OpenText Reports Second Quarter Fiscal Year 2016 Financial Results

- Total Revenue of USD $465.3 Million, Down 1%; Up 6% Y/Y in CC*

- Non-GAAP-based Operating Margin of 37%

- Release 16 on schedule for General Availability

WATERLOO, Ontario, Feb. 9, 2016 /PRNewswire/ -- Open Text Corporation (NASDAQ: OTEX) (TSX: OTC) announced today its financial results for the second quarter ended December 31, 2015.

"The strength of Fiscal 2016 Q2 shows the potential of digital transformation for our customers and the OpenText business model: total revenues of $465.3 million were up 6% in constant currency, year-over-year; 82% of our total revenue was recurring; and adjusted operating income of $172 million was up 12% year-over-year," said OpenText CEO and CTO Mark J. Barrenechea.  "Release 16 is the world's first digital platform, and we plan on making strategic investments in the coming quarters to enable our install-base, new customers and partners to fully capture the power of our next generation platform."

Barrenechea further added, "Our business model is guided by the OpenText Intelligent Growth System. We remain strategically focused on customer-driven innovation, leadership in our key markets, profitable organic growth, acquisitions, cash flow expansion, and operating excellence. In these times of economic uncertainty, I see incredible opportunity with our next generation platform Release 16, our business model and EIM platform expansion." 

Financial Highlights for Q2 FY16 with Year Over Year Comparisons (1)

Summary of Quarterly Results

Q2 FY16

Q2 FY15

$Change

% Change

Q2 FY16 in CC*

% Change in CC*

(Y/Y)

Revenues: (in millions)

Cloud services and subscriptions

$149.1

$154.8

($5.7)

(3.7)%

$156.1

0.8%

Customer support

184.1

179.5

4.6

2.6%

196.2

9.3%

Professional service and other

50.3

58.2

(7.9)

(13.7)%

54.8

(5.8)%

Total Recurring revenues

$383.5

$392.5

($9.0)

(2.3)%

$407.1

3.7%

License

81.9

75.4

6.5

8.6%

89.8

19.1%

Total revenues

$465.3

$467.8

($2.5)

(0.5)%

$496.9

6.2%

Non-GAAP-based operating margin(2)

37.0%

32.8%

n/a

420 bps

36.9%

GAAP-based operating margin

23.6%

23.6%

n/a

— bps

Non-GAAP-based EPS, diluted (2)

$1.01

$0.97

$0.04

4.1%

$1.08

11.3%

GAAP-based EPS, diluted

$0.72

$0.60

$0.12

20.0%

Operating cash flows (in millions)

$123.9

$109.6

$14.3

13.1%

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

"I am pleased with our adjusted operating income and cash flow performance this quarter. The results reflect strong business execution and our continued focus on the metrics that matter most, margins, cash flow and a strong liquidity position. It is a positive first half to Fiscal 2016 and provides a solid base to deliver on the year's operating plan.  As we look to deliver and invest in Release 16, coupled with the current economic uncertainty, we are maintaining our target model" said OpenText CFO John Doolittle

*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.

 

OpenText Quarterly Business Highlights

  • CEO assumes additional role of Chief Technology Officer
  • Appointment of Steven Murphy as President; executive promotions of Muhi Majzoub, John Doolittle and Gordon Davies
  • 16 customer transactions over $1 million, 7 cloud contract signings in the OpenText Cloud and 9 on-premises
  • Financial, services and technology industries saw the most demand
  • Cloud customer successes in the quarter include O.C. Tanner, Schneider Electric, Elcom, Ayuntamiento de Barcelona (Barcelona City Council), Engie E&P, Shiseido Europe and The Greater Toronto Airports Authority
  • Creates secure, dedicated European data zone for cloud operations
  • On-premises customer successes in the quarter include Hy Cite Enterprises, City of San Diego, Elmü, B. Braun, National Commercial Bank, Mobis Parts Australia Pty (Mobis), Alberta Energy Regulator, Pirelli Tyre S.P.A., Banque de France, ERGO Insurance AG Austria, Region Skåne and Stadtwerke München
  • Buys Daegis Inc.
  • Named a leader in Gartner's Magic Quadrant for Enterprise Content Management and for Customer Communications Management Software
  • Named one of Canada's Top 100 Employers for the fifth consecutive year

Dividend Program Highlights

Cash Dividend As part of our quarterly, non cumulative cash dividend program the Board declared on February 8, 2016 a cash dividend of $0.20 per Common Share. The record date for this dividend is March 10, 2016 and the payment date is March 31, 2016. 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 FY16

Q1 FY16

Q2 FY15

% Change

(Q2 FY16 vs Q1 FY16)

% Change

(Q2 FY16 vs Q2 FY15)

Revenue (million)

$465.3

$434.5

$467.8

7.1%

(0.5)%

GAAP-based gross margin

70.0%

67.8%

68.3%

220

bps

170

bps

GAAP-based operating margin

23.6%

17.6%

23.6%

600

bps

bps

GAAP-based EPS, diluted

$0.72

$0.34

$0.60

111.8%

20.0%

Non-GAAP-based gross margin (2)

74.2%

72.6%

72.3%

160

bps

190

bps

Non-GAAP-based operating margin (2)

37.0%

34.1%

32.8%

290

bps

420

bps

Non-GAAP-based EPS, diluted (2)

$1.01

$0.84

$0.97

20.2%

4.1%

 

Summary of Year to Date Results

Q2 FY16 YTD

Q2 FY15 YTD

$ Change

% Change

Revenues: (in millions)

Cloud services and subscriptions

$296.9

$308.8

($11.9)

(3.9)%

Customer support

369.8

363.4

6.4

1.8%

Professional service and other

100.0

115.9

(15.9)

(13.7)%

Total Recurring revenues

$766.7

$788.1

($21.4)

(2.7)%

License

133.2

133.6

(0.4)

(0.3)%

Total revenues

$899.9

$921.6

($21.7)

(2.4)%

Non-GAAP-based operating margin(2)

35.6%

33.5%

n/a    

210

bps

GAAP-based operating margin

20.7%

23.2%

n/a    

(250)

bps

Non-GAAP-based EPS, diluted (2)

$1.85

$1.93

($0.08)

(4.1)%

GAAP-based EPS, diluted

$1.06

$1.13

($0.07)

(6.2)%

Operating cash flows (in millions)

$216.7

$248.1

($31.4)

(12.7)%

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 February 9, 2016 at 7:00 p.m. ET through 11:59 p.m. February 23, 2016 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 00153 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.

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 2016 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, ongoing tax matters, purchases of common shares by OpenText pursuant to the NCIB, 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. OTEX-F

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

Copyright ©2016 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.

 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

December 31, 2015

June 30, 2015

(unaudited)

ASSETS

Cash and cash equivalents

$

725,963

$

699,999

Short-term investments

16,271

11,166

Accounts receivable trade, net of allowance for doubtful accounts of $7,467 as of December 31, 2015 and $5,987 as of June 30, 2015

278,635

284,131

Income taxes recoverable

15,380

21,151

Prepaid expenses and other current assets

53,020

53,191

Deferred tax assets

33,394

30,711

Total current assets

1,122,663

1,100,349

Property and equipment

161,675

160,419

Goodwill

2,169,637

2,161,592

Acquired intangible assets

604,167

679,479

Deferred tax assets

149,561

155,411

Other assets

74,178

85,576

Deferred charges

30,374

37,265

Long-term income taxes recoverable

8,518

8,404

Total assets

$

4,320,773

$

4,388,495

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

227,148

$

241,370

Current portion of long-term debt

8,000

8,000

Deferred revenues

306,159

358,066

Income taxes payable

17,800

17,001

Deferred tax liabilities

734

997

Total current liabilities

559,841

625,434

Long-term liabilities:

Accrued liabilities

31,514

34,682

Deferred credits

10,650

12,943

Pension liability

54,842

56,737

Long-term debt

1,576,000

1,580,000

Deferred revenues

33,115

28,223

Long-term income taxes payable

141,205

151,484

Deferred tax liabilities

59,753

69,185

Total long-term liabilities

1,907,079

1,933,254

Shareholders' equity:

Share capital

121,094,990 and 122,293,986 Common Shares issued and outstanding at December 31, 2015 and June 30, 2015, respectively; Authorized Common Shares: unlimited

806,143

808,010

Additional paid-in capital

134,470

126,417

Accumulated other comprehensive income

49,376

51,828

Retained earnings

888,775

863,015

Treasury stock, at cost (643,647 shares at December 31, 2015 and 625,725 at June 30, 2015, respectively)

(25,515)

(19,986)

Total OpenText shareholders' equity

1,853,249

1,829,284

Non-controlling interests

604

523

Total shareholders' equity

1,853,853

1,829,807

Total liabilities and shareholders' equity

$

4,320,773

$

4,388,495

 

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,

2015

2014

2015

2014

Revenues:

License

$

81,856

$

75,381

$

133,187

$

133,576

Cloud services and subscriptions

149,099

154,776

296,889

308,829

Customer support

184,137

179,466

369,804

363,372

Professional service and other

50,255

58,222

100,002

115,855

Total revenues

465,347

467,845

899,882

921,632

Cost of revenues:

License

2,029

3,411

4,710

6,408

Cloud services and subscriptions

58,918

58,533

117,834

118,110

Customer support

21,689

23,831

42,197

46,794

Professional service and other

38,375

44,406

76,439

87,603

Amortization of acquired technology-based intangible assets

18,731

18,206

38,614

36,412

Total cost of revenues

139,742

148,387

279,794

295,327

Gross profit

325,605

319,458

620,088

626,305

Operating expenses:

Research and development

45,710

46,170

92,150

90,912

Sales and marketing

85,875

90,980

163,820

172,021

General and administrative

33,767

39,667

69,336

75,410

Depreciation

13,330

12,465

26,244

24,707

Amortization of acquired customer-based intangible assets

27,793

25,364

55,598

51,248

Special charges (recoveries)

9,088

(5,759)

26,425

(1,590)

Total operating expenses

215,563

208,887

433,573

412,708

Income from operations

110,042

110,571

186,515

213,597

Other income (expense), net

961

(9,314)

(3,952)

(19,187)

Interest and other related expense, net

(19,187)

(8,455)

(38,233)

(19,554)

Income before income taxes

91,816

92,802

144,330

174,856

Provision for income taxes

4,074

18,308

15,276

35,710

Net income for the period

$

87,742

$

74,494

$

129,054

$

139,146

Net income attributable to non-controlling interests

(56)

(207)

(82)

(233)

Net income attributable to OpenText

$

87,686

$

74,287

$

128,972

$

138,913

Earnings per share—basic attributable to OpenText

$

0.72

$

0.61

$

1.06

$

1.14

Earnings per share—diluted attributable to OpenText

$

0.72

$

0.60

$

1.06

$

1.13

Weighted average number of Common Shares outstanding—basic

121,246

122,051

121,699

121,984

Weighted average number of Common Shares outstanding—diluted

121,792

122,985

122,216

122,934

Dividends declared per Common Share

$

0.2000

$

0.1725

$

0.4000

$

0.3450

 

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,

2015

2014

2015

2014

Net income for the period

$

87,742

$

74,494

$

129,054

$

139,146

Other comprehensive income—net of tax:

Net foreign currency translation adjustments

(2,751)

5,241

(1,028)

8,346

Unrealized gain (loss) on cash flow hedges:

Unrealized loss

(1,429)

(1,316)

(4,819)

(4,216)

Loss reclassified into net income

814

944

1,326

997

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

Actuarial gain (loss)

648

(3,937)

1,761

(7,055)

Amortization of actuarial loss into net income

90

84

173

205

Unrealized net gain on short-term investments

120

135

Unrealized gain on marketable securities (Actuate)

2,400

1,906

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

(2,508)

3,416

(2,452)

183

Total comprehensive income

85,234

77,910

126,602

139,329

Comprehensive income attributable to non-controlling interests

(56)

(207)

(82)

(233)

Total comprehensive income attributable to OpenText

$

85,178

$

77,703

$

126,520

$

139,096

 

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,

2015

2014

2015

2014

Cash flows from operating activities:

Net income for the period

$

87,742

$

74,494

$

129,054

$

139,146

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

Depreciation and amortization of intangible assets

59,854

56,035

120,456

112,367

Share-based compensation expense

6,581

4,929

13,114

9,378

Excess tax benefits on share-based compensation expense

(256)

(1,232)

(40)

(1,627)

Pension expense

1,158

1,202

2,325

2,422

Amortization of debt issuance costs

1,156

1,132

2,312

2,275

Amortization of deferred charges and credits

1,981

2,632

4,598

5,263

Loss on sale and write down of property and equipment

890

890

Deferred taxes

(3,685)

2,764

(7,869)

1,219

Changes in operating assets and liabilities:

Accounts receivable

(41,226)

(15,294)

10,880

40,249

Prepaid expenses and other current assets

(5,221)

(548)

613

(697)

Income taxes

(3,503)

(6,207)

294

11,599

Accounts payable and accrued liabilities

33,503

(3,187)

(14,819)

(37,326)

Deferred revenue

(16,280)

(5,990)

(48,673)

(32,745)

Other assets

1,242

(1,158)

3,523

(3,420)

Net cash provided by operating activities

123,936

109,572

216,658

248,103

Cash flows from investing activities:

Additions of property and equipment

(12,702)

(18,026)

(29,899)

(48,261)

Proceeds from maturity of short-term investments

3,069

5,324

Purchase of Daegis Inc., net of cash acquired

(22,146)

(22,146)

Purchase of Actuate Corporation, net of cash acquired

(43)

(7,744)

Purchase of a division of Spicer Corporation

(222)

(222)

Purchase of Informative Graphics Corporation, net of cash acquired

(88)

Purchase of ICCM Professional Services Limited, net of cash acquired

(2,027)

Purchase consideration for prior period acquisitions

(221)

(443)

Other investing activities

(2,754)

(1,059)

(3,680)

(8,433)

Net cash used in investing activities

(34,576)

(19,528)

(60,260)

(57,359)

Cash flows from financing activities:

Excess tax benefits on share-based compensation expense

256

1,232

40

1,627

Proceeds from issuance of Common Shares

2,736

2,039

7,988

9,138

Purchase of Treasury Stock

(10,627)

(10,627)

Common Shares repurchased

(15,483)

(65,509)

Repayment of long-term debt

(2,000)

(13,413)

(4,000)

(26,830)

Debt issuance costs

(1,220)

(1,403)

Payments of dividends to shareholders

(24,216)

(21,054)

(47,528)

(42,099)

Net cash used in financing activities

(49,334)

(32,416)

(119,636)

(59,567)

Foreign exchange loss on cash held in foreign currencies

(4,848)

(7,304)

(10,798)

(16,257)

Increase in cash and cash equivalents during the period

35,178

50,324

25,964

114,920

Cash and cash equivalents at beginning of the period

690,785

492,486

699,999

427,890

Cash and cash equivalents at end of the period

$

725,963

$

542,810

$

725,963

$

542,810

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:

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended December 31, 2015.

(In thousands except for per share amounts)

Three Months Ended December 31, 2015

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 and subscriptions

$

58,918

$

(158)

(1)

$

58,760

Customer support

21,689

(258)

(1)

21,431

Professional service and other

38,375

(386)

(1)

37,989

Amortization of acquired technology-based intangible assets

18,731

(18,731)

(2)

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

325,605

70.0

%

19,533

(3)

345,138

74.2

%

Operating expenses

Research and development

45,710

(736)

(1)

44,974

Sales and marketing

85,875

(2,715)

(1)

83,160

General and administrative

33,767

(2,328)

(1)

31,439

Amortization of acquired customer-based intangible assets

27,793

(27,793)

(2)

Special charges (recoveries)

9,088

(9,088)

(4)

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

110,042

23.6

%

62,193

(5)

172,235

37.0

%

Other income (expense), net

961

(961)

(6)

Provision for (recovery of) income taxes

4,074

26,480

(7)

30,554

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

87,686

34,752

(8)

122,438

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

$

0.72

$

0.29

(8)

$

1.01

(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 rate of approximately 4% and a non-GAAP-based tax rate of 20%; 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 and other income (expense), net. Also excluded are tax expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, tax arising on internal reorganizations, and "book to return" adjustments for tax return filings and tax assessments (in total "adjusted expenses"). In arriving at our non-GAAP-based tax rate of 20%, 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 Non-GAAP-based adjusted net income to GAAP-based net income:

 

Three Months Ended December 31, 2015

Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

122,438

$

1.01

Less:

Amortization

46,524

0.38

Share-based compensation

6,581

0.05

Special charges (recoveries)

9,088

0.07

Other (income) expense, net

(961)

(0.01)

GAAP-based provision for (recovery of) income taxes

4,074

0.03

Non-GAAP based provision for income taxes

(30,554)

(0.23)

GAAP-based net income, attributable to OpenText

$

87,686

$

0.72

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the six months ended December 31, 2015.

(In thousands except for per share amounts)

Six Months Ended December 31, 2015

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 and subscriptions

$

117,834

$

(439)

(1)

$

117,395

Customer support

42,197

(416)

(1)

41,781

Professional service and other

76,439

(839)

(1)

75,600

Amortization of acquired technology-based intangible assets

38,614

(38,614)

(2)

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

620,088

68.9

%

40,308

(3)

660,396

73.4

%

Operating expenses

Research and development

92,150

(1,488)

(1)

90,662

Sales and marketing

163,820

(5,830)

(1)

157,990

General and administrative

69,336

(4,102)

(1)

65,234

Amortization of acquired customer-based intangible assets

55,598

(55,598)

(2)

Special charges (recoveries)

26,425

(26,425)

(4)

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

186,515

20.7

%

133,751

(5)

320,266

35.6

%

Other income (expense), net

(3,952)

3,952

(6)

Provision for (recovery of) income taxes

15,276

41,049

(7)

56,325

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

128,972

96,654

(8)

225,626

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

$

1.06

$

0.79

(8)

$

1.85

(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 rate of approximately 11% and a non-GAAP-based tax rate of 20%; 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 and other income (expense), net. Also excluded are tax expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, tax arising on internal reorganizations, and "book to return" adjustments for tax return filings and tax assessments (in total "adjusted expenses"). In arriving at our non-GAAP-based tax rate of 20%, 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 Non-GAAP-based adjusted net income to GAAP-based net income:

 

Six Months Ended December 31, 2015

Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

225,626

$

1.85

Less:

Amortization

94,212

0.77

Share-based compensation

13,114

0.11

Special charges (recoveries)

26,425

0.22

Other (income) expense, net

3,952

0.03

GAAP-based provision for (recovery of) income taxes

15,276

0.12

Non-GAAP based provision for income taxes

(56,325)

(0.46)

GAAP-based net income, attributable to OpenText

$

128,972

$

1.06

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended September 30, 2015.

(In thousands except for per share amounts)

Three Months Ended September 30, 2015

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 and subscriptions

$

58,916

$

(281)

(1)

$

58,635

Customer support

20,508

(158)

(1)

20,350

Professional service and other

38,064

(453)

(1)

37,611

Amortization of acquired technology-based intangible assets

19,883

(19,883)

(2)

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

294,483

67.8

%

20,775

(3)

315,258

72.6

%

Operating expenses

Research and development

46,440

(752)

(1)

45,688

Sales and marketing

77,945

(3,115)

(1)

74,830

General and administrative

35,569

(1,774)

(1)

33,795

Amortization of acquired customer-based intangible assets

27,805

(27,805)

(2)

Special charges (recoveries)

17,337

(17,337)

(4)

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

76,473

17.6

%

71,558

(5)

148,031

34.1

%

Other income (expense), net

(4,913)

4,913

(6)

Provision for (recovery of) income taxes

11,202

14,569

(7)

25,771

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

41,286

61,902

(8)

103,188

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

$

0.34

$

0.50

(8)

$

0.84

(1)

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

(2)

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

(3)

GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of 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 rate of approximately 21% and a non-GAAP-based tax rate of 20%; 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 and other income (expense), net. Also excluded are tax expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, tax arising on internal reorganizations, and "book to return" adjustments for tax return filings and tax assessments (in total "adjusted expenses"). In arriving at our non-GAAP-based tax rate of 20%, 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 Non-GAAP-based adjusted net income to GAAP-based net income:

 

Three Months Ended September 30, 2015

Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

103,188

$

0.84

Less:

Amortization

47,688

0.39

Share-based compensation

6,533

0.05

Special charges (recoveries)

17,337

0.14

Other (income) expense, net

4,913

0.04

GAAP-based provision for (recovery of) income taxes

11,202

0.09

Non-GAAP based provision for income taxes

(25,771)

(0.21)

GAAP-based net income, attributable to OpenText

$

41,286

$

0.34

 

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 and subscriptions

$

58,533

$

(186)

(1)

$

58,347

Customer support

23,831

(234)

(1)

23,597

Professional service and other

44,406

(335)

(1)

44,071

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 (%)

319,458

68.3

%

18,961

(3)

338,419

72.3

%

Operating expenses

Research and development

46,170

(614)

(1)

45,556

Sales and marketing

90,980

(2,594)

(1)

88,386

General and administrative

39,667

(966)

(1)

38,701

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 rate 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. Such excluded expenses include amortization, share-based compensation, special charges and other income (expense), net. Also excluded are tax expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, tax arising on internal reorganizations, and "book to return" adjustments for tax return filings and tax assessments (in total "adjusted expenses"). In arriving at our non-GAAP-based tax rate of 18%, 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 Non-GAAP-based adjusted net income to GAAP-based net income:

 

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

 

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 and subscriptions

$

118,110

$

(399)

(1)

$

117,711

Customer support

46,794

(408)

(1)

46,386

Professional service and other

87,603

(598)

(1)

87,005

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 (%)

626,305

68.0

%

37,817

(3)

664,122

72.1

%

Operating expenses

Research and development

90,912

(1,177)

(1)

89,735

Sales and marketing

172,021

(4,668)

(1)

167,353

General and administrative

75,410

(2,128)

(1)

73,282

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 rate 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. Such excluded expenses include amortization, share-based compensation, special charges and other income (expense), net. Also excluded are tax expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, tax arising on internal reorganizations, and "book to return" adjustments for tax return filings and tax assessments (in total "adjusted expenses"). In arriving at our non-GAAP-based tax rate of 18%, 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 Non-GAAP-based adjusted net income to GAAP-based net income:

 

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

 

(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, 2015 and 2014:

Three Months Ended December 31, 2015

Three Months Ended December 31, 2014

Currencies

% of Revenue 

% of Expenses* 

% of Revenue 

% of Expenses* 

EURO

25

%

14

%

24

%

16

%

GBP

8

%

8

%

9

%

8

%

CAD

5

%

11

%

5

%

12

%

USD

52

%

50

%

50

%

48

%

Other

10

%

17

%

12

%

16

%

Total

100

%

100

%

100

%

100

%

 

Six Months Ended December 31, 2015

Six Months Ended December 31, 2014

Currencies

% of Revenue 

% of Expenses* 

% of Revenue 

% of Expenses* 

EURO

24

%

14

%

25

%

15

%

GBP

9

%

8

%

8

%

9

%

CAD

4

%

12

%

5

%

12

%

USD

53

%

50

%

50

%

46

%

Other

10

%

16

%

12

%

18

%

Total

100

%

100

%

100

%

100

%

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

 

SOURCE Open Text Corporation


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