OpenText(OTEX) - 2021 Q4 - Annual Report

Part I Business OpenText delivers Information Management software via five cloud platforms, driven by a "Total Growth" strategy combining organic growth, innovation, and acquisitions - OpenText provides Information Management solutions through five integrated cloud platforms: Content Cloud, Business Network Cloud, Experience Cloud, Security and Protection Cloud, and Developer Cloud[28] - The company's "Total Growth" strategy emphasizes organic initiatives, innovation, strategic acquisitions, and increasing recurring revenues and margins[56][274] Revenue Streams | Revenue Stream | Description | | :--- | :--- | | Cloud Services and Subscriptions | SaaS, hosted services, and managed service arrangements | | Customer Support | Annual support and maintenance contracts providing software upgrades and technical assistance | | License | Fees from licensing software products for on-premise deployment | | Professional Service and Other | Consulting, implementation, training, and integration services | - OpenText invested a cumulative $1.1 billion in R&D over the last three fiscal years, representing 11.9% of cumulative revenue, and targets 12% to 14% of revenues annually for R&D[57][276] - As of June 30, 2021, the company employed approximately 14,300 individuals globally, with 48% in the Americas, 18% in EMEA, and 34% in the Asia Pacific region[100] Risk Factors The company faces risks from the COVID-19 pandemic, product development, competition, data security, acquisition integration, and tax audits - The COVID-19 pandemic poses significant risks, potentially affecting business operations, financial performance, and global economic conditions[122][123][125] - The company faces risks from ongoing tax audits by the Canada Revenue Agency (CRA) for fiscal years 2012-2017, with a potential non-cash charge of up to $470 million related to the Fiscal 2017 audit[171][176][466] - Failure to protect intellectual property, claims of infringement, and potential defects in complex software products could harm reputation, increase costs, and lead to litigation[136][137][138] - Acquisition-related risks include difficulties in integrating acquired businesses, potential for weaker internal controls in acquired companies, and the possibility that acquisitions may negatively affect operating results[161][163][164] - Data privacy and security are major risks, with evolving laws like GDPR and CCPA increasing compliance costs, potentially leading to significant liabilities, regulatory action, and reputational damage from breaches[145][179] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[210] Properties OpenText's properties include approximately 0.3 million square feet of owned facilities and 2.4 million square feet of leased facilities globally Company Facilities Overview | Facility Type | Total Square Footage | | :--- | :--- | | Owned | ~0.3 million | | Leased | ~2.4 million | - The company's headquarters in Waterloo, Ontario, consists of approximately 232,000 square feet on land leased from the University of Waterloo[212] Legal Proceedings The company is subject to various legal claims in the normal course of business but believes the final outcome will not have a materially adverse effect on its financial condition or results of operations - OpenText states that while subject to various legal claims, it does not expect the outcomes to have a materially adverse effect on its consolidated financial results[215] Mine Safety Disclosures This item is not applicable to the company - Not applicable[217] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities OpenText common shares trade on NASDAQ and TSX under "OTEX", with the company maintaining a quarterly dividend policy and an active share repurchase plan - The company's common shares trade on both the NASDAQ and TSX under the ticker symbol "OTEX"[219] - A share repurchase plan was authorized on November 5, 2020, for up to $350 million of common shares over a 12-month period[223] Share Repurchases (Year Ended June 30, 2021) | Metric | Value | | :--- | :--- | | Common Shares Repurchased | 2,500,000 | | Total Cost | $119.1 million | - The company expects to continue paying quarterly cash dividends, subject to Board of Directors' approval and contractual limitations[222] Selected Financial Data This section provides a five-year summary of OpenText's key consolidated financial data from Fiscal 2017 to 2021, highlighting growth influenced by acquisitions and a significant 2017 tax benefit Selected Financial Data (Fiscal Years 2017-2021) | (In thousands, except per share data) | 2021 | 2020 | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $3,386,115 | $3,109,736 | $2,868,755 | $2,815,241 | $2,291,057 | | Net income, attributable to OpenText | $310,672 | $234,225 | $285,501 | $242,224 | $1,025,659 | | Net income per share, diluted | $1.14 | $0.86 | $1.06 | $0.91 | $4.01 | | Total Assets | $9,609,336 | $10,234,822 | $7,933,975 | $7,765,029 | $7,480,562 | | Cash dividends per Common Share | $0.7770 | $0.6984 | $0.6300 | $0.5478 | $0.4770 | - Numerous acquisitions over the five-year period, including Carbonite, Liaison, and the ECD Business, have contributed to growth and affect period-to-period comparability[246] Management's Discussion and Analysis of Financial Condition and Results of Operations In Fiscal 2021, OpenText reported increased revenues and GAAP net income, driven by recurring revenues and its "Total Growth" strategy, while operating cash flow decreased due to a tax settlement Fiscal 2021 Financial Highlights vs. Fiscal 2020 | Metric | Fiscal 2021 | Fiscal 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $3,386.1 M | $3,109.7 M | +8.9% | | Annual Recurring Revenue | $2,741.5 M | $2,433.3 M | +12.7% | | GAAP Net Income | $310.7 M | $234.2 M | +32.7% | | GAAP Diluted EPS | $1.14 | $0.86 | +32.6% | | Adjusted EBITDA | $1,315.0 M | $1,148.1 M | +14.5% | | Operating Cash Flow | $876.1 M | $954.5 M | -8.2% | - Revenue growth was primarily driven by a 21.6% increase in Cloud services and subscriptions revenue, largely due to incremental revenue from acquisitions[328] - Operating cash flow decreased by $78.4 million, mainly due to a $299.6 million payment related to the IRS Settlement and changes in working capital[267][405] - The company settled a long-standing tax dispute with the U.S. IRS for Fiscal 2010 and 2012, resulting in a charge of $300.5 million and cash payments of $299.6 million during Fiscal 2021[460][962] - During Fiscal 2021, the company repaid $600 million on its Revolver, repurchased $119.1 million of common shares, and paid $210.7 million in dividends[409] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are interest rate fluctuations on variable-rate debt and foreign currency exchange rate volatility from international operations - The company is exposed to interest rate risk primarily through its $967.5 million outstanding on Term Loan B, with a 1% increase in interest rate increasing annual payments by approximately $9.7 million[473][474] - OpenText faces foreign currency risk from transactions and translation, using foreign currency forward contracts to hedge Canadian dollar payroll expenses[477][478] Cash and Cash Equivalents by Currency (June 30, 2021) | Currency | U.S. Dollar Equivalent (in thousands) | | :--- | :--- | | U.S. Dollar | $996,781 | | Foreign Currencies | $610,525 | | Total | $1,607,306 | Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2019-2021, including balance sheets, income statements, and cash flows, with an unqualified opinion from KPMG LLP Consolidated Statement of Income (Year Ended June 30) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total revenues | $3,386,115 | $3,109,736 | $2,868,755 | | Gross profit | $2,351,649 | $2,105,961 | $1,938,052 | | Income from operations | $740,903 | $503,529 | $567,010 | | Net income attributable to OpenText | $310,672 | $234,225 | $285,501 | Consolidated Balance Sheet (As of June 30) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total current assets | $2,202,060 | $2,386,399 | | Total assets | $9,609,336 | $10,234,822 | | Total current liabilities | $1,361,904 | $1,904,233 | | Total liabilities | $5,509,883 | $6,228,113 | | Total shareholders' equity | $4,099,453 | $4,006,709 | Consolidated Statement of Cash Flows (Year Ended June 30) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $876,120 | $954,536 | $876,278 | | Net cash used in investing activities | $(68,770) | $(1,469,417) | $(464,526) | | Net cash provided by (used in) financing activities | $(924,547) | $1,268,779 | $(148,374) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports that there were no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[483] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting (ICFR) were effective as of June 30, 2021, confirmed by KPMG LLP - Management concluded that disclosure controls and procedures were effective as of June 30, 2021[484] - Management assessed internal control over financial reporting (ICFR) as effective as of June 30, 2021, based on the COSO framework (2013)[486] - The independent registered public accounting firm, KPMG LLP, issued an unqualified opinion on the effectiveness of the company's ICFR[487][489] Other Information The company reports no other information for this item - None[492] Part III Directors, Executive Officers and Corporate Governance This section details OpenText's directors and executive officers, board committee composition, Audit Committee independence, and board diversity, noting 33% female representation - The report lists the company's directors and executive officers, including Mark J. Barrenechea (Vice Chair, CEO, and CTO) and P. Thomas Jenkins (Chairman of the Board)[495][496][512] - The Audit Committee consists of four independent directors, with Mr. Randy Fowlie qualifying as the "audit committee financial expert"[527][528] - The company has a Board Diversity Policy, with four women on the Board representing approximately 33% of the total board and 40% of independent members[531][533] Executive Compensation The company's pay-for-performance philosophy aligns executive compensation with business strategy, resulting in maximum short-term incentive payouts for NEOs in Fiscal 2021 due to strong performance, with a significant portion of compensation "at risk" - The company's compensation philosophy is based on a strong link to business strategy, pay for performance, and market relevance[554][555][556] FY2021 Short-Term Incentive Performance | Objective | Target (in millions) | Actual (in millions) | % of Target Achieved | Payout % | | :--- | :--- | :--- | :--- | :--- | | Worldwide Revenues | $3,110 | $3,293 | 106% | 200% | | Worldwide License and Cloud Revenues and MCV | $1,902 | $2,063 | 108% | 200% | | Worldwide Adjusted Operating Income | $1,000 | $1,217 | 122% | 200% | - A significant portion of NEO compensation is "at risk", with long-term incentives comprising 80% of the CEO's target total compensation and around 60-63% for other NEOs[571] - CEO Mark J. Barrenechea received a special grant of performance stock options vesting based on achieving absolute share price growth targets, ranging from 20% (threshold) to 60% (maximum) increase over the exercise price[617][618] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section discloses beneficial ownership of OpenText common shares as of June 30, 2021, identifying Jarislowsky, Fraser Ltd. as the only 5%+ owner, and summarizes equity compensation plan authorizations - Jarislowsky, Fraser Ltd. is the only entity reported to beneficially own more than 5% of the company's common shares, holding 16,333,691 shares, representing 6.02% of outstanding shares[694] - All executive officers and directors as a group beneficially own 7,228,707 common shares, representing 2.64% of the shares outstanding[694] Securities Authorized for Issuance under Equity Compensation Plans (as of June 30, 2021) | Plan Category | Securities to be issued upon exercise of outstanding options, warrants, and rights | Securities remaining available for future issuance | | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 8,113,574 | 11,251,577 | | Equity compensation plans not approved by security holders | 2,540,343 | — | Certain Relationships and Related Transactions, and Director Independence The company has a policy for related party transactions, and the Board determined all directors are independent under NASDAQ rules, except for CEO Mark J. Barrenechea and director Stephen J. Sadler - The Board has determined that all directors are independent except for CEO Mark J. Barrenechea and director Stephen J. Sadler[700] - Director Stephen J. Sadler received CAD $48.0 thousand (equivalent to $37.1 thousand USD) in consulting fees during Fiscal 2021 for acquisition-related business activities[701][702] Principal Accountant Fees and Services This section details fees paid to KPMG LLP for Fiscal 2021 and 2020, primarily for audit services, with the Audit Committee pre-approving all services Fees Paid to KPMG LLP (in thousands) | Fee Category | Fiscal 2021 | Fiscal 2020 | | :--- | :--- | :--- | | Audit fees | $5,306 | $5,362 | | Audit-related fees | $41 | $257 | | Tax fees | $7 | $52 | | All other fees | $— | $— | | Total | $5,354 | $5,671 | - The Audit Committee has a policy to pre-approve all audit and non-audit services provided by the independent registered public accounting firm[703] Part IV Exhibits and Financial Statement Schedules This section provides an index to the Consolidated Financial Statements and lists all exhibits filed as part of the Annual Report on Form 10-K, including key agreements and certifications - This item contains the index to the Consolidated Financial Statements, which begin on page 119 of the report[706] - A comprehensive list of exhibits is provided, including key agreements related to acquisitions (e.g., Carbonite), debt instruments (e.g., Senior Notes indentures), and executive employment contracts[708][709][710] Form 10-K Summary The company indicates that there is no summary for this item - None[1049]