OpenText Buys EasyLink; Reports Third Quarter Fiscal Year 2012 Financial Results

WATERLOO, ON, May 1, 2012 /PRNewswire/ - Open Text(TM) Corporation (NASDAQ:OTEX) (TSX: OTC), announced today that is has entered into an agreement to acquire EasyLink Services International Corporation ("EasyLink") (Nasdaq: ESIC) (www.EasyLink.com), a global provider of cloud-based electronic messaging and business integration services, for $7.25 per share in cash, for a purchase price of approximately $310 million, inclusive of debt. Headquartered in Atlanta, Georgia, EasyLink has approximately 550 employees and TTM revenues of approximately $186 million. (1)

The Board of Directors of EasyLink has unanimously approved the transaction. The transaction is expected to close by mid-to-late summer 2012, subject to EasyLink's stockholder approval, certain regulatory approvals and customary closing conditions.

"Easylink is a recognized leader in cloud-based Secure Information Exchange.  We see strong opportunities for our mutual customers, partners, employees and product roadmap," said OpenText CEO Mark J. Barrenechea.  "EasyLink has demonstrated operational discipline and earnings as reflected in their financial results.  Once the transaction is closed, we look forward to the market opportunities of offering a best-in-class combined portfolio of cloud-based services."

OpenText also announced unaudited financial results for its third fiscal quarter ended March 31, 2012.

Financial Highlights for Q3 FY12

  • Total revenue for the period was $292.3 million up 11.1% Y/Y
  • License revenue was $61.0 million, down 10.1% Y/Y; up approximately 14% on a year-to-date basis, Y/Y
  • GAAP-based EPS was $0.59 compared to $0.61 Y/Y; Non-GAAP-based EPS was $1.01 compared to $0.91 Y/Y up 11% Y/Y (2)
  • GAAP-based income from operations was $27.3 million and 9.3% of revenues; Non-GAAP-based operating income was $73.6 million and 25.2% of revenues(2)
  • Operating cash flow was $96.6 million, with an ending cash balance of $509 million

Mark J. Barrenechea said "OpenText delivered our best third quarter adjusted earnings per share and cash from operations, and on a year-to-date basis our adjusted earnings per share was up 14 percent.  However, our license revenue performance was impacted by sales execution issues in North America and within our Business Process Solutions (BPS) group.  We've moved swiftly to take corrective actions and are confident that our organizational changes and enhancements will have a positive impact on our execution moving forward."

Barrenechea added, "After my first 120 days on the job, I am even more excited about OpenText's market position and long-term growth potential.  We are a clear, trusted leader in Enterprise Content Management (ECM), and are positioned to deliver an expanding suite of secure solutions in ECM, Business Process management (BPM) and Customer Experience Management (CEM).  Moreover, our large customer base, significant global distribution and expanding product capabilities puts us in an excellent position to leverage our business in rapidly growing Cloud and mobile environments.  Our pipeline of opportunities is strong, and I am highly focused on putting the company in the best position to capitalize on our large and dynamic market opportunities."

Business Highlights

  • Technology, services, government and financial verticals saw the most demand
  • Customer successes in the third quarter include Sumitomo Heavy Industry, Conoco Phillips, NTT Comware, News International, Trinity Mirror and the Spanish Lottery
  • Integrated BPM sales force; now selling BPM globally
  • OpenText named one of The Financial Post's 10 Best Companies to Work For in Canada
  • OpenText Extended ECM for SAP® Solutions Version 10 now includes support for the SAP Customer Relationship Management (SAP CRM) and SAP Supplier Relationship Management (SAP SRM) applications
  • OpenText Tempo Enterprise and Express Editions now available for easy sharing of content in private clouds

Summary of Quarterly Results
Q3 FY12Q2 FY12Q3 FY11% Change (Q/Q)% Change (Y/Y)
Revenue (million) $292.3 $321.5 $263.0 (9.1)% 11.1%
GAAP-based gross margin 63.6% 67.1% 66.5% (350) bps (290) bps
GAAP-based operating income margin 9.3% 17.2% 10.9% (790) bps (160) bps
GAAP-based EPS $0.59 $0.81 $0.61 (27.2)% (3.3)%
Non-GAAP-based gross margin (2) 71.0% 73.8% 73.3% (280) bps (230) bps
Non-GAAP-based operating margin (2) 25.2% 30.7% 24.4% (550) bps 80 bps
Non-GAAP-based EPS (2) $1.01 $1.39 $0.91 (27.3)% 11.0%

Summary of Year to Date Results
Q3 FY12Q2 FY12Q3 FY11% Change (Y/Y)
Revenue (million) $901.8 $ 609.5   $747.9 20.6%
GAAP-based gross margin 65.2% 66.0% 67.1% (190) bps
GAAP-based operating income margin 12.2% 13.5% 15.2% (300) bps
GAAP-based EPS $2.00 $ 1.41   $1.63 22.7%
Non-GAAP-based gross margin (2) 72.3%     72.9%   73.8% (150) bps
Non-GAAP-based operating margin (2) 27.2%     28.1%   28.2% (100) bps
Non-GAAP-based EPS (2) $3.43 $ 2.42   $3.02 13.6%

Conference Call Information
The public is invited to listen to the earnings conference call at 5:00 p.m. ET (2:00 p.m. PT) by dialing 800-814-4859 (toll-free) or 416-644-3414 (international). Please dial-in 15 minutes ahead of time to ensure proper connection. Alternatively, a live webcast of the earnings conference call will be available on the Investor Relations section of the Company's website at http://www.opentext.com/2/global/ex_event.html?evtype=events&id=701D0000000VGeJIAW.

An audio replay of the conference call will also be made available approximately two hours after the conclusion of the call. The audio replay will remain available until 11:59 p.m. on May 15, 2012 and can be accessed by dialing 877-289-8525 (toll-free) or 416-640-1917 (international) and entering the confirmation code: 4529846, followed by the number sign.

Please see below note (2) for a reconciliation of non-US GAAP based financial measures used in this press release, to US GAAP based financial measures.

About OpenText
OpenText (TM) is the world's largest independent provider of Enterprise Content Management software. The company's solutions manage information for all types of business, compliance and industry requirements in large companies, government agencies and professional service firms. OpenText supports approximately 46,000 customers in 114 countries and 12 languages. For more information about OpenText, visit www.opentext.com.

About EasyLink Services International Corporation
EasyLink Services International Corporation (EasyLink) (Nasdaq:ESIC), headquartered in Norcross, GA, offers a comprehensive portfolio of "any to any" business messaging and transaction services that can bridge the most challenging technology gaps while creating significant cost efficiencies across an organization. From Desktop Fax and Production Messaging to EDI, Managed File Transfer, Document Capture and Management, Secure Messaging and Notifications we help companies drive costs out of their operations. With over two decades of servicing customers around the globe, EasyLink has established a proven track record for providing effective, reliable and secure communications. For more information on EasyLink, visit www.easylink.com.

Cautionary Statement Regarding Forward Looking Statements
Certain statements in this press release, including statements about the financial conditions, and results of operations and earnings for Open Text Corporation ("OpenText" or "the Company"), may contain words such as "could", "expects", "may", "should", "will", "anticipates", "believes", "intends", "estimates", "targets", "plans", "envisions", "seeks" and other similar language and are considered forward-looking statements or information under applicable securities laws. These statements are based on the Company's current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which the Company operates. These statements are subject to important assumptions, risks and uncertainties that are difficult to predict, and the actual outcome may be materially different. The Company's assumptions, although considered reasonable by the Company at the date of this press release, may provide to be inaccurate and consequently the Company's actual results could differ materially from the expectations set out herein.

Actual results or events could differ materially from those contemplated in forward-looking statements as a result of the following: (i) the future performance, financial and otherwise, of OpenText; (ii) the ability of OpenText to bring new products to market and to increase sales; (iii) the strength of the Company's product development pipeline; (iv) the Company's growth and profitability prospects; (v) the estimated size and growth prospects of the ECM market; (vi) the Company's competitive position in the ECM market and its ability to take advantage of future opportunities in this market; (vii) the benefits of the Company's products to be realized by customers; and (viii) the demand for the Company's product and the extent of deployment of the company's products in the ECM marketplace. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (ii) the possibility that the Company may be unable to meet its future reporting requirements under the Securities Exchange Act of 1934, as amended, and the rules promulgated there under; (iii) the risks associated with bringing new products to market; (iv) fluctuations in currency exchange rates; (v) delays in the purchasing decisions of the Company's customers; (vi) the competition the Company faces in its industry and/or marketplace; (vii) the possibility of technical, logistical or planning issues in connection with the deployment of the Company's products or services; (viii) the continuous commitment of the Company's customers; and (ix) demand for the Company's products.

For additional information with respect to risks and other factors which could occur, see the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities filings with the SEC and other securities regulators. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligations to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Copyright © 2012 by Open Text Corporation. "OPENTEXT", "OPENTEXT EVERYWHERE" and the "OPENTEXT ECM SUITE" are trademarks or registered trademarks of Open Text Corporation in the United States of America, Canada, the European Union and/or other countries. This list of trademarks is not exhaustive. Other trademarks, registered trademarks, product names, company names, brands and service names mentioned herein are property of Open Text Corporation or other respective owners.

OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share data)
 March 31, 2012 Jun30, 2011
(Unaudited)
ASSETS
Cash and cash equivalents $ 508,906 $ 284,140
Accounts receivable trade, net of allowance for doubtful accounts of $6,635 as of March 31, 2012 and
 $5,424 as of June 30, 2011
176,095 154,568
Income taxes recoverable 17,054 18,911
Prepaid expenses and other current assets 45,474 29,678
Deferred tax assets 20,433 27,861
Total current assets 767,962 515,158
Capital assets 80,723 77,825
Goodwill 1,040,394 832,481
Acquired intangible assets 347,254 344,995
Deferred tax assets 81,472 42,737
Other assets 27,513 19,359
Deferred charges 70,854 54,989
Long-term income taxes recoverable 53,870 44,819
Total assets $ 2,470,042 $ 1,932,363
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 128,306 $ 126,249
Current portion of long-term debt 41,852 15,545
Deferred revenues 291,348 254,531
Income taxes payable 20,387 18,424
Deferred tax liabilities 2,207 624
Total current liabilities 484,100 415,373
Long-term liabilities:
Accrued liabilities 14,339 13,727
Deferred credits 7,122 6,878
Pension liability 21,001 18,478
Long-term debt 562,500 282,033
Deferred revenues 12,140 11,466
Long-term income taxes payable 157,697 101,434
Deferred tax liabilities 34,849 43,529
Total long-term liabilities 809,648 477,545
Shareholders' equity:
Share capital
58,148,365 and 57,301,812 Common Shares issued and outstanding at March 31, 2012 and
 June 30, 2011, respectively; Authorized Common Shares: unlimited
632,855 614,279
Additional paid-in capital 90,352 74,301
Accumulated other comprehensive income 45,489 60,470
Retained earnings 434,097 316,894
Treasury stock, at cost (572,413 shares at March 31, 2012 and 572,413 shares at June 30, 2011,
 respectively)
(26,499) (26,499)
Total shareholders' equity 1,176,294 1,039,445
Total liabilities and shareholders' equity $ 2,470,042 $ 1,932,363

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,
2012201120122011
Revenues:
License $ 60,957 $ 67,794 $ 215,688 $ 189,644
Customer support 166,057 143,126 493,440 409,585
Service and other 65,333 52,037 192,721 148,621
Total revenues 292,347 262,957 901,849 747,850
Cost of revenues:
License 4,549 3,772 13,917 12,737
Customer support 27,987 22,699 82,724 63,597
Service and other 52,596 43,830 153,551 120,101
Amortization of acquired technology-based intangible assets 21,264 17,677 63,307 49,524
Total cost of revenues 106,396 87,978 313,499 245,959
Gross profit 185,951 174,979 588,350 501,891
Operating expenses:
Research and development 41,738 41,324 127,848 106,555
Sales and marketing 69,572 61,132 202,903 163,915
General and administrative 21,999 23,323 72,886 62,611
Depreciation 5,427 5,917 16,319 16,050
Amortization of acquired customer-based intangible assets 13,462 10,102 39,948 28,159
Special charges 6,450 4,437 18,776 11,093
Total operating expenses 158,648 146,235 478,680 388,383
Income from operations 27,303 28,744 109,670 113,508
Other income (expense), net (1,804) 3,078 10,145 (660)
Interest expense, net (4,761) (1,987) (11,154) (6,362)
Income before income taxes 20,738 29,835 108,661 106,486
Provision for (recovery of) income taxes (14,036) (5,995) (8,542) 11,875
Net income for the period $ 34,774 $ 35,830 $ 117,203 $ 94,611
Net income per share-basic $ 0.60 $ 0.63 $ 2.03 $ 1.66
Net income per share-diluted $ 0.59 $ 0.61 $ 2.00 $ 1.63
Weighted average number of Common Shares outstanding-basic 58,038 57,133 57,765 57,010
Weighted average number of Common Shares outstanding-diluted 58,821 58,359 58,697 58,132

OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
Three Months Ended
March 31,
Nine Months Ended
March 31,
2012201120122011
Cash flows from operating activities:
Net income for the period $ 34,774 $ 35,830 $ 117,203 $ 94,611
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangible assets 40,153 33,696 119,574 93,733
Share-based compensation expense 5,165 3,095 13,406 8,431
Excess tax benefits on share-based compensation expense (2,215) (1,015) (2,710) (1,577)
Pension expense 171 156 477 387
Amortization of debt issuance costs 588 343 1,166 1,012
Loss on sale and write down of capital assets 12 203 12
Deferred taxes (14,134) (6,958) (21,092) (10,789)
Impairment and other non cash charges 1,345
Changes in operating assets and liabilities:
Accounts receivable (9,237) (5,131) (9,264) 4,538
Prepaid expenses and other current assets (11,148) 813 (3,107) 124
Income taxes (755) (15,039) 10,181 21,820
Deferred charges and credits (9,425) 95 (26,752) (29,172)
Accounts payable and accrued liabilities (4,553) (710) (21,352) (22,022)
Deferred revenue 66,303 37,585 8,497 12,813
Other assets 911 (445) (1,131) (2,657)
Net cash provided by operating activities 96,598 82,327 186,644 171,264
Cash flows from investing activities:
Additions of capital assets-net (4,694) (11,954) (21,381) (26,536)
Purchase of Patents (193)
Purchase of System Solutions Australia Pty Limited (Message Manager), net of cash acquired (214) (1,738)
Purchase of Operitel Corporation, net of cash acquired (131) (6,391)
Purchase of Global 360 Holding Corp., net of cash acquired (245,653)
Purchase of Stream Serve Inc., net of cash acquired (57,221)
Purchase of weComm Limited, net of cash acquired (20,198) (20,198)
Purchase of Metastorm Inc., net of cash acquired (168,657) (168,657)
Purchase consideration for prior period acquisitions (317) (1,392) (926) (4,206)
Investments in marketable securities (668)
Net cash used in investing activities (5,356) (202,201) (276,282) (277,486)
Cash flow from financing activities:
Excess tax benefits on share-based compensation expense 2,215 1,015 2,710 1,577
Proceeds from issuance of Common Shares 7,075 4,831 18,336 9,384
Purchase of Treasury Stock (12,499)
Proceeds from long-term debt and revolver 648,500
Repayment of long term debt and revolver (7,664) (901) (341,520) (2,661)
Debt issuance costs (525) (9,834) (29)
Net cash provided by (used in) financing activities 1,101 4,945 318,192 (4,228)
Foreign exchange gain (loss) on cash held in foreign currencies 2,652 11,893 (3,788) 22,005
Increase (decrease) in cash and cash equivalents during the period 94,995 (103,036) 224,766 (88,445)
Cash and cash equivalents at beginning of the period 413,911 340,783 284,140 326,192
and cash equivalents at end of the period $ 508,906 $ 237,747 $ 508,906 $ 237,747

Notes

(1)  All dollar amounts in this press release are in US Dollars unless otherwise indicated.
(2) Use of Non-GAAP Financial Measures: In addition to reporting financial results in accordance with US GAAP, the Company provides certain non-US GAAP financial measures that are not in accordance with US GAAP. These non-US GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company's definition may be different from similar non-US GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus it may be more difficult to compare the Company's financial performance to that of other companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of non-US GAAP net income and non-US GAAP EPS both in its reconciliation to the US GAAP financial measures of net income and EPS and its consolidated financial statements, all of which should be considered when evaluating the Company's results. The Company uses the financial measures non-US GAAP EPS and non-US GAAP net income to supplement the information provided in its consolidated financial statements, which are presented in accordance with US GAAP. The presentation of non-US GAAP net income and non-US GAAP EPS is not meant to be a substitute for net income or net income per share presented in accordance with US GAAP, but rather should be evaluated in conjunction with and as a supplement to such US GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the US GAAP measures with certain non-US GAAP measures for the reasons set forth below. Non-US GAAP net income and non-US GAAP EPS are calculated as net income or net income per share on a diluted basis, excluding, where applicable, the amortization of acquired intangible assets, other income (expense), share-based compensation, and restructuring, all net of tax. The Company's management believes that the presentation of non-US GAAP net income and non-US GAAP EPS provides useful information to investors because it excludes non-operational charges. The use of the term "non-operational charge" is defined by the Company as those that do not impact operating decisions taken by the Company's management and is based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports. In the course of such evaluation and for the purpose of making operating decisions, the Company's management excludes certain items from its analysis, such as amortization of acquired intangible assets, restructuring costs, share-based compensation, other income (expense) and the taxation impact of these items. These items are excluded based upon the manner in which management evaluates the business of the Company and are not excluded in the sense that they may be used under US GAAP. The Company believes the provision of supplemental non-US GAAP measures allows investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of Open Text's performance or expected performance of recurring operations and facilitates period-to-period comparison of operating performance. As a result, the Company considers it appropriate and reasonable to provide, in addition to US GAAP measures, supplementary non-US GAAP financial measures that exclude certain items from the presentation of its financial results in this press release.
The following charts provide (unaudited) reconciliations of US GAAP based financial measures to non-US GAAP based financial measures for the following periods presented:

Reconciliation of selected GAAP-based measures to Non-GAAP based measures for the three months ended March 31, 2012.
($ in thousands except for per share amounts)
Three Months Ended
March 31, 2012
GAAP-based
Measures
AdjustmentsNoteNon-GAAP-based
Measures
Cost of revenues
Customer Support 27,987 (53) (1) 27,934
Service and Other 52,596 (203) (1) 52,393
Amortization of acquired technology-based intangible assets 21,264 (21,264) (2)
GAAP-based gross profit/ Non-GAAP-based gross profit 185,951 21,520 207,471
Operating Expenses
Research and development 41,738 (1,028) (1) 40,710
Sales and marketing 69,572 (2,594) (1) 66,978
General and administrative 21,999 (1,287) (1) 20,712
Amortization of acquired customer-based intangible assets 13,462 (13,462) (2)
Special charges 6,450 (6,450) (3)
GAAP-based income from operations/ Non-GAAP-based operating income 27,303 46,341 73,644
Other income, net (1,804) 1,804 (4)
Provision for (recovery of) income taxes (14,036) 23,680 (5) 9,644
GAAP-based net income for the period/ Non-GAAP-based net income 34,774 24,465 (6) 59,239
GAAP-based earnings per share/ Non GAAP-based earnings per share-diluted $ 0.59 $ 0.42 (6) $ 1.01

(1)  Adjustment relates to the exclusion of share based compensation expense from our non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results
(2)  Adjustment relates to the exclusion of amortization expense from our non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)  Adjustment relates to the exclusion of Special charges from our non-GAAP-based operating expenses as Special charges are generally incurred in the aftermath of acquisitions and are not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(4)  Adjustment relates to the exclusion of Other income (expense) from our non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and are generally not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(5)  Adjustment relates to differences between the GAAP-based tax recovery of approximately 68% and a non-GAAP-based tax rate of 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income. The GAAP-based tax recovery is primarily due to "one-time" tax benefits relating to ongoing internal reorganizations and mergers of international subsidiaries acquired; these reorganizations and mergers cause a change in the tax status of these subsidiaries resulting in a reduction in deferred tax liabilities recorded upon the acquisition of these subsidiaries, and a corresponding reduction in income tax expense.
(6)  Reconciliation of non-GAAP-based adjusted net income to GAAP-based net income:

Three Months Ended
March 31, 2012
Per share
Non-GAAP-based net income 59,239 1.01
Less:
Amortization 34,726 0.59
Share-based compensation 5,165 0.09
Special charges 6,450 0.11
Other (income) expense 1,804 0.03
GAAP-based provision for (recovery of) income tax (14,036) (0.24)
Tax on non-GAAP-based provision (9,644) (0.16)
GAAP-based net income 34,774 0.59

Reconciliation of selected GAAP-based measures to Non-GAAP based measures for the nine months ended March 31, 2012.
($ in thousands except for per share amounts)
Nine Months Ended
March 31, 2012
GAAP-based
Measures
AdjustmentsNoteNon-GAAP-based
Measures
Cost of revenues
Customer Support 82,724 (112) (1) 82,612
Service and Other 153,551 (408) (1) 153,143
Amortization of acquired technology-based intangible assets 63,307 (63,307) (2)
GAAP-based gross profit/ Non-GAAP-based gross profit 588,350 63,827 652,177
Operating Expenses
Research and development 127,848 (2,872) (1) 124,976
Sales and marketing 202,903 (6,040) (1) 196,863
General and administrative 72,886 (3,974) (1) 68,912
Amortization of acquired customer-based intangible assets 39,948 (39,948) (2)
Special charges 18,776 (18,776) (3)
GAAP-based income from operations/ Non-GAAP-based operating income 109,670 135,437 245,107
Other income, net 10,145 (10,145) (4)
Provision for (recovery of) income taxes (8,542) 41,295 (5) 32,753
GAAP-based net income for the period/ Non-GAAP-based net income 117,203 83,997 (6) 201,200
GAAP-based earnings per share/ Non GAAP-based earnings per share-diluted $ 2.00 $ 1.43 (6) $ 3.43

(1)  Adjustment relates to the exclusion of share based compensation expense from our non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results
(2)  Adjustment relates to the exclusion of amortization expense from our non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)  Adjustment relates to the exclusion of Special charges from our non-GAAP-based operating expenses as Special charges are generally incurred in the aftermath of acquisitions and are not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(4)  Adjustment relates to the exclusion of Other income (expense) from our non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and are generally not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(5)  Adjustment relates to differences between the GAAP-based tax recovery of approximately 8% and a non-GAAP-based tax rate of 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income. The GAAP-based tax recovery is primarily due to "one-time" tax benefits relating to ongoing internal reorganizations and mergers of international subsidiaries acquired; these reorganizations and mergers cause a change in the tax status of these subsidiaries resulting in a reduction in deferred tax liabilities recorded upon the acquisition of these subsidiaries, and a corresponding reduction in income tax expense.
(6)  Reconciliation of non-GAAP-based adjusted net income to GAAP-based net income:

Nine Months Ended
March 31, 2012
Per share
Non-GAAP-based net income 201,200 3.43
Less:
Amortization 103,255 1.76
Share-based compensation 13,406 0.23
Special charges 18,776 0.32
Other (income) expense (10,145) (0.17)
GAAP-based provision for (recovery of) income tax (8,542) (0.15)
Tax on non-GAAP-based provision (32,753) (0.56)
GAAP-based net income 117,203 2.00

Reconciliation of selected GAAP-based measures to Non GAAP-based measures for the three months ended December 31, 2011.
($ in thousands except for per share amounts)
Three Months Ended
December 31, 2011
GAAP-based
measures
AdjustmentsNoteNon-GAAP-based
measures
Cost of Revenues:
Customer Support 28,468 (34) (1) 28,434
Service and Other 50,604 (106) (1) 50,498
Amortization of acquired technology-based intangible assets 21,253 (21,253) (2)
GAAP-based gross profit/ Non-GAAP-based gross profit 215,761 21,393 237,154
Operating Expenses
Research and development 42,652 (768) (1) 41,884
Sales and marketing 68,451 (1,676) (1) 66,775
General and administrative 25,126 (813) (1) 24,313
Amortization of acquired customer-based intangible assets 13,445 (13,445) (2)
Special charges 5,221 (5,221) (3)
GAAP-based income from operations/ Non-GAAP-based operating income 55,232 43,316 98,548
Other expense, net 2,637 (2,637) (4)
Provision for income taxes 6,819 6,472 (5) 13,291
GAAP-based net income for the period/ Non-GAAP-based net income 47,443 34,207 (6) 81,650
GAAP-based earnings per share/ Non GAAP-based earnings per share-diluted $ 0.81 $ 0.58 (6) $ 1.39

(1)  Adjustment relates to the exclusion of share based compensation expense from our non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results
(2)  Adjustment relates to the exclusion of amortization expense from our non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)  Adjustment relates to the exclusion of Special charges from our non-GAAP-based operating expenses as Special charges are generally incurred in the aftermath of acquisitions and are not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(4)  Adjustment relates to the exclusion of Other income (expense) from our non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and are generally not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(5)  Adjustment relates to differences between the GAAP-based tax rate of approximately 13% and a non-GAAP-based tax rate of 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income.
(6)  Reconciliation of non-GAAP-based adjusted net income to GAAP-based net income:

Three Months Ended
December 31, 2011
Per share
Non-GAAP-based net income 81,650 1.39
Less:
Amortization 34,698 0.59
Share-based compensation 3,397 0.06
Special charges 5,221 0.09
Other (income) expense (2,637) (0.04)
GAAP-based provision for income tax 6,819 0.12
Tax on non-GAAP-based provision (13,291) (0.24)
GAAP-based net income 47,443 0.81

Reconciliation of selected GAAP-based measures to Non GAAP-based measures for the six months ended December 31, 2011.
($ in thousands except for per share amounts)
Six Months Ended
December 31, 2011
GAAP-based
measures
AdjustmentsNoteNon-GAAP-based
measures
Cost of Revenues:
Customer Support 54,737 (58) (1) 54,679  
Service and Other 100,955 (205) (1) 100,750  
Amortization of acquired technology-based intangible assets 42,043 (42,043) (2) —  
GAAP-based gross profit/ Non-GAAP-based gross profit 402,399 42,306 444,705  
Operating Expenses
Research and development 86,110 (1,845) (1) 84,265  
Sales and marketing 133,331 (3,446) (1) 129,885  
General and administrative 50,887 (2,687) (1) 48,200  
Amortization of acquired customer-based intangible assets 26,486 (26,486) (2) —  
Special charges 12,326 (12,326) (3) —  
GAAP-based income from operations/ Non-GAAP-based operating income 320,032 (46,790) 273,242  
Other expense, net 11,949 (11,949) (4) —  
Provision for income taxes 5,494 17,616 (5) 23,110  
GAAP-based net income for the period/ Non-GAAP-based net income 82,429 59,531 (6) 141,960  
GAAP-based earnings per share/ Non GAAP-based earnings per share-diluted $ 1.41 $ 1.01 (6) $ 2.42  

(1)  Adjustment relates to the exclusion of share based compensation expense from our non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results
(2)  Adjustment relates to the exclusion of amortization expense from our non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)  Adjustment relates to the exclusion of Special charges from our non-GAAP-based operating expenses as Special charges are generally incurred in the aftermath of acquisitions and are not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(4)  Adjustment relates to the exclusion of Other income (expense) from our non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and are generally not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(5)  Adjustment relates to differences between the GAAP-based tax rate of approximately 6% and a non-GAAP-based tax rate of 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income.
(6)  Reconciliation of non-GAAP-based adjusted net income to GAAP-based net income:

Six Months Ended
December 31, 2011
Per share
Non-GAAP-based net income 141,960 2.42
Less:
Amortization 68,529 1.17
Share-based compensation 8,241 0.14
Special charges 12,326 0.21
Other (income) expense (11,949) (0.20)
GAAP-based provision for income tax 5,494 0.09
Tax on non-GAAP-based provision (23,110) (0.40)
GAAP-based net income 82,429 1.41

Reconciliation of selected GAAP-based measures to Non GAAP-based measures for the three months ended March 31, 2011.
($ in thousands except for per share amounts)
Three Months Ended
March 31, 2011
GAAP-based
measures
AdjustmentsNoteNon-GAAP-based
measures
Cost of Revenues:
Customer Support 22,699 (16) (1) 22,683
Service and Other 43,830 (116) (1) 43,714
Amortization of acquired technology-based intangible assets 17,677 (17,677) (2)
GAAP-based gross profit/ Non-GAAP-based gross profit 174,979 17,809 192,788
Operating Expenses
Research and development 41,324 (653) (1) 40,671
Sales and marketing 61,132 (1,437) (1) 59,695
General and administrative 23,323 (873) (1) 22,450
Amortization of acquired customer-based intangible assets 10,102 (10,102) (2)
Special charges 4,437 (4,437) (3)
GAAP-based income from operations/ Non-GAAP-based operating income 28,744 35,311 64,055
Other expense, net 3,078 (3,078) (4)
Provision for (recovery of) income taxes (5,995) 14,685 (5) 8,690
GAAP-based net income for the period/ Non-GAAP-based net income 35,830 17,548 (6) 53,378
GAAP-based earnings per share/ Non GAAP-based earnings per share-diluted $ 0.61 $ 0.30 (6) $ 0.91

(1)  Adjustment relates to the exclusion of share based compensation expense from our non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results
(2)  Adjustment relates to the exclusion of amortization expense from our non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)  Adjustment relates to the exclusion of Special charges from our non-GAAP-based operating expenses as Special charges are generally incurred in the aftermath of acquisitions and are not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(4)  Adjustment relates to the exclusion of Other income (expense) from our non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and are generally not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(5)  Adjustment relates to differences between the GAAP-based tax recovery of approximately 20% and a non-GAAP-based tax rate of 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income. The GAAP-based tax recovery is primarily due to "one-time" tax benefits relating to ongoing internal reorganizations and mergers of international subsidiaries acquired; these reorganizations and mergers cause a change in the tax status of these subsidiaries resulting in a reduction in deferred tax liabilities recorded upon the acquisition of these subsidiaries, and a corresponding reduction in income tax expense.
(6)  Reconciliation of non-GAAP-based net income to GAAP-based net income:

Three Months Ended
March 31, 2011
Per share
Non-GAAP-based net income 53,378 0.91
Less:
Amortization 27,779 0.48
Share-based compensation 3,095 0.05
Special charges 4,437 0.08
Other (income) expense (3,078) (0.05)
GAAP-based provision for (recovery of) income tax (5,995) (0.10)
Tax on non-GAAP-based provision (8,690) (0.16)
GAAP-based net income 35,830 0.61

Reconciliation of selected GAAP-based measures to Non GAAP-based measures for the nine months ended March 31, 2011.
($ in thousands except for per share amounts)
Nine Months Ended
March 31, 2011
GAAP-based
measures
AdjustmentsNoteNon-GAAP-based
measures
Cost of Revenues:
Customer Support 63,597 (34) (1) 63,563  
Service and Other 120,101 (323) (1) 119,778  
Amortization of acquired technology-based intangible assets 49,524 (49,524) (2) —  
GAAP-based gross profit/ Non-GAAP-based gross profit 501,891 49,881 551,772  
Operating Expenses
Research and development 106,555 (1,918) (1) 104,637  
Sales and marketing 163,915 (4,228) (1) 159,687  
General and administrative 62,611 (1,928) (1) 60,683  
Amortization of acquired customer-based intangible assets 28,159 (28,159) (2) —  
Special charges 11,093 (11,093) (3) —  
GAAP-based income from operations/ Non-GAAP-based operating income 113,508 97,207 210,715  
Other expense, net (660) 660 (4) —  
Provision for income taxes 11,875 16,734 (5) 28,609  
GAAP-based net income for the period/ Non-GAAP-based net income 94,611 81,133 (6) 175,744  
GAAP-based earnings per share/ Non GAAP-based earnings per share-diluted $ 1.63 $ 1.39 (6) $ 3.02  

(1)  Adjustment relates to the exclusion of share based compensation expense from our non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results
(2)  Adjustment relates to the exclusion of amortization expense from our non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)  Adjustment relates to the exclusion of Special charges from our non-GAAP-based operating expenses as Special charges are generally incurred in the aftermath of acquisitions and are not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(4)  Adjustment relates to the exclusion of Other income (expense) from our non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and are generally not indicative or related to continuing operations and are hence excluded from our internal analysis of operating results.
(5)  Adjustment relates to differences between the GAAP-based tax rate of approximately 11% and a non-GAAP-based tax rate of 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income. The GAAP-based tax recovery is primarily due to "one-time" tax benefits relating to ongoing internal reorganizations and mergers of international subsidiaries acquired; these reorganizations and mergers cause a change in the tax status of these subsidiaries resulting in a reduction in deferred tax liabilities recorded upon the acquisition of these subsidiaries, and a corresponding reduction in income tax expense.
(6)  Reconciliation of non-GAAP-based net income to GAAP-based net income:

Nine Months Ended
March 31, 2011
Per share
Non-GAAP-based net income 175,744 3.02
Less:
Amortization 77,683 1.34
Share-based compensation 8,431 0.15
Special charges 11,093 0.19
Other (income) expense 660 0.01
GAAP-based provision for income tax 11,875 0.20
Tax on non-GAAP-based provision (28,609) (0.50)
GAAP-based net income 94,611 1.63

(3) The following table provides a composition of our major currencies for revenue and expenses, expressed as a percentage, for the three and nine months ended March 31, 2012:

Three Months Ended
March 31, 2012
Currencies % of Revenue% of Expenses*
EURO 28% 18%
GBP 9% 10%
CAD 7% 19%
USD 47% 39%
Other 9% 14%
Total 100% 100%

Nine Months Ended
March 31, 2012
Currencies % of Revenue% of Expenses*
EURO 29% 18%
GBP 8% 9%
CAD 6% 19%
USD 47% 40%
Other 10% 14%
Total 100% 100%

*Expenses include all cost of revenues and operating expenses included within the Consolidated Statements of Income, except for amortization of intangible assets, share-based compensation and special charges.

(4)  The following table provides details of our adjustment related to deferred maintenance revenue, on account of purchase price accounting, for the three months ended March 31, 2012 and for future quarters:

In '000s USD Total
Q3 Fiscal Year 2012 618
Q4 Fiscal Year 2012 322
Fiscal year 2013 276
Total Fiscal Year 2012 1,216
Total Fiscal Year 2013 and beyond 276

SOURCE Open Text Corporation

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