Summary
OpenText's fiscal 2023 third quarter was defined by the Micro Focus acquisition, which closed on January 31, 2023 for $6.2 billion, including cash and repayment of Micro Focus debt. Reported results include Micro Focus only from February 1 through March 31, 2023. Revenue rose to $1.24 billion in the quarter, up 41.1% from the prior-year quarter, or 44.9% after $33.7 million of unfavorable foreign exchange. Gross profit increased to $874.94 million, up 43.9%, and gross margin improved to 70.3% from 68.9%. GAAP operating income fell to $63.99 million, down 51.4%, and operating margin dropped to 5.1% from 14.9%. Net income attributable to OpenText was $57.56 million, down 22.9%, and diluted EPS was $0.21, down 25.0%. Purchase accounting and integration costs weighed heavily on GAAP results.
The top line also showed the mix effect of the deal. Total annual recurring revenue was $1,011.3 million, up 37.7%, or 41.1% after $25.1 million of unfavorable foreign exchange. Cloud renewal rate rose to 95% from 93%, and customer support renewal rate rose to 95% from 94%, excluding Carbonite, Zix and Micro Focus. Enterprise cloud bookings were $108.2 million, stable over the prior-year quarter. The quarter had 13 cloud services contracts greater than $1.0 million, compared with 21 in the prior-year quarter. On a non-GAAP basis, gross margin was 75.8% compared with 74.5%. Non-GAAP net income was $197.8 million compared with $190.8 million, and non-GAAP diluted EPS was $0.73 compared with $0.70. Adjusted EBITDA rose to $365.1 million from $284.5 million. Those figures show a profitable core business before amortization, share-based compensation and special charges.
Cash generation and backlog were mixed. Operating cash flow was $336.78 million in the quarter, up 4.1% from the prior-year quarter. For the nine months, operating cash flow was $663.90 million, down 9.0% from $729.87 million. Capital expenditures were $31.23 million in the quarter, up 77.6%, and $99.77 million year to date, up 81.6%. Days sales outstanding was 45 days, compared with 44 days in the prior-year quarter. Deferred revenue was $1.79 billion, up 90.6% from the prior-year quarter, and remaining performance obligations were $2.50 billion, up 66.7%. The Micro Focus deal has added debt and integration work, and management has said the company will continue to monitor inflation, rising interest rates and a potential recession.
For the remainder of fiscal 2023, OpenText targets research and development expense of 13% to 15% of revenue. The Micro Focus restructuring plan aims to reduce the combined workforce by about 8%, or 2,000 employees, with estimated costs of $135 million to $150 million, and is expected to be complete by the end of fiscal 2024. The company targets $400 million of cost synergies. Risks include integrating Micro Focus, realizing those synergies, servicing higher debt levels, foreign exchange swings, and tax disputes. The company has ceased all direct business in Russia and Belarus and with known Russian-owned companies. The Canada Revenue Agency matter carries a potential aggregate liability of about $73 million for fiscal 2012 to 2016, with $32 million provisionally paid. For fiscal 2017 and 2018, an unfavorable outcome could reduce deferred tax assets by up to about $470 million. Litigation includes the Carbonite class action and the Realtime Data patent case. The quarter leaves OpenText larger and more leveraged, with strong non-GAAP cash flow but real GAAP pressure and integration risk.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.24B | $897.4M | +38.7% | $882.3M | +41.1% |
| Gross profit | $874.9M | $635.7M | +37.6% | $608.0M | +43.9% |
| Gross margin | 70.3% | 70.8% | -0.5 pp | 68.9% | +1.4 pp |
| Research & development | $210.7M | $109.7M | +92.1% | $117.7M | +79.0% |
| Sales & marketing | $271.0M | $177.2M | +53.0% | $181.0M | +49.8% |
| General & administrative | $127.0M | $77.6M | +63.7% | $88.1M | +44.1% |
| Total operating expenses | $811.0M | $451.1M | +79.8% | $476.4M | +70.2% |
| Operating income (loss) | $64.0M | $184.7M | -65.3% | $131.6M | -51.4% |
| Operating margin | 5.1% | 20.6% | -15.4 pp | 14.9% | -9.8 pp |
| Net income (loss) | $57.6M | $258.5M | -77.7% | $74.7M | -22.9% |
| Net margin | 4.6% | 28.8% | -24.2 pp | 8.5% | -3.8 pp |
| Diluted EPS | $0.21 | $0.96 | -$0.75 | $0.28 | -$0.07 |
Risks
OpenText may fail to realize expected benefits from the Micro Focus Acquisition, including $400 million of cost synergies and successful execution of the Micro Focus Restructuring Plan, because integrating business operations, R&D, sales, partners, and customers is complex and time-consuming.
The Micro Focus Acquisition left OpenText with a significant amount of indebtedness and variable-rate exposure under Term Loan B and the Revolver, increasing debt service obligations, limiting flexibility, and raising vulnerability to adverse economic or industry conditions.
Applying OpenText's internal controls framework to Micro Focus may identify additional material weaknesses or deficiencies, and integrating IFRS-based, semi-annual financial reporting into U.S. GAAP reporting could impair reliable financial reporting.
U.K. tax authorities have challenged Micro Focus historic tax filing positions, and OpenText is contesting CRA reassessments for Fiscal 2012 through Fiscal 2018; if unsuccessful, the company could record a material income tax expense to reduce deferred tax assets.
The Micro Focus Acquisition Restructuring Plan is expected to reduce the combined workforce by approximately 8 percent, or 2,000 employees, with an estimated cost of $135 million to $150 million, and may not achieve the targeted $400 million of cost synergies by the end of Fiscal 2024.
Following the Micro Focus Acquisition, OpenText may inherit litigation, including commercial, product liability, employment, class action, and regulatory matters, such as the ongoing Carbonite securities class action and Realtime Data patent case.
OpenText is monitoring inflation, potential recession, rising interest rates, financial market volatility, and the Russia-Ukraine conflict, having ceased direct business in Russia and Belarus while allowing certain cloud customers to continue compliant use of its services.
Unfavorable foreign exchange rate changes reduced total revenue growth in the quarter by $33.7 million, and continued currency fluctuations could adversely affect future results.
SaaS KPIs
All quarters →Adjusted EBITDA
Non-GAAP Gross Margin
Enterprise Cloud Bookings
Summary, forecast, risks and KPIs are extracted from OPEN TEXT CORP's SEC filings for Q3 FY2023 (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.