Jan 31, 2018

OpenText Reports Second Quarter Fiscal Year 2018 Financial Results

Total Revenue of $734 Million, up 35% Y/Y

Operating Cash Flows of $167 Million, up 148% Q/Q, up 56% Y/Y

Madhu Ranganathan to Join OpenText as CFO; John Doolittle to Complete Four Successful Years

WATERLOO, Ontario, Jan. 31, 2018 /PRNewswire/ -- Open Text Corporation (NASDAQ: OTEX, TSX: OTEX), "The Information Company," today announced its financial results for the second quarter ended December 31, 2017.

"OpenText's Fiscal Year 2018 Q2 results represent the power of the OpenText Business System: our strategic focus on M&A, functional integration, operational excellence and innovation.  The company delivered 35% year-over-year revenue growth, adjusted operating margin of 36.5%, and operating cash flows of $167 million," said Mark Barrenechea, OpenText Vice Chairman, CEO & CTO.  "Our Annual Recurring Revenues (ARR) were strong at $516 million or 31% year-over-year growth; we also had solid organic growth within the quarter."

"With ECD now on our adjusted operating model and the integration complete, our energy turns to our go-to-market initiatives for calendar year 2018.  These go-to-market initiatives include cross-selling, expanded partner footprint and new offerings.  We also see increasing demand in our Enterprise Information Management (EIM) product suite, including Security and AI products," said Barrenechea.  "Mergers and Acquisitions continue to be our leading growth driver and by utilizing the OpenText Business System, we are well positioned for future M&A opportunities within the EIM market."

Barrenechea further added, "We are introducing a 2021 adjusted operating margin target range of 36% to 40%, up from our previously stated 2020 target range of 34% to 38%."

Financial Highlights for Q2 Fiscal 2018 with Year Over Year Comparisons

Summary of Quarterly Results

               

(in millions except per share data)

Q2 FY18

Q2 FY17

$ Change

% Change
(Y/Y)

 

Q2 FY18 in
CC*

% Change
in CC*

 

Revenues:

               

Cloud services and subscriptions

$208.1

 

$175.1

 

$33.1

 

18.9

%

 

$207.2

 

18.3

%

 

Customer support

308.1

 

219.7

 

88.4

 

40.3

%

 

301.2

 

37.1

%

 

Total annual recurring revenues**

$516.2

 

$394.7

 

$121.5

 

30.8

%

 

$508.4

 

28.8

%

 

License

135.2

 

97.8

 

37.5

 

38.3

%

 

130.6

 

33.6

%

 

Professional service and other

83.0

 

50.2

 

32.7

 

65.2

%

 

80.9

 

61.0

%

 

Total revenues

$734.4

 

$542.7

 

$191.7

 

35.3

%

 

$719.8

 

32.6

%

 

GAAP-based operating income

$166.6

 

$107.2

 

$59.5

 

55.5

%

       

Non-GAAP-based operating income (1)

$267.9

 

$184.5

 

$83.4

 

45.2

%

 

$262.0

 

42.0

%

 

GAAP-based operating margin

22.7

%

19.7

%

n/a

 

300

 

bps

     

Non-GAAP-based operating margin (1)

36.5

%

34.0

%

n/a

 

250

 

bps

36.4

%

240

 

bps

GAAP-based EPS, diluted (2)

$0.32

 

$0.18

 

$0.14

 

77.8

%

       

Non-GAAP-based EPS, diluted (1)(3)

$0.76

 

$0.54

 

$0.22

 

40.7

%

 

$0.74

 

37.0

%

 

GAAP-based net income attributable to OpenText (2)

$85.1

 

$45.0

 

$40.1

 

89.0

%

       

Adjusted EBITDA (1)

$290.1

 

$199.8

 

$90.3

 

45.2

%

       

Operating cash flows

$166.6

 

$107.0

 

$59.6

 

55.7

%

       

 

Summary of YTD Results

               

(in millions except per share data)

FY18 YTD

FY17 YTD

$ Change

% Change

(Y/Y)

 

FY18 YTD in
CC*

% Change
in CC*

 

Revenues:

               

Cloud services and subscriptions

$402.0

 

$344.7

 

$57.2

 

16.6

%

 

$402.0

 

16.6

%

 

Customer support

603.5

 

429.9

 

173.6

 

40.4

%

 

593.5

 

38.1

%

 

Total annual recurring revenues**

$1,005.4

 

$774.6

 

$230.8

 

29.8

%

 

$995.4

 

28.5

%

 

License

213.5

 

158.4

 

55.1

 

34.8

%

 

207.8

 

31.2

%

 

Professional service and other

156.2

 

101.3

 

54.8

 

54.1

%

 

152.5

 

50.5

%

 

Total revenues

$1,375.1

 

$1,034.4

 

$340.7

 

32.9

%

 

$1,355.7

 

31.1

%

 

GAAP-based operating income

$253.7

 

$181.2

 

$72.5

 

40.0

%

       

Non-GAAP-based operating income (1)

$469.0

 

$335.9

 

$133.1

 

39.6

%

 

$460.9

 

37.2

%

 

GAAP-based operating margin

18.5

%

17.5

%

n/a

 

100

 

bps

     

Non-GAAP-based operating margin (1)

34.1

%

32.5

%

n/a

 

160

 

bps

34.0

%

150

 

bps

GAAP-based EPS, diluted (2)

$0.46

 

$3.89

 

($3.43)

 

(88.2)

%

       

Non-GAAP-based EPS, diluted (1)(3)

$1.30

 

$0.97

 

$0.33

 

34.0

%

 

$1.27

 

30.9

%

 

GAAP-based net income attributable to OpenText (2)

$121.7

 

$957.9

 

($836.2)

 

(87.3)

%

       

Adjusted EBITDA (1)

$510.1

 

$366.4

 

$143.6

 

39.2

%

       

Operating cash flows

$233.7

 

$180.5

 

$53.3

 

29.5

%

       
   

(1)

Please see note 2 "Use of Non-GAAP Financial Measures" below

(2)

Recorded a significant tax benefit in Q1 FY17 of $876.1 million. This significant tax benefit is specifically tied to the Company's internal reorganization and applied to Q1 FY17 only and as a result does not continue in future periods.

(3)

Please also see note 14 to the Company's Condensed Consolidated Financial Statements on Form 10-Q. 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.

"We delivered very strong margins in the quarter with a significant increase in operating cash flow," said John Doolittle, OpenText CFO. "Our gross leverage ratio has significantly improved and it is now below 3.0 times.  With a strengthening balance sheet and growing adjusted EBITDA, OpenText is well positioned for future growth initiatives."

Madhu Ranganathan to Join OpenText as CFO; John Doolittle to Complete Four Successful Years

OpenText also announced today that Madhu Ranganathan, CFO at [24]7.ai (www.247.ai), a leading company for AI and Customer Experience Software, will join OpenText as EVP and CFO, effective April 2, 2018.  John Doolittle will continue as CFO until April 2, 2018, and will remain with the Company until September 2018, ensuring a successful transition. 

"I am very pleased to welcome Madhu Ranganathan to OpenText, a Silicon Valley veteran and a highly experienced global finance executive. Madhu brings over 25 years of strategic and financial leadership experience with deep operational focus in software, hardware & tech-enabled services businesses," said Mark J. Barrenechea, OpenText Vice Chairman, CEO and CTO. 

Madhu Ranganathan, formerly with PriceWaterhouse LLP, holds an MBA in Finance from the University of Massachusetts, is a Certified Public Accountant and a Chartered Accountant (India).

"I would like to thank John for his four years of great service to OpenText, and recognize his commitment to a significant transition period. I wish him all the best in his continued journey," added Mark J. Barrenechea.

"After four successful years, I have accomplished the objectives Mark and I initially set out," said John Doolittle, EVP & CFO of OpenText.  "I will work closely with Mark, Madhu and the senior management team to ensure a successful transition."

OpenText Quarterly Business Highlights

  • OpenText added to S&P/TSX 60 Index
  • 30 customer transactions over $1 million, 14 OpenText Cloud and 16 on-premise
  • Financial, Consumer Goods, Services, Technology and Public Sector industries saw the most demand in cloud and license
  • Customer wins in the quarter included Tata Consultancy Services, Canon Electronics, WTC Captive Insurance Company, gkv informatik, TAFE Queensland, Peabody, Pandora Media, Helaba Invest, Air France-KLM, ConvaTec, County of Los Angeles, OCHIN, Zurn, US WorldMeds, Syngene, Adif, Informática del Ayuntamiento de Madrid, Transports Metropolitans de Barcelona, OILES Corporation, FreightVerify, Nifco Inc.,Campari Group, Froneri International, Malakoff Médéric, MetaSource, Opel Automobile GmbH, Broadcom Limited, Zodiac Aerospace, A1 and Elcom
  • OpenText expands operations in India and announces on-going investment in people, infrastructure and customers

Dividend Program Highlights

Cash Dividend
As part of our quarterly, non-cumulative cash dividend program, the Board declared on January 30, 2018 a cash dividend of $0.132 per common share. The record date for this dividend is March 2, 2018 and the payment date is March 23, 2018. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of the Board of Directors.

Summary of Quarterly Results

             
 

Q2 FY18

Q1 FY18

Q2 FY17

% Change

(Q2 FY18 vs
Q1 FY18)

 

% Change

(Q2 FY18 vs
Q2 FY17)

 

Revenue (million)

$734.4

 

$640.7

 

$542.7

 

14.6

%

 

35.3

%

 

GAAP-based gross margin

67.3

%

65.1

%

69.0

%

220

 

bps

(170)

 

Bps

GAAP-based operating margin

22.7

%

13.6

%

19.7

%

910

 

bps

300

 

Bps

GAAP-based EPS, diluted(1)

$0.32

 

$0.14

 

$0.18

 

128.6

%

 

77.8

%

 

Non-GAAP-based gross margin (2)

73.9

%

72.2

%

73.8

%

170

 

bps

10

 

Bps

Non-GAAP-based operating margin (2)

36.5

%

31.4

%

34.0

%

510

 

bps

250

 

Bps

Non-GAAP-based EPS, diluted (2)(3)

$0.76

 

$0.54

 

$0.54

 

40.7

%

 

40.7

%

 

 

Summary of Year to Date Results

       
 

Q2 FY18 YTD

Q2 FY17 YTD

% Change

 

Revenue (million)

$1,375.1

 

$1,034.4

 

32.9

%

 

GAAP-based gross margin

66.3

%

67.9

%

(160)

 

Bps

GAAP-based operating margin

18.5

%

17.5

%

100

 

Bps

GAAP-based EPS, diluted(1)

$0.46

 

$3.89

 

(88.2)

%

 

Non-GAAP-based gross margin (2)

73.1

%

72.7

%

40

 

Bps

Non-GAAP-based operating margin (2)

34.1

%

32.5

%

160

 

Bps

Non-GAAP-based EPS, diluted (2)(3)

$1.30

 

$0.97

 

34.0

%

 
   

(1)

Recorded a significant tax benefit in Q1 FY17 of $876.1 million. This significant tax benefit is specifically tied to the Company's internal reorganization and applied to Q1 FY17 only and as a result does not continue in future periods.

(2)

Please see note 2 "Use of Non-GAAP Financial Measures" below

(3)

Please also see note 14 to the Company's Condensed Consolidated Financial Statements on Form 10-Q. 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.

Conference Call Information

The public is invited to listen to the earnings conference call today at 5:00 p.m. ET (2:00 p.m. PT) by dialing 1-800-319-4610 (toll-free) or +1-604-638-5340 (international). Please dial-in 10 minutes ahead of time to ensure proper connection. Alternatively, a live webcast of the earnings conference call will be available on the Investor Relations section of the Company's website at http://investors.opentext.com/investor-events-and-presentations.

A replay of the call will be available beginning January 31, 2018 at 7:00 p.m. ET through 11:59 p.m. on February 14, 2018 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 1966 followed by the number sign.

Please see below note (2) for a reconciliation of U.S. GAAP-based financial measures used in this press release, to non-U.S. GAAP-based financial measures.

About OpenText

OpenText, The Information Company™, a market leader in Enterprise Information Management software and solutions, enabling companies to manage, leverage, secure and gain insight into their enterprise information, on premises or in the cloud. For more information about OpenText (NASDAQ/TSX: OTEX) visit www.opentext.com.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this press release, including statements about the focus of Open Text Corporation ("OpenText" or "the Company") in our fiscal year ending June 30, 2018 (Fiscal 2018) on growth in earnings and cash flows, creating value through investments in broader Enterprise Information Management (EIM) capabilities, distribution, the Company's presence in the cloud and in growth markets, expected growth in our revenue lines, expected ECD Business revenue contributions, adjusted operating income and cash flow, its financial condition, the adjusted operating margin target range, results of operations and earnings, announced acquisitions, ongoing tax matters, the integration of the acquired businesses, expected timing, charges and savings related to restructuring activities, declaration of quarterly dividends, future tax rates, new platform and product offerings and other matters, may contain words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", "may", "could", "would", "might", "will" and variations of these words or similar expressions are considered forward-looking statements or information under applicable securities laws. In addition, any information or statements that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management's perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances, such as certain assumptions about the economy, as well as market, financial and operational assumptions. Management's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and assumptions will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions that may cause the actual results, performance or achievements to differ materially. Such factors include, but are not limited to: (i) the future performance, financial and otherwise, of OpenText; (ii) the ability of OpenText to bring new products and services to market and to increase sales; (iii) the strength of the Company's product development pipeline; (iv) the Company's growth and profitability prospects; (v) the estimated size and growth prospects of the EIM market including expected growth in the Artificial Intelligence market; (vi) the Company's competitive position in the EIM market and its ability to take advantage of future opportunities in this market; (vii) the benefits of the Company's products and services to be realized by customers; (viii) the demand for the Company's products and services and the extent of deployment of the Company's products and services in the EIM marketplace; (ix) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions); (x) the Company's financial condition and capital requirements; and (xi) statements about the impact of product releases. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (ii) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on the Company's outstanding debt securities; (iii) the possibility that the Company may be unable to meet its future reporting requirements under the U.S. Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, or applicable Canadian securities regulation; (iv) the risks associated with bringing new products and services to market; (v) fluctuations in currency exchange rates; (vi) delays in the purchasing decisions of the Company's customers; (vii) the competition the Company faces in its industry and/or marketplace; (viii) the final determination of litigation, tax audits (including tax examinations in the United States and elsewhere) and other legal proceedings; (ix) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, U.S. or international tax regimes including the new tax reform legislation enacted through the Tax Cuts and Jobs Act in the United States; (x) the possibility of technical, logistical or planning issues in connection with the deployment of the Company's products or services; (xi) the continuous commitment of the Company's customers; and (xii) demand for the Company's products and services. For additional information with respect to risks and other factors which could occur, see the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities filings with the Securities and Exchange Commission (SEC) and other securities regulators. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For more information, please contact:

Greg Secord
Vice President, Investor Relations
Open Text Corporation
415-963-0825
investors@opentext.com

OTEX-F

Copyright ©2018 Open Text. OpenText is a trademark or registered trademark of Open Text. The list of trademarks is not exhaustive of other trademarks. Registered trademarks, product names, company names, brands and service names mentioned herein are property of Open Text. All rights reserved. For more information, visit: http://www.opentext.com/who-we-are/copyright-information.

 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 
 

December 31, 2017

 

June 30, 2017

ASSETS

(unaudited)

   

Cash and cash equivalents

$

476,014

   

$

443,357

 

Accounts receivable trade, net of allowance for doubtful accounts of $8,503 as of December 31, 2017 and $6,319 as of June 30, 2017

511,969

   

445,812

 

Income taxes recoverable

23,861

   

32,683

 

Prepaid expenses and other current assets

101,063

   

81,625

 

Total current assets

1,112,907

   

1,003,477

 

Property and equipment

260,896

   

227,418

 

Goodwill

3,578,976

   

3,416,749

 

Acquired intangible assets

1,468,378

   

1,472,542

 

Deferred tax assets

1,158,836

   

1,215,712

 

Other assets

96,612

   

93,763

 

Deferred charges

39,204

   

42,344

 

Long-term income taxes recoverable

23,412

   

8,557

 

Total assets

$

7,739,221

   

$

7,480,562

 

LIABILITIES AND SHAREHOLDERS' EQUITY

     

Current liabilities:

     

Accounts payable and accrued liabilities

$

318,008

   

$

342,120

 

Current portion of long-term debt

382,760

   

182,760

 

Deferred revenues

557,873

   

570,328

 

Income taxes payable

30,084

   

31,835

 

Total current liabilities

1,288,725

   

1,127,043

 

Long-term liabilities:

     

Accrued liabilities

47,379

   

50,338

 

Deferred credits

4,005

   

5,283

 

Pension liability

62,213

   

58,627

 

Long-term debt

2,385,709

   

2,387,057

 

Deferred revenues

68,934

   

61,678

 

Long-term income taxes payable

176,222

   

162,493

 

Deferred tax liabilities

77,182

   

94,724

 

Total long-term liabilities

2,821,644

   

2,820,200

 

Shareholders' equity:

     

Share capital and additional paid-in capital

     

265,625,515 and 264,059,567 Common Shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively; authorized Common Shares: unlimited

1,650,217

   

1,613,454

 

Accumulated other comprehensive income

47,521

   

48,800

 

Retained earnings

1,949,503

   

1,897,624

 

Treasury stock, at cost (714,169 shares at December 31, 2017 and 1,101,612 at June 30, 2017, respectively)

(19,250)

   

(27,520)

 

Total OpenText shareholders' equity

3,627,991

   

3,532,358

 

Non-controlling interests

861

   

961

 

Total shareholders' equity

3,628,852

   

3,533,319

 

Total liabilities and shareholders' equity

$

7,739,221

   

$

7,480,562

 

 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(unaudited)

 
 

Three Months Ended December 31,

 

Six Months Ended December 31,

 

2017

 

2016

 

2017

 

2016

Revenues:

             

License

$

135,244

   

$

97,764

   

$

213,475

   

$

158,420

 

Cloud services and subscriptions

208,121

   

175,061

   

401,974

   

344,748

 

Customer support

308,070

   

219,656

   

603,474

   

429,862

 

Professional service and other

82,970

   

50,228

   

156,169

   

101,343

 

Total revenues

734,405

   

542,709

   

1,375,092

   

1,034,373

 

Cost of revenues:

             

License

4,587

   

2,391

   

7,547

   

6,236

 

Cloud services and subscriptions

90,418

   

73,150

   

174,748

   

143,442

 

Customer support

33,194

   

27,349

   

65,985

   

53,087

 

Professional service and other

64,985

   

40,295

   

124,444

   

81,638

 

Amortization of acquired technology-based intangible assets

47,128

   

24,848

   

91,088

   

47,983

 

Total cost of revenues

240,312

   

168,033

   

463,812

   

332,386

 

Gross profit

494,093

   

374,676

   

911,280

   

701,987

 

Operating expenses:

             

Research and development

80,304

   

64,721

   

157,933

   

123,293

 

Sales and marketing

129,142

   

102,651

   

251,964

   

197,799

 

General and administrative

48,985

   

39,914

   

97,900

   

78,111

 

Depreciation

22,071

   

15,301

   

40,949

   

30,571

 

Amortization of acquired customer-based intangible assets

46,268

   

33,815

   

90,057

   

67,423

 

Special charges

715

   

11,117

   

18,746

   

23,571

 

Total operating expenses

327,485

   

267,519

   

657,549

   

520,768

 

Income from operations

166,608

   

107,157

   

253,731

   

181,219

 

Other income (expense), net

5,547

   

(3,558)

   

15,771

   

3,141

 

Interest and other related expense, net

(34,092)

   

(27,743)

   

(67,380)

   

(55,018)

 

Income before income taxes

138,063

   

75,856

   

202,122

   

129,342

 

Provision for (recovery of) income taxes

53,146

   

30,822

   

80,515

   

(828,603)

 

Net income for the period

$

84,917

   

$

45,034

   

$

121,607

   

$

957,945

 

Net (income) loss attributable to non-controlling interests

194

   

(12)

   

100

   

(39)

 

Net income attributable to OpenText

$

85,111

   

$

45,022

   

$

121,707

   

$

957,906

 

Earnings per share—basic attributable to OpenText

$

0.32

   

$

0.18

   

$

0.46

   

$

3.92

 

Earnings per share—diluted attributable to OpenText

$

0.32

   

$

0.18

   

$

0.46

   

$

3.89

 

Weighted average number of Common Shares outstanding—basic

265,504

   

245,653

   

265,153

   

244,282

 

Weighted average number of Common Shares outstanding—diluted

266,857

   

247,501

   

266,549

   

246,123

 

Dividends declared per Common Share

$

0.1320

   

$

0.1150

   

$

0.2640

   

$

0.2300

 

 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

(unaudited)

 
   

Three Months Ended December 31,

 

Six Months Ended December 31,

   

2017

 

2016

 

2017

 

2016

Net income for the period

 

$

84,917

   

$

45,034

   

$

121,607

   

$

957,945

 

Other comprehensive income (loss) —net of tax:

               

Net foreign currency translation adjustments

 

(1,446)

   

(11,526)

   

(540)

   

(10,307)

 

Unrealized gain (loss) on cash flow hedges:

               

Unrealized gain (loss) - net of tax expense (recovery) effect of ($60) and ($252) for the three months ended December 31, 2017 and 2016, respectively; $403 and ($380) for the six months ended December 31, 2017 and 2016, respectively

 

(168)

   

(698)

   

1,117

   

(1,053)

 

(Gain) loss reclassified into net income - net of tax (expense) recovery effect of ($141) and ($33) for the three months ended December 31, 2017 and 2016, respectively; ($428) and ($38) for the six months ended December 31, 2017 and 2016, respectively

 

(391)

   

(91)

   

(1,188)

   

(108)

 

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

               

Actuarial gain (loss) - net of tax expense (recovery) effect of ($153) and $1,077 for the three months ended December 31, 2017 and 2016, respectively; ($236) and $484 for the six months ended December 31, 2017 and 2016, respectively

 

(48)

   

2,823

   

(163)

   

4,361

 

Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $43 and $57 for the three months ended December 31, 2017 and 2016, respectively; $85 and $119 for the six months ended December 31, 2017 and 2016, respectively

 

56

   

134

   

112

   

281

 

Unrealized net gain (loss) on marketable securities - net of tax effect of nil for the three and six months ended December 31, 2017 and 2016, respectively

 

   

512

   

   

400

 

Release of unrealized gain on marketable securities - net of tax effect of nil for the three and six months ended December 31, 2017 and 2016, respectively

 

   

   

(617)

   

 

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

 

(1,997)

   

(8,846)

   

(1,279)

   

(6,426)

 

Total comprehensive income

 

82,920

   

36,188

   

120,328

   

951,519

 

Comprehensive (income) loss attributable to non-controlling interests

 

194

   

(12)

   

100

   

(39)

 

Total comprehensive income attributable to OpenText

 

$

83,114

   

$

36,176

   

$

120,428

   

$

951,480

 

 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)

 
 

Three Months Ended December 31,

 

Six Months Ended December 31,

 

2017

 

2016

 

2017

 

2016

Cash flows from operating activities:

             

Net income for the period

$

84,917

   

$

45,034

   

$

121,607

   

$

957,945

 

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

             

Depreciation and amortization of intangible assets

115,467

   

73,964

   

222,094

   

145,977

 

Share-based compensation expense

7,158

   

7,572

   

15,393

   

15,712

 

Excess tax expense (benefits) on share-based compensation expense

   

(537)

   

   

(542)

 

Pension expense

834

   

871

   

1,869

   

2,061

 

Amortization of debt issuance costs

1,234

   

1,331

   

2,532

   

2,654

 

Amortization of deferred charges and credits

1,117

   

2,146

   

2,234

   

4,292

 

Loss on sale and write down of property and equipment

   

   

163

   

 

Release of unrealized gain on marketable securities to income

   

   

(841)

   

 

Deferred taxes

38,427

   

7,591

   

44,374

   

(868,233)

 

Share in net (income) loss of equity investees

(316)

   

(464)

   

196

   

(5,993)

 

Other non-cash charges

   

   

   

1,033

 

Changes in operating assets and liabilities:

             

Accounts receivable

(54,620)

   

(15,713)

   

(49,458)

   

456

 

Prepaid expenses and other current assets

(2,575)

   

13,074

   

(5,383)

   

11,885

 

Income taxes and deferred charges and credits

(7,565)

   

(12,841)

   

1,583

   

(9,620)

 

Accounts payable and accrued liabilities

(8,023)

   

6,604

   

(72,499)

   

(23,995)

 

Deferred revenue

(10,366)

   

(21,633)

   

(48,846)

   

(47,742)

 

Other assets

958

   

20

   

(1,269)

   

(5,420)

 

Net cash provided by operating activities

166,647

   

107,019

   

233,749

   

180,470

 

Cash flows from investing activities:

             

Additions of property and equipment

(25,488)

   

(11,609)

   

(55,937)

   

(32,274)

 

Proceeds from maturity of short-term investments

   

   

   

9,212

 

Purchase of Guidance Software,  net of cash acquired

(8,510)

   

   

(229,275)

   

 

Purchase of Covisint Corporation, net of cash acquired

   

   

(71,279)

   

 

Purchase of HP Inc. CCM Business

   

(2,802)

   

   

(315,000)

 

Purchase of Recommind, Inc.

   

   

   

(170,107)

 

Purchase of HP Inc. CEM Business

   

   

   

(7,289)

 

Purchase consideration for acquisitions completed prior to Fiscal 2017

   

143

   

   

143

 

Other investing activities

(3,855)

   

(440)

   

(8,061)

   

(563)

 

Net cash used in investing activities

(37,853)

   

(14,708)

   

(364,552)

   

(515,878)

 

Cash flows from financing activities:

             

Excess tax (expense) benefits on share-based compensation expense

   

537

   

   

542

 

Proceeds from issuance of long-term debt and revolver

   

256,875

   

200,000

   

256,875

 

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

7,797

   

5,391

   

29,622

   

10,701

 

Proceeds from issuance of Common shares under public Equity Offering

   

604,223

   

   

604,223

 

Repayment of long-term debt and revolver

(1,940)

   

(2,000)

   

(3,880)

   

(4,000)

 

Debt issuance costs

   

(2,825)

   

   

(4,155)

 

Equity issuance costs

   

(18,127)

   

   

(18,127)

 

Payments of dividends to shareholders

(34,811)

   

(27,859)

   

(69,828)

   

(55,650)

 

Net cash provided by (used in) financing activities

(28,954)

   

816,215

   

155,914

   

790,409

 

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

(216)

   

(20,979)

   

7,546

   

(16,267)

 

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

99,624

   

887,547

   

32,657

   

438,734

 

Cash and cash equivalents at beginning of the period

376,390

   

834,944

   

443,357

   

1,283,757

 

Cash and cash equivalents at end of the period

$

476,014

   

$

1,722,491

   

$

476,014

   

$

1,722,491

 
   

Notes

 
   

(1)

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

   

(2)

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

   
 

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

   
 

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

   
 

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

   
 

The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term "non-operational charge" is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management and is based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports. In the course of such evaluation and for the purpose of making operating decisions, the Company's management excludes certain items from its analysis, including amortization of acquired intangible assets, Special charges (recoveries), share-based compensation, other income (expense), and the taxation impact of these items. These items are excluded based upon the manner in which management evaluates the business of the Company and are not excluded in the sense that they may be used under U.S. GAAP.

   
 

The Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results.

   
 

The following charts provide (unaudited) reconciliations of U.S. GAAP-based financial measures to Non-U.S. GAAP-based financial measures for the following periods presented:

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended December 31, 2017.

(In thousands except for per share amounts)

 

Three Months Ended December 31, 2017

 

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

$

90,418

   

$

(462)

 

(1)

$

89,956

   

Customer support

33,194

   

(327)

 

(1)

32,867

   

Professional service and other

64,985

   

(603)

 

(1)

64,382

   

Amortization of acquired technology-based intangible assets

47,128

   

(47,128)

 

(2)

   

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

494,093

 

67.3

%

48,520

 

(3)

542,613

 

73.9

%

Operating expenses

           

Research and development

80,304

   

(1,587)

 

(1)

78,717

   

Sales and marketing

129,142

   

(2,095)

 

(1)

127,047

   

General and administrative

48,985

   

(2,084)

 

(1)

46,901

   

Amortization of acquired customer-based intangible assets

46,268

   

(46,268)

 

(2)

   

Special charges (recoveries)

715

   

(715)

 

(4)

   

GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)

166,608

 

22.7

%

101,269

 

(5)

267,877

 

36.5

%

Other income (expense), net

5,547

   

(5,547)

 

(6)

   

Provision for (recovery of) income taxes

53,146

   

(22,095)

 

(7)

31,051

   

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

85,111

   

117,817

 

(8)

202,928

   

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

$

0.32

   

$

0.44

 

(8)

$

0.76

   
   

(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 one-time, non-recurring 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, and operating margin stated as a percentage of total revenue.

(6)

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

(7)

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 38% and a Non-GAAP-based tax rate of approximately 13%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded expenses 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 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 13%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. In addition, as a result of the changes in US tax reform legislation that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act, the Company has reassessed its Non-GAAP-based tax rate to be approximately 14% for the six months ended December 31, 2017, down from 15%. Pursuant to this, the Non-GAAP-based tax rate of approximately 13% for the three months ended December 31, 2017 includes a one-time cumulative catch up of recoveries and charges, as though the Company's Non-GAAP-based tax rate was 14% as of July 1, 2017.

(8)

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

 

 

Three Months Ended December 31, 2017

   

Per share diluted

GAAP-based net income, attributable to OpenText

$

85,111

 

$

0.32

 

Add:

   

Amortization

93,396

 

0.35

 

Share-based compensation

7,158

 

0.03

 

Special charges (recoveries)

715

 

 

Other (income) expense, net

(5,547)

 

(0.02)

 

GAAP-based provision for (recovery of ) income taxes

53,146

 

0.20

 

Non-GAAP-based provision for income taxes

(31,051)

 

(0.12)

 

Non-GAAP-based net income, attributable to OpenText

$

202,928

 

$

0.76

 

 

Reconciliation of Adjusted EBITDA

 
 

Three Months Ended December 31, 2017

GAAP-based net income, attributable to OpenText

$

85,111

 

Add:

 

Provision for (recovery of) income taxes

53,146

 

Interest and other related expense, net

34,092

 

Amortization of acquired technology-based intangible assets

47,128

 

Amortization of acquired customer-based intangible assets

46,268

 

Depreciation

22,071

 

Share-based compensation

7,158

 

Special charges (recoveries)

715

 

Other (income) expense, net

(5,547)

 

Adjusted EBITDA

$

290,142

 

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the six months ended December 31, 2017.

(In thousands except for per share amounts)

 

Six Months Ended December 31, 2017

 

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

$

174,748

   

$

(984)

 

(1)

$

173,764

   

Customer support

65,985

   

(656)

 

(1)

65,329

   

Professional service and other

124,444

   

(1,200)

 

(1)

123,244

   

Amortization of acquired technology-based intangible assets

91,088

   

(91,088)

 

(2)

   

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

911,280

 

66.3

%

93,928

 

(3)

1,005,208

 

73.1

%

Operating expenses

           

Research and development

157,933

   

(3,213)

 

(1)

154,720

   

Sales and marketing

251,964

   

(5,183)

 

(1)

246,781

   

General and administrative

97,900

   

(4,157)

 

(1)

93,743

   

Amortization of acquired customer-based intangible assets

90,057

   

(90,057)

 

(2)

   

Special charges (recoveries)

18,746

   

(18,746)

 

(4)

   

GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)

253,731

 

18.5

%

215,284

 

(5)

469,015

 

34.1

%

Other income (expense), net

15,771

   

(15,771)

 

(6)

   

Provision for (recovery of) income taxes

80,515

   

(24,286)

 

(7)

56,229

   

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

121,707

   

223,799

 

(8)

345,506

   

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

$

0.46

   

$

0.84

 

(8)

$

1.30

   
   

(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 one-time, non-recurring 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, and operating margin stated as a percentage of total revenue.

(6)

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

(7)

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 40% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded expenses 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 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. We also took into consideration changes in US tax reform legislation that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act.

(8)

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

 

 

Six Months Ended December 31, 2017

   

Per share diluted

GAAP-based net income, attributable to OpenText

$

121,707

 

$

0.46

 

Add:

   

Amortization

181,145

 

0.68

 

Share-based compensation

15,393

 

0.06

 

Special charges (recoveries)

18,746

 

0.07

 

Other (income) expense, net

(15,771)

 

(0.06)

 

GAAP-based provision for (recovery of) income taxes

80,515

 

0.30

 

Non-GAAP based provision for income taxes

(56,229)

 

(0.21)

 

Non-GAAP-based net income, attributable to OpenText

$

345,506

 

$

1.30

 

 

Reconciliation of Adjusted EBITDA

 
 

Six Months Ended December 31, 2017

GAAP-based net income, attributable to OpenText

$

121,707

 

Add:

 

Provision for (recovery of) income taxes

80,515

 

Interest and other related expense, net

67,380

 

Amortization of acquired technology-based intangible assets

91,088

 

Amortization of acquired customer-based intangible assets

90,057

 

Depreciation

40,949

 

Share-based compensation

15,393

 

Special charges (recoveries)

18,746

 

Other (income) expense, net

(15,771)

 

Adjusted EBITDA

$

510,064

 

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended September 30, 2017.

(In thousands except for per share amounts)

 

Three Months Ended September 30, 2017

 

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

$

84,330

   

$

(522)

 

(1)

$

83,808

   

Customer support

32,791

   

(329)

 

(1)

32,462

   

Professional service and other

59,459

   

(597)

 

(1)

58,862

   

Amortization of acquired technology-based intangible assets

43,960

   

(43,960)

 

(2)

   

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

417,187

 

65.1

%

45,408

 

(3)

462,595

 

72.2

%

Operating expenses

           

Research and development

77,629

   

(1,626)

 

(1)

76,003

   

Sales and marketing

122,822

   

(3,088)

 

(1)

119,734

   

General and administrative

48,915

   

(2,073)

 

(1)

46,842

   

Amortization of acquired customer-based intangible assets

43,789

   

(43,789)

 

(2)

   

Special charges (recoveries)

18,031

   

(18,031)

 

(4)

   

GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)

87,123

 

13.6

%

114,015

 

(5)

201,138

 

31.4

%

Other income (expense), net

10,224

   

(10,224)

 

(6)

   

Provision for (recovery of) income taxes

27,369

   

(2,191)

 

(7)

25,178

   

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

36,596

   

105,982

 

(8)

142,578

   

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

$

0.14

   

$

0.40

 

(8)

$

0.54

   
   

(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 one-time, non-recurring 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, and operating margin stated as a percentage of total revenue.

(6)

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

(7)

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 43% and a Non-GAAP-based tax rate of approximately 15%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded expenses 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 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 15%, 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, 2017

   

Per share diluted

GAAP-based net income, attributable to OpenText

$

36,596

 

$

0.14

 

Add:

   

Amortization

87,749

 

0.33

 

Share-based compensation

8,235

 

0.03

 

Special charges (recoveries)

18,031

 

0.07

 

Other (income) expense, net

(10,224)

 

(0.04)

 

GAAP-based provision for (recovery of ) income taxes

27,369

 

0.10

 

Non-GAAP-based provision for income taxes

(25,178)

 

(0.09)

 

Non-GAAP-based net income, attributable to OpenText

$

142,578

 

$

0.54

 

 

Reconciliation of Adjusted EBITDA

 
 

Three months ended September 30, 2017

GAAP-based net income, attributable to OpenText

$

36,596

 

Add:

 

Provision for (recovery of) income taxes

27,369

 

Interest and other related expense, net

33,288

 

Amortization of acquired technology-based intangible assets

43,960

 

Amortization of acquired customer-based intangible assets

43,789

 

Depreciation

18,878

 

Share-based compensation

8,235

 

Special charges (recoveries)

18,031

 

Other (income) expense, net

(10,224)

 

Adjusted EBITDA

$

219,922

 

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended December 31, 2016.

(In thousands except for per share amounts)

 

Three Months Ended December 31, 2016

 

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

$

73,150

   

$

(211)

 

(1)

$

72,939

   

Customer support

27,349

   

(270)

 

(1)

27,079

   

Professional service and other

40,295

   

(468)

 

(1)

39,827

   

Amortization of acquired technology-based intangible assets

24,848

   

(24,848)

 

(2)

   

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

374,676

 

69.0

%

25,797

 

(3)

400,473

 

73.8

%

Operating expenses

           

Research and development

64,721

   

(1,995)

 

(1)

62,726

   

Sales and marketing

102,651

   

(2,329)

 

(1)

100,322

   

General and administrative

39,914

   

(2,299)

 

(1)

37,615

   

Amortization of acquired customer-based intangible assets

33,815

   

(33,815)

 

(2)

   

Special charges (recoveries)

11,117

   

(11,117)

 

(4)

   

GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)

107,157

 

19.7

%

77,352

 

(5)

184,509

 

34.0

%

Other income (expense), net

(3,558)

   

3,558

 

(6)

   

Provision for (recovery of) income taxes

30,822

   

(7,319)

 

(7)

23,503

   

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

45,022

   

88,229

 

(8)

133,251

   

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

$

0.18

   

$

0.36

 

(8)

$

0.54

   
   

(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 one-time, non-recurring 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, and operating margin stated as a percentage of total revenue.

(6)

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

(7)

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 41% and a Non-GAAP-based tax rate of approximately 15%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded expenses 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 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 15%, 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 December 31, 2016

   

Per share diluted

GAAP-based net income, attributable to OpenText

$

45,022

 

$

0.18

 

Add:

   

Amortization

58,663

 

0.24

 

Share-based compensation

7,572

 

0.03

 

Special charges (recoveries)

11,117

 

0.04

 

Other (income) expense, net

3,558

 

0.01

 

GAAP-based provision for (recovery of ) income taxes

30,822

 

0.12

 

Non-GAAP-based provision for income taxes

(23,503)

 

(0.08)

 

Non-GAAP-based net income, attributable to OpenText

$

133,251

 

$

0.54

 

 

Reconciliation of Adjusted EBITDA

 
 

Three months ended December 31, 2016

GAAP-based net income, attributable to OpenText

$

45,022

 

Add:

 

Provision for (recovery of) income taxes

30,822

 

Interest and other related expense, net

27,743

 

Amortization of acquired technology-based intangible assets

24,848

 

Amortization of acquired customer-based intangible assets

33,815

 

Depreciation

15,301

 

Share-based compensation

7,572

 

Special charges (recoveries)

11,117

 

Other (income) expense, net

3,558

 

Adjusted EBITDA

$

199,798

 

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the six months ended December 31, 2016.

(In thousands except for per share amounts)

 

Six Months Ended December 31, 2016

 

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

$

143,442

   

$

(571)

 

(1)

$

142,871

   

Customer support

53,087

   

(505)

 

(1)

52,582

   

Professional service and other

81,638

   

(913)

 

(1)

80,725

   

Amortization of acquired technology-based intangible assets

47,983

   

(47,983)

 

(2)

   

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

701,987

 

67.9

%

49,972

 

(3)

751,959

 

72.7

%

Operating expenses

           

Research and development

123,293

   

(3,738)

 

(1)

119,555

   

Sales and marketing

197,799

   

(5,149)

 

(1)

192,650

   

General and administrative

78,111

   

(4,836)

 

(1)

73,275

   

Amortization of acquired customer-based intangible assets

67,423

   

(67,423)

 

(2)

   

Special charges (recoveries)

23,571

   

(23,571)

 

(4)

   

GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)

181,219

 

17.5

%

154,689

 

(5)

335,908

 

32.5

%

Other income (expense), net

3,141

   

(3,141)

 

(6)

   

Provision for (recovery of) income taxes

(828,603)

   

870,698

 

(7)

42,095

   

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

957,906

   

(719,150)

 

(8)

238,756

   

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

$

3.89

   

$

(2.92)

 

(8)

$

0.97

   
   

(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 one-time, non-recurring 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, and operating margin stated as a percentage of total revenue.

(6)

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

(7)

Adjustment relates to differences between the GAAP-based tax recovery rate of approximately 641% and a Non-GAAP-based tax rate of approximately 15%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded expenses 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 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of 15%, 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:

 

 

Six Months Ended December 31, 2016

   

Per share diluted

GAAP-based net income, attributable to OpenText

$

957,906

 

$

3.89

 

Add:

   

Amortization

115,406

 

0.47

 

Share-based compensation

15,712

 

0.06

 

Special charges (recoveries)

23,571

 

0.10

 

Other (income) expense, net

(3,141)

 

(0.01)