OpenText Reports Third Quarter Fiscal Year 2023 Financial Results

Total Revenues

(in millions)

Annual Recurring Revenues

(in millions)

Cloud Revenues

(in millions)

Reported

Constant
Currency

Reported

Constant
Currency

Reported

Constant
Currency

$1,245

$1,278

$1,011

$1,036

$435

$444

+41.1 %

+44.9 %

+37.7 %

+41.1 %

+8.3 %

+10.4 %

Annual Recurring Revenues represent 81% of Total Revenues

⁽¹⁾ Enterprise cloud bookings is defined as the total value from cloud services and subscription contracts, entered into in the period that are new, committed and incremental to our existing contracts, excluding the impact of Carbonite and Zix.
⁽²⁾ TTM  is calculated as Q4FY'22, plus year-to-date FY'23 included within our current and historical filings on Forms 10-Q and 10-K.
⁽³⁾ Please see Note 2 "Use of Non-GAAP Financial Measures" to the consolidated financial statements below.

Summary of Quarterly Results

(In millions, except per share data)

Q3 FY'23

Q3 FY'22

$ Change

% Change

Q3 FY'23  
in CC*

% Change
in CC*

Revenues:

Cloud services and subscriptions

$435.4

$401.9

$33.5

8.3 %

$443.7

10.4 %

Customer support

575.9

332.5

243.4

73.2 %

592.8

78.3 %

Total annual recurring revenues**

$1,011.3

$734.5

$276.9

37.7 %

$1,036.5

41.1 %

License

139.7

80.6

59.1

73.3 %

145.0

79.9 %

Professional service and other

93.6

67.2

26.4

39.4 %

96.8

44.1 %

Total revenues

$1,244.7

$882.3

$362.4

41.1 %

$1,278.3

44.9 %

GAAP-based operating income

$64.0

$131.6

($67.6)

(51.4) %

N/A

N/A

Non-GAAP-based operating income ⁽¹⁾

$334.6

$262.2

$72.4

27.6 %

$336.4

28.3 %

GAAP-based net income attributable to OpenText

$57.6

$74.7

($17.1)

(22.9) %

N/A

N/A

GAAP-based EPS, diluted

$0.21

$0.28

($0.07)

(25.0) %

N/A

N/A

Non-GAAP-based EPS, diluted ⁽¹⁾⁽²⁾

$0.73

$0.70

$0.03

4.3 %

$0.73

4.3 %

Adjusted EBITDA ⁽¹⁾

$365.1

$284.5

$80.6

28.3 %

$367.3

29.1 %

Operating cash flows

$336.8

$323.6

$13.2

4.1 %

N/A

N/A

Free cash flows ⁽¹⁾

$305.5

$306.0

($0.4)

(0.1) %

N/A

N/A

Summary of YTD Results

(In millions, except per share data)

FY'23   YTD

FY'22   YTD

$ Change

% Change

FY'23   YTD
in CC*

% Change
in CC*

Revenues:

Cloud services and subscriptions

$1,248.8

$1,123.4

$125.4

11.2 %

$1,283.7

14.3 %

Customer support

1,209.7

1,002.6

207.1

20.7 %

1,267.4

26.4 %

Total annual recurring revenues**

$2,458.5

$2,126.0

$332.5

15.6 %

$2,551.0

20.0 %

License

310.2

263.7

46.6

17.7 %

326.2

23.7 %

Professional service and other

225.4

201.7

23.7

11.8 %

237.8

17.9 %

Total revenues

$2,994.2

$2,591.4

$402.8

15.5 %

$3,115.1

20.2 %

GAAP-based operating income

$395.0

$507.2

($112.2)

(22.1) %

N/A

N/A

Non-GAAP-based operating income ⁽¹⁾

$933.6

$886.0

$47.6

5.4 %

$966.0

9.0 %

GAAP-based net income attributable to OpenText

$199.1

$294.9

($95.8)

(32.5) %

N/A

N/A

GAAP-based EPS, diluted

$0.74

$1.08

($0.34)

(31.5) %

N/A

N/A

Non-GAAP-based EPS, diluted ⁽¹⁾⁽²⁾

$2.39

$2.43

($0.04)

(1.6) %

$2.50

2.9 %

Adjusted EBITDA ⁽¹⁾

$1,010.1

$951.4

$58.7

6.2 %

$1,043.1

9.6 %

Operating cash flows

$663.9

$729.9

($66.0)

(9.0) %

N/A

N/A

Free cash flows ⁽¹⁾

$564.1

$674.9

($110.8)

(16.4) %

N/A

N/A

⁽¹⁾ Please see Note 2 "Use of Non-GAAP Financial Measures" to the 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.

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'23

Q2 FY'23

Q3 FY'22

% Change

(Q3 FY'23
vs Q2 FY'23)

% Change

(Q3 FY'23 vs
Q3 FY'22)

Revenue (millions)

$1,244.7

$897.4

$882.3

38.7 %

41.1 %

GAAP-based gross margin

70.3 %

70.8 %

68.9 %

(50)

bps

140

bps

Non-GAAP-based gross margin ⁽¹⁾

75.8 %

76.0 %

74.5 %

(20)

bps

130

bps

GAAP-based earnings (loss) per share, diluted

$0.21

$0.96

$0.28

(78.1) %

(25.0) %

Non-GAAP-based EPS, diluted ⁽¹⁾⁽²⁾

$0.73

$0.89

$0.70

(18.0) %

4.3 %

⁽¹⁾ Please see Note 2 "Use of Non-GAAP Financial Measures" to the 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
  CONSOLIDATED BALANCE SHEETS  
(In thousands of U.S. dollars, except share data)

March 31, 2023

June 30, 2022

ASSETS

(unaudited)

Cash and cash equivalents

$             1,396,817

$             1,693,741

Accounts receivable trade, net of allowance for credit losses of $16,550 as of
March 31, 2023 and $16,473 as of June 30, 2022

676,280

426,652

Contract assets

61,374

26,167

Income taxes recoverable

47,803

18,255

Prepaid expenses and other current assets

250,661

120,552

Total current assets

2,432,935

2,285,367

Property and equipment

340,615

244,709

Operating lease right of use assets

297,640

198,132

Long-term contract assets

63,380

19,719

Goodwill

8,748,543

5,244,653

Acquired intangible assets

4,221,885

1,075,208

Deferred tax assets

889,143

810,154

Other assets

343,677

256,987

Long-term income taxes recoverable

89,730

44,044

Total assets

$          17,427,548

$          10,178,973

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$                910,713

$                448,607

Current portion of long-term debt

495,850

10,000

Operating lease liabilities

94,015

56,380

Deferred revenues

1,785,121

902,202

Income taxes payable

198,371

51,069

Total current liabilities

3,484,070

1,468,258

Long-term liabilities:

Accrued liabilities

64,120

18,208

Pension liability

112,168

60,951

Long-term debt

8,565,238

4,209,567

Long-term operating lease liabilities

286,025

198,695

Long-term deferred revenues

240,357

91,144

Long-term income taxes payable

189,351

34,003

Deferred tax liabilities

363,072

65,887

Total long-term liabilities

9,820,331

4,678,455

Shareholders' equity:

Share capital and additional paid-in capital

270,479,181 and 269,522,639 Common Shares issued and outstanding at
March 31, 2023 and June 30, 2022, respectively; authorized Common Shares:
unlimited

2,130,343

2,038,674

Accumulated other comprehensive income (loss)

(33,114)

(7,659)

Retained earnings

2,163,338

2,160,069

Treasury stock, at cost (3,216,394 and 3,706,420 shares at March 31, 2023 and
June 30, 2022, respectively)

(138,700)

(159,966)

Total OpenText shareholders' equity

4,121,867

4,031,118

Non-controlling interests

1,280

1,142

Total shareholders' equity

4,123,147

4,032,260

Total liabilities and shareholders' equity

$          17,427,548

$          10,178,973

OPEN TEXT CORPORATION
  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,

2023

2022

2023

2022

Revenues:

Cloud services and subscriptions

$       435,449

$       401,947

$    1,248,774

$    1,123,422

Customer support

575,884

332,514

1,209,743

1,002,626

License

139,722

80,641

310,230

263,663

Professional service and other

93,619

67,181

225,403

201,679

Total revenues

1,244,674

882,283

2,994,150

2,591,390

Cost of revenues:

Cloud services and subscriptions

157,658

136,020

423,771

377,928

Customer support

67,067

31,763

123,010

90,914

License

3,840

3,196

10,461

10,906

Professional service and other

78,526

56,693

186,390

161,459

Amortization of acquired technology-based intangible assets

62,639

46,564

146,139

152,333

Total cost of revenues

369,730

274,236

889,771

793,540

Gross profit

874,944

608,047

2,104,379

1,797,850

Operating expenses:

Research and development

210,731

117,730

430,629

321,517

Sales and marketing

271,013

180,955

615,354

491,133

General and administrative

127,047

88,137

282,724

231,127

Depreciation

30,577

22,370

76,609

65,535

Amortization of acquired customer-based intangible assets

97,237

56,215

205,121

160,764

Special charges (recoveries)

74,350

11,031

98,937

20,592

Total operating expenses

810,955

476,438

1,709,374

1,290,668

Income from operations

63,989

131,609

395,005

507,182

Other income (expense), net

85,706

24,392

59,824

29,137

Interest and other related expense, net

(104,502)

(40,238)

(183,599)

(117,538)

Income before income taxes

45,193

115,763

271,230

418,781

Provision for (recovery of) income taxes

(12,420)

41,041

71,979

123,757

Net income for the period

$         57,613

$         74,722

$       199,251

$       295,024

Net (income) loss attributable to non-controlling interests

(57)

(41)

(138)

(130)

Net income attributable to OpenText

$         57,556

$         74,681

$       199,113

$       294,894

Earnings per share—basic attributable to OpenText

$              0.21

$              0.28

$              0.74

$              1.09

Earnings per share—diluted attributable to OpenText

$              0.21

$              0.28

$              0.74

$              1.08

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

270,441

270,693

270,143

271,623

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

270,650

271,211

270,173

272,439

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

Three Months Ended

March 31,

Nine Months Ended  
March 31,

2023

2022

2023

2022

Net income

$         57,613

$         74,722

$       199,251

$       295,024

Other comprehensive income (loss)—net of tax:

Net foreign currency translation adjustments

(28,640)

(13,073)

(25,587)

(44,512)

Unrealized gain (loss) on cash flow hedges:

Unrealized gain (loss) - net of tax expense (recovery) effect of $15 and $233 for the three months ended March 31, 2023 and 2022, respectively; ($844) and $(158) for the nine months ended March 31, 2023 and 2022, respectively

38

648

(2,343)

(334)

(Gain) loss reclassified into net income - net of tax (expense) recovery effect of $252 and $79 for the three months ended March 31, 2023 and 2022, respectively; $861 and $(24) for the nine months ended March 31, 2023 and 2022, respectively

699

219

2,388

(86)

Unrealized gain (loss) on available-for-sale financial assets:

Unrealized gain (loss) - net of tax expense (recovery) effect of $238 and $— for the three months ended March 31, 2023 and 2022, respectively; $238 and $— for the nine months ended March 31, 2023 and 2022, respectively

(900)

—

(900)

—

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

Actuarial gain (loss) - net of tax expense (recovery) effect of ($892) and $(579) for the three months ended March 31, 2023 and 2022, respectively; $318 and $(811) for the nine months ended March 31, 2023 and 2022, respectively

(3,318)

(2,033)

878

(4,517)

Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $25 and $66 for the three months ended March 31, 2023 and 2022, respectively; $76 and $134 for the nine months ended March 31, 2023 and 2022, respectively

35

156

109

477

Total other comprehensive income (loss) net

(32,086)

(14,083)

(25,455)

(48,972)

Total comprehensive income

25,527

60,639

173,796

246,052

Comprehensive (income) loss attributable to non-controlling interests

(57)

(41)

(138)

(130)

Total comprehensive income attributable to OpenText

$         25,470

$         60,598

$       173,658

$       245,922

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

Three Months Ended March 31, 2023

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, 2022

270,235

$  2,092,079

(3,295)

$ (142,126)

$  2,171,236

$          (1,028)

$      1,223

$  4,121,384

Issuance of Common Shares

Under employee stock option plans

16

479

—

—

—

—

—

479

Under employee stock purchase plans

228

5,776

—

—

—

—

—

5,776

Share-based compensation

—

36,505

—

—

—

—

—

36,505

Issuance of treasury stock

—

(4,496)

79

3,426

—

—

—

(1,070)

Dividends declared

($0.24299 per Common Share)

—

—

—

—

(65,454)

—

—

(65,454)

Other comprehensive income (loss) - net

—

—

—

—

—

(32,086)

—

(32,086)

Net income for the period

—

—

—

—

57,556

—

57

57,613

Balance as of March 31, 2023

270,479

$  2,130,343

(3,216)

$ (138,700)

$  2,163,338

$        (33,114)

$      1,280

$  4,123,147

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

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

Nine Months Ended March 31, 2023

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, 2022

269,523

$  2,038,674

(3,706)

$  (159,966)

$  2,160,069

$          (7,659)

$      1,142

$  4,032,260

Issuance of Common Shares

Under employee stock option plans

88

2,473

—

—

—

—

—

2,473

Under employee stock purchase plans

868

22,997

—

—

—

—

—

22,997

Share-based compensation

—

88,535

—

—

—

—

—

88,535

Issuance of treasury stock

—

(22,336)

490

21,266

—

—

—

(1,070)

Dividends declared

($0.72897 per Common Share)

—

—

—

—

(195,844)

—

—

(195,844)

Other comprehensive income (loss) - net

—

—

—

—

—

(25,455)

—

(25,455)

Net income for the period

—

—

—

—

199,113

—

138

199,251

Balance as of March 31, 2023

270,479

$  2,130,343

(3,216)

$  (138,700)

$  2,163,338

$        (33,114)

$      1,280

$  4,123,147

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

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

Three Months Ended

March 31,

Nine Months Ended

March 31,

2023

2022

2023

2022

Cash flows from operating activities:

Net income for the period

$           57,613

$           74,722

$         199,251

$         295,024

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

Depreciation and amortization of intangible assets

190,453

125,149

427,869

378,632

Share-based compensation expense

36,368

16,748

88,398

45,091

Pension expense

2,362

1,868

5,806

4,883

Amortization of debt issuance costs

5,330

1,482

8,496

3,936

Write off of right of use assets

3,344

—

7,119

—

Loss on extinguishment of debt

21

—

8,152

27,413

Loss on sale and write down of property and equipment

1,307

58

1,428

96

Deferred taxes

(131,898)

22,440

(178,700)

43,332

Share in net (income) loss of equity investees

4,724

(27,746)

11,547

(59,103)

Changes in financial instruments

102,713

—

112,567

—

Changes in operating assets and liabilities:

Accounts receivable

167,866

17,241

141,269

68,428

Contract assets

(11,442)

(8,463)

(29,896)

(27,208)

Prepaid expenses and other current assets

(62,121)

(4,501)

(65,186)

(15,722)

Income taxes

87,277

(14,011)

131,517

(11,235)

Accounts payable and accrued liabilities

(146,638)

42,891

(137,674)

(65,738)

Deferred revenue

(13,498)

76,335

(42,631)

25,642

Other assets

54,708

(386)

(5,998)

16,527

Operating lease assets and liabilities, net

(11,714)

(270)

(19,430)

(128)

Net cash provided by operating activities

336,775

323,557

663,904

729,870

Cash flows from investing activities:

Additions of property and equipment

(31,233)

(17,590)

(99,772)

(54,937)

Purchase of Micro Focus International PLC, net of cash acquired

(5,655,606)

—

(5,655,606)

—

Purchase of Zix Corporation, net of cash acquired

—

(18,602)

—

(856,175)

Purchase of Bricata Inc.

—

—

—

(17,927)

Realized gain on financial instruments

131,248

—

131,248

—

Other investing activities

—

(651)

(873)

(3,922)

Net cash used in investing activities

(5,555,591)

(36,843)

(5,625,003)

(932,961)

Cash flows from financing activities:

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

9,399

10,788

25,172

56,476

Proceeds from long-term debt and Revolver

3,927,450

—

4,927,450

1,500,000

Repayment of long-term debt and Revolver

(11,463)

(2,500)

(16,463)

(857,500)

Debt extinguishment costs

—

—

—

(24,969)

Debt issuance costs

(65,559)

(1,812)

(77,209)

(17,159)

Repurchase of Common Shares

—

(45,083)

—

(136,117)

Purchase of treasury stock

—

(56,067)

—

(75,660)

Distribution to non-controlling interest

—

—

—

(396)

Payments of dividends to shareholders

(64,919)

(59,077)

(194,481)

(178,613)

Other financing activities

(2,193)

—

(2,193)

—

Net cash provided by (used in) financing activities

3,792,715

(153,751)

4,662,276

266,062

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

2,903

(11,207)

2,632

(36,920)

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

(1,423,198)

121,756

(296,191)

26,051

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

2,822,918

1,514,095

1,695,911

1,609,800

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

$      1,399,720

$      1,635,851

$      1,399,720

$      1,635,851

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

Reconciliation of cash, cash equivalents and restricted cash:

March 31, 2023

March 31, 2022

Cash and cash equivalents

$               1,396,817

$               1,633,702

Restricted cash ⁽¹⁾

2,903

2,149

Total cash, cash equivalents and restricted cash

$               1,399,720

$               1,635,851

⁽¹⁾ Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the 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 (loss) or earnings (loss) 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 (loss), attributable to OpenText, excluding interest income (expense), provision for (recovery of) 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, 2023

(In thousands, except for per share data)

Three Months Ended March 31, 2023

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

$  157,658

$     (2,943)

(1)

$   154,715

Customer support

67,067

(1,157)

(1)

65,910

Professional service and other

78,526

(1,884)

(1)

76,642

Amortization of acquired technology-based intangible assets

62,639

(62,639)

(2)

—

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

874,944

70.3 %

68,623

(3)

943,567

75.8 %

Operating expenses

Research and development

210,731

(10,801)

(1)

199,930

Sales and marketing

271,013

(11,947)

(1)

259,066

General and administrative

127,047

(7,636)

(1)

119,411

Amortization of acquired customer-based intangible assets

97,237

(97,237)

(2)

—

Special charges (recoveries)

74,350

(74,350)

(4)

—

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

63,989

270,594

(5)

334,583

Other income (expense), net

85,706

(85,706)

(6)

—

Provision for (recovery of) income taxes

(12,420)

44,631

(7)

32,211

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

57,556

140,257

(8)

197,813

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

$         0.21

$          0.52

(8)

$          0.73

(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. Other income (expense) also includes unrealized and realized gains (losses) on our derivatives which are not designated as hedges. We exclude gains and losses on these derivatives as we do not believe they are reflective on our ongoing business and operating results.

(7)

Adjustment relates to differences between the GAAP-based tax provision rate of approximately (27%) 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 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 (loss) to Non-GAAP-based net income:

Three Months Ended March 31, 2023

Per share diluted