Open Text (NASDAQ:OTEX) reported second quarter fiscal 2026 results that management said exceeded its own expectations on total revenue, adjusted EBITDA margin, and adjusted earnings per share, while reiterating full-year targets and continuing a portfolio reshaping effort aimed at emphasizing faster-growing core businesses.
Leadership updates and portfolio reshaping
Interim CEO James McGourlay opened the call by noting that OpenText named Ayman Antoun as its new chief executive officer, with Executive Chair and Chief Strategy Officer Tom Jenkins adding that Antoun will be ready to participate in the company’s next quarterly earnings call. Jenkins said the board believes Antoun is the right leader to drive shareholder value by growing organic revenue in OpenText’s core enterprise information management business, particularly as customers prepare data to “train agentic AI.”
On portfolio actions, management highlighted an agreement to divest Vertica to Rocket Software for $150 million. CFO Steve Rai said Vertica is part of the on-prem analytics product group and contributed about $80 million in annual revenue in fiscal 2025. The transaction is expected to close during fiscal 2026, subject to customary approvals and conditions, and OpenText intends to use the cash proceeds (before taxes, fees, and adjustments) to reduce outstanding debt. Rai added that the software, customer contracts, services, and associated employees are expected to transfer to Rocket Software.
Management also referenced the previously announced divestiture of eDOCS, which closed in January. Rai reminded investors that they should reduce their revenue models for the remainder of fiscal 2026 by approximately $15 million to reflect the completed eDOCS divestiture, while stressing that the company’s overall fiscal 2026 revenue growth range remains unchanged.
Jenkins said OpenText has set a cadence of roughly one divestiture per quarter as it works to streamline toward its core business, though timing can vary by transaction size. In response to an analyst question, Jenkins said the company remains confident in its ability to execute the divestiture cadence and said valuations have been consistent with expectations, citing interest levels and discounted cash flow-driven pricing for these assets.
Quarterly results: cloud growth led by content
For Q2 fiscal 2026, OpenText generated total revenue of approximately $1.33 billion. Rai said cloud revenue was $478 million, up 3.4% year over year, driven mainly by content cloud. He noted the quarter represented the company’s 20th consecutive quarter of organic cloud growth and said the cloud net renewal rate held steady at 95%.
Customer support revenue was $582 million, down 1.5% year over year, with a customer support net renewal rate of 92%, consistent with prior levels and management’s fiscal 2026 outlook. Annual recurring revenue (ARR) was $1.06 billion, up 0.7% year over year, and Rai said ARR represented 80% of total revenue, up one percentage point.
Profitability metrics were mixed. Rai reported GAAP gross margin of 74.0% and non-GAAP gross margin of 77.6%, both improving year over year, primarily due to higher cloud and customer support gross margins, partially offset by lower margins in license and professional services. Adjusted EBITDA was $491 million, representing a 37.0% margin, down modestly from the prior year as the company invested in the sales team (including commissions), partially offset by savings from its business optimization plan. Rai said the optimization plan remains on track and that OpenText still expects to realize about one-third of total estimated savings of $490 million to $550 million during fiscal 2026.
Rai reported GAAP net income of $168 million, down 26.9% year over year, which he attributed largely to foreign exchange impacts on acquisition-related derivatives. Non-GAAP net income was $286 million, down 2.4%. GAAP diluted EPS was $0.66, while non-GAAP diluted EPS was $1.13, up 1.8%. Free cash flow was $279 million, down 8.9% year over year.
On a year-to-date basis, Rai said total revenue increased 0.4%, with cloud revenue up 4.7%. First-half adjusted EBITDA margin was 36.7%, up 40 basis points, and non-GAAP diluted EPS was $2.18, up 7.4%. Year-to-date free cash flow rose to $381 million, compared to $190 million in the prior-year period.
Operating highlights: bookings, RPO, and product category momentum
McGourlay highlighted what he described as strength in OpenText’s core areas. He said cloud growth was supported by enterprise cloud bookings of $295 million, up 18% year over year, and noted total cloud remaining performance obligations (RPO) increased 13.7% year over year. He also said the company closed 53 cloud deals larger than $1 million.
McGourlay also pointed to category performance, saying OpenText’s total content business represented 43% of total revenue and grew 4.5% year over year in Q2. He added that content cloud revenue grew 18% year over year. Management emphasized that the core business is growing at roughly twice the pace of total revenue, with content described as the largest and fastest-growing business and the primary driver of cloud growth.
On customer activity, management cited several wins during the quarter, including:
- U.S. Bank, which completed a migration from an on-premises license to a hosted architecture and cybersecurity.
- Solenis, which selected OpenText Extended ECM integrated with SAP to address global document management needs.
- BNP Paribas, which chose OpenText for an integrated application security stack after testing major vendors, according to management.
Management said customers and partners provided positive feedback at OpenText World in November on the company’s product cycle release, with examples of customer use cases discussed on stage, including IBM’s use of content management and “Content Aviator,” United Airlines’ use of ITOM and “ITOM Aviator,” and Honda’s use of Business Network Trading Grid and “Business Network Aviator.”
McGourlay also said OpenText introduced the OpenText AI Data Platform at the conference and expects it to ship next quarter. He said the platform can work with major large language model (LLM) options and provides more than 1,500 connectors to systems including Oracle, Salesforce, and SAP, among others, along with tools for orchestration, integration, and “agentic AI.”
AI positioning and customer adoption commentary
During Q&A, Jenkins addressed investor questions about whether AI could disrupt OpenText’s position. He argued that OpenText “doesn’t make applications” but instead “feeds content into applications,” and said that content remains necessary whether it is consumed by a human through software or used to train agentic AI.
On Aviator adoption, Jenkins characterized the market as very early, saying customers are largely preparing by getting content “curated and assembled” with appropriate permissions, particularly for regulated environments. He emphasized that deploying AI with proprietary or regulated data is more complex than using public models, noting that once trained on restricted information, an AI system must operate within the same regulatory constraints.
Outlook, capital allocation, and cloud migration comments
Management reiterated its fiscal 2026 target for total revenue growth of 1% to 2% year over year and said expectations for year-on-year customer support and ARR growth, as well as enterprise cloud bookings, remain unchanged. For Q3, OpenText expects total revenue of $1.26 billion to $1.28 billion, which Rai said includes a $7 million reduction related to the eDOCS divestiture. Rai guided Q3 adjusted EBITDA margin to 33.0% to 33.5%, calling it a seasonally lower margin quarter, and said the company expects revenue to skew higher from Q3 to Q4 in the second half of fiscal 2026.
Regarding cloud migrations, management said customers are actively engaging with OpenText on plans to move installed-base deployments to the cloud, though deal cycles can be lengthy. In response to a question about infrastructure choices, management said migrations are generally moving to hyperscalers, while the company continues to evaluate a sovereign cloud strategy and outlined a hybrid approach for customers with sovereign data needs.
On capital allocation, Rai said OpenText continues to execute on its previously announced $300 million share buyback program and has repurchased for cancellation about half of that amount year-to-date in fiscal 2026. He added that, subject to regulatory approvals, the company intends to increase the size of the existing buyback program “particularly given recent valuation levels.” Management also reiterated its intent to pursue small “tuck-in” M&A and to use divestiture proceeds to pay down debt.
About Open Text (NASDAQ:OTEX)
Open Text Corporation is a Canadian enterprise information management (EIM) software company that develops solutions for organizations seeking to manage, protect and extract insight from their unstructured and structured data. The company’s platform encompasses document management, records management, digital asset management and archiving, enabling companies to govern information across its lifecycle.
Open Text’s product suite includes content services, business process management, customer experience management, analytics and security products.
