Total Revenues

(in millions)

Annual Recurring Revenues

(in millions)

Cloud Revenues

(in millions)

Reported

Constant
Currency

Reported

Constant
Currency

Reported

Constant
Currency

$814.7

$820.4

$662.3

$666.3

$339.5

$340.6

+13.3%

+14.1%

+20.6%

+21.3%

+42.3%

+42.8%

Annual Recurring Revenues represents 81% of Total Revenues

Summary of Quarterly Results

Q3 FY20

Q3 FY19

$ Change

% Change

(Y/Y)

Q3 FY20

in CC*

% Change

in CC*

Revenues:

Cloud services and subscriptions

$339.5

$238.6

$100.9

42.3

%

$340.6

42.8

%

Customer support

322.9

310.8

12.1

3.9

%

325.7

4.8

%

Total annual recurring revenues**

$662.3

$549.4

$113.0

20.6

%

$666.3

21.3

%

License

81.1

98.7

(17.7)

(17.9)

%

81.9

(17.0)

%

Professional service and other

71.3

71.1

0.2

0.3

%

72.1

1.5

%

Total revenues

$814.7

$719.1

$95.5

13.3

%

$820.4

14.1

%

GAAP-based operating income

$95.1

$135.9

($40.8)

(30.0)

%

N/A

N/A

Non-GAAP-based operating income ₍₁₎

$234.7

$236.8

($2.1)

(0.9)

%

$238.5

0.7

%

GAAP-based EPS, diluted

$0.10

$0.27

($0.17)

(63.0)

%

N/A

N/A

Non-GAAP-based EPS, diluted ₍₁₎₍₂₎

$0.61

$0.64

($0.03)

(4.7)

%

$0.62

(3.1)

%

GAAP-based net income attributable to OpenText

$26.0

$72.8

($46.8)

(64.3)

%

N/A

N/A

Adjusted EBITDA ₍₁₎

$259.5

$261.8

($2.3)

(0.9)

%

$263.1

0.5

%

Operating cash flows

$329.6

$286.0

$43.6

15.2

%

N/A

N/A

(in millions except per share data)

FY20 YTD

FY19 YTD

$ Change

% Change

(Y/Y)

FY20 YTD
in CC*

% Change
in CC*

Revenues:

Cloud services and subscriptions

$825.1

$665.9

$159.1

23.9

%

$830.1

24.7

%

Customer support

950.7

932.7

18.0

1.9

%

963.5

3.3

%

Total annual recurring revenues**

$1,775.7

$1,598.6

$177.1

11.1

%

$1,793.7

12.2

%

License

297.0

308.4

(11.3)

(3.7)

%

301.3

(2.3)

%

Professional service and other

210.3

214.6

(4.2)

(2.0)

%

213.7

(0.4)

%

Total revenues

$2,283.1

$2,121.5

$161.6

7.6

%

$2,308.7

8.8

%

GAAP-based operating income

$412.3

$409.0

$3.3

0.8

%

N/A

N/A

Non-GAAP-based operating income ₍₁₎

$765.0

$743.7

$21.3

2.9

%

$779.9

4.9

%

GAAP-based EPS, diluted

$0.77

$0.79

($0.02)

(2.5)

%

N/A

N/A

Non-GAAP-based EPS, diluted ₍₁₎₍₂₎

$2.09

$2.04

$0.05

2.5

%

$2.14

4.9

%

GAAP-based net income attributable to OpenText

$207.8

$213.5

($5.7)

(2.7)

%

N/A

N/A

Adjusted EBITDA ₍₁₎

$830.7

$816.4

$14.3

1.8

%

$845.1

3.5

%

Operating cash flows

$674.3

$646.5

$27.8

4.3

%

N/A

N/A

⁽¹⁾ Please see note 2 “Use of Non-GAAP Financial Measures” below

⁽²⁾ Please also see note 14 to the Company’s Fiscal 2018 Consolidated Financial Statements on Form 10-K. Reflective of the amount of net tax benefit arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period.

Note: Individual line items in tables may be adjusted by non-material amounts to enable totals to align to published financial statements.

*CC: Constant currency for this purpose is defined as the current period reported revenues/expenses/earnings represented at the prior comparative period’s foreign exchange rate.

**Annual recurring revenue is defined as the sum of Cloud services and subscriptions revenue and Customer support revenue.

Summary of Quarterly Results

Q3 FY20

Q2 FY20

Q3 FY19

% Change

(Q3 FY20 vs
Q2 FY20)

% Change

(Q3 FY20 vs
Q3 FY19)

Revenue (million)

$814.7

$771.6

$719.1

5.6

%

13.3

%

GAAP-based gross margin

65.4

%

69.9

%

66.7

%

(450)

bps

(130)

bps

GAAP-based EPS, diluted

$0.10

$0.40

$0.27

(75.0)

%

(63.0)

%

Non-GAAP-based gross margin ₍₁₎

73.3

%

75.5

%

73.0

%

(220)

bps

30

bps

Non-GAAP-based EPS, diluted ₍₁₎₍₂₎

$0.61

$0.84

$0.64

(27.4)

%

(4.7)

%

⁽¹⁾ Please see note 2 “Use of Non-GAAP Financial Measures” below

⁽²⁾ Please also see note 14 to the Company’s Fiscal 2018 Consolidated Financial Statements on Form 10-K. Reflective of the amount of net tax benefit arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period.

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

March 31, 2020

June 30, 2019

ASSETS

(unaudited)

Cash and cash equivalents

$

1,452,570

$

941,009

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

459,348

463,785

Contract assets

27,057

20,956

Income taxes recoverable

59,930

38,340

Prepaid expenses and other current assets

112,073

97,238

Total current assets

2,110,978

1,561,328

Property and equipment

258,892

249,453

Operating lease right of use assets

243,611

—

Long-term contract assets

14,225

15,386

Goodwill

4,678,686

3,769,908

Acquired intangible assets

1,731,781

1,146,504

Deferred tax assets

921,643

1,004,450

Other assets

171,107

148,977

Long-term income taxes recoverable

31,149

37,969

Total assets

$

10,162,072

$

7,933,975

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

324,890

$

329,903

Current portion of long-term debt

610,000

10,000

Operating lease liability

68,871

—

Deferred revenues

819,273

641,656

Income taxes payable

31,711

33,158

Total current liabilities

1,854,745

1,014,717

Long-term liabilities:

Accrued liabilities

14,634

49,441

Pension liability

67,438

75,239

Long-term debt

3,585,684

2,604,878

Long-term operating lease liability

205,789

—

Deferred revenues

92,341

46,974

Long-term income taxes payable

184,459

202,184

Deferred tax liabilities

158,805

55,872

Total long-term liabilities

4,309,150

3,034,588

Shareholders’ equity:

Share capital and additional paid-in capital

271,634,149 and 269,834,442 Common Shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively; authorized Common Shares: unlimited

1,839,150

1,774,214

Accumulated other comprehensive income

9,466

24,124

Retained earnings

2,180,339

2,113,883

Treasury stock, at cost (847,369 shares at March 31, 2020 and 802,871 shares at June 30, 2019, respectively)

(32,066)

(28,766)

Total OpenText shareholders’ equity

3,996,889

3,883,455

Non-controlling interests

1,288

1,215

Total shareholders’ equity

3,998,177

3,884,670

Total liabilities and shareholders’ equity

$

10,162,072

$

7,933,975

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(unaudited)

Three Months Ended March 31,

Nine Months Ended March 31,

2020

2019

2020

2019

Revenues:

License

$

81,055

$

98,721

$

297,048

$

308,364

Cloud services and subscriptions

339,463

238,607

825,068

665,923

Customer support

322,865

310,762

950,671

932,667

Professional service and other

71,296

71,056

210,337

214,580

Total revenues

814,679

719,146

2,283,124

2,121,534

Cost of revenues:

License

2,544

2,692

7,917

10,219

Cloud services and subscriptions

127,565

103,873

333,371

280,274

Customer support

32,151

31,844

91,326

93,582

Professional service and other

56,526

56,626

164,468

169,452

Amortization of acquired technology-based intangible assets

63,401

44,596

145,998

140,439

Total cost of revenues

282,187

239,631

743,080

693,966

Gross profit

532,492

479,515

1,540,044

1,427,568

Operating expenses:

Research and development

108,184

84,905

269,645

238,128

Sales and marketing

166,234

132,244

432,162

378,619

General and administrative

68,828

51,833

174,958

154,955

Depreciation

24,820

25,028

65,809

72,716

Amortization of acquired customer-based intangible assets

59,943

48,832

160,561

140,627

Special charges (recoveries)

9,406

796

24,579

33,487

Total operating expenses

437,415

343,638

1,127,714

1,018,532

Income from operations

95,077

135,877

412,330

409,036

Other income (expense), net

(18,923)

5,065

(19,736)

6,965

Interest and other related expense, net

(41,263)

(35,607)

(105,849)

(103,751)

Income before income taxes

34,891

105,335

286,745

312,250

Provision for (recovery of) income taxes

8,891

32,542

78,800

98,628

Net income for the period

$

26,000

$

72,793

$

207,945

$

213,622

Net (income) loss attributable to non-controlling interests

(35)

(31)

(112)

(104)

Net income attributable to OpenText

$

25,965

$

72,762

$

207,833

$

213,518

Earnings per share—basic attributable to OpenText

$

0.10

$

0.27

$

0.77

$

0.80

Earnings per share—diluted attributable to OpenText

$

0.10

$

0.27

$

0.77

$

0.79

Weighted average number of Common Shares outstanding—basic

271,221

268,991

270,559

268,511

Weighted average number of Common Shares outstanding—diluted

272,202

270,030

271,643

269,606

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

(unaudited)

Three Months Ended

March 31,

Nine Months Ended

March 31,

2020

2019

2020

2019

Net income for the period

$

26,000

$

72,793

$

207,945

$

213,622

Other comprehensive income (loss)—net of tax:

Net foreign currency translation adjustments

(15,484)

3,189

(16,220)

(3,749)

Unrealized gain (loss) on cash flow hedges:

Unrealized gain (loss) – net of tax expense (recovery) effect of ($1,276) and $222 for the three months ended March 31, 2020 and 2019, respectively; ($1,181) and ($274) for the nine months ended March 31, 2020 and 2019, respectively

(3,539)

615

(3,278)

(760)

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

337

346

273

1,179

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

Actuarial gain (loss) – net of tax expense (recovery) effect of $1,495 and ($1,177) for the three months ended March 31, 2020 and 2019, respectively; $1,554 and ($1,390) for the nine months ended March 31, 2020 and 2019, respectively

3,309

(4,785)

3,923

(5,109)

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

153

82

644

212

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

(15,224)

(553)

(14,658)

(8,227)

Total comprehensive income

10,776

72,240

193,287

205,395

Comprehensive (income) loss attributable to non-controlling interests

(35)

(31)

(112)

(104)

Total comprehensive income attributable to OpenText

$

10,741

$

72,209

$

193,175

$

205,291

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

(unaudited)

Three Months Ended March 31, 2020

Common Shares and
Additional Paid in Capital

Treasury Stock

Retained

Earnings

Accumulated 

Other

Comprehensive

Income

Non-
Controlling
Interests

Total

Shares

Amount

Shares

Amount

Balance as of December 31, 2019

270,609

$

1,803,663

(847)

$

(32,066)

$

2,201,653

$

24,690

$

1,292

$

3,999,232

Issuance of Common Shares

Under employee stock option plans

886

23,414

—

—

—

—

—

23,414

Under employee stock purchase plans

139

5,217

—

—

—

—

—

5,217

Share-based compensation

—

6,856

—

—

—

—

—

6,856

Dividends declared

($0.1746 per Common Share)

—

—

—

—

(47,279)

—

—

(47,279)

Other comprehensive income (loss) – net

—

—

—

—

—

(15,224)

—

(15,224)

Non-controlling interest

—

—

—

—

—

—

(39)

(39)

Net income for the period

—

—

—

—

25,965

—

35

26,000

Balance as of March 31, 2020

271,634

$

1,839,150

(847)

$

(32,066)

$

2,180,339

$

9,466

$

1,288

$

3,998,177

Three Months Ended March 31, 2019

Common Shares and
Additional Paid in Capital

Treasury Stock

Retained

Earnings

Accumulated

 Other

Comprehensive

Income

Non-
Controlling
Interests

Total

Shares

Amount

Shares

Amount

Balance as of December 31, 2018

268,569

$

1,731,299

(817)

$

(29,241)

$

2,056,831

$

25,971

$

1,152

$

3,786,012

Issuance of Common Shares

Under employee stock option plans

544

11,661

—

—

—

—

—

11,661

Under employee stock purchase plans

161

4,447

—

—

—

—

—

4,447

Share-based compensation

—

6,712

—

—

—

—

—

6,712

Purchase of treasury stock

—

—

(52)

(1,965)

—

—

—

(1,965)

Issuance of treasury stock

—

(2,308)

62

2,308

—

—

—

—

Dividends declared

($0.1518 per Common Share)

—

—

—

—

(40,735)

—

—

(40,735)

Other comprehensive income – net

—

—

—

—

—

(553)

—

(553)

Net income for the period

—

—

—

—

72,762

—

31

72,793

Balance as of March 31, 2019

269,274

$

1,751,811

(807)

$

(28,898)

$

2,088,858

$

25,418

$

1,183

$

3,838,372

Nine Months Ended March 31, 2020

Common Shares and
Additional Paid in Capital

Treasury Stock

Retained

Earnings

Accumulated
Other

Comprehensive

Income

Non-
Controlling
Interests

Total

Shares

Amount

Shares

Amount

Balance as of June 30, 2019

269,834

$

1,774,214

(803)

$

(28,766)

$

2,113,883

$

24,124

$

1,215

$

3,884,670

Issuance of Common Shares

Under employee stock option plans

1,301

34,773

—

—

—

—

—

34,773

Under employee stock purchase plans

499

17,757

—

—

—

—

—

17,757

Share-based compensation

—

21,530

—

—

—

—

—

21,530

Purchase of treasury stock

—

—

(300)

(12,424)

—

—

—

(12,424)

Issuance of treasury stock

—

(9,124)

256

9,124

—

—

—

—

Dividends declared

($0.5238 per Common Share)

—

—

—

—

(141,377)

—

—

(141,377)

Other comprehensive income (loss) – net

—

—

—

—

—

(14,658)

—

(14,658)

Non-controlling interest

—

—

—

—

—

—

(39)

(39)

Net income for the period

—

—

—

—

207,833

—

112

207,945

Balance as of March 31, 2020

271,634

$

1,839,150

(847)

$

(32,066)

$

2,180,339

$

9,466

$

1,288

$

3,998,177

Nine Months Ended March 31, 2019

Common Shares and
Additional Paid in Capital

Treasury Stock

Retained

Earnings

Accumulated
Other

Comprehensive

Income

Non-
Controlling
Interests

Total

Shares

Amount

Shares

Amount

Balance as of June 30, 2018

267,651

$

1,707,073

(691)

$

(18,732)

$

1,994,235

$

33,645

$

1,037

$

3,717,258

Adoption of ASU 2016-16 – cumulative effect

—

—

—

—

(26,780)

—

—

(26,780)

Adoption of Topic 606 – cumulative effect

—

—

—

—

29,786

—

—

29,786

Issuance of Common Shares

Under employee stock option plans

1,100

25,832

—

—

—

—

—

25,832

Under employee stock purchase plans

523

15,712

—

—

—

—

—

15,712

Share-based compensation

—

20,152

—

—

—

—

—

20,152

Purchase of treasury stock

—

—

(726)

(26,499)

—

—

—

(26,499)

Issuance of treasury stock

—

(16,333)

610

16,333

—

—

—

—

Dividends declared

($0.4554 per Common Share)

—

—

—

—

(121,901)

—

—

(121,901)

Other comprehensive income – net

—

—

—

—

—

(8,227)

—

(8,227)

Non-controlling interest

—

(625)

—

—

—

—

42

(583)

Net income for the period

—

—

—

—

213,518

—

104

213,622

Balance as of March 31, 2019

269,274

$

1,751,811

(807)

$

(28,898)

$

2,088,858

$

25,418

$

1,183

$

3,838,372

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)

Three Months Ended

March 31,

Nine Months Ended

March 31,

2020

2019

2020

2019

Cash flows from operating activities:

Net income for the period

$

26,000

$

72,793

$

207,945

$

213,622

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

Depreciation and amortization of intangible assets

148,164

118,456

372,368

353,782

Share-based compensation expense

6,856

6,712

21,530

20,152

Pension expense

1,428

1,158

4,323

3,412

Amortization of debt issuance costs

1,227

1,077

3,503

3,234

Loss on extinguishment of debt

17,854

—

17,854

—

Loss on sale and write down of property and equipment

—

10

—

9,438

Deferred taxes

2,543

2,398

36,711

11,307

Share in net (income) loss of equity investees

(4,527)

(2,789)

(6,475)

(10,652)

Changes in operating assets and liabilities:

Accounts receivable

83,590

19,229

86,188

52,777

Contract assets

(9,006)

(15,472)

(26,665)

(28,872)

Prepaid expenses and other current assets

(6,854)

(13,027)

(7,355)

(495)

Income taxes

(33,717)

3,682

(34,608)

21,006

Accounts payable and accrued liabilities

(9,028)

(896)

(42,263)

(30,644)

Deferred revenue

102,373

93,285

38,280

24,134

Other assets

5,079

(619)

7,436

4,300

Operating lease assets and liabilities, net

(2,381)

—

(4,486)

—

Net cash provided by operating activities

329,601

285,997

674,286

646,501

Cash flows from investing activities:

Additions of property and equipment

(16,793)

(16,968)

(55,005)

(50,432)

Purchase of XMedius

(73,335)

—

(73,335)

—

Purchase of Carbonite, Inc., net of cash and restricted cash acquired

(88,458)

—

(1,305,097)

—

Purchase of Dynamic Solutions Group Inc.

—

—

(4,149)

—

Purchase of Catalyst Repository Systems Inc.

—

(70,800)

—

(70,800)

Purchase of Liaison Technologies, Inc.

—

641

—

(310,644)

Purchase of Guidance Software, Inc., net of cash acquired

—

—

—

(2,279)

Other investing activities

(5,803)

(1,831)

(11,344)

(8,204)

Net cash used in investing activities

(184,389)

(88,958)

(1,448,930)

(442,359)

Cash flows from financing activities:

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

29,990

17,811

53,107

42,097

Proceeds from long-term debt and Revolver

2,400,000

—

3,150,000

—

Repayment of long-term debt and revolver

(1,706,131)

(2,500)

(1,711,131)

(7,500)

    Debt extinguishment costs

(11,248)

—

(11,248)

—

Debt issuance costs

(17,191)

—

(18,170)

(322)

Purchase of Treasury Stock

—

(1,965)

(12,424)

(26,499)

Purchase of non-controlling interest

—

—

—

(583)

Payments of dividends to shareholders

(47,279)

(40,735)

(141,377)

(121,901)

Net cash provided by (used in) financing activities

648,141

(27,389)

1,308,757

(114,708)

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

(15,989)

1,992

(20,060)

(3,909)

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

777,364

171,642

514,053

85,525

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

680,232

597,874

943,543

683,991

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

$

1,457,596

$

769,516

$

1,457,596

$

769,516

Reconciliation of cash, cash equivalents and restricted cash:

March 31, 2020

March 31, 2019

Cash and cash equivalents

1,452,570

765,224

Restricted cash included in Other assets

5,026

4,292

Total Cash, cash equivalents and restricted cash

$

1,457,596

$

769,516

(1)

All dollar amounts in this press release are in U.S. Dollars unless otherwise indicated.

(2)

Use of Non-GAAP Financial Measures: In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures that are not in accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company’s definition may be different from similar Non-GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus it may be more difficult to compare the Company’s financial performance to that of other companies. However, the Company’s management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its consolidated financial statements, all of which should be considered when evaluating the Company’s results.

The Company uses these Non-GAAP financial measures to supplement the information provided in its consolidated financial statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures are not meant to be a substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain Non-GAAP measures defined below.

Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are consistently calculated as GAAP-based net income or earnings per share, attributable to OpenText, on a diluted basis, excluding the effects of the amortization of acquired intangible assets, other income (expense), share-based compensation, and Special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as income from operations, excluding the amortization of acquired intangible assets, Special charges (recoveries), and share-based compensation expense.

Adjusted earnings (loss) before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and Special charges (recoveries).

The Company’s management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company’s management. These items are excluded based upon the way the Company’s management evaluates the performance of the Company’s business for use in the Company’s internal reports and are not excluded in the sense that they may be used under U.S. GAAP.

The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company’s operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company’s “Special Charges (recoveries)” caption on the Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company’s operating results and underlying operational trends.

In summary the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company’s core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText’s performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to 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.

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

for the three months ended March 31, 2020.

(In thousands except for per share amounts)

Three Months Ended March 31, 2020

GAAP-based

Measures

GAAP-based
Measures

% of Total
Revenue

Adjustments

Note

Non-GAAP-
based

Measures

Non-GAAP-
based
Measures

% of Total
Revenue

Cost of revenues

Cloud services and subscriptions

$

127,565

$

(398)

(1)

$

127,167

Customer support

32,151

(284)

(1)

31,867

Professional service and other

56,526

(328)

(1)

56,198

Amortization of acquired technology-based intangible assets

63,401

(63,401)

(2)

—

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

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

532,492

65.4

%

64,411

(3)

596,903

73.3

%

Operating expenses

Research and development

108,184

(1,243)

(1)

106,941

Sales and marketing

166,234

(2,261)

(1)

163,973

General and administrative

68,828

(2,342)

(1)

66,486

Amortization of acquired customer-based intangible assets

59,943

(59,943)

(2)

—

Special charges (recoveries)

9,406

(9,406)

(4)

—

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

95,077

139,606

(5)

234,683

Other income (expense), net

(18,923)

18,923

(6)

—

Provision for (recovery of) income taxes

8,891

18,188

(7)

27,079

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

25,965

140,341

(8)

166,306

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

$

0.10

$

0.51

(8)

$

0.61

(1)

Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

(2)

Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

(3)

GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue.

(4)

Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.

(5)

GAAP-based and Non-GAAP-based income from operations stated in dollars.

(6)

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.

(7)

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 25% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8)

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

Three Months Ended March 31, 2020

Per share diluted

GAAP-based net income, attributable to OpenText

$

25,965

$

0.10

Add:

Amortization

123,344

0.45

Share-based compensation

6,856

0.03

Special charges (recoveries)

9,406

0.03

Other (income) expense, net

18,923

0.07

GAAP-based provision for (recovery of) income taxes

8,891

0.03

Non-GAAP-based provision for income taxes

(27,079)

(0.10)

Non-GAAP-based net income, attributable to OpenText

$

166,306

$

0.61

Reconciliation of Adjusted EBITDA

GAAP-based net income, attributable to OpenText

$

25,965