OpenText(US:OTEX)2021-05-06 21:08Part I Financial Information Details the company's financial statements, management's analysis of operations, market risks, and internal controls Financial Statements Presents the unaudited condensed consolidated financial statements for Open Text Corporation, including balance sheets, income, and cash flow statements Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2021, shows a decrease in total assets to $9.56 billion from $10.23 billion at June 30, 2020, primarily due to a reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (as of March 31, 2021 vs. June 30, 2020) | Balance Sheet Item | March 31, 2021 (in thousands) | June 30, 2020 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,475,626 | $1,692,850 | | Total current assets | $2,062,176 | $2,386,399 | | Goodwill | $4,688,449 | $4,672,356 | | Acquired intangible assets | $1,291,796 | $1,612,564 | | Total assets | $9,556,621 | $10,234,822 | | Liabilities & Equity | | | | Current portion of long-term debt | $10,000 | $610,000 | | Total current liabilities | $1,339,024 | $1,904,233 | | Long-term debt | $3,580,206 | $3,584,311 | | Total liabilities | $5,524,696 | $6,228,113 | | Total shareholders' equity | $4,031,925 | $4,006,709 | Condensed Consolidated Statements of Income For the third quarter of fiscal 2021, total revenues increased to $832.9 million, and net income attributable to OpenText significantly increased to $91.5 million, while for the nine-month period, revenues grew to $2.49 billion but net income decreased to $129.4 million due to higher income taxes Income Statement Summary (Three Months Ended March 31) | Metric (in thousands, except EPS) | 2021 | 2020 | | :--- | :--- | :--- | | Total revenues | $832,931 | $814,679 | | Gross profit | $571,665 | $532,492 | | Income from operations | $152,396 | $95,077 | | Net income attributable to OpenText | $91,490 | $25,965 | | Earnings per share—diluted | $0.33 | $0.10 | Income Statement Summary (Nine Months Ended March 31) | Metric (in thousands, except EPS) | 2021 | 2020 | | :--- | :--- | :--- | | Total revenues | $2,492,588 | $2,283,124 | | Gross profit | $1,729,835 | $1,540,044 | | Income from operations | $569,222 | $412,330 | | Provision for income taxes | $342,121 | $78,800 | | Net income attributable to OpenText | $129,389 | $207,833 | | Earnings per share—diluted | $0.47 | $0.77 | Condensed Consolidated Statements of Cash Flows For the nine months ended March 31, 2021, net cash provided by operating activities decreased to $579.9 million, while net cash used in financing activities was $782.9 million, primarily for debt repayment and dividends Cash Flow Summary (Nine Months Ended March 31) | Cash Flow Activity (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $579,931 | $674,286 | | Net cash used in investing activities | ($38,212) | ($1,448,930) | | Net cash provided by (used in) financing activities | ($782,855) | $1,308,757 | | Increase (decrease) in cash | ($218,583) | $514,053 | - Financing activities in the nine months to March 31, 2021, included a $607.5 million repayment of long-term debt and the Revolver, and $156.3 million in dividend payments19 Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on accounting policies and specific financial statement line items, including revenue recognition, debt, share-based compensation, tax contingencies, and restructuring activities Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes the company's financial performance, liquidity, and capital resources, highlighting revenue trends, operating expenses, and the impact of the IRS settlement Q3 FY2021 Key Financial Metrics | Metric | Q3 FY2021 | Change vs. Q3 FY2020 | | :--- | :--- | :--- | | Total Revenue | $832.9M | +2.2% | | Annual Recurring Revenue | $691.8M | +4.4% | | GAAP-based Net Income | $91.5M | +252% | | Non-GAAP-based Net Income | $204.5M | +23.0% | | GAAP-based EPS, diluted | $0.33 | +230% | | Non-GAAP-based EPS, diluted | $0.75 | +23.0% | | Adjusted EBITDA | $297.1M | +14.5% | - The company's strategy focuses on "Total Growth," which combines organic initiatives, innovation, and strategic acquisitions to increase recurring revenues, expand margins, and drive cash flow generation211 - The company is closely monitoring the impact of the COVID-19 pandemic, which has led to substantial modifications in employee travel, work locations, and customer interactions. Cost reduction measures implemented in 2020 were largely restored by the second quarter of fiscal 2021214215218 Results of Operations For Q3 FY2021, total revenues grew 2.2% to $832.9 million, driven by increases in Cloud services and Customer support, while GAAP gross margin improved to 68.6% and income from operations increased by 60% due to lower expenses Revenue by Product Type (Q3 FY2021 vs Q3 FY2020) | Revenue Stream (in thousands) | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Cloud services and subscriptions | $355,845 | $339,463 | +4.8% | | Customer support | $335,915 | $322,865 | +4.0% | | License | $76,299 | $81,055 | -5.9% | | Professional service and other | $64,872 | $71,296 | -9.0% | | Total revenues | $832,931 | $814,679 | +2.2% | - Cloud services revenue growth was supported by closing 16 deals greater than $1.0 million in Q3 2021, compared to 5 such deals in Q3 2020230 - Sales and marketing expenses for Q3 2021 decreased by $7.5 million year-over-year, primarily due to a $5.4 million reduction in travel and communication expenses and a $4.8 million decrease in facility costs, reflecting COVID-19 related savings265 Use of Non-GAAP Financial Measures The company provides non-GAAP financial measures to supplement its GAAP results, excluding non-operational charges like amortization, share-based compensation, and special charges, with Non-GAAP net income for Q3 FY2021 at $204.5 million - Non-GAAP measures are used by management for internal analysis and are intended to help investors understand underlying operational trends by excluding items like amortization from acquisitions, special charges, and share-based compensation292293 Reconciliation of GAAP to Non-GAAP Net Income (Q3 FY2021, in thousands) | Description | Amount | | :--- | :--- | | GAAP-based net income | $91,490 | | Amortization | $107,609 | | Share-based compensation | $12,357 | | Special charges (recoveries) | $2,846 | | Other (income) expense, net | ($8,283) | | Tax adjustments | ($21,333) | | Non-GAAP-based net income | $204,534 | Liquidity and Capital Resources As of March 31, 2021, the company held $1.48 billion in cash, with operating cash flow impacted by a $290 million IRS settlement payment, and maintained a consolidated net leverage ratio of 1.6:1 after significant debt and dividend payments - Cash from operating activities for the nine months ended March 31, 2021 was impacted by a $290.0 million payment related to the IRS Settlement208329188 - During the second quarter of Fiscal 2021, the company repaid the entire $600 million previously drawn on its Revolver facility using cash on hand. As of March 31, 2021, there was no outstanding balance on the Revolver36771 - The company declared and paid dividends totaling $0.5762 per share ($156.3 million in aggregate) during the nine months ended March 31, 202133885 - The company's consolidated net leverage ratio was 1.6:1 as of March 31, 2021, comfortably below the 4:1 covenant requirement for its Term Loan B and Revolver36468 Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk on its floating-rate Term Loan B and foreign currency risk from transactions and asset translation, holding $590.2 million in foreign currency cash as of March 31, 2021 - The company's primary market risks are from fluctuations in interest rates on its $970.0 million Term Loan B and foreign currency exchange rates399401 - A hypothetical 1% adverse change in the interest rate on the Term Loan B would increase annual interest payments by approximately $9.7 million401 - The company holds significant cash in foreign currencies, with the U.S. dollar equivalent of €323.7 million, £83.9 million, and C$22.8 million as of March 31, 2021408 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of March 31, 2021, the company's disclosure controls and procedures were effective409 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls410 Part II Other Information Presents additional information not covered in Part I, including risk factors, equity sales, and exhibits Risk Factors This section directs readers to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended June 30, 2020, indicating no material changes or new significant risks to report for the quarter - The company refers investors to the risk factors discussed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2020413 Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of fiscal 2021, the company repurchased 489,934 Common Shares in the open market at an average price of $46.90 per share, held in trust for potential reissuance under employee incentive plans Equity Securities Purchases (Q3 FY2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2021 | — | — | | Feb 2021 | — | — | | Mar 2021 | 489,934 | $46.90 | | Total | 489,934 | $46.90 | - The repurchased shares are held in trust for potential reissuance under the company's Long-Term Incentive Plan (LTIP) or other plans415 Exhibits This section lists the documents filed as exhibits with the Form 10-Q, including amended stock option and employee stock purchase plans, an amendment to the CEO's employment agreement, and certifications by the CEO and CFO - Exhibits filed with the report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as various company plans and agreements417