OpenText (OTEX) Q2 2026 earnings review
Transformation in Motion: Margins Expand, CEO Changes, Portfolio Slims
OpenText is executing a massive strategic pivot while maintaining operational discipline. While total revenue was essentially flat (-0.6% YoY) at $1.33B, the quality of earnings improved significantly. Adjusted EBITDA margin expanded to 37.0% (up from 32.7% two quarters ago), and Enterprise Cloud Bookings surged 18% YoY to $295M, validating the demand for the new 'Titanium X' and AI platforms. The narrative is dominated by three major shifts: the appointment of Ayman Antoun as incoming CEO, the divestiture of non-core assets (Vertica, eDOCS), and the 'Agentic AI' focus. GAAP Net Income fell 27%, but this was primarily due to non-operating noise (absence of prior year's FX/investment gains); operational metrics remain robust.
🐂 Bull Case
Enterprise Cloud Bookings grew 18% YoY to $295M, following a 20% jump in Q1 and 32% in Q4 FY25. This accelerating trend in forward-looking contract wins signals that the 'Titanium X' and AI-led product cycle is gaining genuine traction despite macro headwinds.
The divestiture of non-core assets (Vertica for $150M, eDOCS for $163M) combined with the incoming CEO Ayman Antoun suggests a leaner, faster-growing OpenText focused on its core Information Management and AI strengths, moving away from the 'conglomerate discount' narrative.
🐻 Bear Case
Total revenue remains stuck in neutral (-0.6% YoY, -2.6% in constant currency). While Cloud grew 3.4%, it was offset by declines in License (-2.5%) and Professional Services (-11.0%). The pivot to growth promised in FY25 is taking longer to materialize in the reported revenue line.
GAAP Net Income dropped 26.9% YoY ($168M vs $230M). While largely due to a swing in 'Other income' (likely FX or one-off gains in the prior year), the divergence between GAAP and Non-GAAP results ($168M vs $286M) remains substantial, complicating the valuation picture.
⚖️ Verdict: 🟢
Optimistic. The 18% bookings growth and 37% EBITDA margin are powerful indicators that the underlying engine is healthy. The strategic cleanup (divestitures + new CEO) removes overhangs. If the new CEO can convert bookings to recognized revenue growth, the stock will re-rate.
Key Themes
Cloud Momentum Accelerating
Accelerating. The cloud transition is working. Enterprise Cloud Bookings grew 18.0% YoY to $295M. This is the third consecutive quarter of double-digit bookings growth (following +20% in Q1 and +32% in Q4), providing strong visibility into future revenue. Cloud Revenues marked their 20th consecutive quarter of organic growth, reaching $478M.
Portfolio Simplification & Cash Generation
Stable. Management is actively pruning the portfolio. The announced divestitures of Vertica ($150M) and eDOCS ($163M) signal a shift away from growth-by-accretion toward strategic focus. This generated significant capital flexibility, supporting $119M in capital returns (dividends + buybacks) in the quarter.
Services and License Drag
Decelerating. While Cloud is growing, legacy lines are bleeding. Professional Services revenue dropped 11.0% YoY to $83M, and License revenue fell 2.5% to $184M. This mix shift puts pressure on top-line optics even as the business quality improves (recurring revenue is now 80% of total).
Margin Expansion Engine
Accelerating. Adjusted EBITDA margin hit 37.0%, up from 36.3% in Q1 and 34.5% in FY25. This demonstrates potent operating leverage and the success of the 'Business Optimization Plan' launched in FY25. The company is effectively doing more with less, utilizing internal AI to drive efficiency.
GAAP Net Income Volatility
Reversing. GAAP Net Income fell 26.9% to $168M. A closer look reveals this isn't operational: 'Other income (expense), net' swung from a $68.6M gain in 25Q2 to just $2.9M in 26Q2. This variance in non-operating items creates headline risk despite solid operating income stability ($292M GAAP Op Income vs $296M prior year).
Other KPIs
Stable (+0.7% YoY). ARR now constitutes the vast majority of the business, providing downside protection. Growth is muted by the decline in Customer Support (-1.5%), which offsets the gains in Cloud (+3.4%).
Decelerating (-8.9% YoY). Down from $307M in the prior year period. Operating cash flow dropped 8.4% to $319M. While still a healthy 21% margin, the conversion from EBITDA ($491M) to FCF was lower this quarter due to working capital timing.
Accelerating/Stable. Up 3.4% YoY. This segment continues to be the steady grower, now marking 20 consecutive quarters of organic growth. It is steadily becoming a larger portion of the revenue mix relative to declining License revenue.
Guidance
Stable. CFO Steve Rai reaffirmed that the operating model is driving the business to meet margin targets for Fiscal 2026. While explicit numerical updates were not provided in the release text, the Q2 EBITDA margin of 37.0% suggests they are running ahead of the prior FY25 full-year baseline of 34.5%.
Stable. Reaffirmed at $0.275 ($1.10 annualized). Record date March 6, 2026. This reflects a confident capital return posture, alongside $50M in share repurchases during the quarter.
Key Questions
Revenue Impact of Divestitures
With the sale of Vertica ($150M) and eDOCS ($163M), what is the specific annualized revenue and EBITDA impact for the remainder of FY26 and FY27? How much of this 'lost' revenue is offset by organic cloud growth?
Incoming CEO Strategy
With Ayman Antoun taking the helm in April, should investors expect a continuation of the 'Agentic AI' strategy, or is a broader strategic review and potential further portfolio restructuring on the table?
Professional Services Decline
Professional Services revenue dropped 11% this quarter. Is this a strategic de-emphasis on low-margin service work, or a signal of difficult implementation environments for customers?
Free Cash Flow Conversion
Free Cash Flow declined ~9% YoY despite stable EBITDA. What specific working capital items drove this disconnect, and do you expect conversion rates to normalize in H2?