Summary
OpenText reported record total revenues of $1.53 billion in the fiscal 2024 second quarter, up 71.0% from $897.44 million a year earlier. Much of that increase came from Micro Focus, which contributed $601.4 million of revenue in the period, including $369.5 million of customer support and $153.3 million of license revenue. Cloud services and subscriptions revenue grew 10.1% year over year, or 9.2% in constant currency. Annual recurring revenue, the sum of cloud and customer support revenue, reached $1.146 billion, up 58.0%, and represented 75% of total revenue. Enterprise cloud bookings set a quarterly record at $235.5 million, up from $144.7 million a year earlier, and the company signed 48 cloud services contracts larger than $1.0 million.
Profitability split in two directions. Gross profit rose to $1.13 billion, up 77.6%, and gross margin expanded to 73.6% from 70.8%, a gain of 2.7 percentage points. Operating income was $253.87 million, up 37.5%. Operating margin, however, fell to 16.5% from 20.6%, down 4.0 percentage points, as amortization of acquired intangibles, restructuring charges and interest on the Micro Focus debt grew faster than revenue. Net income dropped to $37.68 million from $258.49 million, down 85.4%, and diluted earnings per share were $0.14, down 85.4% from $0.96. The prior-year quarter carried a large non-operating gain that did not repeat. On a non-GAAP basis, adjusted EBITDA was $566 million with a 36.9% margin, and diluted earnings per share were $1.24.
Cash generation was the cleanest part of the release. Operating cash flow was $350.65 million in the quarter, up 79.7% from a year earlier, and capital expenditures were $45.24 million, up 40.4%. Free cash flows, a non-GAAP measure, were $305 million, up 87% year over year. Through the first six months of fiscal 2024, revenue was $2.96 billion, up 69.2%; operating cash flow was $397.77 million, up 21.6%; net income was $118.58 million, down 16.2%; and diluted earnings per share were $0.44, down 15.4%. Deferred revenue was $1.54 billion, up 74.6%, and remaining performance obligations were $2.50 billion, up 56.2%, which backs the recurring revenue story. OpenText held roughly $1 billion in cash as of December 31, 2023. It repaid the $100 million balance on its revolver and $75 million on the Acquisition Term Loan during the quarter, then repaid another $175 million on January 22, 2024. Net leverage stood at 3.70:1.
Management credited enterprise cloud demand and early customer work on the OpenText Aviator AI products. It raised its cloud bookings outlook to 25% to 30% growth for the full fiscal year 2024 and said it remains on track to move Micro Focus onto the OpenText operating model by the end of this fiscal year.
The biggest strategic move was the November 2023 agreement to sell the Application Modernization and Connectivity business to Rocket Software for $2.275 billion in cash before taxes, fees and other adjustments, with net proceeds earmarked to reduce debt. The deal needs regulatory approvals and customary closing conditions and is expected to close in the fourth quarter of fiscal 2024. Management does not expect the divestiture to have a material impact on fiscal 2024 results.
Risk sits in integration and tax. The Micro Focus restructuring plan targets $400 million of cost synergies and a workforce reduction of about 8%, or 2,000 employees, at an estimated cost of $160 million to $175 million, of which $123.9 million was incurred as of December 31, 2023. OpenText continues to contest Canada Revenue Agency reassessments for fiscal 2012 through fiscal 2016, where the estimated potential liability is about $79 million and about $33 million has been provisionally paid, and for fiscal 2017 through 2019, where an adverse outcome could reduce deferred tax assets by up to roughly $470 million. The cloud renewal rate, excluding Carbonite, Zix and Micro Focus, slipped to 93% from 94%, while the customer support renewal rate held at 95%. The company employed about 23,600 people as of December 31, 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.53B | $1.43B | +7.7% | $897.4M | +71.0% |
| Gross profit | $1.13B | $1.02B | +10.9% | $635.7M | +77.6% |
| Gross margin | 73.6% | 71.5% | +2.1 pp | 70.8% | +2.7 pp |
| Research & development | $220.2M | $234.4M | -6.1% | $109.7M | +100.7% |
| Sales & marketing | $280.3M | $271.8M | +3.1% | $177.2M | +58.2% |
| General & administrative | $173.3M | $131.2M | +32.0% | $77.6M | +123.3% |
| Total operating expenses | $875.3M | $805.5M | +8.7% | $451.1M | +94.0% |
| Operating income (loss) | $253.9M | $212.9M | +19.2% | $184.7M | +37.5% |
| Operating margin | 16.5% | 14.9% | +1.6 pp | 20.6% | -4.0 pp |
| Net income (loss) | $37.7M | $80.9M | -53.4% | $258.5M | -85.4% |
| Net margin | 2.5% | 5.7% | -3.2 pp | 28.8% | -26.3 pp |
| Diluted EPS | $0.14 | $0.30 | -$0.16 | $0.96 | -$0.82 |
| Customers | 10,000 | — | — | — | — |
Risks
The proposed $2.275 billion sale of the AMC business to Rocket Software, announced November 28, 2023 and expected to close in the fourth quarter of Fiscal 2024, remains subject to regulatory approvals and other closing conditions that could delay or prevent completion. If not consummated, the company would incur significant transaction costs and could not use the after-tax proceeds to repay outstanding indebtedness as contemplated.
Divesting the AMC business may disrupt the remaining business and relationships with customers and partners, requires the company to provide transition services to the buyer for up to 24 months, and could cause key leaders or personnel to leave. The company may not realize the intended benefits of focusing on Cloud and AI opportunities within Information Management in the absence of the divested business.
The Micro Focus Acquisition continues to dominate period-over-period comparability, contributing $601.4 million of the $637.4 million total revenue increase in the quarter ended December 31, 2023. The associated restructuring plan targets a reduction of approximately 8% of the combined workforce (about 2,000 employees) at an estimated cost of $160 million to $175 million, of which $123.9 million has been incurred through December 31, 2023.
The Canada Revenue Agency has reassessed the company's transfer pricing for Fiscal 2012 through Fiscal 2019. If the company is ultimately unsuccessful for Fiscal 2017 through Fiscal 2019, the estimated impact could result in income tax expense reducing the stated value of deferred tax assets by up to approximately $470 million, with a corresponding cash tax impact primarily over several future years.
Cloud services and subscriptions gross margin decreased to 60% from 67% in the quarter ended December 31, 2023, driven by higher third-party network usage and labor-related costs. The cloud renewal rate, excluding the impact of Carbonite, Zix and Micro Focus, decreased to 93% from 94% over the quarter ended December 31, 2022.
The company carries substantial debt from the Micro Focus Acquisition, with total contractual long-term debt obligations of $11.58 billion and a consolidated net leverage ratio of 3.70:1.00 as of December 31, 2023. Interest expense related to total outstanding debt increased $88.9 million in the quarter ended December 31, 2023 compared to the prior-year quarter.
The company continues to monitor potential impacts of inflation on wages, services and goods, concerns regarding a potential recession, rising interest rates, financial market volatility, and the Russia-Ukraine and Israel-Hamas conflicts and other geopolitical disputes on its business.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted EBITDA Margin
Non-GAAP Gross Margin
Enterprise Cloud Bookings
Free Cash Flow
Customer Support Renewal Rate
Cloud Services Contracts > $1.0M
Non-GAAP Operating Income
Annual Recurring Revenues (ARR)
ARR as % of Total Revenues
Summary, forecast, risks and KPIs are extracted from OPEN TEXT CORP's SEC filings for Q2 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.