Exhibit 99.1
PRESS RELEASE
Open Text Reports Second Quarter 2006 Financial Results
Waterloo, ON – February 1, 2006 – Open Text™ Corporation (NASDAQ:OTEX) (TSX:OTC), a leading provider of Enterprise Content Management (ECM) software, today announced unaudited financial results for its second quarter of fiscal 2006 ended December 31, 2005.
Total revenue for the second quarter of fiscal 2006 was $110.8 million (1), compared to $114.7 million for the same period last year. License revenue in the second quarter of fiscal 2006 was $37.1 million, compared to $42.6 million for the same period last year. Revenue was broadly based with 49% from North America, 46% from Europe and 5% from the Middle East and Asia.
Adjusted net income in the second quarter of fiscal 2006 was $15.4 million or $0.31 per share on a diluted basis, compared to $15.6 million or $0.30 per share on a diluted basis for the same period last year. (2)
Net income in accordance with US generally accepted accounting principles (“US GAAP”) for the second quarter of fiscal 2006 was $2.7 million or $0.05 per share on a diluted basis, compared to net income of $11.0 million or $0.21 per share on a diluted basis in the same period last year. During the second quarter of fiscal 2006, the Company took a pre-tax restructuring charge of $8.8 million.
Beginning July 1, 2005, Open Text adopted Financial Accounting Standard No. 123R, “Share-based payment” with respect to the expensing of share-based compensation. The US GAAP net income figure for the second quarter of fiscal 2006 reported above includes share-based compensation expense of $1.2 million (net of related tax effects) or approximately $0.02 per share on a diluted basis.
In the second quarter of fiscal 2006, operating cash flow was $16.3 million, compared to $11.7 million in the same period last year. Accounts receivable as of December 31, 2005 was $78.3 million, compared to $80.9 million at the same time last year. Days Sales Outstanding (DSO) was 64 days in the second quarter of fiscal 2006, compared to 63 days in the same period last year. Deferred revenue was $64.5 million as of December 31, 2005 compared to $63.3 million at the same time last year.
At the end of the second quarter of fiscal 2006, the Company had $87.7 million in cash, cash equivalents, and short-term investments. During the second quarter, Open Text placed a mortgage of approximately $13.0 million on the recently constructed Waterloo headquarters facility.
“I am pleased with the progress we have made this quarter in executing to plan. We believe our restructuring program has put us on track to meet our profitability goals. In driving that profitability, we are now focusing on key territories and high demand solutions,” said John Shackleton, President and CEO of Open Text. “We also continue to focus on enhancing our strategic partnerships, enabling us to deliver comprehensive ECM solutions with our partners.”
Guidance
For the third quarter of fiscal 2006 ending March 31, 2006, the Company estimates revenue will be in the range of $100 million to $110 million with adjusted EPS of approximately $0.24 to $0.34 on a diluted basis. (3)
On September 8, 2005, the Company announced a pre-tax restructuring charge of approximately $25 million to $30 million. Approximately $18.1 million of this charge was recognized in the first fiscal quarter of 2006 and $8.8 million was recognized in the second quarter of fiscal 2006. The Company expects to recognize the remaining restructuring charge amount of approximately $3.0 million during the third quarter of fiscal 2006.
Open Text’s actual results for future periods, including any charges taken, may vary from the guidance presented and such variations may be material. Please see the Safe Harbor language below and note (3) for information on the risks and uncertainties that may cause such variations. 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 1, 2006 at 5:00 p.m. ET to discuss final financial results for its second quarter of fiscal 2006. To access the call, dial 416-640-1907. Please dial-in approximately 10 minutes before the teleconference is scheduled to begin. A replay of the call will be available beginning February 1, 2006 at 7:00 p.m. ET through 11:59 p.m. on February 17, 2006, and can be accessed by dialing 416-640-1917 and using pass code #21170437.
For more information or to listen to the call via Web cast, please use the following link:www.opentext.com/events/event.html?id=5459669
About Open Text
Open Text™ is a leading provider of Enterprise Content Management (ECM) solutions that bring together people, processes and information in global organizations. Today, the Company supports almost 20 million seats across 13,000 deployments in 114 countries and 12 languages worldwide. For more information on Open Text, go to:www.opentext.com.
# # #
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 – Certain statements in this press release constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws (“forward-looking statements”). Such forward-looking statements are not promises or guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Open Text, or developments in Open Text’s business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements include all disclosure regarding possible events, conditions or results of operations that are based on assumptions about future economic conditions, courses of action and other future events. Forward-looking statements also include any statement relating to future events, conditions or circumstances. Open Text cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Forward-looking statements in this press release relate to, among other things, the future performance, financial or otherwise, of Open Text, the size and timing of any restructuring charges, the ability of Open Text to streamline its organization and the effectiveness of any cost reduction activities or any restructuring, the Company’s growth and profitability prospects, and ability to meet its profitability goals, the Company’s ability to enhance its strategic partnerships and bring new products to market that meet the needs of its customers, and the benefits of the Company’s products to be realized by customers. The risks and uncertainties that may affect forward-looking statements include, among others, the completion and integration of acquisitions, the possibility of technical, logistical or planning issues in connection with deployments, the continuous commitment of Open Text’s customers, demand for Open Text ‘s products, the ability of Open Text to develop new products that meet the needs of customers, and other risks detailed from time to time in Open Text’s filings with the Securities and Exchange Commission and Canadian provincial securities regulators, including Open Text’s Annual Report on Form 10-K for the year ended June 30, 2005 and the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. Forward-looking statements are based on management’s current plans, estimates, projections, beliefs and opinions, and the Company does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.
Notes
| (1) | All dollar amounts in this press release are in U.S 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 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 EPS 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 (loss), 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 internally evaluates the performance of the Company’s business. 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 intangibles, restructuring costs, 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 better indication of Open Text’s performance or expected performance of recurring operations and facilitates period-to-period comparison of operating performance. In view of this, 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 release. The following charts provide reconciliation (unaudited) of US GAAP based financial measures to non-US GAAP based financial measures referred to in this press release:
Reconciliation (unaudited) of US GAAP based Net Income to Adjusted Net Income (in millions of US dollars) for the fiscal quarters ended December 31, 2005 and 2004:
| Three months ended December 31, 2005 | Three months ended December 31, 2004 | ||||||
GAAP based “Net Income” | $ | 2.7 | $ | 11.0 | |||
Amortization of intangibles | 7.0 | 6.1 | |||||
Restructuring | 8.8 | (1.4 | ) | ||||
Share-based compensation expense | 1.3 | — | |||||
Other (Income)/Expense | 1.2 | 1.7 | ||||||
Tax Impact on Above | (5.6 | ) | (1.8 | ) | ||||
Non-GAAP based “Adjusted Net Income” | $ | 15.4 | $ | 15.6 | ||||
Reconciliation (unaudited) of US GAAP based EPS to non-US GAAP based EPS for the fiscal quarters ended December 31, 2005 and 2004; EPS has been calculated on a diluted basis:
| Three months ended December 31, 2005 | Three months ended December 31, 2004 | |||||||
GAAP based “Net Income” | $ | 0.05 | $ | 0.21 | ||||
Amortization of intangibles | 0.14 | 0.12 | ||||||
Restructuring | 0.18 | (0.03 | ) | |||||
Share-based compensation expense | 0.03 | — | ||||||
Other (Income)/Expense | 0.02 | 0.03 | ||||||
Tax Impact on Above | (0.11 | ) | (0.03 | ) | ||||
Non-GAAP based “Adjusted Net Income” | $ | 0.31 | $ | 0.30 | ||||
(3) The guidance presented is based on (a) financial information prepared by Open Text consistent with the manner in which it reports its revenue, and adjusted EPS and (b) the assumptions referred to in note (2).
The following assumptions of Company management are an integral part of the guidance presented for the quarter ending March 31, 2006. Open Text’s actual results for future periods may vary from the guidance presented and such variations may be material.
(a) The guidance assumes a fully diluted weighted average number of shares for the quarter ended March 31, 2006 of approximately 50 million shares.
(b) Income taxes are assumed in the low 30% range on a US GAAP net income basis.
(c) Assumptions have been made concerning revenue growth and income tax rates that will be in effect and which may change depending upon both the timing and jurisdiction of future revenues.
(d) The guidance assumes no fluctuation in currency exchange rates.
For more information, please contact:
Greg Secord
Director, Investor Relations
Open Text Corporation
+1-519-888-7111 ext.2408
gsecord@opentext.com
Anne Marie Schwartz
Director, Investor Relations
Open Text Corporation
+1-617-378-3369
aschwart@opentext.com
Alan Hoverd
Chief Financial Officer
Open Text Corporation
+1-905-762-6222
ahoverd@opentext.com
OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share data)
| December 31, 2005 | June 30, 2005 | |||||||
| ASSETS | (unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 87,001 | $ | 79,898 | ||||
Accounts receivable – net of allowance for doubtful accounts of $3,355 as of December 31, 2005 and $3,125 as of June 30, 2005 | 78,268 | 81,936 | ||||||
Income taxes recoverable | 10,957 | 11,350 | ||||||
Prepaid expenses and other current assets | 9,595 | 8,438 | ||||||
Deferred tax assets | 16,930 | 10,275 | ||||||
Total current assets | 202,751 | 191,897 | ||||||
Capital assets | 39,223 | 36,070 | ||||||
Goodwill | 238,656 | 243,091 | ||||||
Deferred tax assets | 32,417 | 36,499 | ||||||
Acquired intangible assets | 112,264 | 127,981 | ||||||
Other assets | 2,976 | 5,398 | ||||||
| $ | 628,287 | $ | 640,936 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 78,967 | $ | 80,468 | ||||
Current portion of long-term debt | 346 | — | ||||||
Deferred revenues | 64,492 | 75,227 | ||||||
Deferred tax liabilities | 9,897 | 10,128 | ||||||
Total current liabilities | 153,702 | 165,823 | ||||||
Long-term liabilities: | ||||||||
Accrued liabilities | 23,019 | 25,579 | ||||||
Long-term debt | 12,582 | — | ||||||
Deferred revenues | 4 | 103 | ||||||
Deferred tax liabilities | 25,406 | 29,245 | ||||||
Total long-term liabilities | 61,011 | 54,927 | ||||||
Minority interest | 4,495 | 4,431 | ||||||
Shareholders’ equity: | ||||||||
Share capital 48,678,407 and 48,136,932 Common Shares issued and outstanding as of December 31, 2005, and June 30, 2005, respectively | 412,104 | 406,580 | ||||||
Commitment to issue shares | — | 813 | ||||||
Additional paid-in capital | 25,737 | 22,341 | ||||||
Accumulated comprehensive income | 13,488 | 18,124 | ||||||
Accumulated deficit | (42,250 | ) | (32,103 | ) | ||||
Total shareholders’ equity | 409,079 | 415,755 | ||||||
| $ | 628,287 | $ | 640,936 | |||||
OPEN TEXT CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of U.S. dollars, except per share data)
Three months ended December 31, | Six months ended December 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues: | ||||||||||||||||
License | $ | 37,131 | $ | 42,622 | $ | 62,074 | $ | 66,526 | ||||||||
Customer support | 46,476 | 44,542 | 93,122 | 85,334 | ||||||||||||
Service | 27,164 | 27,528 | 48,205 | 48,428 | ||||||||||||
Total revenues | 110,771 | 114,692 | 203,401 | 200,288 | ||||||||||||
Cost of revenues: | ||||||||||||||||
License (1) | 1,811 | 3,051 | 4,199 | 5,205 | ||||||||||||
Customer support | 7,734 | 8,062 | 15,386 | 15,556 | ||||||||||||
Service | 21,393 | 22,585 | 39,997 | 39,239 | ||||||||||||
Total cost of revenues | 30,938 | 33,698 | 59,582 | 60,000 | ||||||||||||
| 79,833 | 80,994 | 143,819 | 140,288 | |||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 14,836 | 15,842 | 31,386 | 30,525 | ||||||||||||
Sales and marketing | 28,059 | 30,787 | 54,172 | 56,284 | ||||||||||||
General and administrative | 11,766 | 9,564 | 22,203 | 21,422 | ||||||||||||
Depreciation | 2,831 | 2,589 | 5,340 | 4,988 | ||||||||||||
Amortization of acquired intangible assets | 6,957 | 6,146 | 13,810 | 11,575 | ||||||||||||
Special charges (recoveries) | 8,793 | (1,449 | ) | 26,904 | (1,449 | ) | ||||||||||
Total operating expenses | 73,242 | 63,479 | 153,815 | 123,345 | ||||||||||||
Income (loss) from operations | 6,591 | 17,515 | (9,996 | ) | 16,943 | |||||||||||
Other expense | (1,240 | ) | (1,691 | ) | (1,764 | ) | (2,624 | ) | ||||||||
Interest income | 246 | 303 | 316 | 605 | ||||||||||||
Income (loss) before income taxes | 5,597 | 16,127 | (11,444 | ) | 14,924 | |||||||||||
Provision for (recovery of) income taxes | 2,740 | 4,355 | (1,630 | ) | 4,030 | |||||||||||
Income (loss) before minority interest | 2,857 | 11,772 | (9,814 | ) | 10,894 | |||||||||||
Minority interest | 136 | 802 | 333 | 910 | ||||||||||||
Net income (loss) for the period | $ | 2,721 | $ | 10,970 | $ | (10,147 | ) | $ | 9,984 | |||||||
Basic net income (loss) per share | $ | 0.06 | $ | 0.22 | $ | (0.21 | ) | $ | 0.20 | |||||||
Diluted income (loss) per share * | $ | 0.05 | $ | 0.21 | $ | (0.21 | ) | $ | 0.19 | |||||||
Weighted average number of Common Shares outstanding | ||||||||||||||||
Basic | 48,569 | 50,310 | 48,506 | 50,708 | ||||||||||||
Diluted | 49,871 | 52,361 | 48,506 | 53,120 | ||||||||||||
(1) Amount excludes amortization of application software technology which is included within Amortization of acquired intangible assets | $ | 3,653 | $ | 2,718 | $ | 7,184 | $ | 6,215 | ||||||||
| * | Due to the net loss for the six months ended December 31, 2005, diluted net loss per share has been calculated using the basic weighted average number of Common Shares outstanding, as the inclusion of any potentially dilutive securities would be anti-dilutive. |
OPEN TEXT CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. Dollars)
Three months ended December 31, | Six months ended December 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income (loss) for the period | $ | 2,721 | $ | 10,970 | $ | (10,147 | ) | $ | 9,984 | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 9,788 | 8,735 | 19,150 | 16,563 | ||||||||||||
Share-based compensation | 1,330 | — | 2,743 | — | ||||||||||||
Excess tax benefits on share-based compensation expense | (644 | ) | — | (644 | ) | — | ||||||||||
Undistributed earnings related to minority interest | 136 | 802 | 333 | 910 | ||||||||||||
Deferred taxes | (687 | ) | 290 | (6,045 | ) | 3,226 | ||||||||||
Impairment of capital assets | 1,654 | — | 3,667 | — | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (3,319 | ) | (15,274 | ) | 5,466 | 3,461 | ||||||||||
Prepaid expenses and other current assets | 1,103 | 956 | (928 | ) | (905 | ) | ||||||||||
Income taxes | (447 | ) | (1,309 | ) | (1,069 | ) | (6,691 | ) | ||||||||
Accounts payable and accrued liabilities | 6,556 | 7,722 | 11,347 | (2,491 | ) | |||||||||||
Deferred revenue | (2,708 | ) | (1,182 | ) | (9,204 | ) | (7,231 | ) | ||||||||
Other assets | 865 | — | 2,003 | — | ||||||||||||
Net cash provided by operating activities | 16,348 | 11,710 | 16,672 | 16,826 | ||||||||||||
Cash flows used in investing activities: | ||||||||||||||||
Acquisition of capital assets | (8,160 | ) | (4,277 | ) | (14,097 | ) | (7,671 | ) | ||||||||
Purchase of Vista, net of cash acquired | — | — | — | (23,690 | ) | |||||||||||
Purchase of Artesia, net of cash acquired | — | — | — | (5,057 | ) | |||||||||||
Purchase of Gauss, net of cash acquired | (6 | ) | (57 | ) | (91 | ) | (979 | ) | ||||||||
Purchase of IXOS, net of cash acquired | (1,121 | ) | (3,453 | ) | (4,228 | ) | (4,275 | ) | ||||||||
Additional purchase consideration for prior period acquisitions | (50 | ) | (191 | ) | (3,278 | ) | (1,194 | ) | ||||||||
Acquisition related costs | (845 | ) | (3,411 | ) | (1,844 | ) | (7,174 | ) | ||||||||
Net cash used in investing activities | (10,182 | ) | (11,389 | ) | (23,538 | ) | (50,040 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from issuance of Common Shares | 1,642 | 2,701 | 1,885 | 3,069 | ||||||||||||
Proceeds from exercise of Warrants | — | — | — | 725 | ||||||||||||
Repurchase of Common Shares | — | (17,808 | ) | — | (28,842 | ) | ||||||||||
Repayment of short-term bank loan | — | — | — | (2,189 | ) | |||||||||||
Payment obligations under capital leases | — | — | — | (48 | ) | |||||||||||
Excess tax benefits on share-based compensation expense | 644 | — | 644 | — | ||||||||||||
Proceeds from long-term debt | 12,928 | — | 12,928 | — | ||||||||||||
Net cash provided by (used in) financing activities | 15,214 | (15,107 | ) | 15,457 | (27,285 | ) | ||||||||||
Foreign exchange gain (loss) on cash held in foreign currencies | (1,146 | ) | 5,507 | (1,488 | ) | 5,686 | ||||||||||
Increase (decrease) in cash and cash equivalents, during the period | 20,234 | (9,279 | ) | 7,103 | (54,813 | ) | ||||||||||
Cash and cash equivalents, beginning of period | 66,767 | 111,453 | 79,898 | 156,987 | ||||||||||||
Cash and cash equivalents, end of period | $ | 87,001 | $ | 102,174 | $ | 87,001 | $ | 102,174 | ||||||||