Summary
Open Text Corporation reported first quarter fiscal 2022 total revenue of $832.3 million, up 3.5% from the prior-year quarter. On a constant currency basis, total revenues rose 2.0%. Annual recurring revenue reached $691.8 million, up 3.2%, and accounted for 83% of total revenues. Gross margin was 69.0%, flat with the prior-year quarter. Operating income was $182.7 million, flat with a 0.2% increase. Operating margin was 21.9%, down 0.7 percentage points. Net income attributable to OpenText was $131.9 million, up 27.6%. Diluted EPS was $0.48, up 26.3%. Non-GAAP net income attributable to OpenText was $227.8 million. Non-GAAP diluted EPS was $0.83, down 6.7%. Adjusted EBITDA was $323.4 million, with an adjusted EBITDA margin of 38.9%. Non-GAAP gross margin was 75.7%, compared with 76.5% in the prior-year quarter.
Cash flow and backlog metrics were mixed. Operating cash flow was $189.7 million, down 18.9%. Free cash flow was $163.0 million. Capital expenditures were $26.7 million, up 74.5%. Deferred revenue, current portion only, was $815.0 million, up 5.7%. Remaining performance obligations were $1.40 billion, up 7.7% from $1.30 billion. Days sales outstanding improved to 40 days from 44 days. The board declared a quarterly dividend of $0.2209 per common share, payable December 22, 2021 to shareholders of record on December 3, 2021. OpenText also renewed a share repurchase plan for up to $350 million of common shares over the next 12 months, subject to a limit of 13,638,008 shares, and filed a renewed preliminary short form base shelf prospectus for up to $2.0 billion of equity and debt securities.
Operational indicators showed stable support renewals but some cloud pressure. The cloud renewal rate, excluding Carbonite, was approximately 93%, compared with approximately 95% in the prior-year quarter. The customer support renewal rate was approximately 94%, consistent with the prior-year quarter. OpenText closed 7 cloud services contracts greater than $1.0 million, compared with 6 a year earlier. It also closed 17 license contracts greater than $0.5 million, including 9 greater than $1.0 million, compared with 15 such contracts and 6 larger deals in the prior-year quarter. The company employed approximately 14,500 people as of September 30, 2021. Customer wins in the quarter included AIA Philippines, BDO, Brenntag, CNA Financial, Etihad Water Electricity, Graybar, Homebase, JCB, Kaiser Permanente, Mastercard, PepsiCo, U.S. Army Criminal Investigation Division, U.S. Defense Health Agency and Wells Fargo. OpenText World was scheduled for November 16 to 18.
Management's outlook centers on cloud-first investments and total growth. For the full fiscal year 2022, the company targets research and development spending of 12% to 14% of revenues. Risks remain substantial. COVID-19 continues to affect operations, customer purchasing decisions and the global economy. The Canada Revenue Agency has disputed transfer pricing for fiscal 2012 through fiscal 2016, and OpenText estimates a potential aggregate liability of approximately $72 million for penalties, interest and provincial taxes, with approximately $28 million provisionally paid. The CRA has also proposed a fiscal 2017 reassessment that could result in a material income tax expense and a cash tax impact over several future years. The Carbonite class action appeal and the Realtime Data patent litigation remain unresolved. Currency exposure is another factor, with the euro at 23% of revenue and the U.S. dollar at 61% of revenue in the quarter.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $832.3M | $893.5M | -6.9% | $804.0M | +3.5% |
| Gross profit | $574.2M | $621.8M | -7.7% | $555.1M | +3.4% |
| Gross margin | 69.0% | 69.6% | -0.6 pp | 69.0% | -0.1 pp |
| Research & development | $100.2M | $117.2M | -14.6% | $93.9M | +6.7% |
| Sales & marketing | $146.2M | $183.2M | -20.2% | $132.4M | +10.5% |
| General & administrative | $71.5M | $73.0M | -2.1% | $56.2M | +27.2% |
| Total operating expenses | $391.5M | $450.1M | -13.0% | $372.7M | +5.0% |
| Operating income (loss) | $182.7M | $171.7M | +6.4% | $182.4M | +0.2% |
| Operating margin | 21.9% | 19.2% | +2.7 pp | 22.7% | -0.7 pp |
| Net income (loss) | $132.0M | $181.4M | -27.2% | $103.4M | +27.6% |
| Net margin | 15.9% | 20.3% | -4.4 pp | 12.9% | +3.0 pp |
| Diluted EPS | $0.48 | $0.66 | -$0.18 | $0.38 | +$0.10 |
Risks
The COVID-19 pandemic continues to impact the global economy and has adversely impacted and may continue to adversely impact OpenText's operational and financial performance. The extent depends on factors including variants, vaccine and booster effectiveness, government measures, and potential resurgences.
The Canada Revenue Agency has issued transfer pricing reassessments for Fiscal 2012 through Fiscal 2016, with potential aggregate liability limited to penalties, interest and provincial taxes of approximately $72 million as of September 30, 2021. For Fiscal 2017, a proposed reassessment could result in income tax expense, with no immediate cash payment, to reduce deferred tax assets by up to approximately $470 million if OpenText is ultimately unsuccessful.
GAAP operating margin decreased to 21.9% in FY2022 Q1 from 22.7% in the prior-year quarter. Non-GAAP-based gross margin was 75.7% compared to 76.5% in the same period prior fiscal year, and Adjusted EBITDA was $323.4 million compared to $342.3 million, highlighting profitability pressure despite revenue growth.
Operating cash flow decreased 18.9% to $189.7 million for the quarter ended September 30, 2021 from $233.9 million in the prior-year quarter. The decline was primarily due to a $58.6 million decrease from changes in working capital, including a $62.9 million decrease relating to accounts payable and accrued liabilities.
OpenText faces the Carbonite securities class action appeal pending before the Court of Appeals for the First Circuit and the Realtime Data patent litigation, where the District of Delaware held asserted patents invalid and Realtime Data has appealed. Management has not accrued a loss contingency because an unfavorable outcome is not considered probable and a possible loss or range of loss remains reasonably estimable.
OpenText regularly evaluates and expects to continue acquiring companies, products, services and technologies. Acquisitions can affect period-to-period comparability and involve integration and restructuring efforts, potential incurrence or assumption of debt, and possible impacts on debt ratings or outlooks.
The restoration of previously announced compensation adjustments after December 1, 2020 increased payroll and payroll-related benefits, including R&D up $9.1 million, sales and marketing up $11.6 million, and general and administrative up $10.8 million for the quarter ended September 30, 2021. OpenText also increased research and development, sales and marketing, and general and administrative labor resources compared with September 30, 2020.
The cloud renewal rate excluding Carbonite was approximately 93% for the quarter ended September 30, 2021 compared to approximately 95% for the quarter ended September 30, 2020, while the customer support renewal rate was approximately 94% and consistent. MD&A also cites delays in the purchasing decisions of customers as a risk factor.
As of September 30, 2021, contractual long-term debt obligations were $4,471.7 million, with consolidated net leverage ratio of 1.4:1. Term Loan B and the Revolver bear interest at LIBOR plus an applicable margin, and MD&A references LIBOR transition risk and potential for rising interest rates.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted EBITDA Margin
Cloud Revenues
Customer Support Renewal Rate
Annual Recurring Revenues (ARR)
Free Cash Flows
ARR as % of Total Revenues
Non-GAAP-based Operating Income
Summary, forecast, risks and KPIs are extracted from OPEN TEXT CORP's SEC filings for Q1 FY2022 (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.