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OPEN TEXT CORP (OTEX)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 revenue was $1.335B, down 13.1% YoY but up 5.2% QoQ; GAAP EPS rose to $0.87 and Non‑GAAP EPS to $1.11, while Adjusted EBITDA margin expanded to 37.6% and free cash flow reached $307M .
  • Management introduced expanded RPO/CRPO disclosures and reported record enterprise cloud bookings of $250M, with cloud revenue up 2.7% YoY; ARR was $1.053B (79% of revenue) .
  • FY25 outlook was revised: total revenue lowered by ~$130M to $5.17–$5.27B; cloud revenue range unchanged; FY25 free cash flow guidance raised to $600–$650M; adjusted EBITDA margin target maintained at 33–34% .
  • Q3 FY25 guide: revenue $1.26–$1.30B, ARR $1.025–$1.045B, Adjusted EBITDA margin 29–30% (seasonal opex uptick); company expects “bright line” total revenue growth in Q4 FY25 and reiterated strong capital return plans (dividend $0.2625, ongoing buybacks) .
  • Street consensus from S&P Global was unavailable at the time of this analysis; estimate comparisons are not shown (S&P Global data unavailable).

What Went Well and What Went Wrong

  • What Went Well

    • “Strength of our operating model” delivered $501M Adjusted EBITDA (37.6% margin) and $307M FCF; cloud bookings hit a record $250M; cloud revenue up 2.7% YoY .
    • New RPO/CRPO disclosures: cloud RPO $2.3B now exceeds maintenance RPO $1.8B; CFO detailed CRPO recognition mix and renewal/consumption dynamics, improving transparency .
    • Strategic progress in Security and AI: advancing XDR integrated with Microsoft Security Copilot on Azure; notable SaaS wins (Nestlé, Frost Bank, Capgemini) and Titanium X on track for Q4 delivery with “15 aviators and over 100 agents” .

  • What Went Wrong

    • Top‑line headwinds in License and Maintenance (ADM/ITOM) prompted FY25 revenue guide down by ~$130M (approx. 25% FX, 25% DXC reseller impact, 50% ADM/ITOM performance) .
    • YoY declines across customer support and license: Support down 15.1% YoY; License down 34.7% YoY in Q2; ARR down 8.1% YoY (AMC‑adjusted softer) .
    • Europe cited as macro weak spot; FX volatility noted; not tariff‑exposed but broader policy uncertainty acknowledged .

Financial Results

MetricQ4 FY24Q1 FY25Q2 FY25
Total Revenues ($USD Millions)$1,362.1 $1,269.0 $1,334.5
GAAP EPS (Diluted, $)$0.91 $0.32 $0.87
Non‑GAAP EPS (Diluted, $)$0.98 $0.93 $1.11
GAAP Gross Margin (%)72.5% 71.7% 73.3%
Non‑GAAP Gross Margin (%)76.4% 75.8% 77.2%
Adjusted EBITDA ($USD Millions)$445.4 $444.0 $501.5
Adjusted EBITDA Margin (%)32.7% 35.0% 37.6%
Operating Cash Flows ($USD Millions)$185.2 ($77.8) $348.0
Free Cash Flow ($USD Millions)$145.2 ($117.1) $306.7
Revenue Mix ($USD Millions)Q4 FY24Q1 FY25Q2 FY25
Cloud Services & Subscriptions$464.9 $457.0 $462.3
Customer Support$628.4 $595.5 $590.6
License$171.5 $125.8 $188.9
Professional Services & Other$97.3 $90.7 $92.7
Total Revenues$1,362.1 $1,269.0 $1,334.5
Q2 FY25 KPI SnapshotQ1 FY25Q2 FY25
Annual Recurring Revenues (ARR, $USD Millions)$1,053 $1,053
Enterprise Cloud Bookings ($USD Millions)$133 $250
DSOs (Days)42 (prior quarter) 43
Cash & Equivalents ($USD Millions)$1,002.4 $1,124.2
Share Repurchases ($USD Millions)$85 $66
Dividend per Share ($)$0.2625 $0.2625
Q2 FY25 vs Prior PeriodsQ2 FY24Q1 FY25Q2 FY25
Total Revenues ($USD Millions)$1,534.9 $1,269.0 $1,334.5
YoY Change (%)——(13.1%)
QoQ Change (%)——+5.2%
GAAP EPS ($)$0.14 $0.32 $0.87
Non‑GAAP EPS ($)$1.24 $0.93 $1.11
Adjusted EBITDA ($USD Millions)$566.3 $444.0 $501.5
Adjusted EBITDA Margin (%)36.9% 35.0% 37.6%

Note: Street estimates via S&P Global were unavailable at the time of analysis; comparisons to consensus are not shown.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total RevenueFY25$5.30–$5.40B $5.17–$5.27B Lowered (~$130M)
Cloud RevenueFY25$1.85–$1.90B Unchanged range Maintained
Adjusted EBITDA MarginFY2533%–34% (raised at Q4) 33%–34% Maintained
Free Cash FlowFY25$575–$625M $600–$650M Raised
Enterprise Cloud Bookings GrowthFY2525% (raised from 20%+) 20%–25% Clarified range
Total RevenueQ3 FY25—$1.26–$1.30B New quarterly
ARRQ3 FY25—$1.025–$1.045B New quarterly
Adjusted EBITDA MarginQ3 FY25—29%–30% New quarterly
Dividend per ShareQuarterly$0.2625 (continued) $0.2625 (declared) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24 and Q1 FY25)Current Period (Q2 FY25)Trend
AI/Titanium X platformTitanium X targeted for FY25; focus on Business AI; innovation roadmap at OpenText World Titanium X on track for Q4 delivery; “15 aviators and over 100 agents”; upgrade installed base is key growth lever Accelerating detail and execution
Security/XDRPillr acquisition; FedRAMP authorization; security portfolio highlighted New Security Cloud; XDR integrated with Microsoft Security Copilot on Azure; notable SaaS wins (Nestlé, Frost Bank, Capgemini) Scaling products and partnerships
Cloud bookings & RPO/CRPOQ4 bookings $180M; FY25 bookings target increased to 25% Record $250M bookings; new RPO/CRPO disclosure; cloud RPO $2.3B > maintenance RPO $1.8B Stronger demand; improved transparency
ADM & ITOMGrowth drivers included ITOM; license‑to‑cloud transition discussed ADM/ITOM underperforming; $65–$70M license/maintenance impact; relaunching with Titanium X; wins at Pfizer and Lilly Addressing headwinds; turnaround plan
Macro (Europe/FX/tariffs)Macro disruptions not key; noted outage elsewhere; capital return focus Europe “hard” for growth; FX pressure; not tariff‑exposed (digital services) Cautious on Europe/FX
Capital returnsNew $300M NCIB; dividend raised 5%; ~$570M capital return planned Returned $134M in Q2; reiterated record FY25 capital return plans and buybacks Sustained high return program

Management Commentary

  • CEO: “Q2 results demonstrate the strength of our operating model, delivering $501 million of adjusted EBITDA, and 37.6% adjusted EBITDA margin, and generating $307 million of Free Cash Flows” and Titanium X “on target for Q4 delivery” to integrate cloud, security, and AI . Growth is the “new #1 priority” following margin focus post‑AMC divestiture .
  • CFO: “Non‑GAAP cloud gross margin was strong at 63.3%… Operating cash flows of $348 million and free cash flows of $306.7 million… DSOs at 43 days” and FY25 free cash flow raised to $600–$650M; FY25 Adjusted EBITDA target 33–34% .
  • Macro: “Growth is hard in Europe right now… we are not subject to tariffs as a digital company… the U.S. currency is creating FX challenges for global businesses” .
  • Security: “Next deliverable… XDR: ingest, detect, respond… integrated with Microsoft Security Copilot on Azure… we don’t have to displace anyone; composable solution” .

Q&A Highlights

  • ADM/ITOM turnaround: $65–$70M license/maintenance headwind; relaunch via Observability Cloud and Service Management Cloud; ADM focus “top‑of‑market” with SaaS wins at Pfizer and Lilly .
  • New licensing model (OpenPass): Launched in January; perpetual upgrade removing usage limits, maintenance uplift, plus cloud credits to incentivize cloud migration .
  • AI internal productivity: “Athena” for engineering (code explain/fix/generate/localize) and “Ollie.AI” for sales (RFP generation); expected mid‑single to low‑double‑digit productivity gains over time .
  • Bookings pipeline: Record Q2 bookings; largest cloud pipeline ever in Q4; Titanium X completion expected to provide tailwind .
  • Disclosures: Considering net expansion metrics (NRR) going forward to complement renewal rates .
  • Public sector: Roughly 15% of global revenues from public sector; strong U.S. presence and alignment with digitization initiatives .

Estimates Context

  • Street consensus from S&P Global was unavailable at the time of this analysis; comparisons to estimates are not shown.
  • Implications: FY25 total revenue guidance cut (~$130M) suggests consensus revenue likely needs to move lower; cloud revenue range unchanged and record bookings/CRPO visibility support medium‑term cloud trajectory; FY25 FCF raised to $600–$650M and margin target maintained (33–34%) may warrant upward revisions to FCF and margin assumptions .

Key Takeaways for Investors

  • Mix shift and margin: Non‑GAAP gross margin and Adjusted EBITDA margin expanded QoQ; strong cash generation ($307M FCF) underpins buybacks/dividends despite license/support pressure .
  • Cloud momentum and transparency: Record $250M enterprise cloud bookings and new RPO/CRPO disclosure (cloud RPO $2.3B) strengthen visibility into forward cloud revenue .
  • Near‑term top‑line caution: FY25 revenue guide lowered on ADM/ITOM and DXC impacts plus FX; watch execution on Titanium X‑driven relaunch and licensing (OpenPass) to stabilize license/support .
  • Security optionality: XDR on Azure with Microsoft Security Copilot plus wins in identity/encryption broaden competitive positioning; potential incremental growth vector .
  • Capital return: Ongoing $0.2625 dividend and active buybacks ($66M in Q2; ~$151M FYTD), with FY25 FCF guide raised to $600–$650M—supportive of shareholder yield .
  • Macro watch‑outs: Europe weakness and FX volatility could weigh on near‑term growth; company is not exposed to tariffs (digital services) .
  • Catalyst path: Completion/rollout of Titanium X in Q4 FY25, continued bookings strength, Q4 “bright line” revenue growth target, and further disclosure enhancements (e.g., NRR) are potential stock catalysts .

Additional document references for prior periods and context:

  • Q1 FY25 results press release and 8‑K .
  • Q4 FY24 results press release and earnings call .