OpenText Reports First Quarter Fiscal Year 2021 Financial Results

Total Revenues

(in millions)

Annual Recurring Revenues

(in millions)

Cloud Revenues

(in millions)

Reported

Constant Currency

Reported

Constant Currency

Reported

Constant Currency

$804.0

$798.0

$670.4

$667.3

$341.0

$340.2

+15.4%

+14.5%

+22.0%

+21.4%

+43.7%

+43.4%

Annual Recurring Revenues represents 83% of Total Revenues

Summary of Quarterly Results

(in millions except per share data)

Q1 FY21

Q1 FY20

$ Change

% Change
(Y/Y)

Q1 FY21
in CC*

% Change
in CC*

Revenues:

Cloud services and subscriptions

$341.0

$237.3

$103.7

43.7

%

$340.2

43.4

%

Customer support

329.4

312.3

17.1

5.5

%

327.1

4.8

%

Total annual recurring revenues**

$670.4

$549.6

$120.8

22.0

%

$667.3

21.4

%

License

68.5

77.9

(9.4)

(12.0)

%

67.1

(13.8)

%

Professional service and other

65.1

69.4

(4.3)

(6.2)

%

63.6

(8.5)

%

Total revenues

$804.0

$696.9

$107.1

15.4

%

$798.0

14.5

%

GAAP-based operating income

$182.4

$132.5

$49.8

37.6

%

N/A

N/A

Non-GAAP-based operating income ⁽¹⁾

$320.4

$234.0

$86.4

36.9

%

$313.9

34.2

%

GAAP-based EPS, diluted

$0.38

$0.27

$0.11

40.7

%

N/A

N/A

Non-GAAP-based EPS, diluted ⁽¹⁾⁽²⁾

$0.89

$0.64

$0.25

39.1

%

$0.87

35.9

%

GAAP-based net income attributable to OpenText

$103.4

$74.4

$29.0

38.9

%

N/A

N/A

Adjusted EBITDA ⁽¹⁾

$342.3

$254.2

$88.1

34.7

%

$335.7

32.1

%

Operating cash flows

$233.9

$137.4

$96.5

70.2

%

N/A

N/A

Free cash flows ⁽¹⁾

$218.6

$118.8

$99.8

84.0

%

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

Q1 FY21

Q4 FY20

Q1 FY20

% Change
(Q1 FY21 vs
Q4 FY20)

% Change
(Q1 FY21 vs
Q1 FY20)

Revenue (millions)

$804.0

$826.6

$696.9

(2.7)

%

15.4

%

GAAP-based gross margin

69.0

%

68.5

%

67.2

%

50

bps

180

bps

GAAP-based EPS, diluted

$0.38

$0.10

$0.27

280.0

%

40.7

%

Non-GAAP-based gross margin ⁽¹⁾

76.5

%

75.8

%

73.1

%

70

bps

340

bps

Non-GAAP-based EPS, diluted ⁽¹⁾⁽²⁾

$0.89

$0.80

$0.64

11.3

%

39.1

%

⁽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)

September 30, 2020

June 30, 2020

ASSETS

(unaudited)

Cash and cash equivalents

$

1,845,582

$

1,692,850

Accounts receivable trade, net of allowance for credit losses of $22,366 as of September 30, 2020 and $20,906 as of June 30, 2020

396,897

466,357

Contract assets

26,236

29,570

Income taxes recoverable

26,869

61,186

Prepaid expenses and other current assets

140,474

136,436

Total current assets

2,436,058

2,386,399

Property and equipment

235,498

244,555

Operating lease right of use assets

196,884

207,869

Long-term contract assets

19,066

15,427

Goodwill

4,682,784

4,672,356

Acquired intangible assets

1,506,407

1,612,564

Deferred tax assets

893,256

911,565

Other assets

161,142

154,467

Long-term income taxes recoverable

30,719

29,620

Total assets

$

10,161,814

$

10,234,822

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

313,468

$

373,314

Current portion of long-term debt

610,000

610,000

Operating lease liabilities

60,447

64,071

Deferred revenues

770,919

812,218

Income taxes payable

29,666

44,630

Total current liabilities

1,784,500

1,904,233

Long-term liabilities:

Accrued liabilities

42,081

34,955

Pension liability

78,536

73,129

Long-term debt

3,582,923

3,584,311

Long-term operating lease liabilities

207,723

217,165

Long-term deferred revenues

96,180

94,382

Long-term income taxes payable

176,396

171,200

Deferred tax liabilities

125,755

148,738

Total long-term liabilities

4,309,594

4,323,880

Shareholders' equity:

Share capital and additional paid-in capital

272,173,923 and 271,863,354 Common Shares issued and outstanding at September 30, 2020 and June 30, 2020, respectively; authorized Common Shares: unlimited

1,872,411

1,851,777

Accumulated other comprehensive income

39,695

17,825

Retained earnings

2,213,053

2,159,396

Treasury stock, at cost (1,393,771 and 622,297 shares at September 30, 2020 and June 30, 2020, respectively)

(58,788)

(23,608)

Total OpenText shareholders' equity

4,066,371

4,005,390

Non-controlling interests

1,349

1,319

Total shareholders' equity

4,067,720

4,006,709

Total liabilities and shareholders' equity

$

10,161,814

$

10,234,822

OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
(unaudited)

Three Months Ended September 30,

2020

2019

Revenues:

Cloud services and subscriptions

$

340,986

$

237,265

Customer support

329,399

312,298

License

68,523

77,898

Professional service and other

65,105

69,427

Total revenues

804,013

696,888

Cost of revenues:

Cloud services and subscriptions

112,624

102,162

Customer support

29,194

29,387

License

2,489

2,323

Professional service and other

46,581

54,338

Amortization of acquired technology-based intangible assets

58,037

40,298

Total cost of revenues

248,925

228,508

Gross profit

555,088

468,380

Operating expenses:

Research and development

93,903

81,178

Sales and marketing

132,400

128,618

General and administrative

56,189

51,535

Depreciation

22,003

20,277

Amortization of acquired customer-based intangible assets

54,993

49,158

Special charges (recoveries)

13,244

5,101

Total operating expenses

372,732

335,867

Income from operations

182,356

132,513

Other income (expense), net

2,883

(2,785)

Interest and other related expense, net

(39,089)

(32,210)

Income before income taxes

146,150

97,518

Provision for (recovery of) income taxes

42,744

23,091

Net income for the period

$

103,406

$

74,427

Net (income) loss attributable to non-controlling interests

(30)

(26)

Net income attributable to OpenText

$

103,376

$

74,401

Earnings per share—basic attributable to OpenText

$

0.38

$

0.28

Earnings per share—diluted attributable to OpenText

$

0.38

$

0.27

Weighted average number of Common Shares outstanding—basic

(in '000's)

271,986

270,013

Weighted average number of Common Shares outstanding—diluted

(in '000's)

272,847

271,251

OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
(unaudited)

Three Months Ended September 30,

2020

2019

Net income for the period

$

103,406

$

74,427

Other comprehensive income (loss)—net of tax:

Net foreign currency translation adjustments

22,645

(5,611)

Unrealized gain (loss) on cash flow hedges:

Unrealized gain (loss) - net of tax expense (recovery) effect of $305 and $(206) for the three months ended September 30, 2020 and 2019, respectively

845

(572)

(Gain) loss reclassified into net income - net of tax (expense) recovery effect of $(56) and $3 for the three months ended September 30, 2020 and 2019, respectively

(156)

8

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

Actuarial gain (loss) - net of tax expense (recovery) effect of $(916) and $(1,249) for the three months ended September 30, 2020 and 2019, respectively

(1,705)

(3,084)

Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $87 and $146 for the three months ended September 30, 2020 and 2019, respectively

241

231

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

21,870

(9,028)

Total comprehensive income

125,276

65,399

Comprehensive (income) loss attributable to non-controlling interests

(30)

(26)

Total comprehensive income attributable to OpenText

$

125,246

$

65,373

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

Three Months Ended September 30, 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, 2020

271,863

$

1,851,777

(622)

$

(23,608)

$

2,159,396

$

17,825

$

1,319

$

4,006,709

Adoption of ASU 2016-13 - cumulative effect, net

—

—

—

—

(2,450)

—

—

(2,450)

Issuance of Common Shares

Under employee stock option plans

311

8,605

—

—

—

—

—

8,605

Under employee stock purchase plans

—

293

193

6,690

—

—

—

6,983

Share-based compensation

—

11,736

—

—

—

—

—

11,736

Purchase of treasury stock

—

—

(965)

(41,870)

—

—

—

(41,870)

Dividends declared
($0.1746 per Common Share)

—

—

—

—

(47,269)

—

—

(47,269)

Other comprehensive income - net

—

—

—

—

—

21,870

—

21,870

Net income for the quarter

—

—

—

—

103,376

—

30

103,406

Balance as of September 30, 2020

272,174

$

1,872,411

(1,394)

$

(58,788)

$

2,213,053

$

39,695

$

1,349

$

4,067,720

Three Months Ended September 30, 2019

Common Shares and
Additional Paid in Capital

Treasury Stock

Retained
Earnings

Accumulated  Other
Comprehensive
Income

Non-Controlling Interests

Total

Shares

Amount

Shares

Amount

Balance as of June 30, 2019

269,834

$

1,774,214

(803)

$

(28,766)

$

2,113,883

$

24,124

$

1,215

$

3,884,670

Issuance of Common Shares

Under employee stock option plans

184

4,576

—

—

—

—

—

4,576

Under employee stock purchase plans

172

6,008

—

—

—

—

—

6,008

Share-based compensation

—

6,891

—

—

—

—

—

6,891

Purchase of treasury stock

—

—

(300)

(12,424)

—

—

—

(12,424)

Dividends declared
($0.1746 per Common Share)

—

—

—

—

(47,006)

—

—

(47,006)

Other comprehensive income - net

—

—

—

—

—

(9,028)

—

(9,028)

Net income for the quarter

—

—

—

—

74,401

—

26

74,427

Balance as of September 30, 2019

270,190

$

1,791,689

(1,103)

$

(41,190)

$

2,141,278

$

15,096

$

1,241

$

3,908,114

OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(u naudited)

Three Months Ended September 30,

2020

2019

Cash flows from operating activities:

Net income for the period

$

103,406

$

74,427

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

Depreciation and amortization of intangible assets

135,033

109,733

Share-based compensation expense

11,736

6,891

Pension expense

1,505

1,436

Amortization of debt issuance costs

1,112

1,127

Loss on sale and write down of property and equipment

573

—

Deferred taxes

(1,180)

6,244

Share in net (income) loss of equity investees

(6,221)

(682)

Changes in operating assets and liabilities:

Accounts receivable

74,842

58,431

Contract assets

(9,838)

(7,201)

Prepaid expenses and other current assets

(3,491)

(1,612)

Income taxes

21,032

7,053

Accounts payable and accrued liabilities

(51,429)

(62,979)

Deferred revenue

(41,268)

(61,169)

Other assets

549

5,684

Operating lease assets and liabilities, net

(2,457)

64

Net cash provided by operating activities

233,904

137,447

Cash flows from investing activities:

Additions of property and equipment

(15,305)

(18,614)

Other investing activities

(2,237)

(2,036)

Net cash used in investing activities

(17,542)

(20,650)

Cash flows from financing activities:

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

15,839

11,117

Repayment of long-term debt and Revolver

(2,500)

(2,500)

Purchase of treasury stock

(41,870)

(12,424)

Payments of dividends to shareholders

(47,269)

(47,006)

Net cash provided by (used in) financing activities

(75,800)

(50,813)

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

10,792

(7,711)

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

151,354

58,273

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

1,697,263

943,543

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

$

1,848,617

$

1,001,816

Reconciliation of cash, cash equivalents and restricted cash:

September 30, 2020

September 30, 2019

Cash and cash equivalents

$

1,845,582

$

999,298

Restricted cash ⁽¹⁾

3,035

2,518

Total cash, cash equivalents and restricted cash

$

1,848,617

$

1,001,816

⁽¹⁾ Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Condensed Consolidated Balance Sheets

Notes

(1)

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

(2)

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

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

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

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

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 September 30, 2020.

(In thousands except for per share amounts)

Three Months Ended September 30, 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

$

112,624

$

(836)

(1)

$

111,788

Customer support

29,194

(442)

(1)

28,752

Professional service and other

46,581

(517)

(1)

46,064

Amortization of acquired technology-based intangible assets

58,037

(58,037)

(2)

—

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

555,088

69.0%

59,832

(3)

614,920

76.5%

Operating expenses

Research and development

93,903

(2,342)

(1)

91,561

Sales and marketing

132,400

(4,057)

(1)

128,343

General and administrative

56,189

(3,542)

(1)

52,647

Amortization of acquired customer-based intangible assets

54,993

(54,993)

(2)

—

Special charges (recoveries)

13,244

(13,244)

(4)

—

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

182,356

138,010

(5)

320,366

Other income (expense), net

2,883

(2,883)

(6)

—

Provision for (recovery of) income taxes

42,744

(3,365)

(7)

39,379

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

103,376

138,492

(8)

241,868

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

$0.38

$0.51

(8)

$0.89

(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 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 29% 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, 2020

Per share diluted

GAAP-based net income, attributable to OpenText

$

103,376

$

0.38

Add:

Amortization

113,030

0.41

Share-based compensation

11,736

0.04

Special charges (recoveries)

13,244

0.05

Other (income) expense, net

(2,883)

(0.01)

GAAP-based provision for (recovery of) income taxes

42,744

0.16

Non-GAAP-based provision for income taxes

(39,379)

(0.14)

Non-GAAP-based net income, attributable to OpenText

$

241,868

$

0.89

Reconciliation of Adjusted EBITDA

Three Months Ended September 30, 2020

GAAP-based net income, attributable to OpenText

$

103,376

Add:

Provision for (recovery of) income taxes

42,744

Interest and other related expense, net

39,089

Amortization of acquired technology-based intangible assets

58,037

Amortization of acquired customer-based intangible assets

54,993

Depreciation

22,003

Share-based compensation

11,736

Special charges (recoveries)

13,244

Other (income) expense, net

(2,883)

Adjusted EBITDA

$

342,339

Reconciliation of Free cash flows

Three Months Ended September 30, 2020

GAAP cash flows provided by operating activities

$

233,904

Add:

Capital expenditures ⁽¹⁾

(15,305)

Free cash flows

$

218,599

⁽¹⁾ Defined as "Additions of property & equipment" in the Condensed Consolidated Statements of Cash Flows

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

for the three months ended June 30, 2020.

(In thousands except for per share amounts)

Three Months Ended June 30, 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

$

116,569

$

(490)

(1)

$

116,079

Customer support

32,568

(310)

(1)

32,258

Professional service and other

48,435

(377)

(1)

48,058

Amortization of acquired technology-based intangible assets

59,719

(59,719)

(2)

—

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

565,917

68.5

%

60,896

(3)

626,813

75.8

%

Operating expenses

Research and development

100,766

(1,590)

(1)

99,176

Sales and marketing

152,882

(2,575)

(1)

150,307

General and administrative

62,574

(2,660)

(1)

59,914

Amortization of acquired customer-based intangible assets

58,998

(58,998)

(2)

—

Special charges (recoveries)

75,849

(75,849)

(4)

—

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

91,199

202,568

(5)

293,767

Other income (expense), net

7,790

(7,790)

(6)

—

Provision for (recovery of) income taxes

32,037

3,416

(7)

35,453

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

26,392

191,362

(8)

217,754

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

$

0.10

$

0.70

(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 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 55% 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, 2020

Per share diluted

GAAP-based net income, attributable to OpenText

$

26,392

$

0.10

Add:

Amortization

118,717

0.44

Share-based compensation

8,002

0.03

Special charges (recoveries)

75,849

0.28

Other (income) expense, net

(7,790)

(0.03)

GAAP-based provision for (recovery of) income taxes

32,037

0.12

Non-GAAP-based provision for income taxes

(35,453)

(0.14)

Non-GAAP-based net income, attributable to OpenText

$

217,754

$

0.80

Reconciliation of Adjusted EBITDA

Three Months Ended June 30, 2020

GAAP-based net income, attributable to OpenText

$

26,392

Add:

Provision for (recovery of) income taxes

32,037

Interest and other related expense, net

40,529

Amortization of acquired technology-based intangible assets

59,719

Amortization of acquired customer-based intangible assets

58,998

Depreciation

23,649

Share-based compensation

8,002

Special charges (recoveries)

75,849

Other (income) expense, net

(7,790)

Adjusted EBITDA

$

317,385

Reconciliation of Free cash flows

Three Months Ended June 30, 2020

GAAP cash flows provided by operating activities

$

280,250

Add:

Capital expenditures ⁽¹⁾

(17,704)

Free cash flows

$

262,546

⁽¹⁾ Defined as "Additions of property & equipment" in the Condensed Consolidated Statements of Cash Flows

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

for the three months ended September 30, 2019.

(In thousands except for per share amounts)

Three Months Ended September 30, 2019

GAAP-based

Measures

GAAP-based Measures
% of Total Revenue

Adjustments

Note

Non-GAAP-based

Measures

Non-GAAP-
based Measures
% of Total Revenue

Cost of revenues

Cloud services and subscriptions

$

102,162

$

(383)

(1)

$

101,779

Customer support

29,387

(316)

(1)

29,071

Professional service and other

54,338

(243)

(1)

54,095

Amortization of acquired technology-based intangible assets

40,298

(40,298)

(2)

—

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

468,380

67.2

%

41,240

(3)