OpenText Reports First Quarter Fiscal Year 2022 Financial Results

Total Revenues

(in millions)

Annual Recurring Revenues

(in millions)

Cloud Revenues

(in millions)

Reported

Constant Currency

Reported

Constant Currency

Reported

Constant Currency

$832.3

$819.7

$691.8

$681.6

$356.6

$353.2

+3.5%

+2.0%

+3.2%

+1.7%

+4.6%

+3.6%

Annual Recurring Revenues represent 83% of Total Revenues

Summary of Quarterly Results

(In millions, except per share data)

Q1 FY'22

Q1 FY'21

$ Change

% Change

Q1 FY'22
in CC*

% Change
in CC*

Revenues:

Cloud services and subscriptions

$356.6

$341.0

$15.6

4.6

%

$353.2

3.6

%

Customer support

335.2

329.4

5.8

1.8

%

328.5

(0.3)

%

Total annual recurring revenues**

$691.8

$670.4

$21.4

3.2

%

$681.6

1.7

%

License

73.5

68.5

5.0

7.3

%

72.5

5.8

%

Professional service and other

67.0

65.1

1.8

2.8

%

65.6

0.8

%

Total revenues

$832.3

$804.0

$28.3

3.5

%

$819.7

2.0

%

GAAP-based operating income

$182.7

$182.4

$0.3

0.2

%

N/A

N/A

Non-GAAP-based operating income ⁽¹⁾

$302.0

$320.4

($18.3)

(5.7)

%

$299.9

(6.4)

%

GAAP-based net income attributable to OpenText

$131.9

$103.4

$28.5

27.6

%

N/A

N/A

GAAP-based EPS, diluted

$0.48

$0.38

$0.10

26.3

%

N/A

N/A

Non-GAAP-based EPS, diluted ⁽¹⁾⁽²⁾

$0.83

$0.89

($0.06)

(6.7)

%

$0.83

(6.7)

%

Adjusted EBITDA ⁽¹⁾

$323.4

$342.3

($19.0)

(5.5)

%

$321.0

(6.2)

%

Operating cash flows

$189.7

$233.9

($44.2)

(18.9)

%

N/A

N/A

Free cash flows ⁽¹⁾

$163.0

$218.6

($55.6)

(25.5)

%

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 FY'22

Q4 FY'21

Q1 FY'21

% Change

(Q1 FY'22 vs
Q4 FY'21)

% Change

(Q1 FY'22 vs
Q1 FY'21)

Revenue (millions)

$832.3

$893.5

$804.0

(6.9)

%

3.5

%

GAAP-based gross margin

69.0

%

69.6

%

69.0

%

(60)

bps

—

bps

Non-GAAP-based gross margin ⁽¹⁾

75.7

%

75.8

%

76.5

%

(10)

bps

(80)

bps

GAAP-based EPS, diluted

$0.48

$0.66

$0.38

(27.3)

%

26.3

%

Non-GAAP-based EPS, diluted ⁽¹⁾⁽²⁾

$0.83

$0.80

$0.89

3.7

%

(6.7)

%

⁽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)

September 30, 2021

June 30, 2021

ASSETS

(unaudited)

Cash and cash equivalents

$

1,735,265

$

1,607,306

Accounts receivable trade, net of allowance for credit losses of $18,643 as of September 30, 2021 and $22,151 as of June 30, 2021

370,968

438,547

Contract assets

24,312

25,344

Income taxes recoverable

12,756

32,312

Prepaid expenses and other current assets

107,486

98,551

Total current assets

2,250,787

2,202,060

Property and equipment

223,359

233,595

Operating lease right of use assets

223,885

234,532

Long-term contract assets

19,550

19,222

Goodwill

4,686,907

4,691,673

Acquired intangible assets

1,080,692

1,187,260

Deferred tax assets

767,182

796,738

Other assets

231,181

208,894

Long-term income taxes recoverable

35,821

35,362

Total assets

$

9,519,364

$

9,609,336

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

299,370

$

423,592

Current portion of long-term debt

10,000

10,000

Operating lease liabilities

58,033

58,315

Deferred revenues

814,989

852,629

Income taxes payable

15,615

17,368

Total current liabilities

1,198,007

1,361,904

Long-term liabilities:

Accrued liabilities

26,876

28,830

Pension liability

75,022

74,511

Long-term debt

3,577,520

3,578,859

Long-term operating lease liabilities

211,277

224,453

Long-term deferred revenues

95,930

98,989

Long-term income taxes payable

33,799

34,113

Deferred tax liabilities

92,418

108,224

Total long-term liabilities

4,112,842

4,147,979

Shareholders' equity:

Share capital and additional paid-in capital

272,533,754 and 271,540,755 Common Shares issued and outstanding at September 30, 2021 and June 30, 2021, respectively; authorized Common Shares: unlimited

1,991,719

1,947,764

Accumulated other comprehensive income

53,886

66,238

Retained earnings

2,225,363

2,153,326

Treasury stock, at cost (1,426,212 and 1,567,664 shares at September 30, 2021 and June 30, 2021, respectively)

(63,477)

(69,386)

Total OpenText shareholders' equity

4,207,491

4,097,942

Non-controlling interests

1,024

1,511

Total shareholders' equity

4,208,515

4,099,453

Total liabilities and shareholders' equity

$

9,519,364

$

9,609,336

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,

2021

2020

Revenues:

Cloud services and subscriptions

$

356,589

$

340,986

Customer support

335,237

329,399

License

73,529

68,523

Professional service and other

66,953

65,105

Total revenues

832,308

804,013

Cost of revenues:

Cloud services and subscriptions

119,779

112,624

Customer support

29,483

29,194

License

3,969

2,489

Professional service and other

51,725

46,581

Amortization of acquired technology-based intangible assets

53,167

58,037

Total cost of revenues

258,123

248,925

Gross profit

574,185

555,088

Operating expenses:

Research and development

100,165

93,903

Sales and marketing

146,240

132,400

General and administrative

71,477

56,189

Depreciation

21,386

22,003

Amortization of acquired customer-based intangible assets

51,884

54,993

Special charges (recoveries)

344

13,244

Total operating expenses

391,496

372,732

Income from operations

182,689

182,356

Other income (expense), net

29,782

2,883

Interest and other related expense, net

(37,055)

(39,089)

Income before income taxes

175,416

146,150

Provision for (recovery of) income taxes

43,450

42,744

Net income for the period

$

131,966

$

103,406

Net (income) loss attributable to non-controlling interests

(51)

(30)

Net income attributable to OpenText

$

131,915

$

103,376

Earnings per share—basic attributable to OpenText

$

0.48

$

0.38

Earnings per share—diluted attributable to OpenText

$

0.48

$

0.38

Weighted average number of Common Shares outstanding—basic (in '000's)

272,044

271,986

Weighted average number of Common Shares outstanding—diluted (in '000's)

273,232

272,847

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

Three Months Ended September 30,

2021

2020

Net income for the period

$

131,966

$

103,406

Other comprehensive income (loss)—net of tax:

Net foreign currency translation adjustments

(10,092)

22,645

Unrealized gain (loss) on cash flow hedges:

Unrealized gain (loss) - net of tax expense (recovery) effect of ($391) and $305 for the three months ended September 30, 2021 and 2020, respectively

(1,086)

845

(Gain) loss reclassified into net income - net of tax (expense) recovery effect of ($103) and ($56) for the three months ended September 30, 2021 and 2020, respectively

(287)

(156)

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

Actuarial gain (loss) - net of tax expense (recovery) effect of ($232) and ($916) for the three months ended September 30, 2021 and 2020, respectively

(1,049)

(1,705)

Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $68 and $87 for the three months ended September 30, 2021 and 2020, respectively

162

241

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

(12,352)

21,870

Total comprehensive income

119,614

125,276

Comprehensive (income) loss attributable to non-controlling interests

(51)

(30)

Total comprehensive income attributable to OpenText

$

119,563

$

125,246

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

Three Months Ended September 30, 2021

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, 2021

271,541

$

1,947,764

(1,568)

$

(69,386)

$

2,153,326

$

66,238

$

1,511

$

4,099,453

Issuance of Common Shares

Under employee stock option plans

796

27,299

—

—

—

—

—

27,299

Under employee stock purchase plans

197

8,489

—

—

—

—

—

8,489

Share-based compensation

—

13,934

—

—

—

—

—

13,934

Issuance of treasury stock

—

(5,909)

142

5,909

—

—

—

—

Dividends declared

($0.2209 per Common Share)

—

—

—

—

(59,878)

—

—

(59,878)

Other comprehensive income (loss) - net

—

—

—

—

—

(12,352)

—

(12,352)

Distribution to non-controlling interest

—

142

—

—

—

—

(538)

(396)

Net income for the period

—

—

—

—

131,915

—

51

131,966

Balance as of September 30, 2021

272,534

$

1,991,719

(1,426)

$

(63,477)

$

2,225,363

$

53,886

$

1,024

$

4,208,515

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 (loss) - net

—

—

—

—

—

21,870

—

21,870

Net income for the period

—

—

—

—

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

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

Three Months Ended September 30,

2021

2020

Cash flows from operating activities:

Net income for the period

$

131,966

$

103,406

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

Depreciation and amortization of intangible assets

126,437

135,033

Share-based compensation expense

13,934

11,736

Pension expense

1,486

1,505

Amortization of debt issuance costs

1,161

1,112

Loss on sale and write down of property and equipment

27

573

Deferred taxes

14,682

(1,180)

Share in net (income) loss of equity investees

(29,315)

(6,221)

Changes in operating assets and liabilities:

Accounts receivable

76,526

74,842

Contract assets

(7,248)

(9,838)

Prepaid expenses and other current assets

(9,811)

(3,491)

Income taxes

16,761

21,032

Accounts payable and accrued liabilities

(114,334)

(51,429)

Deferred revenue

(38,516)

(41,268)

Other assets

7,542

549

Operating lease assets and liabilities, net

(1,629)

(2,457)

Net cash provided by operating activities

189,669

233,904

Cash flows from investing activities:

Additions of property and equipment

(26,712)

(15,305)

Other investing activities

296

(2,237)

Net cash used in investing activities

(26,416)

(17,542)

Cash flows from financing activities:

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

36,720

15,839

Repayment of long-term debt and Revolver

(2,500)

(2,500)

Purchase of treasury stock

—

(41,870)

Distribution to non-controlling interest

(396)

—

Payments of dividends to shareholders

(59,878)

(47,269)

Net cash provided by (used in) financing activities

(26,054)

(75,800)

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

(9,277)

10,792

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

127,922

151,354

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

1,609,800

1,697,263

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

$

1,737,722

$

1,848,617

Reconciliation of cash, cash equivalents and restricted cash:

September 30, 2021

September 30, 2020

Cash and cash equivalents

$

1,735,265

$

1,845,582

Restricted cash ⁽¹⁾

2,457

3,035

Total cash, cash equivalents and restricted cash

$

1,737,722

$

1,848,617

⁽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 is 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 GAAP-based income from operations, excluding the amortization of acquired intangible assets, special charges (recoveries), and share-based compensation expense.

Adjusted earnings 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 and most recently in response to the COVID-19 pandemic, 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-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, 2021

(In thousands, except for per share data)

Three Months Ended September 30, 2021

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

$

119,779

$

(907)

(1)

$

118,872

Customer support

29,483

(721)

(1)

28,762

Professional service and other

51,725

(721)

(1)

51,004

Amortization of acquired technology-based intangible assets

53,167

(53,167)

(2)

—

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

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

574,185

69.0%

55,516

(3)

629,701

75.7%

Operating expenses

Research and development

100,165

(2,934)

(1)

97,231

Sales and marketing

146,240

(4,610)

(1)

141,630

General and administrative

71,477

(4,041)

(1)

67,436

Amortization of acquired customer-based intangible assets

51,884

(51,884)

(2)

—

Special charges (recoveries)

344

(344)

(4)

—

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

182,689

119,329

(5)

302,018

Other income (expense), net

29,782

(29,782)

(6)

—

Provision for (recovery of) income taxes

43,450

(6,355)

(7)

37,095

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

131,915

95,902

(8)

227,817

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

$

0.48

$

0.35

(8)

$

0.83

(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 recovery 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 September 30, 2021

Per share diluted

GAAP-based net income, attributable to OpenText

$

131,915

$

0.48

Add:

Amortization

105,051

0.38

Share-based compensation

13,934

0.05

Special charges (recoveries)

344

—

Other (income) expense, net

(29,782)

(0.11)

GAAP-based provision for (recovery of) income taxes

43,450

0.17

Non-GAAP-based provision for income taxes

(37,095)

(0.14)

Non-GAAP-based net income, attributable to OpenText

$

227,817

$

0.83

Reconciliation of Adjusted EBITDA

Three Months Ended September 30, 2021

GAAP-based net income, attributable to OpenText

$

131,915

Add:

Provision for (recovery of) income taxes

43,450

Interest and other related expense, net

37,055

Amortization of acquired technology-based intangible assets

53,167

Amortization of acquired customer-based intangible assets

51,884

Depreciation

21,386

Share-based compensation

13,934

Special charges (recoveries)

344

Other (income) expense, net

(29,782)

Adjusted EBITDA

$

323,353

GAAP-based net income margin

15.8%

Adjusted EBITDA margin

38.9%

Reconciliation of Free cash flows

Three Months Ended September 30, 2021

GAAP-based cash flows provided by operating activities

$

189,669

Add:

Capital expenditures ⁽¹⁾

(26,712)

Free cash flows

$

162,957

⁽¹⁾ Defined as "Additions of property and 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, 2021

(In thousands, except for per share data)

Three Months Ended June 30, 2021

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

$

127,583

$

(935)

(1)

$

126,648

Customer support

32,938

(505)

(1)

32,433

Professional service and other

53,662

(698)

(1)

52,964

Amortization of acquired technology-based intangible assets

53,215

(53,215)

(2)

—

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

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

621,814

69.6%

55,353

(3)

677,167

75.8%

Operating expenses

Research and development

117,235

(2,664)

(1)

114,571

Sales and marketing

183,237

(4,718)

(1)

178,519

General and administrative

73,019

(3,830)

(1)

69,189

Amortization of acquired customer-based intangible assets

52,469

(52,469)

(2)

—

Special charges (recoveries)

3,152

(3,152)

(4)

—

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

171,681

122,186

(5)

293,867

Other income (expense), net

45,017

(45,017)

(6)

—

Provision for (recovery of) income taxes

(2,215)

38,099

(7)

35,884

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

181,283

39,070

(8)

220,353

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

$

0.66

$

0.14

(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 recovery rate of approximately 1% 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, 2021

Per share diluted

GAAP-based net income, attributable to OpenText

$

181,283

$

0.66

Add:

Amortization

105,684

0.39

Share-based compensation

13,350

0.05

Special charges (recoveries)

3,152

0.01

Other (income) expense, net

(45,017)

(0.16)

GAAP-based provision for (recovery of) income taxes

(2,215)

(0.02)

Non-GAAP-based provision for income taxes

(35,884)

(0.13)

Non-GAAP-based net income, attributable to OpenText

$

220,353

$

0.80

Reconciliation of Adjusted EBITDA

Three Months Ended June 30, 2021

GAAP-based net income, attributable to OpenText

$

181,283

Add:

Provision for (recovery of) income taxes

(2,215)

Interest and other related expense, net

37,550

Amortization of acquired technology-based intangible assets

53,215

Amortization of acquired customer-based intangible assets

52,469

Depreciation

21,021

Share-based compensation

13,350

Special charges (recoveries)

3,152

Other (income) expense, net

(45,017)

Adjusted EBITDA

$

314,808

GAAP-based net income margin

20.3%

Adjusted EBITDA margin

35.2%

Reconciliation of Free cash flows

Three Months Ended June 30, 2021

GAAP-based cash flows provided by operating activities

$

296,189

Add:

Capital expenditures ⁽¹⁾

(27,408)

Free cash flows

$

268,781

⁽¹⁾ Defined as "Additions of property and 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, 2020

(In thousands, except for per share data)

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