Open Text boasts of organic growth as revenue beats analyst estimates

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Waterloo, Ont., enterprise software giant Open Text Corp. has a new story to tell. The company, which has increased revenues and its market value through a steady spate of acquisitions, is now trumpeting the fact it is growing its top line organically as well.

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 both roughly 30 per cent higher than the same period last year, before Open Text closed its $1.62-billion purchase of the enterprise content division of Dell Technologies Inc.

The company reported net income of $36.6-milion or 14 cents a share for the quarter, down from $912.9-million or $3.73 a share a year earlier, when the company recorded a one-time tax benefit.

For the second quarter in a row, CEO Mark Barrenechea spoke Thursday about the fact the company delivered organic growth – the lift in revenues from existing businesses, excluding the addition of newly acquired businesses – in the quarter, "which we're real pleased with," he said in an interview.

He declined to disclose the size of the organic increase, as the company doesn't break that out in its numbers, but said going forward "I'd like to see low-single-digit organic growth, the rest of it driven by mergers and acquisitions."

Open Text revenues have increased by about 13 to 14 per cent on average annually for the past decade, almost entirely through acquisitions, masking what analysts estimate has been eroding revenues in its existing businesses. Open Text closed two more deals in the quarter, for Covisint Corp. and Guidance Software Inc.

"We could grow faster, with faster expansion of our sales force, but also growing margins and cash flow," said Mr. Barrenechea. But he added, "It's a good balance for us to have control of our costs … that's a nice model for us." He said the acquisitive company remains on the hunt for deals, with enough cash and debt capacity on its balance sheet to spend up to $600-million on other companies.

Mr. Barrenechea said the company has been able to cross-sell services as it "cross-pollinates the install base with new products we are bringing into the portfolio" with such offerings as artificial intelligence, security solutions and internet-of-things capabilities. Open Text has also made a big noise in the market with its new open-source AI platform, Magellan, talking tough about taking on International Business Machines Corp. and its proprietary Watson AI platform to help big corporate and government clients unearth useful trends and indicators from the mounds of data it manages for them.

The CEO added that plans to integrate the Dell business were on track, with integration efforts expected to be complete on schedule by next January and margins nearly double what they were before the takeover. "The business is performing right on plan," he said.