off cloud in cloud. So we've changed terminology to say it's off cloud in cloud and it's cloud-first because the emphasis is on cloud.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [15]
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 So for your customers that you're trying to convince to go from off cloud to cloud, what are some of the factors that you're trying to convince them to do that versus the pushback that they come to you and say, well, maybe we're not quite ready for that yet?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [16]
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 Yes. I still don't -- I don't envisage a cloud-only world. And there are a variety of factors here. One, it's still customer choice, and it's one of the great benefits of OpenText is we're going to allow the customer to choose.

 Customers who make 10-year decisions, they understand a license model is more cost-effective than a cloud model. We're a capital allocator at the end of the day at OpenText, we're an acquirer and we allocate capital. We do a lot of due diligence. We're engaged in a lot of sales cycles and I can unequivocally say the answer is 42.

 At the 42 month point, it is more economical to own a license at 42 months. It's also the answer to the motorcycle repair in universe, but it is at 42 months, right? And our calculation show. So if you're making a long-term decision, it is more economic to own a license. Now regardless of how you deploy it, right? You can deploy it in multiple ways.

 But we're going to -- part of the benefits of CE, never upgrade again, right? So it is a cloud-first, cloud-native, never upgrade again. We provide the full ITIL stack around it. So 99.99% of availability. We will do it less expensively than your internal IT. So those are some of the big benefits. It's cost less, it's secure, you'll never upgrade again, it is instantly global, it's a platform you can build on.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [17]
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 Great.

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [18]
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 But it's still more economic on the license and some of the big customers really understand that.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [19]
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 Okay. So maybe this is a good pivot point to just growth and talking about your total growth strategy and maybe we can pull apart the 2 pieces, we can talk first about sort of your organic growth outlook.

 Can you just talk a little bit about how you envision that over the coming quarters, are there areas of the business where you see the ability to invest significantly to reaccelerate that or are you managing your business for margin, maybe just talk about some of the puts and takes?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [20]
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 A lot in there.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [21]
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 Yes. You can unpack it in any way you like.

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [22]
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 Thank you. We have a strategy. We call it total growth, which is we develop technology and we acquire technology, which is to say, we're capital allocator, we lead. Our greatest growth driver is acquisitions plus organic growth. So we add that altogether.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [23]
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 Got you.

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [24]
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 Kind of retain, acquire, grow equals total growth for us. On the organic piece, right, maybe before I get there, we are believer of the Rule of 40, right? Can you -- your growth plus your margin be greater than 40. And obviously, there is a lot of emphasis on big growth companies with no profits, they get above the Rule of 40. We get above the Rule of 40, we delivered 38.4% adjusted EBITDA yield last fiscal year, plus 5 points of growth. We delivered 40 -- we're above the Rule of 40 at 42% versus all the companies with high growth and no profit and no hope of ever having any profit.

 So we are a big believer in the Rule of 40, but you got to lead with profitable growth. On the organic side, our cloud will grow high single-digit this year. Our total company organic growth we expect to be in the low single-digit. And we're going to do that from a very optimized position of margin. Our target for the year is 38% to 39%.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [25]
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 Got you. So shifting then to the acquisition part of the total growth strategy. Few things that I want to go through here. First, maybe just an update. You made a couple of acquisitions late last year early this year. Can you just give us an update on the integration process, are they meeting their benchmarks, just an update from that perspective?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [26]
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 Yes. Sure thing. So for those of us who may not be as familiar with OpenText, we're a capital allocator. Over the last 6 years, we've put $4.5 billion of capital to work from acquisitions, from Documentum, Covisint, Actuate, Guidance Software, and most recently Liason and Catalyst. And the 2 acquisitions were on target. These are nice tuck-ins for us, if you will. Catalyst adds to our kind of vertical app strategy and legal tech and for the most part of the business is already integrated.

 They're providing -- the legal tech market is just booming around how to apply AI, how to apply cloud and cloud technologies to the legal industry around, discovery, legal hold, hand me 10 million documents and give me back the 10 interesting documents and humans -- machines to do that better than humans.

 So they're, for the most part, fully integrated at this point and right on target and nice tuck-in. Liaison is a real star in the portfolio. They compete against MuleSoft. They were #3 in the market. And as we kind of lift up our business network to not just be kind of a transactional platform, we're looking now to Liaison, it's helping us be an app-to-app integrator, out-of-the-box you're a 10,000 canonical, 10,000 out-of-the-box integrations.

 How do you take Oracle applications and connect it to JD Edwards? How do you to take an SAP app and have it talk to Concur, right? How do you make all these app-to-app connections that have all your ERP transactions for the supply chain and HR flow.

 So Liaison is going to be a real start. I'm really happy with it. We're on track. The integration will be complete over the next quarter.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [27]
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 So as you mentioned previously, almost $4.5 billion of acquisitions over the past 5 years, but you haven't done one in 8 months?

 No, not to say that you have to do one every specific period, but from your standpoint how do you see the M&A market now? How is your candidate list and I think most importantly, how has valuation changed? Because you see in the public market valuation has expanded a bit. Have you seen in -- the same in private markets and how does that affect your willingness to deploy capital if valuation is maybe a little bit stretchered or challenged?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [28]
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 Yes, I might take it out of the box view here for a moment. First, our -- the top of our pipeline is more active today than it was 6 months ago. And to the degree, we're an early indicator, our level of conversations are up. The amount of companies we're doing due diligence on is up. And we expect to close deals at our historic ranges this fiscal year.

 The place where I'll take maybe an out-of-the-both view so I think valuations are beyond their peak. And I think you see a real bifurcation in the market of kind of the best of the best still garnering their valuations.

 But you see a whole host of other companies that were getting valuations based on growth and no profits, no longer getting those -- those star valuations on lesser growth and no profits.

 As the economy becomes a bit more volatile or the economy turns downwards, it advantages OpenText, because we are in a position to be able to deploy capital and our balance sheet is in an amazingly healthy position right now. We have close to $1 billion in cash, we have $450 million undrawn revolver, our debt ratios are at the lowest they've been historically. We have easily of our balance sheet $3 billion in capital that we could deploy.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [29]
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 Got you. So actually balance sheet was something I did want to talk about. So obviously you just gave numbers as potential deployment, but what would be the characteristics of an acquisition that would get you to go to the high end of that range versus more tuck-ins?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [30]
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 Yes. The -- so we're -- we sort of operate and I'd like to call them swim lanes, 3 swim lanes. The first is kind of the small category. And these are opportunities, maybe $25 million to $50 million, let's call that small categories -- call small category. One thing I'd like to improve in our business model and get better at it is we build the better OpenText in the coming years. It'd be a bit more predictable in M&A. We don't get the value today, present value for future acquisition, and that's fine. But I'd like to show that we could be a bit more predictable in deploying capital. And I think this category of small as we built a dedicated team to do that will show more predictable pace going forward. There is also assets out there that are little smaller that will get lost integrating into the big mothership, and we think we can manage them a little differently in our new, what we call the portfolio group. So watch the space in the coming quarters.

 Then you have the medium category, if you will. We close the year $2.9 billion last year, historical growth rate of about 12%. And if you are getting 8 to 10 points of that from M&A, that says we have to put to work $600 million of capital a year, $300 million of revenue at our historical multiples.

 Our cash flow today, our operating cash flow after CapEx, after dividends, after interest, we're throwing off near $700 million a year. We are self-funding our M&A now, right? And we have excess cash from that M&A.

 And in the large category, we certainly have the bandwidth to do both the leadership bandwidth, the organizational scale and structure and the balance sheet to do a larger transformative acquisition.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [31]
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 Okay. And when you think...

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [32]
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 So we're investigating all 3 of those swim lanes from, I'd like to say small, medium and large.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [33]
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 Got you. And maybe just -- can you just comment about the capital location more generally. How -- you -- how does the Board view M&A versus buybacks, dividend versus M&A like -- what -- how do you see all those moving pieces put together philosophically?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [34]
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 Yes. So the most important metric in M&A for -- in the OpenText business system is ROIC, return on invested capital. And if you can't achieve a ROIC, we won't do a deal. And we completed fiscal '19 at about 18% ROIC, so we target the high teens ROIC, we deliver high teens ROIC in '19 and that's the most important metric.

 The secondary metric is I write a check on behalf of my shareholders when I complete an acquisition, I want that money back in about 5 years. So write a check, I want it back in 5 years. So that's sort of kind of metric, really is the key metric is ROIC in any given deal.

 We set as a model for our business that we take 20% of trailing cash flows and allocate that as a dividend and that returns immediate value to shareholders, allows us all the strategic flexibility that we need in the business. And over the last -- since we put the dividend in place 5 years ago, we have consistently grown our dividend year over year over year by 20%, because as we've grown cash flows, we've got more efficient, have been able to return that capital to shareholders.

 As it relates to a buyback, we apply the same discipline to other companies to ourselves. And as long as we're achieving high-teens ROIC on an annual basis, it's the best way to allocate capital versus doing a buyback.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [35]
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 Got you. And just -- while we -- when you make these small- and medium-sized acquisitions, your sales force has to go out and sell it. So can you talk a little bit about sort of the methodology for -- can you tell your sales folks to go out and sell the new product and sales incentives kind of more generally, how do you view that, especially given the sort of the M&A?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [36]
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 Well, some of the things that differentiate our M&A model is both kind of our value orientation, but it's also we believe in integration. We go for deep integration day 1, and we're among the fastest time to value in an acquisition model. We target 12 months to have a company integrated and on our business model once acquired within 12 months. So the key word there is integration, integrate, integrate, integrate. Integrate the systems, integrate the sales force, within 2 product releases, the product must be integrated and on the platform, if you will.

 Liaison, Let's take Liaison. When we completed the acquisition, we integrated Liaison sales force into our business network sales force, we picked the best of the sales managers, we picked the best of the AEs, we did some account reallocation and got them trained and educated, expanded our account coverage and off we went, but we integrated the sales force. As a key differentiator in the OpenText business system is integration.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [37]
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 Got you. Maybe just pause for a second, if there is any questions from the audience? All right. No coffee yet but maybe we'll get some. So maybe just some questions on profitability because you talked about your margin.

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [38]
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 Sure.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [39]
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 The 38.4% last year, I think you have a target to grow that a couple of hundred basis points over the next few years. Can you help me think about the bridge from where we are today to where we might be in 2 or 3 years from a margin perspective? And if for whatever reason, you maybe get a little bit above that margin, what do you with that, that excess cash?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [40]
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 Sure, sure. Great question. We -- if we look back 10 years ago, as a business we're operating in the mid-20s (inaudible). Last year, we closed out at 38.4%. At 27 years old, we are more productive than Oracle was at 27. At 27, we're more productive than SAP is at 50 and will be more productive than any SAS company like a Box or DocuSign ever in our business model.

 We set out to be a productivity leader, and it's really important as a capital allocator, that we hit a high-teens ROIC, but as I deploy cash on behalf of my shareholders, I'm going to deploy it into a productive highly efficient machine, so we set out to be this productivity leader.

 When we step back and look at software, there is only 10 companies performing better than us that we can see out there in terms of margin at scale. So we see a path to get above 40% longer term. Look at the -- our license business, we're operating at 97% gross margin. Can get another 100 bps, 200 bps on the license line? Absolutely, we can get there over time. I look at our cloud margin today, we're operating in the high 50s, we are aligned to get to the mid-60s in the coming years.

 Our CS business hit 90% margin last year. Can we get another 25 bps, 50 bps per year in the coming years? Absolutely, we can. And our PS business operates in the low 20s, already optimized.

 So we see a path to kind of hit our long-term model of 38% to 40%. But we have a path above that. I don't feel I need to deliver above 40%. At 40%, we're at upper quartile, Oracle is at 44%. I'd rather reinvest above 40% into more growth. So we've done an amazing job of going from mid-20s to high-30s. We see a path above our projections of 38% to 40%, but we don't feel we need to deliver it, we'd rather take above 40% and reinvest it back into the business for more sales growth.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [41]
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 Great.

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [42]
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 So there's a real strong story here of one of the most efficient software companies on the planet a path to get more efficient and to reinvest that efficiency into more organic growth.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [43]
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 So earlier in the conversation...

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [44]
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 That's why I've a change in our messaging from last quarter, right? So last quarter, we've come out with that reinvestment strategy, and thus we're communicating it more broadly.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [45]
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 Okay. So earlier in the conversation, you said that you penetrated about 40% of the Global 10,000.

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [46]
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 Yes.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [47]
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 So you're obviously a very International business. So can you just maybe region by region talk a little bit about through the macro, obviously everyone talking about macro, what's going in the macro. Asia is little smaller for you, but can you talk about what you're seeing in Asia and maybe talk about what you're seeing in Europe as well?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [48]
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 Yes, fair enough. So $2.9 billion last year or so just shy of $3 billion. We operate over 30 countries around the world. I think the thematic piece is what about China, right? What about Western Europe. And I think we all need to be prepared for a multi-year sort of working out a new trade relationship with China, right? This is a -- I won't call it existential, but it is the moment in time.

 You look back over the last 100 years, and what's the export rate, what's the global trade rate? I don't think history is any guide to the future actually. So I think we all need to be fairly prepared for a multi-year recalibration of trade with the 2 greatest economies. I won't go into what's right or wrong or policy, but I just think it's a long-term fundamental change in thinking. China is a very small part of our business. We -- let me flip the 40% coverage to say we're 60% uncovered, right?

 So there is 60% of the world's opportunity we don't see today. We're still a young company, we're 27 years old, and 60% of the Global 10,000, we don't cover. So I got plenty of opportunity in the U.S., Canada, Western Europe. We're building stronger business in the sub-Saharan, Middle East, Japan and broader APAC. So I really like this 60% uncovered and kind of taking our 40% coverage up. Maybe just doing kind of quick round the world, the U.S. is probably about 15% exposed to tariffs.

 Most companies have sort of absorbed the first wave of tariffs. This next wave is going to be interesting if it's very real at the end of the year. We saw some issues in Germany in manufacturing last quarter.

 But there is still a strong demand for enterprise software.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [49]
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 Great. When you talk to your clients about it, how do they view it? Do they see the world through your lens or is there a bit more debate about sort of how things can play out? And what could that mean for your order book and things like that?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [50]
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 If you don't know the landed cost of a product, how can you forecast your manufacturing, period, right? This is still a physical world, you're buying parts, you're buying nuts and bolts and aluminum. And if you don't know if the price of the widget is $1 or $3, how can you go model a complex supply chain? How do you know what to build, at what cost, right? At what margin, if you don't know the cost of a component?

 So we see customers who are moving out of China to Cambodia, to Vietnam, to Bangladesh, some at capacity there and are moving. Some are moving back to the U.S. and at a level that's an opportunity for us. If you're moving your supply chain, let's digitize it as you're moving.

 So I think the one take and one leave behind, I would leave with you. What we saw in our customers is a really discussion around how can you forecast and plan if you don't know the cost of something? And I think today people know the cost more so than they did maybe 6 months ago.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [51]
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 So maybe we just have just a couple of minutes left. One more chance for the audience if they have any questions.

 All right. Well, you're going to have an Analyst Day tomorrow?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [52]
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 Yes, we are.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [53]
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 So maybe for just to wrap up, is there any preview or sneak peek you'd like to give us as to what you're going to talk about tomorrow?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [54]
------------------------------
 Sure. Great wrap up question. We're at the [L’otel] hotel until tomorrow. So everyone is more than welcome on our Annual Analyst and Investor Day. Top messages for us. EIM is a strategic market, and it's as important as ERP and the world is transitioning from how much more new ERP do we really need to deploy, right? It's not about getting a process advantage today while getting an information advantage. So we're going to talk about the strategic nature of Enterprise Information Management. Second, we're going to talk about our capital allocation model and continue to emphasize we're a capital allocator and as markets get little bit more volatile, we're in a incredible position to put capital to work.

 We're also going to talk about the durability of our business. We're very proud of our business system. We're still building for a better OpenText, but at high recurring revenues, high 30s in margin, one of the best cash flow rates in the industry, we have a very durable business up economies and down. And the executive leadership team is real eager to kind of present their strategies of how we're just building a better OpenText for the next generation. It's a bit of the preview.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [55]
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 Great. We're looking forward to it.

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [56]
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 We have a question from the audience. Yes, I'll repeat the question.

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 Unidentified Analyst,    [57]
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 Earlier you mentioned that the M&A (inaudible) pretty more active than it was 6 months ago. Are there any specific kind of point products or markets that really interested you?

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [58]
------------------------------
 Yes. Fair enough. Thanks for the question. The question was I noted that the activity is up, kind of over the last 6 months and are there any particular areas that interests us more than others?

 I typically don't get too specific areas because folks then try to correlate what we might be considering. But our main areas that we're looking in is there's still plenty of green space in our core markets, content services, it's a large market, expanding market. So we're -- lots of green space there. The business network, all the way up to stacked applications is a green space for us.

 And then we also tend to look for geographic and account coverage. We can pick up an industry or a region as part of an acquisition. And I know the world is very U.S.-centric, but there are a lot of countries out there. That's a great opportunity for Enterprise Information Management.

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 Daniel William Jester,  Citigroup Inc, Research Division - VP   [59]
------------------------------
 Great. Anything else? All right. We are about out of time. So Mark, very much appreciate your time. Thank you so much.

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 Mark J. Barrenechea,  Open Text Corporation - Vice Chairman, CEO & CTO   [60]
------------------------------
 Yes, thank you very much.




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