OpenText Corp is a leading enterprise information management (EIM) company. It offers companies software and solutions with which they can better manage, use and secure their company information.
The company’s revenue includes customer support (41% of fiscal 20 revenue), cloud services and subscriptions (37%), licenses (13%), and professional services (~ 9%).
OpenText has a strong presence in the Americas (61% of FY20 revenue), followed by EMEA (30%) and Asia-Pacific (~ 10%). The US accounted for 55% of total sales. The company serves a variety of industries including life sciences, manufacturing, automotive, healthcare, and government.
OpenText processes trillions of commercial transactions every year, connecting over 1 million companies worldwide. More than 100 million end users trust OpenText to digitize and manage their critical information.
The company supports its customers’ businesses by reducing their security risks and lowering their operating costs either on-premise or via the cloud.
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Sales growth and market exposure
OpenText has extensive experience delivering business critical solutions in various industries around the world over the past three decades. Sales have grown by over 13% over the past decadeThe company has continuously reported improved key figures (ARR, EBITDA, cash flows) over the years.
Recurring revenue increases the predictability, stability, and visibility of cash flows, and OpenText recurring revenue is now 80% compared to 73% three years ago. The company is aiming for a further increase to 85% by fiscal year 2024.
OpenText’s strategy is to grow organically and through acquisitions. The company has a successful acquisition and has raised $ 5.8 billion since 2014. OpenText should also benefit from its strategic partnerships with technology giants such as Google, Amazon, and Microsoft.
It will also benefit from the launch of the OpenText Cloud Editions and the expansion of the information management platform to the small and medium business market. The OpenText Cloud, which operates from 37 data centers in nine countries, is projected to become a $ 1 billion run-rate business.
As the EIM leader in enterprise software and cloud solutions, OpenText has successfully acquired more than 120,000 customers and 100 million end users. The company has built close customer relationships due to its attractive product portfolio, which includes security, AI and IoT. Nestle, GM, AT&T, Daimler, etc. are some of the most recognizable names on the customer list.
In fact, 89 of the world’s top 100 companies are OpenText customers with a mid-90% renewal rate. OpenText also has a good chance of benefiting from cross-selling its products and services to existing customers.
The company had strong quarterly results and saw growth in both cloud services and subscription revenues.
OpenText is a Canadian dividend aristocrat. OpenText has maintained a consistent quarterly dividend program since its inception and has paid more than $ 1 billion in dividends since fiscal 2014. It has a solid track record of operating cash flow and a high ROIC. It has seen dividend growth of over ~ 15% CAGR over the past three years. The company’s earnings have also increased more than 14% CAGR over the past decade.
OpenText recently hiked its dividend 15%, has a modest return of 1.6% but a high payout ratio. Solid cash flows are generated thanks to growing clouds and recurring revenue. The company should be in a comfortable position to earn dividends as cash flows grow. It also has a strong M&A pipeline that should have a positive impact on overall growth.
OpenText aims to achieve organic growth of 2% to 4% and annual recurring revenue of 85% through fiscal year 24. The total addressable market is expected to grow by more than 8% over the next three years. The company is well positioned to capitalize on the growing trends in digitization, AI and automation and to optimize the OpenText business system. Customers trust OpenText products and expertise to go digital.
There are a number of subscription-based programs available to help customers transform their business. Trends like 5G, digital acceleration, global restructuring of the supply chain, working from anywhere, cloud and edge act as a strong tailwind for OpenText. The company has an outlook of 1% to 2% overall and 3% to 4% organic cloud growth for FY22 and forecasts over $ 2.2 billion in research and development investments over the next five years .
OpenText is a dividend aristocrat. Since its inception, OpenText has maintained a consistent quarterly dividend program that pays dividends for 24 consecutive quarters. It has a solid track record of operating cash flow and ROIC for teens. The company has paid over $ 900 million in dividends since fiscal year 13 and has posted dividend growth of over 15% CAGR over the past three years. The company’s earnings have also increased more than 14% CAGR over the past decade.
OpenText has a competitive advantage because it has a consistent track record of generating growth through disciplined capital allocation. In view of rapid technological change and changing customer needs, OpenText products are exposed to strong competitive pressure.
It mainly competes with the International Business Machines Corporation (IBM). Oracle and Microsoft also compete in certain markets. Other competing software providers in the EIM sector are Veeva Systems, j2 Global, Pegasystems, Hyland Software, SPS Commerce and Adobe Systems.
As a result of the consolidation of the software industry, new market participants or alliances could emerge and gain additional market share.
A world class product range, culture of innovation, vertical industry focus, marquee customers, and predictable recurring revenue make OpenText a winner. The company is aiming for growth in the core markets of content services, corporate networks and the cloud, while increasing security, AI and IoT at the same time.
OpenText is well positioned to drive growth both organically and through M&A. Recurring income remains a key indicator of organic growth and should support future dividend growth.
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