OpenText's Q1 2026: Contradictions Emerge on Cloud Revenue Mix, License Revenue Shifts, and Divestiture Strategy

Date of Call: None provided

Financials Results

• Revenue: $1.3B, up 1.5% YOY
• EPS: $1.05 adjusted EPS, up 12.9% YOY
• Gross Margin: GAAP 72.8% (non-GAAP 76.5%), up 100 bps (60 bps non-GAAP) YOY; cloud gross margin up ~280 bps YOY
• Operating Margin: Adjusted EBITDA margin 36.3%, up 130 bps YOY

Guidance:

• Q2 revenue expected $1.275B–$1.295B and adjusted EBITDA margin 35.5%–36%.
• Fiscal 2026 annual outlook unchanged.
• Expect ARR to return to growth in FY26; cloud growth to outpace maintenance declines.
• Revenue expected to skew to H2, with a stronger Q4; quarter-to-quarter variability driven by cloud vs license mix and deal timing.

Business Commentary:

• Revenue and Cloud Performance Growth:
• OpenText reported total revenues of $1.3 billion for Q1, an increase of 1.5% year over year.
• Cloud revenue was $485 million, up 6% year over year.

• The growth was driven by strong demand in the content product category, which grew 21% year over year in cloud and 3% in total revenues.

• Profitability and Margin Expansion:

• Adjusted EBITDA for the quarter was $467 million, with a margin of 36.3%, up 130 basis points year over year.
• GAAP-based gross margins were 72.8%, up 100 basis points year over year.

• Improvement was mainly due to higher cloud revenues and benefits from the business optimization plan.

• Content Cloud Growth and Strategic Focus:

• Content Cloud grew 21% year over year in Q1, driven by bookings won in financial services, energy and utilities, and telecom verticals.

• The company is focusing on leveraging its content management for AI, with a strategic move to divest non-core businesses to enhance shareholder value.

• Agentic AI and Market Strategy:

• OpenText is positioning itself to train agentic AI using its vast data and content management capabilities.
• The company is focusing on proprietary clouds and sovereign cloud solutions, anticipating increased demand for managed services in AI development.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management said Q1 metrics were 'above street expectations', highlighted cloud revenue growth ($485M, +6% YOY), margin expansion (adjusted EBITDA 36.3%, +130 bps YOY), and repeated that FY26 outlook is unchanged while emphasizing strong content cloud momentum and large AI opportunities.

Q&A:

• Question from Richard C. (National Bank Financial): What is OpenText’s competitive edge in content as you pivot to leveraging data for AI given many competitors?
  Response: OpenText’s advantage is decades of legacy connectors and embedded plumbing across countless enterprise data sources plus hybrid deployment options (on‑premise, cloud, managed), enabling unique access to enterprise content for AI training.

• Question from Richard C. (National Bank Financial): On Content Cloud growth, what mix is driving it (AI readiness vs other factors)?
  Response: Growth is driven by customers curating and moving content to cloud for AI readiness and managed capabilities, supported by sales execution across verticals (financial services, energy, telecom, retail, automotive, manufacturing).

• Question from Kevin Krishnaratne (Scotiabank): How far back does customer data need to go for agentic AI training—is older data still relevant?
  Response: More historical data improves AI accuracy; customers should go back as far as possible because older data helps capture rare events and patterns—there’s no strict cutoff.

• Question from Kevin Krishnaratne (Scotiabank): On the Q2 guide, what drives outcomes to the bottom vs top of the revenue range?
  Response: Quarter outcomes are driven by deal timing and the cloud vs license mix; watch CRPO/RPO and enterprise cloud bookings as the primary indicators.

• Question from Stephanie Price (CIBC): What is driving the implied EBITDA step-up in H2—transformation initiatives or other factors?
  Response: EBITDA improvement is mainly from portfolio reshaping and the business‑optimization program (cumulative ~$0.5B run‑rate benefit), with portions realized last year and additional savings built into FY26.

• Question from Stephanie Price (CIBC): What cadence should investors expect for divestitures to shed 15%–20% of revenue?
  Response: Management plans a methodical drumbeat—roughly one non‑core divestiture per quarter with the intent to complete the program within about a year to avoid EBITDA disruption.

• Question from Steve Anders (Citi) — George Kriss on for Steve: How will your divestiture playbook mirror prior experience and what's different here?
  Response: Playbook leverages prior portfolio‑shaping experience but benefits from having the largest, fastest‑growing core (Content) and a timely AI market opportunity—focus is on accelerating the core and monetizing non‑core assets.

• Question from Steve Anders (Citi) — George Kriss on for Steve: Why did enterprise cybersecurity cloud decline and what’s the outlook?
  Response: Security is being actively invested in; management expects cloud security growth to improve via targeted product and regional investments and cross‑sell with content in large strategic deals.

• Question from Samad Samana (Jefferies) — Billy on for Samad: For Content Cloud’s 21% growth, how much was net new vs expansions/ARPU/cloud conversions and were incentives used to move customers to cloud?
  Response: Growth is organic and driven by customer choice and sales execution—no broad incentive program; customers are choosing cloud for managed capability and AI readiness rather than being pushed.

• Question from Samad Samana (Jefferies) — Billy on for Samad: Steve, what are your initial CFO priorities after joining?
  Response: Immediate focus is accelerating execution: support content‑led growth, drive business optimization to expand margins/free cash flow, and move portfolio reshaping forward.

• Question from Steven McKelton (BMO Capital Markets): What are expectations for stabilizing total ITOM revenue—by year‑end or TBD?
  Response: ITOM is showing cloud growth and competitive wins but timing to fully stabilize total revenue remains TBD; it’s a key part of the integrated content+machine data strategy for AI.

• Question from Steven McKelton (BMO Capital Markets): Does the Q2 guide imply a material license revenue decline—is this customers shifting to cloud?
  Response: Yes—the apparent license decline reflects customer choices and timing (license revenue recognized upfront vs cloud spread over time); monitor RPO/current RPO for the true underlying demand.

• Question from Seth Gilbert (UBS): For modeling Q2, will cloud services growth remain ~6% or be lower given mix sensitivity?
  Response: They haven’t revised full‑year outlook; quarter‑to‑quarter cloud vs license variability arises from deal timing—use current RPO as the better near‑term indicator of cloud demand.

• Question from Seth Gilbert (UBS): How will the changing revenue mix (more cloud) impact margins longer term?
  Response: Management is committed to maintaining margins regardless of mix—will manage operations and optimization initiatives to preserve margin trajectory.

Contradiction Point 1

Cloud Revenue Growth and Mix

It involves the strategic focus on cloud revenue and its growth, which is a critical aspect for the company's revenue stream and investor expectations.

How important is historical data for AI training, and is there an optimal data range? - Kevin Krishnaratne (Scotiabank)

2026Q1: The revenue mix depends on cloud migration, affecting reporting timelines. We anticipate faster cloud adoption affecting revenue distribution. Customers and ARR growth are key drivers, but we are seeing some variability in quarterly license sales. - Steve Wray(CFO)

Can you discuss cloud growth, high-growth business units, and areas needing improvement for higher growth? - William Fitzsimmons (Jefferies LLC)

2025Q4: All disclosures are aimed at providing insight into the cloud business. Cloud RPO grew 13% last year, with content, OSM, and DevOps each growing faster than 10% last year. Cybersecurity was negative 4% due to the SMBC business, but we expect it to return to growth this year with new partnerships. - Mark J. Barrenechea(CEO)

Contradiction Point 2

License Revenue and Cloud Adoption Impact

It involves the impact of cloud adoption on license revenue, which is a critical factor affecting the company's revenue distribution and financial performance.

Why the Q2 double-digit license revenue decline? - Steven McKelton (BMO Capital Markets)

2026Q1: License revenue decline reflects customer choice of cloud over license, driven by larger deal timings and cloud adoption. The mix of cloud and license sales varies quarterly. - Steve Wray(CFO)

What's driving the improvement in pipeline growth, and is it sustainable? - Paul Michael Treiber (RBC Capital Markets)

2025Q4: Every business is expected to outperform on our business targets this year. And we are particularly excited about what we are seeing with Titanium X, which is now fully in the marketplace, demonstrating its AI capabilities. - Mark J. Barrenechea(CEO)

Contradiction Point 3

Divestiture Strategy and Core Focus

It involves changes in the company's strategic focus and divestiture plans, which can have significant implications for the company's financial health and long-term growth.

Can you update on the divestiture strategy and the timeline for non-core business sales? - Stephanie Price (CIBC)

2026Q1: We plan to do one sale per quarter, methodically divesting non-core units. This approach maintains financial discipline and should be completed within a year. - Tom Jenkins(Executive Chair)

Can you break down the 21% Content Cloud growth by customer segments and factors? - Samad Samana (Jefferies)

2025Q2: Our core business is our largest and fastest-growing, positioning us well for AI training. The primary difference is the focus on this core, which will benefit from AI opportunities. - Steve Wray(CFO)

Contradiction Point 4

Cloud Migration and Revenue Impact

It involves the impact of cloud migration on revenue mix and reporting timelines, which are critical aspects for understanding the company's financial performance and growth prospects.

Can you provide guidance on Q2 revenue and cloud migration's effect on revenue composition? - Kevin Krishnaratne (Scotiabank)

2026Q1: The revenue mix depends on cloud migration, affecting reporting timelines. We anticipate faster cloud adoption affecting revenue distribution. Customers and ARR growth are key drivers, but we are seeing some variability in quarterly license sales. - Steve Wray(CFO)

What did you observe regarding the economy and regional performance this quarter? - Raimo Lenschow (Barclays)

2025Q2: We have not raised our mid-30s for the revenue mix, 33% to 35% of our deals being cloud deals by end of the fiscal year, which implies that we're probably in the mid- to low-30s right now in our cloud revenue mix. - Mark Barrenechea(CEO and CTO)