Open Text Corporation Looks Forward to Better Days Ahead

Image source: Open Text Corporation.

Open Text Corporation (OTEX -0.19%) released mixed fiscal fourth-quarter 2016 results Wednesday after the market close, and shares fell more than 5%Thursday as a result. But the enterprise information-management specialist claims this performance will serve as a cornerstone of its efforts to drive greater growth down the road.

Before we get there, let's take a closer look at how OpenText capped its latest fiscal year:

OpenText results: The raw numbers

Data source: Open Text Corporation. 

What happened with OpenText this quarter?

• On an adjusted (non-GAAP) basis, earnings per diluted share climbed 2.3% year over year, to $0.89.
• For perspective, analysts' consensus estimates predicted higher fiscal Q4 adjusted earnings of $0.94 per share, and lower revenue of $481.2 million.
• Recurring revenue increased 3% year over year, to $398 million.
• License revenue fell 11% year over year, down 12% at constant currency, to $86 million.
• Cloud services and subscriptions climbed 5.1%, to $156.6 million.
• Secured 20 customer transactions over $1 million, 10 OpenText Cloud contract signings, and 10 on-premises sales.
• Enjoyed the strongest demand for cloud and license products in the financial, services, and technology industries
• Signed definitive agreements to acquire:
• Customer communications management assets from HP Inc.
• Recommind Inc., a California-based electronic discovery and information governance software company.
• Signed and closed agreements to acquire:
• ANXe Business Corporation, a provider of managed payment, compliance, security, and connectivity solutions.
• Certain customer-experience software and service assets and liabilities from HP.
• Received a 2016 SAP Pinnacle Award for "Application Innovation Partner of the Year."
• No shares repurchased in fiscal Q4 under OpenText's expiring repurchase authorization.
• Authorized a new 12-month, $200-million share-repurchase plan.

What management had to say

Open Text CEO and CTO Mark Barrenechea stated:

Fiscal 2016 was a pivotal year for OpenText; in constant currency, we grew revenues 3%, and created a more-efficient business and expanded our adjusted operating margin by 240 bps. More importantly, we believe we have created the foundation for Fiscal 2017 to be a double-digit growth year led by M&A. During our Fiscal 2016 fourth quarter, we announced four acquisitions that will add revenue, operating income, and cash flow.

Looking forward

OpenText opted not to provide specific financial guidance for the current quarter or new fiscal year. But Barrenechea added that the company anticipates gaining market share in fiscal 2017, with all revenue lines and adjusted operating income growing in the double-digit percent range.

Given the timing of its impending acquisition closures, OpenText expects roughly $300 million of acquired revenue in fiscal 2017, as well. And over the longer term, OpenText continues to maintain its 2020 goal of achieving at least 90% recurring revenue, 50% of the business in the cloud, and adjusted operating margin between 34% and 38%.

"I'm often asked how we'll get to 50% cloud revenues by 2020," Barrenechea elaborated, "and my answer is simple: We will acquire our way there while also growing our cloud revenue organically."

It's worth noting that shares of OpenText are still up more than 24% year to date as of this writing, and even touched a fresh 52-week high in the trading session prior to this release. Though its results were technically mixed relative to Wall Street's expectations, the company remains well-positioned to capitalize on the burgeoning cloud-computing industry with its market-leading enterprise information-management platform.