FIRST QUARTER FISCAL 2027 EARNINGS CONFERENCE CALL AND WEBCAST - OPEN TEXT CORP

Financial Performance:

• Total revenue reached $1.237 billion, landing within the expected guidance range for Q1 FY27.
• Core revenue grew 2.4% year-over-year (2.7% in constant currency), driven by a 20.7% year-over-year growth in Content Cloud (the fifth consecutive quarter of ~20% growth).
• Core Cloud revenue increased 11.2% year-over-year (11.7% in constant currency), totaling $339 million.
• Total cloud revenue was $505 million, up 4.3%, marking the 23rd consecutive quarter of organic cloud growth.
• Adjusted EBITDA margin was 35.8% (35.1% in constant currency), exceeding the prior outlook range of 32-33%.
• GAAP diluted EPS was $0.64 (+10.3%), while non-GAAP diluted EPS was $1.05 (flat year-over-year).
• Operating cash flow was $172 million (+16.6%), and free cash flow was $139 million (+36.8%).
• Cloud CRPO grew 12%, total CRPO grew 3%, and total long-term RPO grew 13%; Client Support CRPO declined 5% as anticipated.
• Net debt to adjusted EBITDA leverage stood at 2.55x, with gross debt reduced by $949 million over the past year.

Guidance and Future Outlook:

• Full-year fiscal 2027 outlook remains unchanged, targeting 2-3% year-over-year core revenue growth in constant currency.
• Q2 FY27 revenue guidance is set between $1.26 billion and $1.29 billion.
• Q2 FY27 adjusted EBITDA margin guidance is 33% to 34%.
• Full-year adjusted EBITDA margin is expected to be lower in the second half of the year due to heavier weighting of growth investments (sales, marketing, R&D) and typical seasonality in fiscal Q3 (January).
• Management expects Q2, Q3, and Q4 to show sequential improvement in performance, particularly in ITOM and Cyber segments, as execution enhancements mature.

Business Segments and Product Lines:

• Content Cloud: Leading growth at 20.7% YoY; deals including Aviator AI agents average four times larger than standard deals.
• Aviator AI: Over 150 AI agents infused across the core portfolio; clients can build custom agents via Aviator Studio. Aviator is a key differentiator in moving clients from pilots to enterprise scale.
• Cybersecurity: Currently underperforming (double-digit decline) due to execution gaps; transitioning from generalist sales to specialized vertical sellers and strengthening partner enablement.
• ITOM: Similar to Cyber, facing execution challenges with a plan to specialize sales teams and improve partner activation.
• Client Support: Revenue down 9% overall, primarily driven by non-core product divestitures and migration timing; core client support decline is slowing.
• Reclassifications: $116 million of revenue reclassified from core to non-core, representing legacy on-prem products and duplicate acquisition assets (e.g., Security Analytics, asset configuration) where investment is being limited.
• Go-to-Market Model: Fully deployed with 300 Client Executive roles filled; each strategic account now has a single point of contact coordinating cross-sell bundles.

Market and Competitive Landscape:

• OpenText positions itself as the provider of "trusted context and connected data" essential for credible AI outcomes, differentiating from pure-play AI model providers.
• Partnerships expanded with Cohere (AI orchestration) and SAP (integration of Aviator with SAP Joule).
• The ecosystem includes hyperscalers, global/system integrators, and ISVs, with partner-mapped sales motions in all 15 markets.
• Competition in Cyber is intense; competitors often offer fewer vertical-specific capabilities compared to OpenText's broad data security, application security, and identity portfolio.
• Deal size expansion is observed in Content Cloud, with 35 cloud deals exceeding $1 million in Q1 (up 6% YoY).

Risks and Challenges:

• Execution Risks: ITOM and Cyber segments face headwinds requiring improved sales specialization and partner activation to turn around double-digit declines.
• Macroeconomic Factors: Clients in the Middle East market paused due to geopolitical instability, though impact was not material in size.
• Investment Impact: Heavy investment in the second half will temporarily compress margins, requiring disciplined financial management.
• Divestiture Process: Ongoing active review of non-core businesses; valuation environment remains uncertain, requiring discipline to avoid fire sales.
• Migration Dynamics: Continued migration from on-prem to cloud impacts client support revenue timing.

Management Commentary and Tone:

• Tone is confident and disciplined, framing Q1 as a strong start to the "foundation year."
• Management emphasizes the success of the new "One OpenText" go-to-market model and the strategic clarity of the Aviator AI value proposition.
• Eamon Anton (CEO) expressed strong confidence in the path ahead, highlighting client feedback as the primary metric for success.
• Steve Ray (CFO) emphasized financial discipline, debt reduction, and the alignment of investments with long-term organic growth targets.
• The "Enterprise Assessment" is complete, with findings forming the basis of a multi-year growth plan to be unveiled at the February 10th Investor Day.

Analyst Questions and Answers:

• Reclassification: Products moved to non-core include legacy on-prem items in maintenance mode and duplicate acquisition assets (e.g., Security Analytics) not warranting further investment.
• Go-to-Market Updates: Partners are being reactivated with financial models and joint account plans; the partner force is intended to act as an extension of the direct sales team.
• AI Adoption: Aviator agents are driving deal size and value; R&D is prioritizing AI infusion in core products (Content, BN, Cyber, ITOM) and cloud migration tools.
• Balance Sheet: Debt reduction and refinancing ($1 billion new bonds, $300M tender offer) improved financial flexibility; net debt/EBITDA is well within target ranges.
• Sales Execution (Cyber/ITOM): Underperformance attributed to lack of sales specialization; transitioning to deep-skilled sellers per pillar and activating partners; improvement expected Q2-Q4.
• R&D Trends: R&D will stabilize, with a reallocation of funds toward core AI innovation and cloud migration tools rather than legacy maintenance.
• Partner Investment: Investments in direct sales and partner channels are viewed as having equal value; specific split is not disclosed.
• Client Support: Core support decline is slowing; migration preparations are a temporary factor.

Other Key Points:

• Investor Day: Scheduled for February 10, 2027, in Toronto, to present the multi-year growth plan (Strategic Framework, Financial Model, Execution Plan).
• Capital Allocation: Priorities remain debt reduction, organic growth, and capital returns; $649 million debt reduction achieved in FY26.
• Strategic Themes: The enterprise assessment identified five themes: Integrated Go-to-Market, Focused Portfolio, Speed/Simplicity, Brand Promise, and Discipline/Accountability.
• Aviator Studio: Enables clients and partners to build their own agents, reinforcing the platform approach over simple AI add-ons.
• Cloud Deals: Deals with Aviator are significantly larger, demonstrating the commercial value of the AI agent layer.