Summary
OpenText reported record second-quarter revenue for the period ended December 31, 2021. Total revenue was $876.8 million, up 2.5% year over year. Cloud services and subscriptions revenue reached $364.9 million, up 4.1%, and now accounts for 41.6% of the total. Annual recurring revenue, which combines cloud and customer support, was $699.8 million, up 2.2% and equal to 80% of revenue. Management pointed to double-digit year-over-year growth in enterprise cloud bookings and to 27 cloud contracts worth more than $1.0 million, up from 15 in the same quarter a year earlier. Cloud renewals, excluding Carbonite, came in at about 93%, down from roughly 96%.
Profit and operating profit pulled in opposite directions. Net income attributable to OpenText was $88.3 million for the quarter, up 234.9% and a swing to profit. Diluted EPS was $0.32, up $0.56. Much of that swing traces to the prior-year quarter, which carried an income tax provision charge tied to an IRS settlement. Operating income fell 17.7% to $192.9 million. Operating margin dropped to 22.0%, down 5.4 percentage points, as sales and marketing and general and administrative costs grew faster than revenue, and the quarter booked special charges while the prior-year period recorded a recovery. Gross margin was 70.2%, down 0.3 percentage points. Non-GAAP numbers softened as well: adjusted EBITDA of $343.5 million at a 39.2% margin, and non-GAAP diluted EPS of $0.89, down 6.3%.
Cash generation slowed. Operating cash flow was $216.6 million for the quarter, down 23.3%, and $406.3 million for the six months, down 21.3%. Free cash flow, a non-GAAP measure, was $206.0 million for the quarter, down 25.0%. Capital expenditures rose to $10.6 million in the quarter, up 39.0%, and $37.3 million year to date, up 62.7%, though that remains a small slice of revenue. Backlog signals were better. Deferred revenue was $849.0 million at December 31, 2021, up 6.3%, and remaining performance obligations were $1.5 billion, up 15.4%.
Capital allocation was active. OpenText closed the $896.0 million purchase of Zix Corporation, adding email encryption, threat protection and compliance products plus more than 5,000 managed service providers, and paid $17.9 million for Bricata. It issued $1.5 billion of senior notes, split between $850 million of 3.875% notes due 2029 and $650 million of 4.125% notes due 2031, to refinance debt and provide incremental capital. The company repurchased and cancelled 1.8 million shares for $91.0 million and declared a quarterly dividend of $0.2209 per share. Management cited a net leverage ratio of 2.0x.
Guidance moved up for the full fiscal year. For FY2022, management raised the total revenue growth target to 3% to 4% from 1% to 2% and the cloud revenue growth target to 8% to 10% from 3% to 4%. It framed the first half as progress toward FY2024 organic growth aspirations of 2% to 4%. Research and development spending is tracking in line with the 12% to 14% of revenue target for the fiscal year.
Risks sit mostly off the income statement. The Canada Revenue Agency reassessed OpenText's Fiscal 2017 tax year in February 2022; an unfavorable outcome could produce an income tax expense that reduces deferred tax assets by up to approximately $470 million, with no immediate cash payment. Reassessments for Fiscal 2012 through Fiscal 2016 carry an estimated aggregate exposure of about $73 million in penalties, interest and provincial taxes. The First Circuit revived a Carbonite securities class action in December 2021. Management also flagged inflation, competition for talent, economic volatility and cyber threats such as Log4J. Integrating Zix and holding cloud renewal rates near 93% are the operational items to watch.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $876.8M | $832.3M | +5.3% | $855.6M | +2.5% |
| Gross profit | $615.6M | $574.2M | +7.2% | $603.1M | +2.1% |
| Gross margin | 70.2% | 69.0% | +1.2 pp | 70.5% | -0.3 pp |
| Research & development | $103.6M | $100.2M | +3.5% | $100.2M | +3.4% |
| Sales & marketing | $163.9M | $146.2M | +12.1% | $147.9M | +10.8% |
| General & administrative | $71.5M | $71.5M | +0.1% | $62.8M | +13.9% |
| Total operating expenses | $422.7M | $391.5M | +8.0% | $368.6M | +14.7% |
| Operating income (loss) | $192.9M | $182.7M | +5.6% | $234.5M | -17.7% |
| Operating margin | 22.0% | 21.9% | +0.1 pp | 27.4% | -5.4 pp |
| Net income (loss) | $88.3M | $132.0M | -33.1% | -$65.4M | +235.0% |
| Net margin | 10.1% | 15.9% | -5.8 pp | -7.7% | +17.7 pp |
| Diluted EPS | $0.32 | $0.48 | -$0.16 | -$0.24 | +$0.56 |
Risks
OpenText closed the acquisition of Zix Corporation on December 23, 2021 for total consideration of $896.0 million and must integrate its business practices and operations. The filing warns that integration may cause material unanticipated problems, expenses, restructuring charges, loss of customers and diversion of management attention, and may prevent realization of anticipated cost savings and synergies.
The Canada Revenue Agency has reassessed OpenText's transfer pricing for Fiscal 2012 through Fiscal 2016, with an estimated potential liability of approximately $73 million in penalties, interest and provincial taxes, and issued a notice of reassessment for Fiscal 2017 on February 1, 2022. If unsuccessful, the Fiscal 2017 adjustment could result in income tax expense reducing deferred tax assets by up to approximately $470 million.
GAAP operating income fell to $192.9 million in the quarter, down 17.7% versus the prior-year quarter, and operating margin declined to 22.0% from 27.4% (down 5.4 pp). Operating expenses rose to $422.7 million in the quarter, driven by higher payroll, sales and marketing, and special charges.
With the Carbonite and Zix acquisitions, OpenText has expanded into the SMB and consumer markets, which the filing says may require substantial resources and different marketing efforts. SMBs frequently have limited budgets and are more likely to be significantly affected by economic downturns, which may hurt projected revenues.
Operating cash flow was $406.3 million for the six months ended December 31, 2021, down 21.3% versus the prior-year period, primarily due to a $227.6 million decrease in changes from working capital including income taxes payable and accounts payable. Capital expenditures rose 62.7% year to date to $37.3 million.
Cloud renewal rate, excluding the impact of Carbonite, was approximately 93% for the quarter ended December 31, 2021, compared to approximately 96% for the quarter ended December 31, 2020, indicating a decline in customer retention in the cloud business.
Professional service and other gross margin decreased to 21.5% in the quarter from 26.4% in the prior-year quarter, and to 22.1% year to date from 27.4%, as cost of professional service and other revenues rose on higher labour-related costs.
OpenText issued $850 million of 3.875% Senior Notes due 2029 and $650 million of 4.125% Senior Notes due 2031, and redeemed the $850 million Senior Notes 2026 in full, recording a $27.4 million loss on debt extinguishment. Total long-term debt obligations are $5.4 billion, and the credit facilities require maintaining a consolidated net leverage ratio of no more than 4:1.
The First Circuit on December 21, 2021 reversed and remanded the consolidated Carbonite securities class action to the district court for further proceedings, reviving a matter that had previously been dismissed with prejudice. OpenText also continues to defend the Realtime Data patent litigation, where an unfavorable outcome is considered reasonably possible.
The filing states that the spread of COVID-19 continues to impact the global economy and has adversely impacted and may continue to adversely impact operational and financial performance, with business conducted under substantially modified travel, work locations and virtualized sales and marketing events expected to remain in place throughout Fiscal 2022.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted EBITDA Margin
Cloud Revenues
Annual Recurring Revenues as % of Total Revenues
Free Cash Flows
Non-GAAP-based Operating Income
Annual Recurring Revenues
Summary, forecast, risks and KPIs are extracted from OPEN TEXT CORP's SEC filings for Q2 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.