Summary
OpenText opened fiscal 2021 with record recurring revenue, sharply higher profit and its strongest cash generation in years. Total revenue for the quarter ended September 30, 2020 reached $804.0 million, up 15.4% from $696.9 million in the same quarter a year earlier. Cloud services and subscriptions contributed $341.0 million, up 43.7%, and customer support added $329.4 million, up 5.5%. Those two lines together produced annual recurring revenue of $670.4 million, up 22.0%, which management says equals 83% of total revenue. The growth now leans almost entirely on recurring streams. License revenue dropped 12.0% to $68.5 million and professional service and other revenue fell 6.2% to $65.1 million, so the mix keeps shifting away from one-time license and services work.
The margin story kept pace. Gross profit was $555.1 million, up 18.5%, and gross margin climbed to 69.0% from 67.2% in the prior-year quarter. Operating income rose 37.6% to $182.4 million, which lifted operating margin to 22.7% from 19.0%. GAAP net income attributable to OpenText was $103.4 million, up 38.9% from $74.4 million, and diluted earnings per share came to $0.38, up 40.7% from $0.27. Adjusted EBITDA reached $342.3 million, up 34.7%, and management called the 42.6% adjusted EBITDA margin a record, up 610 basis points year over year. Non-GAAP diluted earnings per share of $0.89 rose 39.1%, or $0.87 in constant currency.
Cash generation was arguably the cleanest signal in the quarter. Operating cash flow was $233.9 million, up 70.2% from $137.4 million a year earlier, while capital expenditures fell 17.8% to $15.3 million. Free cash flow, which is a non-GAAP measure, came in at $218.6 million, up 84.0%. Days sales outstanding improved to 44 days from 54 days, which management attributes to better collection efficiency. Customer support renewal rate was approximately 94%, up from approximately 92%. Deferred revenue stood at $770.9 million, up 32.0% year over year, and remaining performance obligations totaled $1.30 billion.
Capital allocation turned more shareholder friendly. The board raised the quarterly dividend by 15% to $0.2008 per common share, payable December 22, 2020 to shareholders of record on December 4, 2020. In October, after the quarter closed, the company repaid the $600 million it had drawn on its revolver using cash on hand, leaving no balance outstanding. It also authorized a repurchase plan of up to $350 million to run over the next 12 months, capped at 13,618,774 shares, or 5% of shares outstanding as of November 4, 2020. The consolidated net leverage ratio was 1.8:1.
Investment in the product line remains heavy. Research and development spending was $94 million, or 11.7% of revenue, and management targets roughly 11% to 13% of revenue for research and development for the full fiscal year. The effective tax rate rose to 29.2% from 23.7%, and special charges increased to $13.2 million from $5.1 million, mostly for restructuring tied to the fiscal 2020 and COVID-19 plans. Two tax disputes stay unresolved. The IRS proposed adjustments, including penalties and interest, could total about $770 million, and the Canada Revenue Agency reassessments carry an estimated $45 million of penalties and interest. The Carbonite securities class action was dismissed with prejudice on October 22, 2020, while a patent suit brought by Realtime Data was revived on appeal. Pandemic disruption, reduced travel and cautious customer purchasing decisions remain the backdrop for the rest of the fiscal year.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $804.0M | $826.6M | -2.7% | $696.9M | +15.4% |
| Gross profit | $555.1M | $565.9M | -1.9% | $468.4M | +18.5% |
| Gross margin | 69.0% | 68.5% | +0.6 pp | 67.2% | +1.8 pp |
| Research & development | $93.9M | $100.8M | -6.8% | $81.2M | +15.7% |
| Sales & marketing | $132.4M | $152.9M | -13.4% | $128.6M | +2.9% |
| General & administrative | $56.2M | $62.6M | -10.2% | $51.5M | +9.0% |
| Total operating expenses | $372.7M | $474.7M | -21.5% | $335.9M | +11.0% |
| Operating income (loss) | $182.4M | $91.2M | +100.0% | $132.5M | +37.6% |
| Operating margin | 22.7% | 11.0% | +11.7 pp | 19.0% | +3.7 pp |
| Net income (loss) | $103.4M | $26.4M | +291.3% | $74.4M | +38.9% |
| Net margin | 12.9% | 3.2% | +9.7 pp | 10.7% | +2.2 pp |
| Diluted EPS | $0.38 | $0.10 | +$0.28 | $0.27 | +$0.11 |
Risks
COVID-19 is expected to continue to adversely affect operations and financial performance, with substantially modified employee travel and work locations and virtualization or cancellation of all sales and marketing events expected to remain in place throughout Fiscal 2021. Management states the extent of the impact depends on factors outside its control, including the length and severity of containment measures and actual and potential resurgences.
The IRS is contesting OpenText's Fiscal 2010 internal reorganization and Fiscal 2012 integration of Global 360, with an estimated potential aggregate liability as proposed, including state taxes, penalties and interest, of approximately $770 million as of receipt of the final NOPAs ($455 million U.S. federal and state taxes, $130 million penalties, $185 million interest), and no material accruals recorded. Interest continues to accrue at statutory rates until resolved and an adverse outcome could have a material adverse effect on financial position and results of operations.
The Canada Revenue Agency has disputed OpenText's transfer pricing methodology and issued notices of reassessment for Fiscal 2012 through Fiscal 2015 increasing taxable income by approximately $90 million to $100 million for each year plus a 10% penalty, with estimated potential liability limited to penalties and interest of approximately $45 million as of September 30, 2020. The CRA is currently auditing Fiscal 2016 and Fiscal 2017 and no accruals have been recorded.
The shift toward recurring revenue is coming at the expense of license revenue, which decreased 12.0% in the quarter ended September 30, 2020 versus the prior-year quarter; down 13.8% after foreign exchange. Only 15 license deals greater than $0.5 million closed in the quarter, of which 6 were greater than $1.0 million contributing $14.8 million, compared with 25 such deals and $19.5 million a year earlier.
OpenText continues to regularly evaluate and pursue acquisitions, and expects to strategically acquire companies, products, services and technologies. Special charges increased $8.1 million in the quarter ended September 30, 2020 versus the prior-year quarter, including $10.5 million from restructuring related to the Fiscal 2020 and COVID-19 plans, and the company warns the actual cash or non-cash cost of restructuring might exceed estimated amounts.
The Realtime Data patent suit against Carbonite, stayed pending appeal, had the Delaware dismissal of three of four asserted patents vacated and remanded by the Federal Circuit on October 23, 2020, and no loss contingency has been accrued because an unfavorable outcome is not considered probable. Separately, the consolidated Carbonite securities class action was dismissed with prejudice on October 22, 2020, but plaintiffs may still move to alter the judgment or appeal.
Term Loan B and the Revolver bear floating-rate interest tied to LIBOR, and the filing directs readers to the LIBOR-related risk factor concerning stress in the global financial system that may adversely affect finances and operations in ways that are hard to predict. As of September 30, 2020 the Revolver had a $600 million outstanding balance with only $150 million remaining available to be drawn, and the company must maintain a consolidated net leverage ratio of no more than 4:1 (actual ratio 1.8:1).
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted EBITDA Margin
Non-GAAP Gross Margin
Customer Support Renewal Rate
Annual Recurring Revenues (ARR)
Annual Recurring Revenues as % of Total Revenues
Free Cash Flows
Non-GAAP-based Operating Income
Summary, forecast, risks and KPIs are extracted from OPEN TEXT CORP's SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.