Open Text Q1 Earnings Call Highlights

Key Points

• Open Text reported Q1 revenue of $1.237 billion and maintained its fiscal 2027 outlook, including 2%–3% core growth in constant currency. Core revenue rose 2.4%, while declines in client support, licensing and services offset cloud gains.
• Cloud was the main growth driver: total cloud revenue increased 4.3% to $505 million, while Content Cloud grew 20.7% for a fifth consecutive quarter of roughly 20% growth. Cloud deals involving Aviator were notably larger on average.
• Adjusted EBITDA margin was 35.8%, above the company’s forecast, and free cash flow rose 36.8% to $139 million. Management plans to increase growth investment in the second half of fiscal 2027 and expects margins to be lower during that period.

Open Text NASDAQ: OTEX reported fiscal first-quarter revenue of $1.237 billion and maintained its full-year outlook, as growth in cloud products helped offset declines in client support, licensing and professional services revenue.

Core revenue rose 2.4% year over year to $864 million, or 2.7% in constant currency, Chief Financial Officer Steve Rai said on the company’s earnings call. Core Cloud revenue increased 11.2% to $339 million, with Content Cloud leading the gains.

Management said it plans to increase growth investments over the course of fiscal 2027, particularly in the second half, and will present a multiyear growth plan at an investor day in Toronto on Feb. 10, 2027. The company also said it had reclassified products representing $116 million in quarterly revenue from core to non-core as part of an assessment of its portfolio.

Cloud Growth Leads Results

Content Cloud revenue grew 20.7% year over year, marking its fifth consecutive quarter of approximately 20% growth, Rai said. All four core product categories recorded positive cloud growth, including cybersecurity enterprise.

Total cloud revenue rose 4.3% to $505 million. Open Text closed 35 cloud deals worth more than $1 million, up 6% from a year earlier. Rai said many of those deals included the company’s Aviator artificial intelligence products; Content Cloud deals that include Aviator are, on average, four times larger.

Total remaining performance obligations rose 7% year over year, while the current portion increased 3%. Cloud current remaining performance obligations grew 12%, while client support and other current obligations fell 5%.

Outside cloud, client support revenue declined 9% on a reported basis, primarily because of non-core product categories. Total license revenue fell 8%, and professional services and other revenue dropped 11%. Core license revenue, however, rose approximately 8%. Rai noted that year-over-year comparisons include revenue in fiscal 2026 from the divested eDOCS and Vertica businesses.

Adjusted EBITDA margin was 35.8%, above the company’s outlook range of 32% to 33%, though down 50 basis points year over year. Rai attributed the result in part to stronger gross margins, the timing of growth-related expenses and expense management. GAAP diluted earnings per share rose 10.3% to $0.64, while non-GAAP diluted earnings per share were unchanged at $1.05.

Operating cash flow rose 16.6% to $172 million, and free cash flow increased 36.8% to $139 million.

Portfolio Review and Sales Changes

Rai said core revenue grew organically both with and without the product reclassifications. He added that further changes between core and non-core categories could follow the enterprise assessment.

Chief Executive Officer Ayman Antoun said the reclassified products included primarily on-premises legacy offerings in maintenance and support mode, as well as products that duplicated capabilities elsewhere in the portfolio. He cited security analytics and asset configuration and automation products as examples, saying the company would continue to support clients while limiting investment in those areas.

Antoun said Open Text had filled all 300 client executive roles under a sales model that gives each strategic account a primary contact. Those executives coordinate with specialist salespeople and technical staff and are expected to help cross-sell products.

Asked about double-digit declines in IT operations management and cybersecurity, Antoun said sales execution needed to improve. He said the company was moving toward more specialized cybersecurity sellers and increasing partner enablement and marketing. He expects improvement each quarter for the remainder of the fiscal year and reiterated that every core category, including IT operations management and cybersecurity, is expected to grow for the full year.

Outlook and Debt

For the fiscal second quarter, Open Text forecast revenue of $1.26 billion to $1.29 billion and an adjusted EBITDA margin of 33% to 34%. Rai said investment spending and the organic growth trajectory are weighted toward the second half of the year, when adjusted EBITDA margins are expected to be lower than in the first half.

The company maintained its fiscal 2027 outlook across all metrics, including its target of 2% to 3% year-over-year core growth in constant currency. Rai said the core and non-core reclassifications did not significantly affect the annual ranges.

After the quarter ended, Open Text issued $1 billion in secured bonds to retire its 2027 bonds and repaid $300 million of its 2028 bonds through a tender offer. It also extended the maturity of its undrawn $750 million revolving credit facility. Gross debt was $949 million lower than a year earlier following the transactions, Rai said.

The company continues to receive interest in its non-core businesses, Rai said, but is reviewing opportunities against its return requirements and strategic objectives. “We’re not going to rush it on a fire sale basis,” he told analysts.

About Open Text (NASDAQ:OTEX)

OpenText Corporation is a Canadian enterprise software company that develops solutions for managing, securing and exchanging business information. Its offerings help organizations organize content, automate business processes, connect with customers and partners, and manage information across cloud, on-premises and hybrid environments.

The company's portfolio includes enterprise content management, business network and integration services, customer experience tools, cybersecurity and information governance solutions, and software for managing enterprise applications and information technology operations.

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