Summary
OpenText closed the third quarter of fiscal 2021 with total revenues of $832.9 million, up 2.2% from $814.7 million a year earlier. Cloud services and subscriptions set a record at $355.8 million, up 4.8%. Annual recurring revenues, which combine cloud and customer support, reached $691.8 million, up 4.4%, and represented 83% of total revenues. Currency worked against the top line. Total revenues fell 0.8% in constant currency, while cloud revenues grew 3.1% on the same basis. The recurring base held the quarter together while transactional lines softened.
Profitability improved sharply on a GAAP basis. Operating income rose 60.3% to $152.4 million from $95.1 million. Net income attributable to OpenText was $91.5 million, up 252.4% from $26.0 million, and diluted EPS came in at $0.33, up 230.0% from $0.10. Gross margin expanded to 68.6% from 65.4%, and operating margin reached 18.3% from 11.7%. On a non-GAAP basis, adjusted EBITDA was $297.1 million, up 14.5%, for a 35.7% margin, up 390 basis points. Non-GAAP diluted EPS was $0.75, up 23.0%, or $0.71 in constant currency, up 16.4%.
The year-to-date picture diverges from the quarter because of tax items. For the nine months, revenues were $2.49 billion, up 9.2%. But net income attributable to OpenText was $129.4 million, down 37.7%, and diluted EPS was $0.47, down 39.0%. The nine-month tax provision was $342.1 million and included a $300.6 million charge tied to the IRS settlement. Operating income year to date was $569.2 million, up 38.1%, and gross margin improved to 69.4% from 67.5%.
Cash generation took a hit from that tax payment. Operating cash flow was $63.6 million for the quarter, down 80.7% from $329.6 million, and free cash flows were $50.3 million. The quarter included a $290.0 million IRS settlement payment. Year to date, operating cash flow was $579.9 million, down 14.0%, and free cash flows were $543.7 million. Cash and cash equivalents stood at $1,475.6 million as of March 31, 2021, versus $1,692.9 million as of June 30, 2020. The balance sheet carried a net leverage ratio of 1.6x. Capital expenditures were $13.3 million in the quarter, down 20.7%.
Operationally, the cloud renewal rate was approximately 93%, down from approximately 96% a year earlier, while the customer support renewal rate held at approximately 94%. OpenText closed 16 cloud services deals above $1.0 million, compared with 5 in the prior-year quarter. License revenue slipped 5.9% to $76.3 million, and professional service and other revenue fell 9.0% to $64.9 million. Management said fiscal year to date R&D spending of $304.2 million, or 12.2% of revenue, sits within its target to spend approximately 12% to 14% of revenues this fiscal year. The board declared a quarterly dividend of $0.2008 per common share, payable June 25, 2021 to holders of record on June 4, 2021.
Risks remain concentrated in tax and macro conditions. The Canada Revenue Agency continues to dispute the company's transfer pricing, and a Fiscal 2017 proposal could cut the value of deferred tax assets by up to approximately $470 million if the company loses. The IRS settlement closed the Fiscal 2010 and Fiscal 2012 matter, though roughly $10.6 million in associated state tax and interest is still expected to be paid, primarily through the rest of fiscal 2021. COVID-19 continues to affect operations, with travel and in-person selling reduced, and the company flagged the pandemic's uncertain duration and its effect on customer purchasing decisions.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $832.9M | $855.6M | -2.7% | $814.7M | +2.2% |
| Gross profit | $571.7M | $603.1M | -5.2% | $532.5M | +7.4% |
| Gross margin | 68.6% | 70.5% | -1.9 pp | 65.4% | +3.3 pp |
| Research & development | $110.1M | $100.2M | +9.8% | $108.2M | +1.7% |
| Sales & marketing | $158.7M | $147.9M | +7.3% | $166.2M | -4.5% |
| General & administrative | $71.5M | $62.8M | +14.0% | $68.8M | +4.0% |
| Total operating expenses | $419.3M | $368.6M | +13.7% | $437.4M | -4.1% |
| Operating income (loss) | $152.4M | $234.5M | -35.0% | $95.1M | +60.3% |
| Operating margin | 18.3% | 27.4% | -9.1 pp | 11.7% | +6.6 pp |
| Net income (loss) | $91.5M | -$65.4M | +239.9% | $26.0M | +252.0% |
| Net margin | 11.0% | -7.7% | +18.6 pp | 3.2% | +7.8 pp |
| Diluted EPS | $0.33 | -$0.24 | +$0.57 | $0.10 | +$0.23 |
Risks
The Canada Revenue Agency has reassessed OpenText's transfer pricing for Fiscal 2012 through Fiscal 2016 and issued an April 7, 2021 Proposal Letter proposing to reduce the depreciable basis of intellectual property and goodwill for Fiscal 2017. If the company is ultimately unsuccessful, the proposed adjustment could result in an income tax expense of up to approximately $470 million to reduce deferred tax assets, with a corresponding cash tax impact spread over several future years.
The December 21, 2020 IRS Settlement resolving Fiscal 2010 and Fiscal 2012 transfer pricing adjustments resulted in a charge of $300.6 million in the nine months ended March 31, 2021, and the company paid $288.6 million of U.S. federal taxes and interest plus $1.4 million of state tax and interest during the quarter. Remaining associated state tax and interest payments of approximately $10.6 million are expected primarily through the remainder of Fiscal 2021.
COVID-19 has significantly impacted the global economy and the company states it has adversely impacted and is expected to further adversely impact operational and financial performance, with the extent depending on the length and severity of containment measures, vaccine availability and effectiveness, and potential resurgences. Business continues with substantial modifications to employee travel and work locations and virtualization or cancellation of all sales and marketing events, which the company expects to remain in place throughout Fiscal 2021.
License revenues decreased 5.9% in the quarter ended March 31, 2021 and 15.1% in the nine months ended March 31, 2021 versus the prior-year periods, with the company closing 21 license deals greater than $0.5 million in the quarter compared to 23 a year earlier. Professional service and other revenues also decreased 9.0% in the quarter and 8.1% year to date, reflecting delayed or reduced customer purchasing.
The cloud renewal rate, excluding the impact of Carbonite, was approximately 93% for the quarter ended March 31, 2021 compared to approximately 96% for the quarter ended March 31, 2020, indicating a decline in recurring cloud revenue retention. Customer support renewal rate was approximately 94% in both periods.
Operating cash flow decreased 80.7% to $63.6 million in the quarter ended March 31, 2021 and decreased 14.0% to $579.9 million for the nine months ended March 31, 2021 versus the prior-year periods, driven largely by the IRS Settlement payments and an $83.0 million decrease relating to income taxes payable, net of receivables. Cash and cash equivalents fell to $1,475.6 million as of March 31, 2021 from $1,692.9 million as of June 30, 2020.
Total revenue was up 2.2% in the quarter ended March 31, 2021 versus the prior-year quarter but down 0.8% after factoring in $25.0 million of foreign exchange rate changes, and license revenue was down 5.9% but down 10.9% on a constant-currency basis. Currency movements materially affect reported revenue and margin comparisons across geographies.
The company states its competitive position requires an evolving array of technologies and that it regularly evaluates and expects to continue acquiring companies, products and technologies, which can affect period-to-period comparability. Recent acquisitions drove a $44.1 million increase in amortization of newly acquired technology-based intangibles in the nine months ended March 31, 2021, and integration-related restructuring charges and recoveries remain a recurring element of results.
Borrowings under Term Loan B and the Revolver bear interest at floating rates tied to LIBOR plus a margin, exposing the company to interest rate and LIBOR transition risk, and the facilities require maintenance of a consolidated net leverage ratio of no more than 4:1 at each quarter end. Total long-term debt obligations, including interest, were $4,547.8 million as of March 31, 2021, with $300.1 million due in the following twelve months.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted EBITDA Margin
Cloud Revenues
Customer Support Renewal Rate
Annual Recurring Revenues as % of Total Revenues
Free Cash Flows
Annual Recurring Revenues
Summary, forecast, risks and KPIs are extracted from OPEN TEXT CORP's SEC filings for Q3 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 1, 2026.