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| 8-K - 8-K - OPEN TEXT CORP | a8-kxearningsreleaseq3x18.htm |
Exhibit 99.1
OpenText Reports Third Quarter Fiscal Year 2018 Financial Results
Revenue of $686 million, up 16% Y/Y
Operating Cash Flows of $271 million, up 73% Y/Y
Quarterly Cash Dividend Increased by 15%
Waterloo, ON, May 9, 2018 - Open Text Corporation (NASDAQ: OTEX, TSX: OTEX), “The Information Company,” today announced its financial results for the third quarter ended March 31, 2018.
“We are pleased with our Q3 results, especially our Annual Recurring Revenues (ARR) of $521 million, up 18% y/y and our Operating Cash Flows (OCF) of $271 million, up 73% y/y,” said OpenText Vice Chair, CEO and CTO, Mark J. Barrenechea. “We are making key investments in the OpenText Cloud that will drive growth and customer adoption, and these investments will help create even more predictability in our business model.”
Barrenechea further added, “Based on the strength and trajectory of our recurring revenues and cash flows, we are setting an annual Operating Cash Flow target of $1 Billion as we exit Fiscal 2021.”
“Supported by confidence in our long-term model and cash flow performance, we are announcing a 15% increase to our quarterly cash dividend to $0.1518 per share,” said Barrenechea.
“OpenText has built a market leading business and I am excited to join such a highly talented team,” said OpenText EVP and CFO, Madhu Ranganathan. “We will focus on recurring revenues, improving efficiency, expanding cash flow and strengthening the business as we to look to scale OpenText to new levels in the coming years.”
Financial Highlights for Q3 Fiscal 2018 with Year Over Year Comparisons
Summary of Quarterly Results | ||||||||||||||||||
(in millions except per share data) | Q3 FY18 | Q3 FY17 | $ Change | % Change (Y/Y) | Q3 FY18 in CC* | % Change in CC* | ||||||||||||
Revenues: | ||||||||||||||||||
Cloud services and subscriptions | $209.1 | $177.1 | $32.0 | 18.1 | % | $204.0 | 15.2 | % | ||||||||||
Customer support | 312.3 | 263.4 | 48.8 | 18.5 | % | 297.9 | 13.1 | % | ||||||||||
Total annual recurring revenues** | $521.4 | $440.5 | $80.8 | 18.3 | % | $501.8 | 13.9 | % | ||||||||||
License | 84.1 | 87.2 | (3.1 | ) | (3.6 | )% | 80.0 | (8.3 | )% | |||||||||
Professional service and other | 80.4 | 65.4 | 15.0 | 23.0 | % | 75.3 | 15.3 | % | ||||||||||
Total revenues | $685.9 | $593.1 | $92.7 | 15.6 | % | $657.1 | 10.8 | % | ||||||||||
GAAP-based operating income | $102.3 | $65.3 | $37.1 | 56.8 | % | |||||||||||||
Non-GAAP-based operating income (1) | $204.1 | $172.6 | $31.5 | 18.2 | % | $193.4 | 12.1 | % | ||||||||||
GAAP-based operating margin | 14.9 | % | 11.0 | % | n/a | 390 | bps | |||||||||||
Non-GAAP-based operating margin (1) | 29.8 | % | 29.1 | % | n/a | 70 | bps | 29.4 | % | 30 | bps | |||||||
GAAP-based EPS, diluted | $0.22 | $0.08 | $0.14 | 175.0 | % | |||||||||||||
Non-GAAP-based EPS, diluted (1)(3) | $0.54 | $0.45 | $0.09 | 20.0 | % | $0.51 | 13.3 | % | ||||||||||
GAAP-based net income attributable to OpenText | $58.8 | $21.6 | $37.2 | 172.0 | % | |||||||||||||
Adjusted EBITDA (1) | $227.2 | $189.1 | $38.1 | 20.2 | % | |||||||||||||
Operating cash flows | $270.7 | $156.3 | $114.4 | 73.2 | % | |||||||||||||
1
Summary of YTD Results | ||||||||||||||||||
(in millions except per share data) | FY18 YTD | FY17 YTD | $ Change | % Change (Y/Y) | FY18 YTD in CC* | % Change in CC* | ||||||||||||
Revenues: | ||||||||||||||||||
Cloud services and subscriptions | $611.1 | $521.9 | $89.2 | 17.1 | % | $606.1 | 16.1 | % | ||||||||||
Customer support | 915.8 | 693.3 | 222.5 | 32.1 | % | 891.3 | 28.6 | % | ||||||||||
Total annual recurring revenues** | $1,526.8 | $1,215.2 | $311.7 | 25.6 | % | $1,497.4 | 23.2 | % | ||||||||||
License | 297.6 | 245.6 | 51.9 | 21.1 | % | 287.8 | 17.1 | % | ||||||||||
Professional service and other | 236.6 | 166.7 | 69.9 | 41.9 | % | 227.7 | 36.6 | % | ||||||||||
Total revenues | $2,061.0 | $1,627.5 | $433.5 | 26.6 | % | $2,012.9 | 23.7 | % | ||||||||||
GAAP-based operating income | $356.1 | $246.5 | $109.6 | 44.5 | % | |||||||||||||
Non-GAAP-based operating income (1) | $673.1 | $508.5 | $164.6 | 32.4 | % | $654.3 | 28.7 | % | ||||||||||
GAAP-based operating margin | 17.3 | % | 15.1 | % | n/a | 220 | bps | |||||||||||
Non-GAAP-based operating margin (1) | 32.7 | % | 31.2 | % | n/a | 150 | bps | 32.5 | % | 130 | bps | |||||||
GAAP-based EPS, diluted (2) | $0.68 | $3.88 | ($3.20 | ) | (82.5 | )% | ||||||||||||
Non-GAAP-based EPS, diluted (1)(3) | $1.84 | $1.42 | $0.42 | 29.6 | % | $1.78 | 25.4 | % | ||||||||||
GAAP-based net income attributable to OpenText (2) | $180.5 | $979.5 | ($799.0 | ) | (81.6 | )% | ||||||||||||
Adjusted EBITDA (1) | $737.3 | $555.5 | $181.7 | 32.7 | % | |||||||||||||
Operating cash flows | $504.4 | $336.8 | $167.7 | 49.8 | % | |||||||||||||
(1) Please see note 2 "Use of Non-GAAP Financial Measures" below
(2) Recorded a significant tax benefit in Q1 FY17 of $876.1 million. This significant tax benefit is specifically tied to the Company's internal reorganization and applied to Q1 FY17 only and as a result does not continue in future periods.
(3) Please also see note 14 to the Company's Condensed Consolidated Financial Statements on Form 10-Q. Reflective of the amount of net tax benefit arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period.
Note: Individual line items in tables may be adjusted by non-material amounts to enable totals to align to published financial statements.
*CC: Constant currency for this purpose is defined as the current period reported revenues/expenses/earnings represented at the prior comparative period's foreign exchange rate.
**Annual recurring revenue is defined as the sum of Cloud services and subscriptions revenue and Customer support revenue.
2
OpenText Quarterly Business Highlights
• | 22 customer transactions over $1 million, 10 OpenText Cloud and 12 on-premise |
• | Financial, Consumer Goods, Services, Technology and Public Sector industries saw the most demand in cloud and license |
• | Key customer wins in the quarter included All InBox, City of Philadelphia, Corsair, PFU Limited, Central Provident Fund Board, Airports of Thailand, Progressive Insurance, ADP, Massachusetts Bay Transportation Authority, Nidec Automotive, Blue Shield of California, MUFG Union Bank, Bank Mandiri, West Bend Mutual Insurance Company, National Grid UK, SwissLife, Tieto, McGill University, and United States Census Bureau |
• | Madhu Ranganathan Joins OpenText as Chief Financial Officer |
• | OpenText acquires Hightail, a leading cloud service for file sharing and creative collaboration |
• | OpenText Release 16 EP4 extends security, artificial intelligence (AI), the internet of things (IoT), and cloud support into the market-leading OpenText EIM platform |
• | OpenText Enfuse 2018 to showcase the future of cybersecurity and digital investigations |
• | OpenText Enterprise World 2018 to Showcase the Intelligent and Connected Enterprise |
Dividend Program Highlights
As part of our quarterly, non-cumulative cash dividend program, the Board declared on May 8, 2018 a cash dividend of $0.1518 per common share. The record date for this dividend is June 8, 2018 and the payment date is June 29, 2018. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of the Board of Directors.
Summary of Quarterly Results | |||||||||||||||
Q3 FY18 | Q2 FY18 | Q3 FY17 | % Change (Q3 FY18 vs Q2 FY18) | % Change (Q3 FY18 vs Q3 FY17) | |||||||||||
Revenue (million) | $685.9 | $734.4 | $593.1 | (6.6 | )% | 15.6 | % | ||||||||
GAAP-based gross margin | 64.6 | % | 67.3 | % | 64.5 | % | (270 | ) | bps | 10 | bps | ||||
GAAP-based operating margin | 14.9 | % | 22.7 | % | 11.0 | % | (780 | ) | bps | 390 | bps | ||||
GAAP-based EPS, diluted | $0.22 | $0.32 | $0.08 | (31.3 | )% | 175.0 | % | ||||||||
Non-GAAP-based gross margin (1) | 71.6 | % | 73.9 | % | 71.2 | % | (230 | ) | bps | 40 | bps | ||||
Non-GAAP-based operating margin (1) | 29.8 | % | 36.5 | % | 29.1 | % | (670 | ) | bps | 70 | bps | ||||
Non-GAAP-based EPS, diluted (1)(3) | $0.54 | $0.76 | $0.45 | (28.9 | )% | 20.0 | % | ||||||||
Summary of Year to Date Results | |||||||||
Q3 FY18 YTD | Q3 FY17 YTD | % Change | |||||||
Revenue (million) | $2,061.0 | $1,627.5 | 26.6 | % | |||||
GAAP-based gross margin | 65.7 | % | 66.6 | % | (90 | ) | bps | ||
GAAP-based operating margin | 17.3 | % | 15.1 | % | 220 | bps | |||
GAAP-based EPS, diluted(2) | $0.68 | $3.88 | (82.5 | )% | |||||
Non-GAAP-based gross margin (1) | 72.6 | % | 72.2 | % | 40 | bps | |||
Non-GAAP-based operating margin (1) | 32.7 | % | 31.2 | % | 150 | bps | |||
Non-GAAP-based EPS, diluted (1)(3) | $1.84 | $1.42 | 29.6 | % | |||||
(1) Please see note 2 "Use of Non-GAAP Financial Measures" below
(2) Recorded a significant tax benefit in Q1 FY17 of $876.1 million. This significant tax benefit is specifically tied to the Company's internal reorganization and applied to Q1 FY17 only and as a result does not continue in future periods.
(3) Please also see note 14 to the Company's Condensed Consolidated Financial Statements on Form 10-Q. Reflective of the amount of net tax benefit arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period.
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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 May 9, 2018 at 7:00 p.m. ET through 11:59 p.m. on May 23, 2018 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 2119 followed by the number sign.
Please see below note (2) for a reconciliation of U.S. GAAP-based financial measures used in this press release, to non-U.S. GAAP-based financial measures.
About OpenText
OpenText, The Information Company™, a market leader in Enterprise Information Management software and solutions, enabling companies to manage, leverage, secure and gain insight into their enterprise information, on premises or in the cloud. For more information about OpenText (NASDAQ/TSX: OTEX) visit www.opentext.com.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this press release, including statements about the focus of Open Text Corporation (“OpenText” or “the Company”) in our fiscal year ending June 30, 2018 (Fiscal 2018) on growth in earnings and cash flows, creating value through investments in broader Enterprise Information Management (EIM) capabilities, distribution, the Company's presence in the cloud and in growth markets, expected growth in our revenue lines, total growth from acquisitions, innovation and organic initiatives, and distribution expansion, the focus on recurring revenues, improving efficiency, expanding cash flow and strengthening the business, adjusted operating income and cash flow, its financial condition, the adjusted operating margin target range, results of operations and earnings, announced acquisitions, ongoing tax matters, the integration of the acquired businesses, expected timing, charges and savings related to restructuring activities, declaration of quarterly dividends, future tax rates, new platform and product offerings, scaling OpenText to new levels, and other matters, may contain words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", "may", "could", "would", "might", "will" and variations of these words or similar expressions are considered forward-looking statements or information under applicable securities laws. In addition, any information or statements that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management's perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances, such as certain assumptions about the economy, as well as market, financial and operational assumptions. Management's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and assumptions will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions that may cause the actual results, performance or achievements to differ materially. Such factors include, but are not limited to: (i) the future performance, financial and otherwise, of OpenText; (ii) the ability of OpenText to bring new products and services to market and to increase sales; (iii) the strength of the Company's product development pipeline; (iv) the Company's growth and profitability prospects; (v) the estimated size and growth prospects of the EIM market including expected growth in the Artificial Intelligence market; (vi) the Company's competitive position in the EIM market and its ability to take advantage of future opportunities in this market; (vii) the benefits of the Company's products and services to be realized by customers; (viii) the demand for the Company's products and services and the extent of deployment of the Company's products and services in the EIM marketplace; (ix) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions); (x) the Company's financial condition and capital requirements; and (xi) statements about the impact of product releases. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (ii) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on the Company's outstanding debt securities; (iii) the possibility that the Company may be unable to meet its future reporting requirements under the U.S. Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, or applicable Canadian securities regulation; (iv) the risks associated with
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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);
(vi) fluctuations in currency exchange rates; (vii) delays in the purchasing decisions of the Company's customers; (viii) the competition the Company faces in its industry and/or marketplace; (ix) the final determination of litigation, tax audits (including tax examinations in the United States and elsewhere) and other legal proceedings; (x) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, U.S. or international tax regimes including the new tax reform legislation enacted through the Tax Cuts and Jobs Act in the United States; (xi) the possibility of technical, logistical or planning issues in connection with the deployment of the Company's products or services; (xii) the continuous commitment of the Company's customers; and (xiii) demand for the Company's products and services. For additional information with respect to risks and other factors which could occur, see the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities filings with the Securities and Exchange Commission (SEC) and other securities regulators. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
For more information, please contact:
Greg Secord
Vice President, Investor Relations
Open Text Corporation
415-963-0825
investors@opentext.com
Copyright ©2018 Open Text. OpenText is a trademark or registered trademark of Open Text. The list of trademarks is not exhaustive of other trademarks. Registered trademarks, product names, company names, brands and service names mentioned herein are property of Open Text. All rights reserved. For more information, visit: http://www.opentext.com/who-we-are/copyright-information.
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OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share data)
March 31, 2018 | June 30, 2017 | ||||||
ASSETS | (unaudited) | ||||||
Cash and cash equivalents | $ | 605,497 | $ | 443,357 | |||
Accounts receivable trade, net of allowance for doubtful accounts of $9,007 as of March 31, 2018 and $6,319 as of June 30, 2017 | 515,012 | 445,812 | |||||
Income taxes recoverable | 42,880 | 32,683 | |||||
Prepaid expenses and other current assets | 105,657 | 81,625 | |||||
Total current assets | 1,269,046 | 1,003,477 | |||||
Property and equipment | 264,859 | 227,418 | |||||
Goodwill | 3,592,598 | 3,416,749 | |||||
Acquired intangible assets | 1,391,413 | 1,472,542 | |||||
Deferred tax assets | 1,142,385 | 1,215,712 | |||||
Other assets | 99,732 | 93,763 | |||||
Deferred charges | 39,148 | 42,344 | |||||
Long-term income taxes recoverable | 21,696 | 8,557 | |||||
Total assets | $ | 7,820,877 | $ | 7,480,562 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued liabilities | $ | 295,165 | $ | 342,120 | |||
Current portion of long-term debt | 282,760 | 182,760 | |||||
Deferred revenues | 689,189 | 570,328 | |||||
Income taxes payable | 33,685 | 31,835 | |||||
Total current liabilities | 1,300,799 | 1,127,043 | |||||
Long-term liabilities: | |||||||
Accrued liabilities | 52,688 | 50,338 | |||||
Deferred credits | 3,366 | 5,283 | |||||
Pension liability | 62,996 | 58,627 | |||||
Long-term debt | 2,385,322 | 2,387,057 | |||||
Deferred revenues | 72,176 | 61,678 | |||||
Long-term income taxes payable | 171,174 | 162,493 | |||||
Deferred tax liabilities | 75,376 | 94,724 | |||||
Total long-term liabilities | 2,823,098 | 2,820,200 | |||||
Shareholders' equity: | |||||||
Share capital and additional paid-in capital | |||||||
267,266,442 and 264,059,567 Common Shares issued and outstanding at March 31, 2018 and June 30, 2017, respectively; authorized Common Shares: unlimited | 1,689,997 | 1,613,454 | |||||
Accumulated other comprehensive income | 51,810 | 48,800 | |||||
Retained earnings | 1,973,129 | 1,897,624 | |||||
Treasury stock, at cost (694,169 shares at March 31, 2018 and 1,101,612 at June 30, 2017, respectively) | (18,823 | ) | (27,520 | ) | |||
Total OpenText shareholders' equity | 3,696,113 | 3,532,358 | |||||
Non-controlling interests | 867 | 961 | |||||
Total shareholders' equity | 3,696,980 | 3,533,319 | |||||
Total liabilities and shareholders' equity | $ | 7,820,877 | $ | 7,480,562 | |||
6
OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
(unaudited)
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenues: | |||||||||||||||
License | $ | 84,113 | $ | 87,227 | $ | 297,588 | $ | 245,647 | |||||||
Cloud services and subscriptions | 209,102 | 177,109 | 611,076 | 521,857 | |||||||||||
Customer support | 312,279 | 263,436 | 915,753 | 693,298 | |||||||||||
Professional service and other | 80,385 | 65,358 | 236,554 | 166,701 | |||||||||||
Total revenues | 685,879 | 593,130 | 2,060,971 | 1,627,503 | |||||||||||
Cost of revenues: | |||||||||||||||
License | 3,098 | 4,008 | 10,645 | 10,244 | |||||||||||
Cloud services and subscriptions | 94,264 | 77,225 | 269,012 | 220,667 | |||||||||||
Customer support | 33,820 | 34,442 | 99,805 | 87,529 | |||||||||||
Professional service and other | 64,246 | 55,529 | 188,690 | 137,167 | |||||||||||
Amortization of acquired technology-based intangible assets | 47,303 | 39,285 | 138,391 | 87,268 | |||||||||||
Total cost of revenues | 242,731 | 210,489 | 706,543 | 542,875 | |||||||||||
Gross profit | 443,148 | 382,641 | 1,354,428 | 1,084,628 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 83,522 | 77,086 | 241,455 | 200,379 | |||||||||||
Sales and marketing | 129,987 | 117,498 | 381,951 | 315,297 | |||||||||||
General and administrative | 54,817 | 44,828 | 152,717 | 122,939 | |||||||||||
Depreciation | 23,093 | 16,557 | 64,042 | 47,128 | |||||||||||
Amortization of acquired customer-based intangible assets | 46,762 | 40,825 | 136,819 | 108,248 | |||||||||||
Special charges | 2,644 | 20,586 | 21,390 | 44,157 | |||||||||||
Total operating expenses | 340,825 | 317,380 | 998,374 | 838,148 | |||||||||||
Income from operations | 102,323 | 65,261 | 356,054 | 246,480 | |||||||||||
Other income (expense), net | 11,140 | 1,424 | 26,911 | 4,565 | |||||||||||
Interest and other related expense, net | (34,534 | ) | (31,734 | ) | (101,914 | ) | (86,752 | ) | |||||||
Income before income taxes | 78,929 | 34,951 | 281,051 | 164,293 | |||||||||||
Provision for (recovery of) income taxes | 20,129 | 13,239 | 100,644 | (815,364 | ) | ||||||||||
Net income for the period | $ | 58,800 | $ | 21,712 | $ | 180,407 | $ | 979,657 | |||||||
Net (income) loss attributable to non-controlling interests | (6 | ) | (96 | ) | 94 | (135 | ) | ||||||||
Net income attributable to OpenText | $ | 58,794 | $ | 21,616 | $ | 180,501 | $ | 979,522 | |||||||
Earnings per share—basic attributable to OpenText | $ | 0.22 | $ | 0.08 | $ | 0.68 | $ | 3.91 | |||||||
Earnings per share—diluted attributable to OpenText | $ | 0.22 | $ | 0.08 | $ | 0.68 | $ | 3.88 | |||||||
Weighted average number of Common Shares outstanding—basic | 266,572 | 263,329 | 265,619 | 250,538 | |||||||||||
Weighted average number of Common Shares outstanding—diluted | 267,764 | 265,440 | 266,954 | 252,469 | |||||||||||
Dividends declared per Common Share | $ | 0.1320 | $ | 0.1150 | $ | 0.3960 | $ | 0.3450 | |||||||
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OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
(unaudited)
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income for the period | $ | 58,800 | $ | 21,712 | $ | 180,407 | $ | 979,657 | ||||||||
Other comprehensive income (loss) —net of tax: | ||||||||||||||||
Net foreign currency translation adjustments | 3,823 | 2,725 | 3,283 | (7,582 | ) | |||||||||||
Unrealized gain (loss) on cash flow hedges: | ||||||||||||||||
Unrealized gain (loss) - net of tax expense (recovery) effect of ($338) and $125 for the three months ended March 31, 2018 and 2017, respectively; $65 and ($254) for the nine months ended March 31, 2018 and 2017, respectively | (935 | ) | 348 | 182 | (705 | ) | ||||||||||
(Gain) loss reclassified into net income - net of tax (expense) recovery effect of ($112) and $14 for the three months ended March 31, 2018 and 2017, respectively; ($540) and ($24) for the nine months ended March 31, 2018 and 2017, respectively | (311 | ) | 40 | (1,499 | ) | (68 | ) | |||||||||
Actuarial gain (loss) relating to defined benefit pension plans: | ||||||||||||||||
Actuarial gain (loss) - net of tax expense (recovery) effect of $413 and ($64) for the three months ended March 31, 2018 and 2017, respectively; $177 and $420 for the nine months ended March 31, 2018 and 2017, respectively | 1,648 | 686 | 1,485 | 5,047 | ||||||||||||
Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $45 and $59 for the three months ended March 31, 2018 and 2017, respectively; $130 and $178 for the nine months ended March 31, 2018 and 2017, respectively | 64 | 139 | 176 | 420 | ||||||||||||
Unrealized net gain (loss) on marketable securities - net of tax effect of nil for the three and nine months ended March 31, 2018 and 2017, respectively | — | (541 | ) | — | (141 | ) | ||||||||||
Release of unrealized gain on marketable securities - net of tax effect of nil for the three and nine months ended March 31, 2018 and 2017, respectively | — | — | (617 | ) | — | |||||||||||
Total other comprehensive income (loss) net, for the period | 4,289 | 3,397 | 3,010 | (3,029 | ) | |||||||||||
Total comprehensive income | 63,089 | 25,109 | 183,417 | 976,628 | ||||||||||||
Comprehensive (income) loss attributable to non-controlling interests | (6 | ) | (96 | ) | 94 | (135 | ) | |||||||||
Total comprehensive income attributable to OpenText | $ | 63,083 | $ | 25,013 | $ | 183,511 | $ | 976,493 | ||||||||
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OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(unaudited)
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net income for the period | $ | 58,800 | $ | 21,712 | $ | 180,407 | $ | 979,657 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization of intangible assets | 117,158 | 96,667 | 339,252 | 242,644 | |||||||||||
Share-based compensation expense | 5,080 | 6,661 | 20,473 | 22,373 | |||||||||||
Excess tax expense (benefits) on share-based compensation expense | — | (1,044 | ) | — | (1,586 | ) | |||||||||
Pension expense | 965 | 892 | 2,834 | 2,953 | |||||||||||
Amortization of debt issuance costs | 1,303 | 1,127 | 3,835 | 3,781 | |||||||||||
Amortization of deferred charges and credits | 941 | 2,146 | 3,175 | 6,438 | |||||||||||
Loss on sale and write down of property and equipment | 326 | — | 489 | — | |||||||||||
Release of unrealized gain on marketable securities to income | — | — | (841 | ) | — | ||||||||||
Deferred taxes | 18,266 | (22,011 | ) | 62,640 | (890,244 | ) | |||||||||
Share in net (income) loss of equity investees | 307 | (160 | ) | 503 | (6,153 | ) | |||||||||
Write off of unamortized debt issuance costs | — | 833 | — | 833 | |||||||||||
Other non-cash charges | — | — | — | 1,033 | |||||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Accounts receivable | (6,240 | ) | (37,551 | ) | (55,698 | ) | (37,095 | ) | |||||||
Prepaid expenses and other current assets | (5,152 | ) | (18,119 | ) | (10,535 | ) | (6,234 | ) | |||||||
Income taxes and deferred charges and credits | (23,651 | ) | 11,190 | (22,068 | ) | 1,570 | |||||||||
Accounts payable and accrued liabilities | (19,779 | ) | 40,516 | (92,278 | ) | 16,521 | |||||||||
Deferred revenue | 123,550 | 54,659 | 74,704 | 6,917 | |||||||||||
Other assets | (1,197 | ) | (1,215 | ) | (2,466 | ) | (6,635 | ) | |||||||
Net cash provided by operating activities | 270,677 | 156,303 | 504,426 | 336,773 | |||||||||||
Cash flows from investing activities: | |||||||||||||||
Additions of property and equipment | (27,101 | ) | (17,797 | ) | (83,038 | ) | (50,071 | ) | |||||||
Proceeds from maturity of short-term investments | — | — | — | 9,212 | |||||||||||
Purchase of Hightail Inc. | (20,466 | ) | — | (20,466 | ) | — | |||||||||
Purchase of Guidance Software, net of cash acquired | — | — | (229,275 | ) | — | ||||||||||
Purchase of Covisint Corporation, net of cash acquired | — | — | (71,279 | ) | — | ||||||||||
Purchase of ECD Business | — | (1,622,394 | ) | — | (1,622,394 | ) | |||||||||
Purchase of HP Inc. CCM Business | — | — | — | (315,000 | ) | ||||||||||
Purchase of Recommind, Inc. | — | — | — | (170,107 | ) | ||||||||||
Purchase consideration for acquisitions completed prior to Fiscal 2017 | — | — | — | (7,146 | ) | ||||||||||
Other investing activities | (3,118 | ) | (2,450 | ) | (11,179 | ) | (3,013 | ) | |||||||
Net cash used in investing activities | (50,685 | ) | (1,642,641 | ) | (415,237 | ) | (2,158,519 | ) | |||||||
Cash flows from financing activities: | |||||||||||||||
Excess tax (expense) benefits on share-based compensation expense | — | 1,044 | — | 1,586 | |||||||||||
Proceeds from issuance of long-term debt and revolver | — | 225,000 | 200,000 | 481,875 | |||||||||||
Proceeds from issuance of Common Shares from exercise of stock options and ESPP | 36,442 | 15,967 | 66,064 | 26,668 | |||||||||||
Proceeds from issuance of Common shares under public Equity Offering | — | — | — | 604,223 | |||||||||||
Repayment of long-term debt and revolver | (101,940 | ) | (1,940 | ) | (105,820 | ) | (5,940 | ) | |||||||
Debt issuance costs | — | (2,045 | ) | — | (6,200 | ) | |||||||||
Equity issuance costs | — | (1,345 | ) | — | (19,472 | ) | |||||||||
Purchase of treasury stock | — | (4,245 | ) | — | (4,245 | ) | |||||||||
Payments of dividends to shareholders | (35,168 | ) | (30,303 | ) | (104,996 | ) | (85,953 | ) | |||||||
Net cash provided by (used in) financing activities | (100,666 | ) | 202,133 | 55,248 | 992,542 | ||||||||||
Foreign exchange gain (loss) on cash held in foreign currencies | 10,157 | 10,714 | 17,703 | (5,553 | ) | ||||||||||
Increase (decrease) in cash and cash equivalents during the period | 129,483 | (1,273,491 | ) | 162,140 | (834,757 | ) | |||||||||
Cash and cash equivalents at beginning of the period | 476,014 | 1,722,491 | 443,357 | 1,283,757 | |||||||||||
Cash and cash equivalents at end of the period | $ | 605,497 | $ | 449,000 | $ | 605,497 | $ | 449,000 | |||||||
9
Notes
(1) | All dollar amounts in this press release are in U.S. Dollars unless otherwise indicated. |
(2) | Use of Non-GAAP Financial Measures: In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures that are not in accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company's definition may be different from similar Non-GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus it may be more difficult to compare the Company's financial performance to that of other companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its consolidated financial statements, all of which should be considered when evaluating the Company's results. |
The Company uses these Non-GAAP financial measures to supplement the information provided in its consolidated financial statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures are not meant to be a substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain Non-GAAP measures defined below.
Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are calculated as GAAP-based net income or earnings per share, attributable to OpenText, on a diluted basis, after giving effect to the amortization of acquired intangible assets, other income (expense), share-based compensation, and Special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as income from operations, excluding the amortization of acquired intangible assets, Special charges (recoveries), and share-based compensation expense. Non-GAAP-based operating margin is calculated as Non-GAAP-based income from operations expressed as a percentage of total revenue.
Adjusted earnings (loss) before interest, taxes, depreciation and amortization (Adjusted EBITDA) is calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and Special charges (recoveries).
The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management and is based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports. In the course of such evaluation and for the purpose of making operating decisions, the Company's management excludes certain items from its analysis, including amortization of acquired intangible assets, Special charges (recoveries), share-based compensation, other income (expense), and the taxation impact of these items. These items are excluded based upon the manner in which management evaluates the business of the Company and are not excluded in the sense that they may be used under U.S. GAAP.
The Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results.
The following charts provide (unaudited) reconciliations of U.S. GAAP-based financial measures to Non-U.S. GAAP-based financial measures for the following periods presented:
10
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended March 31, 2018. (In thousands except for per share amounts) | ||||||||||||||
Three Months Ended March 31, 2018 | ||||||||||||||
GAAP-based Measures | GAAP-based Measures % of Total Revenue | Adjustments | Note | Non-GAAP-based Measures | Non-GAAP-based Measures % of Total Revenue | |||||||||
Cost of revenues | ||||||||||||||
Cloud services and subscriptions | $ | 94,264 | $ | (135 | ) | (1) | $ | 94,129 | ||||||
Customer support | 33,820 | (277 | ) | (1) | 33,543 | |||||||||
Professional service and other | 64,246 | (122 | ) | (1) | 64,124 | |||||||||
Amortization of acquired technology-based intangible assets | 47,303 | (47,303 | ) | (2) | — | |||||||||
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) | 443,148 | 64.6 | % | 47,837 | (3) | 490,985 | 71.6 | % | ||||||
Operating expenses | ||||||||||||||
Research and development | 83,522 | (993 | ) | (1) | 82,529 | |||||||||
Sales and marketing | 129,987 | (1,496 | ) | (1) | 128,491 | |||||||||
General and administrative | 54,817 | (2,057 | ) | (1) | 52,760 | |||||||||
Amortization of acquired customer-based intangible assets | 46,762 | (46,762 | ) | (2) | — | |||||||||
Special charges (recoveries) | 2,644 | (2,644 | ) | (4) | — | |||||||||
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%) | 102,323 | 14.9 | % | 101,789 | (5) | 204,112 | 29.8 | % | ||||||
Other income (expense), net | 11,140 | (11,140 | ) | (6) | — | |||||||||
Provision for (recovery of) income taxes | 20,129 | 3,612 | (7) | 23,741 | ||||||||||
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText | 58,794 | 87,037 | (8) | 145,831 | ||||||||||
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText | $ | 0.22 | $ | 0.32 | (8) | $ | 0.54 | |||||||
(1) | Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. |
(2) | Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. |
(3) | GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue. |
(4) | Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include one-time, non-recurring charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results. |
(5) | GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of total revenue. |
(6) | Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. |
(7) | Adjustment relates to differences between the GAAP-based tax provision rate of approximately 26% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded expenses include |
11
amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. We also took into consideration changes in US tax reform legislation that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act.
(8) | Reconciliation of GAAP-based net income to Non-GAAP-based net income: |
Three Months Ended March 31, 2018 | ||||||
Per share diluted | ||||||
GAAP-based net income, attributable to OpenText | $ | 58,794 | $ | 0.22 | ||
Add: | ||||||
Amortization | 94,065 | 0.35 | ||||
Share-based compensation | 5,080 | 0.02 | ||||
Special charges (recoveries) | 2,644 | 0.01 | ||||
Other (income) expense, net | (11,140 | ) | (0.04 | ) | ||
GAAP-based provision for (recovery of) income taxes | 20,129 | 0.07 | ||||
Non-GAAP-based provision for income taxes | (23,741 | ) | (0.09 | ) | ||
Non-GAAP-based net income, attributable to OpenText | $ | 145,831 | $ | 0.54 | ||
Reconciliation of Adjusted EBITDA
Three Months Ended March 31, 2018 | |||
GAAP-based net income, attributable to OpenText | $ | 58,794 | |
Add: | |||
Provision for (recovery of) income taxes | 20,129 | ||
Interest and other related expense, net | 34,534 | ||
Amortization of acquired technology-based intangible assets | 47,303 | ||
Amortization of acquired customer-based intangible assets | 46,762 | ||
Depreciation | 23,093 | ||
Share-based compensation | 5,080 | ||
Special charges (recoveries) | 2,644 | ||
Other (income) expense, net | (11,140 | ) | |
Adjusted EBITDA | $ | 227,199 | |
12
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the nine months ended March 31, 2018. (In thousands except for per share amounts) | ||||||||||||||
Nine Months Ended March 31, 2018 | ||||||||||||||
GAAP-based Measures | GAAP-based Measures % of Total Revenue | Adjustments | Note | Non-GAAP-based Measures | Non-GAAP-based Measures % of Total Revenue | |||||||||
Cost of revenues | ||||||||||||||
Cloud services and subscriptions | $ | 269,012 | $ | (1,119 | ) | (1) | $ | 267,893 | ||||||
Customer support | 99,805 | (933 | ) | (1) | 98,872 | |||||||||
Professional service and other | 188,690 | (1,322 | ) | (1) | 187,368 | |||||||||
Amortization of acquired technology-based intangible assets | 138,391 | (138,391 | ) | (2) | — | |||||||||
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) | 1,354,428 | 65.7 | % | 141,765 | (3) | 1,496,193 | 72.6 | % | ||||||
Operating expenses | ||||||||||||||
Research and development | 241,455 | (4,206 | ) | (1) | 237,249 | |||||||||
Sales and marketing | 381,951 | (6,679 | ) | (1) | 375,272 | |||||||||
General and administrative | 152,717 | (6,214 | ) | (1) | 146,503 | |||||||||
Amortization of acquired customer-based intangible assets | 136,819 | (136,819 | ) | (2) | — | |||||||||
Special charges (recoveries) | 21,390 | (21,390 | ) | (4) | — | |||||||||
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%) | 356,054 | 17.3 | % | 317,073 | (5) | 673,127 | 32.7 | % | ||||||
Other income (expense), net | 26,911 | (26,911 | ) | (6) | — | |||||||||
Provision for (recovery of) income taxes | 100,644 | (20,674 | ) | (7) | 79,970 | |||||||||
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText | 180,501 | 310,836 | (8) | 491,337 | ||||||||||
GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText | $ | 0.68 | $ | 1.16 | (8) | $ | 1.84 | |||||||
(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 one-time, non-recurring charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results. |
(5) | GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of total revenue. |
(6) | Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. |
(7) | Adjustment relates to differences between the GAAP-based tax provision rate of approximately 36% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded expenses include |
13
amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. We also took into consideration changes in US tax reform legislation that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act.
(8) | Reconciliation of GAAP-based net income to Non-GAAP-based net income: |
Nine Months Ended March 31, 2018 | ||||||
Per share diluted | ||||||
GAAP-based net income, attributable to OpenText | $ | 180,501 | $ | 0.68 | ||
Add: | ||||||
Amortization | 275,210 | 1.03 | ||||
Share-based compensation | 20,473 | 0.08 | ||||
Special charges (recoveries) | 21,390 | 0.08 | ||||
Other (income) expense, net | (26,911 | ) | (0.10 | ) | ||
GAAP-based provision for (recovery of) income taxes | 100,644 | 0.37 | ||||
Non-GAAP based provision for income taxes | (79,970 | ) | (0.30 | ) | ||
Non-GAAP-based net income, attributable to OpenText | $ | 491,337 | $ | 1.84 | ||
Reconciliation of Adjusted EBITDA
Nine Months Ended March 31, 2018 | |||
GAAP-based net income, attributable to OpenText | $ | 180,501 | |
Add: | |||
Provision for (recovery of) income taxes | 100,644 | ||
Interest and other related expense, net | 101,914 | ||
Amortization of acquired technology-based intangible assets | 138,391 | ||
Amortization of acquired customer-based intangible assets | 136,819 | ||
Depreciation | 64,042 | ||
Share-based compensation | 20,473 | ||
Special charges (recoveries) | 21,390 | ||
Other (income) expense, net | (26,911 | ) | |
Adjusted EBITDA | $ | 737,263 | |
14
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended December 31, 2017. (In thousands except for per share amounts) | ||||||||||||||
Three Months Ended December 31, 2017 | ||||||||||||||
GAAP-based Measures | GAAP-based Measures % of Total Revenue | Adjustments | Note | Non-GAAP-based Measures | Non-GAAP-based Measures % of Total Revenue | |||||||||
Cost of revenues | ||||||||||||||
Cloud services and subscriptions | $ | 90,418 | $ | (462 | ) | (1) | $ | 89,956 | ||||||
Customer support | 33,194 | (327 | ) | (1) | 32,867 | |||||||||
Professional service and other | 64,985 | (603 | ) | (1) | 64,382 | |||||||||
Amortization of acquired technology-based intangible assets | 47,128 | (47,128 | ) | (2) | — | |||||||||
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) | 494,093 | 67.3 | % | 48,520 | (3) | 542,613 | 73.9 | % | ||||||
Operating expenses | ||||||||||||||
Research and development | 80,304 | (1,587 | ) | (1) | 78,717 | |||||||||
Sales and marketing | 129,142 | (2,095 | ) | (1) | 127,047 | |||||||||
General and administrative | 48,985 | (2,084 | ) | (1) | 46,901 | |||||||||
Amortization of acquired customer-based intangible assets | 46,268 | (46,268 | ) | (2) | — | |||||||||
Special charges (recoveries) | 715 | (715 | ) | (4) | — | |||||||||
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%) | 166,608 | 22.7 | % | 101,269 | (5) | 267,877 | 36.5 | % | ||||||
Other income (expense), net | 5,547 | (5,547 | ) | (6) | — | |||||||||
Provision for (recovery of) income taxes | 53,146 | (22,095 | ) | (7) | 31,051 | |||||||||
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText | 85,111 | 117,817 | (8) | 202,928 | ||||||||||
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText | $ | 0.32 | $ | 0.44 | (8) | $ | 0.76 | |||||||
(1) | Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. |
(2) | Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. |
(3) | GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue. |
(4) | Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include one-time, non-recurring charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results. |
(5) | GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of total revenue. |
(6) | Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. |
(7) | Adjustment relates to differences between the GAAP-based tax provision rate of approximately 38% and a Non-GAAP-based tax rate of approximately 13%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded expenses include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are |
15
tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 13%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. In addition, as a result of the changes in US tax reform legislation that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act, the Company has reassessed its Non-GAAP-based tax rate to be approximately 14% for the six months ended December 31, 2017, down from 15%. Pursuant to this, the Non-GAAP-based tax rate of approximately 13% for the three months ended December 31, 2017 includes a one-time cumulative catch up of recoveries and charges, as though the Company's Non-GAAP-based tax rate was 14% as of July 1, 2017.
(8) | Reconciliation of GAAP-based net income to Non-GAAP-based net income: |
Three Months Ended December 31, 2017 | ||||||
Per share diluted | ||||||
GAAP-based net income, attributable to OpenText | $ | 85,111 | $ | 0.32 | ||
Add: | ||||||
Amortization | 93,396 | 0.35 | ||||
Share-based compensation | 7,158 | 0.03 | ||||
Special charges (recoveries) | 715 | — | ||||
Other (income) expense, net | (5,547 | ) | (0.02 | ) | ||
GAAP-based provision for (recovery of) income taxes | 53,146 | 0.20 | ||||
Non-GAAP-based provision for income taxes | (31,051 | ) | (0.12 | ) | ||
Non-GAAP-based net income, attributable to OpenText | $ | 202,928 | $ | 0.76 | ||
Reconciliation of Adjusted EBITDA
Three Months Ended December 31, 2017 | |||
GAAP-based net income, attributable to OpenText | $ | 85,111 | |
Add: | |||
Provision for (recovery of) income taxes | 53,146 | ||
Interest and other related expense, net | 34,092 | ||
Amortization of acquired technology-based intangible assets | 47,128 | ||
Amortization of acquired customer-based intangible assets | 46,268 | ||
Depreciation | 22,071 | ||
Share-based compensation | 7,158 | ||
Special charges (recoveries) | 715 | ||
Other (income) expense, net | (5,547 | ) | |
Adjusted EBITDA | $ | 290,142 | |
16
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended March 31, 2017. (In thousands except for per share amounts) | ||||||||||||||
Three Months Ended March 31, 2017 | ||||||||||||||
GAAP-based Measures | GAAP-based Measures % of Total Revenue | Adjustments | Note | Non-GAAP-based Measures | Non-GAAP-based Measures % of Total Revenue | |||||||||
Cost of revenues | ||||||||||||||
Cloud services and subscriptions | $ | 77,225 | $ | (268 | ) | (1) | $ | 76,957 | ||||||
Customer support | 34,442 | (261 | ) | (1) | 34,181 | |||||||||
Professional service and other | 55,529 | (89 | ) | (1) | 55,440 | |||||||||
Amortization of acquired technology-based intangible assets | 39,285 | (39,285 | ) | (2) | — | |||||||||
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) | 382,641 | 64.5 | % | 39,903 | (3) | 422,544 | 71.2 | % | ||||||
Operating expenses | ||||||||||||||
Research and development | 77,086 | (1,634 | ) | (1) | 75,452 | |||||||||
Sales and marketing | 117,498 | (2,081 | ) | (1) | 115,417 | |||||||||
General and administrative | 44,828 | (2,328 | ) | (1) | 42,500 | |||||||||
Amortization of acquired customer-based intangible assets | 40,825 | (40,825 | ) | (2) | — | |||||||||
Special charges (recoveries) | 20,586 | (20,586 | ) | (4) | — | |||||||||
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%) | 65,261 | 11.0 | % | 107,357 | (5) | 172,618 | 29.1 | % | ||||||
Other income (expense), net | 1,424 | (1,424 | ) | (6) | — | |||||||||
Provision for (recovery of) income taxes | 13,239 | 7,798 | (7) | 21,037 | ||||||||||
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText | 21,616 | 98,135 | (8) | 119,751 | ||||||||||
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText | $ | 0.08 | $ | 0.37 | (8) | $ | 0.45 | |||||||
(1) | Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. |
(2) | Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. |
(3) | GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue. |
(4) | Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include one-time, non-recurring charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results. |
(5) | GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of total revenue. |
(6) | Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. |
(7) | Adjustment relates to differences between the GAAP-based tax provision rate of approximately 38% and a Non-GAAP-based tax rate of approximately 15%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded expenses include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are |
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tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 15%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.
(8) | Reconciliation of GAAP-based net income to Non-GAAP-based net income: |
Three Months Ended March 31, 2017 | ||||||
Per share diluted | ||||||
GAAP-based net income, attributable to OpenText | $ | 21,616 | $ | 0.08 | ||
Add: | ||||||
Amortization | 80,110 | 0.30 | ||||
Share-based compensation | 6,661 | 0.03 | ||||
Special charges (recoveries) | 20,586 | 0.08 | ||||
Other (income) expense, net | (1,424 | ) | (0.01 | ) | ||
GAAP-based provision for (recovery of) income taxes | 13,239 | 0.05 | ||||
Non-GAAP-based provision for income taxes | (21,037 | ) | (0.08 | ) | ||
Non-GAAP-based net income, attributable to OpenText | $ | 119,751 | $ | 0.45 | ||
Reconciliation of Adjusted EBITDA
Three months ended March 31, 2017 | |||
GAAP-based net income, attributable to OpenText | $ | 21,616 | |
Add: | |||
Provision for (recovery of) income taxes | 13,239 | ||
Interest and other related expense, net | 31,734 | ||
Amortization of acquired technology-based intangible assets | 39,285 | ||
Amortization of acquired customer-based intangible assets | 40,825 | ||
Depreciation | 16,557 | ||
Share-based compensation | 6,661 | ||
Special charges (recoveries) | 20,586 | ||
Other (income) expense, net | (1,424 | ) | |
Adjusted EBITDA | $ | 189,079 | |
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Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the nine months ended March 31, 2017. (In thousands except for per share amounts) | ||||||||||||||
Nine Months Ended March 31, 2017 | ||||||||||||||
GAAP-based Measures | GAAP-based Measures % of Total Revenue | Adjustments | Note | Non-GAAP-based Measures | Non-GAAP-based Measures % of Total Revenue | |||||||||
Cost of revenues: | ||||||||||||||
Cloud services and subscriptions | $ | 220,667 | $ | (839 | ) | (1) | $ | 219,828 | ||||||
Customer support | 87,529 | (766 | ) | (1) | 86,763 | |||||||||
Professional service and other | 137,167 | (1,002 | ) | (1) | 136,165 | |||||||||
Amortization of acquired technology-based intangible assets | 87,268 | (87,268 | ) | (2) | — | |||||||||
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) | 1,084,628 | 66.6 | % | 89,875 | (3) | 1,174,503 | 72.2 | % | ||||||
Operating expenses | ||||||||||||||
Research and development | 200,379 | (5,372 | ) | (1) | 195,007 | |||||||||
Sales and marketing | 315,297 | (7,230 | ) | (1) | 308,067 | |||||||||
General and administrative | 122,939 | (7,164 | ) | (1) | 115,775 | |||||||||
Amortization of acquired customer-based intangible assets | 108,248 | (108,248 | ) | (2) | — | |||||||||
Special charges (recoveries) | 44,157 | (44,157 | ) | (4) | — | |||||||||
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%) | 246,480 | 15.1 | % | 262,046 | (5) | 508,526 | 31.2 | % | ||||||
Other income (expense), net | 4,565 | (4,565 | ) | (6) | — | |||||||||
Provision for (recovery of) income taxes | (815,364 | ) | 878,495 | (7) | 63,131 | |||||||||
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText | 979,522 | (621,014 | ) | (8) | 358,508 | |||||||||
GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText | $ | 3.88 | $ | (2.46 | ) | (8) | $ | 1.42 | ||||||
(1) | Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. |
(2) | Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. |
(3) | GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue. |
(4) | Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include one-time, non-recurring charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results. |
(5) | GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of total revenue. |
(6) | Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. |
(7) | Adjustment relates to differences between the GAAP-based tax recovery rate of approximately 496% and a Non-GAAP-based tax rate of approximately 15%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded expenses include |
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amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of 15%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.
(8) | Reconciliation of GAAP-based net income to Non-GAAP-based net income: |
Nine Months Ended March 31, 2017 | ||||||
Per share diluted | ||||||
GAAP-based net income, attributable to OpenText | $ | 979,522 | $ | 3.88 | ||
Add: | ||||||
Amortization | 195,516 | 0.77 | ||||
Share-based compensation | 22,373 | 0.09 | ||||
Special charges (recoveries) | 44,157 | 0.17 | ||||
Other (income) expense, net | (4,565 | ) | (0.02 | ) | ||
GAAP-based provision for (recovery of) income taxes | (815,364 | ) | (3.23 | ) | ||
Non-GAAP based provision for income taxes | (63,131 | ) | (0.24 | ) | ||
Non-GAAP-based net income, attributable to OpenText | $ | 358,508 | $ | 1.42 | ||
Reconciliation of Adjusted EBITDA
Nine Months Ended March 31, 2017 | |||
GAAP-based net income, attributable to OpenText | $ | 979,522 | |
Add: | |||
Provision for (recovery of) income taxes | (815,364 | ) | |
Interest and other related expense, net | 86,752 | ||
Amortization of acquired technology-based intangible assets | 87,268 | ||
Amortization of acquired customer-based intangible assets | 108,248 | ||
Depreciation | 47,128 | ||
Share-based compensation | 22,373 | ||
Special charges (recoveries) | 44,157 | ||
Other (income) expense, net | (4,565 | ) | |
Adjusted EBITDA | $ | 555,519 | |
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(3) | The following tables provide a composition of our major currencies for revenue and expenses, expressed as a percentage, for the three and nine months ended March 31, 2018 and 2017: |
Three Months Ended March 31, 2018 | Three Months Ended March 31, 2017 | ||||||||
Currencies | % of Revenue | % of Expenses* | % of Revenue | % of Expenses* | |||||
EURO | 22 | % | 15 | % | 19 | % | 15 | % | |
GBP | 6 | % | 6 | % | 6 | % | 7 | % | |
CAD | 4 | % | 11 | % | 4 | % | 11 | % | |
USD | 58 | % | 50 | % | 62 | % | 52 | % | |
Other | 10 | % | 18 | % | 9 | % | 15 | % | |
Total | 100 | % | 100 | % | 100 | % | 100 | % | |
Nine Months Ended March 31, 2018 | Nine Months Ended March 31, 2017 | ||||||||
Currencies | % of Revenue | % of Expenses* | % of Revenue | % of Expenses* | |||||
EURO | 22 | % | 15 | % | 22 | % | 15 | % | |
GBP | 6 | % | 6 | % | 7 | % | 7 | % | |
CAD | 4 | % | 11 | % | 4 | % | 11 | % | |
USD | 58 | % | 51 | % | 58 | % | 52 | % | |
Other | 10 | % | 17 | % | 9 | % | 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 (recoveries).
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