Feature
OpenText's fiscal fourth quarter report confirmed success is a matter of perspective.
Compared to the same quarter a year ago, revenue declined 2.3 percent to $482.7 million, net income fell 22 percent to $68.8 million and — even after revisions for extraordinary items — adjusted earnings of $0.87 per share were down 17 percent from last year's fiscal fourth quarter.
Cloud services and subscription revenue was $149 million for the quarter, down 2 percent.
But that was better than most everyone had expected. Analysts had predicted revenue would drop by nearly 10 percent, cutting earnings by more than a third.
OpenText Operations
Instead, Waterloo, Ontario-based business software company surprised investors by reporting earnings of $482.7 million in revenue in the quarter ended June 30, significantly higher that the $440 million to $455 million it predicted two months ago. The company also reported earnings of 87 cents per share on a non-GAAP basis, greater than the range of 64 cents to 72 cents it had projected on May 20, the day chief executive officer Mark Barrenechea resumed full-time duties after receiving treatment for leukemia.
On the downside, the company revealed that the US Internal Revenue Service has issued it with a draft “notice of proposed adjustment” that would increase its US federal taxes by $280 million on a one-time basis stemming from its reorganization five years ago. OpenText "strongly disagrees with the IRS' position and intend to vigorously contest the proposed adjustments to our taxable income."
For the full fiscal year, OpenText reported total revenues of $1.9 billion, up 14 percent year-over-year, a non-GAAP operating margin of 31 percent and operating cash flows of$523 million. License revenue was $294.3 million, down 4 percent.
Cloud services and subscription revenue grew 62 percentto $605.3 million, Barrenechea said during a conference call yesterday. He added that this is OpenText’s third full year of running a cloud business, which now amounts for 33 percent of OpenText business.
In May, OpenText announced it was cutting 5 percent of its 8,500-employee global workforce. Barrenechea said the 425 jobs were being eliminated as the company streamlined operations to generate more revenue from its cloud business. The restructuring will save $50 million and "drive operational efficiencies," he said in a May 20 statement.
OpenText CFO John Doolittle said yesterday OpenText will realize about 75 percent of expected annual savings from those job cuts in Fiscal 2016.
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'Reborn Cloud'
Barrenechea seemed most excited about the development of OpenText cloud options. He reported OpenText has 65,000 customers in the cloud and more than 50 data centers around the world on its own global cloud infrastructure, which is a “differentiator for us.”
“We are not born (Software-as-a-Service) SaaS,” he said. “We are reborn cloud.”
But, he added, “our strategy is hybrid. The world is hybrid and is going to remain hybrid for some time.”
He added the OpenText cloud services are derived from three main sources: managed services, a business network for trading grid messages and applications as a services.
“Sales cycles (for cloud) are starting to look a lot like licenses,” Barrenechea said, noting the company’s experience in selling licenses.
Barrenechea sees "good demand drivers" in the next fiscal year in digitalization, security, analytics and information management.
OpenText officials expect the company's Blue Carbon strategy, which features applications and analytics centered on cloud services, to make an impact in this new fiscal year. It pulls together the remaining strands of OpenText’s Red Oxygen strategy and sets the stage for Blue Carbon.
