OpenText (TSX:OTEX) is no longer in “fix mode.” Afters years of acquisitions and share losses, the Canadian tech stock is in the “rebuild and grow” phase. Recent earnings proved this, with newly appointed Chief Financial Officer (CFO) Steve Rai pointing to strengthening cloud momentum in an interview with Motley Fool Canada.
Now, OTEX is in a powerful position at the intersection of enterprise data and artificial intelligence (AI), rising margins, and a free cash flow recovery that looks durable. OpenText is beginning to look like a classic turnaround entering its next phase. One that’s leaner, more focused, and better positioned for the long-term digital transformation cycle ahead.
What happened
OpenText gave investors a pleasant surprise this quarter, sparking a rise in its share price as confidence returned to its turnaround story. After a string of modest quarters, the Waterloo-based software firm delivered stronger margins, solid free cash flow, and signs that its “Information Management for AI” strategy is finally gaining traction.
Revenue for the first quarter of fiscal 2026 came in at US$1.3 billion, up 1.5% year over year, while non-GAAP earnings per share hit US$1.05, topping expectations of around US$0.98. What got investors excited wasn’t the top-line growth but the underlying improvement in profitability and cash generation that suggested the company’s optimization plan is working.
Why it matters now is that OpenText’s operational discipline is matching its strategic ambitions. The tech stock managed to boost profitability without sacrificing innovation, repurchasing US$100 million in stock and maintaining its quarterly dividend of US$0.275 per share. It also strengthened its capital flexibility, ending the quarter with over US$1 billion in cash. After months of uncertainty following its leadership transition, the interim management team demonstrated stability and execution.
Looking ahead
Even so, OpenText remains in a transition phase following portfolio divestitures and restructuring. Yet management did not waver on its commitment to returning the company to growth in Fiscal 2026. OpenText still expects total revenue to rise 1% to 2% next year, cloud revenue to grow 3% to 4%, and enterprise cloud bookings to accelerate to 12% to 16% growth.
One of the strongest signals in the quarter is cloud momentum, which continues to strengthen even as legacy areas decline. Cloud revenue grew 6% year over year this quarter. Rai made it clear that this is the backbone of the company’s future, especially as enterprise customers demand platforms that can manage decades of proprietary data to train Agentic AI models.
Another major takeaway is the dramatic recovery in free cash flow, which jumped to US$101 million, a 186% increase year over year! Rai reiterated the tech stock’s outlook for 17% to 20% free cash flow growth in Fiscal 2026. This is crucial because free cash flow is what supports dividends, share buybacks, and debt reduction. The fact that the tech stock has already retired about 10% of its shares since mid-2024 and continues to target $300 million in buybacks for fiscal 2026 underscores management’s confidence in the recovery.
Foolish takeaway
Rai emphasized that OpenText is now a leaner, more focused company. The “shrink to grow” strategy is well underway, with divestitures like eDocs completed and other portfolio-shaping opportunities in progress. OpenText is deliberately concentrating on four core areas: Content, Business Network, IT Operations, and Cybersecurity. All while offloading lower-growth or lower-margin assets. For investors, this means the tech stock is shifting toward higher-quality recurring revenue while increasing transparency around each product category.
Looking ahead, OpenText sees fiscal 2026 as a year of margin expansion, free cash flow recovery, and selective growth. It’s betting on continued demand for secure cloud information management as companies worldwide race to harness AI safely and effectively. The tech stock is positioning itself as a bridge between data management and artificial intelligence. This space could deliver steady, high-margin growth over time. So if you’re interested in adding OTEX to your watchlist, now might be the time.
