OpenText Earnings 2019-12-31

OTEX 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
DXC	14,635	32,577	21,360	20,361	0	1,170	3,720	21,467	0%	5.8	4%
LDOS	11,528	9,327	5,968	10,527	1,506	662	1,028	13,857	14%	13.5	7%
OTEX	11,247	7,934	4,049	2,869	1,938	286	870	13,712	68%	15.8	4%
JKHY	10,406	2,185	756	1,553	630	272	353	10,313	41%	29.2	12%
EPAM	9,998	1,931	509	2,046	725	245	320	9,244	35%	28.9	13%
ZEN	9,710	1,439	1,012	703	492	-167	-137	9,536	70%	-69.6	-12%
DOX	9,477	5,348	1,856	3,850	0	338	338	9,058	0%	26.8	6%
RNG	9,424	1,012	657	779	591	-31	18	8,856	76%	496.1	-3%
ATHM	8,996	15,756	4,645	0	0	0	0	8,779			0%
AZPN	8,614	903	510	598	541	263	334	8,542	90%	25.6	29%

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

______________________

FORM 10-Q

______________________



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019.



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-27544

______________________________________

OPEN TEXT CORPORATION

(Exact name of Registrant as specified in its charter)

______________________



Canada	98-0154400
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)



275 Frank Tompa Drive,			N2L 0A1
Waterloo,	Ontario	Canada	N2L 0A1
(Address of principal executive offices)			(Zip code)

Registrant's telephone number, including area code: (519) 888-7111

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock without par value	OTEX	NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At January 27, 2020, there were 270,771,591 outstanding Common Shares of the registrant.

OPEN TEXT CORPORATION

TABLE OF CONTENTS



		Page No
Part I Financial Information
Item 1. Financial Statements
	Condensed Consolidated Balance Sheets as of December 31, 2019 (unaudited) and June 30, 2019	3
	Condensed Consolidated Statements of Income - Three and Six Months Ended December 31, 2019 and 2018 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income - Three and Six Months Ended December 31, 2019 and 2018 (unaudited)	5
	Condensed Consolidated Statements of Shareholders' Equity - Three and Six Months Ended December 31, 2019 and 2018 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows - Six Months Ended December 31, 2019 and 2018 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		42
Item 3. Quantitative and Qualitative Disclosures about Market Risk		73
Item 4. Controls and Procedures		74
Part II Other Information
Item 1A. Risk Factors		75
Item 6. Exhibits		76
Signatures		77

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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



	December 31, 2019			June 30, 2019
ASSETS	(unaudited)
Cash and cash equivalents	$	675,403		$	941,009
Accounts receivable trade, net of allowance for doubtful accounts of $17,937 as of December 31, 2019 and $17,011 as of June 30, 2019 (note 4)	526,020			463,785
Contract assets (note 3)	22,794			20,956
Income taxes recoverable (note 15)	24,615			38,340
Prepaid expenses and other current assets	104,962			97,238
Total current assets	1,353,794			1,561,328
Property and equipment (note 5)	273,448			249,453
Operating lease right of use assets (note 6)	253,387			—
Long-term contract assets (note 3)	17,975			15,386
Goodwill (note 7)	4,656,492			3,769,908
Acquired intangible assets (note 8)	1,808,072			1,146,504
Deferred tax assets (note 15)	930,856			1,004,450
Other assets (note 9)	158,058			148,977
Long-term income taxes recoverable (note 15)	46,151			37,969
Total assets	$	9,498,233		$	7,933,975
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 10)	$	417,611		$	329,903
Current portion of long-term debt (note 11)	913,631			10,000
Operating lease liabilities (note 6)	66,579			—
Deferred revenues (note 3)	718,861			641,656
Income taxes payable (note 15)	51,298			33,158
Total current liabilities	2,167,980			1,014,717
Long-term liabilities:
Accrued liabilities (note 10)	14,977			49,441
Pension liability (note 12)	73,678			75,239
Long-term debt (note 11)	2,600,386			2,604,878
Long-term operating lease liabilities (note 6)	218,681			—
Deferred revenues (note 3)	77,335			46,974
Long-term income taxes payable (note 15)	180,507			202,184
Deferred tax liabilities (note 15)	165,457			55,872
Total long-term liabilities	3,331,021			3,034,588
Shareholders’ equity:
Share capital and additional paid-in capital (note 13)
270,608,627 and 269,834,442 Common Shares issued and outstanding at December 31, 2019 and June 30, 2019, respectively; authorized Common Shares: unlimited	1,803,663			1,774,214
Accumulated other comprehensive income	24,690			24,124
Retained earnings	2,201,653			2,113,883
Treasury stock, at cost (847,369 shares at December 31, 2019 and 802,871 shares at June 30, 2019, respectively)	(32,066		)	(28,766		)
Total OpenText shareholders' equity	3,997,940			3,883,455
Non-controlling interests	1,292			1,215
Total shareholders’ equity	3,999,232			3,884,670
Total liabilities and shareholders’ equity	$	9,498,233		$	7,933,975

Guarantees and contingencies (note 14)

Related party transactions (note 22)

Subsequent events (note 23)

See accompanying Notes to Condensed Consolidated Financial Statements

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(unaudited)



	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Revenues (note 3):
License	$	138,095		$	132,756		$	215,993		$	209,643
Cloud services and subscriptions	248,340			219,233			485,605			427,316
Customer support	315,508			310,354			627,806			621,905
Professional service and other	69,614			72,888			139,041			143,524
Total revenues	771,557			735,231			1,468,445			1,402,388
Cost of revenues:
License	3,050			3,655			5,373			7,527
Cloud services and subscriptions	103,644			88,698			205,806			176,401
Customer support	29,788			31,273			59,175			61,738
Professional service and other	53,604			56,030			107,942			112,826
Amortization of acquired technology-based intangible assets (note 8)	42,299			48,366			82,597			95,843
Total cost of revenues	232,385			228,022			460,893			454,335
Gross profit	539,172			507,209			1,007,552			948,053
Operating expenses:
Research and development	80,283			75,753			161,461			153,223
Sales and marketing	137,310			126,193			265,928			246,375
General and administrative	54,595			52,198			106,130			103,122
Depreciation	20,712			23,834			40,989			47,688
Amortization of acquired customer-based intangible assets (note 8)	51,460			45,919			100,618			91,795
Special charges (recoveries) (note 18)	10,072			9,380			15,173			32,691
Total operating expenses	354,432			333,277			690,299			674,894
Income from operations	184,740			173,932			317,253			273,159
Other income (expense), net	1,972			378			(813		)	1,900
Interest and other related expense, net	(32,376		)	(33,613		)	(64,586		)	(68,144		)
Income before income taxes	154,336			140,697			251,854			206,915
Provision for (recovery of) income taxes (note 15)	46,818			36,236			69,909			66,086
Net income for the period	$	107,518		$	104,461		$	181,945		$	140,829
Net (income) loss attributable to non-controlling interests	(51		)	(29		)	(77		)	(73		)
Net income attributable to OpenText	$	107,467		$	104,432		$	181,868		$	140,756
Earnings per share—basic attributable to OpenText (note 21)	$	0.40		$	0.39		$	0.67		$	0.52
Earnings per share—diluted attributable to OpenText (note 21)	$	0.40		$	0.39		$	0.67		$	0.52
Weighted average number of Common Shares outstanding—basic (in '000's)	270,450			268,524			270,232			268,276
Weighted average number of Common Shares outstanding—diluted (in '000's)	271,590			269,400			271,328			269,396

See accompanying Notes to Condensed Consolidated Financial Statements

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

(unaudited)



	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Net income for the period	$	107,518		$	104,461		$	181,945		$	140,829
Other comprehensive income (loss)—net of tax:
Net foreign currency translation adjustments	4,875			(3,418		)	(736		)	(6,938		)
Unrealized gain (loss) on cash flow hedges:
Unrealized gain (loss) - net of tax expense (recovery) effect of $301 and ($677) for the three months ended December 31, 2019 and 2018, respectively; $95 and ($496) for the six months ended December 31, 2019 and 2018, respectively	833			(1,877		)	261			(1,375		)
(Gain) loss reclassified into net income - net of tax (expense) recovery effect of ($26) and $169 for the three months ended December 31, 2019 and 2018, respectively; ($23) and $301 for the six months ended December 31, 2019 and 2018, respectively	(72		)	467			(64		)	833
Actuarial gain (loss) relating to defined benefit pension plans:
Actuarial gain (loss) - net of tax expense (recovery) effect of $1,308 and ($519) for the three months ended December 31, 2019 and 2018, respectively; $59 and ($213) for the six months ended December 31, 2019 and 2018, respectively	3,698			(1,521		)	614			(324		)
Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $97 and $72 for the three months ended December 31, 2019 and 2018, respectively; $243 and $145 for the six months ended December 31, 2019 and 2018, respectively	260			64			491			130
Total other comprehensive income (loss) net, for the period	9,594			(6,285		)	566			(7,674		)
Total comprehensive income	117,112			98,176			182,511			133,155
Comprehensive (income) loss attributable to non-controlling interests	(51		)	(29		)	(77		)	(73		)
Total comprehensive income attributable to OpenText	$	117,061		$	98,147		$	182,434		$	133,082

See accompanying Notes to Condensed Consolidated Financial Statements

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands of U.S. dollars and shares)

(unaudited)



	Three Months Ended December 31, 2019
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income		Non-Controlling Interests		Total
	Shares	Amount			Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income		Non-Controlling Interests		Total
Balance as of September 30, 2019	270,190	$	1,791,689		(1,103	)	$	(41,190	)	$	2,141,278		$	15,096	$	1,241	$	3,908,114
Issuance of Common Shares
Under employee stock option plans	231	6,783			—		—			—			—		—		6,783
Under employee stock purchase plans	188	6,532			—		—			—			—		—		6,532
Share-based compensation	—	7,783			—		—			—			—		—		7,783
Issuance of treasury stock	—	(9,124		)	256		9,124			—			—		—		—
Dividends declared ($0.1746 per Common Share)	—	—			—		—			(47,092		)	—		—		(47,092		)
Other comprehensive income (loss) - net	—	—			—		—			—			9,594		—		9,594
Net income for the quarter	—	—			—		—			107,467			—		51		107,518
Balance as of December 31, 2019	270,609	$	1,803,663		(847	)	$	(32,066	)	$	2,201,653		$	24,690	$	1,292	$	3,999,232



	Three Months Ended December 31, 2018
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income			Non-Controlling Interests		Total
	Shares	Amount			Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income			Non-Controlling Interests		Total
Balance as of September 30, 2018	268,332	$	1,730,933		(992	)	$	(30,381	)	$	1,993,099		$	32,256		$	1,123	$	3,727,030
Issuance of Common Shares
Under employee stock option plans	62	1,740			—		—			—			—			—		1,740
Under employee stock purchase plans	175	5,696			—		—			—			—			—		5,696
Share-based compensation	—	6,885			—		—			—			—			—		6,885
Purchase of treasury stock	—	—			(370	)	(12,815		)	—			—			—		(12,815		)
Issuance of treasury stock	—	(13,955		)	545		13,955			—			—			—		—
Dividends ($0.1518 per Common Share)	—	—			—		—			(40,700		)	—			—		(40,700		)
Other comprehensive income (loss) - net	—	—			—		—			—			(6,285		)	—		(6,285		)
Net income for the quarter	—	—			—		—			104,432			—			29		104,461
Balance as of December 31, 2018	268,569	$	1,731,299		(817	)	$	(29,241	)	$	2,056,831		$	25,971		$	1,152	$	3,786,012



	Six Months Ended December 31, 2019
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income		Non-Controlling Interests		Total
	Shares	Amount			Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income		Non-Controlling Interests		Total
Balance as of June 30, 2019	269,834	$	1,774,214		(803	)	$	(28,766	)	$	2,113,883		$	24,124	$	1,215	$	3,884,670
Issuance of Common Shares
Under employee stock option plans	415	11,359			—		—			—			—		—		11,359
Under employee stock purchase plans	360	12,540			—		—			—			—		—		12,540
Share-based compensation	—	14,674			—		—			—			—		—		14,674
Purchase of treasury stock	—	—			(300	)	(12,424		)	—			—		—		(12,424		)
Issuance of treasury stock	—	(9,124		)	256		9,124			—			—		—		—
Dividends declared ($0.3492 per Common Share)	—	—			—		—			(94,098		)	—		—		(94,098		)
Other comprehensive income (loss) - net	—	—			—		—			—			566		—		566
Net income for the quarter	—	—			—		—			181,868			—		77		181,945
Balance as of December 31, 2019	270,609	$	1,803,663		(847	)	$	(32,066	)	$	2,201,653		$	24,690	$	1,292	$	3,999,232



	Six Months Ended December 31, 2018
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income			Non-Controlling Interests		Total
	Shares	Amount			Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income			Non-Controlling Interests		Total
Balance as of June 30, 2018	267,651	$	1,707,073		(691	)	$	(18,732	)	$	1,994,235		$	33,645		$	1,037	$	3,717,258
Adoption of ASU 2016-16 - cumulative effect	—	—			—		—			(26,780		)	—			—		(26,780		)
Adoption of Topic 606 - cumulative effect	—	—			—		—			29,786			—			—		29,786
Issuance of Common Shares
Under employee stock option plans	556	14,171			—		—			—			—			—		14,171
Under employee stock purchase plans	362	11,265			—		—			—			—			—		11,265
Share-based compensation	—	13,440			—		—			—			—			—		13,440
Purchase of treasury stock	—	—			(674	)	(24,534		)	—			—			—		(24,534		)
Issuance of treasury stock	—	(14,025		)	548		14,025			—			—			—		—
Dividends declared ($0.3036 per Common Share)	—	—			—		—			(81,166		)	—			—		(81,166		)
Other comprehensive income - net	—	—			—		—			—			(7,674		)	—		(7,674		)
Non-controlling interest	—	(625		)	—		—			—			—			42		(583		)
Net income for the year	—	—			—		—			140,756			—			73		140,829
Balance as of December 31, 2018	268,569	$	1,731,299		(817	)	$	(29,241	)	$	2,056,831		$	25,971		$	1,152	$	3,786,012

See accompanying Notes to Condensed Consolidated Financial Statements

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)



	Six Months Ended December 31,
	2019			2018
Cash flows from operating activities:
Net income for the period	$	181,945		$	140,829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangible assets	224,204			235,326
Share-based compensation expense	14,674			13,440
Pension expense	2,895			2,254
Amortization of debt issuance costs	2,276			2,157
Loss on sale and write down of property and equipment	—			9,428
Deferred taxes	34,168			8,909
Share in net (income) loss of equity investees	(1,948		)	(7,863		)
Changes in operating assets and liabilities:
Accounts receivable	2,598			33,548
Contract assets	(17,659		)	(13,400		)
Prepaid expenses and other current assets	(501		)	12,532
Income taxes	(891		)

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	270	$11,247

10-Q	2020-01-30	Quarter: 2019-12-31
10-Q	2019-10-31	Quarter: 2019-09-30
10-K	2019-08-01	Annual: 2019-06-30
10-Q	2019-05-01	Quarter: 2019-03-31
10-Q	2019-01-31	Quarter: 2018-12-31
10-Q	2018-10-31	Quarter: 2018-09-30
10-K	2018-08-02	Annual: 2018-06-30
10-Q	2018-05-09	Quarter: 2018-03-31
10-Q	2018-01-31	Quarter: 2017-12-31
10-Q	2017-11-02	Quarter: 2017-09-30
10-K	2017-08-03	Annual: 2017-06-30
10-Q	2017-05-08	Quarter: 2017-03-31
10-Q	2017-02-02	Quarter: 2016-12-31
10-Q	2016-11-03	Quarter: 2016-09-30
10-K	2016-07-27	Annual: 2016-06-30
10-Q	2016-04-27	Quarter: 2016-03-31
10-Q	2016-02-09	Quarter: 2015-12-31
10-Q	2015-10-28	Quarter: 2015-09-30
10-K	2015-07-29	Annual: 2015-06-30
10-Q	2015-04-28	Quarter: 2015-03-31
10-Q	2015-01-27	Quarter: 2014-12-31
10-Q	2014-10-23	Quarter: 2014-09-30
10-K	2014-07-31	Annual: 2014-06-30
10-Q	2014-04-24	Quarter: 2014-03-31
10-Q	2014-01-23	Quarter: 2013-12-31
10-Q	2013-10-31	Quarter: 2013-09-30
10-K	2013-08-01	Annual: 2013-06-30
10-Q	2013-04-25	Quarter: 2013-03-31
10-Q	2013-01-25	Quarter: 2012-12-31
10-Q	2012-11-01	Quarter: 2012-09-30
10-K	2012-08-10	Annual: 2012-06-30
10-Q	2012-05-02	Quarter: 2012-03-31
10-Q	2012-02-02	Quarter: 2011-12-31
10-Q	2011-10-27	Quarter: 2011-09-30
10-K	2011-08-15	Annual: 2011-06-30
10-Q	2011-04-28	Quarter: 2011-03-31
10-Q	2011-02-03	Quarter: 2010-12-31
10-K	2010-08-20	Annual: 2010-06-30
10-Q	2010-04-30	Quarter: 2010-03-31
10-Q	2010-02-04	Quarter: 2009-12-31

8-K	2020-02-18	Off-BS Arrangement, Other Events, Exhibits
8-K	2020-02-04	Other Events
8-K	2020-02-03	Other Events, Exhibits
8-K	2020-02-03	Regulation FD, Other Events, Exhibits
8-K	2020-01-30	Earnings, Other Events, Exhibits
8-K	2019-12-24	M&A, Regulation FD, Exhibits
8-K	2019-11-10	Enter Agreement, Regulation FD, Exhibits
8-K	2019-10-31	Earnings, Officers, Other Events, Exhibits
8-K	2019-10-31	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-09-04	Enter Agreement, Shareholder Vote, Other Events, Exhibits
8-K	2019-08-01	Earnings, Other Events, Exhibits
8-K	2019-05-01	Earnings, Other Events, Exhibits
8-K	2019-01-31	Earnings, Other Events, Exhibits
8-K	2018-10-31	Earnings, Other Events, Exhibits
8-K	2018-09-05	Shareholder Vote, Other Events, Exhibits
8-K	2018-08-02	Earnings, Other Events, Exhibits
8-K	2018-07-11	Other Events
8-K	2018-05-30	Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K	2018-05-09	Earnings, Other Events, Exhibits
8-K	2018-01-30	Earnings, Officers, Other Events, Exhibits

EX-4.2	exhibit42carboniteinde.htm
EX-4.3	exhibit43carbonitefirs.htm
EX-31.1	exhibit311q2-2010xq.htm
EX-31.2	exhibit312q2-2010xq.htm
EX-32.1	exhibit321q2-2010xq.htm
EX-32.2	exhibit322q2-2010xq.htm