Welcome to the OpenText Corporation 4th Quarter and Year End Fiscal 2019 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 opportunity to ask questions. I would now like to turn the conference over to Harry Blount, Senior Vice President of Global Investor Relations. Please go ahead, sir.
Thank you, operator, and good afternoon, everyone. On the call today is OpenText Chief Executive Officer and Chief Technology Officer, Mark J. Barronshaver and our Executive Vice President and Chief Financial Officer, Madhu Ranganathan. We have some prepared remarks, which will be followed by a question and answer session. This call will last approximately 60 minutes with a replay available shortly thereafter.
I would like to take a moment and direct investors to the Investor Relations section of our website, investors. Opentext.com, where we have posted 2 presentations that will supplement our prepared remarks today. The first is our strategic overview titled OpenText Investor Presentation. The second, titled Q4 and F 2019 Financial and Business Results, includes information and financials specific to our quarterly and FY 2019 results, notably our updated quarterly factors on Page 9. In August September, OpenText Management is looking forward to meeting with investors in Canada and the United States.
We will be attending the KeyBanc Technology Leadership Forum on August 12 in Vail, Colorado, as well as the Citi Technology Conference on September 5 in New York. Please feel free to reach out to me or the Investor Relations team directly for more information. And now I'd like to tell you about an exciting event coming up for OpenText. OpenText is pleased to announce that we will be participating in the NASDAQ Opening Bell Ceremony at the NASDAQ Market Site in New York's Times Square on September 5. The event will be live, live streamed at 9:20 am on the Investor Relations website.
And finally, I'd like to remind institutional investors and equity analysts that OpenText will be hosting Investor Day on the morning of Friday, September 6, at The Lotte, New York Palace. This event will consist of our annual investor update featuring strategic presentations from key members of our executive leadership team. Please contact investors at opentext.com to RSVP and confirm your attendance. For those unable to attend presentation material as well as listen only teleconference and audio cast will be publicly available on the Investor Relations website. And now I will proceed with a reading of our Safe Harbor statement.
Please note, during the course of this conference call, we may make statements relating to the future performance of OpenText that contain forward looking information. While these forward looking statements represent our current judgment, actual results could differ materially from a conclusion, forecast or projection in the forward looking statements made today. Certain material factors and assumptions were applied in drawing any such statement. Additional information about the material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward looking information as well as risk factors that may project future performance results of OpenText are contained in OpenText's recent Forms 10 ks and 10 Q as well as in our press release that was distributed earlier this afternoon, which may also be found 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. Reconciliations of any non GAAP financial measures to their most directly comparable GAAP measures may be found within our public filings and other materials, which are available on our website. And with that, I'm going to hand the call over to Mark.
Thank you, Harry. Good afternoon to everyone and thank you for joining today's call. I'm pleased to announce record OpenText fiscal 2019 results. If there is one word to describe OpenText, it is durable, long lasting, well made, sustainable. Durability stems from a business model centered on value creation in up or down markets and stable or volatile times.
We delivered record results in markets that are increasingly volatile. Just look at the U. S. News today on another 10% China tariff and the hard Brexit discussions last week in England. OpenText results are built with the continued trust from our customers and places the company in a great position for the years ahead.
We are a company focused on total growth, cash returns and disciplined value creation. Let me speak to this bigger picture before I get into the shorter term. In constant currency, we finished fiscal 2019 at 2 $920,000,000 in total revenues, up 4% year over year. Our cloud revenues grew by double digits to $918,600,000 up 11% year over year. Our organic growth was positive, but under 1% for the year, and ARR grew organically by 1.5%.
Our growth would have been even higher if not for the short term external effects of a strong U. S. Dollar, trade wars, tariffs and the temporary slowdown across Asia. Q4 revenues were affected by $22,000,000 due to foreign exchange and $53,000,000 for the full year. I'll have more to say on growth in a few minutes.
As reported, our adjusted EBITDA dollars were 1,100,000,000 dollars or 38.4 percent, up 2 10 basis points year over year. Operating cash flows were $876,000,000 up 24% year over year. Our ending cash balance was $941,000,000 and we had a net consolidated debt ratio of 1.5 times. This is growth and value in all the right places. The clear headline for fiscal 2019 is record total revenues, record cloud revenues, record adjusted EBITDA dollars and record operating cash flows, built with the trust of our customers and the expertise and excellence of our employees.
This momentum continues into fiscal 2020 and our priorities remain consistent: total growth, cash flow expansion and disciplined value creation. I'd like to highlight a number of achievements since our last call. We announced a broader and deeper relationship with SAP. We are the de facto content services platform for the largest business software company in the world off cloud and now in the cloud. We announced a deeper relationship with Google.
We are now their preferred partner for Enterprise Information Management Services for the cloud. We announced a strategic relationship with Mastercard for the cloud to help companies increase financial efficiencies across global supply chain starting with the automotive industry. The collaboration will better enable companies irrespective of size, our location or technical capability to build increased trust and security into trading partner relationships. I also want to thank Coca Cola, Intel, Citibank and the South African National Parks for joining us at Enterprise World and sharing their respective transformative journeys leveraging OpenText Technologies. The most trusted companies trust OpenText.
We announced a cloud first world with OpenText Cloud Editions, OpenText Business Network and OT2 Services. Fiscal 2020 represents for OpenText that cloud first approach and an enhanced product cycle for the second half of fiscal 2020. We also had some major customer wins in the quarter that you can see in our investor materials, including Core Mark, BMW and others. Here I'd like to highlight Vertican Technologies. They are the market leader in end to end collections.
They'll be standardizing on our business network technology to digitize and make everything machine readable that end to end collection process from sourcing to collections to payment to final resolution, including integration to court systems. The enterprise software landscape has changed and our competitive position has never been stronger. We entered fiscal 2020 recognized as leaders by Gartner, Forrester and IDC in our core markets of content services and business networks. And we were recently recognized as a leader in the developer community with AppWorks. Said differently, OpenText is the standard for organizing, storing and moving critical data throughout and between enterprises.
Our Magellan product puts us in a strong position to extend our leadership into helping our customers mine their data for actionable insights and EnCase puts us in a position to secure it. OpenText total growth strategy is a powerful trifecta of 3 motions: retain, grow and acquire. Over the last 5 years, our CAGR for revenues or cumulative average growth rate for revenues is 12%. As we plan and execute for the coming years, I'm optimistic and confident that we can continue our strong growth rates, recognizing some years may be up and some years may be down. Let me expand on Retayne.
We have over 10,000 customers that trust OpenText every day and that customer trust has created a durable OpenText. By durable, I mean 75% of our revenues are recurring, renewal rates are in the 90s and for the first time our annual support margins top 90%. Our net promoter scores are among the best in enterprise software and continue to improve. OpenText durability is rooted in our great software. And what makes great software?
Great employees and great customers. Let me expand on growth. We have an amazing opportunity within our installed base to expand product adoption and migrate customers to the OpenText cloud. It is now a cloud first world and OpenText is in a marquee position to be a strategic provider of a cloud platform that provides for an information advantage, not just cost reduction. We are planning on both broadening and deepening our coverage within the Global 10,000 and we have a tremendous opportunity to grow our business within our existing customer base and product set.
We expect our investments in product and go to market programs to create further organic growth. Go to market investments include important elements such as sales capacity expansion, our inside sales organization going global and a stronger geographic orientation in Asia, Japan, Latin America, Africa, Middle East and Central Europe. We expect this to expand account coverage and deal coverage and create greater market and customer intimacy. OpenText is now within an ideal adjusted EBITDA range of 38% to 40%. We set out to be a productivity leader and we arrived here a bit ahead of plan and with a lot of strength.
This is upper quartile performance. And any excess above this range, we intend to use to fund growth and to create more value. On acquire, we continue to be a strategic and disciplined buyer of companies. In the coming years, M and A will continue to be our leading growth contributor. We run a value playbook and we will remain patient and prudent buyers.
As a strategic buyer of assets, ROIC, return on invested capital, is the most important financial metric of any deal. And in fiscal 2019, we expanded our ROIC to 18.7%. High teens ROIC is an ideal place to be for our business model. Our balance sheet has never been healthier for any level of M and A. This is a trifecta of total growth: retain, grow and acquire.
These are proven elements within the OpenText business system. Let me bring this all together. In fiscal 2019 in constant currency, we grew revenues 4%. We grew cloud 11%. Positive organic growth, though it would have been higher if not for the external factors we mentioned earlier.
As reported, we achieved an adjusted EBITDA margin of 38%, operating cash flow of $876,000,000 ending cash of $941,000,000 and a net debt ratio of 1.5 times. Our last 5 year growth CAGR between fiscal 2014 2019 is 12%, ROIC of 18.7 percent. And we have strong momentum coming out of Enterprise World and heading into fiscal 2020. Now looking a bit more into fiscal 2020, let me provide a few comments on our growth profile. We are planning for another record year of total revenues, record cloud, record EBITDA dollars and record operating cash flow.
We expect total growth in the low single digits. This is about factoring in any new acquisitions. Cloud growth rates expected to be in the high single digits. Our license and PS businesses constant year over year. Organic growth in the low single digits and we are increasing our adjusted EBITDA target range from 36% to 38% to a new range of 38% to 39%.
Looking even beyond fiscal 2020, I'm optimistic and confident as well about the outer years. Now we don't give guidance, but we remain on a long term trajectory of robust total growth, right? The 5 year category is 12%. We'll continue to acquire using the proven OpenText Value Playbook and the OpenText Business Systems. 5 years ago, we were integrating business into a 30% margin company.
Future acquisitions will be integrated into a high-30s margin company. We achieve acquisitions far faster than the OpenText Business System than other companies do. We are playing for organic growth in the low single digits. Some have asked me why not use market rates? Well, here's why.
Market rates are bad indicators as they include large buckets of unprofitable revenue. Cloud should grow and in the high single digits. And the adjusted EBITDA margin range longer term, we continue to look at 38% to 40%. This is upper quartile performance and we're right where we need to be. Productivity gains above this range, as mentioned earlier, will be invested back into the business for growth and value creation.
I want to personally thank all our customers, partners and technical experts who joined us for our 2019 Enterprise World events in Europe, Asia and North America over the last few months. Across these three events, we directly connected with thousands of customers and partners. I deeply believe we are now in a post ERP era. Do we really need more process advantage? No.
What companies need is to unlock the value of their information to gain the information advantage and in fact create new business models and become information companies. As I discussed in my Enterprise World keynote, if you're an auto manufacturer, are you just a car company or an Industry 4.0, are you a car company and an insurance company, for example? OpenText can help our customers move beyond process advantage to information advantage and create new business models based on information and insights. We are all information companies, and this is the future of business. We operate at scale.
We are moving to high impact quarterly product releases that are cloud first, not cloud only. AuthCloud is a strategic platform for OpenText. We are helping customers gain maximum value from their authCloud investments, expand their usage and value and grow into the OpenText cloud with new investments and new workloads such as OpenText Cloud Managed Services, OpenText Cloud Editions and OpenText OT2. By the end of fiscal 2020 with OT2, we plan to enable the next generation of EIM platforms by providing and selling SaaS based services, as I discussed in my keynote enterprise role. As a reminder, our business network is already 100% in the cloud.
The OpenText 20.2 release is very important milestone for the company next year when we'll begin to offer cloud based EIM services at scale, hosted and managed in the OpenText Cloud. Services to include capture, signature, archive, content management, output management and identity. EIM is designed to help customers create intelligent and connected enterprise and gain that information advantage. We're helping customers unlock the value of their information, manage and secure the growing menace of information sprawl, find and protect their endpoints against hacking, breaching and bad behaviors. We are attaching identity to everything, and we believe we can enable the circular economy through digital and ethical supply chains.
Let me wrap up my comments. OpenText is a durable company, long lasting, well made, sustainable, and the leadership team is humble and hungry and ready for all scenarios in the market. In closing, even in a seasonally lighter Q1, we will grow year over year. The fundamentals of the company are rock solid. We're poised to continue strong cloud growth at upper quartile corporate margins and cash flows.
Our products, market recognition and brand image has never been stronger. It's a post ERP error and companies do not need more process or process advantage. They are they need the information advantage and we are the best EIM partner to provide that. Let me end my remarks with Q1 quarterly factors. Again, quarterly factors are not long term strategic factors, rather short term items to consider in your modeling.
Global recession concerns continue. Brexit, Asia and other geopolitical events, trade and tariff wars, look at the headline news this afternoon out of the U. S. U. S.
GDP is slowing for recent U. S. Bureau of Economic Analyst Reports. The BEA came out with reports this week as well. Our Q1 seasonality, lighter quarter due to summer vacations, so thus fewer selling days.
Q1 FX headwinds could be as high as $12,000,000 down from $22,000,000 last quarter. And F 2020 FX headwinds could be about $25,000,000 Q1 operating expenses to be down sequentially 4% to 6% and Q1 adjusted EBITDA to be down sequentially between 100 to 150 basis points. I thank you for your time and attention today and hope you'll join me and the leadership team at our Investor Day in New York on September 6. I look forward to taking your questions after Madhu completes her remarks. Madhu, over to you.
Thank you, Mark, and hello and thank you all for joining us today. Q4 and fiscal 2019 results reflect an unparalleled year of operational performance, investment in growth, strong expense management and capital optimization. So now turning to the details of our quarterly and annual results and similar to prior quarters, my references will be in 1,000,000 of USD and compared to the same period in the prior fiscal year. During the Q4 fiscal 2019, FX negative impact was meaningful. You will see the impact of FX across the entire P and L, all revenue segments and our earnings pointing to upward performance when measured on a constant revenues, there was a $22,000,000 negative FX impact during the quarter and a $53,000,000 negative FX impact to revenue for the full fiscal year.
Total revenues for the quarter were $7.47 down 0.9% of $7.69 up 2% on a constant currency basis. For the fiscal year, total revenues were $2,870,000,000 dollars up 1.9 percent from last year or $2,920,000,000 up 3.8% on a constant currency basis. On earnings per share, GAAP earnings per share for the quarter was $0.27 per share, up from $0.23 per share for the same period last year. For the fiscal year, GAAP earnings per share was $1.06 on a diluted basis, up from $0.91 per share in the prior year. Adjusted earnings per share for the quarter was $0.72 on a diluted basis, no change from $0.72 per share for the same period last year or $0.74 up $0.02 per share on a constant currency basis.
For the fiscal year, adjusted earnings per share was $2.76 up $0.20 from $2.56 in the prior year or $2.79 up $0.23 per share on a constant currency basis. So now let me share with you all the other details of our results. The geographical split of total revenues in the year was Americas 59%, EMEA 32% and APJ 9%. Annual recurring revenues were 5.57% for the quarter, up 4.2 percent or $5.72 up 7% on a constant currency basis. For the fiscal year, annual recurring revenues were $2,160,000,000 up 4.6% from last year or $2,190,000,000 up 6.2% on a constant currency basis.
Annual recurring revenues as a percentage of total revenues remained solid at 74.6% and 75.1% respectively for the quarter and for the fiscal year. Our cloud revenues are particularly strong in the quarter at 2.42, up 11% or 2.47, up 13.1% on a constant currency basis. For the year, cloud revenues were 9.08%, up 9.5% or 9.19 on a constant currency basis, up 10.8 percent. Our customer support revenues were 315 for the quarter, down 0.5 percent or $325,000,000 up 2.7% on a constant currency basis. For the year, customer support revenues were $1,250,000,000 up 1.3% from last year or 1.27000000000 dollars up 3.1% on a constant currency basis.
Our customer support renewal rate was consistent with prior quarters and prior years at approximately 91%. Our license revenues for the quarter were 120, down 14.4% or 124, down 11.3 percent on a constant currency basis. Our license revenues for the fiscal year were 2.48 dollars down 2.2% from last year or 4.39 dollars up 0.4% on a constant currency basis. Do recall that our Q3 had very strong license revenues and in general the license revenues of quarterly volatility and as mentioned on an annual basis, our license revenues remain constant. Professional services revenues were 70% for the quarter, down 11.7% or 73%, down 8.1% on a constant currency basis.
For the year, professional services revenues were 285 dollars down 9.9 percent from last year or $293,000 down 7.4 percent on a constant currency basis. Our goal, as we've stated earlier, is to target higher margin PS business and leverage our partner network. And with respect to ASC 606, in Q4, ASC 606 impact was de minimis. Our details are available in the Form 10 ks filed today. The accounting rules require companies to provide comparisons to ASC 605 only during the 1st 12 months of the year of adoption.
Accordingly, Q4 will be our last quarter to report the comparisons and beginning fiscal 2020, we will report under ASC 606 only. Turning to margins. We are very pleased with our margin performance in the quarter and in the fiscal year. GAAP gross margin for the quarter was 68%, up 80 basis points from last year and GAAP gross margin for the fiscal year was also 68%, up 140 basis points over the same period last year. Adjusted gross margin for the quarter was 74.2%, up 20 basis points over the same quarter last year.
For the fiscal year, adjusted gross margin was 74.1%, an improvement of 110 basis points. Also on an adjusted basis, cloud margin was 57.2% during the quarter. For fiscal 2019, cloud margin was 57.8%, up from 56.2% in fiscal 2018. Our customer support margin was 90.4% during the quarter. For fiscal 2019, customer support margin was 90.1%, up from 89.2% in fiscal 2018.
Our license margin was 96.6% during the quarter. For fiscal 2019, our license margin was also 96.6%, slightly down from 96.9% in fiscal 2018. Our professional services margin was 22.2% during the quarter. For fiscal 2019, professional services margin was 21.8%, up from 20.5% in fiscal 2018. Adjusted EBITDA was $284,000,000 this quarter, up 0.8% year over year.
Adjusted EBITDA margin was 38%, an increase of 60 basis points compared to 37.4 percent in Q4 last year. For fiscal 2019, adjusted EBITDA was 1,100,000,000 dollars up 7.8% compared to the prior year and our adjusted EBITDA margin for the year was 38.4%, an improvement of over 200 basis points compared to 36.2% in fiscal 2018. GAAP net income for the quarter was $72,000,000 up from $61,700,000 for the same period last year. Our fiscal 2019 GAAP net income was 200 and $85,500,000 up from $242,200,000 for the same period last year. Our adjusted net income in the quarter was $194,400,000 up 1.1% from last year or up 4.7% on a constant currency basis.
Fiscal 2019 adjusted net income was $744,700,000 up 8.9% compared to the same period last year or up 10.2% on a constant currency basis. Now turning to the fiscal 2019 target model. We shared our target model at the start of the year with you all, and you will see that we ended fiscal 2019 solidly meeting expectations of our target model on all elements. Overall, our adjusted EBITDA margin for the year was 38.4% above the target model range of 36% to 38% and reflecting a very deep operating lens that we place at all aspects of our business, large, medium or small. Turning to operating cash flows for the quarter, we generated $230,000,000 up 12.6% year over year.
During the fiscal year, our annual operating cash flows was a record $876,000,000 up 23.8 percent year over year. Our performance reflects a cash flow engine built well to be optimized continually and support OpenText in the required operating investments for our total growth initiatives. And let's turn to the balance sheet. We ended the year with $941,000,000 in cash, a 37.8% increase year over year. Our consolidated net leverage ratio at 1.5 times is the strongest level in 2 years and well within our external debt covenant ratio of 4 times.
In terms of the ongoing IRS matter, I refer you back to Mark's comments on our last call. The standard IRS process continues as we head into the appeal space. Our resolve remains strong as we vigorously defend our position. And turning to dividend. Our dividend program continues to be a very important component of our capital allocation strategy.
And today, we announced a quarterly dividend of $0.1746 per As a reminder, our dividend rate is based on distributing approximately 20% of our trailing 12 month operating cash flows. Going forward, our dividend rate will continue to be assessed annually with the next update occurring this time next year to align with our fiscal year performance. Turning to organic growth in ROIC. At the start of the year, we provided 2 metrics that we agreed to update at the end of each fiscal year on a historical basis: Annual organic growth of total revenue and return on invested capital is growing. These have been included in the investor materials we posted on our IR website today.
For the year and in constant currency, total organic growth was positive, but below 1%, which was impacted by the external factors that Mark highlighted earlier. Annual recurring revenue grew organically in constant currency at 1.5% during fiscal 2019. Our return on invested capital ROIC was 18.7% compared to last year of 17.5% given higher profitability. So let's turn to fiscal 2020 target operating model and our long term aspirations. So today we published our fiscal 2020 target model, which as a reminder is included in our investor presentation on our website and consistent with our practice, the fiscal 2020 target model provides annual ranges to our operating model.
Please do refer to Mark's commentaries earlier as he talked about the components of our total growth. It's retain, grow and acquire. As you look at the share of revenue segments to total revenue in our target for fiscal 2020, the full year impact on revenue for Catalyst and Liaison acquisition is expected to increase the cloud services and subscriptions range from 28% to 32% to 31% to 35%, with the offset in the customer support range of 42% to 46% to 40% to 44%. As we built our target model for fiscal 2020, we maintained our fiscal 2019 margin and expense ranges across all elements of our model, while we shifted upward our adjusted EBITDA range from 36% to 38% to 38% to 39%, moving the low end up by 200 basis points and the high end up by 100 basis points. We have been and continue to remain focused on profitable growth.
Our focus on growth will also be in the right places such as our cloud. An update on interest and adjusted tax rate. Our fiscal 2020 target model for interest expenses remains at $140,000,000 to $145,000,000 and our adjusted tax rate also remains at 14%. Our fiscal 2022 aspirations, as you can see, we are shifting our 3 year target range to fiscal 2022. Our long term aspirations now looking at fiscal 2022 will be 38% to 40% adjusted EBITDA with margins above this range reinvested back into the business for growth and value creation.
Dollars 1,000,000,000 to $1,100,000,000 operating cash flows during fiscal 2022. And let me summarize and reiterate the quarterly factors that we anticipate for our upcoming fiscal Q1. Q1 is seasonally a lighter quarter for all the factors that Mark outlined in his commentary. We should also be mindful that global recession concerns remain. As we look at where FX rates are today, as well as the geographical components of our business, we expect FX headwind in Q1 could be as high as $12,000,000 and we're expecting approximately $25,000,000 FX headwind during fiscal 2020.
Q1 operating expenses is expected to be down sequentially by 4% to 6%. Q1 adjusted EBITDA margin is expected to be down by 100 to 150 basis points. So in summary, we are very pleased with our fiscal 2019 results and we look forward to fiscal 2020 and our long term targets. As you may have observed, we have significantly expanded our internal bandwidth to connect with investor community. With the leadership of Harry Blount along with Greg Secord and the team, we look forward to engaging with our stakeholders, share the strength of the OpenText business model and the opportunities that lie ahead of us.
And September 6 is our Investor Day in New York. We look I would now like to open the call for your questions. Operator?
Thank you. We will now begin the question and answer The first question comes from Stephanie Price, who is with CIBC. Please go ahead.
Good afternoon.
Hi, Stephanie.
I was
hoping you could talk a little bit more about the macro environment. You've mentioned the headwinds around trade tensions and FX prior quarters and this quarter as well. Have you seen any changes in customer buying patterns given the uncertainty? And can you talk a little bit about the impact on the pipeline?
Yes. I mean, there's no doubt that tariffs are top of mind, right? Just look at today's headlines out of the U. S. Of another 10%.
And that does bleed into kind of the corporate psyche and in effecting, do I want to spend money for growth or do I only do more cost out strategy. So I do think the market is a bit more cautious today than it was 90 days ago. With that said, we are a very durable business. We don't see a slowdown in our pipeline, but we certainly are seeing kind of the tones of caution out there. And this is why we've transitioned our business to a recurring business.
75% of our business in recurring revenues, we had incredible margin and cash flow expansion in the year. And whether we have 1% or 2% variance up on the top line, we're able to grow margins, able to grow cash flows. So as I look into Q1, we're going to grow year over year. I look into fiscal 2020, we're going to grow year over year. But I do think the environment is a bit more cautious.
Okay. And when you think about that more volatile potentially environment, can you talk a little bit about the acquisition environment? Are you seeing that impacting the pipeline at all or valuations coming down? Has the acquisition environment changed at all?
Yes, we're going to M and A will continue to be our leading growth driver, as I said in my prepared remarks. Our pipeline is growing, and we expect to get deals done here in fiscal 2020. So valuations in the public markets do remain a bit high. We are seeing some private equity funds at kind of the end of their lives and assets getting ready to turn. But let me confirm that M and A is going to remain our leading growth driver.
Our M and A pipeline is up, and we expect to get deals done this fiscal year at our value playbook.
Great. And just one more, maybe this one's for Madhu. In terms of R and D, so when you look at your target fiscal 2020 model, the percentage of revenue in terms of R and D hasn't changed at all. And when you think about the costs associated with moving to cloud and the quarterly product releases in the cloud, can you talk a little bit how we should see R and D going forward?
Yes, sure thing. Thanks, Stephanie. So when you look at the dollar spend of R and D, right, we continue to look at how much of spend is in the innovation bucket and it's in the maintenance bucket. And keep in mind, we've expanded R and D workforce across the globe. And we not only have U.
S.-based presence, we have centers of excellence around. So I would say we're able to use our R and D dollars much more effectively. And you specifically talked about cloud investments and that's also why where we maintained our gross margin in the cloud at 57 to 59, where some of the cloud investment is going into that line. And the dollar of spend may be flat to relatively flat, but I can tell you the people growth is high and the productivity we get from the people growth is also very high to support both innovation and maintenance.
Okay, great. Thank you very much.
Yes. Thank you, Stephanie. Thanks, Stephanie.
For those on the call, we do ask that you please The next question comes from Richard Tse who is with National Bank Financial. Please go ahead, sir.
Yes. Thank you. Just wondering, notwithstanding your comments on organic growth, it has been soft for some time. I'm kind of curious to see, are there any hurdles from an OpenText perspective that you would need to clear to sort of accelerate that pace of growth here?
Richard, thanks for the question. Fiscal 2018, getting constant currency, we grew 2.5%. Fiscal 2019, all in, we were positive, but under 1%. ARR was 1.5% growth in 2019. And we're targeting low single digit organic growth, right, M and A faster than that, and we're targeting cloud high single digits.
So, we're not far from the goal on kind of the next way station for us on organic growth. If not for the external factors in Q4, right, which were out of our control of FX tariffs that affected a temporary pause in Asia. And let's not confuse that with the long term strategicness of Asia. It also paused some public sector spending. You can see that in some of our tables.
Our organic growth would have been higher. So in fiscal 2018, we're right where we want to be at 2.5%. This year, positive, but a little lower due to the factors in Q4 and ARR at 1.5%. So, we're not far from where we want to be in low single digit organic growth. I like our total CAGR though, 12% over the last 5 years.
And ultimately, it is about those EBITDA dollars. We generated $1,100,000,000 24 percent year over year expansion of cash flows. We're almost there in low single digit on organic growth.
Okay. That's fair. With respect to your comments on the professional services, sort of moving away from the lower margin business and using your partners a bit more. How should we think about that going forward? Is this sort of like kind of coming into this zone where we're at this baseline or just kind of a bit of perspective, I guess, for modeling this company?
Yes. Again, I like the approach of constant year over year. So I'd model constant in 2020 over 2019. Look at our Q4 margins in PS, 21.6 percent and we closed the year at 20%. So we run a world class PS organization.
We set out to go generate better margin than the world's largest firms. We generate better margin than the world's largest firms. And we're modeling constant year over year, and that's a good place to be. That gives our partners a lot of room like Google and SAP and the global SIs to do what they need to do. We're able to capture the high value work to us.
So continue to model constant year over year and it's right where we want to be and the margin is ideal at 2020.
Okay, great. Thank you.
The next question comes from Thanos Moschopoulos with BMO Capital Markets. Please go ahead, sir.
Hi, good afternoon. A question from Madhu. In terms of your organic growth calculation for fiscal 2020, did that include adjustments for the $46,000,000 ASC 6 impact year over year or no?
So you mean organic growth for fiscal 2019, right?
Sorry, for 2019 over 2018, yes.
Yes. We've calculated organic growth consistently as we've done before. And I would say when you look at term licenses, specifically 605 to 606, term licenses are part of our growth. So these are again new incremental businesses the team has drawn out and secured from customers. So to answer your question, we've calculated organic growth consistently as we've done in the past.
Okay. But to be clear, you're using an ASC 606 number over an ASC 605 denominator. Just to make sure I understand,
is that
correct? Yes. And that's what we will do going forward as well.
Okay, fair enough. Different question. Mark, when you saw a cloud deal, can you speak to the type of attach rate you're seeing for the OpenText Cloud as opposed to customers hosting with a public cloud provider? And has there been any discernible trend in that metric? Or would you expect it to change on the back of the Google partnership?
Yes. Look, I think the we had double digit cloud growth in the year as we talked about. And as I look into 2020, I talked about high single digit cloud growth for fiscal 2020. And our partners are going to help contribute to that. Google is going to help contribute.
SAP is going to help contribute to that. We're not seeing kind of a we don't produce a metric that says X percent is in which cloud provider, if you will. It's an interesting question. Let me think about that. But I do think and I haven't seen a meaningful movement in the percent, if you will.
Let me think about that as a metric. But there's no doubt that the Google the deeper blue Google relationship is going to grow the business. Now being the SAP de facto partner in the SAP cloud for content services going forward will contribute to growth as well.
And I guess the implication is over time that should maybe help cloud margins if the infrastructure burden is being shouldered by somebody else, correct?
If I have no cost, it should help margins. If I have lower cost no to lower cost, it should help margin, yes.
Okay. I will pass the line. Thank you.
Thank you.
The next question comes from Walter Pritchard who is with Citigroup. Please go ahead, Walter.
Hi, thanks. Question for Mark around the year kind of assumptions that you have embedded in the 3 year plan. I'm wondering multi tenant SaaS, just how you're thinking about adoption there both in the market generally as well as moves you make to come out with products so forth as cloud adoption continues in your product base?
Yes, Walter, thanks for that. Look, I think we're being fairly conservative in factoring in what I'd call our core applications and our OT2 services, AKA public multi tenant SaaS. The second half of this year is a big product cycle for us, what we call 20.2, 20 being the calendar year, 0.2 being the quarter, where we're going to enter the market of providing at scale enterprise consumable services, more core EIM capabilities. We already have customers in production, about 20.2 will allow customers to do this on their own. We're also making incredible progress with our core collab.
We introduced electronic signatures. So we have it factored into our statements of high single digit cloud growth, expansion target, so a multi tenant SaaS is factored into that. But I can also say we're being a little conservative in how it's contributing in the models.
And then obviously on Madhu, I guess, the Asia dynamics seem like they're a little bit out of your your control. I was a little bit surprised for you to call them temporary. It does feel like things may be just worsening as you look at maybe 3 months over 3 months or 6 months over 6 months, especially Mark, you highlighted just new trade tariffs this morning. What makes you think those are temporary or how are you thinking about temporary that just being a 2020 dynamic? I'm just curious what you're factoring into the forecast really?
Yes. So, they were my words. So, Madhu, I'll take the question. I'm being optimistic they're temporary. I mean, ultimately, we need to in my opinion, we have to come the governments have to come to a resolution.
And when I say temporary, I probably I mean a couple of quarters. Could they be longer than that? Sure. But I'm going to be optimistic that it's temporary. Again, let's not be confused the importance of Asia in the global economy.
So by temporary, yes, they're factored into our views for 2020 already. And by temporary, I mean 1 to 2 more quarters.
Okay. Thank you.
Thank you, Walt.
The next question comes from Howard Leung, who's with Veritas Investment Research. Please go ahead, sir.
Thank you. I just wanted to kind of turn to the discussion on organic growth. Mark, you had mentioned that Asia Pacific was a little weaker. Did you guys look into what the constant currency organic growth rate is just for that region maybe?
No, we don't break it down by that's a pretty granular metric. And no, we don't get down to sub geographies or you're asking for a revenue line and a sub location, but no, we don't get down to that level of publication.
Okay. That's fair. And then just one on the 606 impact. Madhu, you mentioned in Q4, it was less material than in prior quarters. Is that just as a result of less term license sales in Q4?
And if so, what kind of factors drove less licenses that just a slowdown in the demand that you were talking about earlier?
Yes. Thank you, Nathan. Thank you for that. So it was deminimis
If you want to take 606, I'll take the license question. Sure thing.
Yes. So in the Q4, it was de minimis. And the license business also kind of grows throughout the year, and I'll let Mark expand on it.
Yes. So 606 was 3. It was 3,700,000 3,700,000. 3,700,000. So quite de minimis over the total revenues.
That's right. Yes. Look, license was down. And this is why we picked 2 metrics, which is recurring revenue and cash flow for the company. And ARR was up in constant currency 1.5% for the year, and we had record operating cash flows, up 24% year over year.
I'd also note that 3rd quarter license was strong and there can be variances per quarter. The license was down in Q4, and it's basically FX and Asia as we talked about, which we think is temporary. And I don't want the world to confuse that with the importance of Asia importance in our business model.
Right. That makes sense. So I guess you would attribute a lot of that to just really regional factors and that's why license sales were slower in Q4?
External elements, absolutely.
The next question comes from Paul Steep with Scotiabank. Please go ahead.
Good evening. So on Mark, can you
talk a little bit about go to market resources? You talked about a boost there. Maybe talk about the timing of when you'd see that contributing and then the size or the magnitude of the ads that you're sort of looking to do? And then one quick follow-up.
Yes, Paul, thanks for the question. A couple of important points in there. One is we're raising the EBITDA target this year. Last year, we're 36 to 38. This year, we're 38 to 39.
So the bottom end is up 200 bps and the top end is up 100 bps. And we closed fiscal 2019 just over 38% in adjusted EBITDA. This is upper clock tile performance of all software companies. I just want to make the point that 38% to 40% is the ideal zone for OpenText. Some of the world's largest software companies don't operate in this zone and we chose to be a productivity leader and we got here faster than others and I'm very happy to be in this range.
Some ranges you're happy with. I'm happy with 38 to 40. ROIC, I'm happy at 18.7, right. What we above our range in EBITDA, we will use any excess above that to invest in growth and to invest in value creation. So I just want to be very clear that I'm very happy with the range we're in and we raised the target range coming into 2020.
The investment, if not an investment, would otherwise increase the EBITDA range. We're looking at kind of expansion into our core markets, North America, U. S, Canada, Western Europe. And we have a stronger geographic focus in Latin America, South Africa, Middle East, APAC and Japan. I'm not going to get to a specific quantum on the capacity expansion, but we are expanding capacity coming into 2020.
We're also taking our inside sales and going global with it. So I would really note three things, Paul. 1 is, stronger geographic coverage. It's going to create more intimacy in Korea, more intimacy in Japan, more intimacy in New Zealand, if you will. 2nd is taking inside sales, global and then third is capacity expansion.
That will allow us to get deeper into the Global 10,000 and have more account coverage. More account coverage means more RP coverage.
Great. The quick follow-up for Madhu. On ASC 605 to 606, 2019 fiscal 2019 we saw benefit there. In thinking about fiscal 'twenty, should we consider a reversal there or simply think that it was a one time benefit to F 2019 that won't materially impact F 2020? Thanks.
Thank you again for the question. I would say it was a one time accounting requirement for 12 months. And again, I emphasize that these are new businesses that the sales team won with the customers. We are required to show the differences and we did. So going forward in 2020, we're going to be showing under one accounting rule of 606, if that makes sense.
Thank you.
Yes. Got it. Thank you as well.
The next question comes from Paul Treiber, who's with RBC Capital Markets. Please go ahead, sir.
Thanks very much and good afternoon. Just wanted to follow-up on the term licenses and I don't want to think so much about the accounting, but more just on the business and nature of the products or the deployments that you're selling that get recognized as term license. Can you clarify what leads to term license revenue?
No, sure thing and Mark can expand as well. So think about the purchase by any customer in terms of a period of time. It could be a 2 year, a 3 year or a 5 year term license, right? And again, the commitment, the advantage here, the benefit here is they're committing for a longer period of time, which is exactly what we want from a business standpoint. And that includes obviously the licenses, it could include the services, it could include the support as well.
So it's really sort of extending the period of time, not just in terms of purchase, but in terms of the commitment of the customer to us.
And Paul, let me emphasize, the term business has always been very small for us, right? Historically, this has not been a large business. It wasn't a large business in or a large vehicle for us in fiscal 2019. We are more focused on cloud subscriptions, as you can see in our cloud growth numbers. Some customers choose to do a term license.
That's if they'd like to purchase that way, we will enable it. At the end of that term, they may not even own the IP at the end of the term. I actually think term licenses are not the best long term value for a customer in how to procure something. And as you saw in Q4, it was de minimis. It was 3 point $7,000,000 to $3,800,000 So we much prefer and the vast majority of what we do are cloud subscriptions.
And to further clarify, in regards to that deals with hyperscalers, can you recognize that revenue a term license basis or on a ratable basis?
From a cloud subscription, as it says, that would be on a ratable basis. Where a term license is purchased, as we described earlier, that would be on an upfront basis.
So regardless of if it's a hyperscaler or deployed at the customer or your facilities to be recognized in that manner?
Yes. It's the nature of the deal itself. Yes, that's right.
So Paul, let's make 2 distinctions. There's our technology and then where you want to run it, okay? And then what services you may want to wrap around it, right? So, a customer can buy a license and choose to run it anywhere. They could procure that license as a term, very small part of our business.
I know it's had focus here in fiscal 2019, de minimis miss in Q4. It won't have the visibility going forward, but you could run that anywhere as well. What we do in our managed service is come along and provide a subscription around the whole thing, run it in the cloud, we'll provide upgrade services with the application performance management, we provide all the ITIL services and provide you back just one dial tone in one service for that software. So you can buy the license run anywhere including hyperscalers. You could buy a term, buy it, run it anywhere you like or we could wrap all our services around it and it becomes a managed service.
This concludes the question and answer session. I would now like to hand the call back over to Mr. Berenchea for any closing remarks.
All right. I'd like to thank everyone for joining us today, and we very much look forward to seeing you at our Investor Day in New York City on September 6. That concludes today's call.