Open Text boasts of Natural growth as revenue beats analyst estimates
Waterloo, Ont., enterprise applications giant Open Text Corp. has a new story to tell. The organization, which has increased earnings and its market value via a continuous spate of acquisitions, is now trumpeting the fact it’s growing its top line also.
Open Text on Thursday reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter ended Sept. 30 of $220-million (U.S.) on revenue of $641-million — both slightly ahead of analyst expectations and approximately 30 percent higher than the same period last year, before Open Text closed its $1.62-billion purchase of their enterprise content branch of Dell Technologies Inc..
The business reported net earnings of $36.6-milion or 14 cents a share for the quarter, down from $912.9-million or $3.73 per share a year earlier, when the company recorded a one-time tax advantage.
For the second quarter in a row, CEO Mark Barrenechea talked Thursday about the fact that the firm delivered organic growth — the lift in revenues from existing companies, excluding the addition of recently acquired companies — in the quarter, “which we are real happy with,” he explained in an interview.
He declined to disclose the size of the natural growth, since the company does not break out that in its numbers, but said ahead “I’d love to see low-single-digit organic growth, the rest of it driven by mergers and acquisitions.”
Open Text earnings have increased by about 13 to 14 percent on average annually for the last ten years, almost entirely through acquisitions, masking what analysts estimate has been eroding earnings in its present businesses. Open Text closed two deals in the quarter, for Covisint Corp. and Guidance Software Inc..
“We could grow faster, with quicker expansion of our sales force, but also growing margins and cash flow,” stated Mr. Barrenechea. But he added, “it is a fantastic balance for us to have control of our prices … that’s a wonderful version for us.” He explained the acquisitive company remains on the search for bargains, with enough money and debt capacity on its own balance sheet to pay around $600-million on other businesses.
Mr. Barrenechea said the firm has managed to cross-sell solutions as it “cross-pollinates the install base with new products we’re bringing into the portfolio” with these offerings as artificial intelligence, security options and internet-of-things capacities. Open Text has also made a huge noise in the marketplace with its open open AI platform, Magellan, talking tough about taking on International Business Machines Corp. and its own proprietary Watson AI platform to assist large corporate and government customers unearth useful trends and indicators from the mounds of information it manages for them.
The CEO added that intends to incorporate the Dell company were on course, with integration efforts expected to be complete on schedule by next January and margins almost double what they were before the takeover. “The company is performing right on strategy,” he said.
Courtesy: The Globe And Mail