OpenText(US:OTEX)2025-04-30 20:03Part I Financial Statements This section presents Open Text Corporation's unaudited condensed consolidated financial statements for the quarter ended March 31, 2025, including balance sheets, income statements, and cash flows, reflecting the AMC business divestiture Condensed Consolidated Balance Sheets As of March 31, 2025, total assets decreased to $13.75 billion, primarily due to reduced acquired intangible assets, while total liabilities decreased to $9.62 billion, resulting in a slight decrease in total shareholders' equity to $4.13 billion Condensed Consolidated Balance Sheet Highlights (in thousands USD) | Balance Sheet Item | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,277,950 | $1,280,662 | | Goodwill | $7,493,952 | $7,488,367 | | Acquired intangible assets | $2,102,476 | $2,486,264 | | Total assets | $13,754,826 | $14,205,707 | | Total current liabilities | $2,523,183 | $2,800,494 | | Long-term debt | $6,345,390 | $6,356,943 | | Total liabilities | $9,624,418 | $10,006,026 | | Total shareholders' equity | $4,130,408 | $4,199,681 | Condensed Consolidated Statements of Income For Q3 FY25, total revenues were $1.25 billion, a 13.3% decrease YoY due to the AMC divestiture, with net income at $92.8 million, while nine-month revenues were $3.86 billion and net income significantly increased to $407.2 million Income Statement Summary (in thousands USD, except per share data) | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $1,254,363 | $1,447,131 | $3,857,868 | $4,407,428 | | Gross profit | $898,254 | $1,055,774 | $2,786,588 | $3,203,312 | | Income from operations | $209,090 | $227,068 | $711,131 | $693,827 | | Net income attributable to OpenText | $92,805 | $98,285 | $407,035 | $216,861 | | Earnings per share—diluted | $0.35 | $0.36 | $1.53 | $0.80 | Condensed Consolidated Statements of Cash Flows For the nine months ended March 31, 2025, operating cash flow decreased to $672.4 million due to tax payments, with $119.4 million used in investing activities and $560.8 million in financing activities, including debt repayments and share repurchases, ending with $1.28 billion in cash Cash Flow Summary (in thousands USD) | Cash Flow Activity | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $672,427 | $782,471 | | Net cash used in investing activities | ($119,423) | ($124,600) | | Net cash used in financing activities | ($560,769) | ($760,358) | | Decrease in cash, cash equivalents and restricted cash | ($2,899) | ($106,469) | | Cash, cash equivalents and restricted cash at end of period | $1,279,894 | $1,127,483 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, revenue disaggregation showing 81.3% recurring revenue, total debt of $6.49 billion, $270.3 million in share repurchases, an ongoing $470 million tax dispute, the AMC divestiture's financial impact, and an expanded Business Optimization Plan targeting $490-$550 million in annualized savings YTD FY25 Revenue by Type (in thousands USD) | Revenue Type | Amount | % of Total | | :--- | :--- | :--- | | Cloud services and subscriptions | $1,381,944 | 35.8% | | Customer support | $1,753,464 | 45.5% | | Total recurring revenues | $3,135,408 | 81.3% | | License | $453,099 | 11.7% | | Professional service and other | $269,361 | 7.0% | | Total revenues | $3,857,868 | 100.0% | - As of March 31, 2025, total Remaining Performance Obligations (RPO) were $4.1 billion, with 63% expected to be recognized as revenue over the following 12 months49 - On May 1, 2024, the company completed the sale of its Application Modernization and Connectivity (AMC) business to Rocket Software for $2.275 billion in cash. The proceeds were used for debt repayment188 - For the nine months ended March 31, 2025, the company recorded $57.1 million in charges for a new Business Optimization Plan, primarily for workforce reductions175177 - The company is contesting reassessments from the Canada Revenue Agency (CRA). An unfavorable outcome for fiscal years 2017-2020 could result in a non-cash tax expense of up to approximately $470 million to reduce deferred tax assets140 - Subsequent to the quarter end, on April 29, 2025, the Board approved an expansion of the Business Optimization Plan, expecting up to $200 million in additional costs to achieve total annualized savings of $490-$550 million by Fiscal 2027208209 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, emphasizing the AMC divestiture's impact, with Q3 FY25 revenue at $1.25 billion, a focus on "Total Growth" via organic initiatives, acquisitions, cloud, and AI, and an expanded Business Optimization Plan targeting up to $550 million in annualized savings by FY27, supported by $1.28 billion in cash and an undrawn $750 million revolver Executive Overview OpenText's Q3 FY25 results were significantly impacted by the May 2024 AMC divestiture, with total revenue at $1.25 billion (down 13.3% YoY) and annual recurring revenue at $1.03 billion (down 10.1% YoY), while Cloud services revenue grew 1.8% to $462.6 million, and the company repurchased $116.7 million in shares Q3 FY25 Key Metrics vs. Q3 FY24 (in millions USD, except per share data) | Metric | Q3 FY25 | Q3 FY24 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,254.4M | $1,447.1M | (13.3)% | | Annual Recurring Revenue | $1,030.0M | $1,146.0M | (10.1)% | | Cloud Services Revenue | $462.6M | $454.5M | 1.8% | | GAAP Net Income | $92.8M | $98.3M | (5.6)% | | Adjusted EBITDA | $395.3M | $463.7M | (14.7)% | | GAAP Diluted EPS | $0.35 | $0.36 | (2.8)% | | Non-GAAP Diluted EPS | $0.82 | $0.94 | (12.8)% | - The divestiture of the Application Modernization and Connectivity (AMC) business on May 1, 2024, significantly impacts period-over-period comparisons, as its results are not included in the current fiscal period225228 Outlook for Remainder of Fiscal 2025 The company's outlook is driven by its "Total Growth" strategy, focusing on organic growth, acquisitions, and profitability to boost cash flow, with a major post-quarter expansion of the Business Optimization Plan targeting a net reduction of approximately 2,000 positions and $490 million to $550 million in annualized savings by Fiscal 2027 - The company is committed to a "Total Growth" strategy, focusing on organic initiatives, acquisitions, and increasing recurring revenues to drive cash flow growth230 - On April 29, 2025, the Board approved an expansion of the Business Optimization Plan, expecting up to $200.0 million in additional costs. The expanded plan targets a total net reduction of approximately 2,000 positions236238211 - The fully implemented expanded Business Optimization Plan is expected to generate total annualized savings of approximately $490.0 million to $550.0 million, with the full benefit realized in Fiscal 2027239 Results of Operations The AMC business divestiture primarily drove changes in operating results, with Q3 FY25 total revenues decreasing 13.3% YoY to $1.25 billion, while Cloud services revenue grew 1.8%, and total operating expenses decreased by $139.5 million YoY due to cost reductions, resulting in income from operations of $209.1 million Revenue by Product Type - Q3 FY25 vs Q3 FY24 (in thousands USD) | Revenue Type | Q3 FY25 | Q3 FY24 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cloud services and subscriptions | $462,614 | $454,528 | $8,086 | 1.8% | | Customer support | $567,379 | $691,441 | ($124,062) | (17.9)% | | License | $138,363 | $200,363 | ($62,000) | (30.9)% | | Professional service and other | $86,007 | $100,799 | ($14,792) | (14.7)% | | Total revenues | $1,254,363 | $1,447,131 | ($192,768) | (13.3)% | Operating Expenses - Q3 FY25 vs Q3 FY24 (in thousands USD) | Expense Category | Q3 FY25 | Q3 FY24 | Change | | :--- | :--- | :--- | :--- | | Research and development | $197,333 | $226,521 | ($29,188) | | Sales and marketing | $260,102 | $303,750 | ($43,648) | | General and administrative | $115,718 | $145,924 | ($30,206) | | Special charges (recoveries) | $3,854 | $19,561 | ($15,707) | | Total operating expenses | $689,164 | $828,706 | ($139,542) | - The decrease in Customer Support and License revenues was primarily due to the exclusion of revenue from the divested AMC business, which contributed $133.5 million in the prior-year quarter245247 Liquidity and Capital Resources As of March 31, 2025, the company maintained strong liquidity with $1.28 billion in cash and an undrawn $750 million revolving credit facility, actively managing its capital structure through debt repayment from the AMC divestiture and $270.3 million in share repurchases, with total long-term debt obligations at $8.0 billion - Cash and cash equivalents were $1.28 billion as of March 31, 2025. The company also has a $750 million revolving credit facility that was undrawn368386 - For the nine months ended March 31, 2025, the company repurchased and cancelled 9.2 million Common Shares for $270.3 million under its share repurchase plan391 - In May 2024, the company used proceeds from the AMC Divestiture to prepay in full the $940 million outstanding balance of its Term Loan B382 Contractual Obligations as of March 31, 2025 (in thousands USD) | Obligation | Total | Next 3 Months | 2025-2027 | 2027-2029 | Beyond 2029 | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt obligations | $7,973,621 | $107,028 | $738,504 | $2,491,651 | $4,636,438 | | Operating lease obligations | $300,995 | $22,178 | $155,096 | $77,921 | $45,800 | | Purchase obligations | $395,898 | $103,998 | $265,900 | $26,000 | $— | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate and foreign currency fluctuations, with its $2.2 billion variable-rate Acquisition Term Loan sensitive to interest rate changes, and mitigates foreign currency exposure through derivatives like cross-currency swaps and forward contracts, with $645.8 million (50.5%) of cash held in foreign currencies as of March 31, 2025 - A 100 basis point (1%) adverse change in interest rates would increase the annual interest payment on the Acquisition Term Loan by approximately $21.9 million411 - A 10% uniform weakening of foreign currencies against the U.S. dollar would decrease the reported value of cash and cash equivalents by $64.6 million420 - The company uses EUR/USD cross-currency swaps to hedge its net investment in EUR-denominated operations and to mitigate currency risk on debt. It also uses forward contracts to hedge Canadian dollar payroll expenses415416 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting identified during the quarter - The CEO and CFO concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level421422 - No material changes to the company's internal control over financial reporting were identified during the fiscal quarter ended March 31, 2025423 Part II Risk Factors The company refers investors to the risk factors detailed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2024, as no new or updated risk factors are presented in this quarterly report - The report refers to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended June 30, 2024427 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchase of 4,350,716 shares at an average price of $26.34 per share during the three months ended March 31, 2025, under its publicly announced repurchase plan Share Repurchases for the Three Months Ended March 31, 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2025 | — | $— | | Feb 2025 | 1,418,809 | $27.46 | | Mar 2025 | 2,931,907 | $25.79 | | Total | 4,350,716 | $26.34 | - On March 13, 2025, the company increased the authorized limit of its Fiscal 2025 Repurchase Plan by $150 million to a total of $450 million389431 Other Information During the third quarter of fiscal 2025, no officers or directors of the company adopted or terminated a Rule 10b5-1 trading plan for the purchase or sale of the company's securities - No officers or directors adopted or terminated any Rule 10b5-1(c) trading plans during the three months ended March 31, 2025432 Exhibits This section lists the documents filed as part of the Form 10-Q report, including the CFO's employment agreement, Sarbanes-Oxley Act certifications by the CEO and CFO, and Inline XBRL data files - Exhibits filed with the report include the employment agreement for Chadwick Westlake (CFO) and certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act434