OPEN TEXT CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - January 27, 2015

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8-K - 8-K - OPEN TEXT CORPa8-kxearningsreleaseq2x15.htm


Exhibit 99.1

OpenText Reports Second Quarter Fiscal Year 2015 Financial Results
Recurring Revenue of $392.0 million, Up 39% Year Over Year;
Cloud Services Revenue of $151.3 million, Up 259% Year Over Year
Waterloo, ON, January 27, 2015 - Open Text Corporation (NASDAQ: OTEX) (TSX: OTC) announced today its financial results for the second quarter ended December 31, 2014.
Financial Highlights for Q2 FY15 with Year Over Year Comparisons (1)
•
Total revenue was $467.8 million, up 29%
•
Recurring revenue was $392.0 million, up 39%
•
Cloud services revenue was $151.3 million, up 259%
•
Customer support revenue was $179.5 million, up 3%
•
License revenue was $75.8 million, down 7%
•
Foreign exchange negatively impacted total revenue by $15 million (4) 
•
Non-GAAP-based EPS, diluted was $0.97 compared to $0.79 up 23%; GAAP-based EPS, diluted was $0.60 compared to $0.45 up 33%, on a post stock-split basis.(2)
•
Non-GAAP-based income from operations was $153.3 million and 33% of revenues, up 36%; GAAP-based income from operations was $110.6 million and 24% of revenues, up 50%.(2)
•
Foreign exchange negatively impacted non-GAAP-based EPS by $0.03 (4)
•
Operating cash flow was $109.6 million, up 80% with an ending cash balance of $542.8 million.

“The OpenText strategy is resonating with customers as our year over year financial highlights reflect; particularly, our cloud services results are up 259% and we expanded non-GAAP-based operating margin to 32.8%,” said Mark J. Barrenechea OpenText CEO. “Further, we enter calendar 2015 with our strongest product line up ever, including our new EIM Suites 10.6, more customer options in the OpenText Cloud, new OpenText Core, our expanding Business Network, and now, analytics by means of our Actuate acquisition. The acquisition of Actuate enables OpenText to significantly enter the world of business analytics, allowing customers to analyze and visualize a broad range of structured, semi-structured, and unstructured data.”

“The underlying strength of the business performance was partially offset by the strength of the US dollar against most currencies and notably the Euro. Compared to the beginning of Fiscal Year 2015 exchange rates, in-quarter total revenue was negatively affected by $16 million and non-GAAP-based EPS was negatively impacted by 4 cents,” said John Doolittle, OpenText CFO.(4) 


Business Highlights

•
OpenText buys Actuate Corporation
•
OpenText buys Informative Graphics Corporation
•
OpenText issued $800.0 million in aggregate principal by way of 5.625% senior notes due 2023 in a private placement on January 15, 2015
•
15 customer transactions over $1 million, 6 in the OpenText Cloud and 9 on-premises
•
Financial, services and technology sector industries saw the most demand
•
Cloud customer successes in the quarter include Schneider Electric Industries, Nestle S.A. and Nestle Purina Pet Care
•
License customer successes in the quarter include DB Schenker, Insurance Australia Group, Singapore Power, IGATE, Fox Entertainment Group, Monster Beverage Corp., GEMA, Airbus and The Bosch Group
•
OpenText launches data centers to support customers in Japan and across the Asia-Pacific Region
•
OpenText launches OpenText Core, a new enterprise-grade cloud information management solution
•
OpenText named one of Canada's Top 100 Employers for the fourth consecutive year

1




Dividend Program Highlights

Cash Dividend
As part of our quarterly, non cumulative cash dividend program the Board declared a quarterly cash dividend to holders of the Company's Common Shares of $0.1725. The record date for this dividend is February 26, 2015 and the payment date is March 19, 2015. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of our Board of Directors.

Summary of Quarterly Results
 
 
 
 
 
 
 
 
Q2 FY15
Q1 FY15
Q2 FY14
% Change 
(Q/Q) 
 
% Change
(Y/Y)
 
Revenue (million)

$467.8


$453.8


$363.5

3.1
%
 
28.7
%
 
GAAP-based gross margin
68.1
%
67.4
%
70.3
%
70

bps
(220
)
bps
GAAP-based operating margin
23.6
%
22.7
%
20.3
%
90

bps
330

bps
GAAP-based EPS, diluted

$0.60


$0.53


$0.45

13.2
%
 
33.3
%
 
Non-GAAP-based gross margin (2)
72.2
%
71.6
%
74.0
%
60

bps
(180
)
bps
Non-GAAP-based operating margin (2)
32.8
%
34.3
%
30.9
%
(150
)
bps
190

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

$0.97


$0.97


$0.79

—
%
 
22.8
%
 

Summary of Year to Date Results
 
 
 
 
 
 
Q2 FY15 YTD
Q1 FY15
Q2 FY14 YTD
% Change
(Y/Y)
 
Revenue (million)

$921.6


$453.8


$688.0

34.0
%
 
GAAP-based gross margin
67.8
%
67.4
%
68.8
%
(100
)
bps
GAAP-based operating margin
23.2
%
22.7
%
18.3
%
490

bps
GAAP-based EPS, diluted

$1.13


$0.53


$0.71

59.2
%
 
Non-GAAP-based gross margin (2)
71.9
%
71.6
%
74.0
%
(210
)
bps
Non-GAAP-based operating margin (2)
33.5
%
34.3
%
30.7
%
280

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

$1.93


$0.97


$1.48

30.4
%
 

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 15 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/events.cfm .

A replay of the call will be available beginning January 27, 2015 at 7:00 p.m. ET through 11:59 p.m. on February 11, 2015 and can be accessed by dialing 1-800-319-6413 (toll-free) or +1-604-638-9010 (international) and using passcode 1469 followed by the number sign.

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

About OpenText
OpenText is the largest independent software provider of Enterprise Information Management (EIM). For more information please visit www.opentext.com.

2


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 Fiscal 2015 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, its financial condition, results of operations and earnings, declaration of quarterly dividends, 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; (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; and (ix) the Company's financial condition and capital requirements. 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 possibility that the Company may be unable to meet its future reporting requirements under the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder; (iii) the risks associated with bringing new products and services to market; (iv) fluctuations in currency exchange rates; (v) delays in the purchasing decisions of the Company's customers; (vi) the competition the Company faces in its industry and/or marketplace; (vii) the final determination of litigation, tax audits and other legal proceedings; (viii) the possibility of technical, logistical or planning issues in connection with the deployment of the Company's products or services; (ix) the continuous commitment of the Company's customers; and (x) demand for the Company's products. For additional information with respect to risks and other factors which could occur, see the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities filings with the Securities and Exchange Commission (SEC) and other securities regulators. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For more information, please contact:

United States:

Greg Secord
Vice President, Investor Relations
Open Text Corporation
San Francisco: 415-963-0825
gsecord@opentext.com

Canada:

Sonya Mehan
Senior Manager, Investor Relations
Open Text Corporation
Waterloo: 519-888-7111 ext. 2446
smehan@opentext.com


3



Copyright ©2015 Open Text Corporation. OpenText is a trademark or registered trademark of Open Text SA and/or Open Text ULC. 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 SA or other respective owners. All rights reserved. For more information, visit: http://www.opentext.com/2/global/site-copyright.html_SKU.

4


OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share data)
 
December 31, 2014
 
June 30, 2014
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
542,810

 
$
427,890

Accounts receivable trade, net of allowance for doubtful accounts of $6,211 as of December 31, 2014 and $4,727 as of June 30, 2014
258,230

 
292,929

Income taxes recoverable
16,374

 
24,648

Prepaid expenses and other current assets
52,533

 
42,053

Deferred tax assets
31,375

 
28,215

Total current assets
901,322

 
815,735

Property and equipment
153,841

 
142,261

Goodwill
1,940,304

 
1,963,557

Acquired intangible assets
637,660

 
725,318

Deferred tax assets
152,030

 
156,712

Other assets
57,823

 
52,041

Deferred charges
44,820

 
52,376

Long-term income taxes recoverable
8,517

 
10,638

Total assets
$
3,896,317

 
$
3,918,638

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
193,510

 
$
231,954

Current portion of long-term debt
65,289

 
62,582

Deferred revenues
292,162

 
332,664

Income taxes payable
11,729

 
31,630

Deferred tax liabilities
834

 
1,053

Total current liabilities
563,524

 
659,883

Long-term liabilities:
 
 
 
Accrued liabilities
33,098

 
41,999

Deferred credits
15,236

 
17,529

Pension liability
65,346

 
60,300

Long-term debt
1,226,500

 
1,256,750

Deferred revenues
18,022

 
17,248

Long-term income taxes payable
161,036

 
162,131

Deferred tax liabilities
54,177

 
60,631

Total long-term liabilities
1,573,415

 
1,616,588

Shareholders' equity:
 
 
 
Share capital
 
 
 
122,078,994 and 121,758,432 Common Shares issued and outstanding at December 31, 2014 and June 30, 2014, respectively; Authorized Common Shares: unlimited
801,810

 
792,834

Additional paid-in capital
114,951

 
112,398

Accumulated other comprehensive income
39,632

 
39,449

Retained earnings
813,131

 
716,317

Treasury stock, at cost (407,725 shares at December 31, 2014 and 763,278 at June 30, 2014, respectively)
(10,680
)
 
(19,132
)
Total OpenText shareholders' equity
1,758,844

 
1,641,866

Non-controlling interests
534

 
301

Total shareholders' equity
1,759,378

 
1,642,167

Total liabilities and shareholders' equity
$
3,896,317

 
$
3,918,638

 

5


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,
 
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
 
License
 
$
75,824

 
$
81,164

 
$
134,439

 
$
136,470

Cloud services
 
151,269

 
42,131

 
301,275

 
83,778

Customer support
 
179,466

 
174,425

 
363,372

 
342,865

Professional service and other
 
61,286

 
65,787

 
122,546

 
124,854

Total revenues
 
467,845

 
363,507

 
921,632

 
687,967

Cost of revenues:
 
 
 
 
 
 
 
 
License
 
3,412

 
3,304

 
6,500

 
6,340

Cloud services
 
56,974

 
15,963

 
114,970

 
30,228

Customer support
 
23,942

 
24,409

 
47,160

 
46,579

Professional service and other
 
46,641

 
51,245

 
92,002

 
96,680

Amortization of acquired technology-based intangible assets
 
18,206

 
13,035

 
36,412

 
34,565

Total cost of revenues
 
149,175

 
107,956

 
297,044

 
214,392

Gross profit
 
318,670

 
255,551

 
624,588

 
473,575

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
46,170

 
41,917

 
90,912

 
82,133

Sales and marketing
 
90,010

 
81,290

 
170,109

 
150,703

General and administrative
 
39,849

 
32,815

 
75,605

 
61,701

Depreciation
 
12,465

 
6,898

 
24,707

 
13,356

Amortization of acquired customer-based intangible assets
 
25,364

 
12,432

 
51,248

 
29,709

Special charges (recoveries)
 
(5,759
)
 
6,268

 
(1,590
)
 
9,999

Total operating expenses
 
208,099

 
181,620

 
410,991

 
347,601

Income from operations
 
110,571

 
73,931

 
213,597

 
125,974

Other income (expense), net
 
(9,314
)
 
(740
)
 
(19,187
)
 
1,186

Interest and other related expense, net
 
(8,455
)
 
(3,040
)
 
(19,554
)
 
(7,425
)
Income before income taxes
 
92,802

 
70,151

 
174,856

 
119,735

Provision for income taxes
 
18,308

 
16,651

 
35,710

 
35,605

Net income for the period
 
$
74,494

 
$
53,500

 
$
139,146

 
$
84,130

Net (income) loss attributable to non-controlling interests
 
(207
)
 
—

 
(233
)
 
—

Net income attributable to OpenText
 
$
74,287

 
$
53,500

 
$
138,913

 
$
84,130

Earnings per share—basic attributable to OpenText
 
$
0.61

 
$
0.45

 
$
1.14

 
$
0.71

Earnings per share—diluted attributable to OpenText
 
$
0.60

 
$
0.45

 
$
1.13

 
$
0.71

Weighted average number of Common Shares outstanding—basic
 
122,051

 
118,272

 
121,984

 
118,200

Weighted average number of Common Shares outstanding—diluted
 
122,985

 
119,186

 
122,934

 
118,950

Dividends declared per Common Share
 
$
0.1725

 
$
0.1500

 
$
0.3450

 
$
0.3000



6



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,
 
 
2014
 
2013
 
2014
 
2013
Net income for the period
 
$
74,494

 
$
53,500

 
$
139,146

 
$
84,130

Other comprehensive income—net of tax:
 
 
 
 
 
 
 
 
Net foreign currency translation adjustments
 
5,241

 
113

 
8,346

 
354

Unrealized gain (loss) on cash flow hedges:
 
 
 
 
 
 
 
 
Unrealized gain (loss)
 
(1,316
)
 
(1,433
)
 
(4,216
)
 
87

Loss reclassified into net income
 
944

 
589

 
997

 
1,173

Actuarial gain (loss) relating to defined benefit pension plans:
 
 
 
 
 
 
 
 
Actuarial gain (loss)
 
(3,937
)
 
944

 
(7,055
)
 
1,027

Amortization of actuarial loss into net income
 
84

 
73

 
205

 
146

Unrealized gain on marketable securities
 
2,400

 
—

 
1,906

 
—

Total other comprehensive income (loss), net, for the period
 
3,416

 
286

 
183

 
2,787

Total comprehensive income
 
77,910

 
53,786

 
139,329

 
86,917

Comprehensive income attributable to non-controlling interests
 
(207
)
 
—

 
(233
)
 
—

Total comprehensive income attributable to OpenText
 
$
77,703

 
$
53,786

 
$
139,096

 
$
86,917



7


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,
 
2014
 
2013
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income for the period
$
74,494

 
$
53,500

 
$
139,146

 
$
84,130

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization of intangible assets
56,035

 
32,365

 
112,367

 
77,630

Share-based compensation expense
4,929

 
6,677

 
9,378

 
11,289

Excess tax benefits on share-based compensation expense
(1,232
)
 
(1,008
)
 
(1,627
)
 
(1,081
)
Pension expense
1,202

 
437

 
2,422

 
790

Amortization of debt issuance costs
1,132

 
519

 
2,275

 
1,044

Amortization of deferred charges and credits
2,632

 
2,967

 
5,263

 
5,934

Loss on sale and write down of property and equipment
—

 
(6
)
 
—

 
15

Deferred taxes
2,764

 
(1,329
)
 
1,219

 
(3,198
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
(15,294
)
 
(19,602
)
 
40,249

 
9,176

Prepaid expenses and other current assets
(548
)
 
(729
)
 
(697
)
 
(4,161
)
Income taxes
(6,207
)
 
(5,093
)
 
11,599

 
2,409

Deferred charges and credits
—

 
5,788

 
—

 
8,488

Accounts payable and accrued liabilities
(3,187
)
 
7,247

 
(37,326
)
 
(10,846
)
Deferred revenue
(5,990
)
 
(21,574
)
 
(32,745
)
 
(40,134
)
Other assets
(1,158
)
 
716

 
(3,420
)
 
(686
)
Net cash provided by operating activities
109,572

 
60,875

 
248,103

 
140,799

Cash flows from investing activities:
 
 
 
 
 
 
 
Additions of property and equipment
(18,026
)
 
(11,913
)
 
(48,261
)
 
(20,228
)
Purchase of patents
—

 
(192
)
 
—

 
(192
)
Purchase of Cordys Holding B.V., net of cash acquired
—

 
—

 
—

 
(30,588
)
Purchase of a division of Spicer Corporation
(222
)
 
—

 
(222
)
 
—

Purchase consideration for prior period acquisitions
(221
)
 
(221
)
 
(443
)
 
(443
)
Other investing activities
(1,059
)
 
526

 
(8,433
)
 
(974
)
Net cash used in investing activities
(19,528
)
 
(11,800
)
 
(57,359
)
 
(52,425
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Excess tax benefits on share-based compensation expense
1,232

 
1,008

 
1,627

 
1,081

Proceeds from issuance of Common Shares
2,039

 
3,606

 
9,138

 
5,429

Repayment of long-term debt
(13,413
)
 
(11,419
)
 
(26,830
)
 
(19,087
)
Debt issuance costs
(1,220
)
 
(273
)
 
(1,403
)
 
(273
)
Payments of dividends to shareholders
(21,054
)
 
(17,747
)
 
(42,099
)
 
(35,468
)
Net cash used in financing activities
(32,416
)
 
(24,825
)
 
(59,567
)
 
(48,318
)
Foreign exchange gain (loss) on cash held in foreign currencies
(7,304
)
 
(43
)
 
(16,257
)
 
4,853

Increase in cash and cash equivalents during the period
50,324

 
24,207

 
114,920

 
44,909

Cash and cash equivalents at beginning of the period
492,486

 
491,147

 
427,890

 
470,445

Cash and cash equivalents at end of the period
$
542,810

 
$
515,354

 
$
542,810

 
$
515,354



8


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 are calculated as net income or net income per share on a diluted basis, excluding, the amortization of acquired intangible assets, other income (expense), share-based compensation, and special charges, all net of tax. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets. Non-GAAP-based gross margin is calculated as non-GAAP-based gross profit expressed as a percentage of 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. Non-GAAP-based operating margin is calculated as non-GAAP-based income from operations expressed as a percentage of revenue.
The Company's management believes that the presentation, of the above defined non-GAAP financial measures, provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management and is based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports. In the course of such evaluation and for the purpose of making operating decisions, the Company's management excludes certain items from its analysis, including amortization of acquired intangible assets, special charges (recoveries), share-based compensation, other income (expense), and the taxation impact of these items. These items are excluded based upon the manner in which management evaluates the business of the Company and are not excluded in the sense that they may be used under U.S. GAAP.
The Company believes the provision of supplemental non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary non-GAAP financial measures that exclude certain items from the presentation of its financial results in this press release.
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:


9


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended December 31, 2014.
(In thousands except for per share amounts)
 
Three Months Ended December 31, 2014
 
GAAP-based
Measures 
GAAP-based Measures
% of Revenue
Adjustments 
Note
Non-GAAP-based
Measures 
Non-GAAP-based Measures
% of Revenue
Cost of revenues
 
 
 
 
 
 
Cloud services
$
56,974

 
$
(186
)
(1)
$
56,788

 
Customer support
23,942

 
(234
)
(1)
23,708

 
Professional service and other
46,641

 
(335
)
(1)
46,306

 
Amortization of acquired technology-based intangible assets
18,206

 
(18,206
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
318,670

68.1
%
18,961

(3)
337,631

72.2
%
Operating expenses
 
 
 
 
 
 
Research and development
46,170

 
(614
)
(1)
45,556

 
Sales and marketing
90,010

 
(2,594
)
(1)
87,416

 
General and administrative
39,849

 
(966
)
(1)
38,883

 
Amortization of acquired customer-based intangible assets
25,364

 
(25,364
)
(2)
—

 
Special charges (recoveries)
(5,759
)
 
5,759

(4)
—

 
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)
110,571

23.6
%
42,740

(5)
153,311

32.8
%
Other income (expense), net
(9,314
)
 
9,314

(6)
—

 
Provision for (recovery of) income taxes
18,308

 
7,559

(7)
25,867

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
74,287

 
44,495

(8)
118,782

 
GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText
$
0.60

 
$
0.37

(8)
$
0.97

 
(1)
Adjustment relates to the exclusion of share based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)
Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)
GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of revenue.
(4)
Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges are generally incurred in the periods following the relevant acquisitions and are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.
(5)
GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of revenue.
(6)
Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.
(7)
Adjustment relates to differences between the GAAP-based tax provision of approximately 20% and a Non-GAAP-based tax rate of 18%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income.
(8)
Reconciliation of Non-GAAP-based adjusted net income to GAAP-based net income:  

10


 
Three Months Ended December 31, 2014
 
 
Per share diluted  

Non-GAAP-based net income, attributable to OpenText
$
118,782

$
0.97

Less:
 
 
Amortization
43,570

0.35

Share-based compensation
4,929

0.04

Special charges (recoveries)
(5,759
)
(0.05
)
Other (income) expense, net
9,314

0.08

GAAP-based provision for (recovery of) income taxes
18,308

0.15

Non-GAAP based provision for income taxes
(25,867
)
(0.20
)
GAAP-based net income, attributable to OpenText
$
74,287

$
0.60


11


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the six months ended December 31, 2014.
(In thousands except for per share amounts)
 
Six Months Ended December 31, 2014
 
GAAP-based
Measures 
GAAP-based Measures
% of Revenue
Adjustments 
Note
Non-GAAP-based
Measures 
Non-GAAP-based Measures
% of Revenue
Cost of revenues
 
 
 
 
 
 
Cloud services
$
114,970

 
$
(399
)
(1)
$
114,571

 
Customer support
47,160

 
(408
)
(1)
46,752

 
Professional service and other
92,002

 
(598
)
(1)
91,404

 
Amortization of acquired technology-based intangible assets
36,412

 
(36,412
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
624,588

67.8
%
37,817

(3)
662,405

71.9
%
Operating expenses
 
 
 
 
 
 
Research and development
90,912

 
(1,177
)
(1)
89,735

 
Sales and marketing
170,109

 
(4,668
)
(1)
165,441

 
General and administrative
75,605

 
(2,128
)
(1)
73,477

 
Amortization of acquired customer-based intangible assets
51,248

 
(51,248
)
(2)
—

 
Special charges (recoveries)
(1,590
)
 
1,590

(4)
—

 
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)
213,597

23.2
%
95,448

(5)
309,045

33.5
%
Other income (expense), net
(19,187
)
 
19,187

(6)
—

 
Provision for (recovery of) income taxes
35,710

 
16,165

(7)
51,875

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
138,913

 
98,470

(8)
237,383

 
GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText
$
1.13

 
$
0.80

(8)
$
1.93

 
(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 revenue.
(4)
Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges are generally incurred in the periods following the relevant acquisitions and are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.
(5)
GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of revenue.
(6)
Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.
(7)
Adjustment relates to differences between the GAAP-based tax provision of approximately 20% and a Non-GAAP-based tax rate of 18%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income.
(8)
Reconciliation of Non-GAAP-based adjusted net income to GAAP-based net income:  

12


 
Six Months Ended December 31, 2014
 
 
Per share diluted  

Non-GAAP-based net income, attributable to OpenText
$
237,383

$
1.93

Less:
 
 
Amortization
87,660

0.71

Share-based compensation
9,378

0.08

Special charges (recoveries)
(1,590
)
(0.01
)
Other (income) expense, net
19,187

0.16

GAAP-based provision for (recovery of) income taxes
35,710

0.29

Non-GAAP based provision for income taxes
(51,875
)
(0.43
)
GAAP-based net income, attributable to OpenText
$
138,913

$
1.13




13


Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended September 30, 2014.
(In thousands except for per share amounts)
 
Three Months Ended September 30, 2014
 
GAAP-based
Measures 
GAAP-based Measures
% of Revenue
Adjustments 
Note
Non-GAAP-based
Measures 
Non-GAAP-based Measures
% of Revenue
Cost of revenues
 
 
 
 
 
 
Cloud services
$
57,996

 
$
(213
)
(1)
$
57,783

 
Customer support
23,218

 
(174
)
(1)
23,044

 
Professional service and other
45,361

 
(263
)
(1)
45,098

 
Amortization of acquired technology-based intangible assets
18,206

 
(18,206
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
305,918

67.4
%
18,856

(3)
324,774

71.6
%
Operating expenses
 

 
 

 
 

 
Research and development
44,742

 
(563
)
(1)
44,179

 
Sales and marketing
80,099

 
(2,074
)
(1)
78,025

 
General and administrative
35,756

 
(1,162
)
(1)
34,594

 
Amortization of acquired customer-based intangible assets
25,884

 
(25,884
)
(2)
—

 
Special charges (recoveries)
4,169

 
(4,169
)
(4)
—

 
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)
103,026

22.7
%
52,708

(5)
155,734

34.3
%
Other income (expense), net
(9,873
)
 
9,873

(6)
—

 
Provision for (recovery of) income taxes
17,402

 
8,606

(7)
26,008

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
64,626

 
53,975

(8)
118,601

 
GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText
$
0.53

 
$
0.44

(8)
$
0.97

 
(1)
Adjustment relates to the exclusion of share based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)
Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)
GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of revenue.
(4)
Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges are generally incurred in the periods following the relevant acquisitions and are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.
(5)
GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of revenue.
(6)
Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.
(7)
Adjustment relates to differences between the GAAP-based tax provision of approximately 21% and a Non-GAAP-based tax rate of 18%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income.
(8)
Reconciliation of Non-GAAP-based adjusted net income to GAAP-based net income:  


14


 
Three Months Ended September 30, 2014
 
 
Per share diluted  

Non-GAAP-based net income, attributable to OpenText
$
118,601

$
0.97

Less:
 
 
Amortization
44,090

0.36

Share-based compensation
4,449

0.04

Special charges (recoveries)
4,169

0.03

Other (income) expense, net
9,873

0.08

GAAP-based provision for (recovery of) income taxes
17,402

0.14

Non-GAAP based provision for income taxes
(26,008
)
(0.21
)
GAAP-based net income, attributable to OpenText
$
64,626

$
0.53


15


Reconciliation of selected GAAP-based measures to Non GAAP-based measures for the three months ended December 31, 2013.
(In thousands except for per share amounts)
 
Three Months Ended December 31, 2013
 
GAAP-based
Measures 
GAAP-based Measures
% of Revenue
Adjustments 
Note
Non-GAAP-based
Measures 
Non-GAAP-based Measures
% of Revenue
Cost of revenues:
 
 
 
 
 
 
Cloud services
$
15,963

 
$
60

(1)
$
16,023

 
Customer support
24,409

 
(312
)
(1)
24,097

 
Professional service and other
51,245

 
(328
)
(1)
50,917

 
Amortization of acquired technology-based intangible assets
13,035

 
(13,035
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
255,551

70.3
%
13,615

(3)
269,166

74.0
%
Operating expenses
 
 
 
 
 
 
Research and development
41,917

 
(794
)
(1)
41,123

 
Sales and marketing
81,290

 
(1,921
)
(1)
79,369

 
General and administrative
32,815

 
(3,382
)
(1)
29,433

 
Amortization of acquired customer-based intangible assets
12,432

 
(12,432
)
(2)
—

 
Special charges (recoveries)
6,268

 
(6,268
)
(4)
—

 
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)
73,931

20.3
%
38,412

(5)
112,343

30.9
%
Other income (expense), net
(740
)
 
740

(6)
—

 
Provision for (recovery of) income taxes
16,651

 
(1,349
)
(7)
15,302

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
53,500

 
40,501

(8)
94,001

 
GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText
$
0.45

 
$
0.34

(8)
$
0.79

 
(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 revenue.
(4)
Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges are generally incurred in the periods following the relevant acquisitions and are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.
(5)
GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of revenue.
(6)
Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.
(7)
Adjustment relates to differences between the GAAP-based tax provision of approximately 24% and a Non-GAAP-based tax rate of 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income.
(8)
Reconciliation of Non-GAAP-based adjusted net income to GAAP-based net income:  


16


 
 
Three Months Ended December 31, 2013
 
 
Per share diluted  

Non-GAAP-based net income, attributable to OpenText
$
94,001

$
0.79

Less:
 
 
Amortization
25,467

0.21

Share-based compensation
6,677

0.06

Special charges (recoveries)
6,268

0.05

Other (income) expense, net
740

0.01

GAAP-based provision for (recovery of) income taxes
16,651

0.14

Non-GAAP based provision for income taxes
(15,302
)
(0.13
)
GAAP-based net income, attributable to OpenText
$
53,500

$
0.45


17


Reconciliation of selected GAAP-based measures to Non GAAP-based measures for the six months ended December 31, 2013.
(In thousands except for per share amounts)
 
Six Months Ended December 31, 2013
 
GAAP-based
Measures 
GAAP-based Measures
% of Revenue
Adjustments 
Note
Non-GAAP-based
Measures 
Non-GAAP-based Measures
% of Revenue
Cost of revenues:
 
 
 
 
 
 
Cloud services
$
30,228

 
$
22

(1)
$
30,250

 
Customer support
46,579

 
(409
)
(1)
46,170

 
Professional service and other
96,680

 
(498
)
(1)
96,182

 
Amortization of acquired technology-based intangible assets
34,565

 
(34,565
)
(2)
—

 
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
473,575

68.8
%
35,450

(3)
509,025

74.0
%
Operating expenses
 
 
 
 
 
 
Research and development
82,133

 
(1,522
)
(1)
80,611

 
Sales and marketing
150,703

 
(4,274
)
(1)
146,429

 
General and administrative
61,701

 
(4,608
)
(1)
57,093

 
Amortization of acquired customer-based intangible assets
29,709

 
(29,709
)
(2)
—

 
Special charges (recoveries)
9,999

 
(9,999
)
(4)
—

 
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)
125,974

18.3
%
85,562

(5)
211,536

30.7
%
Other income (expense), net
1,186

 
(1,186
)
(6)
—

 
Provision for (recovery of) income taxes
35,605

 
(7,029
)
(7)
28,576

 
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
84,130

 
91,405

(8)
175,535

 
GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText
$
0.71

 
$
0.77

(8)
$
1.48

 
(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 revenue.
(4)
Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges are generally incurred in the periods following the relevant acquisitions and are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.
(5)
GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of revenue.
(6)
Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.
(7)
Adjustment relates to differences between the GAAP-based tax provision of approximately 30% and a Non-GAAP-based tax rate of 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income.
(8)
Reconciliation of Non-GAAP-based adjusted net income to GAAP-based net income:  


18


 
 
Six Months Ended December 31, 2013
 
 
Per share diluted  

Non-GAAP-based net income, attributable to OpenText
$
175,535

$
1.48

Less:
 
 
Amortization
64,274

0.54

Share-based compensation
11,289

0.09

Special charges (recoveries)
9,999

0.08

Other (income) expense, net
(1,186
)
(0.01
)
GAAP-based provision for (recovery of) income taxes
35,605

0.30

Non-GAAP based provision for income taxes
(28,576
)
(0.23
)
GAAP-based net income, attributable to OpenText
$
84,130

$
0.71



19



(3)
The following tables provide a composition of our major currencies for revenue and expenses, expressed as a percentage, for the three and six months ended December 31, 2014 and 2013:

 
Three Months Ended
December 31, 2014
 
Three Months Ended
December 31, 2013
Currencies
 
% of Revenue 
 
% of Expenses* 
 
 
% of Revenue 
 
% of Expenses* 
 
EURO
24
%
16
%
 
29
%
19
%
GBP
9
%
8
%
 
8
%
9
%
CAD
5
%
12
%
 
6
%
17
%
USD
50
%
48
%
 
46
%
40
%
Other
12
%
16
%
 
11
%
15
%
Total
100
%
100
%
 
100
%
100
%
 
Six Months Ended
December 31, 2014
 
Six Months Ended
December 31, 2013
Currencies
 
% of Revenue 
 
% of Expenses* 
 
 
% of Revenue 
 
% of Expenses* 
 
EURO
25
%
15
%
 
28
%
18
%
GBP
8
%
9
%
 
8
%
9
%
CAD
5
%
12
%
 
6
%
17
%
USD
50
%
46
%
 
48
%
41
%
Other
12
%
18
%
 
10
%
15
%
Total
100
%
100
%
 
100
%
100
%


*Expenses include all cost of revenues and operating expenses included within the Condensed Consolidated Statements of Income, except for amortization of intangible assets, share-based compensation and special charges








20


(4) Currency impact on selected GAAP-based and non-GAAP-based measures for the three and six months ended December 31, 2014

The following tables illustrate the impact of foreign exchange rates (FX) on our total revenue and non-GAAP-based earnings per share for the periods presented:
 
Q215 versus Q214 Rates
 
Reported
FX Impact
higher/(lower)
Excluding the Impact of FX
FX Impact
higher/(lower)
Total revenue (in millions)
$
467.8

$
(15.0
)
$
482.8

(3.2
)%
Non-GAAP-based EPS
$
0.97

$
(0.03
)
$
1.00

(3.0
)%
 
Q215 YTD versus Fiscal 2014 Rates
 
Reported
FX Impact
higher/(lower)
Excluding the Impact of FX
FX Impact
higher/(lower)
Total revenue (in millions)
$
921.6

$
(11.2
)
$
932.8

(1.2
)%
Non-GAAP-based EPS
$
1.93

$
(0.02
)
$
1.95

(1.0
)%

 
Q215 versus Beginning of Fiscal 2015 Rates
 
Reported
FX Impact
higher/(lower)
Excluding the Impact of FX
FX Impact
higher/(lower)
Total revenue (in millions)
$
467.8

$
(16.0
)
$
483.8

(3.4
)%
Non-GAAP-based EPS
$
0.97

$
(0.04
)
$
1.01

(4.1
)%
 
Q215 YTD versus Beginning Fiscal 2015 Rates
 
Reported
FX Impact
higher/(lower)
Excluding the Impact of FX
FX Impact
higher/(lower)
Total revenue (in millions)
$
921.6

$
(18.1
)
$
939.7

(2.0
)%
Non-GAAP-based EPS
$
1.93

$
(0.05
)
$
1.98

(2.6
)%


21

OPEN TEXT CORP Reports