Open Text Corporation ((TSE:OTEX)) has held its Q1 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Open Text Corporation painted a predominantly positive picture, with strong growth in cloud revenue and enterprise cloud bookings, alongside improved profit margins. However, there were some concerns regarding a decline in customer support revenue and challenges within the cybersecurity segment. Despite these issues, the company maintains a robust financial position and a positive outlook for fiscal 2026.
Strong Cloud Revenue Growth
Open Text Corporation reported a significant increase in cloud revenue for the first quarter, reaching $485 million, a 6% rise year-over-year. The Content Cloud segment, in particular, experienced a remarkable 21% growth, driven by bookings in sectors such as financial services, energy, utilities, and telecom.
Increase in Enterprise Cloud Bookings
The company saw a 20% year-on-year increase in enterprise cloud bookings in Q1, positioning it well to achieve its fiscal 2026 outlook range of 12% to 16% growth. This surge in bookings underscores the company’s strong market position and growth potential.
Improved Profit Margins
Open Text reported improved profit margins for the quarter, with GAAP-based gross margins at 72.8%, up 100 basis points year-over-year. Additionally, the adjusted EBITDA margin increased by 130 basis points to 36.3%, reflecting operational efficiency and cost management.
Record Number of Large Deals
The company closed a record 33 deals greater than $1 million in Q1, marking a 43% increase year-on-year. These significant wins spanned various sectors, including healthcare and cybersecurity, highlighting Open Text’s ability to secure large contracts.
Free Cash Flow Surge
Open Text experienced a substantial surge in free cash flow, reaching $101 million in Q1, a notable increase of $218 million year-over-year. This improvement strengthens the company’s financial flexibility and ability to invest in future growth.
Commitment to Strong Financial Position
The company remains committed to maintaining a strong financial foundation, with expanding margins and free cash flow. Open Text plans to reduce debt, pay dividends, and reinvest in growth, ensuring long-term financial stability.
Decline in Customer Support Revenue
Despite the positive trends, customer support revenue experienced a slight decline of 1.5% year-over-year, amounting to $587 million. This decline highlights the challenges in maintaining support revenue amidst a shifting business model.
Uncertainty in Revenue Mix
The company faces potential variability in its revenue mix due to a faster-than-expected transition of customers to the cloud. This shift could impact the predictability of quarterly revenue, posing a challenge for financial forecasting.
Cybersecurity Cloud Component Decline
The cloud component of Open Text’s cybersecurity business saw a decline, indicating challenges in cross-selling opportunities. This segment’s performance will be crucial for future growth and stability.
Forward-Looking Guidance
Looking ahead, Open Text Corporation expects Q2 total revenue to range between $1.275 billion and $1.295 billion, with an adjusted EBITDA margin projected between 35.5% and 36%. The fiscal year 2026 outlook remains unchanged, with anticipated ARR growth and cloud growth expected to surpass maintenance declines.
In summary, Open Text Corporation’s earnings call reflected a positive sentiment, driven by strong cloud revenue growth and improved profit margins. While challenges remain in customer support revenue and the cybersecurity segment, the company’s robust financial position and strategic initiatives provide a solid foundation for future growth.