OpenText Reports Second Quarter Fiscal Year 2018 Financial Results

Total Revenue of $734 Million, up 35% Y/Y; Operating Cash Flows of $167 Million, up 148% Q/Q, up 56% Y/Y

Open Text Corporation (NASDAQ: OTEX, TSX: OTEX),  today announced its financial results for the second quarter ended December 31, 2017.

“OpenText’s Fiscal Year 2018 Q2 results represent the power of the OpenText Business System: our strategic focus on M&A, functional integration, operational excellence and innovation.  The company delivered 35% year-over-year revenue growth, adjusted operating margin of 36.5%, and operating cash flows of $167 million,” said Mark Barrenechea, OpenText Vice Chairman, CEO & CTO.  “Our Annual Recurring Revenues (ARR) were strong at $516 million or 31% year-over-year growth; we also had solid organic growth within the quarter.”

“With ECD now on our adjusted operating model and the integration complete, our energy turns to our go-to-market initiatives for calendar year 2018.  These go-to-market initiatives include cross-selling, expanded partner footprint and new offerings.  We also see increasing demand in our Enterprise Information Management (EIM) product suite, including Security and AI products,” said Barrenechea.  “Mergers and Acquisitions continue to be our leading growth driver and by utilizing the OpenText Business System, we are well positioned for future M&A opportunities within the EIM market.”

Barrenechea further added, “We are introducing a 2021 adjusted operating margin target range of 36% to 40%, up from our previously stated 2020 target range of 34% to 38%.”

Financial Highlights for Q2 Fiscal 2018 with Year Over Year Comparisons

Summary of Quarterly Results                
(in millions except per share data) Q2 FY18 Q2 FY17 $ Change % Change
(Y/Y)
  Q2 FY18 in
CC*
% Change
in CC*
 
Revenues:                
Cloud services and subscriptions $208.1   $175.1   $33.1   18.9 %   $207.2   18.3 %  
Customer support 308.1   219.7   88.4   40.3 %   301.2   37.1 %  
Total annual recurring revenues** $516.2   $394.7   $121.5   30.8 %   $508.4   28.8 %  
License 135.2   97.8   37.5   38.3 %   130.6   33.6 %  
Professional service and other 83.0   50.2   32.7   65.2 %   80.9   61.0 %  
Total revenues $734.4   $542.7   $191.7   35.3 %   $719.8   32.6 %  
GAAP-based operating income $166.6   $107.2   $59.5   55.5 %        
Non-GAAP-based operating income (1) $267.9   $184.5   $83.4   45.2 %   $262.0   42.0 %  
GAAP-based operating margin 22.7 % 19.7 % n/a   300   bps      
Non-GAAP-based operating margin (1) 36.5 % 34.0 % n/a   250   bps 36.4 % 240   bps
GAAP-based EPS, diluted (2) $0.32   $0.18   $0.14   77.8 %        
Non-GAAP-based EPS, diluted (1)(3) $0.76   $0.54   $0.22   40.7 %   $0.74   37.0 %  
GAAP-based net income attributable to OpenText (2) $85.1   $45.0   $40.1   89.0 %        
Adjusted EBITDA (1) $290.1   $199.8   $90.3   45.2 %        
Operating cash flows $166.6   $107.0   $59.6   55.7 %        

 

Summary of YTD Results                
(in millions except per share data) FY18 YTD FY17 YTD $ Change % Change

(Y/Y)

  FY18 YTD in
CC*
% Change
in CC*
 
Revenues:                
Cloud services and subscriptions $402.0   $344.7   $57.2   16.6 %   $402.0   16.6 %  
Customer support 603.5   429.9   173.6   40.4 %   593.5   38.1 %  
Total annual recurring revenues** $1,005.4   $774.6   $230.8   29.8 %   $995.4   28.5 %  
License 213.5   158.4   55.1   34.8 %   207.8   31.2 %  
Professional service and other 156.2   101.3   54.8   54.1 %   152.5   50.5 %  
Total revenues $1,375.1   $1,034.4   $340.7   32.9 %   $1,355.7   31.1 %  
GAAP-based operating income $253.7   $181.2   $72.5   40.0 %        
Non-GAAP-based operating income (1) $469.0   $335.9   $133.1   39.6 %   $460.9   37.2 %  
GAAP-based operating margin 18.5 % 17.5 % n/a   100   bps      
Non-GAAP-based operating margin (1) 34.1 % 32.5 % n/a   160   bps 34.0 % 150   bps
GAAP-based EPS, diluted (2) $0.46   $3.89   ($3.43)   (88.2) %        
Non-GAAP-based EPS, diluted (1)(3) $1.30   $0.97   $0.33   34.0 %   $1.27   30.9 %  
GAAP-based net income attributable to OpenText (2) $121.7   $957.9   ($836.2)   (87.3) %        
Adjusted EBITDA (1) $510.1   $366.4   $143.6   39.2 %        
Operating cash flows $233.7   $180.5   $53.3   29.5 %        

 

“We delivered very strong margins in the quarter with a significant increase in operating cash flow,” said John Doolittle, OpenText CFO. “Our gross leverage ratio has significantly improved and it is now below 3.0 times.  With a strengthening balance sheet and growing adjusted EBITDA, OpenText is well positioned for future growth initiatives.”

Madhu Ranganathan to Join OpenText as CFO; John Doolittle to Complete Four Successful Years

OpenText also announced today that Madhu Ranganathan, CFO at [24]7.ai (www.247.ai), a leading company for AI and Customer Experience Software, will join OpenText as EVP and CFO, effective April 2, 2018.  John Doolittle will continue as CFO until April 2, 2018, and will remain with the Company until September 2018, ensuring a successful transition. 

“I am very pleased to welcome Madhu Ranganathan to OpenText, a Silicon Valley veteran and a highly experienced global finance executive. Madhu brings over 25 years of strategic and financial leadership experience with deep operational focus in software, hardware & tech-enabled services businesses,” said Mark J. Barrenechea, OpenText Vice Chairman, CEO and CTO. 

Madhu Ranganathan, formerly with PriceWaterhouse LLP, holds an MBA in Finance from the University of Massachusetts, is a Certified Public Accountant and a Chartered Accountant (India).

“I would like to thank John for his four years of great service to OpenText, and recognize his commitment to a significant transition period. I wish him all the best in his continued journey,” added Mark J. Barrenechea.

“After four successful years, I have accomplished the objectives Mark and I initially set out,” said John Doolittle, EVP & CFO of OpenText.  “I will work closely with Mark, Madhu and the senior management team to ensure a successful transition.”

OpenText Quarterly Business Highlights

  • OpenText added to S&P/TSX 60 Index
  • 30 customer transactions over $1 million, 14 OpenText Cloud and 16 on-premise
  • Financial, Consumer Goods, Services, Technology and Public Sector industries saw the most demand in cloud and license
  • Customer wins in the quarter included Tata Consultancy Services, Canon Electronics, WTC Captive Insurance Company, gkv informatik, TAFE Queensland, Peabody, Pandora Media, Helaba Invest, Air France-KLM, ConvaTec, County of Los Angeles, OCHIN, Zurn, US WorldMeds, Syngene, Adif, Informática del Ayuntamiento de Madrid, Transports Metropolitans de Barcelona, OILES Corporation, FreightVerify, Nifco Inc.,Campari Group, Froneri International, Malakoff Médéric, MetaSource, Opel Automobile GmbH, Broadcom Limited, Zodiac Aerospace, A1 and Elcom
  • OpenText expands operations in India and announces on-going investment in people, infrastructure and customers

Dividend Program Highlights

Cash Dividend
As part of our quarterly, non-cumulative cash dividend program, the Board declared on January 30, 2018, a cash dividend of $0.132 per common share. The record date for this dividend is March 2, 2018 and the payment date is March 23, 2018. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of the Board of Directors.

Summary of Quarterly Results              
  Q2 FY18 Q1 FY18 Q2 FY17 % Change

(Q2 FY18 vs
Q1 FY18)

  % Change

(Q2 FY18 vs
Q2 FY17)

 
Revenue (million) $734.4   $640.7   $542.7   14.6 %   35.3 %  
GAAP-based gross margin 67.3 % 65.1 % 69.0 % 220   bps (170)   Bps
GAAP-based operating margin 22.7 % 13.6 % 19.7 % 910   bps 300   Bps
GAAP-based EPS, diluted(1) $0.32   $0.14   $0.18   128.6 %   77.8 %  
Non-GAAP-based gross margin (2) 73.9 % 72.2 % 73.8 % 170   bps 10   Bps
Non-GAAP-based operating margin (2) 36.5 % 31.4 % 34.0 % 510   bps 250   Bps
Non-GAAP-based EPS, diluted (2)(3) $0.76   $0.54   $0.54   40.7 %   40.7 %  

 

 

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