Summary
OpenText closed the first quarter of fiscal 2024 with record Q1 total revenues of $1.425 billion, up 67.3% from the prior-year quarter, or 65.4% in constant currency. The Micro Focus acquisition, completed on January 31, 2023, did most of the heavy lifting and contributed $562.9 million to total revenues in the quarter. Annual recurring revenues reached $1,149 million, up 59.1%, and represented 81% of total revenues. Cloud revenues were $451 million, up 11.5%, while enterprise cloud bookings of $121 million rose 8.2%.
Profitability improved at the gross line but not below it. Gross margin was 71.4%, up 1.8 percentage points from the prior-year quarter. Operating income rose 45.5% to $212.9 million. Operating margin, however, fell to 14.9%, down 2.2 percentage points, as operating expenses grew faster than revenue. GAAP net income was $80.9 million, a swing to a profit from a net loss of $116.9 million in the prior-year quarter. Diluted EPS was $0.30, a swing to a profit. Adjusted EBITDA, a non-GAAP measure, was $494.8 million at a 34.7% margin, and non-GAAP diluted EPS was $1.01.
Cash generation was the weak spot. Operating cash flow was $47.1 million, down 64.3% from the prior-year quarter, and free cash flow was $9.6 million. Capital expenditures of $37.5 million were up 3.3%. Management attributed the operating cash flow decline to a $151.4 million decrease in working capital changes, partly offset by higher net income after non-cash items. Days sales outstanding rose to 43 days from 40. Deferred revenue was $1.60 billion, up 88.1%, and remaining performance obligations were $2.50 billion, up 66.7%.
On the product side, OpenText introduced its Aviator AI capabilities in Cloud Editions 23.4 at OpenText World 2023 and added Google Cloud and Deloitte as Innovator-level sponsors. Customer wins in the quarter included Arm, Bombardier, Vodafone, Infosys and Novelis. The company acquired KineMatik to add business process and project management tools to its Content business and launched a unified partner network. The cloud renewal rate held at 94%, while the customer support renewal rate slipped to 94% from 95%.
The Micro Focus integration remains the central story and the central risk. The company is targeting $400 million in cost synergies and expects its restructuring plan, which cuts roughly 8% of the combined workforce, or about 2,000 employees, to cost $135 million to $150 million, of which $79.1 million has been incurred. It expects the plan to be completed by the end of fiscal 2024. Research and development spending of $234.4 million, or 16.4% of revenue, is in line with the target for the fiscal year. Management said the company remains on track to realize its growth targets and free cash flow aspirations, though it gave no specific numeric guidance for the next quarter or the full fiscal year.
Debt remains substantial. Total debt repayments since the Micro Focus acquisition reached roughly $560 million, and the consolidated net leverage ratio was 3.64:1.00 at September 30, 2023. In October 2023 the company repaid $100 million on its revolver and $75 million on its acquisition term loan. The Canada Revenue Agency dispute continues to hang over the tax line. OpenText estimates a potential liability of about $76 million in penalties, interest and provincial taxes for fiscal 2012 through 2016, and warned that an adverse outcome on fiscal 2017 through 2019 could cut the stated value of its deferred tax assets by up to roughly $470 million. Management also flagged inflation, rising interest rates and the Russia-Ukraine and Israel-Hamas conflicts as ongoing uncertainties.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2024 | Q4 FY2023 | QoQ | Q1 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.43B | $1.49B | -4.4% | $852.0M | +67.3% |
| Gross profit | $1.02B | $1.06B | -4.3% | $593.7M | +71.5% |
| Gross margin | 71.5% | 71.4% | +0.1 pp | 69.7% | +1.8 pp |
| Research & development | $234.4M | $250.0M | -6.2% | $110.2M | +112.7% |
| Sales & marketing | $271.8M | $333.2M | -18.4% | $167.2M | +62.6% |
| General & administrative | $131.2M | $136.9M | -4.1% | $78.1M | +68.1% |
| Total operating expenses | $805.5M | $942.7M | -14.6% | $447.3M | +80.1% |
| Operating income (loss) | $212.9M | $121.3M | +75.5% | $146.4M | +45.5% |
| Operating margin | 14.9% | 8.1% | +6.8 pp | 17.2% | -2.2 pp |
| Net income (loss) | $80.9M | -$48.7M | +266.3% | -$116.9M | +169.3% |
| Net margin | 5.7% | -3.3% | +8.9 pp | -13.7% | +19.4 pp |
| Diluted EPS | $0.30 | -$0.18 | +$0.48 | -$0.43 | +$0.73 |
Risks
The Micro Focus Acquisition closed January 31, 2023 and contributed $562.9 million of total revenue in the quarter ended September 30, 2023, making results heavily dependent on successful integration and on realizing the announced $400 million of cost synergies. The related restructuring plan targets a roughly 8% reduction in combined workforce (about 2,000 employees) at an estimated cost of $135 million to $150 million, of which $79.1 million has been incurred, and is expected to be completed only by the end of Fiscal 2024.
The Canada Revenue Agency has reassessed OpenText's transfer pricing for Fiscal 2012 through Fiscal 2016 and is contesting the valuation of intellectual property and goodwill for Fiscal 2017 through Fiscal 2019. The company estimates potential penalties, interest and provincial taxes of approximately $76 million on the earlier years and, if ultimately unsuccessful on Fiscal 2017 through Fiscal 2019, a reduction of deferred tax assets of up to approximately $470 million, with possible minimum provisional payments beginning in Fiscal 2024.
Total contractual long-term debt obligations are $11.97 billion, and interest expense related to total outstanding debt rose $103.8 million to $147.0 million in the quarter ended September 30, 2023 versus the prior-year quarter. The consolidated net leverage ratio was 3.64:1.00 as of September 30, 2023 against a 4.00:1.00 covenant under Term Loan B and the Revolver and a 4.50:1.00 covenant under the Acquisition Term Loan, leaving limited headroom.
Operating cash flow was $47.1 million in the quarter ended September 30, 2023, down 64.3% from $132.0 million in the prior-year quarter, driven by a $151.4 million decrease in changes from working capital. Days sales outstanding rose to 43 days in the first quarter of Fiscal 2024 from 40 days in the first quarter of Fiscal 2023, increasing the per-day cash impact to $15.8 million.
The Customer support renewal rate decreased to 94% for the quarter ended September 30, 2023, compared to 95% for the quarter ended September 30, 2022, and customer support revenues represent 48.9% of total revenues, so small changes in renewal behavior can materially affect recurring revenue.
Operating margin fell to 14.9% in the quarter ended September 30, 2023 from 17.2% in the prior-year quarter, down 2.2 percentage points, despite gross margin rising 1.8 percentage points to 71.4%. Cloud services and subscriptions gross margin decreased to 62.0% from 67.4% as third-party network usage fees and labour costs rose.
Management cites inflation in wages, services and goods, rising interest rates, financial market volatility and concerns regarding a potential recession as assumptions underlying forward-looking statements, and notes that its ability to manage inflation, including increased labour costs for attracting and retaining employees, is a key assumption.
OpenText continues to monitor the Russia-Ukraine and Israel-Hamas wars, has ceased all direct business in Russia and Belarus and with known Russian-owned companies, and continues to operate its Israeli-based business and support employees there. Management states it cannot predict broader consequences of these conflicts on the global economy or on its customers, partners and third party service providers.
The company states it regularly evaluates acquisition opportunities and may require additional financing for further material or acquisition-related activities, which would be subject to the financial covenants under its credit facilities. Existing debt includes covenants limiting liens, sale and lease-back transactions, additional subsidiary indebtedness and mergers.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted EBITDA Margin
Non-GAAP Gross Margin
Enterprise Cloud Bookings
Cloud Revenues
Customer Support Renewal Rate
Annual Recurring Revenues (ARR)
Annual Recurring Revenues as % of Total Revenues
Free Cash Flows
Summary, forecast, risks and KPIs are extracted from OPEN TEXT CORP's SEC filings for Q1 FY2024 (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.