Summary
OpenText posted total revenue of $852.0 million in the first quarter of fiscal 2023, up 2.4% from the prior-year quarter, or up 7.1% in constant currency. Cloud services and subscriptions revenue reached $404.7 million, up 13.5% year over year and up 16.9% in constant currency, driven by increased cloud consumption. Annual recurring revenue came in at $722.0 million, up 4.4%, and represented 85% of total revenue. Enterprise cloud bookings were $111.7 million, up roughly 37% from the same period a year earlier. The mix shift shows up elsewhere. Customer support revenue fell 5.3% to $317.4 million, license revenue dropped 14.9% to $62.5 million, and professional service and other revenue rose 0.8% to $67.5 million. Growth was concentrated in the Americas, while EMEA and Asia Pacific both declined. Management noted the quarter marked seven consecutive quarters of cloud and ARR organic growth in constant currency.
Profitability told a different story. GAAP operating income fell 19.9% to $146.4 million, and the operating margin slipped to 17.2% from 21.9%. Gross margin improved to 69.7% from 69.0%. The company swung to a GAAP net loss attributable to OpenText of $116.9 million, and GAAP diluted EPS was $(0.43), both down from the prior-year quarter. The loss stems largely from $181.5 million of pretax unrealized losses on mark-to-market valuations of derivatives tied to the Micro Focus acquisition. Non-GAAP diluted EPS was $0.77, down from $0.83, and Adjusted EBITDA was $304.0 million at a 35.7% margin. The effective tax rate was (40.4)% compared with 24.8%, reflecting the inability to recognize a majority of the mark-to-market losses for tax purposes.
Cash generation slowed. Operating cash flow was $132.0 million, down 30.4% from the prior-year quarter, while free cash flow was $95.6 million. Capital expenditures rose 36.0% to $36.3 million. Cash and cash equivalents stood at $1,704.4 million as of September 30, 2022, up from $1,693.7 million at June 30, 2022. Deferred revenue was $848.8 million, up 4.1%, and remaining performance obligations were $1.5 billion, up 7.1%. The board declared a quarterly dividend of $0.24299 per common share, payable December 22, 2022 to holders of record on December 2, 2022. The consolidated net leverage ratio was 2.1:1, and no balance was outstanding under the revolver as of September 30, 2022.
The Micro Focus deal dominates the outlook. OpenText agreed in August 2022 to acquire Micro Focus for 532 pence per share, roughly $6.0 billion including cash and debt, funded by new debt, cash on hand and a revolver draw. Micro Focus shareholders approved the offer on October 18, 2022, and the company expects to close in the first calendar quarter of 2023. Management says the combined business would address a $170 billion market opportunity. Financing is in place through a $2.585 billion Acquisition Term Loan and a $2 billion Bridge Loan, neither drawn as of September 30, 2022. Mark-to-market adjustments on the related derivatives are expected to continue until closing.
Risks are stacking up. The CRA dispute over transfer pricing could cost roughly $70 million in penalties, interest and provincial taxes for fiscal 2012 through 2016, and a separate fiscal 2017 reassessment could cut deferred tax assets by up to approximately $470 million. Management also flagged inflation, rising interest rates, recession concerns, and the Russia-Ukraine conflict. OpenText has ceased all direct business in Russia and Belarus and with known Russian-owned companies. Research and development spending was $110.2 million, or 12.9% of revenue, within the 12% to 14% target for the fiscal year. Renewal rates held firm, with cloud renewals at 94% and customer support renewals at 95%. The company employed roughly 14,500 people as of September 30, 2022.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $852.0M | $902.5M | -5.6% | $832.3M | +2.4% |
| Gross profit | $593.7M | $633.8M | -6.3% | $574.2M | +3.4% |
| Gross margin | 69.7% | 70.2% | -0.5 pp | 69.0% | +0.7 pp |
| Research & development | $110.2M | $118.9M | -7.3% | $100.2M | +10.0% |
| Sales & marketing | $167.2M | $186.0M | -10.1% | $146.2M | +14.3% |
| General & administrative | $78.1M | $86.0M | -9.2% | $71.5M | +9.2% |
| Total operating expenses | $447.3M | $496.2M | -9.8% | $391.5M | +14.3% |
| Operating income (loss) | $146.4M | $137.6M | +6.4% | $182.7M | -19.9% |
| Operating margin | 17.2% | 15.3% | +1.9 pp | 21.9% | -4.8 pp |
| Net income (loss) | -$116.9M | $102.2M | -214.3% | $132.0M | -188.6% |
| Net margin | -13.7% | 11.3% | -25.1 pp | 15.9% | -29.6 pp |
| Diluted EPS | -$0.43 | $0.38 | -$0.81 | $0.48 | -$0.91 |
Risks
Completion of the Micro Focus Acquisition (total purchase price approximately $6.0 billion) is subject to regulatory approvals and other customary closing conditions for a UK public company. The transaction is expected to close in the first quarter of calendar year 2023, but timing and likelihood of completion are uncertain, and a failure to consummate would leave the company having incurred transaction costs without realizing expected benefits.
As of September 30, 2022 the company had $4.3 billion of total indebtedness, and to fund the Micro Focus Acquisition it intends to draw on the approximately $2.6 billion Acquisition Term Loan plus, if needed, up to $2 billion under the Bridge Loan. Interest rates under Term Loan B and the Revolver are variable, exposing the company to interest rate fluctuations and heightening vulnerability to adverse economic and industry conditions.
The Micro Focus Acquisition is expected to substantially expand the scope and size of operations, requiring integration of complex multi-site operations, retention of key employees, and coordination of research and development, sales and marketing. Management attention may be diverted from daily operations, and the company may incur undisclosed or unanticipated liabilities and higher-than-expected integration costs.
GAAP net income (loss) attributable to OpenText swung to a loss of $(116.9) million in the quarter from $131.9 million in the prior-year quarter, down $248.8 million, primarily due to $181.5 million of unrealized losses on derivatives not designated as hedges tied to the Micro Focus Acquisition. Mark-to-market valuation adjustments on these derivatives are expected to continue through the closing of the acquisition.
The Canada Revenue Agency has reassessed transfer pricing for Fiscal 2012 through Fiscal 2016, with potential aggregate liability limited to approximately $70 million in penalties, interest and provincial taxes, and has also reassessed Fiscal 2017. An unfavorable outcome on the Fiscal 2017 matter could require recording income tax expense, with no immediate cash payment, to reduce deferred tax assets by up to approximately $470 million.
Revenue was $852.0 million in the quarter, up 2.4%, but up 7.1% after factoring in the unfavorable impact of $39.7 million of foreign exchange rate changes. Customer support revenue fell 5.3% but rose 0.5% after factoring in an unfavorable $19.5 million FX impact. Continued FX volatility could mask or reverse underlying revenue trends.
The company is monitoring inflation with respect to wages, services and goods, concerns regarding a potential recession, rising interest rates, financial market volatility, and the Russia-Ukraine conflict. It has ceased all direct business in Russia and Belarus and with known Russian-owned companies.
Successful integration of the Micro Focus Acquisition will depend in part on retaining key employees, and management has flagged increased labour costs associated with attracting and retaining employees among its key assumptions and risk factors.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted EBITDA Margin
Non-GAAP Gross Margin
Enterprise Cloud Bookings
Cloud Revenues
Customer Support Renewal Rate
Cloud Services Contracts > $1.0M
Annual Recurring Revenue (ARR)
Summary, forecast, risks and KPIs are extracted from OPEN TEXT CORP's SEC filings for Q1 FY2023 (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.