OpenText Reports Third 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

$882.3

$899.4

$734.5

$747.7

$401.9

$406.6

+5.9%

+8.0%

+6.2%

+8.1%

+13.0%

+14.3%

Annual Recurring Revenues represent 83% of Total Revenues

⁽¹⁾ Organic revenue growth is calculated by removing the revenue contribution from newly acquired companies for the first year post acquisition.

⁽²⁾ Please see note 2 "Use of Non-GAAP Financial Measures" to the condensed consolidated financial statements below.

Summary of Quarterly Results

(In millions, except per share data)

Q3 FY'22

Q3 FY'21

$ Change

% Change

Q3 FY'22
in CC*

% Change
in CC*

Revenues:

Cloud services and subscriptions

$401.9

$355.8

$46.1

13.0%

$406.6

14.3%

Customer support

332.5

335.9

(3.4)

(1.0)%

341.1

1.5%

Total annual recurring revenues**

$734.5

$691.8

$42.7

6.2%

$747.7

8.1%

License

80.6

76.3

4.3

5.7%

82.7

8.4%

Professional service and other

67.2

64.9

2.3

3.6%

69.0

6.4%

Total revenues

$882.3

$832.9

$49.4

5.9%

$899.4

8.0%

GAAP-based operating income

$131.6

$152.4

($20.8)

(13.6)%

N/A

N/A

Non-GAAP-based operating income ⁽¹⁾

$262.2

$275.2

($13.0)

(4.7)%

$270.1

(1.9)%

GAAP-based net income attributable to OpenText

$74.7

$91.5

($16.8)

(18.4)%

N/A

N/A

GAAP-based EPS, diluted

$0.28

$0.33

($0.05)

(15.2)%

N/A

N/A

Non-GAAP-based EPS, diluted ⁽¹⁾⁽²⁾

$0.70

$0.75

($0.05)

(6.7)%

$0.73

(2.7)%

Adjusted EBITDA ⁽¹⁾

$284.5

$297.1

($12.6)

(4.3)%

$292.5

(1.5)%

Operating cash flows

$323.6

$63.6

$260.0

409.0%

N/A

N/A

Free cash flows ⁽¹⁾

$306.0

$50.3

$255.7

508.8%

N/A

N/A

Summary of YTD Results

(In millions, except per share data)

FY'22 YTD

FY'21 YTD

$ Change

% Change

FY'22 YTD
in CC*

% Change
in CC*

Revenues:

Cloud services and subscriptions

$1,123.4

$1,047.3

$76.1

7.3%

$1,124.8

7.4%

Customer support

1,002.6

999.8

2.8

0.3%

1,005.0

0.5%

Total annual recurring revenues**

$2,126.0

$2,047.1

$79.0

3.9%

$2,129.8

4.0%

License

263.7

252.2

11.5

4.6%

265.8

5.4%

Professional service and other

201.7

193.3

8.4

4.3%

202.5

4.7%

Total revenues

$2,591.4

$2,492.6

$98.8

4.0%

$2,598.0

4.2%

GAAP-based operating income

$507.2

$569.2

($62.0)

(10.9)%

N/A

N/A

Non-GAAP-based operating income ⁽¹⁾

$886.0

$936.1

($50.1)

(5.4)%

$896.0

(4.3)%

GAAP-based net income attributable to OpenText

$294.9

$129.4

$165.5

127.9%

N/A

N/A

GAAP-based EPS, diluted

$1.08

$0.47

$0.61

129.8%

N/A

N/A

Non-GAAP-based EPS, diluted ⁽¹⁾⁽²⁾

$2.43

$2.59

($0.16)

(6.2)%

$2.46

(5.0)%

Adjusted EBITDA ⁽¹⁾

$951.4

$1,000.2

($48.9)

(4.9)%

$961.4

(3.9)%

Operating cash flows

$729.9

$579.9

$149.9

25.9%

N/A

N/A

Free cash flows ⁽¹⁾

$674.9

$543.7

$131.3

24.1%

N/A

N/A

⁽¹⁾ Please see note 2 "Use of Non-GAAP Financial Measures" to the condensed consolidated financial statements 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 FY'22

Q2 FY'22

Q3 FY'21

% Change

(Q3 FY'22 vs
Q2 FY'22)

% Change

(Q3 FY'22 vs
Q3 FY'21)

Revenue (millions)

$882.3

$876.8

$832.9

0.6%

5.9%

GAAP-based gross margin

68.9%

70.2%

68.6%

(130)

bps

30

bps

Non-GAAP-based gross margin ⁽¹⁾

74.5%

76.4%

75.2%

(190)

bps

(70)

bps

GAAP-based EPS, diluted

$0.28

$0.32

$0.33

(12.5)%

(15.2)%

Non-GAAP-based EPS, diluted ⁽¹⁾⁽²⁾

$0.70

$0.89

$0.75

(21.3)%

(6.7)%

⁽¹⁾ Please see note 2 "Use of Non-GAAP Financial Measures" to the condensed consolidated financial statements 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, 2022

June 30, 2021

ASSETS

(unaudited)

Cash and cash equivalents

$             1,633,702

$             1,607,306

Accounts receivable trade, net of allowance for credit losses of $16,439 as of
March 31, 2022 and $22,151 as of June 30, 2021

429,877

438,547

Contract assets

25,481

25,344

Income taxes recoverable

20,781

32,312

Prepaid expenses and other current assets

122,616

98,551

Total current assets

2,232,457

2,202,060

Property and equipment

227,830

233,595

Operating lease right of use assets

217,684

234,532

Long-term contract assets

20,049

19,222

Goodwill

5,265,189

4,691,673

Acquired intangible assets

1,181,266

1,187,260

Deferred tax assets

717,345

796,738

Other assets

257,301

208,894

Long-term income taxes recoverable

43,518

35,362

Total assets

$          10,162,639

$             9,609,336

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$                404,545

$                423,592

Current portion of long-term debt

10,000

10,000

Operating lease liabilities

59,182

58,315

Deferred revenues

936,750

852,629

Income taxes payable

7,483

17,368

Total current liabilities

1,417,960

1,361,904

Long-term liabilities:

Accrued liabilities

16,631

28,830

Pension liability

76,364

74,511

Long-term debt

4,210,582

3,578,859

Long-term operating lease liabilities

203,101

224,453

Long-term deferred revenues

90,736

98,989

Long-term income taxes payable

35,206

34,113

Deferred tax liabilities

56,208

108,224

Total long-term liabilities

4,688,828

4,147,979

Shareholders' equity:

Share capital and additional paid-in capital

270,231,166 and 271,540,755 Common Shares issued and outstanding at
March 31, 2022 and June 30, 2021, respectively; authorized Common
Shares: unlimited

2,010,146

1,947,764

Accumulated other comprehensive income

17,266

66,238

Retained earnings

2,151,369

2,153,326

Treasury stock, at cost (2,776,420 and 1,567,664 shares at March 31, 2022 and
June 30, 2021, respectively)

(124,033)

(69,386)

Total OpenText shareholders' equity

4,054,748

4,097,942

Non-controlling interests

1,103

1,511

Total shareholders' equity

4,055,851

4,099,453

Total liabilities and shareholders' equity

$          10,162,639

$             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 March 31,

Nine Months Ended March 31,

2022

2021

2022

2021

Revenues:

Cloud services and subscriptions

$           401,947

$           355,845

$        1,123,422

$        1,047,285

Customer support

332,514

335,915

1,002,626

999,806

License

80,641

76,299

263,663

252,170

Professional service and other

67,181

64,872

201,679

193,327

Total revenues

882,283

832,931

2,591,390

2,492,588

Cost of revenues:

Cloud services and subscriptions

136,020

123,729

377,928

354,235

Customer support

31,763

30,953

90,914

89,815

License

3,196

2,810

10,906

9,601

Professional service and other

56,693

50,321

161,459

143,521

Amortization of acquired technology-based
intangible assets

46,564

53,453

152,333

165,581

Total cost of revenues

274,236

261,266

793,540

762,753

Gross profit

608,047

571,665

1,797,850

1,729,835

Operating expenses:

Research and development

117,730

110,071

321,517

304,212

Sales and marketing

180,955

158,687

491,133

438,984

General and administrative

88,137

71,548

231,127

190,502

Depreciation

22,370

21,961

65,535

64,244

Amortization of acquired customer-based
intangible assets

56,215

54,156

160,764

164,075

Special charges (recoveries)

11,031

2,846

20,592

(1,404)

Total operating expenses

476,438

419,269

1,290,668

1,160,613

Income from operations

131,609

152,396

507,182

569,222

Other income (expense), net

24,392

8,283

29,137

16,417

Interest and other related expense, net

(40,238)

(37,333)

(117,538)

(114,017)

Income before income taxes

115,763

123,346

418,781

471,622

Provision for income taxes

41,041

31,818

123,757

342,121

Net income for the period

$             74,722

$             91,528

$           295,024

$           129,501

Net (income) loss attributable to non-controlling
interests

(41)

(38)

(130)

(112)

Net income attributable to OpenText

$             74,681

$             91,490

$           294,894

$           129,389

Earnings per share—basic attributable to OpenText

$                  0.28

$                  0.34

$                  1.09

$                  0.47

Earnings per share—diluted attributable to OpenText

$                  0.28

$                  0.33

$                  1.08

$                  0.47

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

270,693

272,832

271,623

272,414

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

271,211

273,924

272,439

273,312

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,

2022

2021

2022

2021

Net income for the period

$             74,722

$             91,528

$           295,024

$           129,501

Other comprehensive income (loss)—net of tax:

Net foreign currency translation adjustments

(13,073)

(12,568)

(44,512)

36,142

Unrealized gain (loss) on cash flow hedges:

Unrealized gain (loss) - net of tax expense
(recovery) effect of $233 and $246 for the three
months ended March 31, 2022 and 2021,
respectively; ($158) and $1,302 for the nine
months ended March 31, 2022 and 2021,
respectively

648

681

(334)

3,608

(Gain) loss reclassified into net income - net of
tax (expense) recovery effect of $79 and ($399)
for the three months ended March 31, 2022 and
2021, respectively; ($24) and ($682) for the
nine months ended March 31, 2022 and 2021,
respectively

219

(1,108)

(86)

(1,892)

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

Actuarial gain (loss) - net of tax expense
(recovery) effect of ($579) and $944 for the
three months ended March 31, 2022 and 2021,
respectively; ($811) and ($413) for the nine
months ended March 31, 2022 and 2021,
respectively

(2,033)

344

(4,517)

(2,342)

Amortization of actuarial (gain) loss into net
income - net of tax (expense) recovery effect of
$66 and $95 for the three months ended March
31, 2022 and 2021, respectively; $134 and
$275 for the nine months ended March 31,
2022 and 2021, respectively

156

249

477

733

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

(14,083)

(12,402)

(48,972)

36,249

Total comprehensive income

60,639

79,126

246,052

165,750

Comprehensive (income) loss attributable to non-
controlling interests

(41)

(38)

(130)

(112)

Total comprehensive income attributable to OpenText

$             60,598

$             79,088

$           245,922

$           165,638

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

(unaudited)

Three Months Ended March 31, 2022

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, 2021

271,006

$ 1,990,913

(1,476)

$ (67,966)

$ 2,174,467

$          31,349

$      1,062

$ 4,129,825

Issuance of Common Shares

Under employee stock option plans

53

1,863

—

—

—

—

—

1,863

Under employee stock purchase plans

172

7,003

—

—

—

—

—

7,003

Share-based compensation

—

16,748

—

—

—

—

—

16,748

Purchase of treasury stock

—

—

(1,300)

(56,067)

—

—

—

(56,067)

Repurchase of Common Shares

(1,000)

(6,381)

—

—

(38,702)

—

—

(45,083)

Dividends declared

($0.2209 per Common Share)

—

—

—

—

(59,077)

—

—

(59,077)

Other comprehensive income (loss) - net

—

—

—

—

—

(14,083)

—

(14,083)

Net income for the period

—

—

—

—

74,681

—

41

74,722

Balance as of March 31, 2022

270,231

$ 2,010,146

(2,776)

$ (124,033)

$ 2,151,369

$          17,266

$      1,103

$ 4,055,851

Three Months Ended March 31, 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 December 31, 2020

272,589

$ 1,889,857

(1,101)

$ (47,555)

$ 2,093,076

$          66,476

$      1,393

$ 4,003,247

Issuance of Common Shares

Under employee stock option plans

219

8,270

—

—

—

—

—

8,270

Under employee stock purchase plans

165

6,421

—

—

—

—

—

6,421

Share-based compensation

—

12,357

—

—

—

—

—

12,357

Purchase of treasury stock

—

—

(490)

(22,977)

—

—

—

(22,977)

Issuance of treasury stock

—

(1,146)

23

1,146

—

—

—

—

Dividends declared

($0.2008 per Common Share)

—

—

—

—

(54,519)

—

—

(54,519)

Other comprehensive income (loss) - net

—

—

—

—

—

(12,402)

—

(12,402)

Net income for the period

—

—

—

—

91,490

—

38

91,528

Balance as of March 31, 2021

272,973

$ 1,915,759

(1,568)

$ (69,386)

$ 2,130,047

$          54,074

$      1,431

$ 4,031,925

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

(unaudited)

Nine Months Ended March 31, 2022

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

905

31,128

—

—

—

—

—

31,128

Under employee stock purchase plans

595

24,913

—

—

—

—

—

24,913

Share-based compensation

—

45,091

—

—

—

—

—

45,091

Purchase of treasury stock

—

—

(1,700)

(75,660)

—

—

—

(75,660)

Issuance of treasury stock

—

(21,013)

492

21,013

—

—

—

—

Repurchase of Common Shares

(2,810)

(17,879)

—

—

(118,238)

—

—

(136,117)

Dividends declared

($0.6627 per Common Share)

—

—

—

—

(178,613)

—

—

(178,613)

Other comprehensive income (loss) - net

—

—

—

—

—

(48,972)

—

(48,972)

Distribution to non-controlling interest

—

142

—

—

—

—

(538)

(396)

Net income for the period

—

—

—

—

294,894

—

130

295,024

Balance as of March 31, 2022

270,231

$ 2,010,146

(2,776)

$ (124,033)

$ 2,151,369

$          17,266

$      1,103

$ 4,055,851

Nine Months Ended March 31, 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, 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

743

23,768

—

—

—

—

—

23,768

Under employee stock purchase plans

367

13,974

193

6,690

—

—

—

20,664

Share-based compensation

—

38,619

—

—

—

—

—

38,619

Purchase of treasury stock

—

—

(1,455)

(64,847)

—

—

—

(64,847)

Issuance of treasury stock

—

(12,379)

316

12,379

—

—

—

—

Dividends declared

($0.5762 per Common Share)

—

—

—

—

(156,288)

—

—

(156,288)

Other comprehensive income (loss) - net

—

—

—

—

—

36,249

—

36,249

Net income for the period

—

—

—

—

129,389

—

112

129,501

Balance as of March 31, 2021

272,973

$ 1,915,759

(1,568)

$ (69,386)

$ 2,130,047

$          54,074

$      1,431

$ 4,031,925

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,

2022

2021

2022

2021

Cash flows from operating activities:

Net income for the period

$             74,722

$             91,528

$           295,024

$           129,501

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

Depreciation and amortization of intangible assets

125,149

129,570

378,632

393,900

Share-based compensation expense

16,748

12,357

45,091

38,619

Pension expense

1,868

1,550

4,883

4,670

Amortization of debt issuance costs

1,482

1,141

3,936

3,395

Loss on extinguishment of debt

—

—

27,413

—

Loss on sale and write down of property and equipment

58

1,026

96

1,979

Deferred taxes

22,440

447

43,332

80,844

Share in net (income) loss of equity investees

(27,746)

(11,765)

(59,103)

(20,020)

Changes in operating assets and liabilities:

Accounts receivable

17,241

54,345

68,428

87,072

Contract assets

(8,463)

(8,842)

(27,208)

(29,035)

Prepaid expenses and other current assets

(4,501)

(10,494)

(15,722)

(2,528)

Income taxes

(14,011)

(286,435)

(11,235)

(117,594)

Accounts payable and accrued liabilities

42,891

9,211

(65,738)

(27,327)

Deferred revenue

76,335

81,247

25,642

62,600

Other assets

(386)

2,232

16,527

765

Operating lease assets and liabilities, net

(270)

(3,546)

(128)

(26,910)

Net cash provided by operating activities

323,557

63,572

729,870

579,931

Cash flows from investing activities:

Additions of property and equipment

(17,590)

(13,311)

(54,937)

(36,267)

Purchase of Zix Corporation, net of cash acquired

(18,602)

—

(856,175)

—

Purchase of Bricata Inc.

—

—

(17,927)

—

Purchase of XMedius

—

—

—

444

Purchase of Dynamic Solutions Group Inc.

—

—

—

(371)

Other investing activities

(651)

(648)

(3,922)

(2,018)

Net cash used in investing activities

(36,843)

(13,959)

(932,961)

(38,212)

Cash flows from financing activities:

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

10,788

16,603

56,476

45,780

Proceeds from long-term debt and Revolver

—

—

1,500,000

—

Repayment of long-term debt and Revolver

(2,500)

(2,500)

(857,500)

(607,500)

Debt extinguishment costs

—

—

(24,969)

—

Debt issuance costs

(1,812)

—

(17,159)

—

Repurchase of Common Shares

(45,083)

—

(136,117)

—

Purchase of treasury stock

(56,067)

(22,977)

(75,660)

(64,847)

Distribution to non-controlling interest

—

—

(396)

—

Payments of dividends to shareholders

(59,077)

(54,519)

(178,613)

(156,288)

Net cash provided by (used in) financing activities

(153,751)

(63,393)

266,062

(782,855)

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

(11,207)

(11,218)

(36,920)

22,553

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

121,756

(24,998)

26,051

(218,583)

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

1,514,095

1,503,678

1,609,800

1,697,263

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

$        1,635,851

$        1,478,680

$        1,635,851

$        1,478,680

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)

Reconciliation of cash, cash equivalents and restricted cash:

March 31, 2022

March 31, 2021

Cash and cash equivalents

$             1,633,702

$             1,475,626

Restricted cash ⁽¹⁾

2,149

3,054

Total cash, cash equivalents and restricted cash

$             1,635,851

$             1,478,680

⁽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 our return to office planning, 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 March 31, 2022

(In thousands, except for per share data)

Three Months Ended March 31, 2022

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

$  136,020

$      (1,268)

(1)

$   134,752

Customer support

31,763

(501)

(1)

31,262

Professional service and other

56,693

(907)

(1)

55,786

Amortization of acquired technology-based intangible assets

46,564

(46,564)

(2)

—

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

608,047

68.9%

49,240

(3)

657,287

74.5%

Operating expenses

Research and development

117,730

(4,350)

(1)

113,380

Sales and marketing

180,955

(5,761)

(1)

175,194

General and administrative

88,137

(3,961)

(1)

84,176

Amortization of acquired customer-based intangible
assets

56,215

(56,215)

(2)

—

Special charges (recoveries)

11,031

(11,031)

(4)

—

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

131,609

130,558

(5)

262,167

Other income (expense), net

24,392

(24,392)

(6)

—

Provision for income taxes

41,041

(9,971)

(7)

31,070

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

74,681

116,137

(8)

190,818

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

$         0.28

$          0.42

(8)

$          0.70

(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 35% 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, 2022

Per share diluted

GAAP-based net income, attributable to OpenText

$                     74,681

$                          0.28

Add:

Amortization

102,779

0.38

Share-based compensation

16,748

0.06

Special charges (recoveries)

11,031

0.04

Other (income) expense, net

(24,392)

(0.09)

GAAP-based provision for income taxes

41,041

0.15

Non-GAAP-based provision for income taxes

(31,070)

(0.12)

Non-GAAP-based net income, attributable to OpenText

$                   190,818

$                          0.70

Reconciliation of Adjusted EBITDA

Three Months Ended March 31, 2022

GAAP-based net income, attributable to OpenText

$                                                       74,681

Add:

Provision for income taxes

41,041

Interest and other related expense, net

40,238

Amortization of acquired technology-based intangible assets

46,564

Amortization of acquired customer-based intangible assets

56,215

Depreciation

22,370

Share-based compensation

16,748

Special charges (recoveries)

11,031

Other (income) expense, net

(24,392)

Adjusted EBITDA

$                                                     284,496

GAAP-based net income margin

8.5%

Adjusted EBITDA margin

32.2%

Reconciliation of Free cash flows

Three Months Ended March 31, 2022

GAAP-based cash flows provided by operating activities

$                                                         323,557

Add:

Capital expenditures ⁽¹⁾

(17,590)

Free cash flows

$                                                         305,967

⁽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 nine months ended March 31, 2022

(In thousands, except for per share data)

Nine Months Ended March 31, 2022

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

$   377,928

$      (3,072)

(1)

$   374,856

Customer support

90,914

(1,631)

(1)

89,283

Professional service and other

161,459

(2,275)

(1)

159,184

Amortization of acquired technology-based intangible
assets

152,333

(152,333)

(2)

—

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

1,797,850

69.4%

159,311

(3)

1,957,161

75.5%

Operating expenses