Open Text Corporation Reports Third-Quarter 1997 Results

Robust Intranet Software Sales Contribute to Record Total Revenues, Gross Profit; Major Contract with Motorola, Inc. Announced

Waterloo, ON - 1997-05-06 - Open Text Corporation (NASDAQ: OTEX), a leading provider of intranet application software, tools and services, today announced its financial results for the third quarter of fiscal 1997.(1)

For the fourth straight quarter, Open Text reported the highest quarterly total revenues in the company's history. Total revenues for the quarter ended March 31, 1997 were US$6.1 million, up 17 percent sequentially from the $5.2 million reported for the second quarter, and up 82 percent from the $3.4 million reported for the prior-year period. Gross profit for the quarter was also a record high at $4.4 million, a 26-percent increase from the $3.5 million reported for the quarter ended December 31, 1996, and a 79-percent increase from the $2.4 million reported a year ago.

The net loss for the third quarter was $3.5 million, or $0.20 per share, compared with a net loss of $3.8 million, or $0.23 per share, for the second quarter, and a net loss of $1.7 million, or $0.11 per share, for the year-earlier quarter. At March 31, 1996, Open Text's cash, cash equivalents and short-term investments totaled $36.9 million.

Business Strategy Execution

"We are pleased with the continued momentum in sales of Livelink Intranet to large enterprises, which resulted in a substantial increase in our industry-leading position to a total of 130,000 seats sold by quarter's end," said Tom Jenkins, Open Text's president and chief executive officer. "In the past quarter alone, we have doubled the number of Livelink users, as our initial customer deployments have begun to extend our products to enterprise-wide usage. Three quarters ago, when we announced a restructuring of operations to focus our resources on the core intranet software business, we identified a ramp-up in higher-margin license revenues as key to achieving break-even. We believe that sustained license revenue growth and continued strong financial controls can drive Open Text toward operating profitability."

Jenkins added that in February 1997, International Data Corp. (IDC) cited Livelink Intranet as the number-one product leading the market for Web-enabled, integrated document management systems. According to IDC findings, Livelink Intranet had a 68-percent market share, with 60,000 total seats sold at year-end 1996.

Strong License Revenue Growth

For the fourth consecutive quarter since the company introduced the Livelink Intranet suite, sequential revenue growth was driven by increasing intranet software sales.

License revenues for the quarter ended March 31, 1997 were $3.8 million, or 62 percent of total revenues, compared with $3.1 million, or 59 percent of total revenues, for the second quarter, and with $2.1 million, or 53 percent of total revenues, for the first quarter of fiscal 1997.

Excluding sales of the retail Internet software product line that was terminated at fiscal year-end, 1996, intranet software license revenues for the third quarter grew 170 percent from the year-earlier quarter.

Service revenues for the quarter ended March 31, 1997 were $2.3 million, or 38 percent of total revenues, compared with $2.2 million, or 41 percent of total revenues, for the second quarter, and with $1.9 million, or 47 percent of total revenues, for the first quarter of fiscal 1997.

Gross margin on license revenues for the third quarter was 93 percent of total license revenues, compared with 95 percent for the second quarter, and with 91 percent for the first quarter of fiscal 1997. Gross margin on service revenues for the third quarter was 33 percent of total service revenues, compared with 21 percent for the second quarter, and with 19 percent for the first quarter.

During the third quarter, Open Text announced several major new accounts, including Booz, Allen and Hamilton; Canon; Hewlett-Packard; Vitro Corporation, a subsidiary of Tracor, Inc.; and Motorola, Inc., which was announced today.

"The Motorola win, representing 13 percent of total revenues for the third quarter, is particularly significant as the first step in Motorola's commitment to deploy Livelink Intranet among its workforce worldwide," Jenkins commented. "The agreement gives Motorola specified rights to purchase the Livelink products on a global scale."

In addition, the company recently signed an agreement to integrate its Livelink Intranet product technology with Adobe Systems' Acrobat and Capture technology, in order to automate the movement of documents through complex, global business processes. Recently, Open Text also adopted Microsoft products, servers and architecture as a primary platform to enable organizations of any size to leverage the proven power of Microsoft technology in conjunction with Livelink Intranet products. The Adobe and Microsoft initiatives are designed to add increased reliability and functionality to Livelink, while furthering its market penetration.

Nine-Month Results

For the nine months ended March 31, 1997, total revenues were $15.4 million, an increase of 118 percent from the $6.3 million reported for the prior-year period. Gross profit for the nine months was $10.2 million, up 122 percent from the $4.6 million reported for the same period of fiscal 1996. For the first nine months of 1997, net loss was $10.9 million, or $0.65 per share, compared with the $27.7 million, or $2.60 per share, reported for the prior-year period. Net loss for the first nine months of fiscal 1996 included a one-time charge of $22.5 million for the write-off of purchased research and development related to certain acquisitions.

Balance Sheet

During the third quarter, Open Text strengthened its balance sheet through the sale of its entire investment in Yahoo! Corporation for $6.3 million, thereby increasing Open Text's cash, cash equivalents and short-term investments to $36.9 million at March 31, 1997. The gain from the sale of $5.8 million was recorded in other income and was largely offset by reserves taken for prior investments.

"At March 31, accounts receivable were at their lowest levels in a year, relative to quarterly revenues," said William N. Stirlen, Open Text's chief financial officer. "This represents continued progress toward our goal of bringing receivables in line with industry turnover norms."

Release Disclaimer

This news release may contain forward-looking statements relating to the future performance of Open Text Corporation. Forward-looking statements, specifically those concerning future performance, are subject to certain risks and uncertainties, and actual results may differ materially. These risks and uncertainties are detailed from time to time in the company's filings with the Securities and Exchange Commission (SEC), including the final prospectus for the company's initial public offering of common stock in January 1996, Form 10-K for the year ended June 30, 1997, and Form 10-Q for the quarters ended September 30, 1997, and December 31, 1997. To review the Statements of Operations and Balance Sheet please see Financials. (1) Reported under U.S. Generally Accepted Accounting Principles (GAAP). Note to Editors: Livelink Pinstripe, Livelink 8, Livelink Search, Livelink Library, Livelink Workflow and Livelink Project Collaboration are trademarks of Open Text Corporation. All other trademarks are the property of their respective companies.