OpenText: Invest Now, Grow Later

Research evidence excerpt

J P M O R G A N

North America Credit Research

06 August 2026

OpenText

Invest Now, Grow Later

Neutral

OTEXCN

Moody's: Ba2

S&P:

BB+

Outlook:

STABLE

The above agency ratings are at the corporate level

Results for the quarter were solid, but investments in S&M and R&D weighed on

margin guidance for fiscal 2027. Importantly, debt reduction remains top of mind

for management, giving us comfort as we enter a lower EBITDA year.

Results beat in the quarter. The company posted F4Q26 revenue of $1.349bn

(+2.9% y/y), above the consensus estimate of $1.321bn. The main driver was

cloud revenue, which totaled $503mn (+6% y/y), ahead of the $490mn

estimate, and offset a 4.6% y/y decline in customer support revenues of

$554mn tied to OTEX’s on-premise business. aEBITDA was also strong at

$507mn (+14.1% y/y) compared to the $448mn Street estimate.

But the guidance was hindered by its growth investment plan. Guidance for

the first fiscal quarter and full fiscal year of 2027 came in below expectations.

While we expected some headwinds from the eDocs ($30mn annual revenue,

sold in January 2026) and Vertica ($80mn annual revenue, sold in May 2026)

divestitures, the main driver of unanticipated EBITDA softness was increased

investment in GTM and R&D. For the first quarter of the year, management

sees midpoint revenue and aEBITDA margin of $1.235bn (vs. $1.285bn est)

and 32.5% (vs. 35% est), respectively. The slightly softer top line and big miss

on the bottom line trend continues for the full year, where management is

guiding to the midpoint revenue, aEBITDA margin, and FCF of $5.16bn (vs.

$5.257bn est), 32.5% (vs. 36% est), and $675mn (vs. $985mn est),

respectively.

The investments in question. Management intends to spend $100-200mn this

fiscal year on R&D to support its core products and sales and marketing

initiatives, including expanding its sales force by 300+ heads and reactivating

its partner sales channel (e.g., hyperscalers and VARs). Based on current

guidance, these investments, coupled with an ~$85mn or ~2% forecast top line

decline, are expected to decrease aEBITDA by ~$226mn or 12% y/y in fiscal

2027.

Divestitures remain in question. In light of Saaspocalypse, OTEX put

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