Summary
OpenText posted record fiscal third-quarter revenue of $882.3 million, up 5.9% from the prior-year quarter and up 8.0% in constant currency. Cloud services and subscriptions did the heavy lifting, with revenue growth of 13.0%, or 14.3% in constant currency. Annual recurring revenue, which the company defines as cloud plus customer support revenue, reached $734.5 million, up 6.2%, and made up 83% of total revenue. Customer support revenue slipped 1.0%, license revenue rose 5.7% and professional service and other revenue rose 3.6%. Renewal rates held steady at 94% for customer support and 93% for cloud excluding Carbonite and Zix. Management called it the fifth consecutive quarter of organic growth.
Profitability went the other way. Gross profit rose 6.4% to $608.0 million, and gross margin ticked up 0.3 percentage points to 68.9%. Operating income fell 13.6% to $131.6 million, and operating margin dropped 3.4 percentage points to 14.9%. Net income fell 18.4% to $74.7 million, and diluted EPS was $0.28, down 15.2%. The gap between revenue growth and profit growth points to heavier spending on talent, innovation, digital marketing and global sales coverage, which the company described as deliberate. On a non-GAAP basis, adjusted EBITDA was $284.5 million, a 32.2% margin, and non-GAAP diluted EPS was $0.70, down 6.7%. Year to date, net income was $294.9 million, up 127.9%, and diluted EPS was $1.08, up 129.8%, a swing helped by a prior-year income tax provision charge tied to IRS settlements.
Cash generation was the standout. Operating cash flow was $323.6 million in the quarter, up 409.0%, and $729.9 million for the nine months, up 25.9%. Capital expenditures were $17.6 million in the quarter, up 32.1%, and $54.9 million year to date, up 51.5%. Free cash flow, a non-GAAP measure, was $306.0 million in the quarter. The balance sheet ended March 31, 2022 with $1.6 billion in cash and a net leverage ratio of 1.9x. Deferred revenue was $936.8 million, up 7.2%, and remaining performance obligations were $1.5 billion, up 15.4%. The company returned capital through a quarterly dividend of $0.2209 per share and the repurchase and cancellation of 1.0 million shares for $45.1 million.
Guidance for the full fiscal year is unchanged. OpenText still targets total revenue growth of 3% to 4% and cloud revenue growth of 8% to 10%, though management said total revenue growth should land closer to 3% because of currency. The euro traded near 1.2 to the dollar a year ago and around 1.05 at the time of the letter, a decline of more than 10%. The company also repeated its FY24 organic growth aspiration of 2% to 4% and its plan to invest roughly $2.2 billion in research and development over five years, with 80% of that aimed at cloud. Zix integration is tracking to plan, and the acquisition pipeline is sized at $20 billion across more than 1,200 tracked companies.
Risks are real. The Canada Revenue Agency has reassessed several fiscal years, and an adverse outcome on Fiscal 2017 could reduce deferred tax assets by up to approximately $470 million. OpenText has ceased direct business in Russia and Belarus, and it continues to weigh inflation, supply chain strain, COVID-19 resurgences and the Carbonite securities class action. The company also competes in a $92 billion Information Management market where the race for cloud workloads keeps pressure on pricing and on the pace of investment.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $882.3M | $876.8M | +0.6% | $832.9M | +5.9% |
| Gross profit | $608.0M | $615.6M | -1.2% | $571.7M | +6.4% |
| Gross margin | 68.9% | 70.2% | -1.3 pp | 68.6% | +0.3 pp |
| Research & development | $117.7M | $103.6M | +13.6% | $110.1M | +7.0% |
| Sales & marketing | $181.0M | $163.9M | +10.4% | $158.7M | +14.0% |
| General & administrative | $88.1M | $71.5M | +23.2% | $71.5M | +23.2% |
| Total operating expenses | $476.4M | $422.7M | +12.7% | $419.3M | +13.6% |
| Operating income (loss) | $131.6M | $192.9M | -31.8% | $152.4M | -13.6% |
| Operating margin | 14.9% | 22.0% | -7.1 pp | 18.3% | -3.4 pp |
| Net income (loss) | $74.7M | $88.3M | -15.4% | $91.5M | -18.4% |
| Net margin | 8.5% | 10.1% | -1.6 pp | 11.0% | -2.5 pp |
| Diluted EPS | $0.28 | $0.32 | -$0.04 | $0.33 | -$0.05 |
Risks
The Canada Revenue Agency has reassessed OpenText's transfer pricing for Fiscal 2012 through Fiscal 2016 and issued a notice of reassessment for Fiscal 2017; if the company is ultimately unsuccessful, the estimated impact could be an income tax expense, with no immediate cash payment, reducing the stated value of deferred tax assets by up to approximately $470 million.
Newly introduced risk tied to the Russia-Ukraine conflict: OpenText has ceased all direct business in Russia and Belarus and with known Russian-owned companies, and US, Canadian and other sanctions and export controls could impact fulfillment of contracts with customers and partners in affected areas. Management states it does not expect a material adverse effect, but says the broader consequences of the conflict, which could heighten many of its previously disclosed risks, cannot be predicted.
The filing newly details integration risk from the December 23, 2021 Zix acquisition (total consideration $894.5 million paid in cash). Failure to integrate operations, systems, controls and cultures could result in material unanticipated expenses, restructuring and acquisition charges, competitive responses, loss of customers and diversion of management attention.
The Carbonite and Zix acquisitions expanded OpenText into the SMB and consumer markets, requiring substantial resources and marketing approaches different from its historical base. SMBs have limited budgets and are more likely to cut spending on solutions during economic downturns, which could hurt projected revenues.
MD&A highlights inflation in wages, services and goods as a factor it is monitoring, alongside rising interest rates and increased labour costs to attract and retain employees. Total operating expenses rose $57.2 million in the quarter, with sales and marketing expenses as a percentage of total revenues increasing to 21% from 19%, and GAAP operating margin declined to 14.9% from 18.3%.
Quarterly GAAP income from operations fell to $131.6 million, down 13.6% versus the prior-year quarter, and GAAP operating margin narrowed 3.4 percentage points to 14.9%. Professional service and other gross margin decreased to 16% from 22%, driven by higher labour-related costs and recent acquisitions, signaling cost pressure on services profitability.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted EBITDA Margin
Non-GAAP Gross Margin
Cloud Revenues
Free Cash Flow
Customer Support Renewal Rate
Non-GAAP Operating Income
Annual Recurring Revenues (ARR)
Annual Recurring Revenues as % of Total Revenues
Summary, forecast, risks and KPIs are extracted from OPEN TEXT CORP's SEC filings for Q3 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.