July 29, 2015 / 10:50 PM / 4 years ago

Open Text revenue beats estimates for first time in four quarters

(Reuters) - Canada’s business software maker Open Text Corp raised its fiscal 2016 operating margin forecast and reported a better-than-expected revenue for the first time in four quarters as it closed more big contracts.

The company also said it would buy back up to $200 million of stock and reaffirmed its intent to spend $3 billion on acquisitions.

Open Text’s U.S.-listed shares rose 14 percent in trading after the bell on Wednesday as the financial results overshadowed the possibility of a higher U.S. tax bill.

The company, whose software to help companies manage documents and workflows, has been struggling with slowing revenue growth as it focuses on building its cloud business.

“With a more directly aligned sales leadership team in place, our sales organization performed extremely well in Q4, closing 26 deals over $1 million (11 cloud and 15 license),” Chief Executive Mark Barrenechea said.

The company raised its fiscal 2016 non-GAAP operating margin model forecast to 30-34 percent from 28-30 percent. Margins were 30.9 percent in fiscal 2015.

“I don’t think it’s just the numbers that is helping the stock after market, I think it’s also the operating margin guidance that company is putting out there for next year,” Benchmark Company analyst Mark Schappel said.

Open Text said the U.S. Internal Revenue Service had issued a draft “notice of proposed adjustment” in connection with the company’s reorganization five years ago, proposing a one-time increase of $280 million in U.S. federal taxes.

The Waterloo, Ontario-based company’s cloud services business has been one of its fastest growing, but revenue from the business declined for the first time in the fourth quarter ended June 30.

In a further sign that the cloud business’s growth rate is stabilizing, the company said it expects the business to contribute 31-36 percent in 2016, compared with a 33 percent contribution in 2015.

“We’re expecting (cloud) bookings growth of 30-50 percent in fiscal year 2016,” Barrenechea told Reuters, breaking out such a forecast for the business for the first time.

The company’s total revenue fell about three percent to $482.7 million in the fourth quarter, but beat its own forecast of $440-$455 million and analysts’ average estimate of $447.2 million.

Net income attributable to Open Text fell 22 percent to $68.8 million or 56 cents per share. On an adjusted basis, it earned 87 cents per share, beating estimates of 69 cents, according to Thomson Reuters I/B/E/S.

Open Text’s U.S.-listed shares rose 14 percent to $42.90 in trading after the bell.

Reporting by Tanvi Mehta in Bengaluru; Editing by Savio D'Souza

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