Open Text Corp.
(OTEX-Q, OTEX-T) US$39.20 | C$51.27
Q1/F21 Results: Setting New Records
Event
OpenText reported Q1/F21 results last night.
Impact: POSITIVE
Record ARR and margins. Q1/F21 revenue of $804.0mm beat our estimate of $756.4mm and consensus at $755.9mm. EBITDA of $342.3mm was well ahead of our $266.8mm estimate and the Street at $277.4mm. EPS of $0.89 was ahead of our $0.65 estimate and consensus of $0.67. CC y/y revenue growth in the quarter was 14.5%, with annual recurring revenue (ARR) growing 21.4% y/y in cc and growing organically. A return of business network volumes to pre-COVID-19 levels in most industries and continued strength in Carbonite helped drive the record quarterly ARR of $670.4mm. The Carbonite integration has been completed ahead of schedule and is now on OpenText's operating model, where it targets 37-38% EBITDA margin. EBITDA margin expanded to a record 42.6% following the integration and from good cost-containment efforts.
Increasing F2021 guidance due to higher confidence. Management now expects F2021 revenue to be flat to up low-single-digits versus previous expectation for it to be flat. Consistent with our view that management was being overly conservative with its cloud forecast, management has increased cloud expectations and now expects it to grow in the mid-double-digits, from previous guidance of low-double-digits. There could still be upside to the current forecast since cloud revenue staying flat q/q for the rest of F2021 results in 17.8% growth y/y. With the economy recovering quickly and Carbonite performing well, there could be sequential improvement throughout F2021 and drive cloud revenue above the guided range. Customer-support guidance also increased and is now expected to grow low-single-digits vs. constant before. Overall, management sounds far more confident than the last quarter, as evidenced by the repayment of the revolver taken out at the beginning of the pandemic.
Strong cash flow leaves balance sheet ready for more acquisitions. OpenText generated strong FCF of $219mm in the quarter to end it with $2.3bln of net debt for a net debt/EBITDA ratio of 1.9x, down from 2.5x after the Carbonite acquisition in December.
TD Investment Conclusion
We are maintaining our US$52.00 target price. OpenText continues to execute very well amidst a challenging environment. We remain positive on the name