OpenText(OTEX) - 2022 Q1 - Quarterly Report

Part I Financial Information Financial Statements This section presents the unaudited Condensed Consolidated Financial Statements for Q1 FY2022, detailing financial performance and position | Financial Metric | Q1 FY2022 (ended Sep 30, 2021) | Q1 FY2021 (ended Sep 30, 2020) | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Revenues | $832.3 million | $804.0 million | +3.5% | | Gross Profit | $574.2 million | $555.1 million | +3.4% | | Income from Operations | $182.7 million | $182.4 million | +0.2% | | Net Income (attributable to OpenText) | $131.9 million | $103.4 million | +27.6% | | Diluted EPS | $0.48 | $0.38 | +26.3% | | Balance Sheet Item | Sep 30, 2021 | June 30, 2021 | | :--- | :--- | :--- | | Total Assets | $9,519.4 million | $9,609.3 million | | Cash and cash equivalents | $1,735.3 million | $1,607.3 million | | Goodwill | $4,686.9 million | $4,691.7 million | | Total Liabilities | $5,310.8 million | $5,509.9 million | | Long-term debt | $3,577.5 million | $3,578.9 million | | Total Shareholders' Equity | $4,208.5 million | $4,099.5 million | - Net cash provided by operating activities decreased to $189.7 million for the three months ended September 30, 2021, compared to $233.9 million in the prior-year period[17] Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial figures, covering revenue recognition, long-term debt, share capital, contingencies, and restructuring charges | Revenue by Type (Q1 FY2022) | Amount (USD thousands) | % of Total | | :--- | :--- | :--- | | Cloud services and subscriptions | $356,589 | 42.8% | | Customer support | $335,237 | 40.3% | | Total Recurring Revenues | $691,826 | 83.1% | | License | $73,529 | 8.8% | | Professional service and other | $66,953 | 8.1% | | Total Revenues | $832,308 | 100.0% | - As of September 30, 2021, the company's long-term debt totaled approximately $3.59 billion, primarily consisting of Senior Notes due in 2026, 2028, and 2030, and a Term Loan B[51] - The company is in a dispute with the Canada Revenue Agency (CRA) over transfer pricing for fiscal years 2012-2016, with a potential liability of approximately $72 million in penalties, interest, and taxes; a separate audit for Fiscal 2017 could reduce deferred tax assets by up to $470 million, which the company is vigorously contesting and has not accrued[109][111][114] - Total share-based compensation expense for the quarter was $13.9 million, up from $11.7 million in the prior-year period[83] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes the company's Q1 FY2022 financial performance, covering operational results, COVID-19 impacts, liquidity, and capital resources, emphasizing revenue growth and strategic initiatives - The company's "Total Growth" strategy emphasizes increasing recurring revenues and expanding margins to drive cash flow generation, which in turn fuels a disciplined capital allocation approach for strategic acquisitions and innovation[187] - For Q1 FY2022, the company invested $100.2 million, or 12.0% of revenue, in Research & Development (R&D), in line with its target of 12% to 14% of revenues for the fiscal year[188] - Operating expenses for R&D, Sales & Marketing, and General & Administrative all increased year-over-year, partly due to the restoration of compensation adjustments that were implemented in the prior year to mitigate the impacts of COVID-19[216][220][222] Results of Operations This section details financial performance, showing total revenue growth driven by increases across all revenue streams and higher operating expenses due to restored compensation adjustments | Revenue Stream | Q1 FY2022 (USD millions) | YoY Growth | Key Drivers | | :--- | :--- | :--- | :--- | | Cloud services and subscriptions | $356.6 | 4.6% | Growth across all geographies | | Customer support | $335.2 | 1.8% | Growth in EMEA and Asia Pacific | | License | $73.5 | 7.3% | Strong performance in EMEA and Americas | | Professional service and other | $67.0 | 2.8% | Growth in EMEA and Asia Pacific | - Special charges decreased significantly to $0.3 million from $13.2 million in the prior-year quarter, primarily due to a reduction in restructuring activities related to the COVID-19 and Fiscal 2020 plans[227] - The effective tax rate for the quarter was 24.8%, a decrease from 29.2% in the same period last year[233] Use of Non-GAAP Financial Measures The company explains its use of non-GAAP financial measures to provide insight into core operational performance, with detailed reconciliations from GAAP | Metric | GAAP | Non-GAAP | Key Adjustments | | :--- | :--- | :--- | :--- | | Net Income (attributable) | $131.9 million | $227.8 million | Amortization ($105.1 million), Share-based comp ($13.9 million), Tax effects | | Diluted EPS | $0.48 | $0.83 | Same as above | | Gross Margin | 69.0% | 75.7% | Amortization of tech intangibles, Share-based comp | | Adjusted EBITDA | N/A | $323.4 million | Reconciliation from Net Income provided | Liquidity and Capital Resources This section details the company's financial position, cash flows, and capital management, including cash balances, operating cash flow, debt structure, and capital allocation plans - Cash and cash equivalents increased by $128.0 million during the quarter to $1,735.3 million as of September 30, 2021[257] - Operating cash flow decreased by $44.2 million YoY, primarily due to a $62.9 million decrease related to accounts payable and accrued liabilities[262] - During the quarter, the company paid cash dividends of $59.9 million; subsequent to the quarter's end, a new share repurchase plan was authorized for up to $350 million[266][300] Quantitative and Qualitative Disclosures About Market Risk The company identifies primary market risks as interest rate fluctuations on variable-rate debt and foreign currency exchange rate volatility, detailing potential financial impacts - The company is exposed to interest rate risk on its $965.0 million outstanding balance of Term Loan B, where a 1% adverse change would increase annual interest payments by approximately $9.7 million[327] - The company is exposed to foreign currency translation risk, with $573.2 million in cash and cash equivalents denominated in foreign currencies, where a uniform 10% weakening against the U.S. dollar would decrease the reported cash balance by $57.3 million[333] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting - The CEO and CFO concluded that as of September 30, 2021, the company's disclosure controls and procedures were effective[334] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[335] Part II Other Information Risk Factors This section refers readers to the comprehensive risk factors detailed in the Annual Report on Form 10-K, indicating no new material risks for the quarter - The report refers to the risk factors discussed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2021, for a comprehensive understanding of the risks and uncertainties facing the company[338] Exhibits This section lists exhibits filed with the Form 10-Q, primarily consisting of CEO and CFO certifications and Inline XBRL financial data files - The exhibits filed with this report include certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL instance and taxonomy documents[339]