OpenText Reports Third Quarter Fiscal Year 2016 Financial Results

- Record operating cash flow of $190 million; up 33% Y/Y

- Total revenue of $441 million, down 2%; up 2% Y/Y in CC*

- Non-GAAP-based EPS of $0.80, up 21%; up 23% Y/Y in CC

- Release 16 launched; the world's first integrated digital information platform

- Increases quarterly cash dividend by 15%

WATERLOO, Ontario, April 27, 2016 /CNW/ -- Open Text Corporation (NASDAQ: OTEX) (TSX: OTC) announced today its financial results for the third quarter ended March 31, 2016.

"OpenText's strategic and financial progress is evident in our results as we delivered record operating cash flow of $190 million, up 33% year over year.  Total revenue for the quarter was $455 million in constant currency, up 2%, and we delivered these results on 13% less operating expense," said OpenText CEO and CTO Mark J. Barrenechea. "With the confidence in our strategy, financial model and future cash flows, we are raising our quarterly dividend by 15%, to $0.23 per share."

Barrenechea further added, "Release 16 is now available to customers and the early feedback is extremely positive. We also announced entering into definitive agreements for two acquisitions, each expected to close in the fourth quarter of Fiscal 2016.  First, we will be acquiring certain Customer Experience Management software and services assets from HP Inc. and second, we will be acquiring ANXeBusiness Corp. (ANX), a leading provider of cloud-based information exchange services to the Automotive and Healthcare industries.  We expect these two acquisitions to deliver approximately $115 to $125 million of aggregate new revenues in Fiscal 2017." 

Barrenechea concluded, "With an intelligent approach to M&A and Release 16 availability, OpenText is in a leading position to enable the digital transformation of our customers and deliver stellar financial performance."

Financial Highlights for Q3 FY16 with Year Over Year Comparisons (1)

Summary of Quarterly Results









Q3 FY16

Q3 FY15

$ Change

% Change
(Y/Y)


Q3 FY16 in CC*

% Change in CC*

Revenues: (in millions)








Cloud services and subscriptions

$147.5


$147.5


$—


—%



$151.2


2.5%


Customer support

183.6


184.2


(0.6)


(0.3)%



189.2


2.7%


Professional service and other

45.0


52.3


(7.3)


(13.9)%



47.3


(9.6%)


Total Recurring revenues

$376.1


$384.0


($7.9)


(2.0)%



$387.7


1.0%


License

64.4


63.6


0.8


1.3%



67.4


6.0%


Total revenues

$440.5


$447.6


($7.1)


(1.6)%



$455.1


1.7%


Non-GAAP-based operating margin (2)

31.4%


25.7%


n/a


570 bps



30.5%



GAAP-based operating margin

20.1%


11.8%


n/a


830 bps





Non-GAAP-based EPS, diluted (2)

$0.80


$0.66


$0.14


21.2%



$0.81


22.7%


GAAP-based EPS, diluted

$0.57


$0.22


$0.35


159.1%





Operating cash flows (in millions)

$189.9


$143.1


$46.8


32.7%






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

"Our strong liquidity position gives us flexibility to grow the business and support OpenText's acquisition strategy. We boosted our cash balance and short-term investments by 25% to approximately $900 million since the beginning of the fiscal year. Solid business execution, with a focus on adjusted operating margins and cash flow continues to be our priority," 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

  • OpenText launches Release 16, delivering the most comprehensive digital platform for enterprise digital transformation
  • OpenText signs definitive agreement to acquire certain customer experience software assets of HP Inc.
  • OpenText signs definitive agreement to acquire ANX
  • 18 customer transactions over $1 million, 8 cloud contract signings in the OpenText Cloud and 10 on-premises
  • Financial, services and consumer goods industries saw the most demand in cloud
  • Financial, public and technology industries saw the most demand in license
  • Cloud customer successes in the quarter include Standard Insurance Company, Cooperation Manufacturing Plant Aguascalientes, MDR a Dun & Bradstreet Company, SAP, Stokke, 7PSolutions, SharkNinja Operating LLC, DC Comics and BRF
  • On-premises customer successes in the quarter include Public Broadcasting Service (PBS), Bosch, Diebold, Cancer Treatment Centers of America, Public Works and Government Services Canada, Government of the Northwest Territories, National Bank of Canada, Carl Zeiss Meditec AG, Mainova, SMC Corporation of America, Cameron LNG, Cooper Tire and Rubber Company, Linde AG, Applied Informatics and Research Inc, Department of International Affairs, Arvato Bertelsmann, Bank of Montreal, Nielsen, DnB Finans, Tillväxtverket and Sampension
  • OpenText announces SAP® Hybris® Digital Documents by OpenText, offering a unified platform for engaging digital content and communications
  • OpenText Innovation Tour 2016 events in over 10 countries and 5,000 customers

Dividend Program Highlights

Cash Dividend

As part of our quarterly, non cumulative cash dividend program the Board declared on April 26, 2016 a cash dividend of $0.23 per Common Share. The record date for this dividend is May 27, 2016 and the payment date is June 17, 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









Q3 FY16


Q2 FY16


Q3 FY15


% Change

(Q3 FY16 vs
Q2 FY16)


% Change

(Q3 FY16 vs
Q3 FY15)


Revenue (million)

$440.5


$465.3


$447.6


(5.3)%


(1.6)%


GAAP-based gross margin

67.9%


70.0%


66.0%


(210) bps


190 bps


GAAP-based operating margin

20.1%


23.6%


11.8%


(350) bps


830 bps


GAAP-based EPS, diluted

$0.57


$0.72


$0.22


(20.8)%


159.1%


Non-GAAP-based gross margin (2)

72.0%


74.2%


71.1%


(220) bps


90 bps


Non-GAAP-based operating margin (2)

31.4%


37.0%


25.7%


(560) bps


570 bps


Non-GAAP-based EPS, diluted (2)

$0.80


$1.01


$0.66


(20.8)%


21.2%


 

Summary of Year to Date Results







Q3 FY16 YTD

Q3 FY15 YTD

$ Change

% Change


Revenues: (in millions)






Cloud services and subscriptions

$444.4


$456.3


($11.9)


(2.6)%



Customer support

553.4


547.6


5.8


1.1%



Professional service and other

145.0


168.2


(23.2)


(13.8)%



Total Recurring revenues

$1,142.8


$1,172.1


($29.3)


(2.5)%



License

197.6


197.1


0.5


0.2%



Total revenues

$1,340.4


$1,369.2


($28.8)


(2.1)%



Non-GAAP-based operating margin (2)

34.2%


31.0%


n/a


320 bps



GAAP-based operating margin

20.5%


19.4%


n/a


110 bps



Non-GAAP-based EPS, diluted (2)

$2.65


$2.59


$0.06


2.3%



GAAP-based EPS, diluted

$1.62


$1.35


$0.27


20.0%



Operating cash flows (in millions)

$406.6


$391.2


$15.4


3.9%



OpenText Investor Day

Institutional investors and financial analysts are invited to join us for our Investor Day on Thursday, May 12, 2016 at the Lotte New York Palace in New York. To register, please contact Sonya Mehan, Senior Manager, Investor Relations at smehan@opentext.com.

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 April 27, 2016 at 7:00 p.m. ET through 11:59 p.m. May 11, 2016 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 00366 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, announced acquisitions, 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; (ix) the Company's financial condition and capital requirements; and (x) statements about the impact of "Open Text Release 16". 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)



March 31, 2016


June 30, 2015


(unaudited)



ASSETS




Cash and cash equivalents

$

877,405



$

699,999


Short-term investments

13,008



11,166


Accounts receivable trade, net of allowance for doubtful accounts of $7,932 as of March 31, 2016 and $5,987 as of June 30, 2015

266,450



284,131


Income taxes recoverable

15,577



21,151


Prepaid expenses and other current assets

56,030



53,191


Deferred tax assets

27,952



30,711


Total current assets

1,256,422



1,100,349


Property and equipment

172,020



160,419


Goodwill

2,169,637



2,161,592


Acquired intangible assets

558,571



679,479


Deferred tax assets

156,148



155,411


Other assets

75,286



85,576


Deferred charges

26,575



37,265


Long-term income taxes recoverable

8,706



8,404


Total assets

$

4,423,365



$

4,388,495


LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued liabilities

$

212,886



$

241,370


Current portion of long-term debt

8,000



8,000


Deferred revenues

368,020



358,066


Income taxes payable

20,906



17,001


Deferred tax liabilities

734



997


Total current liabilities

610,546



625,434


Long-term liabilities:




Accrued liabilities

31,357



34,682


Deferred credits

9,503



12,943


Pension liability

58,292



56,737


Long-term debt

1,574,000



1,580,000


Deferred revenues

33,868



28,223


Long-term income taxes payable

142,616



151,484


Deferred tax liabilities

52,701



69,185


Total long-term liabilities

1,902,337



1,933,254


Shareholders' equity:




Share capital




121,220,097 and 122,293,986 Common Shares issued and outstanding at March 31, 2016 and June 30, 2015, respectively; Authorized Common Shares: unlimited

809,708



808,010


Additional paid-in capital

140,406



126,417


Accumulated other comprehensive income

51,248



51,828


Retained earnings

933,791



863,015


Treasury stock, at cost (633,647 shares at March 31, 2016 and 625,725 at June 30, 2015, respectively)

(25,268)



(19,986)


Total OpenText shareholders' equity

1,909,885



1,829,284


Non-controlling interests

597



523


Total shareholders' equity

1,910,482



1,829,807


Total liabilities and shareholders' equity

$

4,423,365



$

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 March 31,


Nine Months Ended March 31,


2016


2015


2016


2015

Revenues:








License

$

64,397



$

63,561



$

197,584



$

197,137


Cloud services and subscriptions

147,505



147,513



444,394



456,342


Customer support

183,636



184,204



553,440



547,576


Professional service and other

45,005



52,299



145,007



168,154


Total revenues

440,543



447,577



1,340,425



1,369,209


Cost of revenues:








License

2,480



2,980



7,190



9,388


Cloud services and subscriptions

61,298



60,776



179,132



178,886


Customer support

22,427



24,084



64,624



70,878


Professional service and other

37,599



42,396



114,038



129,999


Amortization of acquired technology-based intangible assets

17,630



22,136



56,244



58,548


Total cost of revenues

141,434



152,372



421,228



447,699


Gross profit

299,109



295,205



919,197



921,510


Operating expenses:








Research and development

48,160



53,222



140,310



144,134


Sales and marketing

84,600



97,146



248,420



269,167


General and administrative

37,731



45,552



107,067



120,962


Depreciation

13,754



12,809



39,998



37,516


Amortization of acquired customer-based intangible assets

27,966



28,250



83,564



79,498


Special charges (recoveries)

(1,671)



5,622



24,754



4,032


Total operating expenses

210,540



242,601



644,113



655,309


Income from operations

88,569



52,604



275,084



266,201


Other income (expense), net

2,120



(9,550)



(1,832)



(28,737)


Interest and other related expense, net

(16,228)



(16,872)



(54,461)



(36,426)


Income before income taxes

74,461



26,182



218,791



201,038


Provision for (recovery of) income taxes

5,353



(309)



20,629



35,401


Net income for the period

$

69,108



$

26,491



$

198,162



$

165,637


Net (income) loss attributable to non-controlling interests

7



119



(75)



(114)


Net income attributable to OpenText

$

69,115



$

26,610



$

198,087



$

165,523


Earnings per share—basic attributable to OpenText

$

0.57



$

0.22



$

1.63



$

1.36


Earnings per share—diluted attributable to OpenText

$

0.57



$

0.22



$

1.62



$

1.35


Weighted average number of Common Shares outstanding—basic

121,159



122,158



121,514



122,042


Weighted average number of Common Shares outstanding—diluted

121,706



123,054



122,044



122,980


Dividends declared per Common Share

$

0.2000



$

0.1725



$

0.6000



$

0.5175


 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

(unaudited)




Three Months Ended March 31,


Nine Months Ended March 31,



2016


2015


2016


2015

Net income for the period


$

69,108



$

26,491



$

198,162



$

165,637


Other comprehensive income—net of tax:









Net foreign currency translation adjustments


988



9,280



(40)



17,626


Unrealized gain (loss) on cash flow hedges:









Unrealized gain (loss)


2,115



(2,801)



(2,704)



(7,017)


Loss reclassified into net income


1,086



2,488



2,412



3,485


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









Actuarial loss


(1,848)



(3,052)



(87)



(10,107)


Amortization of actuarial loss into net income


88



75



261



280


Unrealized net gain (loss) on short-term investments


(557)



4



(422)



4


Unrealized gain on marketable securities (Actuate)








1,906


Release of unrealized gain on marketable securities (Actuate)




(1,906)





(1,906)


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


1,872



4,088



(580)



4,271


Total comprehensive income


70,980



30,579



197,582



169,908


Comprehensive (income) loss attributable to non-controlling interests


7



119



(75)



(114)


Total comprehensive income attributable to OpenText


$

70,987



$

30,698



$

197,507



$

169,794


 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)



Three Months Ended March 31,


Nine Months Ended March 31,


2016


2015


2016


2015

Cash flows from operating activities:








Net income for the period

$

69,108



$

26,491



$

198,162



$

165,637


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








Depreciation and amortization of intangible assets

59,350



63,195



179,806



175,562


Share-based compensation expense

5,966



6,562



19,080



15,940


Excess tax expense (benefits) on share-based compensation expense

(217)



16



(257)



(1,611)


Pension expense

1,134



1,180



3,459



3,602


Amortization of debt issuance costs

1,158



1,135



3,470



3,410


Amortization of deferred charges and credits

2,652



2,630



7,250



7,893


Loss on sale and write down of property and equipment

218



118



1,108



118


Release of unrealized gain on marketable securities to income



(3,098)





(3,098)


Write off of unamortized debt issuance costs



2,919





2,919


Deferred taxes

(7,823)



(5,256)



(15,692)



(4,037)


Changes in operating assets and liabilities:








Accounts receivable

11,272



36,311



22,152



76,560


Prepaid expenses and other current assets

(3,202)



(3,304)



(2,589)



(4,001)


Income taxes

2,996



(10,245)



3,290



1,354


Accounts payable and accrued liabilities

(12,615)



(16,421)



(27,434)



(53,747)


Deferred revenue

61,237



39,450



12,564



6,705


Other assets

(1,290)



1,428



2,233



(1,992)


Net cash provided by operating activities

189,944



143,111



406,602



391,214


Cash flows from investing activities:








Additions of property and equipment

(18,998)



(12,325)



(48,897)



(60,586)


Proceeds from maturity of short-term investments

3,915



7,092



9,239



7,092


Purchase of Daegis Inc., net of cash acquired





(22,146)




Purchase of Actuate Corporation, net of cash acquired

(409)



(291,768)



(8,153)



(291,768)


Purchase of a division of Spicer Corporation







(222)


Purchase of Informative Graphics Corporation, net of cash acquired

(3,376)



(35,180)



(3,464)



(35,180)


Purchase of ICCM Professional Services Limited, net of cash acquired





(2,027)




Purchase consideration for prior period acquisitions



(147)





(590)


Other investing activities

(2,444)



(482)



(6,124)



(8,915)


Net cash used in investing activities

(21,312)



(332,810)



(81,572)



(390,169)


Cash flows from financing activities:








Excess tax (expense) benefits on share-based compensation expense

217



(16)



257



1,611


Proceeds from issuance of Common Shares

3,840



3,689



11,828



12,827


Purchase of Treasury Stock



(1,251)



(10,627)



(1,251)


Common Shares repurchased





(65,509)




Proceeds from long-term debt



800,000





800,000


Repayment of long-term debt

(2,000)



(493,655)



(6,000)



(520,485)


Debt issuance costs



(16,673)





(18,076)


Payments of dividends to shareholders

(24,099)



(21,075)



(71,627)



(63,174)


Net cash provided by (used in) financing activities

(22,042)



271,019



(141,678)



211,452


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

4,852



(10,953)



(5,946)



(27,210)


Increase in cash and cash equivalents during the period

151,442



70,367



177,406



185,287


Cash and cash equivalents at beginning of the period

725,963



542,810



699,999



427,890


Cash and cash equivalents at end of the period

$

877,405



$

613,177



$

877,405



$

613,177




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, excluding, the amortization of acquired intangible assets, other income (expense), share-based compensation, and Special charges (recoveries), all net of tax. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit, 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 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 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 March 31, 2016.

(In thousands except for per share amounts)


Three Months Ended March 31, 2016


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

$

61,298



$

(202)


(1)

$

61,096



Customer support

22,427



(215)


(1)

22,212



Professional service and other

37,599



(247)


(1)

37,352



Amortization of acquired technology-based intangible assets

17,630



(17,630)


(2)



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

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

299,109


67.9%


18,294


(3)

317,403


72.0%


Operating expenses







Research and development

48,160



(500)


(1)

47,660



Sales and marketing

84,600



(3,213)


(1)

81,387



General and administrative

37,731



(1,589)


(1)

36,142



Amortization of acquired customer-based intangible assets

27,966



(27,966)


(2)



Special charges (recoveries)

(1,671)



1,671


(4)



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

88,569


20.1%


49,891


(5)

138,460


31.4%


Other income (expense), net

2,120



(2,120)


(6)



Provision for (recovery of) income taxes

5,353



19,100


(7)

24,453



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

69,115



28,671


(8)

97,786



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

$

0.57



$

0.23


(8)

$

0.80





(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 (recoveries) 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 7% 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, 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 March 31, 2016



Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

97,786


$

0.80


Less:



Amortization

45,596


0.37


Share-based compensation

5,966


0.05


Special charges (recoveries)

(1,671)


(0.01)


Other (income) expense, net

(2,120)


(0.02)


GAAP-based provision for (recovery of) income taxes

5,353


0.04


Non-GAAP based provision for income taxes

(24,453)


(0.20)


GAAP-based net income, attributable to OpenText

$

69,115


$

0.57


 

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

(In thousands except for per share amounts)


Nine Months Ended March 31, 2016


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

$

179,132



$

(641)


(1)

$

178,491



Customer support

64,624



(631)


(1)

63,993



Professional service and other

114,038



(1,086)


(1)

112,952



Amortization of acquired technology-based intangible assets

56,244



(56,244)


(2)



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

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

919,197


68.6%


58,602


(3)

977,799


72.9%


Operating expenses







Research and development

140,310



(1,988)


(1)

138,322



Sales and marketing

248,420



(9,043)


(1)

239,377



General and administrative

107,067



(5,691)


(1)

101,376



Amortization of acquired customer-based intangible assets

83,564



(83,564)


(2)



Special charges (recoveries)

24,754



(24,754)


(4)



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

275,084


20.5%


183,642


(5)

458,726


34.2%


Other income (expense), net

(1,832)



1,832


(6)



Provision for (recovery of) income taxes

20,629



60,149


(7)

80,778



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

198,087



125,325


(8)

323,412



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

$

1.62



$

1.03


(8)

$

2.65





(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 (recoveries) 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 9% 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, 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:




Nine Months Ended March 31, 2016



Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

323,412


$

2.65


Less:



Amortization

139,808


1.15


Share-based compensation

19,080


0.16


Special charges (recoveries)

24,754


0.20


Other (income) expense, net

1,832


0.02


GAAP-based provision for (recovery of) income taxes

20,629


0.17


Non-GAAP based provision for income taxes

(80,778)


(0.67)


GAAP-based net income, attributable to OpenText

$

198,087


$

1.62


 

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 (recoveries) 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 (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, 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 three months ended March 31, 2015.

(In thousands except for per share amounts)


Three Months Ended March 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

$

60,776



$

(182)


(1)

$

60,594



Customer support

24,084



(224)


(1)

23,860



Professional service and other

42,396



(316)


(1)

42,080



Amortization of acquired technology-based intangible assets

22,136



(22,136)


(2)



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

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

295,205


66.0%


22,858


(3)

318,063


71.1%


Operating expenses







Research and development

53,222



(654)


(1)

52,568



Sales and marketing

97,146



(1,919)


(1)

95,227



General and administrative

45,552



(3,267)


(1)

42,285



Amortization of acquired customer-based intangible assets

28,250



(28,250)


(2)



Special charges (recoveries)

5,622



(5,622)


(4)



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

52,604


11.8%


62,570


(5)

115,174


25.7%


Other income (expense), net

(9,550)



9,550


(6)



Provision for (recovery of) income taxes

(309)



18,122


(7)

17,813



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

26,610



53,998


(8)

80,608



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

$

0.22



$

0.44


(8)

$

0.66





(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 (recoveries) 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 recovery rate of approximately 1% 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 (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, 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 March 31, 2015



Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

80,608


$

0.66


Less:



Amortization

50,386


0.41


Share-based compensation

6,562


0.05


Special charges (recoveries)

5,622


0.05


Other (income) expense, net

9,550


0.08


GAAP-based provision for (recovery of) income taxes

(309)



Non-GAAP based provision for income taxes

(17,813)


(0.15)


GAAP-based net income, attributable to OpenText

$

26,610


$

0.22


 

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

(In thousands except for per share amounts)


Nine Months Ended March 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

$

178,886



$

(581)


(1)

$

178,305



Customer support

70,878



(632)


(1)

70,246



Professional service and other

129,999



(914)


(1)

129,085



Amortization of acquired technology-based intangible assets

58,548



(58,548)


(2)



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

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

921,510


67.3%


60,675


(3)

982,185


71.7%


Operating expenses







Research and development

144,134



(1,831)


(1)

142,303



Sales and marketing

269,167



(6,587)


(1)

262,580



General and administrative

120,962



(5,395)


(1)

115,567



Amortization of acquired customer-based intangible assets

79,498



(79,498)


(2)



Special charges (recoveries)

4,032



(4,032)


(4)



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

266,201


19.4%


158,018


(5)

424,219


31.0%


Other income (expense), net

(28,737)



28,737


(6)



Provision for (recovery of) income taxes

35,401



34,288


(7)

69,689



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

165,523



152,467


(8)

317,990



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

$

1.35



$

1.24


(8)

$

2.59





(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 (recoveries) 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 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, 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:




Nine Months Ended March 31, 2015



Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

317,990


$

2.59


Less:



Amortization

138,046


1.12


Share-based compensation

15,940


0.13


Special charges (recoveries)

4,032


0.03


Other (income) expense, net

28,737


0.23


GAAP-based provision for (recovery of) income taxes

35,401


0.29


Non-GAAP based provision for income taxes

(69,689)


(0.56)


GAAP-based net income, attributable to OpenText

$

165,523


$

1.35


 

(3)

The following tables provide a composition of our major currencies for revenue and expenses, expressed as a percentage, for the three and nine months ended March 31, 2016 and 2015:




Three Months Ended
March 31, 2016


Three Months Ended
March 31, 2015

Currencies

% of Revenue 

% of Expenses* 


% of Revenue 

% of Expenses* 

EURO

22%


15%



23%


14%


GBP

8%


7%



8%


8%


CAD

4%


12%



5%


12%


USD

56%


49%



52%


49%


Other

10%


17%



12%


17%


Total

100%


100%



100%


100%





Nine Months Ended

March 31, 2016


Nine Months Ended

March 31, 2015

Currencies

% of Revenue 

% of Expenses* 


% of Revenue 

% of Expenses* 

EURO

23%


14%



24%


15%


GBP

8%


8%



9%


8%


CAD

4%


12%



5%


12%


USD

54%


50%



50%


47%


Other

11%


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 (recoveries).

 

SOURCE Open Text Corporation


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