Open Text Reports Second Quarter Fiscal 2010 Financial Results

WATERLOO, ON, Feb. 3 /CNW/ - Open Text(TM) Corporation (NASDAQ: OTEX) (TSX:OTC), a leading provider of Enterprise Content Management (ECM) software, today announced unaudited financial results for its second quarter ended December 31, 2009.(1)

Total revenue for the second quarter of fiscal 2010 was $247.8 million, up 19% compared to $207.7 million for the same period in the prior fiscal year. License revenue in the second quarter was $72.7 million, up 12% compared to $64.9 million in the second quarter of the prior fiscal year.

Adjusted net income in the quarter was $50.1 million or $0.87 per share on a diluted basis, up 47% compared to $34.0 million or $0.64 per share on a diluted basis for the same period in the prior fiscal year. Net income in accordance with U.S. generally accepted accounting principles ("US GAAP") was $21.2 million or $0.37 per share on a diluted basis, compared to $0.8 million or $0.01 per share on a diluted basis for the same period in the prior fiscal year.(2)

The cash and cash equivalents balance as of December 31, 2009 was $247.6 million, compared to $275.8 million as of June 30, 2009. During the six months that ended December 31, 2009, the net cash paid for the Vignette acquisition was $90.6 million. Accounts receivable as of December 31, 2009, totaled $143.4 million, compared to $115.8 million as of June 30, 2009, and Days Sales Outstanding (DSO) was 52 days in the second quarter of fiscal 2010, compared to 53 days in the second quarter of fiscal 2009.

"We had a very good quarter across the board - in all geographies and verticals," said John Shackleton, President and Chief Executive Officer of Open Text. "Our strong license revenue growth has brought us to where we expected to be on a year to date basis."

"We are also pleased with our profitability this quarter, generating a pre-tax adjusted operating margin of 28.8%," said Shackleton. "The integration of Vignette is progressing well and we are very encouraged by the synergies we see from the combined businesses."(4)

Please see note (2) below for a reconciliation of non-US GAAP based financial measures used in this press release, to US GAAP based financial measures.

Teleconference Call

Open Text will host a conference call on February 3, 2010 at 5:00 p.m. ET to discuss the financial results of its second quarter.

    
        Date:    Wednesday, February 3, 2010
        Time:    5:00 p.m. ET/2:00 p.m. PT
        Length:  60 minutes
        Where:   416-644-3414
                 800-814-4859 (Toll Free)
    

Please dial-in approximately 10 minutes before the teleconference is scheduled to begin. A replay of the call will be available beginning February 3, 2010 at 7:00 p.m. ET through 11:59 p.m. on February 17, 2010 and can be accessed by dialing 416-640-1917 and using pass code 4198863 followed by the number sign.

For more information or to listen to the call via Web cast, please use the following link: http://www.opentext.com/events/wa-event.html?id=7736136

About Open Text

Open Text(TM) is the world's largest independent provider of Enterprise Content Management software. The company's solutions manage information for all types of business, compliance and industry requirements in large companies, government agencies and professional service firms. Open Text supports approximately 46,000 customers in 114 countries and 12 languages. For more information about Open Text, visit www.opentext.com.

Certain statements in this press release, including statements about the financial conditions, and results of operations and earnings for Open Text Corporation ("Open Text" or "the Company"), may contain words such as "could", "expects", "may", "should", "will", "anticipates", "believes", "intends", "estimates", "targets", "plans", "envisions", "seeks" and other similar language and are considered forward-looking statements or information under applicable securities laws. These statements are based on the Company's current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which the Company operates. These statements are subject to important assumptions, risks and uncertainties that are difficult to predict, and the actual outcome may be materially different. The Company's assumptions, although considered reasonable by the Company at the date of this press release, may provide to be inaccurate and consequently the Company's actual results could differ materially from the expectations set out herein.

Actual results or events could differ materially from those contemplated in forward-looking statements as a result of the following: (i) the future performance, financial and otherwise, of Open Text; (ii) the ability of Open Text to bring new products to market and to increase sales; (iii) the strength of the Company's product development pipeline; (iv) the Company's growth and profitability prospects; (v) the estimated size and growth prospects of the ECM market; (vi) the Company's competitive position in the ECM market and its ability to take advantage of future opportunities in this market; (vii) the benefits of the Company's products to be realized by customers; and (viii) the demand for the Company's product and the extent of deployment of the company's products in the ECM marketplace. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (ii) the possibility that the Company may be unable to meet its future reporting requirements under the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder; (iii) the risks associated with bringing new products to market; (iv) fluctuations in currency exchange rates; (v) delays in the purchasing decisions of the Company's customers; (vi) the competition the Company faces in its industry and/or marketplace; (vii) the possibility of technical, logistical or planning issues in connection with the deployment of the Company's products or services; (viii) the continuous commitment of the Company's customers; and (ix) demand for the Company's products.

For additional information with respect to risks and other factors which could occur, see the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities filings with the SEC and other securities regulators. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligations to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Notes

(1) Based on comparison of historical revenue figures publicly disseminated by companies in the Enterprise Content Management ("ECM") sector. All dollar amounts in this press release are in US Dollars unless otherwise indicated.

(2) Use of US Non-GAAP financial measures

In addition to reporting financial results in accordance with US GAAP, the Company provides certain non-US GAAP financial measures in this press release that are not in accordance with US GAAP. These non-US GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company's definition may be different from similar non-US GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus it may be more difficult to compare the Company's financial performance to that of other companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of adjusted net income and adjusted EPS both in its reconciliation to the US GAAP financial measures of net income and EPS and its consolidated financial statements, all of which should be considered when evaluating the Company's results. The Company uses the financial measures adjusted EPS and adjusted net income to supplement the information provided in its consolidated financial statements, which are presented in accordance with US GAAP. The presentation of adjusted net income and adjusted EPS is not meant to be a substitute for net income or net income per share presented in accordance with US GAAP, but rather should be evaluated in conjunction with and as a supplement to such US GAAP measures. Open Text strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the US GAAP measures with certain non-US GAAP measures for the reasons set forth below. Adjusted net income and adjusted EPS are calculated as net income or net income per share on a diluted basis, excluding, where applicable, the amortization of acquired intangible assets, other income (expense), share-based compensation, and restructuring, all net of tax. The Company's management believes that the presentation of adjusted net income and adjusted EPS provides useful information to investors because it excludes non-operational charges. The use of the term "non-operational charge" is defined by the Company as those that do not impact operating decisions taken by the Company's management and is based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports. In the course of such evaluation and for the purpose of making operating decisions, the Company's management excludes certain items from its analysis, such as amortization of acquired intangible assets, restructuring costs, share-based compensation, other income (expense) and the taxation impact of these items. These items are excluded based upon the manner in which management evaluates the business of the Company and are not excluded in the sense that they may be used under US GAAP. The Company believes the provision of supplemental non-US GAAP measures allows investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of Open Text's performance or expected performance of recurring operations and facilitates period-to-period comparison of operating performance. As a result, the Company considers it appropriate and reasonable to provide, in addition to US GAAP measures, supplementary non-US GAAP financial measures that exclude certain items from the presentation of its financial results in this press release. The following charts provide a reconciliation of (unaudited) US GAAP based financial measures to non-US GAAP based financial measures referred to in this press release:

    
    Reconciliation of (Unaudited) US GAAP based Net Income to Adjusted Net
    ----------------------------------------------------------------------
    Income (in millions of US dollars) for the periods indicated:
    -------------------------------------------------------------

                                     Three months ended   Three months ended
                                      December 31, 2009    December 31, 2008

    GAAP based "Net Income"                       $21.2                 $0.8
    Special charges                                10.4                 11.4
    Amortization of intangibles                    23.9                 21.9
    Other expense                                   1.7                 12.5
    Share-based compensation                        1.2                  1.1
    Tax Impact on above                            (8.3)               (13.7)
    -------------------------------------------------------------------------
    Non-GAAP based "Adjusted Net Income"          $50.1                $34.0
    -------------------------------------------------------------------------


    Reconciliation of (Unaudited) US GAAP based EPS to non-US GAAP based EPS
    ------------------------------------------------------------------------
    (calculated on a diluted basis) for the periods indicated:
    ----------------------------------------------------------

                                     Three months ended   Three months ended
                                      December 31, 2009    December 31, 2008

    GAAP based "Net Income"                       $0.37                $0.01
    Special charges                                0.18                 0.21
    Amortization of intangibles                    0.41                 0.41
    Other expense                                  0.03                 0.23
    Share-based compensation                       0.02                 0.02
    Tax Impact on Above                           (0.14)               (0.24)
    -------------------------------------------------------------------------
    Non-GAAP based "Adjusted Net Income"
     per share                                    $0.87               $ 0.64
    -------------------------------------------------------------------------
    

(3) The following table provides a composition of our major currencies for revenue and expenses, expressed as a percentage, for the second quarter of fiscal 2010:

    
    Currencies                                 % of Revenue  % of Expenses*
    --------------------------------------- ---------------- ----------------
    EURO...................................             27%              23%
    GBP....................................              9%               8%
    CHF....................................              6%               3%
    CAD....................................              7%              24%
    USD....................................             43%              34%
    Others.................................              8%               8%
                                            ---------------- ----------------
    Total..................................            100%             100%
                                            ---------------- ----------------
                                            ---------------- ----------------

    * Expenses include all cost of revenues and operating expenses
        included within the Consolidated Statements of Income, except for
        amortization of intangible assets, depreciation, share-based
        compensation and special charges.
    

(4) The following table sets forth our revenue type as a percentage of total revenue, certain operating expenses by function and certain operating expenses as a percentage of total revenue compared to our "forecasted" percentage range within our "operating model", as communicated in our investor relations presentation, posted on our corporate website at the following web address: http://www.opentext.com/2/global/company/investors.html

    
                                                                    Open Text
    (in '000s          Three months ended       Six months ended   "operating
     of USD)            December 31, 2009      December 31, 2009      model"
                  -----------------------------------------------
                               Percentage             Percentage

    Revenue:
    License         $  72,691       29.3%   $ 120,020      26.1%      25-30%
    Customer Support  130,283       52.6%     253,932      55.3%      50-55%
    Service
     and Other         44,816       18.1%      85,260      18.6%      20-25%
                   -----------             -----------

    Total Revenue     247,790                 459,212
                   -----------             -----------
                   -----------             -----------

    Gross profit
     excluding
     amortization
     of acquired
     technology-
     based intangible
     assets           185,236       74.8%     339,280      73.9%      72-75%

    Operating
     expenses:
    Research and
     development       34,347       13.9%      65,889      14.3%      14-16%
    Sales and
     marketing         53,891       21.7%     104,581      22.8%      24-26%
    General and
     administrative    22,377*     9.0%      43,602(xx)   9.5%       9-10%
    Depreciation        4,398        1.8%       8,545       1.9%          2%

    Pre-tax
     adjusted
     operating
     margin         $  71,383       28.8%   $ 119,332      26.0%      22-27%

    *  Includes share-based compensation of $1,160

    (xx) Includes share-based compensation of $2,669

    Reconciliation of (unaudited) pre-tax adjusted operating margin to
    ------------------------------------------------------------------
    US GAAP-based net income:
    -------------------------
                                     Three months ended     Six months ended
    (in '000s of USD)                 December 31, 2009    December 31, 2009

    Pre-tax adjusted operating margin         $  71,383            $ 119,332
    Less:
    Amortization                                 23,887               46,946
    Share-based compensation                      1,160                2,669
    Special charges                              10,423               29,012
    Other (income) expense, net                   1,671               (1,769)
    Interest expense, net                         2,716                5,762
    Provision for income taxes                   10,325               13,781
                                    -------------------- --------------------
    US GAAP-based net income for the
     period                                   $  21,201            $  22,931
                                    -------------------- --------------------



                            OPEN TEXT CORPORATION
                    CONDENSED CONSOLIDATED BALANCE SHEETS
              (In thousands of U.S. dollars, except share data)

                                                   December 31,    June 30,
                                                       2009          2009
                                                  ------------- -------------
                                                   (unaudited)

                                   ASSETS

    Cash and cash equivalents..................... $   247,630   $   275,819
    Short-term investments........................       8,414             -
    Accounts receivable trade, net of allowance
     for doubtful accounts of $5,063 as of
     December 31, 2009 and $4,208 as of June 30,
     2009.........................................     143,446       115,802
    Income taxes recoverable......................       7,555         4,496
    Prepaid expenses and other current assets.....      26,255        18,172
    Deferred tax assets...........................      18,940        20,621
                                                  ------------- -------------
      Total current assets........................     452,240       434,910
    Investments in marketable securities..........           -        13,103
    Capital assets................................      55,884        45,165
    Goodwill......................................     712,967       576,111
    Acquired intangible assets....................     359,987       315,048
    Deferred tax assets...........................      68,748        69,877
    Other assets..................................      17,809        13,064
    Long-term income taxes recoverable............      43,876        39,958
                                                  ------------- -------------
    Total assets.................................. $ 1,711,511   $ 1,507,236
                                                  ------------- -------------
                                                  ------------- -------------

                     LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities:
      Accounts payable and accrued liabilities.... $   122,660   $   116,992
      Current portion of long-term debt...........       3,508         3,449
      Deferred revenues...........................     191,736       189,397
      Income taxes payable........................       7,023        10,356
      Deferred tax liabilities....................       2,216           508
                                                  ------------- -------------
        Total current liabilities.................     327,143       320,702
    Long-term liabilities:
      Accrued liabilities.........................      19,333        21,099
      Pension liability...........................      16,188        15,803
      Long-term debt..............................     298,601       299,234
      Deferred revenues...........................      12,132         7,914
      Long-term income taxes payable..............      53,770        47,131
      Deferred tax liabilities....................     126,626       108,889
                                                  ------------- -------------
        Total long-term liabilities                    526,650       500,070
    Shareholders' equity:
      Share capital
        56,444,939 and 52,716,751 Common Shares
         issued and outstanding at December 31,
         2009 and June 30, 2009, respectively;
         Authorized Common Shares: unlimited......     590,328       457,982
      Additional paid-in capital..................      57,233        52,152
      Accumulated other comprehensive income......      82,747        71,851
      Retained earnings...........................     127,410       104,479
                                                  ------------- -------------
    Total shareholders' equity....................     857,718       686,464
                                                  ------------- -------------
    Total liabilities and shareholders' equity.... $ 1,711,511   $ 1,507,236
                                                  ------------- -------------
                                                  ------------- -------------



                            OPEN TEXT CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
       (In thousands of U.S. dollars, except share and per share data)
                                 (Unaudited)

                                   Three months ended      Six months ended
                                       December 31,           December 31,
                                  --------------------- ---------------------
                                     2009       2008       2009       2008
                                  ---------- ---------- ---------- ----------
    Revenues:
      License.................... $  72,691  $  64,852  $ 120,020  $ 114,926
      Customer support...........   130,283    100,438    253,932    198,867
      Service and other..........    44,816     42,361     85,260     76,481
                                  ---------- ---------- ---------- ----------
        Total revenues...........   247,790    207,651    459,212    390,274
                                  ---------- ---------- ---------- ----------
    Cost of revenues:
      License....................     4,633      5,281      7,778      8,174
      Customer support...........    21,493     17,356     42,432     32,923
      Service and other..........    36,428     31,881     69,722     59,610
      Amortization of acquired
       technology-based
       intangible assets.........    15,152     11,799     29,294     22,546
                                  ---------- ---------- ---------- ----------
        Total cost of revenues...    77,706     66,317    149,226    123,253
                                  ---------- ---------- ---------- ----------
    Gross profit.................   170,084    141,334    309,986    267,021
                                  ---------- ---------- ---------- ----------

    Operating expenses:
      Research and development...    34,347     29,948     65,889     58,526
      Sales and marketing........    53,891     49,347    104,581     94,179
      General and administrative.    22,377     18,280     43,602     36,667
      Depreciation...............     4,398      2,920      8,545      5,618
      Amortization of acquired
       customer-based intangible
       assets....................     8,735     10,138     17,652     18,353
      Special charges............    10,423     11,446     29,012     11,446
                                  ---------- ---------- ---------- ----------
        Total operating expenses.   134,171    122,079    269,281    224,789
                                  ---------- ---------- ---------- ----------
    Income from operations.......    35,913     19,255     40,705     42,232
                                  ---------- ---------- ---------- ----------
    Other income (expense), net..    (1,671)   (12,464)     1,769    (11,854)
    Interest expense, net........    (2,716)    (5,347)    (5,762)    (8,341)
                                  ---------- ---------- ---------- ----------
    Income before income taxes...    31,526      1,444     36,712     22,037
    Provision for income taxes...    10,325        683     13,781      6,615
                                  ---------- ---------- ---------- ----------
    Net income for the period.... $  21,201  $     761  $  22,931  $  15,422
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    Net income per share-basic... $    0.38  $    0.01  $    0.41  $    0.30
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    Net income per share-diluted. $    0.37  $    0.01  $    0.40  $    0.29
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    Weighted average number of
     Common Shares outstanding-
     basic.......................    56,403     51,873     55,895     51,586
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    Weighted average number of
     Common Shares outstanding-
     diluted.....................    57,448     53,242     56,964     52,955
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------



                            OPEN TEXT CORPORATION
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                       (In thousands of U.S. dollars)
                                 (Unaudited)


                                   Three months ended      Six months ended
                                       December 31,           December 31,
    Cash flows from operating     --------------------- ---------------------
     activities:                     2009       2008       2009       2008
                                  ---------- ---------- ---------- ----------

    Net income for the period.... $  21,201  $     761  $  22,931  $  15,422
    Adjustments to reconcile net
     income to net cash provided
     by operating activities:
      Depreciation and amorti-
       zation...................     28,285     24,857     55,491     46,517
      In-process research and
       development..............          -        121          -        121
      Share-based compensation
       expense..................      1,943      1,110      5,449      2,533
      Employee long-term
       incentive plan...........      2,971      1,746      5,646      2,805
      Excess tax benefits on
       share-based compensation
       expense..................         (6)       (24)      (697)    (6,653)
      Pension expense...........        218        906        410        906
      Amortization of debt
       issuance costs...........        468        326        734        550
      Unrealized (gain) loss on
       financial instruments....     (1,482)     1,529     (3,872)       807
      Loss on sale and write
       down capital assets......        453        269        453        269
      Unrealized gain on
       marketable securities....          -          -     (4,353)         -
      Deferred taxes............      1,657      4,171     (1,300)     3,915
    Changes in operating assets
     and liabilities:
      Accounts receivable.......     (6,541)     4,844      1,387     32,790
      Prepaid expenses and other
       current assets...........       (105)       456     (3,323)    (1,470)
      Income taxes..............     (3,217)     1,738     (8,004)     6,469
      Accounts payable and
       accrued liabilities......     (2,467)     2,204    (11,810)   (16,046)
      Deferred revenue..........    (11,592)    (6,183)   (24,029)   (25,613)
      Other assets..............        682      1,012      1,857      1,334
                                  --------------------- ---------- ----------
    Net cash provided by
     operating activities.......     32,468     39,843     36,970     64,656
    Cash flows from investing
     activities:
      Additions of capital
       assets-net...............     (4,099)     1,793    (11,764)    (2,094)
      Purchase of Vignette
       Corporation, net of cash
       acquired.................          -          -    (90,600)         -
      Purchase of Captaris Inc.,
       net of cash acquired.....          -   (101,033)         -   (101,033)
      Purchase of eMotion LLC,
       net of cash acquired.....       (556)         -       (556)    (3,635)
      Purchase of a division of
       Spicer Corporation.......          -          -          -    (10,836)
      Purchase consideration for
       prior period acquisitions     (3,439)    (9,073)    (8,240)   (12,366)
      Investments in marketable
       securities...............          -          -          -     (3,608)
      Maturity of short-term
       investments..............     11,354          -     38,525          -
                                  --------------------- ---------- ----------
    Net cash used in investing
     activities.................      3,260   (108,313)   (72,635)  (133,572)
    Cash flow from financing
     activities:
      Excess tax benefits on
       share-based compensation
       expense..................          6         24        697      6,653
      Proceeds from issuance of
       Common Shares............      1,665        497      6,142      6,039
      Repayment of long-term
       debt.....................       (870)      (854)    (1,734)    (1,721)
      Debt issuance costs.......          -          -     (1,024)         -
                                  --------------------- ---------- ----------
    Net cash provided by
     financing activities.......        801       (333)     4,081     10,971
    Foreign exchange gain (loss)
     on cash held in foreign
     currencies                      (1,089)    (8,460)     3,395    (24,101)
    Decrease in cash and cash
     equivalents during the
     period.....................     35,440    (77,263)   (28,189)   (82,046)
    Cash and cash equivalents at
     beginning of the period....    212,190    250,133    275,819    254,916
                                  --------------------- ---------- ----------
    Cash and cash equivalents at
     end of the period..........  $ 247,630  $ 172,870  $ 247,630  $ 172,870
                                  --------------------- ---------- ----------
                                  --------------------- ---------- ----------
    

SOURCE Open Text Corporation

For further information: For further information: Paul McFeeters, Chief Financial Officer, Open Text Corporation, (905) 762-6121, pmcfeeters@opentext.com; Greg Secord, Vice President, Investor Relations, Open Text Corporation, (519) 888-7111 ext.2408, gsecord@opentext.com


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