OpenText Reports Second Quarter Fiscal Year 2017 Financial Results

WATERLOO, Ontario, Feb. 2, 2017 /CNW/ --

  • Total revenue of $543 million, up 17% Y/Y
  • Recurring revenues of $445 million, up 16% Y/Y
  • Cloud services and subscription revenue of $175 million, up 17% Y/Y
  • License revenue of $98 million, up 19% Y/Y
  • GAAP-based EPS, diluted of $0.18 on a post share split basis, down 50% Y/Y (up 634% YTD)
  • Non-GAAP-based EPS, diluted of $0.54 on a post share split basis, up 8% Y/Y (up 5% YTD)
  • The public offering of common shares in the quarter diluted both GAAP-based and Non-GAAP-based EPS by approximately $0.01 on a post share split basis

Open Text Corporation (NASDAQ: OTEX) (TSX: OTC) announced today its financial results for the second quarter ended December 31, 2016.

"OpenText delivered record revenue of $543 million in the second quarter of Fiscal 2017, up 17% year over year, with solid operational performance of 34% adjusted operating margin," said OpenText CEO and CTO Mark J. Barrenechea. "We made significant progress in advancing our vision, products and market reach over the last 12 months, and it is reflected in our financial results."

"Businesses in all industries are transforming into software and analytic companies and Enterprise Information Management ("EIM") is a key platform in enabling that transformation. The very nature of work has changed, and customers are seeking new platforms for content services, customer experience, supply chains, with discovery and analytics," said Barrenechea. "Customers are seeing greater value from Digitalization, and with Release 16 and our recent acquisitions, OpenText is well positioned to enable the next wave of digital transformation."

On January 23, 2017, OpenText completed the acquisition of Dell-EMC's Enterprise Content Division ("ECD Business"), including Documentum.

Mr. Barrenechea added, "OpenText, with great enthusiasm, welcomes our new Documentum and ECD employees, customers, and partners. We are the market leader in Content Services. This acquisition adds a world-class team of Content Management experts and significantly increases our presence in key verticals such as Life Sciences, Pharmaceuticals, Energy, Engineering and Public Sector industries, while expanding our Cloud Services offerings and increasing our geographical reach into new countries."

Reconciliation of Common Shares Outstanding

Pre share-split

Post share-split

Common shares outstanding prior to equity public offering

121,595,146

243,190,292

Issuance of Common Shares from equity public offering

9,250,000

18,500,000

Exercise of underwriters over allotment option

655,302

1,310,604

Total common shares outstanding as of December 31, 2016

131,500,448

263,000,896

Financial Highlights for Q2 FY17 with Year Over Year Comparisons

Summary of Quarterly Results

Q2 FY17

Q2 FY16

$ Change

% Change (Y/Y)

Q2 FY17 in CC*

% Change in CC*

Revenues: (in millions)

Cloud services and subscriptions

$175.1

$149.1

$26.0

17.4

%

$175.6

17.8

%

Customer support

219.7

184.1

35.5

19.3

%

221.1

20.1

%

Professional service and other

50.2

50.3

---

(0.1)

%

50.8

1.2

%

Total Recurring revenues

$444.9

$383.5

$61.5

16.0

%

$447.5

16.7

%

License

97.8

81.9

15.9

19.4

%

98.0

19.7

%

Total revenues

$542.7

$465.3

$77.4

16.6

%

$545.6

17.2

%

GAAP-based operating margin

19.7

%

23.6

%

n/a

(390)

bps

Non-GAAP-based operating margin (1)

34.0

%

37.0

%

n/a

(300)

bps

33.9

%

(310)

bps

GAAP-based EPS, diluted(2)

$0.18

$0.36

($0.18)

(50.0)

%

Non-GAAP-based EPS, diluted (1)(2)(3)

$0.54

$0.50

$0.04

8.0

%

$0.54

8.0

%

Operating cash flows (in millions)

$107.0

$123.9

($16.9)

(13.6)

%

Summary of YTD Results

FY17 YTD

FY16 YTD

$ Change

% Change (Y/Y)

FY17 YTD in CC*

% Change in CC*

Revenues: (in millions)

Cloud services and subscriptions

$344.7

$296.9

$47.9

16.1

%

$346.3

16.6

%

Customer support

429.9

369.8

60.1

16.2

%

433.9

17.3

%

Professional service and other

101.3

100.0

1.3

1.3

%

102.8

2.8

%

Total Recurring revenues

$876.0

$766.7

$109.3

14.3

%

$883.0

15.2

%

License

158.4

133.2

25.2

18.9

%

159.2

19.5

%

Total revenues

$1,034.4

$899.9

$134.5

14.9

%

$1,042.2

15.8

%

GAAP-based operating margin

17.5

%

20.7

%

n/a

(320)

bps

Non-GAAP-based operating margin (1)

32.5

%

35.6

%

n/a

(310)

bps

32.3

%

(330)

bps

GAAP-based EPS, diluted(2)

$3.89

$0.53

$3.36

634.0

%

Non-GAAP-based EPS, diluted (1)(2)(3)

$0.97

$0.92

$0.05

5.4

%

$0.98

6.5

%

Operating cash flows (in millions)

$180.5

$216.7

($36.2)

(16.7)

%

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

(2) As a result of the two-for-one share split, effected January 24, 2017 by way of a share sub-division, all current and historical period per share data and number of Common Shares outstanding in this press release are presented on a post share split basis.

(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.

"The Company achieved excellent results for the second quarter of Fiscal 2017, with strong revenue growth in all regions and a continued focus on delivering solid bottom line results. Factoring integration of the ECD Business, we expect our adjusted operating margin for Fiscal 2017 to be at the mid-point of our published 30% to 34% target margin range," said OpenText CFO, John Doolittle. "Our 2020 aspirations for the business remain unchanged, including the anticipated adjusted operating margin range of 34% to 38%."

Doolittle added, "OpenText generated significant operating cash flow in our second quarter, up approximately 46% from the first quarter of this Fiscal year and down 14% compared to the same period last year. With the acquisition of the ECD Business, OpenText will onboard a significant cash flow generating business. The Company's financial position remains strong and we expect to benefit from synergies as we integrate our recently acquired assets into our business model."

*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.

Integration of the ECD Business

As OpenText integrates the acquisition, we anticipate a one-time deferred revenue adjustment that will result in a reduction in revenue over the next four quarters of approximately $50 million. The impact on revenues for Q3 and Q4 of Fiscal 2017 is approximately half of this adjustment. In addition to this deferred revenue adjustment, we expect revenues from the ECD Business to be down 5% to 10% for the next few quarters due to typical integration activities, and then normalize to historical levels thereafter. Further, we expect the ECD Business to be on the OpenText operating model within 12 months.

In connection with the acquisition, OpenText is implementing restructuring activities to streamline our operations. These restructuring charges are expected to be incurred during the remainder of Fiscal 2017 and into Fiscal 2018. The anticipated cost is expected to be approximately $50 million, and primarily relates to workforce and facility consolidations. Once these restructuring activities are completed, OpenText anticipates annualized cost savings of approximately $60 million. We expect any savings realized during the remainder of Fiscal 2017 to be largely offset by one-time ECD integration costs.

OpenText Quarterly Business Highlights

  • 25 customer transactions over $1 million, 8 OpenText Cloud contract signings and 17 on-premises
  • Financial, services, consumer goods, technology, and public sector industries saw the most demand in cloud and license
  • New customers in the quarter included U.S. Defense Logistics Agency, Philips, Trimfoot, Bruce Power, CenturyLink, Premier Medical Group, SMA Solar Technology AG, Shiseido Europe, Subway, Tata Steel, and Siemens AG
  • OpenText Buys DocumentumTM
  • OpenText Announces 2-For-1 Share Split
  • Successfully raised approximately $840 million in net proceeds from the public offering of common shares and reopening of senior unsecured fixed rate notes
  • OpenText Receives Highest Score for Digital Transformation/ Modernization Use Case in Gartner's 2016 Critical Capabilities for Enterprise Content Management
  • OpenText Named a Leader in Gartner's 2016 Magic Quadrant for Enterprise Content Management
  • OpenText Honored in Computerworld Readers Choice Awards 2016 in Both Singapore and Malaysia

Toronto Stock Exchange Listing Ticker Symbol Change

Effective on Monday, February 6, 2017, OpenText common shares listed on the Toronto Stock Exchange ("TSX") as OTC will begin trading under the new ticker symbol OTEX. The change will align the Company's TSX ticker symbol with its NASDAQ ticker symbol, which remains "OTEX". No action is required to be taken by current shareholders in connection with the change, and no change has been made to the Company's share capital.

Dividend Program Highlights

Cash Dividend As part of our quarterly, non-cumulative cash dividend program, the Board declared on February 1, 2017 a cash dividend of $0.115 per common share, on a post share split basis. The record date for this dividend is March 3, 2017 and the payment date is March 23, 2017. 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 FY17

Q1 FY17

Q2 FY16

% Change (Q2 FY17 vs Q1 FY17)

% Change (Q2 FY17 vs Q2 FY16)

Revenue (million)

$542.7

$491.7

$465.3

10.4

%

16.6

%

GAAP-based gross margin

69.0

%

66.6

%

70.0

%

240

bps

(100)

bps

GAAP-based operating margin

19.7

%

15.1

%

23.6

%

460

bps

(390)

bps

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

$0.18

$3.73

$0.36

(95.2)

%

(50.0)

%

(2)

Non-GAAP-based gross margin (3)

73.8

%

71.5

%

74.2

%

230

bps

(40)

bps

Non-GAAP-based operating margin (3)

34.0

%

30.8

%

37.0

%

320

bps

(300)

bps

Non-GAAP-based EPS, diluted (2)(3)(4)

$0.54

$0.43

$0.50

25.6

%

8.0

%

Summary of Year to Date Results

Q2 FY17 YTD

Q2 FY16 YTD

% Change

Revenue (million)

$1,034.4

$899.9

14.9

%

GAAP-based gross margin

67.9

%

68.9

%

(100)

bps

GAAP-based operating margin

17.5

%

20.7

%

(320)

bps

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

$3.89

$0.53

634.0

%

Non-GAAP-based gross margin (3)

72.7

%

73.4

%

(70)

bps

Non-GAAP-based operating margin (3)

32.5

%

35.6

%

(310)

bps

Non-GAAP-based EPS, diluted (2)(3)(4)

$0.97

$0.92

5.4

%

(1) 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.

(2) As a result of the two-for-one share split, effected January 24, 2017 by way of a share sub-division, all current and historical period per share data and number of Common Shares outstanding in this press release are presented on a post share split basis.

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

(4) 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.

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 2, 2017 at 7:00 p.m. ET through 11:59 p.m. February 16, 2017 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 1085 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 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 our fiscal year ending June 30, 2017 (Fiscal 2017) 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 and revenue expectations regarding the ECD Business, adjusted operating income and cash flow, its financial condition, results of operations and earnings, announced acquisitions, ongoing tax matters, the integration of the ECD Business, expected timing, charges and savings related to restructuring activities, declaration of quarterly dividends, future tax rates, new platform and product offerings 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; (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 "OpenText Release 16" and other product releases. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (ii) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on the Company's outstanding debt securities; (iii) the possibility that the Company may be unable to meet its future reporting requirements under the U.S. Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, or applicable Canadian securities regulation; (iv) the risks associated with bringing new products and services to market; (v) fluctuations in currency exchange rates; (vi) delays in the purchasing decisions of the Company's customers; (vii) the competition the Company faces in its industry and/or marketplace; (viii) the final determination of litigation, tax audits (including tax examinations in the United States and elsewhere) and other legal proceedings; (ix) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, U.S. or international tax regimes; (x) the possibility of technical, logistical or planning issues in connection with the deployment of the Company's products or services; (xi) the continuous commitment of the Company's customers; and (xii) demand for the Company's products and services. For additional information with respect to risks and other factors which could occur, see the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities filings with the Securities and Exchange Commission (SEC) and other securities regulators. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

OTEX-F

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

Copyright ©2017 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/2/global/site-copyright.html_SKU.

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

December 31, 2016

June 30, 2016

ASSETS

(unaudited)

Cash and cash equivalents

$

1,722,491

$

1,283,757

Short-term investments

3,238

11,839

Accounts receivable trade, net of allowance for doubtful accounts of $7,903 as of December 31, 2016 and $6,740 as of June 30, 2016

315,562

285,904

Income taxes recoverable

19,232

31,752

Prepaid expenses and other current assets

58,129

59,021

Total current assets

2,118,652

1,672,273

Property and equipment

179,044

183,660

Goodwill

2,597,685

2,325,586

Acquired intangible assets

772,534

646,240

Deferred tax assets

1,078,548

241,161

Other assets

66,905

53,697

Deferred charges

59,598

22,776

Long-term income taxes recoverable

9,225

8,751

Total assets

$

6,882,191

$

5,154,144

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

245,506

$

257,450

Current portion of long-term debt

8,000

8,000

Deferred revenues

364,872

373,549

Income taxes payable

24,770

32,030

Total current liabilities

643,148

671,029

Long-term liabilities:

Accrued liabilities

30,309

29,848

Deferred credits

6,820

8,357

Pension liability

55,827

61,993

Long-term debt

2,389,826

2,137,987

Deferred revenues

47,119

37,461

Long-term income taxes payable

146,845

149,041

Deferred tax liabilities

72,121

79,231

Total long-term liabilities

2,748,867

2,503,918

Shareholders' equity:

Share capital

263,000,896 and 242,809,354 Common Shares issued and outstanding at December 31, 2016 and June 30, 2016, respectively; authorized Common Shares: unlimited

1,416,644

817,788

Additional paid-in capital

158,975

147,280

Accumulated other comprehensive income

39,884

46,310

Retained earnings

1,894,802

992,546

Treasury stock, at cost (917,372 shares at December 31, 2016 and 1,267,294 at June 30, 2016, respectively)

(20,709)

(25,268)

Total OpenText shareholders' equity

3,489,596

1,978,656

Non-controlling interests

580

541

Total shareholders' equity

3,490,176

1,979,197

Total liabilities and shareholders' equity

$

6,882,191

$

5,154,144

As a result of the two-for-one share split, effected January 24, 2017 by way of a share sub-division, all current and historical period per share data and number of Common Shares outstanding in these Condensed Consolidated Financial Statements are presented on a post share split basis.

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,

2016

2015

2016

2015

Revenues:

License

$

97,764

$

81,856

$

158,420

$

133,187

Cloud services and subscriptions

175,061

149,099

344,748

296,889

Customer support

219,656

184,137

429,862

369,804

Professional service and other

50,228

50,255

101,343

100,002

Total revenues

542,709

465,347

1,034,373

899,882

Cost of revenues:

License

2,391

2,029

6,236

4,710

Cloud services and subscriptions

73,150

58,918

143,442

117,834

Customer support

27,349

21,689

53,087

42,197

Professional service and other

40,295

38,375

81,638

76,439

Amortization of acquired technology-based intangible assets

24,848

18,731

47,983

38,614

Total cost of revenues

168,033

139,742

332,386

279,794

Gross profit

374,676

325,605

701,987

620,088

Operating expenses:

Research and development

64,721

45,710

123,293

92,150

Sales and marketing

102,651

85,875

197,799

163,820

General and administrative

39,914

33,767

78,111

69,336

Depreciation

15,301

13,330

30,571

26,244

Amortization of acquired customer-based intangible assets

33,815

27,793

67,423

55,598

Special charges

11,117

9,088

23,571

26,425

Total operating expenses

267,519

215,563

520,768

433,573

Income from operations

107,157

110,042

181,219

186,515

Other income (expense), net

(3,558)

961

3,141

(3,952)

Interest and other related expense, net

(27,743)

(19,187)

(55,018)

(38,233)

Income before income taxes

75,856

91,816

129,342

144,330

Provision for (recovery of) income taxes

30,822

4,074

(828,603)

15,276

Net income for the period

$

45,034

$

87,742

$

957,945

$

129,054

Net (income) attributable to non-controlling interests

(12)

(56)

(39)

(82)

Net income attributable to OpenText

$

45,022

$

87,686

$

957,906

$

128,972

Earnings per share—basic attributable to OpenText

$

0.18

$

0.36

$

3.92

$

0.53

Earnings per share—diluted attributable to OpenText

$

0.18

$

0.36

$

3.89

$

0.53

Weighted average number of Common Shares outstanding—basic

245,653

242,492

244,282

243,398

Weighted average number of Common Shares outstanding—diluted

247,501

243,584

246,123

244,432

Dividends declared per Common Share

$

0.1150

$

0.1000

$

0.2300

$

0.2000

As a result of the two-for-one share split, effected January 24, 2017 by way of a share sub-division, all current and historical period per share data and number of Common Shares outstanding in these Condensed Consolidated Financial Statements are presented on a post share split basis.

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,

2016

2015

2016

2015

Net income for the period

$

45,034

$

87,742

$

957,945

$

129,054

Other comprehensive income—net of tax:

Net foreign currency translation adjustments

(11,526)

(2,751)

(10,307)

(1,028)

Unrealized gain (loss) on cash flow hedges:

Unrealized (loss) - net of tax (recovery) effect of ($252) and ($515) for the three months ended December 31, 2016 and 2015, respectively; ($380) and ($1,737) for the six months ended December, 31 2016 and 2015, respectively

(698)

(1,429)

(1,053)

(4,819)

(Gain) loss reclassified into net income - net of tax (expense) recovery effect of ($33) and $294 for the three months ended December 31, 2016 and 2015, respectively; ($38) and $478 for the six months ended December 31, 2016 and 2015, respectively

(91)

814

(108)

1,326

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

Actuarial gain - net of tax expense (recovery) effect of $1,077 and ($92) for the three months ended December 31, 2016 and 2015, respectively; $484 and $210 for the six months ended December 31, 2016 and 2015, respectively

2,823

648

4,361

1,761

Amortization of actuarial loss into net income - net of tax recovery effect of $57 and $34 for the three months ended December 31, 2016 and 2015, respectively; $119 and $66 for the six months ended December 31, 2016 and 2015, respectively

134

90

281

173

Unrealized net gain on short-term investments - net of tax effect of nil for the three and six months ended December 31, 2016 and 2015, respectively

512

120

400

135

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

(8,846)

(2,508)

(6,426)

(2,452)

Total comprehensive income

36,188

85,234

951,519

126,602

Comprehensive (income) attributable to non-controlling interests

(12)

(56)

(39)

(82)

Total comprehensive income attributable to OpenText

$

36,176

$

85,178

$

951,480

$

126,520

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,

2016

2015

2016

2015

Cash flows from operating activities:

Net income for the period

$

45,034

$

87,742

$

957,945

$

129,054

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

Depreciation and amortization of intangible assets

73,964

59,854

145,977

120,456

Share-based compensation expense

7,572

6,581

15,712

13,114

Excess tax (benefits) on share-based compensation expense

(537)

(256)

(542)

(40)

Pension expense

871

1,158

2,061

2,325

Amortization of debt issuance costs

1,331

1,156

2,654

2,312

Amortization of deferred charges and credits

2,146

1,981

4,292

4,598

Loss on sale and write down of property and equipment

890

890

Deferred taxes

7,591

(3,685)

(868,233)

(7,869)

Share in net (income) of equity investees

(464)

(5,993)

Other non-cash charges

1,033

Changes in operating assets and liabilities:

Accounts receivable

(15,713)

(41,226)

456

10,880

Prepaid expenses and other current assets

13,074

(5,221)

11,885

613

Income taxes and deferred charges and credits

(12,841)

(3,503)

(9,620)

294

Accounts payable and accrued liabilities

6,604

33,503

(23,995)

(14,819)

Deferred revenue

(21,633)

(16,280)

(47,742)

(48,673)

Other assets

20

1,242

(5,420)

3,523

Net cash provided by operating activities

107,019

123,936

180,470

216,658

Cash flows from investing activities:

Additions of property and equipment

(11,609)

(12,702)

(32,274)

(29,899)

Proceeds from maturity of short-term investments

3,069

9,212

5,324

Purchase of HP Inc. CCM Business

(2,802)

(315,000)

Purchase of Recommind, Inc.

(170,107)

Purchase of HP Inc. CEM Business

(7,289)

Purchase of ANXe Business Corporation

143

143

Purchase of Daegis Inc., net of cash acquired

(22,146)

(22,146)

Purchase consideration for acquisitions prior to Fiscal 2016

(43)

(9,859)

Other investing activities

(440)

(2,754)

(563)

(3,680)

Net cash used in investing activities

(14,708)

(34,576)

(515,878)

(60,260)

Cash flows from financing activities:

Excess tax benefits on share-based compensation expense

537

256

542

40

Proceeds from issuance of long-term debt

256,875

256,875

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

5,391

2,736

10,701

7,988

Proceeds from issuance of Common Shares under public Equity Offering

604,223

604,223

Repayment of long-term debt and revolver

(2,000)

(2,000)

(4,000)

(4,000)

Debt issuance costs

(2,825)

(4,155)

Equity issuance costs

(18,127)

(18,127)

Common Shares repurchased

(15,483)

(65,509)

Purchase of treasury stock

(10,627)

(10,627)

Payments of dividends to shareholders

(27,859)

(24,216)

(55,650)

(47,528)

Net cash provided by (used in) financing activities

816,215

(49,334)

790,409

(119,636)

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

(20,979)

(4,848)

(16,267)

(10,798)

Increase in cash and cash equivalents during the period

887,547

35,178

438,734

25,964

Cash and cash equivalents at beginning of the period

834,944

690,785

1,283,757

699,999

Cash and cash equivalents at end of the period

$

1,722,491

$

725,963

$

1,722,491

$

725,963

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 earnings per share 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.

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:

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended December 31, 2016.

(In thousands except for per share amounts)

Three Months Ended December 31, 2016

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

$

73,150

$

(211)

(1)

$

72,939

Customer support

27,349

(270)

(1)

27,079

Professional service and other

40,295

(468)

(1)

39,827

Amortization of acquired technology-based intangible assets

24,848

(24,848)

(2)

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

374,676

69.0

%

25,797

(3)

400,473

73.8

%

Operating expenses

Research and development

64,721

(1,995)

(1)

62,726

Sales and marketing

102,651

(2,329)

(1)

100,322

General and administrative

39,914

(2,299)

(1)

37,615

Amortization of acquired customer-based intangible assets

33,815

(33,815)

(2)

Special charges (recoveries)

11,117

(11,117)

(4)

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

107,157

19.7

%

77,352

(5)

184,509

34.0

%

Other income (expense), net

(3,558)

3,558

(6)

Provision for (recovery of) income taxes

30,822

(7,319)

(7)

23,503

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

45,022

88,229

(8)

133,251

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

$

0.18

$

0.36

(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 41% 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 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 December 31, 2016

Per share diluted

GAAP-based net income, attributable to OpenText

$

45,022

$

0.18

Add:

Amortization

58,663

0.24

Share-based compensation

7,572

0.03

Special charges (recoveries)

11,117

0.04

Other (income) expense, net

3,558

0.01

GAAP-based provision for (recovery of ) income taxes

30,822

0.12

Non-GAAP-based provision for income taxes

(23,503)

(0.08)

Non-GAAP-based net income, attributable to OpenText

$

133,251

$

0.54

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the six months ended December 31, 2016.

(In thousands except for per share amounts)

Six Months Ended December 31, 2016

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

$

143,442

$

(571)

(1)

$

142,871

Customer support

53,087

(505)

(1)

52,582

Professional service and other

81,638

(913)

(1)

80,725

Amortization of acquired technology-based intangible assets

47,983

(47,983)

(2)

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

701,987

67.9

%

49,972

(3)

751,959

72.7

%

Operating expenses

Research and development

123,293

(3,738)

(1)

119,555

Sales and marketing

197,799

(5,149)

(1)

192,650

General and administrative

78,111

(4,836)

(1)

73,275

Amortization of acquired customer-based intangible assets

67,423

(67,423)

(2)

Special charges (recoveries)

23,571

(23,571)

(4)

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

181,219

17.5

%

154,689

(5)

335,908

32.5

%

Other income (expense), net

3,141

(3,141)

(6)

Provision for (recovery of) income taxes

(828,603)

870,698

(7)

42,095

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

957,906

(719,150)

(8)

238,756

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

$

3.89

$

(2.92)

(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 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.

(7)

Adjustment relates to differences between the GAAP-based tax recovery rate of approximately 641% 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 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:

Six Months Ended December 31, 2016

Per share diluted

GAAP-based net income, attributable to OpenText

$

957,906

$

3.89

Add:

Amortization

115,406

0.47

Share-based compensation

15,712

0.06

Special charges (recoveries)

23,571

0.10

Other (income) expense, net

(3,141)

(0.01)

GAAP-based provision for (recovery of) income taxes

(828,603)

(3.37)

Non-GAAP based provision for income taxes

(42,095)

(0.17)

Non-GAAP-based net income, attributable to OpenText

$

238,756

$

0.97

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended September 30, 2016.

(In thousands except for per share amounts)

Three Months Ended September 30, 2016

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

$

70,292

$

(360)

(1)

$

69,932

Customer support

25,738

(235)

(1)

25,503

Professional service and other

41,343

(445)

(1)

40,898

Amortization of acquired technology-based intangible assets

23,135

(23,135)

(2)

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

327,311

66.6

%

24,175

(3)

351,486

71.5

%

Operating expenses

Research and development

58,572

(1,743)

(1)

56,829

Sales and marketing

95,148

(2,820)

(1)

92,328

General and administrative

38,197

(2,537)

(1)

35,660

Amortization of acquired customer-based intangible assets

33,608

(33,608)

(2)

Special charges (recoveries)

12,454

(12,454)

(4)

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

74,062

15.1

%

77,337

(5)

151,399

30.8

%

Other income (expense), net

6,699

(6,699)

(6)

Provision for (recovery of) income taxes

(859,425)

878,017

(7)

18,592

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

912,884

(807,379)

(8)

105,505

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

$

3.73

$

(3.30)

(8)

$

0.43

(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.

(7)

Adjustment relates to differences between the GAAP-based tax recovery rate of approximately 1,607% 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 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 September 30, 2016

Per share diluted

GAAP-based net income, attributable to OpenText

$

912,884

$

3.73

Add:

Amortization

56,743

0.23

Share-based compensation

8,140

0.03

Special charges (recoveries)

12,454

0.05

Other (income) expense, net

(6,699)

(0.03)

GAAP-based provision for (recovery of ) income taxes

(859,425)

(3.51)

Non-GAAP-based provision for income taxes

(18,592)

(0.07)

Non-GAAP-based net income, attributable to OpenText

$

105,505

$

0.43

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 Total Revenue

Adjustments

Note

Non-GAAP-based

Measures

Non-GAAP- based Measures % of Total 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

$

0.36

$

0.14

(8)

$

0.50

(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.

(7)

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 4% and a Non-GAAP-based tax rate of approximately 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 (recoveries) 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, and "book to return" adjustments for tax return filings and tax assessments. In arriving at our Non-GAAP-based tax rate of approximately 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 GAAP-based net income to Non-GAAP-based net income:

Three Months Ended December 31, 2015

Per share diluted

GAAP-based net income, attributable to OpenText

$

87,686

$

0.36

Add:

Amortization

46,524

0.19

Share-based compensation

6,581

0.03

Special charges (recoveries)

9,088

0.04

Other (income) expense, net

(961)

GAAP-based provision for (recovery of ) income taxes

4,074

0.02

Non-GAAP-based provision for income taxes

(30,554)

(0.14)

Non-GAAP-based net income, attributable to OpenText

$

122,438

$

0.50

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 Total Revenue

Adjustments

Note

Non-GAAP-based

Measures

Non-GAAP- based Measures % of Total 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

$

0.53

$

0.39

(8)

$

0.92

(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.

(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 (recoveries) 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, and "book to return" adjustments for tax return filings and tax assessments. 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 GAAP-based net income to Non-GAAP-based net income:

Six Months Ended December 31, 2015

Per share diluted

GAAP-based net income, attributable to OpenText

$

128,972

$

0.53

Add:

Amortization

94,212

0.39

Share-based compensation

13,114

0.05

Special charges (recoveries)

26,425

0.11

Other (income) expense, net

3,952

0.02

GAAP-based provision for (recovery of) income taxes

15,276

0.06

Non-GAAP based provision for income taxes

(56,325)

(0.24)

Non-GAAP-based net income, attributable to OpenText

$

225,626

$

0.92

(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, 2016 and 2015:

Three Months Ended December 31, 2016

Three Months Ended December 31, 2015

Currencies

% of Revenue

% of Expenses*

% of Revenue

% of Expenses*

EURO

25

%

16

%

25

%

14

%

GBP

7

%

7

%

8

%

8

%

CAD

4

%

11

%

5

%

11

%

USD

55

%

50

%

52

%

50

%

Other

9

%

16

%

10

%

17

%

Total

100

%

100

%

100

%

100

%

Six Months Ended December 31, 2016

Six Months Ended December 31, 2015

Currencies

% of Revenue

% of Expenses*

% of Revenue

% of Expenses*

EURO

24

%

15

%

24

%

14

%

GBP

7

%

7

%

9

%

8

%

CAD

4

%

11

%

4

%

12

%

USD

56

%

51

%

53

%

50

%

Other

9

%

16

%

10

%

16

%

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 (recoveries).

SOURCE Open Text Corporation

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