TSX:OTEX - Post Discussion
Post by
retiredcf on Aug 07, 2020 8:24am
TD Upgrade
Bump their target by US$5.00 to US$52.00. GLTA
Open Text Corp.
(OTEX-Q, OTEX-T) US$46.25 | C$61.57
Q4/F20 Results: Strong Cloud Performance
Event
OpenText reported Q4/F20 results last night.
Impact: SLIGHTLY NEGATIVE
Cloud revenue drives beat. Q4/F20 revenue of $826.6mm was slightly ahead of our estimate for $800.6mm and consensus at $803.5mm. EBITDA of $317.4mm was well ahead of our $262.4mm estimate and the Street at $262.0mm. EPS of $0.80 was ahead of our $0.60 estimate and consensus of $0.61. CC y/y revenue growth in the quarter was 12.2%, with annual recurring revenue (ARR) growing 19.5% y/ y in cc. Carbonite continued to outperform, generating $116mm of revenue, well above our estimate for $104.7mm. It continues to be accretive to adjusted earnings and cashflows and is on track to be on OpenText's operating model by the end of F2021. Management also noted that organic constant currency growth for F2020 was (1.3%), while ARR grew 0.5%. The company was tracking towards positive organic growth prior to the pandemic.
Guidance below estimates. Management expects F2021 to be flat y/y at ~$3.1bln, while consensus is forecasting it to be $3.3bln. Cloud is expected to grow in the low double-digits, customer support to remain constant, and non-recurring revenue to decline. The cloud guidance is lower than we estimated considering we expected Carbonite alone to generate high-teens cloud growth y/y. Management expects Carbonite and managed services to do well; however, they are being cautious on the business network side of the segment. Volumes in the network have declined during the pandemic, and while they're off the lows, it hasn't fully recovered to pre- pandemic levels. Management expects this to partially offset the Carbonite and managed services strength in F2021. EBITDA margin is expected to be 37%-38%, implying $1.17bln of EBITDA in F2021, below consensus at $1.26bln.
Acquisitions expected in F2021. OpenText continued to generate strong FCF of $263mm in the quarter to end it with $2.5bln of net debt for a net debt/EBITDA ratio of 2.2x, down from 2.5x after the Carbonite acquisition in December. We believe the strong cash flow will allow OpenText to quickly delever its balance sheet to make additional acquisitions.
TD Investment Conclusion
Increasing the target price to $52.00. Strong Carbonite performance, cash flow, and a solid balance sheet leave us positive on the name.
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