PR Newswire | Nov 5, 2020 04:02PM EST

11/05 15:01 CST

OpenText Reports First Quarter Fiscal Year 2021 Financial Results WATERLOO, ON, Nov. 5, 2020

Record Annual Recurring Revenues (ARR) and Cloud Revenue, Announces 15% Dividend Increase

WATERLOO, ON, Nov. 5, 2020 /PRNewswire/ --

First Quarter Highlights

Total Revenues Annual Recurring Cloud Revenues Revenues (in millions) (in millions) (in millions)

ReportedConstant ReportedConstant ReportedConstant Currency Currency Currency

$804.0 $798.0 $670.4 $667.3 $341.0 $340.2

+15.4% +14.5% +22.0% +21.4% +43.7% +43.4%

Annual Recurring Revenues represents 83% of Total Revenues

* Operating Cash Flows of $233.9 million in the quarter, up 70.2% Y/Y * Free Cash Flows of $218.6 million, up 84.0% Y/Y * GAAP net income of $103.4 million, up 38.9% Y/Y * Adjusted EBITDA of $342.3 million, up 34.7%, margin of 42.6%, up 610 basis points Y/Y * GAAP diluted EPS of $0.38, up 40.7% Y/Y * Non-GAAP diluted EPS of $0.89, up 39.1%, and $0.87 in constant currency, up 35.9% Y/Y * Quarterly cash dividend increased by 15% * Repayment of $600 million Revolver, no outstanding balances * Announces Share Repurchase Plan of up to $350 million

Open Text Corporation (NASDAQ: OTEX), (TSX: OTEX), "The Information Company," today announced its financial results for the first quarter ended September 30, 2020.

"OpenText delivered a great start to Fiscal 2021 with record performance across all of our key metrics," said Mark J. Barrenechea, OpenText CEO & CTO. "We demonstrated outstanding execution in a challenged environment with total revenues of $804.0 million, an increase of 15.4% year-over-year and Cloud Services and Subscription revenues of $341.0 million, an increase of 43.7% year-over-year, being our largest revenue contributor. Our Annual Recurring Revenues grew 22.0% year-over-year to $670.4 million and now represents 83% of total revenues. These record results demonstrate the strength and resiliency of our business, supported by a predictable Annual Recurring Revenue framework, that we believe positions OpenText very well for future cloud growth and market share gains."

"I would like to thank our talented employees for their focus and commitment to our customers during the global pandemic," said Barrenechea. "OpenText is making the largest investments in products and sales in our history. We have the products and partner relationships that matter, in order to help customers accelerate their digital transformation. We continue to grow, generate cash, and remain committed to our proven Total Growth strategy."

"I am proud of the company's performance in the first quarter of Fiscal 2021. OpenText's strong execution amid the global pandemic reflects the underlying discipline and agility of our operating framework," said OpenText EVP and CFO, Madhu Ranganathan. "In Q1 we generated $342.3 million of adjusted EBITDA, up 34.7% year-over-year and $218.6 million of free cash flow, up 84.0% year-over-year. We expanded our margins delivering a record adjusted EBITDA margin of 42.6%. The Carbonite integration remains on track, with their operations already within the OpenText Adjusted EBITDA target model range. Our strong balance sheet also provides ample opportunity to generate substantial long-term value for our shareholders."

Financial Highlights for Q1 Fiscal 2021 with Year Over Year Comparisons

Summary of Quarterly Results

(in millions except per Q1 FY21Q1 FY20$ % Change Q1 FY21% Changeshare data) Change (Y/Y) in CC* in CC*

Revenues:

Cloud services and $341.0$237.3$103.743.7 % $340.243.4 %subscriptions

Customer support 329.4 312.3 17.1 5.5 % 327.1 4.8 %

Total annual recurring $670.4$549.6$120.822.0 % $667.321.4 %revenues**

License 68.5 77.9 (9.4) (12.0)% 67.1 (13.8)%

Professional service and65.1 69.4 (4.3) (6.2) % 63.6 (8.5) %other

Total revenues $804.0$696.9$107.115.4 % $798.014.5 %

GAAP-based operating $182.4$132.5$49.8 37.6 % N/A N/A income

Non-GAAP-based operating$320.4$234.0$86.4 36.9 % $313.934.2 %income ^(1)

GAAP-based EPS, diluted $0.38 $0.27 $0.11 40.7 % N/A N/A

Non-GAAP-based EPS, $0.89 $0.64 $0.25 39.1 % $0.87 35.9 %diluted ^(1)(2)

GAAP-based net income $103.4$74.4 $29.0 38.9 % N/A N/A attributable to OpenText

Adjusted EBITDA ^(1) $342.3$254.2$88.1 34.7 % $335.732.1 %

Operating cash flows $233.9$137.4$96.5 70.2 % N/A N/A

Free cash flows^(1) $218.6$118.8$99.8 84.0 % N/A N/A

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

Please also see note 14 to the Company's Fiscal 2018 Consolidated^(2) Financial Statements on Form 10-K. Reflective of the amount of net tax benefit arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period.

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

Constant currency for this purpose is defined as the current period*CC: reported revenues/expenses/earnings represented at the prior comparative period's foreign exchange rate.

** Annual recurring revenue is defined as the sum of Cloud services and subscriptions revenue and Customer support revenue.

Dividend Program

As part of our quarterly, non-cumulative cash dividend program, the Board declared on November 4, 2020 a cash dividend of $0.2008 per common share. The record date for this dividend is December 4, 2020 and the payment date is December 22, 2020. OpenText believes strongly in returning value to its shareholders and intends to maintain its dividend program. Any future declarations of dividends and the establishment of future record and payment dates are all subject to the final determination and discretion of the Board of Directors.

Revolver Repayment

In October 2020, following the end of the quarter, OpenText repaid $600 million drawn under its Revolving Credit Facility (Revolver) using cash on hand. There are currently no amounts outstanding under the Revolver.

Share Repurchase Plan/Normal Course Issuer Bid

The Company also announced today the authorization of a share repurchase plan and that it intends to purchase in open market transactions, from time to time over the next 12 months, if considered advisable, up to an aggregate of US$350,000,000 of its common shares on the NASDAQ Global Select Market, the Toronto Stock Exchange (the "TSX") and/or other exchanges and alternative trading systems in Canada and/or the United States, if eligible, subject to applicable law and stock exchange rules (the "Repurchase Plan"). The price that OpenText will pay for common shares in open market transactions will be the market price at the time of purchase or such other price as may be permitted by applicable law or stock exchange rules.

The Company's determination to adopt the Repurchase Plan reflects its confidence in its operational execution and expanding cash flows, with the Repurchase Plan being additive to the Company's overall strategic capital allocation, complementing its ongoing M&A activity and dividend program. The Repurchase Plan will be effected in accordance with Rule 10b-18 under the U.S. Securities Exchange Act of 1934. Purchases made under the Repurchase Plan may commence on November 12, 2020 and will expire on November 11, 2021, and will be subject to a limit of 13,618,774 shares (representing 5% of the Company's issued and outstanding common shares as of November 4, 2020). All common shares purchased by OpenText pursuant to the Repurchase Plan will be cancelled.

Normal Course Issuer Bid

The Company has established a Normal Course Issuer Bid (the "NCIB") in order to provide it with a means to execute purchases over the TSX as part of the overall Repurchase Plan.

The TSX has approved the Company's notice of intention to commence the NCIB pursuant to which the Company may purchase common shares over the TSX for the period commencing November 12, 2020 until November 11, 2021 in accordance with the TSX's normal course issuer bid rules, including that such purchases are to be made at prevailing market prices or as otherwise permitted. Under the rules of the TSX, the maximum number of shares that may be purchased in this period is 13,618,774 (representing 5% of the Company's issued and outstanding common shares as of November 4, 2020), and the maximum number of shares that may be purchased on a single day is 143,424 common shares, which is 25% of 573,699 (the average daily trading volume for the common shares on the TSX for the six months ended October 31, 2020), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18.

Quarterly Business Highlights

* Key customer wins in the quarter included: California Department of Managed Health Care, European Centre for Medium-Range Weather Forecasts, Fresh Direct, Heritage Lab Express, Hydro Quebec, ON Semiconductor, Pacific Gas and Electric Company, Plex Systems, Inc., Securex, Sephora, South Carolina Educational Television, Southern California Edison, Texas A&M University, UK Department of Work & Pensions, University of Central Lancashire, Wm Morrison * OpenText launches new SaaS applications, new cloud resources for developers, and major enhancements across the OpenText portfolio * OpenText Announces flexible cloud platform for developers * OpenText makes electronic signature accessible to organizations of every size * OpenText announces support for Alfresco * OpenText World 2020 opens with record registrations of 7,000, and a focus on the future of work

Summary of Quarterly Results

% Change % Change Q1 FY21 Q4 FY20 Q1 FY20 (Q1 FY21 (Q1 FY21 vs vs Q4 FY20) Q1 FY20)

Revenue (millions) $804.0 $826.6 $696.9 (2.7) % 15.4 %

GAAP-based gross margin69.0 %68.5 %67.2 %50 bps180 bps

GAAP-based EPS, diluted$0.38 $0.10 $0.27 280.0 % 40.7 %

Non-GAAP-based gross 76.5 %75.8 %73.1 %70 bps340 bpsmargin ^(1)

Non-GAAP-based EPS, $0.89 $0.80 $0.64 11.3 % 39.1 % diluted ^(1)(2)

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

Please also see note 14 to the Company's Fiscal 2018 Consolidated Financial^ Statements on Form 10-K. Reflective of the amount of net tax benefit(2) arising from the internal reorganization assumed to be allocable to the current period based on the forecasted utilization period.

Conference Call Information

The public is invited to listen to the earnings conference call today at 5:00 p.m. ET (2:00 p.m. PT) by dialing 1-800-319-4610 (toll-free) or +1-604-638-5340 (international). Please dial-in 10 minutes ahead of time to ensure proper connection. Alternatively, a live webcast of the earnings conference call will be available on the Investor Relations section of the Company's website at http://investors.opentext.com/investor-events-and-presentations.

A replay of the call will be available beginning November 5, 2020 at 7:00 p.m. ET through 11:59 p.m. on November 19, 2020 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 5342 followed by the number sign.

Please see below note (2) for a reconciliation of U.S. GAAP-based financial measures used in this press release, to non-U.S. GAAP-based financial measures. Additionally, "off-cloud" is a term we use to describe license transactions.

About OpenText

OpenText, The Information Company(tm), enables organizations to gain insight through market leading information management solutions, on-premises or in the cloud. For more information about OpenText (NASDAQ: OTEX, TSX: OTEX) visit opentext.com.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this press release, including statements about the focus of Open Text Corporation ("OpenText" or "the Company") in our fiscal year ending June 30, 2021 (Fiscal 2021) on growth, future cloud growth and market share gains, generating substantial long-term value for shareholders, the financial and operational impact of the COVID-19 pandemic, anticipated benefits of our partnerships and next generation product lines, the strength of our operating framework and balance sheet flexibility, continued investments in product innovation, go-to-market and strategic acquisitions, M&A continuing to be our leading growth contributor, our capital allocation strategy, creating value through investments in broader Information Management capabilities, the Company's presence in the cloud and in growth markets, expected growth in our revenue lines, total growth from acquisitions, innovation and organic initiatives, the focus on recurring revenues, improving operational efficiency, expanding cash flow and strengthening the business, adjusted operating income and cash flow, its financial condition, the adjusted operating margin target range, results of operations and earnings, announced acquisitions, ongoing tax matters, the integration of the acquired businesses, declaration of quarterly dividends, potential share repurchases pursuant to its Repurchase Plan, future tax rates, new platform and product offerings, scaling OpenText to new levels in Fiscal 2021 and beyond, 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 which include, but are not limited to, actual and potential risks and uncertainties relating to the ultimate spread of COVID-19, the severity of the disease and the duration of the COVID-19 pandemic. 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:

Harry E. BlountSenior Vice President, Global Head of Investor RelationsOpen Text Corporation415-963-0825investors@opentext.com

Copyright (c)2020 Open Text. OpenText is a trademark or registered trademark of Open Text. The list of trademarks is not exhaustive of other trademarks. Registered trademarks, product names, company names, brands and service names mentioned herein are property of Open Text. All rights reserved. For more information, visit: http://www.opentext.com/who-we-are/copyright-information.

OPEN TEXT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars, except share data)



September 30,June 30, 2020 2020

ASSETS (unaudited)

Cash and cash equivalents $1,845,582 $1,692,850

Accounts receivable trade, net of allowance for credit losses of $22,366 as of September 30, 396,897 466,357 2020 and $20,906 as of June 30, 2020

Contract assets 26,236 29,570

Income taxes recoverable 26,869 61,186

Prepaid expenses and other current assets 140,474 136,436

Total current assets 2,436,058 2,386,399

Property and equipment 235,498 244,555

Operating lease right of use assets 196,884 207,869

Long-term contract assets 19,066 15,427

Goodwill 4,682,784 4,672,356

Acquired intangible assets 1,506,407 1,612,564

Deferred tax assets 893,256 911,565

Other assets 161,142 154,467

Long-term income taxes recoverable 30,719 29,620

Total assets $10,161,814$10,234,822

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities $313,468 $373,314

Current portion of long-term debt 610,000 610,000

Operating lease liabilities 60,447 64,071

Deferred revenues 770,919 812,218

Income taxes payable 29,666 44,630

Total current liabilities 1,784,500 1,904,233

Long-term liabilities:

Accrued liabilities 42,081 34,955

Pension liability 78,536 73,129

Long-term debt 3,582,923 3,584,311

Long-term operating lease liabilities 207,723 217,165

Long-term deferred revenues 96,180 94,382

Long-term income taxes payable 176,396 171,200

Deferred tax liabilities 125,755 148,738

Total long-term liabilities 4,309,594 4,323,880

Shareholders' equity:

Share capital and additional paid-in capital

272,173,923 and 271,863,354 Common Shares issued and outstanding at September 30, 2020 and 1,872,411 1,851,777 June 30, 2020, respectively; authorized Common Shares: unlimited

Accumulated other comprehensive income 39,695 17,825

Retained earnings 2,213,053 2,159,396

Treasury stock, at cost (1,393,771 and 622,297 shares at September 30, 2020 and June 30, 2020, (58,788) (23,608) respectively)

Total OpenText shareholders' equity 4,066,371 4,005,390

Non-controlling interests 1,349 1,319

Total shareholders' equity 4,067,720 4,006,709

Total liabilities and shareholders' equity $10,161,814$10,234,822

OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands of U.S. dollars, except share and per share data) (unaudited)



Three Months Ended September 30,

2020 2019

Revenues:

Cloud services and subscriptions $340,986 $237,265

Customer support 329,399 312,298

License 68,523 77,898

Professional service and other 65,105 69,427

Total revenues 804,013 696,888

Cost of revenues:

Cloud services and subscriptions 112,624 102,162

Customer support 29,194 29,387

License 2,489 2,323

Professional service and other 46,581 54,338

Amortization of acquired technology-based 58,037 40,298 intangible assets

Total cost of revenues 248,925 228,508

Gross profit 555,088 468,380

Operating expenses:

Research and development 93,903 81,178

Sales and marketing 132,400 128,618

General and administrative 56,189 51,535

Depreciation 22,003 20,277

Amortization of acquired customer-based 54,993 49,158 intangible assets

Special charges (recoveries) 13,244 5,101

Total operating expenses 372,732 335,867

Income from operations 182,356 132,513

Other income (expense), net 2,883 (2,785)

Interest and other related expense, net (39,089) (32,210)

Income before income taxes 146,150 97,518

Provision for (recovery of) income taxes 42,744 23,091

Net income for the period $103,406 $74,427

Net (income) loss attributable to non-controlling(30) (26) interests

Net income attributable to OpenText $103,376 $74,401

Earnings per share-basic attributable to OpenText$0.38 $0.28

Earnings per share-diluted attributable to $0.38 $0.27 OpenText

Weighted average number of Common Shares outstanding-basic 271,986 270,013 (in '000's)

Weighted average number of Common Shares outstanding-diluted 272,847 271,251 (in '000's)

OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands of U.S. dollars) (unaudited)



Three Months Ended September 30,

2020 2019

Net income for the period $103,406$74,427

Other comprehensive income (loss)-net of tax:

Net foreign currency translation adjustments 22,645 (5,611)

Unrealized gain (loss) on cash flow hedges:

Unrealized gain (loss) - net of tax expense (recovery) effect of $305 and $(206) for the three months ended 845 (572) September 30, 2020 and 2019, respectively

(Gain) loss reclassified into net income - net of tax (expense) recovery effect of $(56) and $3 for the three(156) 8 months ended September 30, 2020 and 2019, respectively

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

Actuarial gain (loss) - net of tax expense (recovery) effect of $(916) and $(1,249) for the three months (1,705) (3,084) ended September 30, 2020 and 2019, respectively

Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $87 and $146 241 231 for the three months ended September 30, 2020 and 2019, respectively

Total other comprehensive income (loss) net, for the 21,870 (9,028) period

Total comprehensive income 125,276 65,399

Comprehensive (income) loss attributable to (30) (26) non-controlling interests

Total comprehensive income attributable to OpenText $125,246$65,373

OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands of U.S. dollars and shares) (unaudited)



Three Months Ended September 30, 2020

Common Shares and Accumulated Additional Paid in Treasury Stock Retained Other Non-Controlling Capital Earnings ComprehensiveInterests Total Income Shares Amount Shares Amount

Balance as of June271,863$1,851,777(622) $(23,608)$2,159,396$17,825 $ 1,319 $4,006,70930, 2020

Adoption of ASU 2016-13 - - - - - (2,450) - - (2,450) cumulative effect, net

Issuance of Common Shares

Under employee 311 8,605 - - - - - 8,605 stock option plans

Under employee stock purchase - 293 193 6,690 - - - 6,983 plans

Share-based - 11,736 - - - - - 11,736 compensation

Purchase of - - (965) (41,870) - - - (41,870) treasury stock

Dividends declared ($0.1746 per - - - - (47,269) - - (47,269) Common Share)

Other comprehensive - - - - - 21,870 - 21,870 income - net

Net income for the- - - - 103,376 - 30 103,406 quarter

Balance as of 272,174$1,872,411(1,394)$(58,788)$2,213,053$39,695 $ 1,349 $4,067,720September 30, 2020



Three Months Ended September 30, 2019

Common Shares and Accumulated Additional Paid in Treasury Stock Retained Other Non-Controlling Capital Earnings ComprehensiveInterests Total Income Shares Amount Shares Amount

Balance as of June269,834$1,774,214(803) $(28,766)$2,113,883$24,124 $ 1,215 $3,884,67030, 2019

Issuance of Common Shares

Under employee 184 4,576 - - - - - 4,576 stock option plans

Under employee stock purchase 172 6,008 - - - - - 6,008 plans

Share-based - 6,891 - - - - - 6,891 compensation

Purchase of - - (300) (12,424) - - - (12,424) treasury stock

Dividends declared ($0.1746 per - - - - (47,006) - - (47,006) Common Share)

Other comprehensive - - - - - (9,028) - (9,028) income - net

Net income for the- - - - 74,401 - 26 74,427 quarter

Balance as of 270,190$1,791,689(1,103)$(41,190)$2,141,278$15,096 $ 1,241 $3,908,114September 30, 2019

OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) (unaudited)



Three Months Ended September 30,

2020 2019

Cash flows from operating activities:

Net income for the period $103,406 $74,427

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

Depreciation and amortization of intangible assets135,033 109,733

Share-based compensation expense 11,736 6,891

Pension expense 1,505 1,436

Amortization of debt issuance costs 1,112 1,127

Loss on sale and write down of property and 573 - equipment

Deferred taxes (1,180) 6,244

Share in net (income) loss of equity investees (6,221) (682)

Changes in operating assets and liabilities:

Accounts receivable 74,842 58,431

Contract assets (9,838) (7,201)

Prepaid expenses and other current assets (3,491) (1,612)

Income taxes 21,032 7,053

Accounts payable and accrued liabilities (51,429) (62,979)

Deferred revenue (41,268) (61,169)

Other assets 549 5,684

Operating lease assets and liabilities, net (2,457) 64

Net cash provided by operating activities 233,904 137,447

Cash flows from investing activities:

Additions of property and equipment (15,305) (18,614)

Other investing activities (2,237) (2,036)

Net cash used in investing activities (17,542) (20,650)

Cash flows from financing activities:

Proceeds from issuance of Common Shares from 15,839 11,117 exercise of stock options and ESPP

Repayment of long-term debt and Revolver (2,500) (2,500)

Purchase of treasury stock (41,870) (12,424)

Payments of dividends to shareholders (47,269) (47,006)

Net cash provided by (used in) financing (75,800) (50,813) activities

Foreign exchange gain (loss) on cash held in 10,792 (7,711) foreign currencies

Increase (decrease) in cash, cash equivalents and 151,354 58,273 restricted cash during the period

Cash, cash equivalents and restricted cash at 1,697,263 943,543 beginning of the period

Cash, cash equivalents and restricted cash at end $1,848,617$1,001,816of the period

Reconciliation of cash, cash equivalents and September September restricted cash: 30, 2020 30, 2019

Cash and cash equivalents $1,845,582$999,298

Restricted cash ^(1) 3,035 2,518

Total cash, cash equivalents and restricted cash $1,848,617$1,001,816



^(1) Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Condensed Consolidated Balance Sheets

Notes

(1) All dollar amounts in this press release are in U.S. Dollars unless otherwise indicated.

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(2) companies and/or analysts and may differ from period to period. Thus it may be more difficult to compare the Company's financial performance to that of other companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its consolidated financial statements, all of which should be considered when evaluating the Company's results.

The Company uses these Non-GAAP financial measures to supplement the information provided in its consolidated financial statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures are not meant to be a substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain Non-GAAP measures defined below.

Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are consistently calculated as GAAP-based net income or earnings per share, attributable to OpenText, on a diluted basis, excluding the effects of the amortization of acquired intangible assets, other income (expense), share-based compensation, and special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as income from operations, excluding the amortization of acquired intangible assets, Special charges (recoveries), and share-based compensation expense.

Adjusted earnings (loss) before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and special charges (recoveries). Adjusted EBITDA margin is calculated as adjusted EBITDA expressed as a percentage of total revenue.

The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term "non-operational charge" is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management. These items are excluded based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports and are not excluded in the sense that they may be used under U.S. GAAP.

The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of Non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company's operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company's "Special charges (recoveries)" caption on the Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company's operating results and underlying operational trends.

In summary the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results.

The following charts provide (unaudited) reconciliations of U.S. GAAP-based financial measures to Non-U.S. GAAP-based financial measures for the following periods presented.

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended September 30, 2020. (In thousands except for per share amounts)

Three Months Ended September 30, 2020

Non-GAAP- GAAP-basedGAAP-based Non-GAAP- based Measures Adjustments Notebased Measures Measures % of Total % of Revenue Measures Total Revenue

Cost of revenues

Cloud services and $112,624 $(836) (1) $111,788 subscriptions

Customer support29,194 (442) (1) 28,752

Professional service and 46,581 (517) (1) 46,064 other

Amortization of acquired technology-based58,037 (58,037) (2) - intangible assets

GAAP-based gross profit and gross margin (%) / 555,088 69.0% 59,832 (3) 614,920 76.5% Non-GAAP-based gross profit and gross margin (%)

Operating expenses

Research and 93,903 (2,342) (1) 91,561 development

Sales and 132,400 (4,057) (1) 128,343 marketing

General and 56,189 (3,542) (1) 52,647 administrative

Amortization of acquired customer-based 54,993 (54,993) (2) - intangible assets

Special charges 13,244 (13,244) (4) - (recoveries)

GAAP-based income from operations / 182,356 138,010 (5) 320,366 Non-GAAP-based income from operations

Other income 2,883 (2,883) (6) - (expense), net

Provision for (recovery of) 42,744 (3,365) (7) 39,379 income taxes

GAAP-based net income / Non-GAAP-based 103,376 138,492 (8) 241,868 net income, attributable to OpenText

GAAP-based earnings per share / Non-GAAP-based $0.38 $0.51 (8) $0.89 earnings per share-diluted, attributable to OpenText

Adjustment relates to the exclusion of share-based compensation expense(1) from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

Adjustment relates to the exclusion of amortization expense from our(2) Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

(3) GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue.

Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are(4) generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.

(5) GAAP-based and Non-GAAP-based income from operations stated in dollars.

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income(6) (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 29% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and Other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes(7) in reserves for tax uncertainties and valuation allowance reserves, and "book to return" adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8) Reconciliation of GAAP-based net income to Non-GAAP-based net income:

Three Months Ended September 30, 2020

Per share diluted

GAAP-based net income, attributable to $103,376 $ 0.38 OpenText

Add:

Amortization 113,030 0.41

Share-based compensation 11,736 0.04

Special charges (recoveries) 13,244 0.05

Other (income) expense, net (2,883) (0.01)

GAAP-based provision for (recovery of) 42,744 0.16 income taxes

Non-GAAP-based provision for income taxes (39,379) (0.14)

Non-GAAP-based net income, attributable to $241,868 $ 0.89 OpenText

Reconciliation of Adjusted EBITDA



Three Months Ended September 30, 2020

GAAP-based net income, attributable to OpenText$ 103,376

Add:

Provision for (recovery of) income taxes 42,744

Interest and other related expense, net 39,089

Amortization of acquired technology-based 58,037 intangible assets

Amortization of acquired customer-based 54,993 intangible assets

Depreciation 22,003

Share-based compensation 11,736

Special charges (recoveries) 13,244

Other (income) expense, net (2,883)

Adjusted EBITDA $ 342,339

Reconciliation of Free cash flows



Three Months Ended September 30, 2020

GAAP cash flows provided by operating activities$ 233,904

Add:

Capital expenditures ^(1) (15,305)

Free cash flows $ 218,599



^(1) Defined as "Additions of property & equipment" in the Condensed Consolidated Statements of Cash Flows

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended June 30, 2020. (In thousands except for per share amounts)

Three Months Ended June 30, 2020

Non-GAAP- GAAP-basedGAAP-based Non-GAAP-basedbased Measures Adjustments Note Measures Measures % of Total Measures % of Revenue Total Revenue

Cost of revenues

Cloud services and $116,569 $(490) (1) $ 116,079 subscriptions

Customer support32,568 (310) (1) 32,258

Professional service and 48,435 (377) (1) 48,058 other

Amortization of acquired technology-based59,719 (59,719) (2) - intangible assets

GAAP-based gross profit and gross margin (%) / 565,917 68.5 %60,896 (3) 626,813 75.8 %Non-GAAP-based gross profit and gross margin (%)

Operating expenses

Research and 100,766 (1,590) (1) 99,176 development

Sales and 152,882 (2,575) (1) 150,307 marketing

General and 62,574 (2,660) (1) 59,914 administrative

Amortization of acquired customer-based 58,998 (58,998) (2) - intangible assets

Special charges 75,849 (75,849) (4) - (recoveries)

GAAP-based income from operations / 91,199 202,568 (5) 293,767 Non-GAAP-based income from operations

Other income 7,790 (7,790) (6) - (expense), net

Provision for (recovery of) 32,037 3,416 (7) 35,453 income taxes

GAAP-based net income / Non-GAAP-based 26,392 191,362 (8) 217,754 net income, attributable to OpenText

GAAP-based earnings per share / Non-GAAP-based $0.10 $0.70 (8) $ 0.80 earnings per share-diluted, attributable to OpenText



Adjustment relates to the exclusion of share-based compensation expense(1) from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

Adjustment relates to the exclusion of amortization expense from our(2) Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

(3) GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue.

Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are(4) generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.

(5) GAAP-based and Non-GAAP-based income from operations stated in dollars.

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income(6) (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 55% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes(7) in reserves for tax uncertainties and valuation allowance reserves, and "book to return" adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8) Reconciliation of GAAP-based net income to Non-GAAP-based net income:

Three Months Ended June 30, 2020

Per share diluted

GAAP-based net income, attributable to $26,392 $ 0.10 OpenText

Add:

Amortization 118,717 0.44

Share-based compensation 8,002 0.03

Special charges (recoveries) 75,849 0.28

Other (income) expense, net (7,790) (0.03)

GAAP-based provision for (recovery of) income 32,037 0.12 taxes

Non-GAAP-based provision for income taxes (35,453) (0.14)

Non-GAAP-based net income, attributable to $217,754 $ 0.80 OpenText

Reconciliation of Adjusted EBITDA



Three Months Ended June 30, 2020

GAAP-based net income, attributable to OpenText $26,392

Add:

Provision for (recovery of) income taxes 32,037

Interest and other related expense, net 40,529

Amortization of acquired technology-based 59,719 intangible assets

Amortization of acquired customer-based 58,998 intangible assets

Depreciation 23,649

Share-based compensation 8,002

Special charges (recoveries) 75,849

Other (income) expense, net (7,790)

Adjusted EBITDA $317,385

Reconciliation of Free cash flows



Three Months Ended June 30, 2020

GAAP cash flows provided by operating activities$ 280,250

Add:

Capital expenditures ^(1) (17,704)

Free cash flows $ 262,546



^(1) Defined as "Additions of property & equipment" in the Condensed Consolidated Statements of Cash Flows

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended September 30, 2019. (In thousands except for per share amounts)

Three Months Ended September 30, 2019

Non-GAAP- GAAP-basedGAAP-based Non-GAAP-basedbased Measures Adjustments Note Measures Measures % of Total Measures % of Revenue Total Revenue

Cost of revenues

Cloud services and $102,162 $(383) (1) $ 101,779 subscriptions

Customer support29,387 (316) (1) 29,071

Professional service and 54,338 (243) (1) 54,095 other

Amortization of acquired technology-based40,298 (40,298) (2) - intangible assets

GAAP-based gross profit and gross margin (%) / 468,380 67.2 %41,240 (3) 509,620 73.1 %Non-GAAP-based gross profit and gross margin (%)

Operating expenses

Research and 81,178 (1,221) (1) 79,957 development

Sales and 128,618 (2,116) (1) 126,502 marketing

General and 51,535 (2,612) (1) 48,923 administrative

Amortization of acquired customer-based 49,158 (49,158) (2) - intangible assets

Special charges 5,101 (5,101) (4) - (recoveries)

GAAP-based income from operations / 132,513 101,448 (5) 233,961 Non-GAAP-based income from operations

Other income (2,785) 2,785 (6) - (expense), net

Provision for (recovery of) 23,091 5,154 (7) 28,245 income taxes

GAAP-based net income / Non-GAAP-based 74,401 99,079 (8) 173,480 net income, attributable to OpenText

GAAP-based earnings per share / Non-GAAP-based $0.27 $0.37 (8) $ 0.64 earnings per share-diluted, attributable to OpenText



Adjustment relates to the exclusion of share-based compensation expense(1) from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

Adjustment relates to the exclusion of amortization expense from our(2) Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

(3) GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of total revenue.

Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are(4) generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.

(5) GAAP-based and Non-GAAP-based income from operations stated in dollars.

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income(6) (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 24% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes(7) in reserves for tax uncertainties and valuation allowance reserves, and "book to return" adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8) Reconciliation of GAAP-based net income to Non-GAAP-based net income:

Three Months Ended September 30, 2019

Per share diluted

GAAP-based net income, attributable to $74,401 $ 0.27 OpenText

Add:

Amortization 89,456 0.33

Share-based compensation 6,891 0.03

Special charges (recoveries) 5,101 0.02

Other (income) expense, net 2,785 0.01

GAAP-based provision for (recovery of) 23,091 0.09 income taxes

Non-GAAP-based provision for income taxes (28,245) (0.11)

Non-GAAP-based net income, attributable to $173,480 $ 0.64 OpenText

Reconciliation of Adjusted EBITDA



Three Months Ended September 30, 2019

GAAP-based net income, attributable to OpenText$ 74,401

Add:

Provision for (recovery of) income taxes 23,091

Interest and other related expense, net 32,210

Amortization of acquired technology-based 40,298 intangible assets

Amortization of acquired customer-based 49,158 intangible assets

Depreciation 20,277

Share-based compensation 6,891

Special charges (recoveries) 5,101

Other (income) expense, net 2,785

Adjusted EBITDA $ 254,212

Reconciliation of Free cash flows



Three Months Ended September 30, 2019

GAAP cash flows provided by operating activities$ 137,447

Add:

Capital expenditures ^(1) (18,614)

Free cash flows $ 118,833



^(1) Defined as "Additions of property & equipment" in the Condensed Consolidated Statements of Cash Flows

The following tables provide a composition of our major currencies for(3) revenue and expenses, expressed as a percentage, for the three months ended September 30, 2020 and 2019:

Three Months Ended September Three Months Ended September 30, 2020 30, 2019

Currencies % of Revenue % of Expenses* % of Revenue % of Expenses*

EURO 22 % 13 % 22 % 14 %

GBP 5 % 5 % 5 % 5 %

CAD 3 % 9 % 3 % 10 %

USD 63 % 56 % 60 % 53 %

Other 7 % 17 % 10 % 18 %

Total 100 % 100 % 100 % 100 %

Expenses include all cost of revenues and operating expenses included within* the Condensed Consolidated Statements of Income, except for amortization of intangible assets, share-based compensation and Special charges (recoveries).

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SOURCE Open Text Corporation