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OpenText Gets Lift from Cloud Service in Q3, Eyes AI Opportunities

Growth in cloud services and subscriptions helped enterprise information management (EIM) software firm OpenText achieve stronger results for the third quarter (ended March 31) than a year ago, and it sees promising growth opportunities from artificial intelligence (AI), according to CEO and CTO Mark Barrenechea.

Cloud services and subscriptions revenue grew 20.1% year-over-year to $177.1 million and total revenue jumped 34.6% to $593.1 million. In constant currency terms, cloud services and subscriptions revenue grew 21.5% to $179.2 million and total revenue increased 36.2% to $599.9 million. But profit fell to $21.6 million from $69.1 million. Shares in the company were down 4.88% at $33.13 in late morning trading May 9.

OpenText is “investing for the next decade and see an opportunity to win” in AI – “not only with machine learning, analytical, text mining and semantic analysis capabilities already in our portfolio today, but coupled with investments in pure AI and cognitive business solutions” like Magellan, its new AI platform, Barrenechea said on an earnings call with analysts May 8.

Magellan is a “new approach to AI via open source,” and it will be showcased at the company’s Enterprise World conference in Toronto July 10-13, he said, adding Magellan will then become available early next fiscal year for customers.

Unstructured content and commercial data is already being managed in OpenText solutions globally, and the “extraction of business insight with AI solutions for our customers is the next logical progression in our customers’ journeys,” he said.

OpenText “can win in AI because our software manages some of the world’s largest content archives, and we can turn these archives into active data lakes,” he added.

Mergers and acquisitions (M&As) are also driving revenue growth for OpenText, the company said, pointing out that, over the past year, it allocated $2.4 billion in capital for five purchases that it expects to add up to about $850 million in annualized revenue.

Over the last five years, OpenText invested about $7 billion in acquisitions, R&D and sales and marketing, Barrenechea said on the call. Over the last 12 months, it invested $250 million in R&D alone and $411 million in sales and marketing, he said, adding: “We are investing to win.”

On Jan. 23, OpenText completed the purchase of Dell EMC’s Enterprise Content Division (ECD), including Documentum, for $1.62 billion. It was the largest acquisition for OpenText to date.

OpenText expects the ECD Business revenue contribution in its current quarter to increase about 30% quarter over quarter, and its performance is expected to scale throughout next fiscal year, Barrenechea said in the company’s earnings news release.

“We are not slowing our investment strategy,” he told analysts on the call, adding: “There is ample acquisition opportunity in the small, medium and large categories,” and those companies’ assets “could advance our strategy in horizontal, vertical, and geographic coverage.”

Two years ago, OpenText had only five people on its M&A team and that’s increased to about 20 today, he said, noting the company plans on further growing and investing in the M&A team.

The company also said that, in conjunction with the ECD integration, it “streamlined” its operational structure, eliminating the role of president. As a result, Stephen Murphy stepped down as OpenText president and left the company.