OpenText: Buy on 20.6% GAAP Operating Margin, 1.5% SBC Discipline, and Post-Divestiture Cash Return
Retaining 90% of its $807.5M GAAP free cash flow after an ultra-low 1.54% SBC burden, OpenText trades at 0.77x our $41.95 DCF base case as cloud renewals and debt paydown compound equity value.
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Equity investors frequently dismiss OpenText (`OTEX`) as an acquisitive, debt-heavy legacy roll-up after its $5.8B Micro Focus acquisition in FY2023 and subsequent $2.28B divestiture of the Application Modernization and Connectivity (AMC) mainframe business to Rocket Software in May 2024 (which caused reported FY2025 revenue to step down
Audited FY2026 Form 10-K filings (period ended June 30, 2026) prove the post-divestiture core has turned the corner: consolidated revenue returned to positive growth at
$5.25B
(
+1.51%
YoY;
+10.70%
multi-year compound pillar trajectory from FY2022's
$3.49B
), GAAP gross profit expanded to
$3.87B
(
73.74%
margin), and GAAP operating income surged
337 bps
to
$1.08B
(
20.64%
margin) as Micro Focus integration synergies and cost optimization flowed directly to the bottom line.
Our variant perception highlights an extraordinary owner-earnings advantage that Adjusted EBITDA screens miss completely: OpenText pays its workforce predominantly in cash already expensed inside its 20.64% GAAP operating margin rather than diluting shareholders through massive stock awards. [1] In FY2026, OpenText's total stock-based compensation was just $80.64M on $5.25B of revenue (1.54% of revenue, down from 2.91% in FY2023 and 2.03% in FY2025).
Consequently, 90.0% of OpenText's $807.52M GAAP free cash flow survives as true SBC-burdened Owner FCF ($726.88M, or 13.85% of revenue). By comparison, high-multiple SaaS peers routinely forfeit 40% to 100%+ of their GAAP free cash flow to employee equity grants.
That $726.88M annual owner cash surplus powers a self-reinforcing equity-accretion flywheel. Following the AMC divestiture debt paydown, OpenText ended FY2026 with $956.02M in cash against $5.77B in total debt ($4.81B net debt, or 4.4x GAAP EBIT), while simultaneously paying a recurring quarterly cash dividend and repurchasing stock to reduce period-end shares from 272.59M in FY2024 to 242.76M (249.37M FY2026 weighted average, -2.14% modeled annual share reduction).
[1][2] At $32.18 per share ($7.81B market cap), every dollar of debt retired and every share cancelled below $41.95 compounds per-share intrinsic value directly.
Exhibit 1Financial Schedule
Post-AMC divestiture, OpenText expanded GAAP EBIT past $1.08B and retained 90% of FCF after 1.54% SBC
Filed annual GAAP operating performance, cash conversion, and SBC-burdened Owner FCF (fiscal year-end June 30).
Source: Open Text Corporation SEC Form 10-K filings.
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