EX-99.1 2 exhibit991q3-20pressre.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
OpenText Reports Third Quarter Fiscal Year 2020 Financial Results

Record Cloud, Annual Recurring Revenues (ARR) and Operating Cash Flows

Third Quarter Highlights
Total Revenues
(in millions)
 
Annual Recurring Revenues
(in millions)
 
Cloud Revenues
(in millions)
Reported
Constant Currency
 
Reported
Constant Currency
 
Reported
Constant Currency
$814.7
$820.4
 
$662.3
$666.3
 
$339.5
$340.6
+13.3%
+14.1%
 
+20.6%
+21.3%
 
+42.3%
+42.8%
Annual Recurring Revenues represents 81% of Total Revenues

•
Record Operating Cash Flows of $329.6 million in the quarter, up 15.2% Y/Y and $904.1 million for the trailing twelve months
•
Declares cash dividend of $0.1746 per common share
•
GAAP net income of $26.0 million, down 64.3% Y/Y
•
Adjusted EBITDA of $259.5 million, down 0.9%, margin of 31.8%, down 460 basis points Y/Y
•
GAAP diluted EPS of $0.10, down 63.0% Y/Y
•
Non-GAAP diluted EPS of $0.61, down 4.7%, and $0.62 in constant currency, down 3.1% Y/Y
•
Announces COVID-19 restructuring plan and compensation update

Waterloo, ON, April 30, 2020 - Open Text Corporation (NASDAQ: OTEX), (TSX: OTEX), “The Information Company,” today announced its financial results for the third quarter ended March 31, 2020.
“On behalf of the OpenText community, we honor the brave women and men who are serving on the front lines of this pandemic: our healthcare professionals, first responders, infrastructure experts and other essential workers who are keeping us healthy and safe,” said Mark J. Barrenechea, OpenText CEO & CTO. “OpenText’s solid third quarter performance is a reflection of our business model resilience amid these challenging times. In constant currency, total revenues in the quarter grew 14.1% year-over-year to $820.4 million, Cloud Services and Subscriptions revenues, now our largest business revenue stream, grew a record 42.8% year-over-year to $340.6 million and our Annual Recurring Revenues which represent a record 81% of total revenues, grew 21.3% year-over-year to $666.3 million. These results reflect the strength of OpenText and the mission-critical nature of our product portfolio.”
“Our investments in technology and infrastructure enabled us to serve our customers around the globe with more than 95% of our employees working from home. I am proud of the dedication and professionalism of our employees who put customers first. Further, OpenText’s release of Cloud Editions (CE) 20.2 fully positions us as a cloud first company and provides customers with options to empower and protect the value of their information assets,” said Barrenechea. “Our leadership position in Information Management has never been stronger and with the addition of cyber resilience products from the Carbonite acquisition, our customers continue to trust OpenText as they adapt to a changing business climate defined by new ways to work.” 
"OpenText delivered a solid Q3 with Adjusted EBITDA of $259.5 million and record Operating Cash Flows of $329.6 million,” said OpenText EVP, CFO, Madhu Ranganathan. “We ended the quarter with a strong balance sheet of $1.45 billion in cash and a 2.3x consolidated net leverage ratio. Further, we have taken pre-emptive measures to manage expenses and introduced a COVID-19 restructuring plan that continues our operational rigor, while supporting key initiatives that drive our Total Growth strategy.”

1


Financial Highlights for Q3 Fiscal 2020 with Year Over Year Comparisons
Summary of Quarterly Results
 
 
 
 
 
 
 
 
(in millions except per share data)
Q3 FY20
Q3 FY19
$ Change 
% Change 
(Y/Y)
 
Q3 FY20 in CC*
% Change in CC*
 
Revenues:
 
 
 
 
 
 
 
 
Cloud services and subscriptions

$339.5


$238.6


$100.9

42.3
 %
 

$340.6

42.8
 %
 
Customer support
322.9

310.8

12.1

3.9
 %
 
325.7

4.8
 %
 
Total annual recurring revenues**

$662.3


$549.4


$113.0

20.6
 %
 

$666.3

21.3
 %
 
License
81.1

98.7

(17.7
)
(17.9
)%
 
81.9

(17.0
)%
 
Professional service and other
71.3

71.1

0.2

0.3
 %
 
72.1

1.5
 %
 
Total revenues

$814.7


$719.1


$95.5

13.3
 %
 

$820.4

14.1
 %
 
GAAP-based operating income

$95.1


$135.9


($40.8
)
(30.0
)%
 
N/A

N/A

 
Non-GAAP-based operating income (1)

$234.7


$236.8


($2.1
)
(0.9
)%
 

$238.5

0.7
 %
 
GAAP-based EPS, diluted

$0.10


$0.27


($0.17
)
(63.0
)%
 
N/A

N/A

 
Non-GAAP-based EPS, diluted (1)(2)

$0.61


$0.64


($0.03
)
(4.7
)%
 

$0.62

(3.1
)%
 
GAAP-based net income attributable to OpenText

$26.0


$72.8


($46.8
)
(64.3
)%
 
N/A

N/A

 
Adjusted EBITDA (1)

$259.5


$261.8


($2.3
)
(0.9
)%
 

$263.1

0.5
 %
 
Operating cash flows

$329.6


$286.0


$43.6

15.2
 %
 
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

$825.1


$665.9


$159.1

23.9
 %
 

$830.1

24.7
 %
 
Customer support
950.7

932.7

18.0

1.9
 %
 
963.5

3.3
 %
 
Total annual recurring revenues**

$1,775.7


$1,598.6


$177.1

11.1
 %
 

$1,793.7

12.2
 %
 
License
297.0

308.4

(11.3
)
(3.7
)%
 
301.3

(2.3
)%
 
Professional service and other
210.3

214.6

(4.2
)
(2.0
)%
 
213.7

(0.4
)%
 
Total revenues

$2,283.1


$2,121.5


$161.6

7.6
 %
 

$2,308.7

8.8
 %
 
GAAP-based operating income

$412.3


$409.0


$3.3

0.8
 %
 
N/A

N/A

 
Non-GAAP-based operating income (1)

$765.0


$743.7


$21.3

2.9
 %
 

$779.9

4.9
 %
 
GAAP-based EPS, diluted

$0.77


$0.79


($0.02
)
(2.5
)%
 
N/A

N/A

 
Non-GAAP-based EPS, diluted (1)(2)

$2.09


$2.04


$0.05

2.5
 %
 

$2.14

4.9
 %
 
GAAP-based net income attributable to OpenText

$207.8


$213.5


($5.7
)
(2.7
)%
 
N/A

N/A

 
Adjusted EBITDA (1)

$830.7


$816.4


$14.3

1.8
 %
 

$845.1

3.5
 %
 
Operating cash flows

$674.3


$646.5


$27.8

4.3
 %
 
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.

Balance Sheet Update
On March 19, 2020, OpenText proactively drew down $600 million from its Revolving Credit Facility as a pre-emptive measure in order to increase our cash position and preserve financial flexibility in light of current macro-economic uncertainty. The proceeds from the Revolver were invested in money market funds primarily comprised of AAA US T-bills and are reflected in our Balance Sheet as of March 31, 2020. In February 2020, OpenText successfully raised $1.8 billion primarily to

2


refinance existing debt, in 8 and 10-year senior notes at historically low rates that extends our debt maturity profile, and drives interest expense savings.  

Restructuring Plan and Compensation Update
As a result of COVID-19, OpenText is adopting a hybrid return to workplace strategy. The company will undertake a restructuring plan which will impact our global workforce and consolidate certain real estate facilities to further streamline our operations as we accelerate work from home initiatives. The cost of the restructuring is expected to be approximately $80 million to $100 million and related activities are anticipated to be completed by the end of Fiscal 2021. Once completed, OpenText anticipates annualized cost savings of approximately $65 million to $75 million.

The Company is also taking a number of pre-emptive measures due to the impact of COVID-19, including reduced discretionary spending and temporarily reducing the salaries of its executives, senior leadership, and other employees, as well as its Board of Directors.

Dividend Program
As part of our quarterly, non-cumulative cash dividend program, the Board declared on April 29, 2020 a cash dividend of $0.1746 per common share. The record date for this dividend is May 29, 2020 and the payment date is June 19, 2020. OpenText believes strongly in returning value to its shareholders and intends to maintain its dividend program. Any future declarations of dividends and the establishment of future record and payment dates are all subject to the final determination and discretion of the Board of Directors.
  
Quarterly Business Highlights
•
Key customer wins in the quarter included General Motors, Nestle S.A., United Health Services Hospitals, Diamond Pharmacy Services, Pathos Clinical Solutions, Astra Daihatsu Motor, Continental AG, Cree Lighting, Debeka Insurance, Grinnell Mutual Reinsurance, Home Credit International, Gendarmerie Nationale (France), Medline Industries, MRS Logistica, Praxair Distribution, Rosenthal & Rosenthal, Saipem Group, Zabka Polska.
•
OpenText announces cloud agreement with Amazon Web Services
•
OpenText announces new Cloud Editions (CE) for the resilient organization
•
OpenText launches new unified cloud integration platform, OpenText Trading Grid
•
OpenText Trading Grid to integrate Dun & Bradstreet data and insights to build trust and minimize risk in supply chains
•
OpenText hosts Enterprise World Europe Digital
•
OpenText buys XMedius, provider of secure information exchange and unified communication solutions
•
OpenText EnCase wins 10th straight SC Magazine Award for Best Forensic Solution
•
OpenText announces pricing of senior unsecured fixed rate notes to refinance outstanding debt
•
OpenText establishes new US Public Sector Group
•
OpenText makes new appointments to Executive Leadership Team

Summary of Quarterly Results
 
 
 
 
 
 
 
 
Q3 FY20
Q2 FY20
Q3 FY19
% Change 
(Q3 FY20 vs Q2 FY20)
 
% Change
(Q3 FY20 vs Q3 FY19)
 
Revenue (millions)

$814.7


$771.6


$719.1

5.6
 %
 
13.3
 %
 
GAAP-based gross margin
65.4
%
69.9
%
66.7
%
(450
)
bps
(130
)
bps
GAAP-based EPS, diluted

$0.10


$0.40


$0.27

(75.0
)%
 
(63.0
)%
 
Non-GAAP-based gross margin (1)
73.3
%
75.5
%
73.0
%
(220
)
bps
30

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

$0.61


$0.84


$0.64

(27.4
)%
 
(4.7
)%
 
(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.

3


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 April 30, 2020 at 7:00 p.m. ET through 11:59 p.m. on May 14, 2020 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 4288 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.
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, the financial and operational impact of COVID-19 and associated preemptive measures and restructuring plans, 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

4


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:

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)
 
March 31, 2020
 
June 30, 2019
ASSETS
(unaudited)
 
 
Cash and cash equivalents
$
1,452,570

 
$
941,009

Accounts receivable trade, net of allowance for doubtful accounts of $18,301 as of March 31, 2020 and $17,011 as of June 30, 2019
459,348

 
463,785

Contract assets
27,057

 
20,956

Income taxes recoverable
59,930

 
38,340

Prepaid expenses and other current assets
112,073

 
97,238

Total current assets
2,110,978

 
1,561,328

Property and equipment
258,892

 
249,453

Operating lease right of use assets
243,611

 
—

Long-term contract assets
14,225

 
15,386

Goodwill
4,678,686

 
3,769,908

Acquired intangible assets
1,731,781

 
1,146,504

Deferred tax assets
921,643

 
1,004,450

Other assets
171,107

 
148,977

Long-term income taxes recoverable
31,149

 
37,969

Total assets
$
10,162,072

 
$
7,933,975

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
324,890

 
$
329,903

Current portion of long-term debt
610,000

 
10,000

Operating lease liability
68,871

 
—

Deferred revenues
819,273

 
641,656

Income taxes payable
31,711

 
33,158

Total current liabilities
1,854,745

 
1,014,717

Long-term liabilities:
 
 
 
Accrued liabilities
14,634

 
49,441

Pension liability
67,438

 
75,239

Long-term debt
3,585,684

 
2,604,878

Long-term operating lease liability
205,789

 
—

Deferred revenues
92,341

 
46,974

Long-term income taxes payable
184,459

 
202,184

Deferred tax liabilities
158,805

 
55,872

Total long-term liabilities
4,309,150

 
3,034,588

Shareholders' equity:
 
 
 
Share capital and additional paid-in capital
 
 
 
271,634,149 and 269,834,442 Common Shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively; authorized Common Shares: unlimited
1,839,150

 
1,774,214

Accumulated other comprehensive income
9,466

 
24,124

Retained earnings
2,180,339

 
2,113,883

Treasury stock, at cost (847,369 shares at March 31, 2020 and 802,871 shares at June 30, 2019, respectively)
(32,066
)
 
(28,766
)
Total OpenText shareholders' equity
3,996,889

 
3,883,455

Non-controlling interests
1,288

 
1,215

Total shareholders' equity
3,998,177

 
3,884,670

Total liabilities and shareholders' equity
$
10,162,072

 
$
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 March 31,
 
Nine Months Ended March 31,
 
2020
 
2019
 
2020
 
2019
Revenues:
 
 
 
 
 
 
 
License
$
81,055

 
$
98,721

 
$
297,048

 
$
308,364

Cloud services and subscriptions
339,463

 
238,607

 
825,068

 
665,923

Customer support
322,865

 
310,762

 
950,671

 
932,667

Professional service and other
71,296

 
71,056

 
210,337

 
214,580

Total revenues
814,679

 
719,146

 
2,283,124

 
2,121,534

Cost of revenues:
 
 
 
 
 
 
 
License
2,544

 
2,692

 
7,917

 
10,219

Cloud services and subscriptions
127,565

 
103,873

 
333,371

 
280,274

Customer support
32,151

 
31,844

 
91,326

 
93,582

Professional service and other
56,526

 
56,626

 
164,468

 
169,452

Amortization of acquired technology-based intangible assets
63,401

 
44,596

 
145,998

 
140,439

Total cost of revenues
282,187

 
239,631

 
743,080

 
693,966

Gross profit
532,492

 
479,515

 
1,540,044

 
1,427,568

Operating expenses:
 
 
 
 
 
 
 
Research and development
108,184

 
84,905

 
269,645

 
238,128

Sales and marketing
166,234

 
132,244

 
432,162

 
378,619

General and administrative
68,828

 
51,833

 
174,958

 
154,955

Depreciation
24,820

 
25,028

 
65,809

 
72,716

Amortization of acquired customer-based intangible assets
59,943

 
48,832

 
160,561

 
140,627

Special charges (recoveries)
9,406

 
796

 
24,579

 
33,487

Total operating expenses
437,415

 
343,638

 
1,127,714

 
1,018,532

Income from operations
95,077

 
135,877

 
412,330

 
409,036

Other income (expense), net
(18,923
)
 
5,065

 
(19,736
)
 
6,965

Interest and other related expense, net
(41,263
)
 
(35,607
)
 
(105,849
)
 
(103,751
)
Income before income taxes
34,891

 
105,335

 
286,745

 
312,250

Provision for (recovery of) income taxes
8,891

 
32,542

 
78,800

 
98,628

Net income for the period
$
26,000

 
$
72,793

 
$
207,945

 
$
213,622

Net (income) loss attributable to non-controlling interests
(35
)
 
(31
)
 
(112
)
 
(104
)
Net income attributable to OpenText
$
25,965

 
$
72,762

 
$
207,833

 
$
213,518

Earnings per share—basic attributable to OpenText
$
0.10

 
$
0.27

 
$
0.77

 
$
0.80

Earnings per share—diluted attributable to OpenText
$
0.10

 
$
0.27

 
$
0.77

 
$
0.79

Weighted average number of Common Shares outstanding—basic
271,221

 
268,991

 
270,559

 
268,511

Weighted average number of Common Shares outstanding—diluted
272,202

 
270,030

 
271,643

 
269,606




7


OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
(unaudited)
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2020
 
2019
 
2020
 
2019
Net income for the period
$
26,000

 
$
72,793

 
$
207,945

 
$
213,622

Other comprehensive income (loss)—net of tax:
 
 
 
 
 
 
 
Net foreign currency translation adjustments
(15,484
)
 
3,189

 
(16,220
)
 
(3,749
)
Unrealized gain (loss) on cash flow hedges:
 
 
 
 
 
 
 
Unrealized gain (loss) - net of tax expense (recovery) effect of ($1,276) and $222 for the three months ended March 31, 2020 and 2019, respectively; ($1,181) and ($274) for the nine months ended March 31, 2020 and 2019, respectively
(3,539
)
 
615

 
(3,278
)
 
(760
)
(Gain) loss reclassified into net income - net of tax (expense) recovery effect of $121 and $124 for the three months ended March 31, 2020 and 2019, respectively; $98 and $425 for the nine months ended March 31, 2020 and 2019, respectively
337

 
346

 
273

 
1,179

Actuarial gain (loss) relating to defined benefit pension plans:
 
 
 
 
 
 
 
Actuarial gain (loss) - net of tax expense (recovery) effect of $1,495 and ($1,177) for the three months ended March 31, 2020 and 2019, respectively; $1,554 and ($1,390) for the nine months ended March 31, 2020 and 2019, respectively
3,309

 
(4,785
)
 
3,923

 
(5,109
)
Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $203 and $78 for the three months ended March 31, 2020 and 2019, respectively; $446 and $223 for the nine months ended March 31, 2020 and 2019, respectively
153

 
82

 
644

 
212

Total other comprehensive income (loss) net, for the period
(15,224
)
 
(553
)
 
(14,658
)
 
(8,227
)
Total comprehensive income
10,776

 
72,240

 
193,287

 
205,395

Comprehensive (income) loss attributable to non-controlling interests
(35
)
 
(31
)
 
(112
)
 
(104
)
Total comprehensive income attributable to OpenText
$
10,741

 
$
72,209

 
$
193,175

 
$
205,291




8


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

 
Three Months Ended March 31, 2020
 
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 December 31, 2019
270,609

 
$
1,803,663

 
(847
)
 
$
(32,066
)
 
$
2,201,653

 
$
24,690

 
$
1,292

 
$
3,999,232

Issuance of Common Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under employee stock option plans
886

 
23,414

 
—

 
—

 
—

 
—

 
—

 
23,414

Under employee stock purchase plans
139

 
5,217

 
—

 
—

 
—

 
—

 
—

 
5,217

Share-based compensation
—

 
6,856

 
—

 
—

 
—

 
—

 
—

 
6,856

Dividends declared
($0.1746 per Common Share)
—

 
—

 
—

 
—

 
(47,279
)
 
—

 
—

 
(47,279
)
Other comprehensive income (loss) - net
—

 
—

 
—

 
—

 
—

 
(15,224
)
 
—

 
(15,224
)
Non-controlling interest
—

 
—

 
—

 
—

 
—

 
—

 
(39
)
 
(39
)
Net income for the period
—

 
—

 
—

 
—

 
25,965

 
—

 
35

 
26,000

Balance as of March 31, 2020
271,634

 
$
1,839,150

 
(847
)
 
$
(32,066
)
 
$
2,180,339

 
$
9,466

 
$
1,288

 
$
3,998,177


 
Three Months Ended March 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 December 31, 2018
268,569

 
$
1,731,299

 
(817
)
 
$
(29,241
)
 
$
2,056,831

 
$
25,971

 
$
1,152

 
$
3,786,012

Issuance of Common Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under employee stock option plans
544

 
11,661

 
—

 
—

 
—

 
—

 
—

 
11,661

Under employee stock purchase plans
161

 
4,447

 
—

 
—

 
—

 
—

 
—

 
4,447

Share-based compensation
—

 
6,712

 
—

 
—

 
—

 
—

 
—

 
6,712

Purchase of treasury stock
—

 
—

 
(52
)
 
(1,965
)
 
—

 
—

 
—

 
(1,965
)
Issuance of treasury stock
—

 
(2,308
)
 
62

 
2,308

 
—

 
—

 
—

 
—

Dividends declared
($0.1518 per Common Share)
—

 
—

 
—

 
—

 
(40,735
)
 
—

 
—

 
(40,735
)
Other comprehensive income - net
—

 
—

 
—

 
—

 
—

 
(553
)
 
—

 
(553
)
Net income for the period
—

 
—

 
—

 
—

 
72,762

 
—

 
31

 
72,793

Balance as of March 31, 2019
269,274

 
$
1,751,811

 
(807
)
 
$
(28,898
)
 
$
2,088,858

 
$
25,418

 
$
1,183

 
$
3,838,372


 
Nine Months Ended March 31, 2020
 
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
1,301

 
34,773

 
—

 
—

 
—

 
—

 
—

 
34,773

Under employee stock purchase plans
499

 
17,757

 
—

 
—

 
—

 
—

 
—

 
17,757

Share-based compensation
—

 
21,530

 
—

 
—

 
—

 
—

 
—

 
21,530

Purchase of treasury stock
—

 
—

 
(300
)
 
(12,424
)
 
—

 
—

 
—

 
(12,424
)
Issuance of treasury stock
—

 
(9,124
)
 
256

 
9,124

 
—

 
—

 
—

 
—

Dividends declared
($0.5238 per Common Share)
—

 
—

 
—

 
—

 
(141,377
)
 
—

 
—

 
(141,377
)
Other comprehensive income (loss) - net
—

 
—

 
—

 
—

 
—

 
(14,658
)
 
—

 
(14,658
)
Non-controlling interest
—

 
—

 
—

 
—

 
—

 
—

 
(39
)
 
(39
)
Net income for the period
—

 
—

 
—

 
—

 
207,833

 
—

 
112

 
207,945

Balance as of March 31, 2020
271,634

 
$
1,839,150

 
(847
)
 
$
(32,066
)
 
$
2,180,339

 
$
9,466

 
$
1,288

 
$
3,998,177


9


 
Nine Months Ended March 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, 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
1,100

 
25,832

 
—

 
—

 
—

 
—

 
—

 
25,832

Under employee stock purchase plans
523

 
15,712

 
—

 
—

 
—

 
—

 
—

 
15,712

Share-based compensation
—

 
20,152

 
—

 
—

 
—

 
—

 
—

 
20,152

Purchase of treasury stock
—

 
—

 
(726
)
 
(26,499
)
 
—

 
—

 
—

 
(26,499
)
Issuance of treasury stock
—

 
(16,333
)
 
610

 
16,333

 
—

 
—

 
—

 
—

Dividends declared
($0.4554 per Common Share)
—

 
—

 
—

 
—

 
(121,901
)
 
—

 
—

 
(121,901
)
Other comprehensive income - net
—

 
—

 
—

 
—

 
—

 
(8,227
)
 
—

 
(8,227
)
Non-controlling interest
—

 
(625
)
 
—

 
—

 
—

 
—

 
42

 
(583
)
Net income for the period
—

 
—

 
—

 
—

 
213,518

 
—

 
104

 
213,622

Balance as of March 31, 2019
269,274

 
$
1,751,811

 
(807
)
 
$
(28,898
)
 
$
2,088,858

 
$
25,418

 
$
1,183

 
$
3,838,372




10


OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(unaudited)
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2020
 
2019
 
2020
 
2019
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income for the period
$
26,000

 
$
72,793

 
$
207,945

 
$
213,622

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization of intangible assets
148,164

 
118,456

 
372,368

 
353,782

Share-based compensation expense
6,856

 
6,712

 
21,530

 
20,152

Pension expense
1,428

 
1,158

 
4,323

 
3,412

Amortization of debt issuance costs
1,227

 
1,077

 
3,503

 
3,234

Loss on extinguishment of debt
17,854

 
—

 
17,854

 
—

Loss on sale and write down of property and equipment
—

 
10

 
—

 
9,438

Deferred taxes
2,543

 
2,398

 
36,711

 
11,307

Share in net (income) loss of equity investees
(4,527
)
 
(2,789
)
 
(6,475
)
 
(10,652
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
83,590

 
19,229

 
86,188

 
52,777

Contract assets
(9,006
)
 
(15,472
)
 
(26,665
)
 
(28,872
)
Prepaid expenses and other current assets
(6,854
)
 
(13,027
)
 
(7,355
)
 
(495
)
Income taxes
(33,717
)
 
3,682

 
(34,608
)
 
21,006

Accounts payable and accrued liabilities
(9,028
)
 
(896
)
 
(42,263
)
 
(30,644
)
Deferred revenue
102,373

 
93,285

 
38,280

 
24,134

Other assets
5,079

 
(619
)
 
7,436

 
4,300

Operating lease assets and liabilities, net
(2,381
)
 
—

 
(4,486
)
 
—

Net cash provided by operating activities
329,601

 
285,997

 
674,286

 
646,501

Cash flows from investing activities:
 
 
 
 
 
 
 
Additions of property and equipment
(16,793
)
 
(16,968
)
 
(55,005
)
 
(50,432
)
Purchase of XMedius
(73,335
)
 
—

 
(73,335
)
 
—

Purchase of Carbonite, Inc., net of cash and restricted cash acquired
(88,458
)
 
—

 
(1,305,097
)
 
—

Purchase of Dynamic Solutions Group Inc.
—

 
—

 
(4,149
)
 
—

Purchase of Catalyst Repository Systems Inc.
—

 
(70,800
)
 
—

 
(70,800
)
Purchase of Liaison Technologies, Inc.
—

 
641

 
—

 
(310,644
)
Purchase of Guidance Software, Inc., net of cash acquired
—

 
—

 
—

 
(2,279
)
Other investing activities
(5,803
)
 
(1,831
)
 
(11,344
)
 
(8,204
)
Net cash used in investing activities
(184,389
)
 
(88,958
)
 
(1,448,930
)
 
(442,359
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from issuance of Common Shares from exercise of stock options and ESPP
29,990

 
17,811

 
53,107

 
42,097

Proceeds from long-term debt and Revolver
2,400,000

 
—

 
3,150,000

 
—

Repayment of long-term debt and revolver
(1,706,131
)
 
(2,500
)
 
(1,711,131
)
 
(7,500
)
    Debt extinguishment costs

(11,248
)
 
—

 
(11,248
)
 
—

Debt issuance costs
(17,191
)
 
—

 
(18,170
)
 
(322
)
Purchase of Treasury Stock
—

 
(1,965
)
 
(12,424
)
 
(26,499
)
Purchase of non-controlling interest
—

 
—

 
—

 
(583
)
Payments of dividends to shareholders
(47,279
)
 
(40,735
)
 
(141,377
)
 
(121,901
)
Net cash provided by (used in) financing activities
648,141

 
(27,389
)
 
1,308,757

 
(114,708
)
Foreign exchange gain (loss) on cash held in foreign currencies
(15,989
)
 
1,992

 
(20,060
)
 
(3,909
)
Increase (decrease) in cash, cash equivalents and restricted cash during the period
777,364

 
171,642


514,053


85,525

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

 
597,874

 
943,543

 
683,991

Cash, cash equivalents and restricted cash at end of the period
$
1,457,596

 
$
769,516

 
$
1,457,596

 
$
769,516

Reconciliation of cash, cash equivalents and restricted cash:
March 31, 2020
 
March 31, 2019
Cash and cash equivalents
1,452,570

 
765,224

Restricted cash included in Other assets
5,026

 
4,292

Total Cash, cash equivalents and restricted cash
$
1,457,596

 
$
769,516


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 March 31, 2020.
(In thousands except for per share amounts)
 
Three Months Ended March 31, 2020
 
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
$
127,565

 
$
(398
)
(1)
$
127,167

 
Customer support
32,151

 
(284
)
(1)
31,867

 
Professional service and other
56,526

 
(328
)
(1)
56,198

 
Amortization of acquired technology-based intangible assets
63,401

 
(63,401
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
532,492

65.4
%
64,411

(3)
596,903

73.3
%
Operating expenses
 
 
 
 
 
 
Research and development
108,184

 
(1,243
)
(1)
106,941

 
Sales and marketing
166,234

 
(2,261
)
(1)
163,973

 
General and administrative
68,828

 
(2,342
)
(1)
66,486

 
Amortization of acquired customer-based intangible assets
59,943

 
(59,943
)
(2)
—

 
Special charges (recoveries)
9,406

 
(9,406
)
(4)
—

 
GAAP-based income from operations / Non-GAAP-based income from operations
95,077

 
139,606

(5)
234,683

 
Other income (expense), net
(18,923
)
 
18,923

(6)
—

 
Provision for (recovery of) income taxes
8,891

 
18,188

(7)
27,079

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
25,965

 
140,341

(8)
166,306

 
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText
$
0.10

 
$
0.51

(8)
$
0.61

 
(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 25% 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 March 31, 2020
 
 
Per share diluted
GAAP-based net income, attributable to OpenText
$
25,965

$
0.10

Add:
 
 
Amortization
123,344

0.45

Share-based compensation
6,856

0.03

Special charges (recoveries)
9,406

0.03

Other (income) expense, net
18,923

0.07

GAAP-based provision for (recovery of) income taxes
8,891

0.03

Non-GAAP-based provision for income taxes
(27,079
)
(0.10
)
Non-GAAP-based net income, attributable to OpenText
$
166,306

$
0.61

Reconciliation of Adjusted EBITDA
 
Three Months Ended March 31, 2020
GAAP-based net income, attributable to OpenText
$
25,965

Add:
 
Provision for (recovery of) income taxes
8,891

Interest and other related expense, net
41,263

Amortization of acquired technology-based intangible assets
63,401

Amortization of acquired customer-based intangible assets
59,943

Depreciation
24,820

Share-based compensation
6,856

Special charges (recoveries)
9,406

Other (income) expense, net
18,923

Adjusted EBITDA
$
259,468



15


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the nine months ended March 31, 2020.
(In thousands except for per share amounts)
 
Nine Months Ended March 31, 2020
 
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
$
333,371

 
$
(1,152
)
(1)
$
332,219

 
Customer support
91,326

 
(897
)
(1)
90,429

 
Professional service and other
164,468

 
(917
)
(1)
163,551

 
Amortization of acquired technology-based intangible assets
145,998

 
(145,998
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
1,540,044

67.5
%
148,964

(3)
1,689,008

74.0
%
Operating expenses
 
 
 
 
 
 
Research and development
269,645

 
(3,719
)
(1)
265,926

 
Sales and marketing
432,162

 
(6,760
)
(1)
425,402

 
General and administrative
174,958

 
(8,085
)
(1)
166,873

 
Amortization of acquired customer-based intangible assets
160,561

 
(160,561
)
(2)
—

 
Special charges (recoveries)
24,579

 
(24,579
)
(4)
—

 
GAAP-based income from operations / Non-GAAP-based income from operations
412,330

 
352,668

(5)
764,998

 
Other income (expense), net
(19,736
)
 
19,736

(6)
—

 
Provision for (recovery of) income taxes
78,800

 
13,481

(7)
92,281

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
207,833

 
358,923

(8)
566,756

 
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText
$
0.77

 
$
1.32

(8)
$
2.09

 
(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 27% 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:
 
Nine Months Ended March 31, 2020
 
 
Per share diluted
GAAP-based net income, attributable to OpenText
$
207,833

$
0.77

Add:
 
 
Amortization
306,559

1.13

Share-based compensation
21,530

0.08

Special charges (recoveries)
24,579

0.09

Other (income) expense, net
19,736

0.07

GAAP-based provision for (recovery of) income taxes
78,800

0.29

Non-GAAP-based provision for income taxes
(92,281
)
(0.34
)
Non-GAAP-based net income, attributable to OpenText
$
566,756

$
2.09

Reconciliation of Adjusted EBITDA
 
Nine Months Ended March 31, 2020
GAAP-based net income, attributable to OpenText
$
207,833

Add:
 
Provision for (recovery of) income taxes
78,800

Interest and other related expense, net
105,849

Amortization of acquired technology-based intangible assets
145,998

Amortization of acquired customer-based intangible assets
160,561

Depreciation
65,809

Share-based compensation
21,530

Special charges (recoveries)
24,579

Other (income) expense, net
19,736

Adjusted EBITDA
$
830,695



17


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

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 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



19


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the three months ended March 31, 2019.
(In thousands except for per share amounts)
 
Three Months Ended March 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
$
103,873

 
$
(291
)
(1)
$
103,582

 
Customer support
31,844

 
(310
)
(1)
31,534

 
Professional service and other
56,626

 
(448
)
(1)
56,178

 
Amortization of acquired technology-based intangible assets
44,596

 
(44,596
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
479,515

66.7
%
45,645

(3)
525,160

73.0
%
Operating expenses
 
 
 
 
 
 
Research and development
84,905

 
(1,315
)
(1)
83,590

 
Sales and marketing
132,244

 
(2,458
)
(1)
129,786

 
General and administrative
51,833

 
(1,890
)
(1)
49,943

 
Amortization of acquired customer-based intangible assets
48,832

 
(48,832
)
(2)
—

 
Special charges (recoveries)
796

 
(796
)
(4)
—

 
GAAP-based income from operations / Non-GAAP-based income from operations
135,877

 
100,936

(5)
236,813

 
Other income (expense), net
5,065

 
(5,065
)
(6)
—

 
Provision for (recovery of) income taxes
32,542

 
(4,373
)
(7)
28,169

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
72,762

 
100,244

(8)
173,006

 
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 31% 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 March 31, 2019
 
 
Per share diluted
GAAP-based net income, attributable to OpenText
$
72,762

$
0.27

Add:
 
 
Amortization
93,428

0.35

Share-based compensation
6,712

0.02

Special charges (recoveries)
796

—

Other (income) expense, net
(5,065
)
(0.02
)
GAAP-based provision for (recovery of) income taxes
32,542

0.12

Non-GAAP-based provision for income taxes
(28,169
)
(0.10
)
Non-GAAP-based net income, attributable to OpenText
$
173,006

$
0.64

Reconciliation of Adjusted EBITDA
 
Three Months Ended March 31, 2019
GAAP-based net income, attributable to OpenText
$
72,762

Add:

Provision for (recovery of) income taxes
32,542

Interest and other related expense, net
35,607

Amortization of acquired technology-based intangible assets
44,596

Amortization of acquired customer-based intangible assets
48,832

Depreciation
25,028

Share-based compensation
6,712

Special charges (recoveries)
796

Other (income) expense, net
(5,065
)
Adjusted EBITDA
$
261,810



21


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the nine months ended March 31, 2019.
(In thousands except for per share amounts)
 
Nine Months Ended March 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
$
280,274

 
$
(873
)
(1)
$
279,401

 
Customer support
93,582

 
(881
)
(1)
92,701

 
Professional service and other
169,452

 
(1,330
)
(1)
168,122

 
Amortization of acquired technology-based intangible assets
140,439

 
(140,439
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
1,427,568

67.3
%
143,523

(3)
1,571,091

74.1
%
Operating expenses
 
 
 
 
 
 
Research and development
238,128

 
(3,668
)
(1)
234,460

 
Sales and marketing
378,619

 
(5,874
)
(1)
372,745

 
General and administrative
154,955

 
(7,526
)
(1)
147,429

 
Amortization of acquired customer-based intangible assets
140,627

 
(140,627
)
(2)
—

 
Special charges (recoveries)
33,487

 
(33,487
)
(4)
—

 
GAAP-based income from operations / Non-GAAP-based income from operations
409,036

 
334,705

(5)
743,741

 
Other income (expense), net
6,965

 
(6,965
)
(6)
—

 
Provision for (recovery of) income taxes
98,628

 
(9,029
)
(7)
89,599

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
213,518

 
336,769

(8)
550,287

 
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText
$
0.79

 
$
1.25

(8)
$
2.04

 
(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:

 
Nine Months Ended March 31, 2019
 
 
Per share diluted
GAAP-based net income, attributable to OpenText
$
213,518

$
0.79

Add:
 
 
Amortization
281,066

1.04

Share-based compensation
20,152

0.07

Special charges (recoveries)
33,487

0.12

Other (income) expense, net
(6,965
)
(0.03
)
GAAP-based provision for (recovery of) income taxes
98,628

0.37

Non-GAAP-based provision for income taxes
(89,599
)
(0.32
)
Non-GAAP-based net income, attributable to OpenText
$
550,287

$
2.04

Reconciliation of Adjusted EBITDA
 
Nine Months Ended March 31, 2019
GAAP-based net income, attributable to OpenText
$
213,518

Add:
 
Provision for (recovery of) income taxes
98,628

Interest and other related expense, net
103,751

Amortization of acquired technology-based intangible assets
140,439

Amortization of acquired customer-based intangible assets
140,627

Depreciation
72,716

Share-based compensation
20,152

Special charges (recoveries)
33,487

Other (income) expense, net
(6,965
)
Adjusted EBITDA
$
816,353













23


(3)    The following tables provide a composition of our major currencies for revenue and expenses, expressed as a percentage, for the three and nine months ended March 31, 2020 and 2019:
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
Currencies
 
% of Revenue 
 
% of Expenses* 
 
 
% of Revenue 
 
% of Expenses* 
 
EURO
22
%
13
%
 
22
%
15
%
GBP
5
%
6
%
 
6
%
6
%
CAD
3
%
10
%
 
5
%
10
%
USD
63
%
56
%
 
58
%
51
%
Other
7
%
15
%
 
9
%
18
%
Total
100
%
100
%
 
100
%
100
%
 
Nine Months Ended March 31, 2020
 
Nine Months Ended March 31, 2019
Currencies
 
% of Revenue 
 
% of Expenses* 
 
 
% of Revenue 
 
% of Expenses* 
 
EURO
23
%
14
%
 
23
%
15
%
GBP
5
%
6
%
 
6
%
6
%
CAD
3
%
10
%
 
4
%
10
%
USD
60
%
54
%
 
58
%
51
%
Other
9
%
16
%
 
9
%
18
%
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