The News: OpenText Corp. announced first quarter (Q1) fiscal year (FY) 2024 earnings on November 2, powered by strong growth in subscription and cloud service revenue. The company reported non-generally accepted accounting principles (non-GAAP) diluted earnings per share (EPS) of $1.01 on revenue of $1.425 billion for Q1 ending September 30, up 31.2% on a year-over-year (YoY) basis, or 26% in constant currency (CC).
For the full earnings press release, see the OpenText investor relations site.
By the numbers:
- Q1 2024 Earnings: $1.01 per share versus $0.77 per share, YoY, non-GAAP diluted
- Q1 2024 Revenue: $1.425 billion, up 67.3% YoY or up 65.4% YoY in CC
The company also reported the following results:
- Cloud services and subscription revenue, Q1 2024 versus Q1 2023: $451 million versus $404.7 million, a YoY increase of 11.5% or 10.9% in CC
- Total annual recurring revenue (ARR), Q1 2024 versus Q1 2023: $1.149 billion versus $722 million, a YoY increase of 59.1% or 57.5% in CC
- Q1 2024 quarterly enterprise cloud bookings: $121 million, up 8.2% YoY
- Non-GAAP-based operating income of $460.8 million, up 64% YoY
OpenText Q1 FY 2024 Earnings Powered by Subscription and Cloud Revenue
Analyst Take: OpenText reported record Q1 FY 2024 earnings, powered by strong growth in the company’s cloud services and subscription revenue. The company’s performance on a (YoY) basis saw revenue increases across all reported segments, including cloud services and subscriptions (up 11.5%, 10.9% in CC); customer support (up 119.9%, 116.9% in CC); total ARR (up 59.1%, 57.5% in CC); license (up 176.1%, 172.8% in CC); and professional service and other revenue (up 53.6%, 50.9% in CC).
The company noted key Q1 FY 2024 customer wins, including Arm, Banobras, Bombardier, CNP Assurances, Emirates Integrated Telecom, Hargreaves Lansdown, Hong Kong Airport Authority, Infosys for Goods and Services Tax Network, Kutak Rock, Novelis, Petroleum Development Oman, and Vodafone, as well as the introduction of a new unified OpenText Partner Network.
Strong YoY Growth in Enterprise Cloud Bookings and ARR
OpenText reported enterprise cloud bookings of $121 million, up 8.2% on a YoY basis, and posted cloud revenue of $451 million, up 11.5% YoY and up 10.9% in CC. ARR reached $1.149 billion, up 59.1% YoY, and up 57.5% in CC. Notably, ARR represents 80.5% of the company’s total revenue for the quarter, portending the company’s strength and resiliency, even in an uncertain economic environment marked by high inflation and two ongoing wars, CEO and CTO Mark J. Barrenechea, noted on the company’s earnings call with analysts.
Strong performance across each of these key metrics bodes well for the company, which is now shifting to a growth model fueled by product innovation and go-to-market execution, Barrenechea said, noting that OpenText is investing up to 16% of revenue in R&D to ensure continued innovation across its product suite.
Continued Integration of Micro Focus
OpenText’s Cloud Editions 23.2 integrates OpenText Extended ECM and OpenText Documentum with Micro Focus IDOL, technology that was acquired via the February 2023 acquisition of Micro Focus. According to OpenText, its Q1 results reflect continued strength in the operational integration of Micro Focus, which contributed $563 million in revenue in the quarter, according to Madhu Ranganathan, OpenText EVP and CFO.
Further, the company is focused on driving renewal rates for Micro Focus, with the goal of having touched 75% of the customer base by the end of Q2 2024, and 90% by February 1, according to Paul Duggan, OpenText’s EVP and CCO. Duggan also noted on the earnings conference call that the company expects to drive Micro Focus renewal rates into the 90% range by FY 2025.
This high-touch approach to managing the Micro Focus acquisition is proof that OpenText is truly focused on its mission of driving more organic growth. In addition, the company noted that it announced a new customer renewal portal last month, and that more than 90% of its cloud renewal business is auto-renewed. This setup allows the company to shift renewal professionals to customer management functions to drive expansion across its entire customer base.
Looking Ahead
On a quarterly basis, the company expects to post Q2 2024 revenue of $1.45 billion to $1.50 billion, with ARR of $1.10 billion to $1.13 billion, and expects a foreign exchange tailwind of $10 million to $15 million. For fiscal full-year 2024, the company expects to reach $5.85 billion to $5.95 billion in revenue, 36% to 38% in adjusted EBITDA, $800 million to $900 million in free cash flow, total revenue organic growth of 15%, and enterprise cloud bookings growth, as well as returning Micro Focus to organic growth.
OpenText also laid out its FY 2026 aspirations of enterprise cloud bookings growth of 15%, and 7% to 9% in organic cloud growth, with total revenue reaching $6.2 billion to $6.4 billion.
All told, OpenText’s focus on organic growth and expansion bodes well for the company. We expect that as the company leans into AI via its OpenText Aviator and Titanium X offerings, and driving increased customer consumption of its services, OpenText will be well-positioned to deliver results across the next several quarters and fiscal years.
Disclosure: The Futurum Group 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 The Futurum Group 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.
Keith Kirkpatrick is VP & Research Director, Enterprise Software & Digital Workflows for The Futurum Group. Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
