Summary
OpenText reported total revenue of $855.6 million for the quarter ended December 31, 2020, up 10.9% from the prior-year quarter. Cloud services and subscriptions revenue reached $350.5 million, up 41.1%, and total annual recurring revenue hit a record $684.9 million, up 21.5%, now 80% of the top line. The growth was not broad based. License revenue fell 22.3% to $107.3 million and professional service and other revenue dropped 9.0% to $63.4 million, while customer support revenue rose 6.0% to $334.5 million. Constant-currency revenue growth was 8.8% after $16.2 million of foreign exchange effects.
Operating profitability improved. Gross profit rose 11.9% to $603.1 million and gross margin moved up to 70.5% from 69.9%. Operating income increased 26.9% to $234.5 million, lifting operating margin to 27.4% from 23.9%. The GAAP bottom line went the other way. OpenText posted a net loss of $65.5 million for the quarter, down 160.9%, and a diluted loss per share of $0.24, down 160.0%. A $299.3 million charge from the IRS settlement covering fiscal 2010 and fiscal 2012 drove the swing.
Cash generation was the standout. Operating cash flow was $282.5 million in the quarter, up 36.3%, and $516.4 million for the six months ended December 31, 2020, up 49.8%. Free cash flow, which the company reconciles by deducting capital expenditures of $7.7 million, was $274.8 million, up 46.5%. Capital expenditures fell 61.0% year over year. Adjusted EBITDA was $360.8 million, up 13.8%, at a 42.2% margin. Cash and cash equivalents were $1,500.6 million at December 31, 2020, against $1,692.9 million at June 30, 2020, after the $600 million revolver draw was repaid.
Year to date, revenue was $1.66 billion, up 13.0%. Net income attributable to OpenText was $37.9 million, down 79.2%, and diluted earnings per share was $0.14 compared with $0.67. Deferred revenue, current portion, was $798.3 million at December 31, 2020, up 11.1%. Remaining performance obligations totaled $1.30 billion.
Management points to recurring revenue and margin expansion as the core of its Total Growth plan. Research and development spending is targeted at roughly 12% to 14% of revenues for the full fiscal year; the first six months carried $194.1 million, or 11.7% of revenue. Large deals softened. 15 cloud services deals above $1.0 million closed in the quarter versus 16 a year earlier, and 9 license deals above $1.0 million brought in $32.7 million versus 19 deals worth $54.1 million. Cloud renewal rates, excluding Carbonite, were approximately 96%, down from approximately 98%, while customer support renewal rates were approximately 94%, up from approximately 93%.
The board declared a dividend of $0.2008 per common share, payable March 26, 2021 to holders of record on March 5, 2021. A repurchase plan of up to $350 million was authorized on November 5, 2020, and no shares were bought back in the quarter. Tax and the pandemic remain the main risks. OpenText expects to pay about $287.2 million to the IRS in the third quarter of fiscal 2021, plus roughly $12.1 million in related state tax and interest through calendar 2021. The Canada Revenue Agency dispute carries an estimated exposure of about $64 million. COVID-19 keeps weighing on customer purchasing decisions.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $855.6M | $804.0M | +6.4% | $771.6M | +10.9% |
| Gross profit | $603.1M | $555.1M | +8.6% | $539.2M | +11.9% |
| Gross margin | 70.5% | 69.0% | +1.4 pp | 69.9% | +0.6 pp |
| Research & development | $100.2M | $93.9M | +6.7% | $80.3M | +24.9% |
| Sales & marketing | $147.9M | $132.4M | +11.7% | $137.3M | +7.7% |
| General & administrative | $62.8M | $56.2M | +11.7% | $54.6M | +15.0% |
| Total operating expenses | $368.6M | $372.7M | -1.1% | $354.4M | +4.0% |
| Operating income (loss) | $234.5M | $182.4M | +28.6% | $184.7M | +26.9% |
| Operating margin | 27.4% | 22.7% | +4.7 pp | 23.9% | +3.5 pp |
| Net income (loss) | -$65.4M | $103.4M | -163.3% | $107.5M | -160.9% |
| Net margin | -7.7% | 12.9% | -20.5 pp | 13.9% | -21.6 pp |
| Diluted EPS | -$0.24 | $0.38 | -$0.62 | $0.40 | -$0.64 |
Risks
The December 21, 2020 IRS Settlement resolving proposed adjustments to taxable income for Fiscal 2010 and Fiscal 2012 resulted in an approximately $299.3 million charge to provision for income taxes in the second quarter of Fiscal 2021, driving the effective tax rate up to 132.4% for the three months ended December 31, 2020 versus 30.3% a year earlier. The company expects to pay approximately $287.2 million to the IRS in the third quarter of Fiscal 2021, decreasing cash and cash equivalents.
The Canada Revenue Agency has disputed the company's transfer pricing methodology and issued notices of reassessment for Fiscal 2012 through Fiscal 2016, which as drafted would increase taxable income by approximately $90 million to $100 million for each year plus a 10% penalty. Estimated potential aggregate liability is limited to penalties, interest and provincial taxes of approximately $64 million, with approximately $24 million provisionally paid, and no accrual has been recorded.
The Carbonite securities class action dismissed with prejudice on October 22, 2020 is now on appeal to the First Circuit, with the lead plaintiff's brief due February 24, 2021. Separately, the Realtime Data patent suit against Carbonite was revived after the Federal Circuit vacated and remanded the Delaware dismissal, and the Massachusetts court lifted its stay, with no loss contingency accrued.
License revenues decreased 22.3% during the three months ended December 31, 2020 and 18.6% during the six months ended December 31, 2020 as compared to the same prior-year periods, with only 9 license deals greater than $1.0 million closing in the quarter versus 19 a year earlier. Growth is increasingly dependent on cloud services and subscriptions revenue, which rose 41.1% in the quarter largely from acquisitions.
The cloud renewal rate, excluding the impact of Carbonite, was approximately 96% for the quarter ended December 31, 2020, down from approximately 98% for the quarter ended December 31, 2019. Customer support renewal rate improved to approximately 94% from approximately 93% over the same comparison.
COVID-19 continues to adversely impact operational and financial performance, with travel limitations reducing sales and marketing travel and communication costs and research and development expenses partly offset by pandemic spending reductions. The company restored all previously announced compensation adjustments effective in the three months ended December 31, 2020 and resumed hiring, while stating the ultimate impact of the pandemic remains difficult to predict.
Increases in cloud services and subscriptions revenue, amortization of acquired technology-based intangible assets (up $11.8 million in the quarter and $29.5 million year to date) and headcount-related costs were primarily driven by recent acquisitions. Continued reliance on acquisitions to sustain growth carries integration, restructuring charge variability and potential debt financing risk.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from OPEN TEXT CORP's SEC filings for Q2 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.