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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