Jan 30, 2020

OpenText Reports Second Quarter Fiscal Year 2020 Financial Results

Completes Carbonite Acquisition

Strong Results Include Record Cloud and Annual Recurring Revenues (ARR)

WATERLOO, Ontario, Jan. 30, 2020 /PRNewswire/ --

Second Quarter Highlights

Total Revenues

(in millions)


Annual Recurring Revenues

(in millions)


Cloud Revenues

(in millions)

Reported

Constant
Currency


Reported

Constant
Currency


Reported

Constant
Currency

$771.6

$781.8


$563.8

$570.8


$248.3

$250.2

+4.9%

+6.3%


+6.5%

+7.8%


+13.3%

+14.1%

Annual Recurring Revenues represents 73% of Total Revenues

 

  • GAAP net income of $107.5 million, up 2.9% Y/Y
  • Adjusted EBITDA of $317.0 million, up 2.8%, margin of 41.1%, down 80 basis points Y/Y
  • GAAP diluted EPS of $0.40, up 2.6% Y/Y
  • Non-GAAP diluted EPS of $0.84, up 5.0%, and $0.86 in constant currency, up 7.5% Y/Y
  • Operating Cash Flows were $860.5 million during the trailing twelve months
  • Declares cash dividend of $0.1746 per common share

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

OpenText logo (PRNewsfoto/Open Text Corporation) (PRNewsfoto/Open Text Corporation)

"With the addition of Carbonite, we have a strategic market-opportunity to bring Information Management (IM) to all sizes of customers, from the largest of enterprises, governments, mid-size companies, small companies, and consumers. We are excited and energized to write the next chapter for OpenText as our vision expands and advances to Information Management, helping customers to migrate into the cloud and reinvent their businesses processes", said Mark J. Barrenechea, OpenText CEO & CTO. "We are a partner-oriented company with the talent and culture to make an SMB channel wildly successful. With Carbonite this partner opportunity gets significantly stronger and deeper as we leverage OpenText's proven expertise and successful track record of building powerful global partner programs."

"Our Q2 results reflect an increasing demand for OpenText products as we delivered strong top-line growth. In constant currency, total revenues grew to $781.8 million, up 6.3% year-over-year, Annual Recurring Revenues (ARR) grew to a record $570.8 million, up 7.8% year-over-year, representing 73% of total revenues, driven by Cloud Services and Subscriptions revenues of $250.2 million, which increased significantly by 14.1% year-over-year," said Barrenechea.

"OpenText demonstrated solid operational performance during the second quarter, delivering to our Total Growth Strategy.  We put our capital to work, while maintaining a strong balance sheet with a net leverage ratio of 2.3x, and generated solid operating cash flows of $207.2 million, supported by equally strong A-EBITDA results", said OpenText EVP, CFO, Madhu Ranganathan.  "The Carbonite transaction closed efficiently, financed by our internal cash and existing revolver. The integration has kicked off with strength and we remain on target to complete the Carbonite integration by the end of Fiscal 2021."

Integration of Carbonite and Restructuring Plan

As OpenText integrates the acquisition, we anticipate a one-time deferred revenue adjustment that will result in a reduction in Carbonite revenue. In addition to this deferred revenue adjustment impact, we expect Carbonite revenue contribution to be down for the next few quarters due to typical integration activities, and then normalize to historical levels thereafter. 

OpenText is also announcing a restructuring plan that will impact our global workforce and consolidate certain real estate facilities to further streamline our operations, inclusive of Carbonite.   The anticipated cost is expected to be approximately $26 million to $34 million. These restructuring activities are anticipated to be completed by the end of Fiscal 2021, and once completed, OpenText anticipates annualized cost savings of approximately $37 million to $41 million. We expect any savings realized during the remainder of Fiscal 2020 to be largely offset by one-time Carbonite integration costs.

Financial Highlights for Q2 Fiscal 2020 with Year Over Year Comparisons

Summary of Quarterly Results









(in millions except per share data)

Q2 FY20

Q2 FY19

$ Change

% Change

(Y/Y)


Q2 FY20
in CC*

% Change
in CC*


Revenues:









Cloud services and subscriptions

$248.3


$219.2


$29.1


13.3

%


$250.2


14.1

%


Customer support

315.5


310.4


5.2


1.7

%


320.6


3.3

%


Total annual recurring revenues**

$563.8


$529.6


$34.3


6.5

%


$570.8


7.8

%


License

138.1


132.8


5.3


4.0

%


140.2


5.6

%


Professional service and other

69.6


72.9


(3.3)


(4.5)

%


70.8


(2.9)

%


Total revenues

$771.6


$735.2


$36.3


4.9

%


$781.8


6.3

%


GAAP-based operating income

$184.7


$173.9


$10.8


6.2

%


N/A

N/A


Non-GAAP-based operating income (1)

$296.4


$284.5


$11.9


4.2

%


$303.0


6.5

%


GAAP-based EPS, diluted

$0.40


$0.39


$0.01


2.6

%


N/A

N/A


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

$0.84


$0.80


$0.04


5.0

%


$0.86


7.5

%


GAAP-based net income attributable to OpenText

$107.5


$104.4


$3.0


2.9

%


N/A

N/A


Adjusted EBITDA (1)

$317.0


$308.3


$8.7


2.8

%


$323.4


4.9

%


Operating cash flows

$207.2


$189.1


$18.1


9.6

%


N/A

N/A


 

Summary of YTD Results









(in millions except per share data)

FY20 YTD

FY19 YTD

$ Change

% Change
(Y/Y)


FY20 YTD
in CC*

% Change
in CC*


Revenues:









Cloud services and subscriptions

$485.6


$427.3


$58.3


13.6

%


$489.5


14.5

%


Customer support

627.8


621.9


5.9


0.9

%


637.9


2.6

%


Total annual recurring revenues**

$1,113.4


$1,049.2


$64.2


6.1

%


$1,127.4


7.4

%


License

216.0


209.6


6.4


3.0

%


219.4


4.6

%


Professional service and other

139.0


143.5


(4.5)


(3.1)

%


141.6


(1.4)

%


Total revenues

$1,468.4


$1,402.4


$66.1


4.7

%


$1,488.3


6.1

%


GAAP-based operating income

$317.3


$273.2


$44.1


16.1

%


N/A

N/A


Non-GAAP-based operating income (1)

$530.3


$506.9


$23.4


4.6

%


$541.4


6.8

%


GAAP-based EPS, diluted

$0.67


$0.52


$0.15


28.8

%


N/A

N/A


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

$1.48


$1.40


$0.08


5.7

%


$1.51


7.9

%


GAAP-based net income attributable to OpenText

$181.9


$140.8


$41.1


29.2

%


N/A

N/A


Adjusted EBITDA (1)

$571.2


$554.5


$16.7


3.0

%


$582.1


4.9

%


Operating cash flows

$344.7


$360.5


($15.8)


(4.4)

%


N/A

N/A



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

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

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


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

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

Dividend Program

As part of our quarterly, non-cumulative cash dividend program, the Board declared on January 29, 2020 a cash dividend of $0.1746 per common share. The record date for this dividend is February 28, 2020 and the payment date is March 20, 2020. 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.

Quarterly Business Highlights

  • Key customer wins in the quarter included PFU Limited, the Ministry of Justice Rhineland-Palatinate, thyssenkrupp AG, the Netherlands Ministry of Economic Affairs and Climate Policy, Lewis Rice, Kodak Alaris, Shinkai Transport Systems, Ltd. and Morneau Shepell
  • OpenText buys Carbonite, Inc., provider of cloud-based subscription data protection, backup, disaster recovery and endpoint security to small and medium-sized businesses and consumers
  • OpenText named a leader in Digital Asset Management for Customer Experience
  • OpenText named a leader in 2019 Gartner Magic Quadrant for Content Services Platforms
  • OpenText expands cloud infrastructure in Japan to support enterprise solutions
  • OpenText delivers a flexible path to the Cloud, enhanced security and compliance visibility into Supply Chain Risk
  • Cybersecurity, Legal, Digital Forensics experts gather at OpenText Enfuse 2019 to discuss security in a zero-trust world
  • OpenText wins excellence in Prevention and Investigation of Cybercrime (EPIC) Innovation Award

 

Summary of Quarterly Results









Q2 FY20

Q1 FY20

Q2 FY19

% Change
(Q2 FY20 vs
Q1 FY20)


% Change
(Q2 FY20 vs
Q2 FY19)


Revenue (million)

$771.6


$696.9


$735.2


10.7

%


4.9

%


GAAP-based gross margin

69.9

%

67.2

%

69.0

%

270


bps

90


bps

GAAP-based EPS, diluted

$0.40


$0.27


$0.39


48.1

%


2.6

%


Non-GAAP-based gross margin (1)

75.5

%

73.1

%

75.7

%

240


bps

(20)


bps

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

$0.84


$0.64


$0.80


31.3

%


5.0

%



(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 30, 2020 at 7:00 p.m. ET through 11:59 p.m. on February 13, 2020 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 3949 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. Additionally, "off-cloud" is a term we use to describe license transactions.

About OpenText
OpenText, The Information Company™, enables organizations to gain insight through market leading information management solutions, on-premises or in the cloud. For more information about OpenText (NASDAQ: OTEX, TSX: OTEX) visit 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, 2020 (Fiscal 2020) on growth, anticipated benefits of our partnerships and next generation product lines, the strength of our operating framework and balance sheet flexibility, continued investments in product innovation, go-to-market and strategic acquisitions, M&A continuing to be our leading growth contributor, our capital allocation strategy, creating value through investments in broader Information Management (IM) capabilities, 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, the focus on recurring revenues, improving operational 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, declaration of quarterly dividends, future tax rates, new platform and product offerings, scaling OpenText to new levels in Fiscal 2020 and beyond, 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 IM market including expected growth in the Artificial Intelligence market; (vi) the Company's competitive position in the IM 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 IM 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 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:

Harry E. Blount
Senior Vice President, Global Head of Investor Relations
Open Text Corporation
415-963-0825
investors@opentext.com

Copyright ©2020 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, 2019


June 30, 2019

ASSETS

(unaudited)



Cash and cash equivalents

$

675,403



$

941,009


Accounts receivable trade, net of allowance for doubtful accounts of $17,937 as of December 31, 2019 and $17,011 as of June 30, 2019

526,020



463,785


Contract assets

22,794



20,956


Income taxes recoverable

24,615



38,340


Prepaid expenses and other current assets

104,962



97,238


Total current assets

1,353,794



1,561,328


Property and equipment

273,448



249,453


Operating lease right of use assets

253,387




Long-term contract assets

17,975



15,386


Goodwill

4,656,492



3,769,908


Acquired intangible assets

1,808,072



1,146,504


Deferred tax assets

930,856



1,004,450


Other assets

158,058



148,977


Long-term income taxes recoverable

46,151



37,969


Total assets

$

9,498,233



$

7,933,975


LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued liabilities

$

417,611



$

329,903


Current portion of long-term debt

913,631



10,000


Operating lease liability

66,579




Deferred revenues

718,861



641,656


Income taxes payable

51,298



33,158


Total current liabilities

2,167,980



1,014,717


Long-term liabilities:




Accrued liabilities

14,977



49,441


Pension liability

73,678



75,239


Long-term debt

2,600,386



2,604,878


Long-term operating lease liability

218,681




Deferred revenues

77,335



46,974


Long-term income taxes payable

180,507



202,184


Deferred tax liabilities

165,457



55,872


Total long-term liabilities

3,331,021



3,034,588


Shareholders' equity:




Share capital and additional paid-in capital




270,608,627 and 269,834,442 Common Shares issued and outstanding at December 31, 2019 and June 30, 2019, respectively; authorized Common Shares: unlimited

1,803,663



1,774,214


Accumulated other comprehensive income

24,690



24,124


Retained earnings

2,201,653



2,113,883


Treasury stock, at cost (847,369 shares at December 31, 2019 and 802,871 shares at June 30, 2019, respectively)

(32,066)



(28,766)


Total OpenText shareholders' equity

3,997,940



3,883,455


Non-controlling interests

1,292



1,215


Total shareholders' equity

3,999,232



3,884,670


Total liabilities and shareholders' equity

$

9,498,233



$

7,933,975



 

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,


2019


2018


2019


2018

Revenues:








License

$

138,095



$

132,756



$

215,993



$

209,643


Cloud services and subscriptions

248,340



219,233



485,605



427,316


Customer support

315,508



310,354



627,806



621,905


Professional service and other

69,614



72,888



139,041



143,524


Total revenues

771,557



735,231



1,468,445



1,402,388


Cost of revenues:








License

3,050



3,655



5,373



7,527


Cloud services and subscriptions

103,644



88,698



205,806



176,401


Customer support

29,788



31,273



59,175



61,738


Professional service and other

53,604



56,030



107,942



112,826


Amortization of acquired technology-based intangible assets

42,299



48,366



82,597



95,843


Total cost of revenues

232,385



228,022



460,893



454,335


Gross profit

539,172



507,209



1,007,552



948,053


Operating expenses:








Research and development

80,283



75,753



161,461



153,223


Sales and marketing

137,310



126,193



265,928



246,375


General and administrative

54,595



52,198



106,130



103,122


Depreciation

20,712



23,834



40,989



47,688


Amortization of acquired customer-based intangible assets

51,460



45,919



100,618



91,795


Special charges

10,072



9,380



15,173



32,691


Total operating expenses

354,432



333,277



690,299



674,894


Income from operations

184,740



173,932



317,253



273,159


Other income (expense), net

1,972



378



(813)



1,900


Interest and other related expense, net

(32,376)



(33,613)



(64,586)



(68,144)


Income before income taxes

154,336



140,697



251,854



206,915


Provision for (recovery of) income taxes

46,818



36,236



69,909



66,086


Net income for the period

$

107,518



$

104,461



$

181,945



$

140,829


Net (income) loss attributable to non-controlling interests

(51)



(29)



(77)



(73)


Net income attributable to OpenText

$

107,467



$

104,432



$

181,868



$

140,756


Earnings per share—basic attributable to OpenText

$

0.40



$

0.39



$

0.67



$

0.52


Earnings per share—diluted attributable to OpenText

$

0.40



$

0.39



$

0.67



$

0.52


Weighted average number of Common Shares outstanding—basic

270,450



268,524



270,232



268,276


Weighted average number of Common Shares outstanding—diluted

271,590



269,400



271,328



269,396


 

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,


2019


2018


2019


2018

Net income for the period

$

107,518



$

104,461



$

181,945



$

140,829


Other comprehensive income (loss)—net of tax:








Net foreign currency translation adjustments

4,875



(3,418)



(736)



(6,938)


Unrealized gain (loss) on cash flow hedges:








Unrealized gain (loss) - net of tax expense (recovery) effect of $301 and ($677) for the three months ended December 31, 2019 and 2018, respectively; $95 and ($496) for the six months ended December 31, 2019 and 2018, respectively

833



(1,877)



261



(1,375)


(Gain) loss reclassified into net income - net of tax (expense) recovery effect of ($26) and $169 for the three months ended December 31, 2019 and 2018, respectively;($23) and $301 for the six months ended December 31, 2019 and 2018, respectively

(72)



467



(64)



833


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








Actuarial gain (loss) - net of tax expense (recovery) effect of $1,308 and ($519) for the three months ended December 31, 2019 and 2018, respectively; $59 and ($213) for the six months ended December 31, 2019 and 2018, respectively

3,698



(1,521)



614



(324)


Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $97 and $72 for the three months ended December 31, 2019 and 2018, respectively; $243 and $145 for the six months ended December 31, 2019 and 2018, respectively

260



64



491



130


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

9,594



(6,285)



566



(7,674)


Total comprehensive income

117,112



98,176



182,511



133,155


Comprehensive (income) loss attributable to non-controlling interests

(51)



(29)



(77)



(73)


Total comprehensive income attributable to OpenText

$

117,061



$

98,147



$

182,434



$

133,082


 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

(unaudited)



Three Months Ended December 31, 2019


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 September 30, 2019

270,190



$

1,791,689



(1,103)



$

(41,190)



$

2,141,278



$

15,096



$

1,241



$

3,908,114


Issuance of Common Shares
















Under employee stock option plans

231



6,783













6,783


Under employee stock purchase plans

188



6,532













6,532


Share-based compensation



7,783













7,783


Issuance of treasury stock



(9,124)



256



9,124










Dividends declared
($0.1746 per Common Share)









(47,092)







(47,092)


Other comprehensive income (loss) - net











9,594





9,594


Net income for the quarter









107,467





51



107,518


Balance as of December 31, 2019

270,609



$

1,803,663



(847)



$

(32,066)



$

2,201,653



$

24,690



$

1,292



$

3,999,232




Three 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 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
($0.1518 per Common Share)









(40,700)







(40,700)


Other comprehensive income (loss) - 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, 2019


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, 2019

269,834



$

1,774,214



(803)



$

(28,766)



$

2,113,883



$

24,124



$

1,215



$

3,884,670


Issuance of Common Shares
















Under employee stock option plans

415



11,359













11,359


Under employee stock purchase plans

360



12,540













12,540


Share-based compensation



14,674













14,674


Purchase of treasury stock





(300)



(12,424)









(12,424)


Issuance of treasury stock



(9,124)



256



9,124










Dividends declared  ($0.3492 per Common Share)









(94,098)







(94,098)


Other comprehensive income (loss) - net











566





566


Net income for the quarter









181,868





77



181,945


Balance as of December 31, 2019

270,609



$

1,803,663



(847)



$

(32,066)



$

2,201,653



$

24,690



$

1,292



$

3,999,232




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

556



14,171













14,171


Under employee stock purchase plans

362



11,265













11,265


Share-based compensation



13,440













13,440


Purchase of treasury stock





(674)



(24,534)









(24,534)


Issuance of treasury stock



(14,025)



548



14,025










Dividends declared
($0.3036 per Common Share)









(81,166)







(81,166)


Other comprehensive income - net











(7,674)





(7,674)


Non-controlling interest



(625)











42



(583)


Net income for the year









140,756





73



140,829


Balance as of December 31, 2018

268,569



$

1,731,299



(817)



$

(29,241)



$

2,056,831



$

25,971



$

1,152



$

3,786,012


 

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,


2019


2018


2019


2018

Cash flows from operating activities:








Net income for the period

$

107,518



$

104,461



$

181,945



$

140,829


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








Depreciation and amortization of intangible assets

114,471



118,119



224,204



235,326


Share-based compensation expense

7,783



6,885



14,674



13,440


Pension expense

1,459



1,109



2,895



2,254


Amortization of debt issuance costs

1,149



1,079



2,276



2,157


Loss on sale and write down of property and equipment



1,639





9,428


Deferred taxes

27,924



1,140



34,168



8,909


Share in net (income) loss of equity investees

(1,266)



(5,491)



(1,948)



(7,863)


Changes in operating assets and liabilities:








Accounts receivable

(55,833)



(40,327)



2,598



33,548


Contract assets

(10,458)



(8,054)



(17,659)



(13,400)


Prepaid expenses and other current assets

1,111



2,800



(501)



12,532


Income taxes and deferred charges and credits

(7,944)



4,763



(891)



17,324


Accounts payable and accrued liabilities

29,744



10,253



(33,235)



(29,748)


Deferred revenue

(2,924)



(11,748)



(64,093)



(69,151)


Other assets

(3,327)



2,475



2,357



4,919


Operating lease assets and liabilities, net

(2,169)





(2,105)




Net cash provided by operating activities

207,238



189,103



344,685



360,504


Cash flows from investing activities:








Additions of property and equipment

(19,598)



(8,969)



(38,212)



(33,464)


Purchase of Carbonite, Inc., net of cash and restricted cash acquired

(1,216,639)





(1,216,639)




Purchase of Dynamic Solutions Group Inc.

(4,149)





(4,149)




Purchase of Liaison Technologies, Inc.



(311,285)





(311,285)


Purchase of Guidance Software, Inc., net of cash acquired







(2,279)


Other investing activities

(3,505)



(5,369)



(5,541)



(6,373)


Net cash used in investing activities

(1,243,891)



(325,623)



(1,264,541)



(353,401)


Cash flows from financing activities:








Proceeds from long-term debt and Revolver

750,000





750,000




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

12,000



6,159



23,117



24,286


Repayment of long-term debt and revolver

(2,500)



(2,500)



(5,000)



(5,000)


Debt issuance costs

(979)





(979)



(322)


Purchase of Treasury Stock



(12,815)



(12,424)



(24,534)


Purchase of non-controlling interest







(583)


Payments of dividends to shareholders

(47,092)



(40,700)



(94,098)



(81,166)


Net cash provided by (used in) financing activities

711,429



(49,856)



660,616



(87,319)


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

3,640



(6,329)



(4,071)



(5,901)


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

(321,584)



(192,705)



(263,311)



(86,117)


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

1,001,816



790,579



943,543



683,991


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

$

680,232



$

597,874



$

680,232



$

597,874


 

Reconciliation of cash, cash equivalents and restricted cash:

December 31, 2019


December 31, 2018

Cash and cash equivalents

675,403



595,069


Restricted cash included in Other assets

4,829



2,805


Total Cash, cash equivalents and restricted cash

$

680,232



$

597,874











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




The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term "non-operational charge" is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management. These items are excluded based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports and are not excluded in the sense that they may be used under U.S. GAAP.




The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company's operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions, 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.

 


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

for the three months ended December 31, 2019.

(In thousands except for per share amounts)


Three Months Ended December 31, 2019


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

$

103,644



$

(371)


(1)

$

103,273



Customer support

29,788



(297)


(1)

29,491



Professional service and other

53,604



(346)


(1)

53,258



Amortization of acquired technology-based intangible assets

42,299



(42,299)


(2)



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

539,172


69.9

%

43,313


(3)

582,485


75.5

%

Operating expenses







Research and development

80,283



(1,255)


(1)

79,028



Sales and marketing

137,310



(2,383)


(1)

134,927



General and administrative

54,595



(3,131)


(1)

51,464



Amortization of acquired customer-based intangible assets

51,460



(51,460)


(2)



Special charges (recoveries)

10,072



(10,072)


(4)



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

184,740



111,614


(5)

296,354



Other income (expense), net

1,972



(1,972)


(6)



Provision for (recovery of) income taxes

46,818



(9,861)


(7)

36,957



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

107,467



119,503


(8)

226,970



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

$

0.40



$

0.44


(8)

$

0.84


















(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 30% 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, 2019



Per share diluted

GAAP-based net income, attributable to OpenText

$

107,467


$

0.40

Add:



Amortization

93,759


0.35

Share-based compensation

7,783


0.03

Special charges (recoveries)

10,072


0.04

Other (income) expense, net

(1,972)


(0.01)

GAAP-based provision for (recovery of) income taxes

46,818


0.17

Non-GAAP-based provision for income taxes

(36,957)


(0.14)

Non-GAAP-based net income, attributable to OpenText

$

226,970


$

0.84

 

Reconciliation of Adjusted EBITDA



Three Months Ended December 31, 2019

GAAP-based net income, attributable to OpenText

$

107,467

Add:


Provision for (recovery of) income taxes

46,818

Interest and other related expense, net

32,376

Amortization of acquired technology-based intangible assets

42,299

Amortization of acquired customer-based intangible assets

51,460

Depreciation

20,712

Share-based compensation

7,783

Special charges (recoveries)

10,072

Other (income) expense, net

(1,972)

Adjusted EBITDA

$

317,015

 


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the six months ended December 31, 2019. 
(In thousands except for per share amounts)


Six Months Ended December 31, 2019


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

$

205,806



$

(754)


(1)

$

205,052



Customer support

59,175



(613)


(1)

58,562



Professional service and other

107,942



(589)


(1)

107,353



Amortization of acquired technology-based intangible assets

82,597



(82,597)


(2)



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

1,007,552


68.6

%

84,553


(3)

1,092,105


74.4

%

Operating expenses







Research and development

161,461



(2,476)


(1)

158,985



Sales and marketing

265,928



(4,499)