Open Text Q4 Earnings Call Highlights

Open Text NASDAQ: OTEX reported fourth-quarter fiscal 2026 revenue growth in constant currency, led by its core cloud portfolio, while outlining a fiscal 2027 investment plan centered on expanding sales capacity, partner channels and artificial intelligence offerings.

For the fourth quarter, total revenue was $1.35 billion, up 2.9% year over year, or 0.9% in constant currency. Core portfolio revenue totaled $1.05 billion, rising 5.3% on a reported basis and 3.1% in constant currency. Core portfolio categories include Content, Business Network, IT operations management and cybersecurity enterprise products.

Cloud revenue was $503 million, an increase of 6.0% year over year, while core cloud revenue rose 10.7% to $341 million. On a constant-currency basis, core cloud revenue grew 8.9%. Chief Financial Officer Steve Rai said the company closed 64 cloud deals larger than $1 million during the quarter, a 49% increase from a year earlier. Enterprise cloud bookings rose 24.1% to $295 million, exceeding the company’s fiscal 2026 target range.

Profitability and Cash Flow

OpenText reported fourth-quarter GAAP net income of $156 million, up 439.9% from the prior year, and GAAP diluted earnings per share of $0.64, up 481.8%. Non-GAAP net income increased 19.7% to $299 million, while non-GAAP diluted EPS rose 26.8% to $1.23.

GAAP gross margin expanded 270 basis points to 75.0%, and non-GAAP gross margin increased 220 basis points to 78.3%. Rai attributed the improvement primarily to lower hyperscaler costs and infrastructure performance gains in cloud operations.

Quarterly operating cash flow rose 17.5% to $186 million, while free cash flow was $122 million, down 1.6% year over year.

For the full fiscal year, OpenText generated $5.2 billion in total revenue, up 1.5% on a reported basis but down 1.1% in constant currency. Core portfolio revenue was $4.0 billion, up 2.9% as reported and flat in constant currency. Full-year core cloud revenue rose 10.3% to $1.3 billion, or 7.8% in constant currency.

Full-year adjusted EBITDA margin was 36.3%, up 170 basis points, while operating cash flow increased 21.2% to $1.0 billion. Free cash flow rose 17.5% to $808 million, though Rai said it finished approximately $31 million below the company’s outlook due mainly to collections timing near the fiscal year-end cutoff.

Fiscal 2027 Outlook and Investment Plan

Management described fiscal 2027 as a “foundation year” intended to support more consistent growth in subsequent years. The company expects reported fiscal 2027 revenue of $5.135 billion to $5.185 billion, representing a decline of 2% to 1%, including an estimated $30 million foreign-exchange headwind at current rates.

Excluding divestitures, OpenText expects total revenue growth of 0% to 1% in constant currency. Core revenue is projected to grow 2% to 3% in constant currency, with each of its four core businesses expected to grow. Core cloud revenue is expected to increase 8% to 10% in constant currency.

• Adjusted EBITDA margin is expected to be 32% to 33%.
• Free cash flow is expected to be $625 million to $725 million.
• First-quarter fiscal 2027 revenue is projected at $1.22 billion to $1.25 billion, with adjusted EBITDA margin of 32% to 33%.

Rai said the lower margin outlook reflects an estimated $100 million to $200 million in growth investments, weighted toward go-to-market initiatives. Chief Executive Officer Ayman Antoun said OpenText is adding more than 300 quota-carrying sales employees globally and assigning clients dedicated client executives intended to represent the company’s broader portfolio.

The company also plans to expand work with hyperscalers, global and regional systems integrators, and vertical software partners. Antoun said OpenText is shifting more research-and-development investment toward its core portfolio, cloud capabilities and AI offerings. Rai told analysts that research and development spending should remain broadly consistent as a percentage of revenue with fiscal 2026, while sales and marketing could increase by one to two percentage points.

AI, Cloud and Portfolio Strategy

Antoun emphasized that OpenText’s strategy is focused on providing secure, governed and contextualized enterprise data for customers deploying AI. He said the company’s Aviator AI platform is being deployed across its product portfolio and that the number of deals incorporating Aviator agents has more than doubled annually since their introduction eight quarters ago.

According to Antoun, deals including Aviator agents have average deal sizes four times larger than deals without the technology. He cited examples across human resources, telecommunications network operations, banking transaction networks and healthcare software testing.

Management said 92% of fiscal 2026 cloud bookings came from new customers adopting cloud products rather than existing customers converting to cloud offerings. Rai said cloud current remaining performance obligations increased 10% year over year, supported primarily by Content and Business Network bookings.

OpenText will stop reporting enterprise cloud bookings as a standalone metric beginning in the first quarter of fiscal 2027, instead focusing on cloud current remaining performance obligations and total remaining performance obligations.

Capital Allocation and Divestitures

The company reduced debt by $459 million in the fourth quarter, including a $300 million discretionary repayment and $150 million of net divestiture proceeds. Total debt reduction for fiscal 2026 was $649 million, lowering net leverage to 2.75 times from 3.02 times.

OpenText returned $268.4 million to shareholders through dividends during fiscal 2026 and repurchased and canceled approximately 14.8 million shares, or 6% of shares outstanding. Its board declared a quarterly dividend of $0.28 per share, payable Sept. 18 to shareholders of record on Sept. 4.

Management said it renewed its normal course issuer bid, allowing it to repurchase up to 10% of its public float, but identified debt reduction and organic growth investments as its leading capital-allocation priorities. Rai also said the company remains active in evaluating non-core divestitures, though it does not intend to sell assets at unfavorable prices.

About Open Text (NASDAQ:OTEX)

Open Text Corporation is a Canadian enterprise information management (EIM) software company that develops solutions for organizations seeking to manage, protect and extract insight from their unstructured and structured data. The company's platform encompasses document management, records management, digital asset management and archiving, enabling companies to govern information across its lifecycle.

Open Text's product suite includes content services, business process management, customer experience management, analytics and security products.

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