OpenText Reports Second Quarter Fiscal Year 2019 Financial Results

Total Revenues of $735 million

Annual Recurring Revenues of $530 million, up 3% Y/Y

Operating Cash Flows of $189 million, up 14% Y/Y

WATERLOO, Ontario, Jan. 31, 2019 /PRNewswire/ — Open Text Corporation (NASDAQ: OTEX), (TSX: OTEX), “The Information Company,” today announced its financial results for the second quarter ended December 31, 2018.

“OpenText delivered another strong quarter in Q2.  Total revenues grew to $735 million, Annual Recurring Revenues grew to $530 million, up 3%, year over year, with record Adjusted EBITDA margin of 42%,” said Mark J. Barrenechea, OpenText CEO & CTO.  “The OpenText Cloud continues to gain momentum as cloud revenues grew 5% and delivered 60% Adjusted Gross Margin. The OpenText Cloud is our greatest opportunity.”

Barrenechea further added, “Our strategy is Total Growth, where M&A will continue to be our largest growth driver, augmented with organic growth. Over the last 60 days, we have deployed approximately $386 million in capital and closed two cloud-based acquisitions.  With a highly talented team and an increasingly strategic position with customers, we are well positioned to scale OpenText to new levels in the coming years.”

“Q2 Fiscal 2019 financial performance continues to demonstrate our commitment to Total Growth, a focus on scaling productivity, solid execution of our acquisition framework, expanding margins and strengthening our balance sheet,” said Madhu Ranganathan, OpenText EVP & CFO. “During Q2 we demonstrated solid margin performance across the company, generating $308 million of Adjusted EBITDA, $189 million in Operating Cash Flows, an increase of 14% over the prior fiscal year, and $595 million of cash on the balance sheet.”

Financial Highlights for Q2 2019 with Year Over Year Comparisons

Summary of Quarterly Results

(in millions except per share data)

Q2 FY19

Q2 FY18

$ Change

% Change

(Y/Y)

Q2 FY19 in CC*

% Change in CC*

Revenues:

Cloud services and subscriptions

$219.2

$208.1

$11.1

5.3

%

$221.3

6.3

%

Customer support

310.4

308.1

2.3

0.7

%

314.9

2.2

%

Total annual recurring revenues**

$529.6

$516.2

$13.4

2.6

%

$536.2

3.9

%

License

132.8

135.2

(2.5)

(1.8)

%

134.8

(0.4)

%

Professional service and other

72.9

83.0

(10.1)

(12.2)

%

74.6

(10.1)

%

Total revenues

$735.2

$734.4

$0.8

0.1

%

$745.5

1.5

%

GAAP-based operating income

$173.9

$166.9

$7.0

4.2

%

Non-GAAP-based operating income (1)

$284.5

$268.2

$16.3

6.1

%

$285.5

6.5

%

GAAP-based EPS, diluted

$0.39

$0.32

$0.07

21.9

%

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

$0.80

$0.76

$0.04

5.3

%

$0.80

5.3

%

GAAP-based net income attributable to OpenText

$104.4

$85.1

$19.3

22.7

%

Adjusted EBITDA (1)

$308.3

$290.5

$17.8

6.1

%

Operating cash flows

$189.1

$166.2

$22.9

13.8

%

 

Summary of YTD Results

(in millions except per share data)

FY19 YTD

FY18 YTD

$ Change

% Change

(Y/Y)

FY19 YTD in CC*

% Change in CC*

Revenues:

Cloud services and subscriptions

$427.3

$402.0

$25.3

6.3

%

$429.5

6.8

%

Customer support

621.9

603.5

18.4

3.1

%

626.3

3.8

%

Total annual recurring revenues**

$1,049.2

$1,005.4

$43.8

4.4

%

$1,055.7

5.0

%

License

209.6

213.5

(3.8)

(1.8)

%

212.4

(0.5)

%

Professional service and other

143.5

156.2

(12.6)

(8.1)

%

146.2

(6.4)

%

Total revenues

$1,402.4

$1,375.1

$27.3

2.0

%

$1,414.3

2.9

%

GAAP-based operating income

$273.2

$254.6

$18.6

7.3

%

Non-GAAP-based operating income (1)

$506.9

$469.9

$37.1

7.9

%

$506.0

7.7

%

GAAP-based EPS, diluted

$0.52

$0.46

$0.06

13.0

%

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

$1.40

$1.30

$0.10

7.7

%

$1.40

7.7

%

GAAP-based net income attributable to OpenText

$140.8

$121.7

$19.0

15.7

%

Adjusted EBITDA (1)

$554.5

$510.9

$43.6

8.5

%

Operating cash flows

$360.5

$233.4

$127.1

54.4

%

(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.

OpenText Quarterly Business Highlights

  • OpenText buys Liaison Technologies, Inc.
  • OpenText buys Catalyst Repository Systems, Inc.
  • 35 customer transactions over $1 million, 16 in the OpenText Cloud and 19 off-cloud
  • Financial, Consumer Goods, Services, Technology and Public Sector industries saw the most demand in cloud and license
  • Key customer wins in the quarter included Cannon Cochran Management Services, Equifax Inc., Hershey Software, Hydro Quebec, International Committee of the Red Cross, MetaSource, Philips Radiation and Oncology Systems, Repsol S.A., Rosneft Deutschland GmbH and Volkswagen Group of America
  • OpenText partners with Google Cloud to deliver Enterprise Information Management (EIM) on Google Cloud Platform
  • OpenText named a leader in IDC MarketScape Vendor Assessment for Multi-Enterprise Supply Chain Commerce Network
  • OpenText software now available on Salesforce AppExchange

Dividend Program Highlights

As part of our quarterly, non-cumulative cash dividend program, the Board declared on January 30, 2019 a cash dividend of $0.1518 per common share. The record date for this dividend is March 1, 2019 and the payment date is March 22, 2019. 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.

Summary of Quarterly Results

Q2 FY19

Q1 FY19

Q2 FY18

% Change
(Q2 FY19 vs Q1 FY19)

% Change
(Q2 FY19 vs Q2 FY18)

Revenue (million)

$735.2

$667.2

$734.4

10.2

%

0.1

%

GAAP-based gross margin

69.0

%

66.1

%

67.3

%

290

bps

170

bps

GAAP-based EPS, diluted

$0.39

$0.13

$0.32

200.0

%

21.9

%

Non-GAAP-based gross margin (1)

75.7

%

73.4

%

73.9

%

230

bps

180

bps

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

$0.80

$0.60

$0.76

33.3

%

5.3

%

(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 31, 2019 at 7:00 p.m. ET through 11:59 p.m. on February 14, 2019 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 2854 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.

About OpenText

OpenText, The Information Company™, a market leader in Enterprise Information Management software and solutions, enabling companies to manage, leverage, secure and gain insight into their enterprise information, on premises or in the cloud. For more information about OpenText (NASDAQ/TSX: OTEX) visit www.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, 2019 (Fiscal 2019) on growth in earnings and cash flows, creating value through investments in broader Enterprise Information Management (EIM) capabilities, distribution, 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, and distribution expansion, the focus on recurring revenues, improving 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, expected timing, charges and savings related to restructuring activities, declaration of quarterly dividends, future tax rates, new platform and product offerings, scaling OpenText to new levels in Fiscal 2019 and beyond, the anticipated size, benefits and timing related to our restructuring plan, 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 EIM market including expected growth in the Artificial Intelligence market; (vi) the Company’s competitive position in the EIM 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 EIM 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 the new 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.

OTEX-F

For more information, please contact:

Greg Secord
Vice President, Investor Relations
Open Text Corporation
415-963-0825
investors@opentext.com

Copyright ©2019 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

 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share data)

December 31, 2018

June 30, 2018

ASSETS

(unaudited)

Cash and cash equivalents

$

595,069

$

682,942

Accounts receivable trade, net of allowance for doubtful accounts of $16,256 as of December 31, 2018 and $9,741 as of June 30, 2018

482,289

487,956

Contract assets

13,607

Income taxes recoverable

39,388

55,623

Prepaid expenses and other current assets

82,188

101,059

Total current assets

1,212,541

1,327,580

Property and equipment

246,726

264,205

Long-term contract assets

11,804

Goodwill

3,732,669

3,580,129

Acquired intangible assets

1,284,299

1,296,637

Deferred tax assets

1,085,272

1,122,729

Other assets

124,414

111,267

Deferred charges

38,000

Long-term income taxes recoverable

31,678

24,482

Total assets

$

7,729,403

$

7,765,029

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

282,870

$

302,154

Current portion of long-term debt

10,000

10,000

Deferred revenues

572,915

644,211

Income taxes payable

45,680

38,234

Total current liabilities

911,465

994,599

Long-term liabilities:

Accrued liabilities

53,023

52,827

Deferred credits

2,727

Pension liability

65,265

65,719

Long-term debt

2,607,706

2,610,523

Deferred revenues

45,538

69,197

Long-term income taxes payable

172,641

172,241

Deferred tax liabilities

87,753

79,938

Total long-term liabilities

3,031,926

3,053,172

Shareholders’ equity:

Share capital and additional paid-in capital

268,569,471 and 267,651,084 Common Shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively; authorized Common Shares: unlimited

1,731,299

1,707,073

Accumulated other comprehensive income

25,971

33,645

Retained earnings

2,056,831

1,994,235

Treasury stock, at cost (816,704 shares at December 31, 2018 and 690,336 shares at June 30, 2018, respectively)

(29,241)

(18,732)

Total OpenText shareholders’ equity

3,784,860

3,716,221

Non-controlling interests

1,152

1,037

Total shareholders’ equity

3,786,012

3,717,258

Total liabilities and shareholders’ equity

$

7,729,403

$

7,765,029

 

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,

2018

2017

2018

2017

Revenues:

License

$

132,756

$

135,244

$

209,643

$

213,475

Cloud services and subscriptions

219,233

208,121

427,316

401,974

Customer support

310,354

308,070

621,905

603,474

Professional service and other

72,888

82,970

143,524

156,169

Total revenues

735,231

734,405

1,402,388

1,375,092

Cost of revenues:

License

3,655

4,587

7,527

7,547

Cloud services and subscriptions

88,698

90,485

176,401

174,619

Customer support

31,273

33,117

61,738

65,887

Professional service and other

56,030

64,886

112,826

124,314

Amortization of acquired technology-based intangible assets

48,366

47,128

95,843

91,088

Total cost of revenues

228,022

240,203

454,335

463,455

Gross profit

507,209

494,202

948,053

911,637

Operating expenses:

Research and development

75,753

80,123

153,223

157,697

Sales and marketing

126,193

129,151

246,375

251,766

General and administrative

52,198

48,954

103,122

97,856

Depreciation

23,834

22,071

47,688

40,949

Amortization of acquired customer-based intangible assets

45,919

46,268

91,795

90,057

Special charges

9,380

715

32,691

18,746

Total operating expenses

333,277

327,282

674,894

657,071

Income from operations

173,932

166,920

273,159

254,566

Other income (expense), net

378

5,547

1,900

15,771

Interest and other related expense, net

(33,613)

(34,404)

(68,144)

(68,215)

Income before income taxes

140,697

138,063

206,915

202,122

Provision for (recovery of) income taxes

36,236

53,146

66,086

80,515

Net income for the period

$

104,461

$

84,917

$

140,829

$

121,607

Net (income) loss attributable to non-controlling interests

(29)

194

(73)

100

Net income attributable to OpenText

$

104,432

$

85,111

$

140,756

$

121,707

Earnings per share—basic attributable to OpenText

$

0.39

$

0.32

$

0.52

$

0.46

Earnings per share—diluted attributable to OpenText

$

0.39

$

0.32

$

0.52

$

0.46

Weighted average number of Common Shares outstanding—basic

268,524

265,504

268,276

265,153

Weighted average number of Common Shares outstanding—diluted

269,400

266,857

269,396

266,549

 

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,

2018

2017

2018

2017

Net income for the period

$

104,461

$

84,917

$

140,829

$

121,607

Other comprehensive income (loss)—net of tax:

Net foreign currency translation adjustments

(3,418)

(1,446)

(6,938)

(540)

Unrealized gain (loss) on cash flow hedges:

Unrealized gain (loss) – net of tax expense (recovery) effect of ($677) and ($60) for the three months ended December 31, 2018 and 2017, respectively; ($496) and $403 for the six months ended December 31, 2018 and 2017, respectively

(1,877)

(168)

(1,375)

1,117

(Gain) loss reclassified into net income – net of tax (expense) recovery effect of $169 and ($141) for the three months ended December 31, 2018 and 2017, respectively; $301 and ($428) for the six months ended December 31, 2018 and 2017, respectively

467

(391)

833

(1,188)

Actuarial gain (loss) relating to defined benefit pension plans:

Actuarial gain (loss) – net of tax expense (recovery) effect of ($519) and ($153) for the three months ended December 31, 2018 and 2017, respectively; ($213) and ($236) for the six months ended December 31, 2018 and 2017, respectively

(1,521)

(48)

(324)

(163)

Amortization of actuarial (gain) loss into net income – net of tax (expense) recovery effect of $72 and $43 for the three months ended December 31, 2018 and 2017, respectively; $145 and $85 for the six months ended December 31, 2018 and 2017, respectively

64

56

130

112

Release of unrealized gain on marketable securities – net of tax effect of nil

(617)

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

(6,285)

(1,997)

(7,674)

(1,279)

Total comprehensive income

98,176

82,920

133,155

120,328

Comprehensive (income) loss attributable to non-controlling interests

(29)

194

(73)

100

Total comprehensive income attributable to OpenText

$

98,147

$

83,114

$

133,082

$

120,428

 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands of U.S. dollars and shares)

(unaudited)

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

494

12,431

12,431

Under employee stock purchase plans

187

5,569

5,569

Share-based compensation

6,555

6,555

Purchase of treasury stock

(304)

(11,719)

(11,719)

Issuance of treasury stock

(70)

3

70

Dividends declared

($0.1518 per Common Share)

(40,466)

(40,466)

Other comprehensive income – net

(1,389)

(1,389)

Non-controlling interest

(625)

42

(583)

Net income for the quarter

36,324

44

36,368

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 declared
($0.1518 per Common Share)

(40,700)

(40,700)

Other comprehensive income – 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, 2017

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, 2017

264,060

$

1,613,454

(1,102)

$

(27,520)

$

1,897,624

$

48,800

$

961

$

3,533,319

Issuance of Common Shares

Under employee stock option plans

1,048

16,154

16,154

Under employee stock purchase plans

180

4,837

4,837

Share-based compensation

8,235

8,235

Issuance of treasury stock

(178)

9

178

Dividends declared
($0.1320 per Common Share)

(35,017)

(35,017)

Other comprehensive income – net

718

718

Net income for the quarter

36,596

94

36,690

Balance as of September 30, 2017

265,288

$

1,642,502

(1,093)

$

(27,342)

$

1,899,203

$

49,518

$

1,055

$

3,564,936

Issuance of Common Shares

Under employee stock option plans

145

$

3,374

$

$

$

$

$

3,374

Under employee stock purchase plans

193

5,275

5,275

Share-based compensation

7,158

7,158

Issuance of treasury stock

(8,092)

379

8,092

Dividends declared
($0.1320 per Common Share)

(34,811)

(34,811)

Other comprehensive income – net

(1,997)

(1,997)

Net income for the year

85,111

(194)

84,917

Balance as of December 31, 2017

265,626

$

1,650,217

(714)

$

(19,250)

$

1,949,503

$

47,521

$

861

$

3,628,852

 

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,

2018

2017

2018

2017

Cash flows from operating activities:

Net income for the period

$

104,461

$

84,917

$

140,829

$

121,607

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of intangible assets

118,119

115,467

235,326

222,094

Share-based compensation expense

6,885

7,158

13,440

15,393

Pension expense

1,109

834

2,254

1,869

Amortization of debt issuance costs

1,079

1,234

2,157

2,532

Amortization of deferred charges and credits

1,117

2,234

Loss on sale and write down of property and equipment

1,639

9,428

163

Release of unrealized gain on marketable securities to income

(841)

Deferred taxes

1,140

38,427

8,909

44,374

Share in net (income) loss of equity investees

(5,491)

(316)

(7,863)

196

Changes in operating assets and liabilities:

Accounts receivable

(40,327)

(54,620)

33,548

(49,458)

Contract assets

(8,054)

(13,400)

Prepaid expenses and other current assets

2,800

(2,575)

12,532

(5,383)

Income taxes and deferred charges and credits

4,763

(7,565)

17,324

1,583

Accounts payable and accrued liabilities

10,253

(8,023)

(29,748)

(72,499)

Deferred revenue

(11,748)

(10,366)

(69,151)

(48,846)

Other assets

2,475

497

4,919

(1,586)

Net cash provided by operating activities

189,103

166,186

360,504

233,432

Cash flows from investing activities:

Additions of property and equipment

(8,969)

(25,488)

(33,464)

(55,937)

Purchase of Liaison Technologies, Inc.

(311,285)

(311,285)

Purchase of Guidance Software net of cash acquired

(8,510)

(2,279)

(229,275)

Purchase of Covisint Corporation, net of cash acquired

(71,279)

Other investing activities

(5,369)

(3,855)

(6,373)

(8,061)

Net cash used in investing activities

(325,623)

(37,853)

(353,401)

(364,552)

Cash flows from financing activities:

Proceeds from issuance of long-term debt and revolver

200,000

Proceeds from issuance of Common Shares from exercise of stock options and ESPP

6,159

7,797

24,286

29,622

Repayment of long-term debt and revolver

(2,500)

(1,940)

(5,000)

(3,880)

Debt issuance costs

(322)

Purchase of treasury stock

(12,815)

(24,534)

Repurchase of non-controlling interest

(583)

Payments of dividends to shareholders

(40,700)

(34,811)

(81,166)

(69,828)

Net cash provided by (used in) financing activities

(49,856)

(28,954)

(87,319)

155,914

Foreign exchange gain (loss) on cash held in foreign currencies

(6,329)

(216)

(5,901)

7,546

Increase (decrease) in cash, cash equivalents and restricted cash during the period

(192,705)

99,163

(86,117)

32,340

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

790,579

379,387

683,991

446,210

Cash, cash equivalents and restricted cash at end of the period

$

597,874

$

478,550

$

597,874

$

478,550

Reconciliation of cash, cash equivalents and restricted cash:

December 31, 2018

December 31, 2017

Cash and cash equivalents

595,069

476,014

Restricted cash included in Other assets

2,805

2,536

Total Cash, cash equivalents and restricted cash

$

597,874

$

478,550

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 calculated as GAAP-based net income or earnings per share, attributable to OpenText, on a diluted basis, after giving effect to 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 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 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 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. Results for reporting periods commencing July 1, 2018 are presented under the new Topic 606 revenue standard, while prior period results continue to be reported under the previous standard. For more details relating to our adoption of Topic 606 please see Note 1 “Basis of Presentation” and Note 3 “Revenues” to our Condensed Consolidated Financial Statements on Form 10-Q.

 

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 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

 

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 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

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

for the three months ended September 30, 2018.

(In thousands except for per share amounts)

Three Months Ended September 30, 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

$

87,703

$

(317)

(1)

$

87,386

Customer support

30,465

(300)

(1)

30,165

Professional service and other

56,796

(524)

(1)

56,272

Amortization of acquired technology-based intangible assets

47,477

(47,477)

(2)

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

440,844

66.1

%

48,618

(3)

489,462

73.4

%

Operating expenses

Research and development

77,470

(1,359)

(1)

76,111

Sales and marketing

120,182

(1,801)

(1)

118,381

General and administrative

50,924

(2,254)

(1)

48,670

Amortization of acquired customer-based intangible assets

45,876

(45,876)

(2)

Special charges (recoveries)

23,311

(23,311)

(4)

GAAP-based income from operations / Non-GAAP-based income from operations

99,227

123,219

(5)

222,446

Other income (expense), net

1,522

(1,522)

(6)

Provision for (recovery of) income taxes

29,850

(3,542)

(7)

26,308

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

36,324

125,239

(8)

161,563

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

$

0.13

$

0.47

(8)

$

0.60

(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 45% 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 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, 2018

Per share diluted

GAAP-based net income, attributable to OpenText

$

36,324

$

0.13

Add:

Amortization

93,353

0.35

Share-based compensation

6,555

0.02

Special charges (recoveries)

23,311

0.09

Other (income) expense, net

(1,522)

(0.01)

GAAP-based provision for (recovery of) income taxes

29,850

0.11

Non-GAAP-based provision for income taxes

(26,308)

(0.09)

Non-GAAP-based net income, attributable to OpenText

$

161,563

$

0.60

 

Reconciliation of Adjusted EBITDA

Three Months Ended September 30, 2018

GAAP-based net income, attributable to OpenText

$

36,324

Add:

Provision for (recovery of) income taxes

29,850

Interest and other related expense, net

34,531

Amortization of acquired technology-based intangible assets

47,477

Amortization of acquired customer-based intangible assets

45,876

Depreciation

23,854

Share-based compensation

6,555

Special charges (recoveries)

23,311

Other (income) expense, net

(1,522)

Adjusted EBITDA

$

246,256

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

for the three months ended December 31, 2017.

(In thousands except for per share amounts)

Three Months Ended December 31, 2017

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

$

90,485

$

(462)

(1)

$

90,023

Customer support

33,117

(327)

(1)

32,790

Professional service and other

64,886

(603)

(1)

64,283

Amortization of acquired technology-based intangible assets

47,128

(47,128)

(2)

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

494,202

67.3

%

48,520

(3)

542,722

73.9

%

Operating expenses

Research and development

80,123

(1,587)

(1)

78,536

Sales and marketing

129,151

(2,095)

(1)

127,056

General and administrative

48,954

(2,084)

(1)

46,870

Amortization of acquired customer-based intangible assets

46,268

(46,268)

(2)

Special charges (recoveries)

715

(715)

(4)

GAAP-based income from operations / Non-GAAP-based income from operations

166,920

101,269

(5)

268,189

Other income (expense), net

5,547

(5,547)

(6)

Provision for (recovery of) income taxes

53,146

(22,095)

(7)

31,051

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

85,111

117,817

(8)

202,928

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

$

0.32

$

0.44

(8)

$

0.76

(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 38% and a Non-GAAP-based tax rate of approximately 13%; 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 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 13%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. In addition, as a result of the changes in US tax reform legislation that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act, the Company reassessed its Non-GAAP-based tax rate to be approximately 14% for the six months ended December 31, 2017, down from 15%. Pursuant to this, the Non-GAAP-based tax rate of approximately 13% for the three months ended December 31, 2017 includes a one-time cumulative catch up of recoveries and charges, as though the Company’s Non-GAAP-based tax rate was 14% as of July 1, 2017.

(8)

Reconciliation of GAAP-based net income to Non-GAAP-based net income:

 

Three Months Ended December 31, 2017

Per share diluted

GAAP-based net income, attributable to OpenText

$

85,111

$

0.32

Add:

Amortization

93,396

0.35

Share-based compensation

7,158

0.03

Special charges (recoveries)

715

Other (income) expense, net

(5,547)

(0.02)

GAAP-based provision for (recovery of) income taxes

53,146

0.20

Non-GAAP-based provision for income taxes

(31,051)

(0.12)

Non-GAAP-based net income, attributable to OpenText

$

202,928

$

0.76

 

Reconciliation of Adjusted EBITDA

Three months ended December 31, 2017

GAAP-based net income, attributable to OpenText

$

85,111

Add:

Provision for (recovery of) income taxes

53,146

Interest and other related expense, net

34,404

Amortization of acquired technology-based intangible assets

47,128

Amortization of acquired customer-based intangible assets

46,268

Depreciation

22,071

Share-based compensation

7,158

Special charges (recoveries)

715

Other (income) expense, net

(5,547)

Adjusted EBITDA

$

290,454

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

for the six months ended December 31, 2017.

(In thousands except for per share amounts)

Six Months Ended December 31, 2017

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

$

174,619

$

(984)

(1)

$

173,635

Customer support

65,887

(656)

(1)

65,231

Professional service and other

124,314

(1,200)

(1)

123,114

Amortization of acquired technology-based intangible assets

91,088

(91,088)

(2)

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

911,637

66.3

%

93,928

(3)

1,005,565

73.1

%

Operating expenses

Research and development

157,697

(3,213)

(1)

154,484

Sales and marketing

251,766

(5,183)

(1)

246,583

General and administrative

97,856

(4,157)

(1)

93,699

Amortization of acquired customer-based intangible assets

90,057

(90,057)

(2)

Special charges (recoveries)

18,746

(18,746)

(4)

GAAP-based income from operations / Non-GAAP-based income from operations

254,566

215,284

(5)

469,850

Other income (expense), net

15,771

(15,771)

(6)

Provision for (recovery of) income taxes

80,515

(24,286)

(7)

56,229

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

121,707

223,799

(8)

345,506

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

$

0.46

$

0.84

(8)

$

1.30

(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, and operating margin stated as a percentage of total revenue.

(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 40% 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 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. We also took into consideration changes in US tax reform legislation that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act.

(8)

Reconciliation of GAAP-based net income to Non-GAAP-based net income:

 

Six Months Ended December 31, 2017

Per share diluted 

GAAP-based net income, attributable to OpenText

$

121,707

$

0.46

Add:

Amortization

181,145

0.68

Share-based compensation

15,393

0.06

Special charges (recoveries)

18,746

0.07

Other (income) expense, net

(15,771)

(0.06)

GAAP-based provision for (recovery of) income taxes

80,515

0.30

Non-GAAP based provision for income taxes

(56,229)

(0.21)

Non-GAAP-based net income, attributable to OpenText

$

345,506

$

1.30

 

Reconciliation of Adjusted EBITDA

Six Months Ended December 31, 2017

GAAP-based net income, attributable to OpenText

$

121,707

Add:

Provision for (recovery of) income taxes

80,515

Interest and other related expense, net

68,215

Amortization of acquired technology-based intangible assets

91,088

Amortization of acquired customer-based intangible assets

90,057

Depreciation

40,949

Share-based compensation

15,393

Special charges (recoveries)

18,746

Other (income) expense, net

(15,771)

Adjusted EBITDA

$

510,899

(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, 2018 and 2017:

 

Three Months Ended December 31, 2018

Three Months Ended December 31, 2017

Currencies

% of Revenue 

% of Expenses* 

% of Revenue 

% of Expenses* 

EURO

25

%

15

%

23

%

16

%

GBP

6

%

6

%

6

%

6

%

CAD

4

%

10

%

3

%

10

%

USD

57

%

51

%

58

%

52

%

Other

8

%

18

%

10

%

16

%

Total

100

%

100

%

100

%

100

%

 

Six Months Ended December 31, 2018

Six Months Ended December 31, 2017

Currencies

% of Revenue

% of Expenses* 

% of Revenue 

% of Expenses* 

EURO

24

%

15

%

22

%

15

%

GBP

6

%

6

%

6

%

6

%

CAD

4

%

11

%

4

%

11

%

USD

57

%

51

%

59

%

52

%

Other

9

%

17

%

9

%

16

%

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).

 

Cision View original content:http://www.prnewswire.com/news-releases/opentext-reports-second-quarter-fiscal-year-2019-financial-results-300787799.html

SOURCE Open Text Corporation

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