OpenText(US:OTEX)2023-05-04 21:20Financial Performance - Total revenue for Q3 Fiscal 2023 was $1,244.7 million, an increase of 41.1% compared to the same period last year, and up 44.9% after adjusting for foreign exchange impacts [232]. - Total annual recurring revenue reached $1,011.3 million, up 37.7% year-over-year, and up 41.1% after adjusting for foreign exchange impacts [232]. - Cloud services and subscriptions revenue was $435.4 million, reflecting an 8.3% increase compared to the same period last year, and up 10.4% after adjusting for foreign exchange impacts [232]. - GAAP-based net income attributable to OpenText was $57.6 million, down from $74.7 million in the same period last fiscal year; Non-GAAP-based net income was $197.8 million, up from $190.8 million [238]. - Adjusted EBITDA was $365.1 million, compared to $284.5 million in the same period last fiscal year [238]. - The company reported a GAAP-based EPS of $0.21 for the three months ended March 31, 2023, down from $0.28 in the same period of 2022 [257]. - Non-GAAP-based earnings per share for the three months ended March 31, 2023, was $0.73, compared to a GAAP-based earnings per share of $0.21 [345]. - For the nine months ended March 31, 2023, GAAP-based net income attributable to OpenText was $199.1 million, with an Adjusted EBITDA of $1,010.1 million [364]. Acquisition and Integration - The integration of Micro Focus is expected to enhance the company's operational capabilities and market presence [221]. - Total revenues increased by $362.4 million in Q3 Fiscal 2023, primarily due to Micro Focus Acquisition, contributing $374.4 million to total revenues [253]. - The Micro Focus Acquisition was completed for a total consideration of $6.2 billion, including cash and repayment of outstanding indebtedness [236]. - Customer support revenues increased by $243.4 million or 73.2% for the three months ended March 31, 2023, primarily driven by the Micro Focus Acquisition [272]. - Professional service and other revenues increased by $26.4 million or 39.4% for the three months ended March 31, 2023, compared to the same period in the prior fiscal year, driven by the Micro Focus Acquisition [288]. - Research and development expenses increased by $93.0 million during the three months ended March 31, 2023, primarily due to the Micro Focus Acquisition, with payroll-related benefits rising by $63.6 million [296]. - General and administrative expenses increased by $38.9 million for the three months ended March 31, 2023, primarily due to the Micro Focus Acquisition, with payroll and payroll-related benefits increasing by $22.8 million [303]. Workforce and Restructuring - Approximately 25,550 employees were reported as of March 31, 2023, with 10,600 joining through the Micro Focus acquisition [231]. - A restructuring plan post-Micro Focus Acquisition is expected to reduce the combined workforce by approximately 8%, or 2,000 employees, with an estimated cost of $135 million to $150 million [247]. - The company’s research and development labor resources increased by 4,153 employees, from 4,391 at March 31, 2022, to 8,544 at March 31, 2023 [298]. - Sales and marketing labor resources increased by 2,316 employees, from 2,770 at March 31, 2022 to 5,086 at March 31, 2023 [302]. Revenue Streams and Growth - Annual recurring revenues are a key focus, with significant contributions from cloud services and subscriptions [232]. - Cloud services renewal rate increased to 95% from 93% year-over-year, excluding the impact of acquisitions [260]. - License revenues increased by $59.1 million or 73.3% for the three months ended March 31, 2023, with a gross margin percentage increase to 97% [279][281]. - Customer support renewal rate improved to 95% for the quarter ended March 31, 2023, compared to 94% in the prior year [269]. - Total cost of revenues for the three months ended March 31, 2023, was $369.7 million, an increase of $95.5 million or 34.9% compared to $274.2 million in the same period of 2022 [257]. Expenses and Margins - GAAP-based gross margin was 70.3%, up from 68.9% in the same period last fiscal year; Non-GAAP-based gross margin was 75.8%, up from 74.5% [238]. - Total operating expenses for the three months ended March 31, 2023, were $810.96 million, an increase of $334.52 million compared to the same period in the prior fiscal year [294]. - Overall gross margin percentage on Customer support revenues decreased to 88% from 90% [274]. - Cost of professional service and other revenues rose by $21.8 million during the same period, primarily due to a $22.1 million increase in labor-related costs [289]. Cash Flow and Financing - Operating cash flow for the nine months ended March 31, 2023, was $663.9 million, down 9.0% from $729.9 million in the same period last fiscal year [238]. - Cash used in investing activities surged to $5.6 billion for the nine months ended March 31, 2023, primarily due to the Micro Focus acquisition, compared to $933.0 million in the same period of the previous year [380]. - Cash flows provided by financing activities increased by $4.4 billion during the nine months ended March 31, 2023, compared to the prior year, reflecting significant financing activities [382]. - As of March 31, 2023, total cash, cash equivalents, and restricted cash amounted to $1.4 billion, a decrease of $296.2 million from $1.7 billion as of June 30, 2022 [372]. Tax and Regulatory Changes - The effective tax rate for the three months ended March 31, 2023 was (27.5)%, compared to 35.5% for the same period in 2022 [324]. - The effective tax rate for the nine months ended March 31, 2023, was 26.5%, a decrease from 29.6% for the same period in 2022 [327]. - The provision from the Tax Cuts and Jobs Act of 2017 requiring capitalization and amortization of research and development costs will be effective starting Fiscal 2023 [328]. - The Inflation Reduction Act introduced a 15% corporate alternative minimum tax for large corporations, effective for Fiscal 2024, which the Company is currently evaluating [329].