The News: OpenText Corp. announced Q4 and FY 2023 earnings earlier this week, which highlighted strong revenue growth in annual recurring revenue (ARR) and enterprise cloud bookings. The company reported non-GAAP diluted earnings per share (EPS) of $0.91 on revenue of $1.5 billion for its fourth quarter ended June 30, 2023, up 65% on a year-over-year (YoY) basis.
For the full FY 2023 fiscal year, OpenText reported non-GAAP diluted EPS of $3.29 on record revenue of $4.5 billion, driven by strong ARR of $3.6 billion, up 26.6% on a YoY basis, and cloud revenue of $1.7 billion, up 10.8% over the previous fiscal year. For the full earning Press Release, see the OpenText investor relations site.
By the Numbers:
- Q4 2023 Earnings: $0.91 per share versus $0.80 per share, non-GAAP diluted
- Q4 2023 Revenue: $1.5 billion versus $902.5 million
- FY 2023 Earnings: $3.29 per share versus $3.22 per share, non-GAAP diluted
- FY 2023 Revenue: $4.5 billion versus $3.5 billion
The company also reported the following results:
- Cloud Services and Subscription Revenue, FY 2023 versus FY 2022: $1.7 billion versus $1.5 billion
- Total ARR, FY 2023 versus FY 2022: $3.6 billion versus $2.9 billion
- Q4 2024 Quarterly Enterprise Cloud Bookings: $164 million, up 12.3%
- GAAP-based net loss of $49 million, down 147.7% year-over-year, due to Micro Focus acquisition expenses
OpenText Reports Strong Q4 and FY 2023 Earnings, Driven by Cloud and ARR Growth
Analyst Take: OpenText Inc. reported strong Q4 and FY 2023 performance, driven by the company’s strong growth in ARR and cloud bookings. The company noted key Q4 customer wins, including BNP Paribas, Carl Zeiss AG, CNA Insurance, Daiken, DHL eCommerce Benelux, Elevance Health, Engie Italia, FEMA (US Department of Homeland Security), ID Logistics, Investors Heritage Life Insurance Company, Renesas, RS Component, Swedbank, TechMahindra, and Warta, as well as the signing of a new deal with Anritsu Service Assurance for 5G network capabilities and next-generation architecture.
Q4 2023 marked OpenText’s 10th consecutive quarter of organic growth in constant currency for both cloud and ARR. OpenText reported record enterprise cloud bookings of $154 million, up 12%, and posted annual cloud revenue of $452 million, up 9.7%, and 10.6% in constant currency. ARR reached $1.2 billion, up 56.4%, and 57.7% in constant currency. Notably, ARR represents 78% of the company’s total annual revenue, portending the company’s strength, even in an uncertain economic environment, and allows OpenText to continue investment in R&D, which the company notes will be between 14% and 16% of 2024 revenue.
Micro Focus Acquisition Drives Growth
In Q4 2023, OpenText launched a new version of the OpenText Cloud Editions customer experience management platform in April. This release, part of the company’s Project Titanium roadmap, allows its customers to drive further productivity and profitability while streamlining experiences and security in a multi-cloud world.
The release was also the first time OpenText integrated technology from its acquisition of Micro Focus International plc, which was completed in February 2023. Cloud Editions 23.2 integrates OpenText Extended ECM and OpenText Documentum with Micro Focus IDOL, and enables businesses to explore content connections to make smarter, faster decisions with the help of AI-powered insights.
The ability to generate revenue within a quarter of the completion of the acquisition is impressive, and OpenText has set a target of returning Micro Focus to organic growth in 2024, a year ahead of schedule. We will be tracking the Micro Focus integration closely in the coming quarters as this will be a key engine for further growth.
Strong Guidance Driven by Cloud
On its earnings call, Mark J. Barrenechea, OpenText CEO & CTO, provided Q1 fiscal 2024 quarterly guidance, noting that the company is projecting quarterly revenue of $1.36 billion to $1.41 billion, and ARR of $1.09 billion to $1.13 billion. The company’s adjusted EBITDA year-over-year margin percentage is predicted to be down 250 to 350 basis points, reflecting continued Micro Focus-related integration costs.
Barrenechea also noted that enterprise cloud bookings are projected to grow at least 15% YoY, while cloud revenue is targeted at a YoY growth of 6% to 8%. Customer support revenue is projected to increase between 40% to 42%, and ARR is forecast to rise between 24% to 26% on a YoY basis.
OpenText expects FY 2024 total revenue to reach $5.85 billion to $5.95 billion, representing growth of more than 30%, and projects a non-GAAP gross margin range of 77% to 79% and an adjusted EBITDA range of 36% to 38%.
New AI Solutions: opentext.ai and OpenText Aviator
During OpenText’s Q4 2023 earnings call, the company also announced opentext.ai and OpenText Aviator. According to the company, opentext.ai is a new strategic approach to advancing how customers can solve complex problems by applying AI and large language models (LLMs) with its OpenText Information Management software.
Meanwhile, OpenText Aviator is a family of “practical and trusted” generative AI capabilities within the company’s Information Management Cloud Editions for content, experience, business network, IT operations, developer operations, and cybersecurity.
Making AI a focus for 2024 is a key priority for OpenText, and the company has said that its initial six Aviator products will be available for sale by Q2 2024. On the earnings call, Barrenechea discussed the thinking around its pricing strategy, which will encompass both a per-user, per-month model within the $10-30 range (falling in line with competitor offerings from Microsoft, for example), as well as making some products available on a consumption model. This is a smart approach, as it allows OpenText to capture both light and heavy users of the technology, while balancing uptake and adoption against profitability and costs.
Looking Ahead
This quarter’s results represent strong growth from the Canadian software company. We are encouraged to see strong portfolio growth and positive early signs from the Micro Focus acquisition with the opentext.ai and OpenText Aviator launch. How the company drives AI across the portfolio with subsequent product updates will be crucial for it to capitalize on the market tailwinds being driven by enterprise AI adoption.
The Micro Focus acquisition integration will be crucial for the company over the next four quarters as the company looks to bring in a diverse portfolio of offerings and integrate them into a cohesive and streamlined narrative that is designed to resonate with clients. We remain bullish on the leadership team’s ability to pull off the integration, but this is certainly a story to watch closely.
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
Steven engages with the world’s largest technology brands to explore new operating models and how they drive innovation and competitive edge.
Keith Kirkpatrick is 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.
