The News: OpenText recently reported its fiscal second quarter 2023 earnings were $897 million, up 2.4 percent (or 7.8 percent in constant currency) versus the prior year quarter period ending December 31, 2022. See the full earnings release from OpenText here.
OpenText FY Q2 2023 Revenues Rise to $897 million, Up 2.4 Percent YoY
Analyst Take: OpenText’s fiscal second quarter 2023 earnings grew 2.4 percent (7.8 percent in constant currency), or $897 million versus consensus estimates of $870 million. Also, the company posted second quarter earnings per share of $0.89, $0.11 higher than consensus estimates of $0.78.
Our view is the company remains in an excellent position as many organizations are in the process of digitally transforming themselves by identifying, connecting, unlocking, and protecting multiple silos of information from many entry points. OpenText positions its solutions as the connective tissue in helping companies achieve a more knowledge driven culture which ultimately drives competitive advantage — and it appears that messaging is resonating.
We observe OpenText continuing to do an excellent job of pursuing technology adjacencies that complement its existing platforms offering its robust partner ecosystem (e.g., MSPs, System Integrators, etc.) greater opportunities to up and cross-sell solutions into myriad departments. To be sure, on the cybersecurity front alone, OpenText has acquired many companies over the years such as Carbonite, Zix, Guidance Software, and Micro Focus, to name a few. In essence, based on the company’s acquisitive history, it makes sense the company will continue to double-down in the cybersecurity space in the future making further tuck-in acquisitions in the future.
To add more color, based on OpenText’s robust tools that help organizations unlock and fuse structured and unstructured data, this does come at a risk for organizations which means it must continue to invest in or acquire best-in-class tools to ensure all that intellectual capital remains inside company walls.
OpenText Q2 FY 23 Metrics
- Revenues were $897.4 million, up 2.4 percent YoY.
- Annual recurring revenues (ARR) represent 81 percent of total revenues.
- Cloud Services & Subscriptions were $408 million, up 12 percent YoY.
- Customer Support was $316.5, down 5.5 percent YoY.
- License was $108 million, down 1.4 percent YoY.
- Professional Services and Other were $64 million, down 4.8 percent YoY.
- Non-GAAP gross margins were 76.0 percent vs. 76.4 percent, down 60 bps.
- Non-GAAP based diluted EPS was $0.89 vs. $0.89 in the prior year quarter.
From cost optimization standpoint, OpenText remains committed to its $400 million cost reduction plan. More recently, at the end of January 2023, OpenText announced that it will reduce its global workforce by roughly 8 percent or 2,000 associates, which has an estimated cost of $70 million to $80 million. As we’re seeing across the board with other tech companies, OpenText plans to explore other areas to prune costs, such as redundant global facilities, automation, and procurement vendor consolidation with Micro Focus.
Wrapping it up, OpenText had a good quarter beating analyst estimates in revenues and earnings per share, which has been getting tougher for many companies due to the macroeconomic headwinds have challenged many. The company continues to grow its cloud revenues at an impressive clip and is committed to transforming itself by adding complementary acquisitions which adds greater levels of stickiness with its clients.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum Research as a whole.
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Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
