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Open Text Corporation Reports Second-Quarter 1997 Results

Total Revenue and Gross Profit Growth Exceed 100%, as Company Deepens Penetration of Intranet Software Market

Waterloo, ON – 1997-1-28 – Open Text Corporation (NASDAQ: OTEX), a leading provider of intranet application software, tools and services, today announced its financial results for the second quarter of fiscal 1997.(1)

For the quarter ended December 31, 1996, Open Text reported the highest quarterly total revenues and gross profit in the company's history. Total revenues were US$5.2 million, a 128.8-percent increase from the $2.3 million reported for the year-earlier quarter, and a 29.0-percent increase from the $4.0 million reported for the quarter ended September 30, 1996. Gross profit for the quarter was $3.5 million, up 104.5 percent from the $1.7 million reported a year ago, and up 44.6 percent from the $2.4 million reported for the first quarter.

The net loss for the second quarter was $3.8 million, or $0.23 per share, compared with a net loss of $23.3 million, or $2.30 per share, for the prior-year period, and a net loss of $3.6 million, or $0.22 per share, for the first quarter of fiscal 1997. The net loss for the second quarter of fiscal 1996 included a one-time charge of $21.2 million for the write-off of purchased research and development related to certain acquisitions, including that of Odesta Corporation, the original developer of Livelink product technology, in October 1995.

At December 31, 1996, Open Text's cash, cash equivalents and short-term investments totaled $34.8 million.

"We continue to meet specific goals that we had identified six months ago as key milestones to success in the emerging intranet software market," said Tom Jenkins, Open Text's president and chief executive officer. "In addition to expanding revenue and gross profit, we have scored several major new customer wins, as well as follow-on wins from existing customers, in targeted vertical markets. Of particular note, we signed an agreement with Bell Sygma for a 13,000-seat deployment of Livelink Intranet for Bell Canada. This is one of the largest applications of its kind in Internet/intranet history. Of the approximately 70 Livelink Intranet installations completed to date, five accounts have scaled up to software valued at $350,000 to $800,000 per account.

"The initial momentum of our first major accounts -- combined with the recent deployment of Livelink Intranet Suite 7, the most powerful and comprehensive release yet -- clearly demonstrates our potential for market leadership and continued growth," Jenkins added. "As Interactive Week stated in its December 16, 1996 issue, 'While almost every software company is trying to carve out an intranet niche, Open Text Corporation is well ahead and lengthening its lead with a new release of its Livelink suite."

Expanding Intranet Business

For the second consecutive quarter since the company executed a major restructuring of operations to focus on its core intranet business, revenue growth was driven by increasing intranet software sales. Total intranet software revenue for the second quarter of 1997 was $4.7 million, a 27.0-percent increase from the $3.7 million reported for the first quarter of fiscal 1997.

In addition to Bell Sygma, major accounts during the second quarter included BellSouth Corporation, Chiron Corporation, Conoco, Derwent Information, Medical Economics Company, Microsoft Corporation, Schien Pharmaceutical and the U.S. Government Printing Office. The company also formed a strategic alliance with Siemens-Nixdorf, in which this largest European information technology company agreed to bundle Livelink Intranet with its intranet-server platform, providing Open Text with potential access to Siemens-Nixdorf's 1,400 sales people worldwide and installed base of 130,000 UNIX servers.

During the second quarter, Open Text hired two industry veterans to strengthen its intranet software sales management, adding Stephen Klann as vice president of U.S. Sales and Robert Logan as vice president of Canadian Sales.

Business Mix

For the second quarter of fiscal 1997, license revenue was $3.1 million, up 97.8 percent from $1.6 million for the same period last year, and up 42.6 percent from the $2.6 million reported for the quarter ended September 30, 1996. Service revenue during the quarter increased to $2.2 million, a 194.4-percent increase from $700,000 for the prior-year period, and a 13.6-percent increase from the $1.9 million reported for the first quarter. The year-over-year and sequential increases for both license and service revenue reflected the initial market penetration of the Livelink Intranet suite of products, as well as the addition of approximately 70 new accounts deploying these products.

Gross margin for the second quarter was 66.4 percent of total revenues, compared with 74.3 percent for the prior-year period, and with 59.3 percent for the first quarter of fiscal 1997. The year-over-year gross margin trend reflected increased staffing costs associated with the company's growing service business, based on a fundamental change from Internet search engine products to intranet application software products and the corresponding increase in pre- and post-sale consulting requirements.

Half-Year Results

For the six months ended December 31, 1996, total revenues were $9.3 million, an increase of 218.8 percent from the $2.9 million reported for the prior-year period. Gross profit for the first half of fiscal 1997 was $5.9 million, up 171.7 percent from the $2.2 million reported for the same period in 1996. For the first six months of 1997, the net loss was $7.4 million, or $0.44 per share, compared with the $26.0 million, or $3.09 per share, reported for the period ended December 31, 1995. The net loss for the first half 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.