October 27, 2010 / 8:41 PM / in 7 years

UPDATE 2-Open Text profit jumps 52 pct, licensing down

* Adjusted EPS of 86 cents, vs consensus view of 83 cents

* Pays $71 million to buy StreamServe

* Says license revenue disappoints, especially in Europe (Adds executive and analyst quotes, details; in U.S. dollars unless noted)

TORONTO, Oct 27 (Reuters) - Canadian business software maker Open Text OTC.TO posted a 52 percent jump in net income but the company and analysts were disappointed with lower-than-expected licensing revenue.

The company made adjusted net income of $50 million, or 86 cents a share, in the three months to Sept. 30, compared with $32.8 million, or 58 cents, a year earlier. Analysts had on average expected earnings of 83 cents a share, according to Thomson Reuters I/B/E/S.

Open Text had revenue of $217.4 million, up 3 percent from a year earlier but below analysts’ expectations of $225 million for the first quarter of the company’s fiscal 2011.

Its revenue from licenses -- a measure of future demand -- was $42.6 million in the quarter, with one-third of that coming from new customers.

Executives said the figure missed mostly due to a slowdown in IT spending in Europe and particularly in the UK but that a number of large deals had since been signed.

Dushan Batrovic, an analyst from Dundee Securities, had expected licenses to bring in $50 million.

“It’s disappointing. It wasn’t a modest licensing miss, they missed quite significantly,” he said, adding that evidence of longer sales cycles prompted him to downgrade the stock to “neutral” from “buy” this month with a price target of C$50.

“Big deals are good but it takes a while to get them closed,” he added.

The Waterloo, Ontario-based company, which runs corporate process systems, also said it paid $71 million to buy document management software company StreamServe.

Open Text has the second-largest share of the market for enterprise content management (ECM) systems after IBM Corp (IBM.N) and partners with tech infrastructure vendors SAP AG (SAPG.DE), Microsoft Corp (MSFT.O) and Oracle Corp ORCL.O.

Despite the licensing miss, Open Text said it is confident it will meet its growth targets for the year and that it had signed up two customers for new mobile software offerings.

“We remain focused on margin and profitability, we have a strong pipeline and we will continue to focus on our customer base with a positive outlook for the rest of 2011,” Open Text Chief Executive John Shackleton told an analyst call.

Shares in Open Text closed 0.7 percent higher at C$46.70 on the Toronto Stock Exchange before the earnings release. (Reporting by Alastair Sharp; editing by Peter Galloway, Gary Hill)

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