Open Text's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Open Text (OTEX)

Q4 2011 Earnings Call

August 10, 2011 5:00 pm ET

Executives

Paul McFeeters - Chief Financial Officer

John Shackleton - Chief Executive Officer, President and Director

Greg Secord - Vice-President of Investor Relations

Analysts

Brian Freed - Wunderlich Securities Inc.

Sera Kim - GMP Securities L.P.

Paul Steep - Scotia Capital Inc.

Mike Abramsky - RBC Capital Markets, LLC

Richard Tse - Cormark Securities Inc.

James Wood - Susquehanna Financial Group, LLLP

Stephanie Price

Gabriel Leung - Paradigm Capital, Inc.

Scott Penner - TD Newcrest Capital Inc.

Steven Li - Raymond James Ltd.

Eyal Ofir - Canaccord Genuity

Chris Thompson

Tom Liston - Versant Partners Inc.

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Open Text Corp. Fourth Quarter and Fiscal Year 2011 Financial Results Conference Call. [Operator Instructions] I'd like to remind everyone that this conference call is being recorded today, Wednesday, August 10, 2011. I will now turn the conference over to Mr. Greg Secord, Vice President, Investor Relations. Please go ahead.

Greg Secord

Good afternoon, and thank you for joining us. Please note that during the course of the conference call, we may make projections or other forward-looking statements relating to the future performance of Open Text or its subsidiaries. These oral statements may contain forward-looking information, and actual results could differ materially from a conclusion, forecast or projection in the forward-looking information.

Certain material factors or assumptions were applied in drawing a conclusion or while making a forecast or projection, as reflected in the forward-looking information. Additional information about material factors or assumptions that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and the material factors or assumptions that were applied in drawing a conclusion while making a forecast or projection, as reflected in the forward-looking information, are contained in Form 10-K and Form 10-Qs of Open Text, as well as in our press release that was issued earlier today.

And with that, I'll turn the call over to Paul.

Paul McFeeters

Thank you, Greg. Turning to the financial results. I will highlight the fourth quarter and end of fiscal year 2011. Total revenue for the quarter was $285 million, up 19% compared to $240 million for the same period last year. License revenue for the quarter was $80 million, up 16% compared to $69 million reported for the same period last year.

Maintenance revenue for the quarter was $151 million, up 17% compared to $129 million in the previous year. Services and other revenues in the quarter were $55 million, up 31% compared to $42 million in the same period last year.

Gross margin for the fourth quarter before amortization of acquired technology was 73.2% compared to 74.9% in the fourth quarter last year. Services margins were lower in the current quarter due to supporting customers from our recent acquisitions to achieve previous commitments and delivery of service were lower than our normal rates. This negatively affected overall gross margins by 1%.

The pretax adjusted operating margin before interest expense was $74 million this quarter compared to $77 million in Q4 last year. Adjusted net income increased 12% to $52 million this quarter from $55 million in the fourth quarter last year. Fourth quarter adjusted earnings per share was $1.05 on a diluted basis, up 11% from $0.95 per share for the same period a year ago.

The sequential effect of foreign currency movement on adjusted earnings per share for Q4 was a positive $0.02. Net income for the fourth quarter in accordance with GAAP was $29 million or $0.49 per share on a diluted basis, compared to $53 million or $0.92 per share on a diluted basis for the same period a year ago. This decrease was primarily related to the onetime tax credit last year due to our corporate reorganization that we have previously discussed. There were approximately 58.6 million shares outstanding on a fully diluted basis for the quarter.

Turning now to our fiscal 2011 results. Total revenue was $1.033 billion, up 13% up from $912 million in fiscal 2010. License revenue was $269 million, up 13% compared to $238 million last year while maintenance revenue was $551 million, up 10% compared to $507 million last year. Services and other revenue increased 22% to $204 million. Gross margin for the fiscal year before amortization of acquired technology was 74%, which remained the same in the previous year. Pretax adjusted operating margin before interest was $285 million for fiscal 2011 compared to $254 million in the previous year. Adjusted net income for fiscal year 2011 was $234 million or $4.02 per share on a diluted basis compared to $178 million or $2.10 per share on a diluted basis for fiscal 2010. This represents an increase of 32% in adjusted net income and an increase of 30% in earnings per share. Overall, our fiscal 2011 tax rate for adjusted earnings is 14%. On a go forward basis, for fiscal 2012, we expect the tax rate for adjusted earnings to remain at 14%. We reported GAAP net income for the year of $123 million or $2.11 per share on a diluted basis, up 38% compared to net income of $89 million or $1.55 per share on a diluted basis in fiscal 2010. On a year-to-date basis, operating cash flow was $223 million compared to $180 million last year, an increase of $43 million.

On the balance sheet at June 30, 2011, deferred revenues is $266 million, compared to $230 million, as of June 30, 2010, and accounts receivable is $155 million compared to $132 million at the end of last year. Days sales outstanding was 49 days, as of June 30, 2011, compared to 50 days at the end of last year. On July 13, 2011, we announced our acquisition of Global 360. The total consideration paid was approximately $250 million in cash. We expect this acquisition to be accretive to our operations in fiscal 2012. We will record an accounting adjustment in the range of $4 million to $5 million to the acquired deferred revenue from Global 360. We also anticipate special charges in the range of $15 million to $20 million.

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