EX-99.1 2 exhibit991q2-20pressre.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
OpenText Reports Second Quarter Fiscal Year 2020 Financial Results

Completes Carbonite Acquisition
Strong Results Include Record Cloud and Annual Recurring Revenues (ARR)

Second Quarter Highlights
Total Revenues
(in millions)
 
Annual Recurring Revenues
(in millions)
 
Cloud Revenues
(in millions)
Reported
Constant Currency
 
Reported
Constant Currency
 
Reported
Constant Currency
$771.6
$781.8
 
$563.8
$570.8
 
$248.3
$250.2
+4.9%
+6.3%
 
+6.5%
+7.8%
 
+13.3%
+14.1%
Annual Recurring Revenues represents 73% of Total Revenues

•
GAAP net income of $107.5 million, up 2.9% Y/Y
•
Adjusted EBITDA of $317.0 million, up 2.8%, margin of 41.1%, down 80 basis points Y/Y
•
GAAP diluted EPS of $0.40, up 2.6% Y/Y
•
Non-GAAP diluted EPS of $0.84, up 5.0%, and $0.86 in constant currency, up 7.5% Y/Y
•
Operating Cash Flows were $860.5 million during the trailing twelve months
•
Declares cash dividend of $0.1746 per common share

Waterloo, ON, January 30, 2020 - Open Text Corporation (NASDAQ: OTEX), (TSX: OTEX), “The Information Company,” today announced its financial results for the second quarter ended December 31, 2019.
"With the addition of Carbonite, we have a strategic market-opportunity to bring Information Management (IM) to all sizes of customers, from the largest of enterprises, governments, mid-size companies, small companies, and consumers. We are excited and energized to write the next chapter for OpenText as our vision expands and advances to Information Management, helping customers to migrate into the cloud and reinvent their businesses processes", said Mark J. Barrenechea, OpenText CEO & CTO. "We are a partner-oriented company with the talent and culture to make an SMB channel wildly successful. With Carbonite this partner opportunity gets significantly stronger and deeper as we leverage OpenText’s proven expertise and successful track record of building powerful global partner programs."
"Our Q2 results reflect an increasing demand for OpenText products as we delivered strong top-line growth. In constant currency, total revenues grew to $781.8 million, up 6.3% year-over-year, Annual Recurring Revenues (ARR) grew to a record $570.8 million, up 7.8% year-over-year, representing 73% of total revenues, driven by Cloud Services and Subscriptions revenues of $250.2 million, which increased significantly by 14.1% year-over-year," said Barrenechea.
"OpenText demonstrated solid operational performance during the second quarter, delivering to our Total Growth Strategy. We put our capital to work, while maintaining a strong balance sheet with a net leverage ratio of 2.3x, and generated solid operating cash flows of $207.2 million, supported by equally strong A-EBITDA results", said OpenText EVP, CFO, Madhu Ranganathan. "The Carbonite transaction closed efficiently, financed by our internal cash and existing revolver. The integration has kicked off with strength and we remain on target to complete the Carbonite integration by the end of Fiscal 2021."
Integration of Carbonite and Restructuring Plan
As OpenText integrates the acquisition, we anticipate a one-time deferred revenue adjustment that will result in a reduction in Carbonite revenue. In addition to this deferred revenue adjustment impact, we expect Carbonite revenue contribution to be down for the next few quarters due to typical integration activities, and then normalize to historical levels thereafter.

1


OpenText is also announcing a restructuring plan that will impact our global workforce and consolidate certain real estate facilities to further streamline our operations, inclusive of Carbonite. The anticipated cost is expected to be approximately $26 million to $34 million. These restructuring activities are anticipated to be completed by the end of Fiscal 2021, and once completed, OpenText anticipates annualized cost savings of approximately $37 million to $41 million. We expect any savings realized during the remainder of Fiscal 2020 to be largely offset by one-time Carbonite integration costs.
Financial Highlights for Q2 Fiscal 2020 with Year Over Year Comparisons
Summary of Quarterly Results
 
 
 
 
 
 
 
 
(in millions except per share data)
Q2 FY20
Q2 FY19
$ Change 
% Change 
(Y/Y)
 
Q2 FY20 in CC*
% Change in CC*
 
Revenues:
 
 
 
 
 
 
 
 
Cloud services and subscriptions

$248.3


$219.2


$29.1

13.3
 %
 

$250.2

14.1
 %
 
Customer support
315.5

310.4

5.2

1.7
 %
 
320.6

3.3
 %
 
Total annual recurring revenues**

$563.8


$529.6


$34.3

6.5
 %
 

$570.8

7.8
 %
 
License
138.1

132.8

5.3

4.0
 %
 
140.2

5.6
 %
 
Professional service and other
69.6

72.9

(3.3
)
(4.5
)%
 
70.8

(2.9
)%
 
Total revenues

$771.6


$735.2


$36.3

4.9
 %
 

$781.8

6.3
 %
 
GAAP-based operating income

$184.7


$173.9


$10.8

6.2
 %
 
N/A

N/A

 
Non-GAAP-based operating income (1)

$296.4


$284.5


$11.9

4.2
 %
 

$303.0

6.5
 %
 
GAAP-based EPS, diluted

$0.40


$0.39


$0.01

2.6
 %
 
N/A

N/A

 
Non-GAAP-based EPS, diluted (1)(2)

$0.84


$0.80


$0.04

5.0
 %
 

$0.86

7.5
 %
 
GAAP-based net income attributable to OpenText

$107.5


$104.4


$3.0

2.9
 %
 
N/A

N/A

 
Adjusted EBITDA (1)

$317.0


$308.3


$8.7

2.8
 %
 

$323.4

4.9
 %
 
Operating cash flows

$207.2


$189.1


$18.1

9.6
 %
 
N/A

N/A

 

Summary of YTD Results
 
 
 
 
 
 
 
 
(in millions except per share data)
FY20 YTD
FY19 YTD
$ Change 
% Change 
(Y/Y)
 
FY20 YTD in CC*
% Change in CC*
 
Revenues:
 
 
 
 
 
 
 
 
Cloud services and subscriptions

$485.6


$427.3


$58.3

13.6
 %
 

$489.5

14.5
 %
 
Customer support
627.8

621.9

5.9

0.9
 %
 
637.9

2.6
 %
 
Total annual recurring revenues**

$1,113.4


$1,049.2


$64.2

6.1
 %
 

$1,127.4

7.4
 %
 
License
216.0

209.6

6.4

3.0
 %
 
219.4

4.6
 %
 
Professional service and other
139.0

143.5

(4.5
)
(3.1
)%
 
141.6

(1.4
)%
 
Total revenues

$1,468.4


$1,402.4


$66.1

4.7
 %
 

$1,488.3

6.1
 %
 
GAAP-based operating income

$317.3


$273.2


$44.1

16.1
 %
 
N/A

N/A

 
Non-GAAP-based operating income (1)

$530.3


$506.9


$23.4

4.6
 %
 

$541.4

6.8
 %
 
GAAP-based EPS, diluted

$0.67


$0.52


$0.15

28.8
 %
 
N/A

N/A

 
Non-GAAP-based EPS, diluted (1)(2)

$1.48


$1.40


$0.08

5.7
 %
 

$1.51

7.9
 %
 
GAAP-based net income attributable to OpenText

$181.9


$140.8


$41.1

29.2
 %
 
N/A

N/A

 
Adjusted EBITDA (1)

$571.2


$554.5


$16.7

3.0
 %
 

$582.1

4.9
 %
 
Operating cash flows

$344.7


$360.5


($15.8
)
(4.4
)%
 
N/A

N/A

 
(1) Please see note 2 "Use of Non-GAAP Financial Measures" below
(2) Please also see note 14 to the Company's Fiscal 2018 Consolidated Financial Statements on Form 10-K. Reflective of the amount of net tax benefit arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period.
Note: Individual line items in tables may be adjusted by non-material amounts to enable totals to align to published financial statements.

*CC: Constant currency for this purpose is defined as the current period reported revenues/expenses/earnings represented at the prior comparative period's foreign exchange rate.
**Annual recurring revenue is defined as the sum of Cloud services and subscriptions revenue and Customer support revenue.

2



Dividend Program
As part of our quarterly, non-cumulative cash dividend program, the Board declared on January 29, 2020 a cash dividend of $0.1746 per common share. The record date for this dividend is February 28, 2020 and the payment date is March 20, 2020. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of the Board of Directors.

Quarterly Business Highlights
•
Key customer wins in the quarter included PFU Limited, the Ministry of Justice Rhineland-Palatinate, thyssenkrupp AG, the Netherlands Ministry of Economic Affairs and Climate Policy, Lewis Rice, Kodak Alaris, Shinkai Transport Systems, Ltd. and Morneau Shepell
•
OpenText buys Carbonite, Inc., provider of cloud-based subscription data protection, backup, disaster recovery and endpoint security to small and medium-sized businesses and consumers
•
OpenText named a leader in Digital Asset Management for Customer Experience
•
OpenText named a leader in 2019 Gartner Magic Quadrant for Content Services Platforms
•
OpenText expands cloud infrastructure in Japan to support enterprise solutions
•
OpenText delivers a flexible path to the Cloud, enhanced security and compliance visibility into Supply Chain Risk
•
Cybersecurity, Legal, Digital Forensics experts gather at OpenText Enfuse 2019 to discuss security in a zero-trust world
•
OpenText wins excellence in Prevention and Investigation of Cybercrime (EPIC) Innovation Award


Summary of Quarterly Results
 
 
 
 
 
 
 
 
Q2 FY20
Q1 FY20
Q2 FY19
% Change 
(Q2 FY20 vs Q1 FY20)
 
% Change
(Q2 FY20 vs Q2 FY19)
 
Revenue (million)

$771.6


$696.9


$735.2

10.7
%
 
4.9
%
 
GAAP-based gross margin
69.9
%
67.2
%
69.0
%
270

bps
90

bps
GAAP-based EPS, diluted

$0.40


$0.27


$0.39

48.1
%
 
2.6
%
 
Non-GAAP-based gross margin (1)
75.5
%
73.1
%
75.7
%
240

bps
(20
)
bps
Non-GAAP-based EPS, diluted (1)(2)

$0.84


$0.64


$0.80

31.3
%
 
5.0
%
 
(1) Please see note 2 "Use of Non-GAAP Financial Measures" below
(2) Please also see note 14 to the Company's Fiscal 2018 Consolidated Financial Statements on Form 10-K. Reflective of the amount of net tax benefit arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period.
Conference Call Information

The public is invited to listen to the earnings conference call today at 5:00 p.m. ET (2:00 p.m. PT) by dialing 1-800-319-4610 (toll-free) or +1-604-638-5340 (international). Please dial-in 10 minutes ahead of time to ensure proper connection. Alternatively, a live webcast of the earnings conference call will be available on the Investor Relations section of the Company's website at http://investors.opentext.com/investor-events-and-presentations.

A replay of the call will be available beginning January 30, 2020 at 7:00 p.m. ET through 11:59 p.m. on February 13, 2020 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 3949 followed by the number sign.

Please see below note (2) for a reconciliation of U.S. GAAP-based financial measures used in this press release, to non-U.S. GAAP-based financial measures. Additionally, “off-cloud” is a term we use to describe license transactions.

About OpenText
OpenText, The Information Company™, enables organizations to gain insight through market leading information management solutions, on-premises or in the cloud. For more information about OpenText (NASDAQ: OTEX, TSX: OTEX) visit opentext.com.

3


Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this press release, including statements about the focus of Open Text Corporation (“OpenText” or “the Company”) in our fiscal year ending June 30, 2020 (Fiscal 2020) on growth, anticipated benefits of our partnerships and next generation product lines, the strength of our operating framework and balance sheet flexibility, continued investments in product innovation, go-to-market and strategic acquisitions, M&A continuing to be our leading growth contributor, our capital allocation strategy, creating value through investments in broader Information Management (IM) capabilities, the Company's presence in the cloud and in growth markets, expected growth in our revenue lines, total growth from acquisitions, innovation and organic initiatives, the focus on recurring revenues, improving operational efficiency, expanding cash flow and strengthening the business, adjusted operating income and cash flow, its financial condition, the adjusted operating margin target range, results of operations and earnings, announced acquisitions, ongoing tax matters, the integration of the acquired businesses, declaration of quarterly dividends, future tax rates, new platform and product offerings, scaling OpenText to new levels in Fiscal 2020 and beyond, and other matters, may contain words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", "may", "could", "would", "might", "will" and variations of these words or similar expressions are considered forward-looking statements or information under applicable securities laws. In addition, any information or statements that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management's perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances, such as certain assumptions about the economy, as well as market, financial and operational assumptions. Management's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and assumptions will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions that may cause the actual results, performance or achievements to differ materially. Such factors include, but are not limited to: (i) the future performance, financial and otherwise, of OpenText; (ii) the ability of OpenText to bring new products and services to market and to increase sales; (iii) the strength of the Company's product development pipeline; (iv) the Company's growth and profitability prospects; (v) the estimated size and growth prospects of the IM market including expected growth in the Artificial Intelligence market; (vi) the Company's competitive position in the IM market and its ability to take advantage of future opportunities in this market; (vii) the benefits of the Company's products and services to be realized by customers; (viii) the demand for the Company's products and services and the extent of deployment of the Company's products and services in the IM marketplace; (ix) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions); (x) the Company's financial condition and capital requirements; and (xi) statements about the impact of product releases. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (ii) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on the Company's outstanding debt securities; (iii) the possibility that the Company may be unable to meet its future reporting requirements under the U.S. Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, or applicable Canadian securities regulation; (iv) the risks associated with bringing new products and services to market; (v) failure to comply with privacy laws and regulations that are extensive, open to various interpretations and complex to implement including General Data Protection Regulation (GDPR) and Country by Country Reporting (CBCR); (vi) fluctuations in currency exchange rates; (vii) delays in the purchasing decisions of the Company's customers; (viii) the competition the Company faces in its industry and/or marketplace; (ix) the final determination of litigation, tax audits (including tax examinations in the United States and elsewhere) and other legal proceedings; (x) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, U.S. or international tax regimes including tax reform legislation enacted through the Tax Cuts and Jobs Act in the United States; (xi) the possibility of technical, logistical or planning issues in connection with the deployment of the Company's products or services; (xii) the continuous commitment of the Company's customers; and (xiii) demand for the Company's products and services. For additional information with respect to risks and other factors which could occur, see the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities filings with the Securities and Exchange Commission (SEC) and other securities regulators. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


For more information, please contact:


4


Harry E. Blount
Senior Vice President, Global Head of Investor Relations
Open Text Corporation
415-963-0825
investors@opentext.com


Copyright ©2020 Open Text. OpenText is a trademark or registered trademark of Open Text. The list of trademarks is not exhaustive of other trademarks. Registered trademarks, product names, company names, brands and service names mentioned herein are property of Open Text. All rights reserved. For more information, visit: http://www.opentext.com/who-we-are/copyright-information.

5

OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share data)
 
December 31, 2019
 
June 30, 2019
ASSETS
(unaudited)
 
 
Cash and cash equivalents
$
675,403

 
$
941,009

Accounts receivable trade, net of allowance for doubtful accounts of $17,937 as of December 31, 2019 and $17,011 as of June 30, 2019
526,020

 
463,785

Contract assets
22,794

 
20,956

Income taxes recoverable
24,615

 
38,340

Prepaid expenses and other current assets
104,962

 
97,238

Total current assets
1,353,794

 
1,561,328

Property and equipment
273,448

 
249,453

Operating lease right of use assets
253,387

 
—

Long-term contract assets
17,975

 
15,386

Goodwill
4,656,492

 
3,769,908

Acquired intangible assets
1,808,072

 
1,146,504

Deferred tax assets
930,856

 
1,004,450

Other assets
158,058

 
148,977

Long-term income taxes recoverable
46,151

 
37,969

Total assets
$
9,498,233

 
$
7,933,975

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
417,611

 
$
329,903

Current portion of long-term debt
913,631

 
10,000

Operating lease liability
66,579

 
—

Deferred revenues
718,861

 
641,656

Income taxes payable
51,298

 
33,158

Total current liabilities
2,167,980

 
1,014,717

Long-term liabilities:
 
 
 
Accrued liabilities
14,977

 
49,441

Pension liability
73,678

 
75,239

Long-term debt
2,600,386

 
2,604,878

Long-term operating lease liability
218,681

 
—

Deferred revenues
77,335

 
46,974

Long-term income taxes payable
180,507

 
202,184

Deferred tax liabilities
165,457

 
55,872

Total long-term liabilities
3,331,021

 
3,034,588

Shareholders' equity:
 
 
 
Share capital and additional paid-in capital
 
 
 
270,608,627 and 269,834,442 Common Shares issued and outstanding at December 31, 2019 and June 30, 2019, respectively; authorized Common Shares: unlimited
1,803,663

 
1,774,214

Accumulated other comprehensive income
24,690

 
24,124

Retained earnings
2,201,653

 
2,113,883

Treasury stock, at cost (847,369 shares at December 31, 2019 and 802,871 shares at June 30, 2019, respectively)
(32,066
)
 
(28,766
)
Total OpenText shareholders' equity
3,997,940

 
3,883,455

Non-controlling interests
1,292

 
1,215

Total shareholders' equity
3,999,232

 
3,884,670

Total liabilities and shareholders' equity
$
9,498,233

 
$
7,933,975

 


6


OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
(unaudited)
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
License
$
138,095

 
$
132,756

 
$
215,993

 
$
209,643

Cloud services and subscriptions
248,340

 
219,233

 
485,605

 
427,316

Customer support
315,508

 
310,354

 
627,806

 
621,905

Professional service and other
69,614

 
72,888

 
139,041

 
143,524

Total revenues
771,557

 
735,231

 
1,468,445

 
1,402,388

Cost of revenues:
 
 
 
 
 
 
 
License
3,050

 
3,655

 
5,373

 
7,527

Cloud services and subscriptions
103,644

 
88,698

 
205,806

 
176,401

Customer support
29,788

 
31,273

 
59,175

 
61,738

Professional service and other
53,604

 
56,030

 
107,942

 
112,826

Amortization of acquired technology-based intangible assets
42,299

 
48,366

 
82,597

 
95,843

Total cost of revenues
232,385

 
228,022

 
460,893

 
454,335

Gross profit
539,172

 
507,209

 
1,007,552

 
948,053

Operating expenses:
 
 
 
 
 
 
 
Research and development
80,283

 
75,753

 
161,461

 
153,223

Sales and marketing
137,310

 
126,193

 
265,928

 
246,375

General and administrative
54,595

 
52,198

 
106,130

 
103,122

Depreciation
20,712

 
23,834

 
40,989

 
47,688

Amortization of acquired customer-based intangible assets
51,460

 
45,919

 
100,618

 
91,795

Special charges
10,072

 
9,380

 
15,173

 
32,691

Total operating expenses
354,432

 
333,277

 
690,299

 
674,894

Income from operations
184,740

 
173,932

 
317,253

 
273,159

Other income (expense), net
1,972

 
378

 
(813
)
 
1,900

Interest and other related expense, net
(32,376
)
 
(33,613
)
 
(64,586
)
 
(68,144
)
Income before income taxes
154,336

 
140,697

 
251,854

 
206,915

Provision for (recovery of) income taxes
46,818

 
36,236

 
69,909

 
66,086

Net income for the period
$
107,518

 
$
104,461

 
$
181,945

 
$
140,829

Net (income) loss attributable to non-controlling interests
(51
)
 
(29
)
 
(77
)
 
(73
)
Net income attributable to OpenText
$
107,467

 
$
104,432

 
$
181,868

 
$
140,756

Earnings per share—basic attributable to OpenText
$
0.40

 
$
0.39

 
$
0.67

 
$
0.52

Earnings per share—diluted attributable to OpenText
$
0.40

 
$
0.39

 
$
0.67

 
$
0.52

Weighted average number of Common Shares outstanding—basic
270,450

 
268,524

 
270,232

 
268,276

Weighted average number of Common Shares outstanding—diluted
271,590

 
269,400

 
271,328

 
269,396




7


OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
(unaudited)
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Net income for the period
$
107,518

 
$
104,461

 
$
181,945

 
$
140,829

Other comprehensive income (loss)—net of tax:
 
 
 
 
 
 
 
Net foreign currency translation adjustments
4,875

 
(3,418
)
 
(736
)
 
(6,938
)
Unrealized gain (loss) on cash flow hedges:
 
 
 
 
 
 
 
Unrealized gain (loss) - net of tax expense (recovery) effect of $301 and ($677) for the three months ended December 31, 2019 and 2018, respectively; $95 and ($496) for the six months ended December 31, 2019 and 2018, respectively
833

 
(1,877
)
 
261

 
(1,375
)
(Gain) loss reclassified into net income - net of tax (expense) recovery effect of ($26) and $169 for the three months ended December 31, 2019 and 2018, respectively; ($23) and $301 for the six months ended December 31, 2019 and 2018, respectively
(72
)
 
467

 
(64
)
 
833

Actuarial gain (loss) relating to defined benefit pension plans:
 
 
 
 
 
 
 
Actuarial gain (loss) - net of tax expense (recovery) effect of $1,308 and ($519) for the three months ended December 31, 2019 and 2018, respectively; $59 and ($213) for the six months ended December 31, 2019 and 2018, respectively
3,698

 
(1,521
)
 
614

 
(324
)
Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $97 and $72 for the three months ended December 31, 2019 and 2018, respectively; $243 and $145 for the six months ended December 31, 2019 and 2018, respectively
260

 
64

 
491

 
130

Total other comprehensive income (loss) net, for the period
9,594

 
(6,285
)
 
566

 
(7,674
)
Total comprehensive income
117,112

 
98,176

 
182,511

 
133,155

Comprehensive (income) loss attributable to non-controlling interests
(51
)
 
(29
)
 
(77
)
 
(73
)
Total comprehensive income attributable to OpenText
$
117,061

 
$
98,147

 
$
182,434

 
$
133,082




8


OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars and shares)
(unaudited)

 
Three Months Ended December 31, 2019
 
Common Shares and Additional Paid in Capital
 
Treasury Stock
 
Retained
Earnings
 
Accumulated  Other
Comprehensive
Income
 
Non-Controlling Interests
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of September 30, 2019
270,190

 
$
1,791,689

 
(1,103
)
 
$
(41,190
)
 
$
2,141,278

 
$
15,096

 
$
1,241

 
$
3,908,114

Issuance of Common Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under employee stock option plans
231

 
6,783

 
—

 
—

 
—

 
—

 
—

 
6,783

Under employee stock purchase plans
188

 
6,532

 
—

 
—

 
—

 
—

 
—

 
6,532

Share-based compensation
—

 
7,783

 
—

 
—

 
—

 
—

 
—

 
7,783

Issuance of treasury stock
—

 
(9,124
)
 
256

 
9,124

 
—

 
—

 
—

 
—

Dividends declared
($0.1746 per Common Share)
—

 
—

 
—

 
—

 
(47,092
)
 
—

 
—

 
(47,092
)
Other comprehensive income (loss) - net
—

 
—

 
—

 
—

 
—

 
9,594

 
—

 
9,594

Net income for the quarter
—

 
—

 
—

 
—

 
107,467

 
—

 
51

 
107,518

Balance as of December 31, 2019
270,609

 
$
1,803,663

 
(847
)
 
$
(32,066
)
 
$
2,201,653

 
$
24,690

 
$
1,292

 
$
3,999,232


 
Three Months Ended December 31, 2018
 
Common Shares and Additional Paid in Capital
 
Treasury Stock
 
Retained
Earnings
 
Accumulated  Other
Comprehensive
Income
 
Non-Controlling Interests
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of September 30, 2018
268,332

 
$
1,730,933

 
(992
)
 
$
(30,381
)
 
$
1,993,099

 
$
32,256

 
$
1,123

 
$
3,727,030

Issuance of Common Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under employee stock option plans
62

 
1,740

 
—

 
—

 
—

 
—

 
—

 
1,740

Under employee stock purchase plans
175

 
5,696

 
—

 
—

 
—

 
—

 
—

 
5,696

Share-based compensation
—

 
6,885

 
—

 
—

 
—

 
—

 
—

 
6,885

Purchase of treasury stock
—

 
—

 
(370
)
 
(12,815
)
 
—

 
—

 
—

 
(12,815
)
Issuance of treasury stock
—

 
(13,955
)
 
545

 
13,955

 
—

 
—

 
—

 
—

Dividends
($0.1518 per Common Share)
—

 
—

 
—

 
—

 
(40,700
)
 
—

 
—

 
(40,700
)
Other comprehensive income (loss) - net
—

 
—

 
—

 
—

 
—

 
(6,285
)
 
—

 
(6,285
)
Net income for the quarter
—

 
—

 
—

 
—

 
104,432

 
—

 
29

 
104,461

Balance as of December 31, 2018
268,569

 
$
1,731,299

 
(817
)
 
$
(29,241
)
 
$
2,056,831

 
$
25,971

 
$
1,152

 
$
3,786,012


 
Six Months Ended December 31, 2019
 
Common Shares and Additional Paid in Capital
 
Treasury Stock
 
Retained
Earnings
 
Accumulated  Other
Comprehensive
Income
 
Non-Controlling Interests
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of June 30, 2019
269,834

 
$
1,774,214

 
(803
)
 
$
(28,766
)
 
$
2,113,883

 
$
24,124

 
$
1,215

 
$
3,884,670

Issuance of Common Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under employee stock option plans
415

 
11,359

 
—

 
—

 
—

 
—

 
—

 
11,359

Under employee stock purchase plans
360

 
12,540

 
—

 
—

 
—

 
—

 
—

 
12,540

Share-based compensation
—

 
14,674

 
—

 
—

 
—

 
—

 
—

 
14,674

Purchase of treasury stock
—

 
—

 
(300
)
 
(12,424
)
 
—

 
—

 
—

 
(12,424
)
Issuance of treasury stock
—

 
(9,124
)
 
256

 
9,124

 
—

 
—

 
—

 
—

Dividends declared ($0.3492 per Common Share)
—

 
—

 
—

 
—

 
(94,098
)
 
—

 
—

 
(94,098
)
Other comprehensive income (loss) - net
—

 
—

 
—

 
—

 
—

 
566

 
—

 
566

Net income for the quarter
—

 
—

 
—

 
—

 
181,868

 
—

 
77

 
181,945

Balance as of December 31, 2019
270,609

 
$
1,803,663

 
(847
)
 
$
(32,066
)
 
$
2,201,653

 
$
24,690

 
$
1,292

 
$
3,999,232


9


 
Six Months Ended December 31, 2018
 
Common Shares and Additional Paid in Capital
 
Treasury Stock
 
Retained
Earnings
 
Accumulated  Other
Comprehensive
Income
 
Non-Controlling Interests
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of June 30, 2018
267,651

 
$
1,707,073

 
(691
)
 
$
(18,732
)
 
$
1,994,235

 
$
33,645

 
$
1,037

 
$
3,717,258

Adoption of ASU 2016-16 - cumulative effect
—

 
—

 
—

 
—

 
(26,780
)
 
—

 
—

 
(26,780
)
Adoption of Topic 606 - cumulative effect
—

 
—

 
—

 
—

 
29,786

 
—

 
—

 
29,786

Issuance of Common Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under employee stock option plans
556

 
14,171

 
—

 
—

 
—

 
—

 
—

 
14,171

Under employee stock purchase plans
362

 
11,265

 
—

 
—

 
—

 
—

 
—

 
11,265

Share-based compensation
—

 
13,440

 
—

 
—

 
—

 
—

 
—

 
13,440

Purchase of treasury stock
—

 
—

 
(674
)
 
(24,534
)
 
—

 
—

 
—

 
(24,534
)
Issuance of treasury stock
—

 
(14,025
)
 
548

 
14,025

 
—

 
—

 
—

 
—

Dividends declared
($0.3036 per Common Share)
—

 
—

 
—

 
—

 
(81,166
)
 
—

 
—

 
(81,166
)
Other comprehensive income - net
—

 
—

 
—

 
—

 
—

 
(7,674
)
 
—

 
(7,674
)
Non-controlling interest
—

 
(625
)
 
—

 
—

 
—

 
—

 
42

 
(583
)
Net income for the year
—

 
—

 
—

 
—

 
140,756

 
—

 
73

 
140,829

Balance as of December 31, 2018
268,569

 
$
1,731,299

 
(817
)
 
$
(29,241
)
 
$
2,056,831

 
$
25,971

 
$
1,152

 
$
3,786,012




10


OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(unaudited)
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income for the period
$
107,518

 
$
104,461

 
$
181,945

 
$
140,829

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization of intangible assets
114,471

 
118,119

 
224,204

 
235,326

Share-based compensation expense
7,783

 
6,885

 
14,674

 
13,440

Pension expense
1,459

 
1,109

 
2,895

 
2,254

Amortization of debt issuance costs
1,149

 
1,079

 
2,276

 
2,157

Loss on sale and write down of property and equipment
—

 
1,639

 
—

 
9,428

Deferred taxes
27,924

 
1,140

 
34,168

 
8,909

Share in net (income) loss of equity investees
(1,266
)
 
(5,491
)
 
(1,948
)
 
(7,863
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
(55,833
)
 
(40,327
)
 
2,598

 
33,548

Contract assets
(10,458
)
 
(8,054
)
 
(17,659
)
 
(13,400
)
Prepaid expenses and other current assets
1,111

 
2,800

 
(501
)
 
12,532

Income taxes and deferred charges and credits
(7,944
)
 
4,763

 
(891
)
 
17,324

Accounts payable and accrued liabilities
29,744

 
10,253

 
(33,235
)
 
(29,748
)
Deferred revenue
(2,924
)
 
(11,748
)
 
(64,093
)
 
(69,151
)
Other assets
(3,327
)
 
2,475

 
2,357

 
4,919

Operating lease assets and liabilities, net
(2,169
)
 
—

 
(2,105
)
 
—

Net cash provided by operating activities
207,238

 
189,103

 
344,685

 
360,504

Cash flows from investing activities:
 
 
 
 
 
 
 
Additions of property and equipment
(19,598
)
 
(8,969
)
 
(38,212
)
 
(33,464
)
Purchase of Carbonite, Inc., net of cash and restricted cash acquired
(1,216,639
)
 
—

 
(1,216,639
)
 
—

Purchase of Dynamic Solutions Group Inc.
(4,149
)
 
—

 
(4,149
)
 
—

Purchase of Liaison Technologies, Inc.
—

 
(311,285
)
 
—

 
(311,285
)
Purchase of Guidance Software, Inc., net of cash acquired
—

 
—

 
—

 
(2,279
)
Other investing activities
(3,505
)
 
(5,369
)
 
(5,541
)
 
(6,373
)
Net cash used in investing activities
(1,243,891
)
 
(325,623
)
 
(1,264,541
)
 
(353,401
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from long-term debt and Revolver
750,000

 
—

 
750,000

 
—

Proceeds from issuance of Common Shares from exercise of stock options and ESPP
12,000

 
6,159

 
23,117

 
24,286

Repayment of long-term debt and revolver
(2,500
)
 
(2,500
)
 
(5,000
)
 
(5,000
)
Debt issuance costs
(979
)
 
—

 
(979
)
 
(322
)
Purchase of Treasury Stock
—

 
(12,815
)
 
(12,424
)
 
(24,534
)
Purchase of non-controlling interest
—

 
—

 
—

 
(583
)
Payments of dividends to shareholders
(47,092
)
 
(40,700
)
 
(94,098
)
 
(81,166
)
Net cash provided by (used in) financing activities
711,429

 
(49,856
)
 
660,616

 
(87,319
)
Foreign exchange gain (loss) on cash held in foreign currencies
3,640

 
(6,329
)
 
(4,071
)
 
(5,901
)
Increase (decrease) in cash, cash equivalents and restricted cash during the period
(321,584
)
 
(192,705
)

(263,311
)

(86,117
)
Cash, cash equivalents and restricted cash at beginning of the period
1,001,816

 
790,579

 
943,543

 
683,991

Cash, cash equivalents and restricted cash at end of the period
$
680,232

 
$
597,874

 
$
680,232

 
$
597,874


Reconciliation of cash, cash equivalents and restricted cash:
December 31, 2019
 
December 31, 2018
Cash and cash equivalents
675,403

 
595,069

Restricted cash included in Other assets
4,829

 
2,805

Total Cash, cash equivalents and restricted cash
$
680,232

 
$
597,874


11


Notes
(1)
All dollar amounts in this press release are in U.S. Dollars unless otherwise indicated.
(2)
Use of Non-GAAP Financial Measures: In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures that are not in accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company's definition may be different from similar Non-GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus it may be more difficult to compare the Company's financial performance to that of other companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its consolidated financial statements, all of which should be considered when evaluating the Company's results.
The Company uses these Non-GAAP financial measures to supplement the information provided in its consolidated financial statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures are not meant to be a substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain Non-GAAP measures defined below.
Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are consistently calculated as GAAP-based net income or earnings per share, attributable to OpenText, on a diluted basis, excluding the effects of the amortization of acquired intangible assets, other income (expense), share-based compensation, and Special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as income from operations, excluding the amortization of acquired intangible assets, Special charges (recoveries), and share-based compensation expense.
Adjusted earnings (loss) before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and Special charges (recoveries).
The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management. These items are excluded based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports and are not excluded in the sense that they may be used under U.S. GAAP.
The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company’s operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company’s “Special Charges (recoveries)” caption on the Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company's operating results and underlying operational trends.
In summary the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to

12


provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results.
The following charts provide (unaudited) reconciliations of U.S. GAAP-based financial measures to Non-U.S. GAAP-based financial measures for the following periods presented.




13


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the three months ended December 31, 2019.
(In thousands except for per share amounts)
 
Three Months Ended December 31, 2019
 
GAAP-based
Measures 
GAAP-based Measures
% of Total Revenue
Adjustments 
Note
Non-GAAP-based
Measures 
Non-GAAP-based Measures
% of Total Revenue
Cost of revenues
 
 
 
 
 
 
Cloud services and subscriptions
$
103,644

 
$
(371
)
(1)
$
103,273

 
Customer support
29,788

 
(297
)
(1)
29,491

 
Professional service and other
53,604

 
(346
)
(1)
53,258

 
Amortization of acquired technology-based intangible assets
42,299

 
(42,299
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
539,172

69.9
%
43,313

(3)
582,485

75.5
%
Operating expenses
 
 
 
 
 
 
Research and development
80,283

 
(1,255
)
(1)
79,028

 
Sales and marketing
137,310

 
(2,383
)
(1)
134,927

 
General and administrative
54,595

 
(3,131
)
(1)
51,464

 
Amortization of acquired customer-based intangible assets
51,460

 
(51,460
)
(2)
—

 
Special charges (recoveries)
10,072

 
(10,072
)
(4)
—

 
GAAP-based income from operations / Non-GAAP-based income from operations
184,740

 
111,614

(5)
296,354

 
Other income (expense), net
1,972

 
(1,972
)
(6)
—

 
Provision for (recovery of) income taxes
46,818

 
(9,861
)
(7)
36,957

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
107,467

 
119,503

(8)
226,970

 
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText
$
0.40

 
$
0.44

(8)
$
0.84

 
(1)
Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)
Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)
GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue.
(4)
Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.
(5)
GAAP-based and Non-GAAP-based income from operations stated in dollars.
(6)
Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.
(7)
Adjustment relates to differences between the GAAP-based tax provision rate of approximately 30% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation

14


allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
 
Three Months Ended December 31, 2019
 
 
Per share diluted
GAAP-based net income, attributable to OpenText
$
107,467

$
0.40

Add:
 
 
Amortization
93,759

0.35

Share-based compensation
7,783

0.03

Special charges (recoveries)
10,072

0.04

Other (income) expense, net
(1,972
)
(0.01
)
GAAP-based provision for (recovery of) income taxes
46,818

0.17

Non-GAAP-based provision for income taxes
(36,957
)
(0.14
)
Non-GAAP-based net income, attributable to OpenText
$
226,970

$
0.84


Reconciliation of Adjusted EBITDA
 
Three Months Ended December 31, 2019
GAAP-based net income, attributable to OpenText
$
107,467

Add:
 
Provision for (recovery of) income taxes
46,818

Interest and other related expense, net
32,376

Amortization of acquired technology-based intangible assets
42,299

Amortization of acquired customer-based intangible assets
51,460

Depreciation
20,712

Share-based compensation
7,783

Special charges (recoveries)
10,072

Other (income) expense, net
(1,972
)
Adjusted EBITDA
$
317,015



15


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the six months ended December 31, 2019.
(In thousands except for per share amounts)
 
Six Months Ended December 31, 2019
 
GAAP-based
Measures
GAAP-based Measures
% of Total Revenue
Adjustments
Note
Non-GAAP-based
Measures
Non-GAAP-based Measures
% of Total Revenue
Cost of revenues
 
 
 
 
 
 
Cloud services and subscriptions
$
205,806

 
$
(754
)
(1)
$
205,052

 
Customer support
59,175

 
(613
)
(1)
58,562

 
Professional service and other
107,942

 
(589
)
(1)
107,353

 
Amortization of acquired technology-based intangible assets
82,597

 
(82,597
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
1,007,552

68.6
%
84,553

(3)
1,092,105

74.4
%
Operating expenses
 
 
 
 
 
 
Research and development
161,461

 
(2,476
)
(1)
158,985

 
Sales and marketing
265,928

 
(4,499
)
(1)
261,429

 
General and administrative
106,130

 
(5,743
)
(1)
100,387

 
Amortization of acquired customer-based intangible assets
100,618

 
(100,618
)
(2)
—

 
Special charges (recoveries)
15,173

 
(15,173
)
(4)
—

 
GAAP-based income from operations / Non-GAAP-based income from operations
317,253

 
213,062

(5)
530,315

 
Other income (expense), net
(813
)
 
813

(6)
—

 
Provision for (recovery of) income taxes
69,909

 
(4,707
)
(7)
65,202

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
181,868

 
218,582

(8)
400,450

 
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText
$
0.67

 
$
0.81

(8)
$
1.48

 
(1)
Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)
Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)
GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue.
(4)
Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.
(5)
GAAP-based and Non-GAAP-based income from operations stated in dollars.
(6)
Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.
(7)
Adjustment relates to differences between the GAAP-based tax provision rate of approximately 28% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation

16


allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
 
Six Months Ended December 31, 2019
 
 
Per share diluted
GAAP-based net income, attributable to OpenText
$
181,868

$
0.67

Add:
 
 
Amortization
183,215

0.68

Share-based compensation
14,674

0.05

Special charges (recoveries)
15,173

0.06

Other (income) expense, net
813

—

GAAP-based provision for (recovery of) income taxes
69,909

0.26

Non-GAAP-based provision for income taxes
(65,202
)
(0.24
)
Non-GAAP-based net income, attributable to OpenText
$
400,450

$
1.48

Reconciliation of Adjusted EBITDA
 
Six Months Ended December 31, 2019
GAAP-based net income, attributable to OpenText
$
181,868

Add:
 
Provision for (recovery of) income taxes
69,909

Interest and other related expense, net
64,586

Amortization of acquired technology-based intangible assets
82,597

Amortization of acquired customer-based intangible assets
100,618

Depreciation
40,989

Share-based compensation
14,674

Special charges (recoveries)
15,173

Other (income) expense, net
813

Adjusted EBITDA
$
571,227



17


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the three months ended September 30, 2019.
(In thousands except for per share amounts)
 
Three Months Ended September 30, 2019
 
GAAP-based
Measures 
GAAP-based Measures
% of Total Revenue
Adjustments 
Note
Non-GAAP-based
Measures 
Non-GAAP-based Measures
% of Total Revenue
Cost of revenues
 
 
 
 
 
 
Cloud services and subscriptions
$
102,162

 
$
(383
)
(1)
$
101,779

 
Customer support
29,387

 
(316
)
(1)
29,071

 
Professional service and other
54,338

 
(243
)
(1)
54,095

 
Amortization of acquired technology-based intangible assets
40,298

 
(40,298
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
468,380

67.2
%
41,240

(3)
509,620

73.1
%
Operating expenses
 
 
 
 
 
 
Research and development
81,178

 
(1,221
)
(1)
79,957

 
Sales and marketing
128,618

 
(2,116
)
(1)
126,502

 
General and administrative
51,535

 
(2,612
)
(1)
48,923

 
Amortization of acquired customer-based intangible assets
49,158

 
(49,158
)
(2)
—

 
Special charges (recoveries)
5,101

 
(5,101
)
(4)
—

 
GAAP-based income from operations / Non-GAAP-based income from operations
132,513

 
101,448

(5)
233,961

 
Other income (expense), net
(2,785
)
 
2,785

(6)
—

 
Provision for (recovery of) income taxes
23,091

 
5,154

(7)
28,245

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
74,401

 
99,079

(8)
173,480

 
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText
$
0.27

 
$
0.37

(8)
$
0.64

 
(1)
Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)
Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)
GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue.
(4)
Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.
(5)
GAAP-based and Non-GAAP-based income from operations stated in dollars.
(6)
Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.
(7)
Adjustment relates to differences between the GAAP-based tax provision rate of approximately 24% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation

18


allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
 
Three Months Ended September 30, 2019
 
 
Per share diluted
GAAP-based net income, attributable to OpenText
$
74,401

$
0.27

Add:
 
 
Amortization
89,456

0.33

Share-based compensation
6,891

0.03

Special charges (recoveries)
5,101

0.02

Other (income) expense, net
2,785

0.01

GAAP-based provision for (recovery of) income taxes
23,091

0.09

Non-GAAP-based provision for income taxes
(28,245
)
(0.11
)
Non-GAAP-based net income, attributable to OpenText
$
173,480

$
0.64


Reconciliation of Adjusted EBITDA
 
Three Months Ended September 30, 2019
GAAP-based net income, attributable to OpenText
$
74,401

Add:
 
Provision for (recovery of) income taxes
23,091

Interest and other related expense, net
32,210

Amortization of acquired technology-based intangible assets
40,298

Amortization of acquired customer-based intangible assets
49,158

Depreciation
20,277

Share-based compensation
6,891

Special charges (recoveries)
5,101

Other (income) expense, net
2,785

Adjusted EBITDA
$
254,212



19


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the three months ended December 31, 2018.
(In thousands except for per share amounts)
 
Three Months Ended December 31, 2018
 
GAAP-based
Measures 
GAAP-based Measures
% of Total Revenue
Adjustments 
Note
Non-GAAP-based
Measures 
Non-GAAP-based Measures
% of Total Revenue
Cost of revenues
 
 
 
 
 
 
Cloud services and subscriptions
$
88,698

 
$
(265
)
(1)
$
88,433

 
Customer support
31,273

 
(271
)
(1)
31,002

 
Professional service and other
56,030

 
(358
)
(1)
55,672

 
Amortization of acquired technology-based intangible assets
48,366

 
(48,366
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
507,209

69.0
%
49,260

(3)
556,469

75.7
%
Operating expenses
 
 
 
 
 
 
Research and development
75,753

 
(994
)
(1)
74,759

 
Sales and marketing
126,193

 
(1,615
)
(1)
124,578

 
General and administrative
52,198

 
(3,382
)
(1)
48,816

 
Amortization of acquired customer-based intangible assets
45,919

 
(45,919
)
(2)
—

 
Special charges (recoveries)
9,380

 
(9,380
)
(4)
—

 
GAAP-based income from operations / Non-GAAP-based income from operations
173,932

 
110,550

(5)
284,482

 
Other income (expense), net
378

 
(378
)
(6)
—

 
Provision for (recovery of) income taxes
36,236

 
(1,114
)
(7)
35,122

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
104,432

 
111,286

(8)
215,718

 
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText
$
0.39

 
$
0.41

(8)
$
0.80

 
(1)
Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)
Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)
GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue.
(4)
Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.
(5)
GAAP-based and Non-GAAP-based income from operations stated in dollars.
(6)
Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.
(7)
Adjustment relates to differences between the GAAP-based tax provision rate of approximately 26% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation

20


allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
 
Three Months Ended December 31, 2018
 
 
Per share diluted
GAAP-based net income, attributable to OpenText
$
104,432

$
0.39

Add:
 
 
Amortization
94,285

0.35

Share-based compensation
6,885

0.03

Special charges (recoveries)
9,380

0.03

Other (income) expense, net
(378
)
—

GAAP-based provision for (recovery of) income taxes
36,236

0.13

Non-GAAP-based provision for income taxes
(35,122
)
(0.13
)
Non-GAAP-based net income, attributable to OpenText
$
215,718

$
0.80


Reconciliation of Adjusted EBITDA
 
Three Months Ended December 31, 2018
GAAP-based net income, attributable to OpenText
$
104,432

Add:

Provision for (recovery of) income taxes
36,236

Interest and other related expense, net
33,613

Amortization of acquired technology-based intangible assets
48,366

Amortization of acquired customer-based intangible assets
45,919

Depreciation
23,834

Share-based compensation
6,885

Special charges (recoveries)
9,380

Other (income) expense, net
(378
)
Adjusted EBITDA
$
308,287



21


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the six months ended December 31, 2018.
(In thousands except for per share amounts)
 
Six Months Ended December 31, 2018
 
GAAP-based
Measures
GAAP-based Measures
% of Total Revenue
Adjustments
Note
Non-GAAP-based
Measures
Non-GAAP-based Measures
% of Total Revenue
Cost of revenues
 
 
 
 
 
 
Cloud services and subscriptions
$
176,401

 
$
(582
)
(1)
$
175,819

 
Customer support
61,738

 
(571
)
(1)
61,167

 
Professional service and other
112,826

 
(882
)
(1)
111,944

 
Amortization of acquired technology-based intangible assets
95,843

 
(95,843
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
948,053

67.6
%
97,878

(3)
1,045,931

74.6
%
Operating expenses
 
 
 
 
 
 
Research and development
153,223

 
(2,353
)
(1)
150,870

 
Sales and marketing
246,375

 
(3,416
)
(1)
242,959

 
General and administrative
103,122

 
(5,636
)
(1)
97,486

 
Amortization of acquired customer-based intangible assets
91,795

 
(91,795
)
(2)
—

 
Special charges (recoveries)
32,691

 
(32,691
)
(4)
—

 
GAAP-based income from operations / Non-GAAP-based income from operations
273,159

 
233,769

(5)
506,928

 
Other income (expense), net
1,900

 
(1,900
)
(6)
—

 
Provision for (recovery of) income taxes
66,086

 
(4,656
)
(7)
61,430

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
140,756

 
236,525

(8)
377,281

 
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText
$
0.52

 
$
0.88

(8)
$
1.40

 
(1)
Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)
Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)
GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue.
(4)
Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.
(5)
GAAP-based and Non-GAAP-based income from operations stated in dollars.
(6)
Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.
(7)
Adjustment relates to differences between the GAAP-based tax provision rate of approximately 32% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation

22


allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:

 
Six Months Ended December 31, 2018
 
 
Per share diluted
GAAP-based net income, attributable to OpenText
$
140,756

$
0.52

Add:
 
 
Amortization
187,638

0.70

Share-based compensation
13,440

0.05

Special charges (recoveries)
32,691

0.12

Other (income) expense, net
(1,900
)
(0.01
)
GAAP-based provision for (recovery of) income taxes
66,086

0.25

Non-GAAP-based provision for income taxes
(61,430
)
(0.23
)
Non-GAAP-based net income, attributable to OpenText
$
377,281

$
1.40

Reconciliation of Adjusted EBITDA
 
Six Months Ended December 31, 2018
GAAP-based net income, attributable to OpenText
$
140,756

Add:
 
Provision for (recovery of) income taxes
66,086

Interest and other related expense, net
68,144

Amortization of acquired technology-based intangible assets
95,843

Amortization of acquired customer-based intangible assets
91,795

Depreciation
47,688

Share-based compensation
13,440

Special charges (recoveries)
32,691

Other (income) expense, net
(1,900
)
Adjusted EBITDA
$
554,543













23


(3)    The following tables provide a composition of our major currencies for revenue and expenses, expressed as a percentage, for the three and six months ended December 31, 2019 and 2018:
 
Three Months Ended December 31, 2019
 
Three Months Ended December 31, 2018
Currencies
 
% of Revenue 
 
% of Expenses* 
 
 
% of Revenue 
 
% of Expenses* 
 
EURO
25
%
15
%
 
25
%
15
%
GBP
5
%
6
%
 
6
%
6
%
CAD
3
%
10
%
 
4
%
10
%
USD
58
%
51
%
 
57
%
51
%
Other
9
%
18
%
 
8
%
18
%
Total
100
%
100
%
 
100
%
100
%
 
Six Months Ended December 31, 2019
 
Six Months Ended December 31, 2018
Currencies
 
% of Revenue
 
% of Expenses*
 
 
% of Revenue
 
% of Expenses*
 
EURO
23
%
14
%
 
24
%
15
%
GBP
5
%
6
%
 
6
%
6
%
CAD
3
%
10
%
 
4
%
11
%
USD
59
%
52
%
 
57
%
51
%
Other
10
%
18
%
 
9
%
17
%
Total
100
%
100
%
 
100
%
100
%
*Expenses include all cost of revenues and operating expenses included within the Condensed Consolidated Statements of Income, except for amortization of intangible assets, share-based compensation and Special charges (recoveries).


24