Summary of Annual Results

(in millions except per share data)

FY19

FY18

$ Change

% Change
(Y/Y)

FY19 in
CC*

% Change
in CC*

Revenues:

Cloud services and subscriptions

$907.8

$829.0

$78.8

9.5

%

$918.6

10.8

%

Customer support

1,247.9

1,232.5

15.4

1.3

%

1,271.1

3.1

%

Total annual recurring revenues**

$2,155.7

$2,061.5

$94.3

4.6

%

$2,189.7

6.2

%

License

428.1

437.5

(9.4)

(2.2)

%

439.3

0.4

%

Professional service and other

284.9

316.3

(31.3)

(9.9)

%

293.0

(7.4)

%

Total revenues

$2,868.8

$2,815.2

$53.5

1.9

%

$2,922.0

3.8

%

GAAP-based operating income

$567.0

$506.7

$60.3

11.9

%

N/A

N/A

Non-GAAP-based operating income ₍₁₎

$1,002.7

$933.5

$69.2

7.4

%

$1,013.4

8.6

%

GAAP-based EPS, diluted

$1.06

$0.91

$0.15

16.5

%

N/A

N/A

Non-GAAP-based EPS, diluted ₍₁₎₍₂₎

$2.76

$2.56

$0.20

7.8

%

$2.79

9.0

%

GAAP-based net income attributable to OpenText

$285.5

$242.2

$43.3

17.9

%

N/A

N/A

Adjusted EBITDA ₍₁₎

$1,100.3

$1,020.4

$79.9

7.8

%

$1,111.8

9.0

%

Operating cash flows

$876.3

$708.1

$168.2

23.8

%

N/A

N/A

(in millions except per share data)

Q4 FY19

Q4 FY18

$ Change

% Change
(Y/Y)

Q4 FY19
in CC*

% Change
in CC*

Revenues:

Cloud services and subscriptions

$241.9

$217.9

$24.0

11.0

%

$246.5

13.1

%

Customer support

315.2

316.8

(1.5)

(0.5)

%

325.4

2.7

%

Total annual recurring revenues**

$557.1

$534.6

$22.5

4.2

%

$572.0

7.0

%

License

119.7

139.9

(20.2)

(14.4)

%

124.1

(11.3)

%

Professional service and other

70.4

79.7

(9.3)

(11.7)

%

73.2

(8.1)

%

Total revenues

$747.2

$754.3

($7.0)

(0.9)

%

$769.3

2.0

%

GAAP-based operating income

$158.0

$149.4

$8.6

5.8

%

N/A

N/A

Non-GAAP-based operating income ₍₁₎

$259.0

$259.1

($0.1)

—

%

$266.9

3.0

%

GAAP-based EPS, diluted

$0.27

$0.23

$0.04

17.4

%

N/A

N/A

Non-GAAP-based EPS, diluted ₍₁₎₍₂₎

$0.72

$0.72

$—

—

%

$0.74

2.8

%

GAAP-based net income attributable to OpenText

$72.0

$61.7

$10.3

16.6

%

N/A

N/A

Adjusted EBITDA ₍₁₎

$283.9

$281.8

$2.1

0.8

%

$292.2

3.6

%

Operating cash flows

$229.8

$204.1

$25.7

12.6

%

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.

Summary of Annual Results

FY19

FY18

% Change

Revenue (million)

$2,868.8

$2,815.2

1.9

%

GAAP-based gross margin

67.6

%

66.2

%

140

bps

GAAP-based EPS, diluted

$1.06

$0.91

16.5

%

Non-GAAP-based gross margin ₍₁₎

74.1

%

73.0

%

110

bps

Non-GAAP-based EPS, diluted ₍₁₎₍₂₎

$2.76

$2.56

7.8

%

Q4 FY19

Q3 FY19

Q4 FY18

% Change
(Q4 FY19 vs
Q3 FY19)

% Change
(Q4 FY19 vs
Q4 FY18)

Revenue (million)

$747.2

$719.1

$754.3

3.9

%

(0.9)

%

GAAP-based gross margin

68.3

%

66.7

%

67.5

%

160

bps

80

bps

GAAP-based EPS, diluted

$0.27

$0.27

$0.23

—

%

17.4

%

Non-GAAP-based gross margin ₍₁₎

74.2

%

73.0

%

74.0

%

120

bps

20

bps

Non-GAAP-based EPS, diluted ₍₁₎₍₂₎

$0.72

$0.64

$0.72

12.5

%

—

%

⁽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.

OPEN TEXT CORPORATION

CONSOLIDATED BALANCE SHEETS

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

June 30, 2019

June 30, 2018

ASSETS

Cash and cash equivalents

$

941,009

$

682,942

Accounts receivable trade, net of allowance for doubtful accounts of $17,011 as of June 30, 2019 and $9,741 as of June 30, 2018

463,785

487,956

Contract assets

20,956

—

Income taxes recoverable

38,340

55,623

Prepaid expenses and other current assets

97,238

101,059

Total current assets

1,561,328

1,327,580

Property and equipment

249,453

264,205

Long-term contract assets

15,386

—

Goodwill

3,769,908

3,580,129

Acquired intangible assets

1,146,504

1,296,637

Deferred tax assets

1,004,450

1,122,729

Other assets

148,977

111,267

Deferred charges

—

38,000

Long-term income taxes recoverable

37,969

24,482

Total assets

$

7,933,975

$

7,765,029

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

329,903

$

302,154

Current portion of long-term debt

10,000

10,000

Deferred revenues

641,656

644,211

Income taxes payable

33,158

38,234

Total current liabilities

1,014,717

994,599

Long-term liabilities:

Accrued liabilities

49,441

52,827

Deferred credits

—

2,727

Pension liability

75,239

65,719

Long-term debt

2,604,878

2,610,523

Deferred revenues

46,974

69,197

Long-term income taxes payable

202,184

172,241

Deferred tax liabilities

55,872

79,938

Total long-term liabilities

3,034,588

3,053,172

Shareholders’ equity:

Share capital and additional paid-in capital

269,834,442 and 267,651,084 Common Shares issued and outstanding at June 30, 2019 and June 30, 2018, respectively; authorized Common Shares: unlimited

1,774,214

1,707,073

Accumulated other comprehensive income

24,124

33,645

Retained earnings

2,113,883

1,994,235

Treasury stock, at cost (802,871 shares at June 30, 2019 and 690,336 shares at June 30, 2018, respectively)

(28,766)

(18,732)

Total OpenText shareholders’ equity

3,883,455

3,716,221

Non-controlling interests

1,215

1,037

Total shareholders’ equity

3,884,670

3,717,258

Total liabilities and shareholders’ equity

$

7,933,975

$

7,765,029

OPEN TEXT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

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

Year Ended June 30,

2019

2018

2017

Revenues:

License

$

428,092

$

437,512

$

369,144

Cloud services and subscriptions

907,812

828,968

705,495

Customer support

1,247,915

1,232,504

981,102

Professional service and other

284,936

316,257

235,316

Total revenues

2,868,755

2,815,241

2,291,057

Cost of revenues:

License

14,347

13,693

13,632

Cloud services and subscriptions

383,993

364,160

299,850

Customer support

124,343

133,889

122,565

Professional service and other

224,635

253,389

194,954

Amortization of acquired technology-based intangible assets

183,385

185,868

130,556

Total cost of revenues

930,703

950,999

761,557

Gross profit

1,938,052

1,864,242

1,529,500

Operating expenses:

Research and development

321,836

322,909

281,215

Sales and marketing

518,035

529,141

444,454

General and administrative

207,909

205,227

170,353

Depreciation

97,716

86,943

64,318

Amortization of acquired customer-based intangible assets

189,827

184,118

150,842

Special charges

35,719

29,211

63,618

Total operating expenses

1,371,042

1,357,549

1,174,800

Income from operations

567,010

506,693

354,700

Other income (expense), net

10,156

17,973

15,743

Interest and other related expense, net

(136,592)

(138,540)

(120,892)

Income before income taxes

440,574

386,126

249,551

Provision for (recovery of) income taxes

154,937

143,826

(776,364)

Net income for the period

$

285,637

$

242,300

$

1,025,915

Net (income) loss attributable to non-controlling interests

(136)

(76)

(256)

Net income attributable to OpenText

$

285,501

$

242,224

$

1,025,659

Earnings per share—basic attributable to OpenText

$

1.06

$

0.91

$

4.04

Earnings per share—diluted attributable to OpenText

$

1.06

$

0.91

$

4.01

Weighted average number of Common Shares outstanding—basic

268,784

266,085

253,879

Weighted average number of Common Shares outstanding—diluted

269,908

267,492

255,805

OPEN TEXT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

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

(unaudited)

Three Months Ended June 30,

2019

2018

Revenues:

License

$

119,728

$

139,924

Cloud services and subscriptions

241,889

217,892

Customer support

315,248

316,751

Professional service and other

70,356

79,703

Total revenues

747,221

754,270

Cost of revenues:

License

4,128

3,048

Cloud services and subscriptions

103,719

95,346

Customer support

30,761

34,232

Professional service and other

55,183

64,896

Amortization of acquired technology-based intangible assets

42,946

47,477

Total cost of revenues

236,737

244,999

Gross profit

510,484

509,271

Operating expenses:

Research and development

83,708

81,816

Sales and marketing

139,416

147,499

General and administrative

52,954

52,577

Depreciation

25,000

22,901

Amortization of acquired customer-based intangible assets

49,200

47,299

Special charges

2,232

7,821

Total operating expenses

352,510

359,913

Income from operations

157,974

149,358

Other income (expense), net

3,191

(8,938)

Interest and other related expense, net

(32,841)

(35,345)

Income before income taxes

128,324

105,075

Provision for (recovery of) income taxes

56,309

43,182

Net income for the period

$

72,015

$

61,893

Net (income) loss attributable to non-controlling interests

(32)

(170)

Net income attributable to OpenText

$

71,983

$

61,723

Earnings per share—basic attributable to OpenText

$

0.27

$

0.23

Earnings per share—diluted attributable to OpenText

$

0.27

$

0.23

Weighted average number of Common Shares outstanding—basic

269,446

267,489

Weighted average number of Common Shares outstanding—diluted

270,652

268,628

OPEN TEXT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

Year Ended June 30,

2019

2018

Net income for the period

$

285,637

$

242,300

$

1,025,915

Other comprehensive income (loss)—net of tax:

Net foreign currency translation adjustments

(3,882)

(9,582)

(4,756)

Unrealized gain (loss) on cash flow hedges:

Unrealized gain (loss) – net of tax expense (recovery) effect of $6, ($171) and $34 for the year ended June 30, 2019, 2018 and 2017, respectively

16

(476)

95

(Gain) loss reclassified into net income – net of tax (expense) recovery effect of $539, ($489) and $67 for the year ended June 30, 2019, 2018 and 2017, respectively

1,494

(1,357)

186

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

Actuarial gain (loss) – net of tax expense (recovery) effect of ($2,004), ($1,846) and $840 for the year ended June 30, 2019, 2018 and 2017, respectively

(7,421)

(3,383)

6,216

Amortization of actuarial (gain) loss into net income – net of tax (expense) recovery effect of $292, $183 and $241 for the year ended June 30, 2019, 2018 and 2017, respectively

272

260

565

Unrealized net gain (loss) on marketable securities – net of tax effect of nil for the year ended June 30, 2019, 2018 and 2017 respectively

—

—

184

Release of unrealized gain on marketable securities – net of tax effect of nil for the year ended June 30, 2019, 2018 and 2017 respectively

—

(617)

—

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

(9,521)

(15,155)

2,490

Total comprehensive income

276,116

227,145

1,028,405

Comprehensive (income) loss attributable to non-controlling interests

(136)

(76)

(256)

Total comprehensive income attributable to OpenText

$

275,980

$

227,069

$

1,028,149

OPEN TEXT CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

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, 2016

242,810

$

965,068

(1,268)

$

(25,268)

$

992,546

$

46,310

$

541

$

1,979,197

Issuance of Common Shares

Under employee stock option plans

1,012

20,732

—

—

—

—

—

20,732

Under employee stock purchase plans

427

11,604

—

—

—

—

—

11,604

Under the public Equity Offering

19,811

604,223

—

—

—

—

—

604,223

Income tax effect related to public Equity offering

—

5,077

—

—

—

—

—

5,077

Equity issuance costs

—

(19,574)

—

—

—

—

—

(19,574)

Share-based compensation

—

30,507

—

—

—

—

—

30,507

Income tax effect related to share-based compensation

—

1,534

—

—

—

—

—

1,534

Purchase of treasury stock

—

—

(244)

(8,198)

—

—

—

(8,198)

Issuance of treasury stock

—

(5,946)

410

5,946

—

—

—

—

Dividends declared

($0.4770 per Common Share)

—

—

—

—

(120,581)

—

—

(120,581)

Other comprehensive income – net

—

—

—

—

—

2,490

—

2,490

Non-controlling interest

—

229

—

—

—

—

164

393

Net income for the year

—

—

—

—

1,025,659

—

256

1,025,915

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

2,870

54,355

—

—

—

—

—

54,355

Under employee stock purchase plans

721

20,458

—

—

—

—

—

20,458

Share-based compensation

—

27,594

—

—

—

—

—

27,594

Issuance of treasury stock

—

(8,788)

411

8,788

—

—

—

—

Dividends declared

($0.5478 per Common Share)

—

—

—

—

(145,613)

—

—

(145,613)

Other comprehensive income – net

—

—

—

—

—

(15,155)

—

(15,155)

Net income for the year

—

—

—

—

242,224

—

76

242,300

Balance as of June 30, 2018

267,651

$

1,707,073

(691)

$

(18,732)

$

1,994,235

$

33,645

$

1,037

$

3,717,258

Issuance of Common Shares

Under employee stock option plans

1,472

35,626

—

—

—

—

—

35,626

Under employee stock purchase plans

711

21,835

—

—

—

—

—

21,835

Share-based compensation

—

26,770

—

—

—

—

—

26,770

Purchase of treasury stock

—

—

(726)

(26,499)

—

—

—

(26,499)

Issuance of treasury stock

—

(16,465)

614

16,465

—

—

—

—

Dividends declared

($0.6300 per Common Share)

—

—

—

—

(168,859)

—

—

(168,859)

Cumulative effect of ASU 2016-16

—

—

—

—

(26,780)

—

—

(26,780)

Cumulative effect of Topic 606

—

—

—

—

29,786

—

—

29,786

Other comprehensive income – net

—

—

—

—

—

(9,521)

—

(9,521)

Non-controlling interest

—

(625)

—

—

—

—

42

(583)

Net income for the year

—

—

—

—

285,501

—

136

285,637

Balance as of June 30, 2019

269,834

$

1,774,214

(803)

$

(28,766)

$

2,113,883

$

24,124

$

1,215

$

3,884,670

OPEN TEXT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

Year Ended June 30,

2019

2018

2017

Cash flows from operating activities:

Net income for the period

$

285,637

$

242,300

$

1,025,915

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

Depreciation and amortization of intangible assets

470,928

456,929

345,715

Share-based compensation expense

26,770

27,594

30,507

Excess tax expense (benefits) on share-based compensation expense

—

—

(1,534)

Pension expense

4,624

3,738

3,893

Amortization of debt issuance costs

4,330

4,646

5,014

Amortization of deferred charges and credits

—

4,242

6,298

Loss on sale and write down of property and equipment

9,438

2,234

784

Release of unrealized gain on marketable securities to income

—

(841)

—

Deferred taxes

47,425

89,736

(871,195)

Share in net (income) loss of equity investees

(13,668)

(5,965)

(5,952)

Write off of unamortized debt issuance costs

—

155

833

Other non-cash charges

—

—

1,033

Changes in operating assets and liabilities:

Accounts receivable

75,508

(22,566)

(126,784)

Contract assets

(37,623)

—

—

Prepaid expenses and other current assets

(819)

(7,274)

(7,766)

Income taxes and deferred charges and credits

27,291

(31,323)

(1,683)

Accounts payable and accrued liabilities

(21,732)

(91,650)

53,490

Deferred revenue

(1,827)

35,629

3,484

Other assets

(4)

497

(21,699)

Net cash provided by operating activities

876,278

708,081

440,353

Cash flows from investing activities:

Additions of property and equipment

(63,837)

(105,318)

(79,592)

Proceeds from maturity of short-term investments

—

—

9,212

Purchase of Catalyst Repository Systems Inc.

(70,800)

—

—

Purchase of Liaison Technologies

(310,644)

—

—

Purchase of Hightail Inc.

—

(20,535)

—

Purchase of Guidance Software,  net of cash acquired

(2,279)

(229,275)

—

Purchase of Covisint Corporation, net of cash acquired

—

(71,279)

—

Purchase of ECD Business

—

—

(1,622,394)

Purchase of HP Inc. CCM Business

—

—

(315,000)

Purchase of Recommind, Inc.

—

—

(170,107)

Purchase consideration for prior period acquisitions

—

—

(7,146)

Other investing activities

(16,966)

(18,034)

(5,937)

Net cash used in investing activities

(464,526)

(444,441)

(2,190,964)

Cash flows from financing activities:

Excess tax (expense) benefits on share-based compensation expense

—

—

1,534

Proceeds from issuance of long-term debt and revolver

—

1,200,000

481,875

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

57,889

75,935

35,593

Proceeds from issuance of Common shares under public Equity Offering

—

—

604,223

Repayment of long-term debt and revolver

(10,000)

(1,149,620)

(57,880)

Debt issuance costs

(322)

(4,375)

(7,240)

Equity issuance costs

—

—

(19,574)

Purchase of treasury stock

(26,499)

—

(8,198)

Purchase of non-controlling interest

(583)

—

(208)

Payments of dividends to shareholders

(168,859)

(145,613)

(120,581)

Net cash provided by (used in) financing activities

(148,374)

(23,673)

909,544

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

(3,826)

(2,186)

1,767

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

259,552

237,781

(839,300)

Cash and cash equivalents at beginning of the period

683,991

446,210

1,285,510

Cash and cash equivalents at end of the period

$

943,543

$

683,991

$

446,210

Reconciliation of cash, cash equivalents and restricted cash:

June 30, 2018

June 30, 2017

Cash and cash equivalents

$

941,009

$

682,942

$

443,357

Restricted cash included in Other assets

2,534

1,049

2,853

Total cash, cash equivalents and restricted cash

$

943,543

$

683,991

$

446,210

OPEN TEXT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)

Three Months Ended June 30,

2019

2018

Cash flows from operating activities:

Net income for the period

$

72,015

$

61,893

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

Depreciation and amortization of intangible assets

117,146

117,677

Share-based compensation expense

6,618

7,121

Pension expense

1,212

904

Amortization of debt issuance costs

1,096

811

Amortization of deferred charges and credits

—

1,067

Write off of unamortized debt issuance costs

—

155

Loss on sale and write down of property and equipment

—

1,745

Deferred taxes

36,118

27,096

Share in net (income) loss of equity investees

(3,016)

(6,468)

Changes in operating assets and liabilities:

Accounts receivable

22,731

33,132

Contract assets

(8,751)

—

Prepaid expenses and other current assets

(324)

3,261

Income taxes and deferred charges and credits

6,285

(9,255)

Accounts payable and accrued liabilities

8,912

628

Deferred revenue

(25,961)

(39,075)

Other assets

(4,304)

3,368

Net cash provided by operating activities

229,777

204,060

Cash flows from investing activities:

Additions of property and equipment

(13,405)

(22,280)

Purchase of Hightail Inc.

—

(69)

Other investing activities

(8,762)

(6,855)

Net cash used in investing activities

(22,167)

(29,204)

Cash flows from financing activities:

Proceeds from issuance of long-term debt and revolver

—

1,000,000

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

15,792

9,871

Repayment of long-term debt and revolver

(2,500)

(1,043,800)

Debt issuance costs

—

(4,375)

Payments of dividends to shareholders

(46,958)

(40,617)

Net cash provided by (used in) financing activities

(33,666)

(78,921)

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

83

(19,889)

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

174,027

76,046

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

769,516

607,945

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

$

943,543

$

683,991

Reconciliation of cash, cash equivalents and restricted cash:

June 30, 2019

June 30, 2018

Cash and cash equivalents

941,009

682,942

Restricted cash included in Other assets

2,534

1,049

Total Cash, cash equivalents and restricted cash

$

943,543

$

683,991

(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, 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 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 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 Consolidated Financial Statements on Form 10-K.

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the three months ended June 30, 2019.
(In thousands except for per share amounts)

Three Months Ended June 30, 2019

GAAP-based
Measures

GAAP-based
Measures
% of Total Revenue

Adjustments

Note

Non-GAAP-
based
Measures

Non-GAAP-
based
Measures
% of Total
Revenue

Cost of revenues

Cloud services and subscriptions

$

103,719

$

(75)

(1)

$

103,644

Customer support

30,761

(361)

(1)

30,400

Professional service and other

55,183

(434)

(1)

54,749

Amortization of acquired technology-based intangible assets

42,946

(42,946)

(2)

—

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

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

510,484

68.3

%

43,816

(3)

554,300

74.2

%

Research and development

83,708

(1,323)

(1)

82,385

Sales and marketing

139,416

(2,006)

(1)

137,410

General and administrative

52,954

(2,419)

(1)

50,535

Amortization of acquired customer-based intangible assets

49,200

(49,200)

(2)

—

Special charges (recoveries)

2,232

(2,232)

(4)

—

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

157,974

100,996

(5)

258,970

Other income (expense), net

3,191

(3,191)

(6)

—

Provision for (recovery of) income taxes

56,309

(24,651)

(7)

31,658

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

71,983

122,456

(8)

194,439

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

$

0.27

$

0.45

(8)

$

0.72

(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 44% 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 June 30, 2019

Per share diluted

GAAP-based net income, attributable to OpenText

$

71,983

$

0.27

Add:

Amortization

92,146

0.34

Share-based compensation

6,618

0.02

Special charges (recoveries)

2,232

0.01

Other (income) expense, net

(3,191)

(0.01)

GAAP-based provision for (recovery of) income taxes

56,309

0.21

Non-GAAP-based provision for income taxes

(31,658)

(0.12)

Non-GAAP-based net income, attributable to OpenText

$

194,439

$

0.72

Reconciliation of Adjusted EBITDA

Three Months Ended June 30, 2019

GAAP-based net income, attributable to OpenText

$

71,983

Add:

Provision for (recovery of) income taxes

56,309

Interest and other related expense, net

32,841

Amortization of acquired technology-based intangible assets

42,946

Amortization of acquired customer-based intangible assets

49,200

Depreciation

25,000

Share-based compensation

6,618

Special charges (recoveries)

2,232

Other (income) expense, net

(3,191)

Adjusted EBITDA

$

283,938

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the year ended June 30, 2019.
(In thousands except for per share amounts)

Year Ended June 30, 2019

GAAP-based
Measures

GAAP-based
Measures
% of Total
Revenue

Adjustments

Note

Non-GAAP-
based
Measures

Non-GAAP-
based
Measures
% of Total
Revenue

Cost of revenues

Cloud services and subscriptions

$

383,993

$

(948)

(1)

$

383,045

Customer support

124,343

(1,242)

(1)