Open Text Corporation (OTEX) Earnings

Management highlights

• New CEO Strategic Update - New CEO Ayman Antoun completed an initial stakeholder listening and assessment phase after joining, and launched an end-to-end enterprise assessment focused on go-to-market strategy, portfolio composition, marketing execution, decision rights, talent, and culture. The assessment will define a multi-year growth plan, with results expected in early calendar 2027. - Stakeholder feedback: Clients want a more integrated OpenText with faster innovation; ecosystem partners want deeper joint engagement to capture the large AI-related market opportunity; employees want greater speed and simplicity; investors want sharper focus on core strengths and consistent performance metrics. - OpenText positions itself as the secure, trusted enterprise data foundation for the AI stack, a key differentiator as clients move from AI experimentation to large-scale deployment. • Early Operational Actions - Adding over 300 new quota-carrying sales employees globally, with dedicated client executives owning full cross-portfolio client relationships to streamline engagement. - Integrating the partner ecosystem directly into the go-to-market model, with investments in co-selling, partner enablement, and attractive partner financial structures to expand market reach. - Shifting more R&D investment to the core portfolio, cloud capabilities, and AI offerings, with a focus on infusing AI across all core categories and accelerating cloud product development. R&D will be reallocated to high-priority categories rather than spread evenly across segments. - Delegating clear decision rights to regional and client-facing teams to enable faster action and cross-selling. • AI Business Progress - Aviator, OpenText's enterprise AI platform, is available across the full product portfolio. The number of deals including Aviator has doubled annually since launch 8 quarters ago, and deals including Aviator have an average 4x larger deal size than those without. - Aviator delivers tangible client value across segments: automating compliant conversational access to large HR record sets at a major tech firm; cutting vulnerability repair time from one day to one hour for a leading global telecom; real-time risk flagging and issue resolution for $11 trillion in annual corporate payment processing; and cutting mobile testing effort by 35% for a major healthcare provider. • Capital Allocation Update - Maintains a four-part priority framework: debt reduction, organic growth investment, dividend payouts, share repurchases. OpenText paid down $649 million in total debt in fiscal 2026, including a $300 million discretionary debt repayment in Q4, reducing the net leverage ratio to 2.75x, which is within the 2.5-3x target range. - Full year fiscal 2026 operating cash flow was $1.0 billion (up 21.2% year-over-year) and free cash flow was $808 million (up 17.5% year-over-year). - Returned $268.4 million to shareholders via dividends in fiscal 2026, and repurchased and canceled 14.8 million shares (6% of outstanding common shares). A new normal course issuer bid (NCIB) for up to 10% of public float was approved for fiscal 2027. - Divestiture of non-core assets remains active and disciplined; the company will not sell assets at a fire-sale price, and non-core assets continue to generate positive margins and cash flow in the interim.

Guidance

- Fiscal 2027 is positioned as a foundation year for future growth. Total reported revenue is expected to be $5.135 billion to $5.185 billion, representing a -2% to -1% year-over-year change, including an approximate $30 million foreign currency headwind at current exchange rates. In constant currency (excluding divestiture impacts), total revenue is expected to grow 0% to 1% year-over-year. - Core portfolio total revenue is expected to grow 2% to 3% in constant currency, with all four core product segments (content, business network, IT operations management, cybersecurity) expected to deliver positive constant currency growth. An approximate $25 million of the total $30 million FY27 foreign currency headwind impacts core revenue. - Core portfolio cloud revenue is expected to grow 8% to 10% in constant currency, with an approximate $5 million foreign currency headwind expected for this segment. - Adjusted EBITDA margin is expected to be 32% to 32%, with the 100-200 million in planned growth investments (weighted toward go-to-market initiatives) moderating margin for the year. - Full year fiscal 2027 free cash flow is expected to be between $625 million and $725 million, factoring in growth investments, planned capital expenditures, working capital and tax impacts, and the full year effect of the divested EDOX and Vertica businesses. - Q1 fiscal 2027 guidance expects total revenue of $1.22 billion to $1.25 billion, with an adjusted EBITDA margin of 32% to 33%. - Guidance does not account for potential future divestitures and may be revised if additional divestitures are completed.

Segment performance

Core Portfolio: Q4 fiscal 2026 total core revenue was $1.05 billion, up 5.3% year-over-year (3.1% in constant currency), accounting for 77.8% of total Q4 revenue. Full year fiscal 2026 total core revenue was $4.0 billion, up 2.9% year-over-year (flat in constant currency), accounting for 76.9% of full year total revenue. Cloud Revenue (Core Portfolio): Q4 fiscal 2026 core cloud revenue was $341 million, up 10.7% year-over-year (8.9% in constant currency), 25.3% of total Q4 revenue. Full year fiscal 2026 core cloud revenue was $1.3 billion, up 10.3% year-over-year (7.8% in constant currency), 25% of full year total revenue. Total Cloud Revenue (all segments): Q4 fiscal 2026 total cloud revenue was $503 million, up 6.0% year-over-year (4.3% in constant currency), 37.3% of total Q4 revenue. Full year fiscal 2026 total cloud revenue was $2.0 billion, up 5.5% year-over-year (3.4% in constant currency), 38.5% of full year total revenue. Customer Support Revenue: Q4 fiscal 2026 customer support revenue was $554 million, down 4.6% year-over-year, 41% of total Q4 revenue. Full year fiscal 2026 customer support revenue was down 2.0% year-over-year, impacted by the divestiture of the EDOX and Vertica businesses. Total Company: Q4 fiscal 2026 total revenue was $1.35 billion, up 2.9% year-over-year (0.9% in constant currency). Full year fiscal 2026 total revenue was $5.2 billion, up 1.5% year-over-year (-1.1% in constant currency).

Risks & headwinds

- Forward-looking statements are inherently uncertain, and actual results may differ materially from guidance due to a range of risk factors disclosed in OpenText's 10-K, 10-Q, and public filings. - Tight credit markets continue to impact financing for potential buyers of non-core divestiture assets, which could slow sale processes or impact valuation outcomes. - Cloud net renewal rates declined 180 basis points year-over-year to 94% in fiscal 2026, though management notes this remains in line with historical ranges. - Uncontrolled token consumption for internal AI development could create unplanned cost increases, though management has implemented governance frameworks to mitigate this risk. - Foreign exchange rate volatility creates a headwind for fiscal 2027 reported results, with a total expected $30 million negative impact at current exchange rates.

Analyst Q&A

• Q: An analyst asks how core segment growth will break out across content, ITOM, and cybersecurity, where content grew 1% and ITOM/cyber declined 3% last year, and what strategies will drive improved performance. /

  A: Management reaffirms that all four core segments are expected to deliver positive growth in fiscal 2027, with content on a faster growth trajectory than the overall core portfolio. R&D investment will be reallocated to prioritize core segments, rather than spread evenly across all businesses, with additional investment focused on infusing AI capabilities and accelerating cloud development across every core category. This reallocation will specifically support improved performance for cybersecurity. (339 words)

• Q: An analyst asks what is different about the current sales capacity expansion compared to prior investments that delivered lower-than-expected returns. /

  A: Management highlights three key changes: first, sales capacity is allocated surgically to focused high-priority client segments rather than spread broadly, with dedicated client executives delivering a unified cross-product OpenText experience aligned to client requests. Second, regional market leaders have full decision rights and accountability for performance, eliminating unnecessary centralized approval delays to speed client engagement. Third, the company is making significant targeted investments in the partner ecosystem, a force multiplier for growth that was previously underfunded, including sales enablement, tailored support, and aligned financial incentives for partners. (412 words)

• Q: An analyst asks for a breakdown of the planned $100M to $200M in fiscal 2027 growth investments between sales capacity, R&D, and partner initiatives. /

  A: Management states that the majority of the investment in fiscal 2027 is allocated to adding over 300 new quota-carrying sales personnel to expand client-facing coverage. The remainder of the investment is dedicated to reactivating and scaling the ecosystem partner channel, which includes investments in partner sales enablement, tailored support for different partner categories (hyperscalers, global/regional system integrators, vertical ISVs), and implementing attractive financial models to drive partner co-selling. R&D spending as a percentage of total revenue is expected to remain consistent with fiscal 2026 levels, with shifts in allocation to core/AI/cloud rather than a large net increase in overall R&D spend. (341 words)

• Q: An analyst asks if divestiture discussions for non-core assets are still active, or have been paused due to difficult market conditions. /

  A: Management confirms that the divestiture process remains active with ongoing engagements with interested parties. The company is not willing to sell non-core assets at a discounted fire-sale price, and will only pursue transactions that deliver appropriate shareholder value. In the interim, non-core assets remain solid profitable businesses that generate steady profit and cash flow, so the company can afford to take a methodical approach to the process while waiting for the right transaction. (228 words)