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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 March 31, 2022.
OR
| | | | | |
☐ | 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 | | | |
| (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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 May 2, 2022, there were 270,483,039 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 March 31, 2022 (unaudited) and June 30, 2021 | |
| Condensed Consolidated Statements of Income - Three and Nine Months Ended March 31, 2022 and 2021 (unaudited) | |
| Condensed Consolidated Statements of Comprehensive Income - Three and Nine Months Ended March 31, 2022 and 2021 (unaudited) | |
| Condensed Consolidated Statements of Shareholders' Equity - Three and Nine Months Ended March 31, 2022 and 2021 (unaudited) | |
| Condensed Consolidated Statements of Cash Flows - Nine Months Ended March 31, 2022 and 2021 (unaudited) | |
| Notes to Condensed Consolidated Financial Statements (unaudited) | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
Part II Other Information | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. | Exhibits | |
Signatures | |
Part I - Financial Information
Item 1. Financial Statements
OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share data)
| | | | | | | | | | | |
| March 31, 2022 | | June 30, 2021 |
ASSETS | (unaudited) | | |
Cash and cash equivalents | $ | 1,633,702 | | | $ | 1,607,306 | |
Accounts receivable trade, net of allowance for credit losses of $16,439 as of March 31, 2022 and $22,151 as of June 30, 2021 (note 4) | 429,877 | | | 438,547 | |
Contract assets (note 3) | 25,481 | | | 25,344 | |
Income taxes recoverable (note 15) | 20,781 | | | 32,312 | |
Prepaid expenses and other current assets (note 9) | 122,616 | | | 98,551 | |
Total current assets | 2,232,457 | | | 2,202,060 | |
Property and equipment (note 5) | 227,830 | | | 233,595 | |
Operating lease right of use assets (note 6) | 217,684 | | | 234,532 | |
Long-term contract assets (note 3) | 20,049 | | | 19,222 | |
Goodwill (note 7) | 5,265,189 | | | 4,691,673 | |
Acquired intangible assets (note 8) | 1,181,266 | | | 1,187,260 | |
Deferred tax assets (note 15) | 717,345 | | | 796,738 | |
Other assets (note 9) | 257,301 | | | 208,894 | |
Long-term income taxes recoverable (note 15) | 43,518 | | | 35,362 | |
Total assets | $ | 10,162,639 | | | $ | 9,609,336 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable and accrued liabilities (note 10) | $ | 404,545 | | | $ | 423,592 | |
Current portion of long-term debt (note 11) | 10,000 | | | 10,000 | |
Operating lease liabilities (note 6) | 59,182 | | | 58,315 | |
Deferred revenues (note 3) | 936,750 | | | 852,629 | |
Income taxes payable (note 15) | 7,483 | | | 17,368 | |
Total current liabilities | 1,417,960 | | | 1,361,904 | |
Long-term liabilities: | | | |
Accrued liabilities (note 10) | 16,631 | | | 28,830 | |
Pension liability (note 12) | 76,364 | | | 74,511 | |
Long-term debt (note 11) | 4,210,582 | | | 3,578,859 | |
Long-term operating lease liabilities (note 6) | 203,101 | | | 224,453 | |
Long-term deferred revenues (note 3) | 90,736 | | | 98,989 | |
Long-term income taxes payable (note 15) | 35,206 | | | 34,113 | |
Deferred tax liabilities (note 15) | 56,208 | | | 108,224 | |
Total long-term liabilities | 4,688,828 | | | 4,147,979 | |
Shareholders’ equity: | | | |
Share capital and additional paid-in capital (note 13) | | | |
270,231,166 and 271,540,755 Common Shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively; authorized Common Shares: unlimited | 2,010,146 | | | 1,947,764 | |
Accumulated other comprehensive income (note 20) | 17,266 | | | 66,238 | |
Retained earnings | 2,151,369 | | | 2,153,326 | |
Treasury stock, at cost (2,776,420 and 1,567,664 shares at March 31, 2022 and June 30, 2021, respectively) | (124,033) | | | (69,386) | |
Total OpenText shareholders' equity | 4,054,748 | | | 4,097,942 | |
Non-controlling interests | 1,103 | | | 1,511 | |
Total shareholders’ equity | 4,055,851 | | | 4,099,453 | |
Total liabilities and shareholders’ equity | $ | 10,162,639 | | | $ | 9,609,336 | |
Guarantees and contingencies (note 14)
Related party transactions (note 24)
Subsequent event (note 25)
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 March 31, | | Nine Months Ended March 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenues (note 3): | | | | | | | |
Cloud services and subscriptions | $ | 401,947 | | | $ | 355,845 | | | $ | 1,123,422 | | | $ | 1,047,285 | |
Customer support | 332,514 | | | 335,915 | | | 1,002,626 | | | 999,806 | |
License | 80,641 | | | 76,299 | | | 263,663 | | | 252,170 | |
Professional service and other | 67,181 | | | 64,872 | | | 201,679 | | | 193,327 | |
Total revenues | 882,283 | | | 832,931 | | | 2,591,390 | | | 2,492,588 | |
Cost of revenues: | | | | | | | |
Cloud services and subscriptions | 136,020 | | | 123,729 | | | 377,928 | | | 354,235 | |
Customer support | 31,763 | | | 30,953 | | | 90,914 | | | 89,815 | |
License | 3,196 | | | 2,810 | | | 10,906 | | | 9,601 | |
Professional service and other | 56,693 | | | 50,321 | | | 161,459 | | | 143,521 | |
Amortization of acquired technology-based intangible assets (note 8) | 46,564 | | | 53,453 | | | 152,333 | | | 165,581 | |
Total cost of revenues | 274,236 | | | 261,266 | | | 793,540 | | | 762,753 | |
Gross profit | 608,047 | | | 571,665 | | | 1,797,850 | | | 1,729,835 | |
Operating expenses: | | | | | | | |
Research and development | 117,730 | | | 110,071 | | | 321,517 | | | 304,212 | |
Sales and marketing | 180,955 | | | 158,687 | | | 491,133 | | | 438,984 | |
General and administrative | 88,137 | | | 71,548 | | | 231,127 | | | 190,502 | |
Depreciation | 22,370 | | | 21,961 | | | 65,535 | | | 64,244 | |
Amortization of acquired customer-based intangible assets (note 8) | 56,215 | | | 54,156 | | | 160,764 | | | 164,075 | |
Special charges (recoveries) (note 18) | 11,031 | | | 2,846 | | | 20,592 | | | (1,404) | |
Total operating expenses | 476,438 | | | 419,269 | | | 1,290,668 | | | 1,160,613 | |
Income from operations | 131,609 | | | 152,396 | | | 507,182 | | | 569,222 | |
Other income (expense), net (note 22) | 24,392 | | | 8,283 | | | 29,137 | | | 16,417 | |
Interest and other related expense, net | (40,238) | | | (37,333) | | | (117,538) | | | (114,017) | |
Income before income taxes | 115,763 | | | 123,346 | | | 418,781 | | | 471,622 | |
Provision for income taxes (note 15) | 41,041 | | | 31,818 | | | 123,757 | | | 342,121 | |
Net income for the period | $ | 74,722 | | | $ | 91,528 | | | $ | 295,024 | | | $ | 129,501 | |
Net (income) loss attributable to non-controlling interests | (41) | | | (38) | | | (130) | | | (112) | |
Net income attributable to OpenText | $ | 74,681 | | | $ | 91,490 | | | $ | 294,894 | | | $ | 129,389 | |
Earnings per share—basic attributable to OpenText (note 23) | $ | 0.28 | | | $ | 0.34 | | | $ | 1.09 | | | $ | 0.47 | |
Earnings per share—diluted attributable to OpenText (note 23) | $ | 0.28 | | | $ | 0.33 | | | $ | 1.08 | | | $ | 0.47 | |
Weighted average number of Common Shares outstanding—basic (in '000's) | 270,693 | | | 272,832 | | | 271,623 | | | 272,414 | |
Weighted average number of Common Shares outstanding—diluted (in '000's) | 271,211 | | | 273,924 | | | 272,439 | | | 273,312 | |
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 March 31, | | Nine Months Ended March 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income for the period | $ | 74,722 | | | $ | 91,528 | | | $ | 295,024 | | | $ | 129,501 | |
Other comprehensive income (loss)—net of tax: | | | | | | | |
Net foreign currency translation adjustments | (13,073) | | | (12,568) | | | (44,512) | | | 36,142 | |
Unrealized gain (loss) on cash flow hedges: | | | | | | | |
Unrealized gain (loss) - net of tax expense (recovery) effect of $233 and $246 for the three months ended March 31, 2022 and 2021, respectively; ($158) and $1,302 for the nine months ended March 31, 2022 and 2021, respectively | 648 | | | 681 | | | (334) | | | 3,608 | |
(Gain) loss reclassified into net income - net of tax (expense) recovery effect of $79 and ($399) for the three months ended March 31, 2022 and 2021, respectively; ($24) and ($682) for the nine months ended March 31, 2022 and 2021, respectively | 219 | | | (1,108) | | | (86) | | | (1,892) | |
Actuarial gain (loss) relating to defined benefit pension plans: | | | | | | | |
Actuarial gain (loss) - net of tax expense (recovery) effect of ($579) and $944 for the three months ended March 31, 2022 and 2021, respectively; ($811) and ($413) for the nine months ended March 31, 2022 and 2021, respectively | (2,033) | | | 344 | | | (4,517) | | | (2,342) | |
Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $66 and $95 for the three months ended March 31, 2022 and 2021, respectively; $134 and $275 for the nine months ended March 31, 2022 and 2021, respectively | 156 | | | 249 | | | 477 | | | 733 | |
Total other comprehensive income (loss) net, for the period | (14,083) | | | (12,402) | | | (48,972) | | | 36,249 | |
Total comprehensive income | 60,639 | | | 79,126 | | | 246,052 | | | 165,750 | |
Comprehensive (income) loss attributable to non-controlling interests | (41) | | | (38) | | | (130) | | | (112) | |
Total comprehensive income attributable to OpenText | $ | 60,598 | | | $ | 79,088 | | | $ | 245,922 | | | $ | 165,638 | |
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 March 31, 2022 |
| Common Shares and Additional Paid in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income | | Non-Controlling Interests | | Total |
| Shares | | Amount | | Shares | | Amount | |
Balance as of December 31, 2021 | 271,006 | | | $ | 1,990,913 | | | (1,476) | | | $ | (67,966) | | | $ | 2,174,467 | | | $ | 31,349 | | | $ | 1,062 | | | $ | 4,129,825 | |
Issuance of Common Shares | | | | | | | | | | | | | | | |
Under employee stock option plans | 53 | | | 1,863 | | | — | | | — | | | — | | | — | | | — | | | 1,863 | |
Under employee stock purchase plans | 172 | | | 7,003 | | | — | | | — | | | — | | | — | | | — | | | 7,003 | |
Share-based compensation | — | | | 16,748 | | | — | | | — | | | — | | | — | | | — | | | 16,748 | |
Purchase of treasury stock | — | | | — | | | (1,300) | | | (56,067) | | | — | | | — | | | — | | | (56,067) | |
Repurchase of Common Shares | (1,000) | | | (6,381) | | | — | | | — | | | (38,702) | | | — | | | — | | | (45,083) | |
Dividends declared ($0.2209 per Common Share) | — | | | — | | | — | | | — | | | (59,077) | | | — | | | — | | | (59,077) | |
Other comprehensive income (loss) - net | — | | | — | | | — | | | — | | | — | | | (14,083) | | | — | | | (14,083) | |
Net income for the period | — | | | — | | | — | | | — | | | 74,681 | | | — | | | 41 | | | 74,722 | |
Balance as of March 31, 2022 | 270,231 | | | $ | 2,010,146 | | | (2,776) | | | $ | (124,033) | | | $ | 2,151,369 | | | $ | 17,266 | | | $ | 1,103 | | | $ | 4,055,851 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Common Shares and Additional Paid in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income | | Non-Controlling Interests | | Total |
| Shares | | Amount | | Shares | | Amount | |
Balance as of December 31, 2020 | 272,589 | | | $ | 1,889,857 | | | (1,101) | | | $ | (47,555) | | | $ | 2,093,076 | | | $ | 66,476 | | | $ | 1,393 | | | $ | 4,003,247 | |
Issuance of Common Shares | | | | | | | | | | | | | | | |
Under employee stock option plans | 219 | | | 8,270 | | | — | | | — | | | — | | | — | | | — | | | 8,270 | |
Under employee stock purchase plans | 165 | | | 6,421 | | | — | | | — | | | — | | | — | | | — | | | 6,421 | |
Share-based compensation | — | | | 12,357 | | | — | | | — | | | — | | | — | | | — | | | 12,357 | |
Purchase of treasury stock | — | | | — | | | (490) | | | (22,977) | | | — | | | — | | | — | | | (22,977) | |
Issuance of treasury stock | — | | | (1,146) | | | 23 | | | 1,146 | | | — | | | — | | | — | | | — | |
Dividends declared ($0.2008 per Common Share) | — | | | — | | | — | | | — | | | (54,519) | | | — | | | — | | | (54,519) | |
Other comprehensive income (loss) - net | — | | | — | | | — | | | — | | | — | | | (12,402) | | | — | | | (12,402) | |
Net income for the period | — | | | — | | | — | | | — | | | 91,490 | | | — | | | 38 | | | 91,528 | |
Balance as of March 31, 2021 | 272,973 | | | $ | 1,915,759 | | | (1,568) | | | $ | (69,386) | | | $ | 2,130,047 | | | $ | 54,074 | | | $ | 1,431 | | | $ | 4,031,925 | |
OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars and shares)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended March 31, 2022 |
| Common Shares and Additional Paid in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income | | Non-Controlling Interests | | Total |
| Shares | | Amount | | Shares | | Amount | |
Balance as of June 30, 2021 | 271,541 | | | $ | 1,947,764 | | | (1,568) | | | $ | (69,386) | | | $ | 2,153,326 | | | $ | 66,238 | | | $ | 1,511 | | | $ | 4,099,453 | |
Issuance of Common Shares | | | | | | | | | | | | | | | |
Under employee stock option plans | 905 | | | 31,128 | | | — | | | — | | | — | | | — | | | — | | | 31,128 | |
Under employee stock purchase plans | 595 | | | 24,913 | | | — | | | — | | | — | | | — | | | — | | | 24,913 | |
Share-based compensation | — | | | 45,091 | | | — | | | — | | | — | | | — | | | — | | | 45,091 | |
Purchase of treasury stock | — | | | — | | | (1,700) | | | (75,660) | | | — | | | — | | | — | | | (75,660) | |
Issuance of treasury stock | — | | | (21,013) | | | 492 | | | 21,013 | | | — | | | — | | | — | | | — | |
Repurchase of Common Shares | (2,810) | | | (17,879) | | | — | | | — | | | (118,238) | | | — | | | — | | | (136,117) | |
Dividends declared ($0.6627 per Common Share) | — | | | — | | | — | | | — | | | (178,613) | | | — | | | — | | | (178,613) | |
Other comprehensive income (loss) - net | — | | | — | | | — | | | — | | | — | | | (48,972) | | | — | | | (48,972) | |
Distribution to non-controlling interest | — | | | 142 | | | — | | | — | | | — | | | — | | | (538) | | | (396) | |
Net income for the period | — | | | — | | | — | | | — | | | 294,894 | | | — | | | 130 | | | 295,024 | |
Balance as of March 31, 2022 | 270,231 | | | $ | 2,010,146 | | | (2,776) | | | $ | (124,033) | | | $ | 2,151,369 | | | $ | 17,266 | | | $ | 1,103 | | | $ | 4,055,851 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended March 31, 2021 |
| Common Shares and Additional Paid in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income | | Non-Controlling Interests | | Total |
| Shares | | Amount | | Shares | | Amount | |
Balance as of June 30, 2020 | 271,863 | | | $ | 1,851,777 | | | (622) | | | $ | (23,608) | | | $ | 2,159,396 | | | $ | 17,825 | | | $ | 1,319 | | | $ | 4,006,709 | |
Adoption of ASU 2016-13 - cumulative effect, net | — | | | — | | | — | | | — | | | (2,450) | | | — | | | — | | | (2,450) | |
Issuance of Common Shares | | | | | | | | | | | | | | | |
Under employee stock option plans | 743 | | | 23,768 | | | — | | | — | | | — | | | — | | | — | | | 23,768 | |
Under employee stock purchase plans | 367 | | | 13,974 | | | 193 | | | 6,690 | | | — | | | — | | | — | | | 20,664 | |
Share-based compensation | — | | | 38,619 | | | — | | | — | | | — | | | — | | | — | | | 38,619 | |
Purchase of treasury stock | — | | | — | | | (1,455) | | | (64,847) | | | — | | | — | | | — | | | (64,847) | |
Issuance of treasury stock | — | | | (12,379) | | | 316 | | | 12,379 | | | — | | | — | | | — | | | — | |
Dividends declared ($0.5762 per Common Share) | — | | | — | | | — | | | — | | | (156,288) | | | — | | | — | | | (156,288) | |
Other comprehensive income (loss) - net | — | | | — | | | — | | | — | | | — | | | 36,249 | | | — | | | 36,249 | |
Net income for the period | — | | | — | | | — | | | — | | | 129,389 | | | — | | | 112 | | | 129,501 | |
Balance as of March 31, 2021 | 272,973 | | | $ | 1,915,759 | | | (1,568) | | | $ | (69,386) | | | $ | 2,130,047 | | | $ | 54,074 | | | $ | 1,431 | | | $ | 4,031,925 | |
See accompanying Notes to Condensed Consolidated Financial Statements
OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(unaudited)
| | | | | | | | | | | |
| Nine Months Ended March 31, |
| 2022 | | 2021 |
Cash flows from operating activities: | | | |
Net income for the period | $ | 295,024 | | | $ | 129,501 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization of intangible assets | 378,632 | | | 393,900 | |
Share-based compensation expense | 45,091 | | | 38,619 | |
Pension expense | 4,883 | | | 4,670 | |
Amortization of debt issuance costs | 3,936 | | | 3,395 | |
Loss on extinguishment of debt | 27,413 | | | — | |
Loss on sale and write down of property and equipment | 96 | | | 1,979 | |
Deferred taxes | 43,332 | | | 80,844 | |
Share in net (income) loss of equity investees | (59,103) | | | (20,020) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 68,428 | | | 87,072 | |
Contract assets | (27,208) | | | (29,035) | |
Prepaid expenses and other current assets | (15,722) | | | (2,528) | |
Income taxes | (11,235) | | | (117,594) | |
Accounts payable and accrued liabilities | (65,738) | | | (27,327) | |
Deferred revenue | 25,642 | | | 62,600 | |
Other assets | 16,527 | | | 765 | |
Operating lease assets and liabilities, net | (128) | | | (26,910) | |
Net cash provided by operating activities | 729,870 | | | 579,931 | |
Cash flows from investing activities: | | | |
Additions of property and equipment | (54,937) | | | (36,267) | |
Purchase of Zix Corporation, net of cash acquired | (856,175) | | | — | |
Purchase of Bricata Inc. | (17,927) | | | — | |
Purchase of XMedius | — | | | 444 | |
Purchase of Dynamic Solutions Group Inc. | — | | | (371) | |
Other investing activities | (3,922) | | | (2,018) | |
Net cash used in investing activities | (932,961) | | | (38,212) | |
Cash flows from financing activities: | | | |
Proceeds from issuance of Common Shares from exercise of stock options and ESPP | 56,476 | | | 45,780 | |
Proceeds from long-term debt and Revolver | 1,500,000 | | | — | |
Repayment of long-term debt and Revolver | (857,500) | | | (607,500) | |
Debt extinguishment costs (note 22) | (24,969) | | | — | |
Debt issuance costs | (17,159) | | | — | |
Repurchase of Common Shares | (136,117) | | | — | |
Purchase of treasury stock | (75,660) | | | (64,847) | |
Distribution to non-controlling interest | (396) | | | — | |
Payments of dividends to shareholders | (178,613) | | | (156,288) | |
Net cash provided by (used in) financing activities | 266,062 | | | (782,855) | |
Foreign exchange gain (loss) on cash held in foreign currencies | (36,920) | | | 22,553 | |
Increase (decrease) in cash, cash equivalents and restricted cash during the period | 26,051 | | | (218,583) | |
Cash, cash equivalents and restricted cash at beginning of the period | 1,609,800 | | | 1,697,263 | |
Cash, cash equivalents and restricted cash at end of the period | $ | 1,635,851 | | | $ | 1,478,680 | |
OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(unaudited)
| | | | | | | | | | | |
Reconciliation of cash, cash equivalents and restricted cash: | March 31, 2022 | | March 31, 2021 |
Cash and cash equivalents | $ | 1,633,702 | | | $ | 1,475,626 | |
Restricted cash (1) | 2,149 | | | 3,054 | |
Total cash, cash equivalents and restricted cash | $ | 1,635,851 | | | $ | 1,478,680 | |
(1) Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Condensed Consolidated Balance Sheets (note 9).
Supplemental cash flow disclosures (note 6 and note 21)
See accompanying Notes to Condensed Consolidated Financial Statements
OPEN TEXT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended March 31, 2022
(Tabular amounts in thousands of U.S. dollars, except share and per share data)
(unaudited)
NOTE 1—BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements include the accounts of Open Text Corporation and our subsidiaries, collectively referred to as “OpenText” or the “Company”. We wholly own all of our subsidiaries with the exception of Open Text South Africa Proprietary Ltd. (OT South Africa), which as of March 31, 2022, was 70% owned by OpenText. All intercompany balances and transactions have been eliminated.
Previously, our ownership in EC1 Pte. Ltd. (GXS Singapore) was 81%. During the first quarter of Fiscal 2022 (as defined below), we made a final cash distribution of $0.4 million to the non-controlling interest holder in GXS Singapore as part of the process to liquidate the subsidiary. During the three months ended March 31, 2022, the liquidation of GXS Singapore was completed.
Throughout this Quarterly Report on Form 10-Q: (i) the term “Fiscal 2022” means our fiscal year beginning on July 1, 2021 and ending June 30, 2022; (ii) the term “Fiscal 2021” means our fiscal year beginning on July 1, 2020 and ended June 30, 2021; (iii) the term “Fiscal 2020” means our fiscal year beginning on July 1, 2019 and ended June 30, 2020; (iv) the term “Fiscal 2019” means our fiscal year beginning on July 1, 2018 and ended June 30, 2019; (v) the term “Fiscal 2018” means our fiscal year beginning on July 1, 2017 and ended June 30, 2018; (vi) the term “Fiscal 2017” means our fiscal year beginning on July 1, 2016 and ended June 30, 2017; (vii) the term “Fiscal 2016” means our fiscal year beginning on July 1, 2015 and ended June 30, 2016; (viii) the term “Fiscal 2015” means our fiscal year beginning on July 1, 2014 and ended June 30, 2015; (ix) the term “Fiscal 2014” means our fiscal year beginning on July 1, 2013 and ended June 30, 2014; (x) the term “Fiscal 2013” means our fiscal year beginning on July 1, 2012 and ended June 30, 2013; and (xi) the term “Fiscal 2012” means our fiscal year beginning on July 1, 2011 and ended June 30, 2012.
These Condensed Consolidated Financial Statements are expressed in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The information furnished reflects all adjustments necessary for a fair presentation of the results for the periods presented.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. In particular, key estimates, judgments and assumptions include those related to: (i) revenue recognition, (ii) accounting for income taxes, (iii) testing of goodwill for impairment, (iv) the valuation of acquired intangible assets, (v) the valuation of long-lived assets, (vi) the recognition of contingencies, (vii) restructuring accruals, (viii) acquisition accruals and pre-acquisition contingencies, (ix) the valuation of stock options granted and obligations related to share-based payments, including the valuation of our long-term incentive plans, and (x) the valuation of pension obligations.
In March 2020, COVID-19 was characterized as a pandemic by the World Health Organization. The spread of COVID-19 continues to impact the global economy. As the impacts of the pandemic continue to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment. As of March 31, 2022, we have recorded certain estimates resulting from the pandemic, particularly with respect to the COVID-19 Restructuring Plan (as defined herein) and allowance for credit losses, based on management's estimates and assumptions utilizing the most currently available information. Such estimates may be subject to change particularly given the unprecedented nature of the COVID-19 pandemic. We will continue to monitor the potential impact of COVID-19 on our financial statements and related disclosures, including the need for additional estimates going forward, which could include costs related to potential items such as special charges (recoveries), restructurings, asset impairments and other non-recurring costs. Please see note 18 “Special Charges (Recoveries)” and “Risk Factors” included within Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2021.
NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Pronouncements Adopted in Fiscal 2022
During Fiscal 2022, we have adopted the following Accounting Standards Update (ASU) that did not have a material impact to our reported financial position, results of operations or cash flows:
•ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
Business Combinations
In October 2021, the Financial Accounting Standards Board (FASB) issued ASU 2021-08 “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This standard requires contract assets and contract liabilities acquired in a business combination to be recognized and measured as if the acquirer had originated the original contract in accordance with Accounting Standards Codification (ASC) Topic 606. Previously, contract assets and contract liabilities were measured at fair value.
The standard is effective for us in our fiscal year ending June 30, 2024, with early adoption permitted. We elected to early adopt the ASU during our second quarter of Fiscal 2022. Early adoption required retrospective adoption to business combinations completed on or after July 1, 2021 and prospective adoption to business combinations occurring on or after the date of adoption. There was no retrospective impact of early adoption as we did not have acquisitions during our first quarter of Fiscal 2022. Acquisitions disclosed in note 19 “Acquisitions” are in accordance with ASU 2021-08. The adoption will not have a material impact to our reported financial position, results of operations or cash flows.
NOTE 3—REVENUES
Disaggregation of Revenue
We have four revenue streams: cloud services and subscriptions, customer support, license, and professional service and other. The following tables disaggregate our revenue by significant geographic area, based on the location of our direct end customer, by type of performance obligation and timing of revenue recognition for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Total Revenues by Geography: | | | | | | | |
Americas (1) | $ | |