Jan 31, 2019

OpenText Reports Second Quarter Fiscal Year 2019 Financial Results

Total Revenues of $735 million

Annual Recurring Revenues of $530 million, up 3% Y/Y

Operating Cash Flows of $189 million, up 14% Y/Y

WATERLOO, Ontario, Jan. 31, 2019 /PRNewswire/ -- Open Text Corporation (NASDAQ: OTEX), (TSX: OTEX), "The Information Company," today announced its financial results for the second quarter ended December 31, 2018.

"OpenText delivered another strong quarter in Q2.  Total revenues grew to $735 million, Annual Recurring Revenues grew to $530 million, up 3%, year over year, with record Adjusted EBITDA margin of 42%," said Mark J. Barrenechea, OpenText CEO & CTO.  "The OpenText Cloud continues to gain momentum as cloud revenues grew 5% and delivered 60% Adjusted Gross Margin. The OpenText Cloud is our greatest opportunity."

Barrenechea further added, "Our strategy is Total Growth, where M&A will continue to be our largest growth driver, augmented with organic growth. Over the last 60 days, we have deployed approximately $386 million in capital and closed two cloud-based acquisitions.  With a highly talented team and an increasingly strategic position with customers, we are well positioned to scale OpenText to new levels in the coming years."

"Q2 Fiscal 2019 financial performance continues to demonstrate our commitment to Total Growth, a focus on scaling productivity, solid execution of our acquisition framework, expanding margins and strengthening our balance sheet," said Madhu Ranganathan, OpenText EVP & CFO. "During Q2 we demonstrated solid margin performance across the company, generating $308 million of Adjusted EBITDA, $189 million in Operating Cash Flows, an increase of 14% over the prior fiscal year, and $595 million of cash on the balance sheet."

Financial Highlights for Q2 2019 with Year Over Year Comparisons

Summary of Quarterly Results






(in millions except per share data)

Q2 FY19

Q2 FY18

$ Change

% Change

(Y/Y)


Q2 FY19 in CC*

% Change in CC*


Revenues:









Cloud services and subscriptions

$219.2


$208.1


$11.1


5.3

%


$221.3


6.3

%


Customer support

310.4


308.1


2.3


0.7

%


314.9


2.2

%


Total annual recurring revenues**

$529.6


$516.2


$13.4


2.6

%


$536.2


3.9

%


License

132.8


135.2


(2.5)


(1.8)

%


134.8


(0.4)

%


Professional service and other

72.9


83.0


(10.1)


(12.2)

%


74.6


(10.1)

%


Total revenues

$735.2


$734.4


$0.8


0.1

%


$745.5


1.5

%


GAAP-based operating income

$173.9


$166.9


$7.0


4.2

%





Non-GAAP-based operating income (1)

$284.5


$268.2


$16.3


6.1

%


$285.5


6.5

%


GAAP-based EPS, diluted

$0.39


$0.32


$0.07


21.9

%





Non-GAAP-based EPS, diluted (1)(2)

$0.80


$0.76


$0.04


5.3

%


$0.80


5.3

%


GAAP-based net income attributable to OpenText

$104.4


$85.1


$19.3


22.7

%





Adjusted EBITDA (1)

$308.3


$290.5


$17.8


6.1

%





Operating cash flows

$189.1


$166.2


$22.9


13.8

%





 

Summary of YTD Results







(in millions except per share data)

FY19 YTD

FY18 YTD

$ Change

% Change

(Y/Y)


FY19 YTD in CC*

% Change in CC*


Revenues:









Cloud services and subscriptions

$427.3


$402.0


$25.3


6.3

%


$429.5


6.8

%


Customer support

621.9


603.5


18.4


3.1

%


626.3


3.8

%


Total annual recurring revenues**

$1,049.2


$1,005.4


$43.8


4.4

%


$1,055.7


5.0

%


License

209.6


213.5


(3.8)


(1.8)

%


212.4


(0.5)

%


Professional service and other

143.5


156.2


(12.6)


(8.1)

%


146.2


(6.4)

%


Total revenues

$1,402.4


$1,375.1


$27.3


2.0

%


$1,414.3


2.9

%


GAAP-based operating income

$273.2


$254.6


$18.6


7.3

%





Non-GAAP-based operating income (1)

$506.9


$469.9


$37.1


7.9

%


$506.0


7.7

%


GAAP-based EPS, diluted

$0.52


$0.46


$0.06


13.0

%





Non-GAAP-based EPS, diluted (1)(2)

$1.40


$1.30


$0.10


7.7

%


$1.40


7.7

%


GAAP-based net income attributable to OpenText

$140.8


$121.7


$19.0


15.7

%





Adjusted EBITDA (1)

$554.5


$510.9


$43.6


8.5

%





Operating cash flows

$360.5


$233.4


$127.1


54.4

%






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

(2) Please also see note 14 to the Company's Fiscal 2018 Consolidated Financial Statements on Form 10-K. Reflective of the amount of net tax benefit arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period.

Note: Individual line items in tables may be adjusted by non-material amounts to enable totals to align to published financial statements.


*CC: Constant currency for this purpose is defined as the current period reported revenues/expenses/earnings represented at the prior comparative period's foreign exchange rate.

**Annual recurring revenue is defined as the sum of Cloud services and subscriptions revenue and Customer support revenue.

OpenText Quarterly Business Highlights

  • OpenText buys Liaison Technologies, Inc.
  • OpenText buys Catalyst Repository Systems, Inc.
  • 35 customer transactions over $1 million, 16 in the OpenText Cloud and 19 off-cloud
  • Financial, Consumer Goods, Services, Technology and Public Sector industries saw the most demand in cloud and license
  • Key customer wins in the quarter included Cannon Cochran Management Services, Equifax Inc., Hershey Software, Hydro Quebec, International Committee of the Red Cross, MetaSource, Philips Radiation and Oncology Systems, Repsol S.A., Rosneft Deutschland GmbH and Volkswagen Group of America
  • OpenText partners with Google Cloud to deliver Enterprise Information Management (EIM) on Google Cloud Platform
  • OpenText named a leader in IDC MarketScape Vendor Assessment for Multi-Enterprise Supply Chain Commerce Network
  • OpenText software now available on Salesforce AppExchange

Dividend Program Highlights

As part of our quarterly, non-cumulative cash dividend program, the Board declared on January 30, 2019 a cash dividend of $0.1518 per common share. The record date for this dividend is March 1, 2019 and the payment date is March 22, 2019. 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 FY19

Q1 FY19

Q2 FY18

% Change
(Q2 FY19 vs Q1 FY19)


% Change
(Q2 FY19 vs Q2 FY18)


Revenue (million)

$735.2


$667.2


$734.4


10.2

%


0.1

%


GAAP-based gross margin

69.0

%

66.1

%

67.3

%

290


bps

170


bps

GAAP-based EPS, diluted

$0.39


$0.13


$0.32


200.0

%


21.9

%


Non-GAAP-based gross margin (1)

75.7

%

73.4

%

73.9

%

230


bps

180


bps

Non-GAAP-based EPS, diluted (1)(2)

$0.80


$0.60


$0.76


33.3

%


5.3

%



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

(2) Please also see note 14 to the Company's Fiscal 2018 Consolidated Financial Statements on Form 10-K. Reflective of the amount of net tax benefit arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period.

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, 2019 at 7:00 p.m. ET through 11:59 p.m. on February 14, 2019 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 2854 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, 2019 (Fiscal 2019) 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, total growth from acquisitions, innovation and organic initiatives, and distribution expansion, the focus on recurring revenues, improving efficiency, expanding cash flow and strengthening the business, 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, scaling OpenText to new levels in Fiscal 2019 and beyond, the anticipated size, benefits and timing related to our restructuring plan, 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) failure to comply with privacy laws and regulations that are extensive, open to various interpretations and complex to implement including General Data Protection Regulation (GDPR) and Country by Country Reporting (CBCR); (vi) fluctuations in currency exchange rates; (vii) delays in the purchasing decisions of the Company's customers; (viii) the competition the Company faces in its industry and/or marketplace; (ix) the final determination of litigation, tax audits (including tax examinations in the United States and elsewhere) and other legal proceedings; (x) 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; (xi) the possibility of technical, logistical or planning issues in connection with the deployment of the Company's products or services; (xii) the continuous commitment of the Company's customers; and (xiii) 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.

OTEX-F

For more information, please contact:

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

Copyright ©2019 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, 2018


June 30, 2018

ASSETS

(unaudited)



Cash and cash equivalents

$

595,069



$

682,942


Accounts receivable trade, net of allowance for doubtful accounts of $16,256 as of December 31, 2018 and $9,741 as of June 30, 2018

482,289



487,956


Contract assets

13,607




Income taxes recoverable

39,388



55,623


Prepaid expenses and other current assets

82,188



101,059


Total current assets

1,212,541



1,327,580


Property and equipment

246,726



264,205


Long-term contract assets

11,804




Goodwill

3,732,669



3,580,129


Acquired intangible assets

1,284,299



1,296,637


Deferred tax assets

1,085,272



1,122,729


Other assets

124,414



111,267


Deferred charges



38,000


Long-term income taxes recoverable

31,678



24,482


Total assets

$

7,729,403



$

7,765,029


LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued liabilities

$

282,870



$

302,154


Current portion of long-term debt

10,000



10,000


Deferred revenues

572,915



644,211


Income taxes payable

45,680



38,234


Total current liabilities

911,465



994,599


Long-term liabilities:




Accrued liabilities

53,023



52,827


Deferred credits



2,727


Pension liability

65,265



65,719


Long-term debt

2,607,706



2,610,523


Deferred revenues

45,538



69,197


Long-term income taxes payable

172,641



172,241


Deferred tax liabilities

87,753



79,938


Total long-term liabilities

3,031,926



3,053,172


Shareholders' equity:




Share capital and additional paid-in capital




268,569,471 and 267,651,084 Common Shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively; authorized Common Shares: unlimited

1,731,299



1,707,073


Accumulated other comprehensive income

25,971



33,645


Retained earnings

2,056,831



1,994,235


Treasury stock, at cost (816,704 shares at December 31, 2018 and 690,336 shares at June 30, 2018, respectively)

(29,241)



(18,732)


Total OpenText shareholders' equity

3,784,860



3,716,221


Non-controlling interests

1,152



1,037


Total shareholders' equity

3,786,012



3,717,258


Total liabilities and shareholders' equity

$

7,729,403



$

7,765,029


 

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,


2018


2017


2018


2017

Revenues:








License

$

132,756



$

135,244



$

209,643



$

213,475


Cloud services and subscriptions

219,233



208,121



427,316



401,974


Customer support

310,354



308,070



621,905



603,474


Professional service and other

72,888



82,970



143,524



156,169


Total revenues

735,231



734,405



1,402,388



1,375,092


Cost of revenues:








License

3,655



4,587



7,527



7,547


Cloud services and subscriptions

88,698



90,485



176,401



174,619


Customer support

31,273



33,117



61,738



65,887


Professional service and other

56,030



64,886



112,826



124,314


Amortization of acquired technology-based intangible assets

48,366



47,128



95,843



91,088


Total cost of revenues

228,022



240,203



454,335



463,455


Gross profit

507,209



494,202



948,053



911,637


Operating expenses:








Research and development

75,753



80,123



153,223



157,697


Sales and marketing

126,193



129,151



246,375



251,766


General and administrative

52,198



48,954



103,122



97,856


Depreciation

23,834



22,071



47,688



40,949


Amortization of acquired customer-based intangible assets

45,919



46,268



91,795



90,057


Special charges

9,380



715



32,691



18,746


Total operating expenses

333,277



327,282



674,894



657,071


Income from operations

173,932



166,920



273,159



254,566


Other income (expense), net

378



5,547



1,900



15,771


Interest and other related expense, net

(33,613)



(34,404)



(68,144)



(68,215)


Income before income taxes

140,697



138,063



206,915



202,122


Provision for (recovery of) income taxes

36,236



53,146



66,086



80,515


Net income for the period

$

104,461



$

84,917



$

140,829



$

121,607


Net (income) loss attributable to non-controlling interests

(29)



194



(73)



100


Net income attributable to OpenText

$

104,432



$

85,111



$

140,756



$

121,707


Earnings per share—basic attributable to OpenText

$

0.39



$

0.32



$

0.52



$

0.46


Earnings per share—diluted attributable to OpenText

$

0.39



$

0.32



$

0.52



$

0.46


Weighted average number of Common Shares outstanding—basic

268,524



265,504



268,276



265,153


Weighted average number of Common Shares outstanding—diluted

269,400



266,857



269,396



266,549


 

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,


2018


2017


2018


2017

Net income for the period

$

104,461



$

84,917



$

140,829



$

121,607


Other comprehensive income (loss)—net of tax:








Net foreign currency translation adjustments

(3,418)



(1,446)



(6,938)



(540)


Unrealized gain (loss) on cash flow hedges:








Unrealized gain (loss) - net of tax expense (recovery) effect of ($677) and ($60) for the three months ended December 31, 2018 and 2017, respectively; ($496) and $403 for the six months ended December 31, 2018 and 2017, respectively

(1,877)



(168)



(1,375)



1,117


(Gain) loss reclassified into net income - net of tax (expense) recovery effect of $169 and ($141) for the three months ended December 31, 2018 and 2017, respectively; $301 and ($428) for the six months ended December 31, 2018 and 2017, respectively

467



(391)



833



(1,188)


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








Actuarial gain (loss) - net of tax expense (recovery) effect of ($519) and ($153) for the three months ended December 31, 2018 and 2017, respectively; ($213) and ($236) for the six months ended December 31, 2018 and 2017, respectively

(1,521)



(48)



(324)



(163)


Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $72 and $43 for the three months ended December 31, 2018 and 2017, respectively; $145 and $85 for the six months ended December 31, 2018 and 2017, respectively

64



56



130



112


Release of unrealized gain on marketable securities - net of tax effect of nil







(617)


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

(6,285)



(1,997)



(7,674)



(1,279)


Total comprehensive income

98,176



82,920



133,155



120,328


Comprehensive (income) loss attributable to non-controlling interests

(29)



194



(73)



100


Total comprehensive income attributable to OpenText

$

98,147



$

83,114



$

133,082



$

120,428


 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

(unaudited)



Six Months Ended December 31, 2018


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, 2018

267,651



$

1,707,073



(691)



$

(18,732)



$

1,994,235



$

33,645



$

1,037



$

3,717,258


Adoption of ASU 2016-16 - cumulative effect









(26,780)







(26,780)


Adoption of Topic 606 - cumulative effect









29,786







29,786


Issuance of Common Shares
















Under employee stock option plans

494



12,431













12,431


Under employee stock purchase plans

187



5,569













5,569


Share-based compensation



6,555













6,555


Purchase of treasury stock





(304)



(11,719)









(11,719)


Issuance of treasury stock



(70)



3



70










Dividends declared

($0.1518 per Common Share)









(40,466)







(40,466)


Other comprehensive income - net











(1,389)





(1,389)


Non-controlling interest



(625)











42



(583)


Net income for the quarter









36,324





44



36,368


Balance as of September 30, 2018

268,332



$

1,730,933



(992)



$

(30,381)



$

1,993,099



$

32,256



$

1,123



$

3,727,030


Issuance of Common Shares
















Under employee stock option plans

62



1,740













1,740


Under employee stock purchase plans

175



5,696













5,696


Share-based compensation



6,885













6,885


Purchase of treasury stock





(370)



(12,815)









(12,815)


Issuance of treasury stock



(13,955)



545



13,955










Dividends declared
($0.1518 per Common Share)









(40,700)







(40,700)


Other comprehensive income - net











(6,285)





(6,285)


Net income for the quarter









104,432





29



104,461


Balance as of December 31, 2018

268,569



$

1,731,299



(817)



$

(29,241)



$

2,056,831



$

25,971



$

1,152



$

3,786,012





Six Months Ended December 31, 2017


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, 2017

264,060



$

1,613,454



(1,102)



$

(27,520)



$

1,897,624



$

48,800



$

961



$

3,533,319


Issuance of Common Shares
















Under employee stock option plans

1,048



16,154













16,154


Under employee stock purchase plans

180



4,837













4,837


Share-based compensation



8,235













8,235


Issuance of treasury stock



(178)



9



178










Dividends declared
($0.1320 per Common Share)









(35,017)







(35,017)


Other comprehensive income - net











718





718


Net income for the quarter









36,596





94



36,690


Balance as of September 30, 2017

265,288



$

1,642,502



(1,093)



$

(27,342)



$

1,899,203



$

49,518



$

1,055



$

3,564,936


Issuance of Common Shares
















Under employee stock option plans

145



$

3,374





$



$



$



$



$

3,374


Under employee stock purchase plans

193



5,275













5,275


Share-based compensation



7,158













7,158


Issuance of treasury stock



(8,092)



379



8,092










Dividends declared
($0.1320 per Common Share)









(34,811)







(34,811)


Other comprehensive income - net











(1,997)





(1,997)


Net income for the year









85,111





(194)



84,917


Balance as of December 31, 2017

265,626



$

1,650,217



(714)



$

(19,250)



$

1,949,503



$

47,521



$

861



$

3,628,852



 

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,


2018


2017


2018


2017

Cash flows from operating activities:








Net income for the period

$

104,461



$

84,917



$

140,829



$

121,607


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








Depreciation and amortization of intangible assets

118,119



115,467



235,326



222,094


Share-based compensation expense

6,885



7,158



13,440



15,393


Pension expense

1,109



834



2,254



1,869


Amortization of debt issuance costs

1,079



1,234



2,157



2,532


Amortization of deferred charges and credits



1,117





2,234


Loss on sale and write down of property and equipment

1,639





9,428



163


Release of unrealized gain on marketable securities to income







(841)


Deferred taxes

1,140



38,427



8,909



44,374


Share in net (income) loss of equity investees

(5,491)



(316)



(7,863)



196


Changes in operating assets and liabilities:








Accounts receivable

(40,327)



(54,620)



33,548



(49,458)


Contract assets

(8,054)





(13,400)




Prepaid expenses and other current assets

2,800



(2,575)



12,532



(5,383)


Income taxes and deferred charges and credits

4,763



(7,565)



17,324



1,583


Accounts payable and accrued liabilities

10,253



(8,023)



(29,748)



(72,499)


Deferred revenue

(11,748)



(10,366)



(69,151)



(48,846)


Other assets

2,475



497



4,919



(1,586)


Net cash provided by operating activities

189,103



166,186



360,504



233,432


Cash flows from investing activities:








Additions of property and equipment

(8,969)



(25,488)



(33,464)



(55,937)


Purchase of Liaison Technologies, Inc.

(311,285)





(311,285)




Purchase of Guidance Software net of cash acquired



(8,510)



(2,279)



(229,275)


Purchase of Covisint Corporation, net of cash acquired







(71,279)


Other investing activities

(5,369)



(3,855)



(6,373)



(8,061)


Net cash used in investing activities

(325,623)



(37,853)



(353,401)



(364,552)


Cash flows from financing activities:








Proceeds from issuance of long-term debt and revolver







200,000


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

6,159



7,797



24,286



29,622


Repayment of long-term debt and revolver

(2,500)



(1,940)



(5,000)



(3,880)


Debt issuance costs





(322)




Purchase of treasury stock

(12,815)





(24,534)




Repurchase of non-controlling interest





(583)




Payments of dividends to shareholders

(40,700)



(34,811)



(81,166)



(69,828)


Net cash provided by (used in) financing activities

(49,856)



(28,954)



(87,319)



155,914


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

(6,329)



(216)



(5,901)



7,546


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

(192,705)



99,163



(86,117)



32,340


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

790,579



379,387



683,991



446,210


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

$

597,874



$

478,550



$

597,874



$

478,550



Reconciliation of cash, cash equivalents and restricted cash:

December 31, 2018


December 31, 2017

Cash and cash equivalents

595,069



476,014


Restricted cash included in Other assets

2,805



2,536


Total Cash, cash equivalents and restricted cash

$

597,874



$

478,550










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.




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. 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 that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company's "Special Charges (recoveries)" caption on the Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company's operating results and underlying operational trends.




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




The following charts provide (unaudited) reconciliations of U.S. GAAP-based financial measures to Non-U.S. GAAP-based financial measures for the following periods presented. Results for reporting periods commencing July 1, 2018 are presented under the new Topic 606 revenue standard, while prior period results continue to be reported under the previous standard. For more details relating to our adoption of Topic 606 please see Note 1 "Basis of Presentation" and Note 3 "Revenues" to our Condensed Consolidated Financial Statements on Form 10-Q.

 


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

for the three months ended December 31, 2018.

(In thousands except for per share amounts)


Three Months Ended December 31, 2018


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

$

88,698



$

(265)


(1)

$

88,433



Customer support

31,273



(271)


(1)

31,002



Professional service and other

56,030



(358)


(1)

55,672



Amortization of acquired technology-based intangible assets

48,366



(48,366)


(2)



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

507,209


69.0

%

49,260


(3)

556,469


75.7

%

Operating expenses







Research and development

75,753



(994)


(1)

74,759



Sales and marketing

126,193



(1,615)


(1)

124,578



General and administrative

52,198



(3,382)


(1)

48,816



Amortization of acquired customer-based intangible assets

45,919



(45,919)


(2)



Special charges (recoveries)

9,380



(9,380)


(4)



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

173,932



110,550


(5)

284,482



Other income (expense), net

378



(378)


(6)



Provision for (recovery of) income taxes

36,236



(1,114)


(7)

35,122



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

104,432



111,286


(8)

215,718



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

$

0.39



$

0.41


(8)

$

0.80




















(1)

Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

(2)

Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

(3)

GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue.

(4)

Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.

(5)

GAAP-based and Non-GAAP-based income from operations stated in dollars.

(6)

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in 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 26% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and "book to return" adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8)

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

 


Three Months Ended December 31, 2018



Per share diluted

GAAP-based net income, attributable to OpenText

$

104,432


$

0.39


Add:



Amortization

94,285


0.35


Share-based compensation

6,885


0.03


Special charges (recoveries)

9,380


0.03


Other (income) expense, net

(378)



GAAP-based provision for (recovery of) income taxes

36,236


0.13


Non-GAAP-based provision for income taxes

(35,122)


(0.13)


Non-GAAP-based net income, attributable to OpenText

$

215,718


$

0.80


 

Reconciliation of Adjusted EBITDA



Three Months Ended December 31, 2018

GAAP-based net income, attributable to OpenText

$

104,432


Add:


Provision for (recovery of) income taxes

36,236


Interest and other related expense, net

33,613


Amortization of acquired technology-based intangible assets

48,366


Amortization of acquired customer-based intangible assets

45,919


Depreciation

23,834


Share-based compensation

6,885


Special charges (recoveries)

9,380


Other (income) expense, net

(378)


Adjusted EBITDA

$

308,287


 


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

for the six months ended December 31, 2018.

(In thousands except for per share amounts)


Six Months Ended December 31, 2018


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

$

176,401



$

(582)


(1)

$

175,819



Customer support

61,738



(571)


(1)

61,167



Professional service and other

112,826



(882)


(1)

111,944



Amortization of acquired technology-based intangible assets

95,843



(95,843)


(2)



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

948,053


67.6

%

97,878


(3)

1,045,931


74.6

%

Operating expenses







Research and development

153,223



(2,353)


(1)

150,870



Sales and marketing

246,375



(3,416)


(1)

242,959



General and administrative

103,122



(5,636)


(1)

97,486



Amortization of acquired customer-based intangible assets

91,795



(91,795)


(2)



Special charges (recoveries)

32,691



(32,691)


(4)



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

273,159



233,769


(5)

506,928



Other income (expense), net

1,900



(1,900)


(6)



Provision for (recovery of) income taxes

66,086



(4,656)


(7)

61,430



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

140,756



236,525


(8)

377,281



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

$

0.52



$

0.88


(8)

$

1.40




















(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 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 32% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and "book to return" adjustments for tax return filings and tax assessments. Included is the amount of net tax bene