Open Text's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Open Text (OTEX)

Q3 2012 Earnings Call

May 01, 2012 5:00 pm ET

Executives

Greg Secord - Vice-President of Investor Relations

Paul J. McFeeters - Chief Financial Officer

Mark J. Barrenechea - Chief Executive Officer, President and Director

Analysts

Richard Tse - Cormark Securities Inc., Research Division

Kris Thompson - National Bank Financial, Inc., Research Division

Brian Freed - Wunderlich Securities Inc., Research Division

Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division

Stephanie Price - CIBC World Markets Inc., Research Division

Scott Penner - TD Securities Equity Research

Paul Steep - Scotiabank Global Banking and Market, Research Division

Sera Kim - GMP Securities L.P., Research Division

Eyal Ofir - Canaccord Genuity, Research Division

Paul Treiber - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Open Text Corporation Third Quarter Fiscal Year 2012 Financial Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, Tuesday, May 1, 2012 at 5 p.m. Eastern time. I'll now turn the conference over to Mr. Greg Secord, Vice President, Investor Relations. Please go ahead, sir.

Greg Secord

Thank you, and good afternoon. With me today is OpenText President and CEO, Mark Barrenechea; as well as our CFO, Paul McFeeters. As with our previous calls, we'll read prepared remarks followed by a question-and-answer session. The call will last approximately an hour with replay available shortly thereafter.

I'd also like to direct investors to the Investor Relations section of our website where we have posted an updated PowerPoint that will be referred to in this call. Within the next 48 hours, we'll also post a summary table in the Investor Relations section of our website that highlights OpenText's historical trended financial metrics.

Please note that during the course of this conference call, we may make statements relating to the future performance of OpenText that contain forward-looking information. While these forward-looking statements represent our current judgment, actual results could differ materially from a conclusion, forecast or projection in the forward-looking statements made today.

Certain material factors or assumptions were applied in drawing any such conclusion or while making any such forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information, and the material factors or assumptions that were applied in drawing the conclusion while making the forecast or projection as reflected in the forward-looking information, as well as the risk factors that may affect the future performance and results of OpenText are contained in OpenText's Form 10-K and 10-Q, as well as in our press release that was issued earlier today, each of which may be found on our website.

We undertake no obligation to update these forward-looking statements unless required by law. In addition, our conference call will include a discussion of certain non-GAAP financial measures. Reconciliations of all non-GAAP financial measures to their most directly comparable GAAP measures have been included in today's press release, which may be found on our website.

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

Paul J. McFeeters

Thank you, Greg. Turning to the financial results, I will highlight our third quarter of fiscal year 2012. Total revenue for the quarter was $292 million, up 11% compared to $263 million for the same period last year. Regionally, the Americas contributed 53%, EMEA 38% and Asia-Pacific, 8%.

License revenue for the quarter was $61 million, down 10% compared to $68 million reported for the same period last year. Customer Support revenue for the quarter was $166 million, up 16% compared to $142 million in the previous year. Our Customer Support renewals continue to be approximately 92%.

Service and Other revenue in the quarter was $65 million, up 25% compared to $52 million in the same period last year. Gross margin for the quarter before amortization of acquired technology was slightly lower this quarter at 71% compared to 73.3% in the same period last year. The lower margin was primarily due to a lower proportion of license revenues and the impact of Global 360 and Metastorm.

The pretax adjusted operating margin was $73.6 million this quarter compared to $64.1 million in Q3 last year, an increase of 15%. Adjusted net income increased 11% to $59.2 million this quarter from $53.4 million in the same quarter last year. Adjusted earnings per share was $1.01 on a diluted basis, up 11% from $0.91 per share for the same period a year ago.

GAAP net income for the third quarter was $35 million or $0.59 per share on a diluted basis compared to $36 million or $0.61 per share on a diluted basis for the same period a year ago. There are approximately 59 million shares outstanding on a fully diluted basis for the third quarter. Sequential effect of foreign currency movement on adjusted earnings per share for Q3 was a negative $0.01.

Total revenue on a year-to-date basis was $902 million, up 21% compared to $748 million for the same period last year. Regionally, the Americas contributed 53%, EMEA 38% and Asia-Pacific, 9%. License revenue on a year-to-date basis was $215 million, up 14% compared to $190 million reported for the same period last year.

On a year-to-date basis, Customer Support revenue was up 20%, and Service and Other revenue was up 30% over the previous year-to-date results. Pretax adjusted operating income on a year-to-date basis was $245 million compared to $211 million for the same period last year, an increase of 16%. Adjusted net income on a year-to-date basis increased 15% to $201 million from $176 million for the same period last year.

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