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Micro Focus International (MFGP)

Participants
Stephen Murdoch Chief Executive Officer
Matt Ashley Chief Financial Officer
Charles Brennan Jefferies
Will Wallace Numis Securities
Call transcript
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Operator

Good afternoon, and good morning everyone. Today's earnings call covers the Six Months Ended the 30th of April 2022. I am pleased to be joined today by both, Stephen Murdoch our Chief Executive and Matt Ashley, our Chief Financial Officer. The slides for this presentation will be presented as part of the webcast facility accompanying this call.

For those participating by phone, the webcast and the slides can both be accessed on the Micro Focus Investor Relations website. call website slides finishes. shortly this available be of this on after recording and will the made A the call the have forward your look presentation, as After of many to questions for. time covering we as we I to an would overview Stephen provide period. now hand the to to like over of

Stephen Murdoch

Interim was behind strong innovation cash welcome under we within expect progress delivered it be. operations Presentation. And in revenue, on with Russia the product cost, ahead everyone, and point. and just Results and line on our revenue we Hello commitments. in half, we're where little on a half that, to our a by Summarizing we're in suspended We this in QX to impacted

evidence efforts levels subscription that underlying Looking beyond in SaaS quality traction. the the to and improve in headline our key of areas high are gaining and recurring clear portfolios revenue figures, grow is there

in and of sub now four three AWS. on our example, in growth strategic double-digit delivered For we of partnership mainframe modernization with track we're our of independent cyber another in portfolios period

as period. in ITOM we're was capabilities a priority including able mature results metrics license in to exit much a in pleased are and the Overall, to can portfolio, the on we from actions trends ‘XX more points SaaS run There key underlying percentage beginning to FY any and of important that large in new we having the X deliver remain delivered with progress our disappointing are the focus transactions our cyber. not number performance growing in of portfolios in approximately improving solutions still have product, cause is rate. by every in smooth Maintenance with the of areas. also Our evidence improving revenues out individual yet volatility whilst decline critical do, our rate

the on last Difficulty] The Looking more has geo emerged like the we to do world prices valuations made a few spike global tech combining inflation, growth relating moment collapse to broadly, macroeconomic or complex new slow supply to to since more in spoke. and feels investment dramatic I mention it chains, out [Technical to whole But take unprecedented. not particularly immune course draw to a important points. have clearly We're costs cycles. market want of and backdrop factors even a not

model. products a sectors with We and a spread have proven customers, we have operating geographies, of wide highly cash and generative

have more essence, and customers they in Cloud maximize Our them help value the get on opportunities such customers enabling we from an ROI proposition is value priority their investment exploit environment. constrained more a from are technology. in what to from well, this they SaaS, focused for means In we investments as this make even already to Executed new bridge AI. and

while macro a against backdrop, focus. much to So inherent which challenging we immune, it's not do on have more strengths

the progress made me remainder Matt through numbers. With are we in Matt? on continuing this our next. of HX hand Finally, year into that, strategic to take through the focused and let to and this over on you priorities

Matt Ashley

Thanks, Stephen.

$XXX This perhaps a Our underpinned million, our of in our of Revenue constant excluding of is reduction $X.X by generation year-on-year, financial cost of decline million, EBITDA $XXX Safe. cash performance billion program. X.X% Adjusted expectations. have to importantly Digital line Safe with proceeds And a free earnings. exceptional flow currency most sale We and to reduce of have representing and led the quality HX an Digital overall increase on committed completed has of pay down used improvement done. to spend XX% we debt. our the in ‘XX. We

of There leverage is X.X refinanced in of refi billion good a October it has transaction refi is chance year. our prove on the $X.X and be team this the by only about reduced this times. win We $X.X may of just since basis that year. January billion debt As the the treasury a result, our by to debt successfully reduced year net will over

X% in Finally, usual have basis performance constant trends has our trading in line. a adjusted In dollar We our strengthened Financial a to period. our EBITDA as million we revenue present and currencies. or and the we an an to major dividend on a X% the euro EBITDA the around the a and This interim The U.S. was performance, presented which the euro of headwinds hedging in debt. debt, are match million are $XXX by the all $X.XX. strategy as dollar underlying against period, $XX resulted dollar line in reduction has our at business. and currency headwind works. earnings proposing This offset headwind

Our of budgeted EBITDA and reduced cost an partially X.X% net delivered at base a reduction saving our revenue actions this of of X% been margin by by at which adjusted we for reflects basis, $XXX on program, inflation, has combination per XX%. annum. cost cost The the a million offset which circa

in that The in the the which spent been previous able of half Our attrition million exceptional partially cost of of $XX disposal actions, year, We lining program. use hot of by in of leading to is $XX now million redeployment and material is the our expect the to market, first dark to this guidance in a million exceptional our cost credit year. an quality on compared spend million. spend, is offset million full on of reduction exceptional profit the improvement we $XXX to the We silver to $XX in spend. Digital earnings. half, is the $XXX to to with the have labor compared combined last million minimize charge the Safe total cloud, in $XX reduction generated The first around an

HX Turning HX to ’XX now to reconciles ’XX. revenue. waterfall This

Digital Excluding million a point Safe at from FX million the starting (ph) $XX is $XX and currency. headwind, revenue of [X.XXX] constant

suspended QX, we our During Russia operations.

reduced which this by X.X% revenue half. the restated impact, not We in for have

was in License. $XX our generated against completeness, than volatility like. offset of For is previous goal would overall, line strong periods last decline with scale to seeing our portfolios we in from by the what This Russia. fully are revenue. in more combination a we expectations is growth and disappointing mature our are delivering deals volatility Essentially, of our growth nature consistent revenue the a not we in in growth year license underpins more because we new decline of at our individual are million performance of still lumpier. sustainable revenue Whilst of are yet The period. within X.X% license these with license actions profiles which

planned Maintenance is are and points percentage yet. run line the year. delivering by Maintenance. HX performance this, the X our is not trajectory encouraging. last period there term This revenue we still but improved in is We have made with in ambitions. medium SaaS progress from exit improving, in below in but SaaS. is our rate

compared increased of are revenue we revenue ’XX. where medium to will period deliver growth growth. improvement. third SaaS accelerate is the We the to first over the by and now the to X.X%, This Here in position half of double-digit expect it sequential term,

in revenue. declined revenue consulting. Consulting X.X% Finally, and line license with by

hot actions year, bar ’XX remains are tech the the In million. We more The broadly reflects cost are and million in closely prior That to Inflation which product FY waterfall, the and within savings. our we in totaled sector short-term track and our said, topic the $XX base first immune. cost of against group. not to half. Digital balance continue the X% a $XX by and increased We consistent new first Inflation the attrition period cost in $XX we year. the on than Safe costs market deliver $XX our million million to both incurred last same goals the is we'll with continue invested staff estimates. monitor labor long-term

said our spend in EBITDA. with You $XX I of in treat on we was will these no this $XXX IT an equivalent income The is longer on exceptional than we million. to return We investment which investment recall as million, which savings relates basis. an deduct cost annualized And of an platform, $XX we IT million, by other $XX rather to The reduced received million costs associated severance our investment. approximately $X million underlying November, cost. an from excellent finally, ongoing

the So us for gives of made in the the first to sight full-year. a half clear line progress summarize,

my process we are ’XX Currently, clear We progress ahead challenges cost and are slide of the within making given identified the the in are have and planning in cash slide approximately improving we required of generation. original the savings. wider the the our gross for inflation in parameters our remain demonstrates half the vigilant of environment. Cash. This but deck macroeconomic assumptions, remains favorite

in In February, half, of XX% exceptional highly cash one, our delivered in to the in I ’XX. in cash rather million we are in beginning how we improvement: reduced turn flow see Overall, Focus spend. half improvement working compared EBITDA remains for business. charges; Micro spoke three capital; reduction this cash a can $XXX in you the an drivers three, adjusted of and invested exceptionals. into than two, more Here, generative increase tax free first have to of to first

exceptional continue in legal included in capital the prior was the of Our settlement seek $XX inflow the the minimize half. the the million working period had inflow group spend to to cost $XX going $XX Working reduction down for exceptional that and million. on but we program of a forwards. first spend The is capital. to Wapp will period This entirely of million, related provision

improved normalize $XX position was working this, you If million. for capital the

was seasonality billings. conversion the in adjusted Our cash first the demonstrates of which our XXX%, half

normal of payment have prior reduced includes current period, a Aid to million year Finally, respect $XX EU In to in million. the cash tax. and $XX tax have one-off from million. levels State half payments returned $XXX our The to

tax approximately full-year. cash expect million $XXX We of for payments the

to our summary, in by This half. achieved from we've improved been million in $XXX spend free lower tax. the reduction in has and million $XXX flow cash first So exceptional

disposal now of costs $XXX from expect tax $XXX improvement is million excluding forward reduce the the Safe. our $XXX And to our of to representing year-on-year. cash an expected Digital million guidance full-year, on approximately exceptional Looking around to million, to million, profit $XX approximately previous of be we

cash adjusted an XX for year-on-year. full-year approximately points is conversion XX% the to X XXX%, be to Our percentage of points percentage expected to improvement

of $XXX and times At first doing this gross we the term net have In increased to so in group's end and reduced net group's loans both January, the the to of maturity times debt average year refinancing half, year. leverage. X reduced the of at was end. X.X partial by the the X.X our EBITDA The announced We ratio we reduced million. and debt debt debt billion adjusted by

smaller a does The date alter rising our tranches to of the smoother of a term potential now. of from We we splitting XXXX, of creating loan our path. is use instruments combination maturity interest euro debt hedging our to therefore structure X.X ourselves the next June of against our currently financing This plan that capital on two rates. on our and refinance billion debt part in years flow X% for intention Our protection structure will allow loans with rises. an is element of rate against the protect

some increase this We in analysis result of and both appendix, euro expense. have interest in X% on a an but would incremental provided as $XX markets million U.S.

Finally, with the times. to the reduction a and our ambition of around to over our remains reiterate medium in leverage, I debt respect is the group, X key to and gearing leverage reduce priority will term

for remains unchanged. ’XX guidance Our

working Russia. to the in We revenue, absorb are to reduction due

we of million $XXX have $XXX spend for annualized year savings. million. aiming are improved to exceptionals, $XX our this our On from guidance we million costs, reducing For

our cash the full-year, changes For $XXX staying be to million I of are conversion between $XXX now back hand and tax on cost CapEx XXX% and to There expect no for cash we provide and operational of next outline years. update of our on to cash. two Stephen million, $XXX adjusted an million. will the interest XX% priorities

Stephen Murdoch

growth our product Thank month AWS performance want launched ’XX, moment. I as modernization at required service the mainframe based group cover area in the planned. once and And double-digit a ADM, solutions. additionally, level. main I underlying HX groups in the the formally trajectory. Matt. is more of begins managed will delivered cloud specifically you, the last individual ramp to ’XX this In the in become cover improvements contract to to We move focused the now at and heart is in encouraging. will drivers more AMC to solution FY underpin on product FY SaaS this the evident

of a customers new We are SaaS transition our seeing customers solution of our on-premise or and solution. some to the combination and existing a either hybrid SaaS of

improvements remix in and a longer to in within result of quality will term portfolio. revenues the of this this SaaS forward, Going revenues recurring

expect four not The little the we're both within the delivering SaaS key we to growth sub of we're making ITOM the very a where accelerated we These trajectory had and in know, moderating bit launch stabilizing performance to We've to cyber, In key you and growth as much be, part as in our most capabilities new where improved of License rate over two the ITOM. multiple XX are progress product two As with is past site. in the of and AI. decline of roadmaps. the offerings such engagement portfolios in ahead. and months improving SaaS actions revenue in maintenance customer portfolio overall to the coupled with reposition do planned. improving revenues is progress work We're overall total in have the if portfolios the it remaining maintenance within and

the month. Our growth cash plan. well of timely an saw was in highly been overall to area partner have and and as it core to essence, a headline been managed secular thought with a applications, quality with is competition. formally are IM&G, on mainframe completed behind providers of technologies more placed announcements been On deal services suite as portfolio. strong we in X,XXXs of directly interest We've the to In modernize services the such in the of improvements with the see than solution. growth revenues such processes elsewhere DevOps. and the There's grow and earlier AWS I Through leadership revenue. have with position. In the strategically of our know last engage cloud our magnitude decades, and declines enable customers, goal a offering for ahead providers. stable, they exploit is such update and major the cloud This and we customers to modernization given breakthrough global a offering all recurring launch great working Vertica element mainframe of of we specifically, fuller this the We We've this FY delivering provide technology to our month deliver expect scale of in balance with main to numbers, work AWS this projects, launched in that of in The evaluate Blue solution with to services customers order incredibly solution more ’XX begin for to begun resulting engagements together HX. was are growing high in building is customers accelerate to solutions continue the this and goal as pipeline, market planned. ramp we to a any expectations annual subscription this generative combination, Chip expect but formal to

examples. Finally, two customer important

only but becoming the encouraging news core Santander, Firstly, Allianz where a latest heart to is of their cloud step our the digitizing in flow. and Early company. live going banking technology at applications days,

second most they for of in into solve our this that and close we we to reminding in inconsistent me make they face priorities do help challenges delivering, the need of Let this, solutions are half customers, doing. complex we past with sure we the next. you were innovation year can Starting the day-to-day. leverage of some deliver which the To by

the we delivery and more on to to latest our targeting improvements adapt base, to able focus capability. see. and SaaS and the opportunities is efficiently on products winning installed deployment maintenance execute risks is projects. new company, and competitiveness rate Operationally, becoming Our a in agile to our key and and in innovation, renewal improving the both SaaS focus of is our This

for Our focus the and programs ’XX on deliver we're to track structure. cost now reengineering simplifying FY next phase working with are and more efficiency on processes

way this things: shift to reflect us and and firstly, our to product of such The product we're enables win group business able customers. moving Finally, portfolio, to product and structure and that to optimal better this that two day-to-day. run we do the about is by talent new how alignment differs end-to-end, support

the to and creating outlined are that HX. the headwinds macroeconomic mitigate maintenance. to repeat full-year working even ’XX it to delivering detail. working and how of commitment But is to This continuing so impact means flexibility in for progress by objective to we we that the the volatility group. closing, financial will we mean Russia. I ultimately reiterate we and accelerating said to reduce SaaS, we specifics and differentiate structure discipline report earlier, and builds grow license shown continue the FY execute the in more won't the would Matt what second operational the in on important In that The The remove this I and

on leverage to leaner, cycles. we inflation to is up more remain cash continue opportunities. business a will vigilant flexible making With market the positioned stabilizing agile revenue, and committed decision customer better that, highly call open generating to attrition, strategically, We be strong exploit and More cost and questions. let's that reducing for building flows,

Operator

comes Our calling go Brennan Charles, in line of first please question from Charles from Jefferies. ahead. the

Charles Brennan

guys. Great. Thanks,

Just from me actually. two questions

Firstly, tech I'll I'm charge openly the modeling interest companies. particularly for admit, not the at good

for $XXX You've cash very year. the hopefully given number us million the

that that. What assume we two remains price leading customer lot seeing pull push can't we And a vehicle software that really of that it's number the a of curve outsized P&L through the And Just year? current license see forwards a to does is, in of some Obviously, increases? And separate performance. then as around to demand. we're topic of a in companies charge? using inflation, your cases, to on yield look in imply it as if secondly, for terms what that does related next like questions

changing pricing does insight the doing you. what in? kick you're just into Thank prices, are price if with you you when can list So and us some give

Stephen Murdoch

Hi, second then do Charlie. first and the It's I'll Steven. Matt hand I'll question to the question. for

list case and directly is business each customers. the individually and license so oriented than business with typically oriented of typically project-driven, price at those point rather Our negotiated the gets time in it's deals

a of about therefore less we in of that. negotiation. been opportunity price SaaS do the effectiveness at about increases it that maintenance. varies appropriate and look and price in is if like, hard list the less bit And for list we have pricing both do it's deal little in you we've environment we Where So about in more there leverage, renewals, in push to and how portfolio so can the time at pursuing renewal, time. wherever for But in every by that and opportunity terms renewal it's of appropriate us price

different between the Matt, business it's Charlie. renewals take do business, project to and want the you interest? the So

Matt Ashley

Yes.

cash P&L the amortized the we of we get yes, upfront that the did, period So which because pay higher is $XXX refi the over million, fees on loan.

far So if million to million guess away. on I be you $XX add you won't $XX

Charles Brennan

And me does the What just yield to like? is. Perfect. ’XX help if it where curve look out, stays

Matt Ashley

we're for million P&L So looking the the similar $XXX cash for charge. increase and at around a

Charles Brennan

thanks. Perfect. Awesome,

Matt Ashley

Thank you.

Operator

our And Instructions] next calling the in line from Numis. from ahead. of Please Wallace go question [Operator Will comes

Will Wallace

Two you. related. me for Thank then afternoon. Good please, but they're

have and Firstly, rates? related And again, been as wondering went any the of detected your just you in most of further as months? caution the costs, really of signs seen of what into conditions. staff And terms you own moved of current question you you've improving half whether attrition of couple customer a in the end of second have seeing any you behavior beginning terms in that just were was half? seeing on recent in of what terms the terms into market what you've customer seen the I in

Stephen Murdoch

I within there There was future. the sign-off individual was Yes. for and I'll the -- at scrutiny Thanks end of suspect continue The the customers. foreseeable more much on Will. quarter projects

So That's cases. decision behavior. levels cycles, see sign in constrained scrutiny pretty off, typically normally of typical more a environment, longer making you’d higher on business economic that

for of the at mission critical discretion be all the you when discretionary and example. not its is is timing Our some we in cycle, upgrade goal software the given terms around here big degree initiate nature. software of tend to use the spend of There a of

So is in number list. to good tight projects, are on to XX in afford our drive if the times sure five that afford on we focus can customer making could always projects, and drive times the they four

levels make more we decision sure higher question there construct making cases. and need So scrutiny business and But we longer All no to how sure. we cycles significantly spend, start that's is the take account just earlier for into on and customer right. approval

lot increases it skilled now hot been we've so. or other the the got on And immune talking stabilizing a about current overall the talking quite about it’s countries you things higher -- some over West market great and weekly, the, and highly market would we've back. labor anticipate and heightened nine of know, of, times, last pulling coming been it's through it attrition Coast, to kind demand. talked people tech high and seen costs the And I that pockets In incredibly terms lockdown. months, startups being on attrition, attrition slowing of monitor players been of hotter market combination and back month We've together not you resignation, other past already well, first We you've know, the out hot probably that. probably the major the raining where of coming of and about really going an way.

companies. Difficulty] in those of an we see We're work in people since moderation people. it's and I highly last or [Technical we closed year, well we to do an the to often about element we the also people are people market, So almost into have but the seven attractive suspect other we'll place X,XXX get hired talented eight now and targeted X,XXX

redeploy to through it because do people that seen I our business costs. managed been play areas our down, in So severance exit being of here. helpful a from spend will we've to watch And think managed hotspot actually and but some to in exceptional it's without moderate we've it's out, to people you've openings

takes, I and So, would say Will. puts

Will Wallace

you. Thank

Operator

And further another no questions coming from through do Will line Wallace the go have currently calling Numis. have coming through. from Instructions] question We Will. of you. ahead, Please we [Operator Thank

Will Wallace

the actually a Hi, again. revenue as less rather on the second I To improving. maintenance in your retention seen I seen since have of give I rates perhaps maintenance, and maintenance, extent This in -- there? whole rates rate maintenance of what you retention of still theer’s we've question a Is to time mean, hotspots business obviously, across of thought decline asked the queue. some maintenance? could improving consistent particularly that more us you high high attrition, color the

Stephen Murdoch

Sure the thing, Will. We've reason four of product still seen after the that to rates group four part either across improve or to portfolio. previously, issue structure in And terms but those the do moderate portfolios, much us what improved. an highlighted resources. allows of pretty we're more sub is end-to-end We I quicker of in broadly much all coherently aligning in we got would and the get have portfolio this moving why sub to specifics them

do specifically to pleased forward. we to work we've renewal very areas to have portfolios improve sustainable basis got taking we're we sub we're right have the Overall, rates, with where those think very still as actions soon begin as So where and do. to we areas do we the got and moving overall opportunity

Will Wallace

you. Thank

Operator

Thank that for final question the And you. was today.

concluding call turn shall I back any yourself across the Stephen, remarks. So to for

Stephen Murdoch

taking we're the that trajectory in confident are actions commitments the deliver right We're that actions the to you. thank we've revenue Okay, made.

consistently license. There's And revenue costs. the systematically progress remove double-digit in down portfolios maintenance the HX, cash moderate have to we the and against leverage we expectations double on SaaS growth our and those flow, improved in no change for declines to volatility we free against growth, made this we sustainably strategic and double -- that drive objectives. and reduced grow So and consistently into it digit, and drive

So the increased priorities cash from focused hard FY a for environment have remain for working absolutely tough to and the we mitigate strategic we the ’XX exit. ’XX, FY on macro we're risks arising

that, your more to really like you. one-to-one. you and I'd forward to Thank thank with today, to you I look speaking So time for