Highlights From Open Text's Impressive Second Quarter Conference Call

Open Text OTEX hosted its fourth quarter conference call following its top and bottom-line beat.

Shares of the company traded recently at $55.75, up 15 percent.

Quarterly highlights

“As a company, our strength and uniqueness sit at the crossroads of information management, B2B integration and compliance. The more we can help our customers simplify, transform and accelerate their information needs, the more successful we will be. Collectively, this is what we call Enterprise Information Management, or EIM. We have never been more aligned to those priorities for our customers, and you can see this in our fourth quarter and full-year results for fiscal 2014,” said Mark Barrenchea, Open Text CEO in prepared remarks.

Open Text reported an earnings per share of $1.05, beating the consensus estimate of $0.94. Revenue of $494 million topped analyst expectations of $480.52 million. Net income attributable to the company rose to $218.125 million from $148.52 million in the same quarter a year ago, as total revenue rose 42 percent from a year ago, license revenue rose 27 percent from a year ago, cloud services revenue rose 255 percent from a year ago and customer support revenue rose 12 percent from a year ago. A dividend of $0.1725 per share was declared on July 30.

Open Text's average deal size was $429,000 with 16 transactions over $1 million in the quarter. The company singled out its contract with AbbVie where Open Text will automate their supply chain processes between their customers and suppliers in over 20 countries.

“This was a win against IBM,” Barrenchea said before adding that other clients such as Ralph Lauren chose Open Text's Experience Suite over IBM to manage its brand and media assets.

At the end of the quarter, deferred revenues rose to $350 million from $294.2 million a year ago. Accounts receivable also rose over the same time period from $175 million to $293 million.

Chief Financial Officer and Chief Administrative Officer, Paul McFeeters, noted that the acquisition of GXS contributed $107 million of cloud services revenues and contributed $7.3 million in customer support revenues. The acquisition also helped improve margins due to efficiency in network operations and telecom savings.

Operating margins improved in the quarter by 330 basis points to 32.8 percent.

The company's tax rate was 15 percent in the quarter and is expected to rise to 18 percent due to what McFeeters described as a “high proportion of GXS earnings expected to be earned in the Group's U.S. operations.”

Finally, Open Text received the SAP Pinnacle award for the seventh consecutive year in the quarter.

Notable Quotes From Analyst Q&A Session

Mark Barrenchea sizing up the competition and the company's win-rate: “We win more than we lose. I'd like to compete in more RFPs. We're still a relatively young company striving for more coverage, both in established markets and fast-growth markets. We don't have as – given our youngness – I mean, IBM has perfect account coverage. There's not an account IBM doesn't cover. We just have that scale yet. That's [why] we try to make up for that and augment that with partners and alliances.”

Mark Barrenchea on bringing GXS into the Open Text installed base: “It's certainly one of the things we're focused on. So we have programs and incentives in place to do that this year. It's still very early days, probably one of our kind of top greenfield opportunities.”

Paul McFeeters on the sustainability of the 18 percent tax rate:: “It's the best information I have today. Things will change, obviously, in out-years. So I can't give you a better number to model than the 18 percent. But I would never want to commit beyond what I see in the short term, which is the 18 percent number.”

Mark Barrenechea on current industry trends: “I'd say platform consolidation, global nature of supply chain, security and compliance.”

Mark Barrenechea on M&A ambitions: “So we're sort of back to our normal cadence in corporate development now that we're tracking ahead of schedule on the on-boarding of GXS. But I won't get into any verticals or industries.”

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Posted In: EarningsNewsManagementAbbVieB2BGXSMark Barrencheaopen text
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