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  5. OTEX: Can you please provide an update since your last comments in August? [Open Text Corporation]
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Q: Can you please provide an update since your last comments in August? Please comment on their sale of AMC to Rocket Software and Q1 2024 results.
Asked by Adam on December 05, 2023
5i Research Answer:

In Q1 FY2024 for OTEX, both revenue and EPS beat analysts’ estimates. Revenue came in at US$1.425B displayed year-over-year growth of 67% from $852M. Year-over-year growth in revenue was driven by Cloud revenues increasing 11% and annual recurring revenues increasing 59%. Adjusted EPS came in at $1.01, beating analysts’ estimates of $0.90. Net income was $81M compared to a net loss of ($117M) in the same period a year prior. This was a strong quarter for OTEX, with record quarterly revenue. 

OTEX recently divested AMC for US$2.275B to Rocket Software in an all-cash deal. OTEX has stated that the sale will allow the company to focus more on cloud computing and AI while cutting debt and having the ability to buy back shares in the future. The transaction is expected to close in Q4 of FY2024. Multiple banks upped price targets following this move. The focus on AI and cutting debt that the deal provides are two positives we like to see. Its valuation multiple has historically been held back because of its leverage.