What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-08-06 compared with 2019-08-01 · 416 added, 308 removed, 747 unchanged (49% of the section changed)

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(i) statements about our focus in the fiscal year beginning July 1, 2020 and ending June 30, 2021 (Fiscal 2021) on growth in earnings and cash flows;

(ii) creating value through investments in broader Enterprise Information Management (EIM) capabilities;

(ii) creating value through investments in broader Information Management capabilities;

(iii) our future business plans and business planning process;

(iv) statements relating to business trends;

(iv) statements relating to

business trends;

(v) statements relating to distribution;

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(xi) future tax rates;

(xii) the changing regulatory environment including the tax reform legislation enacted through the Tax Cuts and Jobs Act in the United States and its impact on our business;

(xii) the changing regulatory environment;

(xiii) annual recurring revenues;

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(xvii) our management and protection of intellectual property and other proprietary rights;

(xviii) foreign sales and exchange rate fluctuations;

(xviii) existing and foreign sales and exchange rate fluctuations;

(xix) cyclical or seasonal aspects of our business;

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(xxi) potential legal and/or regulatory proceedings;

(xxii) statements about the impact of Magellan and Release 16;

(xxiii) statements about acquisitions and their expected impact;

and (xxiv) other matters.

(xxii) statements about acquisitions and their expected impact;

and (xxiii) other matters.

In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate.

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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 potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on our outstanding debt securities;

(iii) the possibility that the Company may be unable to meet its future reporting requirements under the Exchange Act, and the rules promulgated thereunder, or applicable Canadian securities regulation;

(iv) the risks associated with bringing new products and services to market;

(v) fluctuations in currency exchange rates (including as a result of the impact of Brexit and any policy changes resulting from trade and tariff disputes);

(vi) delays in the purchasing decisions of the Company’s customers;

(vii) the competition the Company faces in its industry and/or marketplace;

(viii) the final determination of litigation, tax audits (including tax examinations in the United States, Canada or elsewhere) and other legal proceedings;

(ix) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, U.S.

(i) actual and potential risks and uncertainties relating to the ultimate geographic spread of COVID-19, the severity of the disease and the duration of the COVID-19 pandemic and issues relating to its resurgence, including potential material adverse effects on our business, operations and financial performance;

(ii) actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact on our business;

(iii) the actual and potential negative impacts of COVID-19 on the global economy and financial markets;

and (iv) the actual and potential risk and uncertainties relating to the implementation of our COVID-19 Restructuring Plan, including the possibility that the actual cash or non-cash cost of restructuring might exceed the estimated amounts;

(v) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof;

(vi) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on our outstanding debt securities;

(vii) the possibility that the Company may be unable to meet its future reporting requirements under the Exchange Act, and the rules promulgated thereunder, or applicable Canadian securities regulation;

(viii) the risks associated with bringing new products and services to market;

(ix) fluctuations in currency exchange rates (including as a result of the impact of Brexit and any policy changes resulting from trade and tariff disputes);

(x) delays in the purchasing decisions of the Company’s customers;

(xi) competition the Company faces in its industry and/or marketplace;

(xii) the final determination of litigation, tax audits (including tax examinations in the United States, Canada or elsewhere) and other legal proceedings;

(xii) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, U.S.

or international tax regimes;

(x) the possibility of technical, logistical or planning issues in connection with the deployment of the Company’s products or services;

(xi) the continuous commitment of the Company’s customers;

(xii) demand for the Company’s products and services;

(xiii) increase in exposure to international business risks (including as a result of the impact of Brexit and any policy changes resulting from the new U.S.

administration, including any transition from the North American Free Trade Agreement to the United States-Mexico-Canada Agreement) as we continue to increase our international operations;

(xiv) inability to raise capital at all or on not unfavorable terms in the future;

(xv) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions);

and (xvi) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities.

(xiv) the possibility of technical, logistical or planning issues in connection with the deployment of the Company’s products or services;

(xv) the continuous commitment of the Company’s customers;

(xvi) demand for the Company’s products and services;

(xvii) increase in exposure to international business risks (including as a result of the impact of Brexit and any policy changes resulting from the transition from the North American Free Trade Agreement to the United States-Mexico-Canada Agreement) as we continue to increase our international operations;

(xviii) inability to raise capital at all or on not unfavorable terms in the future;

(xix) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions);

and (xx) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities.

Other factors that may affect forward-looking statements include, but are not limited to:

(i) the future performance, financial and

otherwise, of the Company;

(i) the future performance, financial and otherwise, of the Company;

(ii) the ability of the Company to bring new products and services to market and to increase sales;

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(vii) the Company’s growth and other profitability prospects;

(viii) the estimated size and growth prospects of the EIM market;

(ix) the Company’s competitive position in the EIM market and its ability to take advantage of future opportunities in this market;

(x) the benefits of the Company’s products and services to be realized by customers;

(xi) the demand for the Company’s products and services and the extent of deployment of the Company’s products and services in the EIM marketplace;

(viii) the estimated size and growth prospects of the Information Management market;

(ix) the Company’s competitive position in the Information Management market and its ability to take advantage of future opportunities in this market;

(x) the benefits of the Company’s products and services to

be realized by customers;

(xi) the demand for the Company’s products and services and the extent of deployment of the Company’s products and services in the Information Management marketplace;

(xii) the Company’s financial condition and capital requirements;

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Any one of these factors, and other factors that we are unaware of, or currently deem immaterial, may cause our actual results to differ materially from recent results or from our anticipated future results.

Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following MD&A is intended to help readers understand our results of operations and financial condition, and is

provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and

the accompanying Notes to our Consolidated Financial Statements under Part II, Item 8 of this Annual Report on

All dollar and percentage comparisons made herein refer to the year ended June 30, 2019 (Fiscal 2019) compared with the year ended June 30, 2018 (Fiscal 2018).

the accompanying Notes to our Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K.

All dollar and percentage comparisons made herein refer to the year ended June 30, 2020 (Fiscal 2020) compared with the year ended June 30, 2019 (Fiscal 2019), unless otherwise noted.

Please refer to Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2019 for a comparative discussion of our Fiscal 2019 financial results as compared to Fiscal 2018.

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EXECUTIVE OVERVIEW

We operate in the Enterprise Information Management (EIM) market where we enable the intelligent and connected enterprise.

We develop enterprise software to support businesses in becoming digital businesses and governments in becoming digital governments.

The comprehensive OpenText EIM platform and suite of software products and services provide secure and scalable solutions for global companies and governments around the world.

With our software, organizations manage a valuable asset - information.

Information that is made more valuable by connecting it to digital business processes, information that is enriched with analytics, information that is protected and secure throughout its entire lifecycle, information that captivates customers, and information that connects and fuels some of the world's largest digital supply chains in manufacturing, retail, and financial services.

Our EIM solutions are designed to enable organizations to secure their information so that they can collaborate with confidence, validate endpoints with all machines and the Internet of Things (IoT), stay ahead of the regulatory technology curve, identify threats that cross their networks, leverage discovery with information forensics, and gain insight and action through analytics, artificial intelligence (AI) and automation.

We offer software through traditional on-premises solutions, cloud solutions or a combination of both.

We believe our customers will operate in hybrid on-premises and cloud environments, and we are ready to support the delivery method the customer prefers.

In providing choice and flexibility, we strive to maximize the lifetime value of the relationship with our customers.

OpenText is an Information Management company that provides software and services to maximize the strategic benefits of data and content for increased productivity, growth and competitive advantage.

With a focus on Information Management technologies and services, we continue to innovate and provide customers with the capabilities they need to build resilient businesses and become tomorrow's disruptors.

We provide our customers with choice and flexibility in their path to digital transformation with solutions that can be run on-premise, cloud, hybrid, or as a managed service.

We also accelerate and simplify our customers’ path to information modernization with intelligent tools and services for moving off paper, automating classification, and building clean data lakes for artificial intelligence (AI), analytics and automation.

We are fundamentally integrated into the parts of our customers' businesses that matter so they can securely manage the complexity of information flow end to end.

Furthermore, with automation and AI, we connect, synthesize and deliver information where it is needed to drive new efficiencies, experiences and insights.

We make information more valuable by connecting it to digital business processes, enriching it with capture and analytics, protecting and securing it throughout its entire lifecycle, and leveraging it to captivate customers.

Our solutions also connect large digital supply chains in manufacturing, retail and financial services.

Our solutions enable organizations and consumers to secure their information so that they can collaborate with confidence, stay ahead of the regulatory technology curve, identify threats on any endpoint or across their networks, leverage eDiscovery and digital forensics to defensibly investigate and collect evidence, and ensure business continuity in the event of a security incident.

Our initial public offering was on the NASDAQ in 1996 and we were subsequently listed on the Toronto Stock Exchange (TSX) in 1998.

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Fiscal 2020 Summary:

During the first quarter of Fiscal 2019, we adopted Accounting Standards Codification (ASC) Topic 606 "Revenue from Contracts with Customers" (Topic 606) using the cumulative effect approach and recorded a net increase of approximately $30 million to retained earnings as of July 1, 2018.

Results for reporting periods commencing on July 1, 2018 are presented under Topic 606, while prior periods, unless specifically referred to in this MD&A, continue to be reported under the previous

Please refer to Note 1 "Basis of Presentation" and Note 3 "Revenues" to our Consolidated Financial Statements for additional details.

During Fiscal 2020 we saw the following activity:

Total revenue was $3,109.7 million , up 8.4% compared to the prior fiscal year;

up 3.8% after factoring the impact of $53.2 million of foreign exchange rate changes.

up 9.7% after factoring in the impact of $37.1 million of foreign exchange rate changes.

Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and customer support revenue, was $2,433.3 million , up 12.9% compared to the prior fiscal year;

up 6.2% after factoring the impact of $34.0 million of foreign exchange rate changes.

up 14.1% after factoring in the impact of $26.3 million of foreign exchange rate changes.

Cloud services and subscriptions revenue was $1,157.7 million , up 27.5% compared to the prior fiscal year;

up 10.8% after factoring the impact of $10.8 million of foreign exchange rate changes.

up 28.4% after factoring in the impact of $8.1 million of foreign exchange rate changes.

License revenue was $402.9 million , down 5.9% compared to the prior fiscal year;

up 0.4% after factoring the impact of $11.2 million of foreign exchange rate changes.

down 4.5% after factoring in the impact of $5.9 million of foreign exchange rate changes.

GAAP-based EPS, diluted, was $0.86 compared to $1.06 in the prior fiscal year.

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Operating cash flow was $954.5 million for the year ended June 30, 2020 , up 8.9% from the prior fiscal year.

Cash and cash equivalents was $941.0 million as of June 30, 2019 , compared to $682.9 million as of June 30, 2018 .

Cash and cash equivalents were $1,692.9 million as of June 30, 2020 , compared to $941.0 million as of June 30, 2019 .

As of June 30, 2020 , our cash and cash equivalents and the current portion of our long-term debt include a $600 million draw down on the Revolver, defined below, in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic.

Issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 and $900 million in aggregate principal amount of 4.125% Senior Notes due 2030.

See "Use of Non-GAAP Financial Measures" below for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures.

See "Acquisitions" below for the impact of acquisitions on the period-to-period comparability of results.

Our competitive position in the marketplace requires us to maintain a complex and evolving array of technologies, products, services and capabilities.

In light of the continually evolving marketplace in which we operate, on an ongoing basis we regularly evaluate acquisition opportunities within the EIM market and at any time may be in various stages of discussions with respect to such opportunities.

Our competitive position in the marketplace requires us to maintain an evolving array of technologies, products, services and capabilities.

As a result of the continually evolving marketplace in which we operate, we regularly evaluate acquisition opportunities within our market and at any time may be in various stages of discussions with respect to such opportunities.

Acquisition of XMedius

On March 9, 2020 , we acquired all the equity interest in XMedius for $73.3 million in an all cash transaction.

XMedius is a provider of secure information exchange and unified communication solutions.

We believe the acquisition complements our Customer Experience Management (CEM) and Business Network (BN) platforms.

The results of operations of XMedius have been consolidated with those of OpenText beginning March 9, 2020 .

Acquisition of Carbonite

On December 24, 2019 , we acquired all the equity interest in Carbonite, a leading provider of cloud-based subscription backup, disaster recovery and endpoint security to SMBs, consumers, and a wide variety of partners.

Total consideration for Carbonite was $1.4 billion , paid in cash (inclusive of cash acquired).

We believe the acquisition increases our position in the data protection and endpoint security space, further strengthens our cloud capabilities and opens a new route to connect with customers through Carbonite's marquee SMB and consumer channels and products.

The results of operations of Carbonite have been consolidated with those of OpenText beginning December 24, 2019 .

Acquisition of Dynamic Solutions Group Inc.

(The Fax Guys)

On December 2, 2019 , we acquired certain assets and certain liabilities of The Fax Guys, for $5.1 million , of which $1.0 million is currently held back and unpaid in accordance with the terms of the purchase agreement.

The results of operations of The Fax Guys have been consolidated with those of OpenText beginning December 2, 2019 .

We believe our acquisitions support our long-term strategic direction, strengthen our competitive position, expand our customer base, provide greater scale to accelerate innovation, grow our earnings and provide superior shareholder value.

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See note 19 "Acquisitions" to our Consolidated Financial Statements for more details.

Catalyst Repository Systems Inc.

On January 31, 2019 , we acquired all of the equity interest in Catalyst, a leading provider of eDiscovery that designs, develops and supports market-leading cloud eDiscovery software, for approximately $70.8 million in an all cash transaction.

This acquisition complements and extends our EIM portfolio.

The results of operations of this acquisition have been consolidated with those of OpenText beginning January 31, 2019 .

Liaison Technologies, Inc.

On December 17, 2018 , we acquired all of the equity interest in Liaison, a leading provider of cloud-based business to business integration, for approximately $310.6 million in an all cash transaction.

This acquisition complements and extends our EIM portfolio.

The results of operations of this acquisition have been consolidated with those of OpenText beginning December 17, 2018 .

Outlook for Fiscal 2021

As an organization, our management believes in delivering “Total Growth”, meaning we strive towards delivering value through organic initiatives, innovations and acquisitions, as well as financial performance.

This growth is further enhanced

through our direct and indirect sales distribution channels.

With an emphasis on increasing recurring revenues and expanding our margins, we believe our “Total Growth” strategy will ultimately drive overall cash flow generation, thus helping to fuel our disciplined capital allocation approach and further drive our ability to deepen our account coverage and identify and execute strategic acquisitions.

With strategic acquisitions, we are better positioned to expand our product portfolio and improve our ability to innovate and grow organically, which then further helps us to meet our long-term growth targets.

As an organization, we are committed to Total Growth, meaning we strive towards delivering value through organic initiatives, innovations and acquisitions, as well as financial performance.

With an emphasis on increasing recurring revenues and expanding our margins, we believe our Total Growth strategy will ultimately drive overall cash flow generation, thus helping to fuel our disciplined capital allocation approach and further our ability to deepen our account coverage and identify and execute strategic acquisitions.

With strategic acquisitions, we are better positioned to expand our product portfolio and improve our ability to innovate and grow organically, which helps us to meet our long-term growth targets.

We believe this “Total Growth” strategy is a durable model that will create shareholder value over both the near and long-term.

We are committed to continuous innovation.

Our investments in research and development (R&D) drive product innovation, increasing the value of our offerings to our installed customer base, which includes Global 10,000 companies.

Our investments in research and development (R&D) push product innovation, increasing the value of our offerings to our installed customer base, which includes Global 10,000 companies (G10K), SMBs and consumers.

The G10K are the world's largest companies, typically those with greater than two billion in revenues, as well as the world's largest governments and organizations.

More valuable products, coupled with our established global partner program, lead to greater distribution and cross-selling opportunities which further help us to achieve organic growth.

This fiscal year we invested approximately $322 million or approximately 11% of revenue in R&D, in line with our target to spend approximately 11% to 13% of revenues for R&D each fiscal year.

We remain a value oriented and disciplined acquirer and consolidator, having efficiently deployed $6.2 billion on acquisitions over the last 10 years.

Mergers and acquisitions are one of our leading growth drivers.

We believe in creating value by focusing on acquiring strategic businesses, integrating them into our business model and using our acquired assets to innovate.

We have developed a philosophy, which we refer to as “The OpenText Business System”, that is designed to create value by leveraging a clear set of operational mandates for integrating newly acquired companies and assets.

We see our ability to successfully integrate acquired companies and assets into our business as a strength and pursuing strategic acquisitions is an important aspect to our Total Growth strategy.

We expect to continue to acquire strategically, to integrate and innovate, to deepen and strengthen our intelligent information platform for customers.

In Fiscal 2019, we further demonstrated the implementation of our strategy by acquiring Liaison Technologies, Inc.

(Liaison) and Catalyst Repository Systems Inc.

We regularly evaluate acquisition opportunities on an ongoing basis and at any time may be at various stages of discussion with respect to such opportunities.

Over the last three fiscal years, we have invested a cumulative total of $1.0 billion in R&D or 11.5% of cumulative revenue for that three year period.

We typically target to spend approximately 11% to 13% of revenues for R&D each fiscal year.

The cloud has become a business imperative.

What used to be discussed as a potential option for managing budgets, is now a strategic direction that drives competitive positioning, product innovation, business agility, and cost management.

We are committed to continue our investment in the OpenText Cloud, which is a purpose-built cloud environment for solutions spanning Information Management, Compliance, Cyber Resilience and B2B Integration.

Supported by a global, scalable, and secure infrastructure, the OpenText Cloud includes a foundational platform of technology services, and packaged business applications for industry and business processes.

The OpenText Cloud enables organizations to protect and manage information in public, private or hybrid deployments.

In March 2020, COVID-19 was characterized as a pandemic by the World Health Organization.

The spread of COVID-19 has significantly impacted the global economy and has adversely impacted and is expected to further adversely impact our operational and financial performance.

The extent of the adverse impact of the pandemic on the global economy and markets will continue to depend, in part, on the length and severity of the measures taken to limit the spread of the virus and, in part, on the size and effectiveness of the compensating measures taken by governments and on actual and potential resurgences.

We are closely monitoring the potential effects and impact on our operations, businesses and financial performance, including liquidity and capital usage, though the extent is difficult to fully predict at this time due to the rapid evolution of this uncertain situation.

We are conducting business with substantial modifications to employee travel and work locations and also virtualization or cancellations of all sales and marketing events, which we expect to remain in place throughout Fiscal 2021, along with substantially modified interactions with customers and suppliers, among other modifications.

In March 2020, we also drew down $600 million from the Revolver, defined below, as a preemptive measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic.

We will continue to actively monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies, including customer purchasing decisions, and may take further actions that alter our business operations as may be required by governments, or that we determine are in the best interest of our employees, customers, partners, suppliers, and shareholders.

It is uncertain and difficult to predict what the potential effects any such alterations or modifications may have on our business including the effects on our customers and prospects, or our financial results and our ability to successfully execute our business strategies and initiatives.

As a precaution, we have temporarily and significantly reduced all hiring and discretionary spending, while taking note of some savings to be achieved through travel restrictions and the cancellation of certain events.

In addition, in order to further mitigate the operational impacts of COVID-19, our Compensation Committee and Board approved the following measures effective for the period May 15, 2020 through June 30, 2021, subject to review and modification as the situation warrants.

Please also see "Special Fiscal 2020 Performance Bonus" in Part III, Item 11, elsewhere in this Annual Report on Form 10-K.

15% base salary reduction and forbearance of any annual variable cash compensation effective May 15, 2020 for the remainder of Fiscal 2020 and for all of Fiscal 2021, totaling an approximate 60% reduction in targeted cash compensation, for our CEO & CTO;

15% base salary reduction and 15% reduction in target annual variable cash compensation for our other Named Executive Officers and members of the executive leadership team (ELT);

10% base salary reduction and 10% reduction in target annual variable cash compensation, as applicable, for Vice-President- director-, and manager-level employees;

5% base salary reduction for all other employees subject to exception for certain of our employees, such as our employees in Asia who are earning less than the equivalent of $20,000 per year;

15% reduction in cash retainer compensation fees payable to the Board of Directors;

Suspension of employer paid contributions to retirement benefits in the United States and Canada for the remainder of Fiscal 2020 and Fiscal 2021.

These cost reduction measures are in addition to other previously disclosed facilities and workforce related actions as part of our COVID-19 Restructuring Plan.

Please see note 18 "Special Charges" to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information.

The ongoing and ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control.

For more information, please see Part I, Item 1A "Risk Factors" included elsewhere within this Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Income taxes.

For a full discussion of all our accounting policies, please see Note 2 "Accounting Policies and Recent Accounting Pronouncements" to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

For a full discussion of all our accounting policies, please see note 2 "Accounting Policies and Recent Accounting Pronouncements" to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

We will continue to monitor the potential impact of COVID-19 on our financial statements and related disclosures, including the need for additional estimates going forward, which could include costs related to items such as special charges, restructurings, asset impairments and other non-recurring costs.

As of June 30, 2020, we have recorded certain estimates resulting from the pandemic, particularly with respect to the COVID-19 Restructuring Plan and allowance for doubtful accounts, based on management's estimates and assumptions utilizing the most currently available information in our Consolidated Financial Statements .

Such estimates may be subject to change particularly given the unprecedented nature of the COVID-19 pandemic.

Please also see "Risk Factors" included within Part I, Item 1A of this Annual Report on Form 10-K.

Revenue recognition

In accordance with Topic 606, we account for a customer contract when we obtain written approval, the contract is committed, the rights of the parties, including the payment terms, are identified, the contract has commercial substance and consideration is probable of collection.

In accordance with Accounting Standards Codification (ASC) Topic 606 "Revenue from Contracts with Customers" (Topic 606), we account for a customer contract when we obtain written approval, the contract is committed, the rights of the parties, including the payment terms, are identified, the contract has commercial substance and consideration is probable of collection.

Revenue is recognized when, or as, control of a promised product or service is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for our products and services (at its transaction price).

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License revenue

Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of which are deployed on the customer’s premises (on-premise).

Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of which are deployed on the customer’s premise (on-premise).

Perpetual licenses:

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Cloud services and subscriptions revenue

Cloud services and subscriptions revenue are from hosting arrangements where, in connection with the licensing of software, the end user doesn’t take possession of the software, as well as from end-to-end fully outsourced business-to-business (B2B) integration solutions to our customers (collectively referred to as cloud arrangements).

Cloud services and subscriptions revenue are from hosting arrangements where, in connection with the licensing of software, the end user does not take possession of the software, as well as from end-to-end fully outsourced business-to-business (B2B) integration solutions to our customers (collectively referred to as cloud arrangements).

The software application resides on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis.

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Our cloud-based solutions represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer.

These services are made available to the customer continuously throughout the contractual period, however, the extent to which the customer uses the services may vary at the customer’s discretion.

These services are made available to the customer continuously throughout the contractual period.

However, the extent to which the customer uses the services may vary at the customer’s discretion.

The payment for cloud-based solutions may be received either at inception of the arrangement, or over the term of the arrangement.

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Revenue relating to these services is recognized using an output method based on the expected level of service we will provide over the term of the contract.

In connection with cloud subscription and managed service contracts, we often agree to perform a variety of services before the customer goes live, such as, converting and migrating customer data, building interfaces and providing training.

These services are considered an outsourced suite of professional services which can involve certain project-based activities.

These services can be provided at the initiation of a contract, during the implementation or on an ongoing basis as part of the customer life cycle.

These services can be charged separately on a fixed fee or time and materials basis, or the costs associated may be recovered as part of the ongoing cloud subscription or managed services fee.

These outsourced professional services are considered to be distinct from the ongoing hosting services and represent a separate performance obligation within our cloud subscription or managed services arrangements.

These services can be charged separately on a fixed fee, a time and materials basis, or the costs associated may be recovered as part of the ongoing cloud subscription or managed services fee.

These outsourced professional services are considered distinct from the ongoing hosting services and represent a separate performance obligation within our cloud subscription or managed services arrangements.

The obligation to provide outsourced professional services is satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligations.

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Customer support revenue is associated with perpetual, term license and on-premise subscription arrangements.

As customer support is not critical to the customer's ability to derive benefit from its right to use our software, customer support is considered as a distinct performance obligation when sold together in a bundled arrangement along with the software.

As customer support is not critical to the customers' ability to derive benefit from their right to use our software, customer support is considered a distinct performance obligation when sold together in a bundled arrangement along with the software.

Customer support consists primarily of technical support and the provision of unspecified updates and upgrades on a when-and-if-available basis.

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Professional service and other revenue

Our professional services, when offered along with software licenses, consist primarily of technical services and training services.

Our professional services, when offered along with software licenses, consist primarily of technical and training services.

Technical services may include installation, customization, implementation or consulting services.

Training services may include access to online modules or delivering a training package customized to the customer’s needs.

Training services may include access to online modules or the delivery of a training package customized to the customer’s needs.

At the customer’s discretion, we may offer one, all, or a mix of these services.

Payment for professional services is generally a fixed fee or is a fee based on time and materials.

Payment for professional services is generally a fixed fee or a fee based on time and materials.

Professional services can be arranged in the same contract as the software license or in a separate contract.

As our professional services do not significantly change the functionality of the license and our customers can benefit from our professional services on their own or together with other readily available resources, we consider professional services as distinct within the context of the contract.

Professional service revenue is recognized over time so long as:

(i) the customer simultaneously receives and consumes the benefits as we perform them, (ii) our performance creates or enhances an asset the customer controls as we perform, and (iii) our performance does not create an asset with alternative use and we have enforceable right to payment.

If all of the above criteria are met, we use an input-based measure of progress for recognizing professional service revenue.

Professional service revenue is recognized over time as long as:

(i) the customer simultaneously receives and consumes the benefits as we perform them, (ii) our performance creates or enhances an asset the customer controls as we perform, and (iii) our performance does not create an asset with an alternative use and we have the enforceable right to payment.

If all the above criteria are met, we use an input-based measure of progress for recognizing professional service revenue.

For example, we may consider total labor hours incurred compared to total expected labor hours.

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Standalone selling price

The SSP reflects the price we would charge for a specific product or service if it was sold separately in similar circumstances and to similar customers.

The SSP reflects the price we would charge for a specific product or service if it were sold separately in similar circumstances and to similar customers.

In most cases we are able to establish the SSP based on observable data.

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Estimating SSP requires judgment that could impact the amount and timing of revenue recognized.

SSP is a formal process whereby management considers multiple factors including, but not limited to, geographic or regional specific factors, competitive positioning, internal costs, profit objectives, and pricing practices.

SSP is a formal process whereby management considers multiple factors including, but not limited to, geographic or region specific factors, competitive positioning, internal costs, profit objectives, and pricing practices.

Transaction Price Allocation

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Where the contracts are negotiated as a package, we will account for them as a single arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.

In accordance with Topic 606, we believe there are significant assumptions, judgments and estimates involved in the accounting for revenue recognition discussed above and these assumptions, judgment and estimates could impact the timing of when revenue is recognized and could have a material impact on our Consolidated Financial Statements.

We believe there are significant assumptions, judgments and estimates involved in the accounting for revenue recognition as discussed above and these assumptions, judgment and estimates could impact the timing of when revenue is recognized and could have a material impact on our Consolidated Financial Statements.

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired.

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Our operations are analyzed by management and our chief operating decision maker (CODM) as being part of a single industry segment:

the design, development, marketing and sales of Enterprise Information Management (EIM) software and solutions.

the design, development, marketing and sales of Information Management software and solutions.

Therefore, our goodwill impairment assessment is based on the allocation of goodwill to a single reporting unit.

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Based on our qualitative assessment, if we determine that the fair value of our reporting unit is more likely than not (i.e.

a likelihood of more than 50 percent) to be less than its carrying amount, the second step of the impairment test is performed.

In the second step of the impairment test, we compare the fair value of our reporting unit to its carrying value.

a likelihood of more than 50 percent) to be less than its carrying amount, the quantitative assessment of the impairment test is performed.

In the quantitative assessment, we compare the fair value of our reporting unit to its carrying value.

If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and we are not required to perform further testing.

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Acquired intangibles

In accordance with business combinations accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.

In accordance with business combinations accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values.

Such valuations may require management to make significant estimates and assumptions, especially with respect to intangible assets.

Acquired intangible assets typically consist of acquired technology and customer relationships associated with various acquisitions.

Acquired intangible assets typically consist of acquired technology and customer relationships.

In valuing our acquired intangible assets, we may make assumptions and estimates based in part on information obtained from the management of the acquired company, which may make our assumptions and estimates inherently uncertain.

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We account for income taxes in accordance with ASC Topic 740, “Income Taxes” (Topic 740).

We account for our uncertain tax provisions by using a two-step approach.

The first step is to evaluate the tax position for recognition by determining if the weight of the available evidence indicates it is more likely than not, based solely on the technical merits, that the position will be sustained on audit, including the resolution of related appeals or litigation processes, if any.

The second step is to measure the appropriate amount of the benefit to recognize.

The amount of benefit to recognize is measured as the maximum amount which is more likely than not to be realized.

The tax position is derecognized when it is no longer more likely than not that the position will be sustained on audit.

On subsequent recognition and measurement the

maximum amount which is more likely than not to be recognized at each reporting date will represent the Company's best estimate, given the information available at the reporting date, although the outcome of the tax position is not absolute or final.

We recognize both accrued interest and penalties related to liabilities for income taxes within the "Provision for (recovery of) income taxes" line of our Consolidated Statements of Income.

Deferred tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the Consolidated Financial Statements that will result in taxable or deductible amounts in future years.

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A change to these factors could impact the estimated valuation allowance and income tax expense.

We account for our uncertain tax provisions by using a two-step approach to recognizing and measuring uncertain tax positions.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, based solely on the technical merits, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step is to measure the appropriate amount of the benefit to recognize.

The amount of benefit to recognize is measured as the maximum amount which is more likely than not to be realized.

The tax position is derecognized when it is no longer more likely than not that the position will be sustained on audit.

On subsequent recognition and measurement the maximum amount which is more likely than not to be recognized at each reporting date will represent the Company's best estimate, given the information available at the reporting date, although the outcome of the tax position is not absolute or final.

We recognize both accrued interest and penalties related to liabilities for income taxes within the "Provision for (recovery of) income taxes" line of our Consolidated Statements of Income

The Company’s tax positions are subject to audit by local taxing authorities across multiple global subsidiaries and the resolution of such audits may span multiple years.

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While we believe the assumptions and estimates that we have made are reasonable, such assumptions and estimates could have a material impact to our Consolidated Financial Statements upon ultimate resolution of the tax positions.

For additional details, please see note 14 "Income Taxes" elsewhere in this Annual Report on Form 10-K.

For additional details, please see note 15 "Income Taxes" to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

RESULTS OF OPERATIONS

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Total Revenues by Product Type:

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Year Ended June 30,

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Other Metrics:

GAAP-based gross margin

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EMEA primarily consists of countries in Europe, the Middle East and Africa.

Asia Pacific primarily consists of the countries Japan, Australia, China, Korea, Philippines, Singapore and New Zealand.

Asia Pacific primarily consists of Japan, Australia, China, Korea, Philippines, Singapore and New Zealand.

See "Use of Non-GAAP Financial Measures" (discussed later in this MD&A) for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures.

Revenues, Cost of Revenues and Gross Margin by Product Type

Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of which are deployed on the customer’s premises (on-premise).

Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses.

Our license revenues are impacted by the strength of general economic and industry conditions, the competitive strength of our software products, and our acquisitions.

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License Revenues:

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License revenues decreased by $25.2 million or 5.9% during the year ended June 30, 2020 as compared to the prior fiscal year;

up 0.4% after factoring the impact of $11.2 million of foreign exchange rate changes.

Geographically, the overall change was attributable to an increase in Americas of $8.2 million , offset by a decrease in Asia Pacific of $10.6 million and a decrease in EMEA of $7.0 million .

During Fiscal 2019, we closed 153 license deals greater than $0.5 million, of which 49 deals were greater than $1.0 million, contributing approximately $144.1 million of license revenues.

This was compared to 140 deals greater than $0.5 million during Fiscal 2018, of which 58 deals were greater than $1.0 million, contributing $152.2 million of license revenues.

Cost of license revenues increased by $0.7 million during the year ended June 30, 2019 as compared to the prior fiscal year.

The gross margin percentage on license revenues remained at approximately 97% .

For illustrative purposes only, had we accounted for revenues under proforma Topic 605, license revenues would have been $390.4 million for the year ended June 30, 2019 , which would have been lower by approximately $47.1 million or 10.8% as compared to the prior fiscal year;

and would have been lower by 8.4% after factoring the impact of $10.4 million of foreign exchange rate changes.

Geographically, the overall change would have been attributable to a decrease in Americas of $17.7 million, a decrease in EMEA of $15.7 million and a decrease in Asia Pacific of $13.7 million.

The $37.7 million difference between license revenues recognized under Topic 606 and those proforma Topic 605 license revenues described above is the result of timing differences, where under Topic 605, revenues would have been deferred and recognized over time, but under Topic 606 these revenues are recognized up front.

For more details, see note 3 "Revenues" to our Consolidated Financial Statements .

down 4.5% after factoring in the impact of $5.9 million of foreign exchange rate changes.

Geographically, the overall change was attributable to a decrease in Americas of $16.2 million , a decrease in EMEA of $8.4 million , and a decrease in Asia Pacific of $0.6 million .

During Fiscal 2020, we closed 120 license deals greater than $0.5 million, of which 48 deals were greater than $1.0 million, contributing $137.8 million of license revenues.

This was compared to 153 license deals greater than $0.5 million during Fiscal 2019, of which 49 deals were greater than $1.0 million, contributing $171.6 million of license revenues.

Cost of license revenues decreased by $3.0 million during the year ended June 30, 2020 as compared to the prior fiscal year, primarily as a result of lower third party technology costs.

Overall, the gross margin percentage on license revenues remained stable at approximately 97% .

2) Cloud Services and Subscriptions:

Cloud services and subscriptions revenues are from hosting arrangements where in connection with the licensing of software, the end user doesn’t take possession of the software, as well as from end-to-end fully outsourced business-to-business (B2B) integration solutions to our customers (collectively referred to as cloud arrangements).

Cloud services and subscriptions revenues are from hosting arrangements where in connection with the licensing of software, the end user does not take possession of the software, as well as from end-to-end fully outsourced B2B integration solutions to our customers (collectively referred to as cloud arrangements).

The software application resides on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis via an identified line.

Our cloud arrangements can be broadly categorized as "platform as a service" (PaaS), "software as a service" (SaaS), cloud subscriptions and managed services.

Our cloud arrangements can be broadly categorized as PaaS, SaaS, cloud subscriptions and managed services.

Cost of Cloud services and subscriptions revenues is comprised primarily of third party network usage fees, maintenance of in-house data hardware centers, technical support personnel-related costs, and some third party royalty costs.

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Cloud Services and Subscriptions:

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Cloud services and subscriptions revenues increased by $249.9 million or 27.5% during the year ended June 30, 2020 as compared to the prior fiscal year;

up 10.8% after factoring the impact of $10.8 million of foreign exchange rate changes.

up 28.4% after factoring in the impact of $8.1 million of foreign exchange rate changes.

Geographically, the overall change was attributable to an increase in Americas of $222.7 million , an increase in EMEA of $26.6 million and an increase in Asia Pacific of $0.6 million .

The number of Cloud services deals greater than $1.0 million that closed during Fiscal 2019 was 46 deals, consistent with that in Fiscal 2018.

Cost of Cloud services and subscriptions revenues increased by $19.8 million during the year ended June 30, 2019 as compared to the prior fiscal year, due to an increase in labour-related costs of approximately $19.1 million and an increase in third party network usage fees of $1.3 million.

These were partially offset by a decrease in other miscellaneous costs of $0.6 million.

The increase in labour-related costs was primarily due to increased headcount from recent acquisitions.

Overall, the gross margin percentage on Cloud services and subscriptions revenues increased to approximately 58% from approximately 56% .

For illustrative purposes only, had we accounted for revenues under proforma Topic 605, Cloud services and subscriptions revenues would have been $901.5 million for the year ended June 30, 2019 , which would have been higher by approximately $72.5 million or 8.7% as compared to the prior fiscal year;

and would have been up 10.1% after factoring the impact of $11.0 million of foreign exchange rate changes.

Geographically, the overall change would have been attributable to

an increase in Americas of $56.4 million, and an increase in EMEA of $12.4 million and an increase in Asia Pacific of $3.7 million.

The $6.4 million difference between cloud service and subscription revenues recognized under Topic 606 and those proforma Topic 605 cloud services and subscriptions revenues described above is primarily the result of timing differences on professional services related to cloud contracts, where under Topic 605, revenues would have been deferred over the estimated life of the contract, but under Topic 606 these revenues are recognized as services are performed.

For more details, see note 3 "Revenues" to our Consolidated Financial Statements .

There were 44 Cloud services deals greater than $1.0 million that closed during Fiscal 2020, compared to 46 deals during Fiscal 2019.

Cost of Cloud services and subscriptions revenues increased by $65.9 million during the year ended June 30, 2020 as compared to the prior fiscal year.

This was due to an increase in labour-related costs of $54.2 million, primarily due to increased headcount from recent acquisitions, an increase in third party network usage fees of $9.9 million and an increase in other miscellaneous costs of $1.8 million.

Overall, the gross margin percentage on Cloud services and subscriptions revenues increased to 61% from 58% .

3) Customer Support:

Customer support revenues consist of revenues from our customer support and maintenance agreements.

These agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software products when and if available.

These agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software products when available.

Customer support revenues are generated from support and maintenance relating to current year sales of software products and from the renewal of existing maintenance agreements for software licenses sold in prior periods.

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Our management reviews our Customer support renewal rates on a quarterly basis, and we use these rates as a method of monitoring our customer service performance.

For the quarter ended June 30, 2019 , our Customer support renewal rate was approximately 91%, stable compared with the Customer support renewal rate during the quarter ended June 30, 2018 .

For the year ended June 30, 2020 , our Customer support renewal rate was approximately 94%, compared with the Customer support renewal rate of approximately 91% for the year ended June 30, 2019 .

Cost of Customer support revenues is comprised primarily of technical support personnel and related costs, as well as third party royalty costs.

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Customer Support Revenues:

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Customer support revenues increased by $27.7 million or 2.2% during the year ended June 30, 2020 as compared to the prior fiscal year;

up 3.1% after factoring the impact of $23.2 million of foreign exchange rate changes.

Geographically, the overall change was attributable to an increase in Americas of $12.9 million , an increase in EMEA of $3.9 million , partially offset by a decrease in Asia Pacific of $1.5 million .

Cost of Customer support revenues decreased by $9.5 million during the year ended June 30, 2019 as compared to the prior fiscal year, due to a decrease in labour-related costs of approximately $9.9 million, partially offset by an increase in other miscellaneous costs of $0.4 million.

Overall, the gross margin percentage on Customer support revenues increased to approximately 90% from approximately 89% .

For illustrative purposes only, had we accounted for revenues under proforma Topic 605, customer support revenues would have been $1,246.3 million for the year ended June 30, 2019 , which would have been higher by approximately $13.8 million or 1.1% as compared to the prior fiscal year;

and would have been up 3.0% after factoring the impact of $23.3 million of foreign exchange rate changes.

Geographically, the overall change would have been attributable to an increase in Americas of $13.0 million and an increase in EMEA of $2.7 million, partially offset by a decrease in Asia Pacific of $1.9 million.

up 3.7% after factoring in the impact of $18.1 million of foreign exchange rate changes.

Geographically, the overall change was attributable to an increase in Americas of $16.4 million , an increase in EMEA of $10.7 million , and an increase in Asia Pacific of $0.6 million .

Cost of Customer support revenues decreased by $0.4 million during the year ended June 30, 2020 as compared to the prior fiscal year, due to a decrease in other miscellaneous expenses.

Overall, the gross margin percentage on Customer support revenues remained stable at approximately 90% .

4) Professional Service and Other:

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Professional Service and Other Revenues:

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Professional service and other revenues decreased by $11.3 million or 4.0% during the year ended June 30, 2020 as compared to the prior fiscal year;

down 7.4% after factoring the impact of $8.1 million of foreign exchange rate changes.

Geographically, the overall change was attributable to a decrease in Americas of $19.0 million , a decrease in EMEA of $9.0 million and a decrease in Asia Pacific of $3.3 million .

Cost of Professional service and other revenues decreased by $28.8 million during the year ended June 30, 2019 as compared to the prior fiscal year as a result of a decrease in labour-related costs of approximately $29.0 million resulting primarily from a reduction in the use of external labour resources, partially offset by an increase in other miscellaneous costs of $0.2 million.

Overall, the gross margin percentage on Professional service and other revenues increased to approximately 21% from approximately 20% .

This is the result of effectively executing our strategy of optimizing margins by being selective about the professional service engagements we accept.

Professional service and other revenues under proforma Topic 605 were not materially different from those under Topic 606 as discussed above.

down 2.2% after factoring in the impact of $5.0 million of foreign exchange rate changes.

Geographically, the overall change was attributable to a decrease in EMEA of $7.1 million , a decrease in Americas of $2.4 million and a decrease in Asia Pacific of $1.8 million .

Cost of Professional service and other revenues decreased by $11.7 million during the year ended June 30, 2020 as compared to the prior fiscal year.

This was primarily due to a decrease in labour-related costs of $11.7 million, relating to a reduction in the use of external labour and in travel related expenses.

Overall, the gross margin percentage on Professional service and other revenues increased to 22% from 21% .

Amortization of Acquired Technology-based Intangible Assets

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Amortization of acquired technology-based intangible assets

Amortization of acquired technology-based intangible assets decreased during the year ended June 30, 2019 by $2.5 million , as compared to the same period in the prior fiscal year.

This was due to a reduction of $20.6 million, relating to intangible assets from certain previous acquisitions becoming fully amortized, partially offset by an increase in amortization of $18.1 million, relating to newly acquired technology-based intangible assets from our recent acquisitions of Catalyst and

Liaison in Fiscal 2019, as well as Hightail, Guidance Software Inc.

(Guidance), and Covisint Corporation (Covisint), which were acquired during Fiscal 2018.

increase (decrease)

Amortization of acquired technology-based

intangible assets

Amortization of acquired technology-based intangible assets increased during the year ended June 30, 2020 by $22.3 million as compared to the prior fiscal year due to an increase of $59.6 million relating to amortization of newly acquired technology-based intangible assets from recent acquisitions, partially offset by a reduction of $37.3 million relating to intangible assets from certain previous acquisitions becoming fully amortized.

Operating Expenses

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Research and development

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Research and development assists with organic growth and improves product stability and functionality, and accordingly, we dedicate extensive efforts to update and upgrade our product offerings.

The primary driver is typically budgeted software upgrades and software development.

Change between Fiscal

increase (decrease)

The primary drivers are typically budgeted software upgrades and software development.

Change between Fiscal increase (decrease)

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Total change in research and development expenses

Research and development expenses decreased by $1.1 million during the year ended June 30, 2019 as compared to the prior fiscal year.

This was primarily due to a reduction in contract labour and consulting of $6.8 million and a reduction in the use of facility and related expenses of $4.8 million , partially offset by an increase in payroll and payroll-related benefits of $12.6 million .

The increase in payroll and payroll-related benefits was driven primarily by increased headcount from recent acquisitions.

Overall, our research and development expenses, as a percentage of total revenues, remained stable at approximately 11% compared to prior fiscal year.

Research and development expenses increased by $48.6 million during the year ended June 30, 2020 as compared to the prior fiscal year, partially as a result of recent acquisitions.

Payroll and payroll-related benefits increased $37.6 million , facility related expenses increased by $8.7 million and contract labour and consulting expense increased by $2.3 million .

Overall, our research and development expenses, as a percentage of total revenues, increased to 12% from 11% in the prior fiscal year.

Our research and development labour resources increased by 405 employees, from 3,667 employees at June 30, 2019 to 4,072 employees at June 30, 2020 .

Sales and marketing expenses consist primarily of personnel expenses and costs associated with advertising, marketing events and trade shows.

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Total change in sales and marketing expenses

Sales and marketing expenses decreased by $11.1 million during the year ended June 30, 2019 as compared to the prior fiscal year.

This was primarily due to (i) a decrease in commissions expense of $6.6 million , of which approximately $8.9 million is the net result of the Company capitalizing more commission expense under Topic 606, whereas previously, under Topic 605, such costs would have been expensed as incurred, (ii) a decrease in marketing expenses of $5.7 million and (iii) a decrease in travel and communication expenses of $1.1 million .

These were partially offset by (i) an increase in bad debt expense of $3.5 million as certain low dollar receivables were provided for entirely as they became aged greater than one year.

Overall, our sales and marketing expenses, as a percentage of total revenues, decreased to approximately 18% from approximately 19% in the prior fiscal year.

Sales and marketing expenses increased by $67.0 million during the year ended June 30, 2020 as compared to the prior fiscal year.

Payroll and payroll-related benefits increased by $40.6 million , marketing expenses increased by $15.9 million , and facility related expenses increased by $7.2 million , all primarily as result of recent acquisitions.

Additionally, commission expense increased by $4.3 million and other miscellaneous expenses increased by $1.8 million .

These were partially offset by a reduction in travel and communication of $2.5 million , which was primarily due to the travel limitations triggered by the COVID-19 pandemic, and a reduction in bad debt expense of $2.0 million .

Overall, our sales and marketing expenses, as a percentage of total revenues, increased to 19% from 18% in the prior fiscal year.

Our sales and marketing labour resources increased by 406 employees, from 2,051 employees at June 30, 2019 to 2,457 employees at June 30, 2020 .

General and administrative expenses consist primarily of payroll and payroll related benefits expenses, related overhead, audit fees, other professional fees, contract labour and consulting expenses and public company costs.

Change between Fiscal

increase (decrease)

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General and administrative expenses increased by $29.6 million during the year ended June 30, 2020 as compared to the prior fiscal year.

This was primarily due to an increase in payroll and payroll-related benefits of $4.1 million and an increase in other miscellaneous expenses of $2.2 million , which includes professional fees such as legal, audit and tax related expenses.

These were partially offset by a reduction in the use of facility and related expenses of $4.5 million .

The remainder of the change was attributable to other activities associated with normal growth in our business operations.

Overall, general and administrative expenses, as a percentage of total revenue, remained at approximately 7% .

Payroll and payroll-related benefits increased by $20.3 million and facilities related costs increased by $4.1 million , primarily as a result of recent acquisitions.

Additionally, share-based compensation increased by $1.8 million and other miscellaneous expenses increased by $3.7 million , primarily due to higher professional fees such as legal, audit and tax related expenses from our recent acquisitions.

Overall, general and administrative expenses, as a percentage of total revenues, increased to 8% from 7% in the prior fiscal year.

Our general and administrative labour resources increased by 294 employees, from 1,620 employees at June 30, 2019 to 1,914 employees at June 30, 2020 .

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Depreciation expenses increased during the year ended June 30, 2019 by $10.8 million as compared to the prior fiscal year.

Depreciation expense, as a percentage of total revenue, remained at approximately 3%.

increase (decrease)

Depreciation expenses decreased during the year ended June 30, 2020 by $8.3 million , as compared to the prior fiscal year.

Depreciation expenses, as a percentage of total revenue, remained at approximately 3% for each such period.

Amortization of acquired customer-based intangible assets:

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increase (decrease)

Amortization of acquired customer-based intangible assets

Amortization of acquired customer-based intangible assets increased during the year ended June 30, 2019 by $5.7 million as compared to the prior fiscal year.

This was due to an increase in amortization of $12.6 million, relating to newly acquired customer-based intangible assets from our recent acquisitions of Catalyst and Liaison in Fiscal 2019, as well as of Hightail, Guidance and Covisint, which were acquired during Fiscal 2018.

The increase in amortization was partially offset by a reduction of $6.9 million, relating to intangible assets from certain previous acquisitions becoming fully amortized.

Amortization of acquired customer-based intangible assets increased during the year ended June 30, 2020 by $29.7 million as compared to the prior fiscal year due to an increase of $63.9 million relating to amortization of newly acquired customer-based intangible assets from recent acquisitions, partially offset by a reduction of $34.2 million relating to intangible assets from certain previous acquisitions becoming fully amortized.

Special charges (recoveries):

Special charges typically relate to amounts that we expect to pay in connection with restructuring plans relating to employee workforce reduction and abandonment of excess facilities, acquisition-related costs and other similar charges and recoveries.

Special charges typically relate to amounts that we expect to pay in connection with restructuring plans, acquisition-related costs and other similar charges and recoveries.

Generally, we implement such plans in the context of integrating acquired entities with existing OpenText operations.

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Special charges increased by $64.7 million during the year ended June 30, 2020 as compared to the prior fiscal year.

This was primarily due to (i) an increase in restructuring activities of $11.5 million and (ii) an increase of $2.8 million relating to a lower net impact of reversals from certain pre-acquisition sales and use tax liabilities and interest being settled, or in certain cases, becoming statute barred.

These increases were partially offset by a reduction in expense of $5.3 million relating to one-time system implementation costs.

The remainder of the change is due to other miscellaneous items.

This was primarily due to (i) an increase of $52.6 million in restructuring activities, inclusive of $36.9 million from the accelerated amortization associated with the abandonment of certain right-of-use assets and $9.7 million from the disposal of fixed assets, (ii) an increase of $8.1 million in acquisition related costs, (iii) an increase of $1.5 million relating to the impact of certain pre-acquisition sales and use tax liabilities becoming statute barred during Fiscal 2019 and (iv) an increase of $2.5 million relating to other miscellaneous charges.

For more details on Special charges (recoveries), see note 18 "Special Charges (Recoveries)" to our Consolidated Financial Statements .

Other Income (Expense), Net

Other income (expense), net relates to certain non-operational charges primarily consisting of income or losses in our share of marketable equity securities accounted for under the equity method and of transactional foreign exchange gains (losses).

The income (expense) from foreign exchange is dependent upon the change in foreign currency exchange rates vis-à-vis the functional currency of the legal entity.

The components of other income (expense), net were as follows:

Year Ended June 30,

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Foreign exchange gains (losses)

OpenText share in net income (loss) of equity investees

OpenText share in net income (loss) of equity investees (note 9)

Income from long-term other receivable

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Gain from contractual settlement (2)

Loss debt extinguishment (3)

Other miscellaneous income (expense)

Total other income (expense), net

(1) Represents the release to income from other comprehensive income relating to the mark to market on shares we held in Guidance prior to our acquisition in the first quarter of Fiscal 2018.

(1) Represents the release to income from other comprehensive income relating to the mark to market on shares we held in Guidance prior to our acquisition in the first fiscal quarter of Fiscal 2018.

(2) Represents a gain recognized in connection with the settlement of a certain breach of contractual arrangement in the second quarter of Fiscal 2018.

(3) On March 5, 2020 we redeemed Senior Notes 2023 (defined below) in full, which resulted in a loss on extinguishment of debt of $17.9 million .

Of this, $6.7 million is related to unamortized debt issuance costs and the remaining $11.2 million is related to the early termination call premium.

See note 11 "Long-Term Debt" to our Consolidated Financial Statements.

Interest and Other Related Expense, Net

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Other miscellaneous expense

Total interest and other related expense, net

(1) For more details see note 11 "Long-Term Debt" to our Consolidated Financial Statements .

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We operate in several tax jurisdictions and are exposed to various foreign tax rates.

We also note that we are subject to tax rate discrepancies between our domestic tax rate and foreign tax rates that are significant and these discrepancies are primarily related to earnings in the United States.

Please also see Part I, Item 1A "Risk Factors" elsewhere in this Annual Report on Form 10-K .

Year Ended June 30,

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Provision for (recovery of) income taxes

The effective tax rate decreased to a provision of 35.2% for the year ended June 30, 2019 , compared to 37.2% for the year ended June 30, 2018 .

The increase in tax expense of $11.1 million was primarily due to the increase in net income taxed at foreign rates of $10.7 million , an increase of $26.4 million in reserves for unrecognized tax benefits, an increase of $16.1 million arising on the introduction of BEAT in Fiscal 2019, and an increase of $16.3 million relating to the tax impact of internal reorganizations of subsidiaries, partially offset by a the reversal of accruals for undistributed United States earnings of $14.8 million , the Fiscal 2018 impact of United States tax reform of $19.0 million which did not recur in Fiscal 2019, an increase in tax credits for research and development of $9.7 million , an increase of $6.8 million in the release of valuation allowance, a decrease of $5.8 million in the impact of withholding taxes in Fiscal 2019.

The effective tax rate decreased to a provision of 32.1% for the year ended June 30, 2020, compared to a provision of 35.2% for the year ended June 30, 2019.

The decrease in tax expense of $44.1 million was primarily due to (i) a decrease of $23.7 million relating to lower net income including the impact of foreign rates, (ii) a decrease of $51.3 million for changes in unrecognized tax benefits, (iii) a decrease of $7.0 million from tax rate differential in tax years applicable to United States loss carryforwards that became eligible for carryback under the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in the third quarter of Fiscal 2020, and (iv) a decrease of $16.0 million related to tax costs of internal reorganizations that did not recur in Fiscal 2020.

These were partially offset by (i) an increase of $25.2 million related to the US Base Erosion Anti-avoidance Tax (US BEAT), (ii) an increase in accruals for repatriations from foreign subsidiaries of $17.3 million , (iii) an

increase in the effect of withholding taxes of $5.9 million , and (iv) an increase in the change in the valuation allowance of $4.8 million .

The remainder of the difference was due to normal course movements and non-material items.

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changed the existing US tax laws, including a reduction in the federal corporate tax rate from 35% to 21% , and the transition of US international taxation from a worldwide tax system to a partially territorial tax system.

As a result of the enactment of the legislation, the Company incurred a one-time tax expense of $19.0 million in the year ended June 30, 2018,

primarily related to the transition tax on accumulated foreign earnings and the re-measurement of certain deferred tax assets and liabilities.

During the year ended June 30, 2019 , there was a reduction of $0.9 million to this amount, mainly attributable to evaluating the portion of our existing Alternative Minimum Tax (AMT) credit carryforwards expected to be refundable as a result of the repeal of corporate AMT.

The portion of the tax expense attributable to the transition tax is payable over a period of up to eight years .

In accordance with Staff Accounting Bulletin 118 “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118), the Company completed its analysis of the impact of the Tax Cuts and Jobs Act by December 22, 2018.

The Company's final determination of the total one-time tax expense as a result of the enactment of the Tax Cuts and Jobs Act is $18.1 million .

For information with regards to certain potential tax contingencies, see note 14 "Guarantees and Contingencies" to our Consolidated Financial Statements .

Please also see Part I, Item 1A "Risk Factors" elsewhere in this Annual Report on Form 10-K .

Use of Non-GAAP Financial Measures

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The Company uses these Non-GAAP financial measures to supplement the information provided in its Consolidated Financial Statements , which are presented in accordance with U.S.

The presentation of Non-GAAP financial measures are not meant to be a substitute for financial measures presented in accordance with U.S.

The presentation of Non-GAAP financial measures is not meant to be a substitute for financial measures presented in accordance with U.S.

GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S.

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GAAP measures with certain Non-GAAP measures defined below.

Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, is consistently calculated as GAAP-based net income or earnings per share, attributable to OpenText, on a diluted basis, after giving effect to the amortization of acquired intangible assets, other income (expense), share-based compensation, and Special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below.

Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, is consistently calculated as GAAP-based net income or earnings per share, attributable to OpenText, on a diluted basis, excluding the effects of the amortization of acquired intangible assets, other income (expense), share-based compensation, and Special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below.

Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales.

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GAAP-based financial measures to Non-GAAP-based financial measures for the following periods presented.

Results for reporting periods commencing July 1, 2018 are presented

under the new Topic 606 revenue standard, while prior period results continue to be reported under the previous standard.

For more details relating to our adoption of Topic 606 please see Note 1 "Basis of Presentation" and Note 3 "Revenues" to our Consolidated Financial Statements .

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2019

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

for the year ended June 30, 2020

(in thousands except for per share data)

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Non-GAAP-based Measures

Non-GAAP-based Measures % of Total Revenue

Non-GAAP-based Measures

% of Total Revenue

Cost of revenues

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Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results.

See note 17 "Special Charges (Recoveries)" to our Condensed Consolidated Financial Statements for more details.

See note 18 "Special Charges (Recoveries)" to our Consolidated Financial Statements for more details.

GAAP-based and Non-GAAP-based income from operations stated in dollars.

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.

Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner.

Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner.

We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments.

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Adjusted EBITDA

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2018

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

for the year ended June 30, 2019

(in thousands except for per share data)

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Non-GAAP-based Measures

Non-GAAP-based Measures % of Total Revenue

Non-GAAP-based Measures

% of Total Revenue

Cost of revenues

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See note 17 "Special Charges (Recoveries)" to our Condensed Consolidated Financial Statements for more details.

See note 18 "Special Charges (Recoveries)" to our Consolidated Financial Statements for more details.

GAAP-based and Non-GAAP-based income from operations stated in dollars.

Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner.

Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner.

We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments.

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In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

We also took into consideration changes in US tax reform legislation that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act.

Reconciliation of GAAP-based net income to Non-GAAP-based net income:

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Adjusted EBITDA

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2017

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

for the year ended June 30, 2018

(in thousands except for per share data)

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Non-GAAP-based Measures

Non-GAAP-based Measures % of Total Revenue

Non-GAAP-based Measures

% of Total Revenue

Cost of revenues

20 unchanged sentences

See note 17 "Special Charges (Recoveries)" to our Condensed Consolidated Financial Statements for more details.

See note 18 "Special Charges (Recoveries)" to our Consolidated Financial Statements for more details.

GAAP-based and Non-GAAP-based income from operations stated in dollars.

Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner.

Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner.

We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments.

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Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and “book to return” adjustments for tax return filings and tax assessments.

Included is the amount of net tax benefits arising from the internal reorganization (see note 14 "Income Taxes") assumed to be allocable to the current period based on the forecasted utilization period.

Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period.

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Cash and cash equivalents

Restricted cash included in Other assets

Restricted cash (1)

Total cash, cash equivalents and restricted cash

(1) Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Consolidated Balance Sheets.

Year Ended June 30,

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Cash used in investing activities

Cash provided by (used in) financing activities

Cash (used in) provided by financing activities

Cash and cash equivalents

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For more details, see "Long-term Debt and Credit Facilities" below.

As of June 30, 2019 , we recognized a provision of $17.4 million ( June 30, 2018 — $28.5 million ) in respect of both additional foreign taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries, and planned periodic repatriations from certain United States and German subsidiaries, that will be subject to withholding taxes upon distribution.

Proceeds from our $600 million draw down on the Revolver (defined below), (for which notice to the lenders was provided on March 5, 2020) have resulted in total cash and cash equivalents of $1.7 billion as of June 30, 2020 .

As of June 30, 2020 , we recognized a provision of $24.8 million ( June 30, 2019 — $17.4 million ) in respect of both additional foreign taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries, and planned periodic repatriations from certain German subsidiaries, that will be subject to withholding taxes upon distribution.

During the fourth quarter of Fiscal 2020, we deferred approximately $41 million in payments, primarily as a result of the CARES Act that was enacted in the U.S.

in the third quarter of Fiscal 2020 and other COVID-19 related tax relief programs in EMEA.

These deferrals will become payable primarily in Fiscal 2021 with a portion becoming payable in Fiscal 2022.

Cash flows provided by operating activities

Cash flows from operating activities increased by $168.2 million due to an increase in changes from working capital of $157.5 million and an increase in net income before the impact of non-cash items of $10.7 million.

Cash flows from operating activities increased by $78.3 million due to an increase in net income before the impact of non-cash items of $60.7 million and an increase in changes from working capital of $17.6 million.

The increase in operating cash flow from changes in working capital was primarily due to the net impact of the following increases:

(i) $98.1 million relating to a decrease in accounts receivable, (ii) $69.9 million relating to an increase in accounts payable and accrued liabilities, (iii) $58.6 million relating to income taxes payable and (iv) $6.5 million relating to a decrease in prepaid expenses and other current assets.

These increases in operating cash flows were partially offset by decreases of (i) $37.6 million relating to higher contract assets, (ii) $37.5 million relating to lower deferred revenues, and (iii) $0.5 million relating to higher balances of other assets.

$52.3 million relating to an increase in accounts payable and accrued liabilities;

$27.1 million relating to deferred revenues;

$9.0 million relating to accounts receivable;

$1.1 million relating to changes in other assets.

These increases in operating cash flows were partially offset by the following decreases:

$62.4 million relating to changes in income taxes payable, net of receivables,

$6.1 million relating to a increase in prepaid expenses and other current assets,

$2.7 million relating to an increase in contract assets, and

$0.9 million relating to changes in net operating lease assets and liabilities.

During the fourth quarter of Fiscal 2020 our days sales outstanding (DSO) was 51 days, compared to a DSO of 56 days during the fourth quarter of Fiscal 2019.

The per day impact of our DSO in the fourth quarters of Fiscal 2019 and Fiscal 2018 on our cash flows was $8.3 million and $8.4 million , respectively.

The per day impact of our DSO in the fourth quarter of Fiscal 2020 and Fiscal 2019 on our cash flows was $9.2 million and $8.3 million , respectively.

In arriving at DSO, we exclude contract assets as these assets do not provide an unconditional right to the related consideration from the customer.

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Our cash flows used in investing activities is primarily on account of acquisitions and additions of property and equipment.

Cash flows used in investing activities increased by $20.1 million , primarily due to an increase of $63.2 million in consideration paid for acquisitions during Fiscal 2019, as compared to Fiscal 2018.

This was partially offset by a decrease of $41.5 million in purchases of property and equipment.

The remainder of the change was due to miscellaneous items.

Cash flows used in investing activities increased by $1.0 billion , primarily due to an increase in consideration paid for acquisitions during Fiscal 2020, as compared to Fiscal 2019.

During Fiscal 2020 we acquired Carbonite for $1.4 billion , inclusive of cash acquired, and XMedius for $73.3 million .

Cash flows provided by (used in) financing activities

Our cash flows from financing activities generally consist of long-term debt financing and amounts received from stock options exercised by our employees.

These inflows are typically offset by scheduled and non-scheduled repayments of our long-term debt financing and, when applicable, the payment of dividends and/or the repurchases of our Common Shares.

Cash flows used in financing activities increased by $124.7 million .

This was primarily due to (i) a net increase of $56.3 million on long-term debt repayments, (ii) $23.2 million relating to higher dividend payments to our shareholders, (iii) $26.5 million relating to funds we provide to an independent agent to facilitate the repurchase of Common Shares on the open market, for potential reissuance under our long-term incentive and other plans and (iv) $18.2 million relating to less cash collected from the issuance of Common Shares for the exercise of options and the OpenText Employee Share Purchase Plan (ESPP).

These inflows are typically offset by scheduled and non-scheduled repayments of our long-term debt financing and, when applicable, the payment of dividends and/or repurchases of our Common Shares.

Cash flows provided by financing activities increased by $1.4 billion .

This was primarily due to proceeds from the issuance of Senior Notes 2028 and Seniors Notes 2030 (both defined below) of $1.8 billion.

A portion of these proceeds were used to redeem $800 million of our Senior Notes 2023 (defined below) and repay $750 million that was drawn on the Revolver in the second quarter of Fiscal 2020.

Additionally, in February 2020, all Notes due 2022, inherited through our acquisition of Carbonite, were surrendered and converted at a rate of $1,068.7341 in cash for each $1,000 principal amount, for an aggregate repayment of $153.6 million, and in March 2020, we drew $600 million from the Revolver as a preemptive measure in light of current uncertainty in the global markets.

Cash Dividends

During the year ended June 30, 2019 , we declared and paid cash dividends of $0.6300 per Common Share in the aggregated amount of $168.9 million .

Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of the Board.

During the year ended June 30, 2020 , we declared and paid cash dividends of $0.6984 per Common Share in the aggregated amount of $188.7 million ( year ended June 30, 2019 and 2018— $0.6300 and $0.5478 per Common Share, respectively, in the aggregate amount of $168.9 million and $145.6 million , respectively).

Future declarations of dividends and the establishment of future record and payment dates are subject to final determination and discretion of the Board.

See Item 5 "Dividend Policy" in this Annual Report on Form 10-K for more information.

During the year ended June 30, 2018 , we declared and paid cash dividends of $0.5478 per Common Share in the aggregate amount of $145.6 million .

During the year ended June 30, 2017, we declared and paid cash dividends of $0.4770 per Common Share in the aggregate amount of $120.6 million .

Long-term Debt and Credit Facilities

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Senior Notes 2030

On February 18, 2020 Open Text Holdings, Inc.

(OTHI), a wholly-owned indirect subsidiary of the Company, issued $900 million in aggregate principal amount of 4.125% Senior Notes due 2030 guaranteed by us (Senior Notes 2030) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act), and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act.

Senior Notes 2030 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020.

Senior Notes 2030 will mature on February 15, 2030, unless earlier redeemed, in accordance with their terms, or repurchased.

We may redeem all or a portion of the Senior Notes 2030 at any time prior to February 15, 2025 at a redemption price equal to 100% of the principal amount of the Senior Notes 2030 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date.

We may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2030, on one or more occasions, prior to February 15, 2025, using the net proceeds from certain qualified equity offerings at a redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions.

We may, on one or more occasions, redeem the Senior Notes 2030, in whole or in part, at any time on and after February 15, 2025 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2030, dated as of February 18, 2020, among OTHI, the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S.

trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2030 Indenture), plus accrued and unpaid interest, if any, to the redemption date.

If we experience one of the kinds of change of control triggering events specified in the 2030 Indenture, we will be required to make an offer to repurchase the Senior Notes 2030 at a price equal to 101% of the principal amount of the Senior Notes 2030, plus accrued and unpaid interest, if any, to the date of purchase.

The 2030 Indenture contains covenants that limit the Company, OTHI and certain of the Company's subsidiaries’ ability to, among other things:

(i) create certain liens and enter into sale and lease-back transactions;

(ii) create, assume, incur or guarantee additional indebtedness of the Company, OTHI or certain of the Company's subsidiaries without such subsidiary becoming a subsidiary guarantor of Senior Notes 2030;

and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person.

These covenants are subject to a number of important limitations and exceptions as set forth in the 2030 Indenture.

The 2030 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2030 to be due and payable immediately.

Senior Notes 2030 are guaranteed on a senior unsecured basis by the Company and the Company's existing and future wholly-owned subsidiaries (other than OTHI) that borrow or guarantee the obligations under our existing senior credit facilities.

Senior Notes 2030 and the guarantees rank equally in right of payment with all of the Company, OTHI and the guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of the Company, OTHI and the guarantors’ future subordinated debt.

Senior Notes 2030 and the guarantees will be effectively subordinated to all of the Company, OTHI and the guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt.

The foregoing description of the 2030 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2030 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on February 18, 2020.

Senior Notes 2028

On February 18, 2020 we issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 (Senior Notes 2028) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act.

Senior Notes 2028 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020.

Senior Notes 2028 will mature on February 15, 2028, unless earlier redeemed, in accordance with their terms, or repurchased.

We may redeem all or a portion of the Senior Notes 2028 at any time prior to February 15, 2023 at a redemption price equal to 100% of the principal amount of the Senior Notes 2028 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date.

We may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2028, on one or more occasions, prior to February 15, 2023, using the net proceeds from certain qualified equity offerings at a redemption price of 103.875% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions.

We may, on one or more occasions, redeem the Senior Notes 2028, in whole or in part, at any time on and after February 15, 2023 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2028, dated as of February 18, 2020, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S.

trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2028 Indenture), plus accrued and unpaid interest, if any, to the redemption date.

If we experience one of the kinds of change of control triggering events specified in the 2028 Indenture, we will be required to make an offer to repurchase the Senior Notes 2028 at a price equal to 101% of the principal amount of the Senior Notes 2028, plus accrued and unpaid interest, if any, to the date of purchase.

The 2028 Indenture contains covenants that limit our and certain of our subsidiaries’ ability to, among other things:

(i) create certain liens and enter into sale and lease-back transactions;

(ii) create, assume, incur or guarantee additional indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2028;

and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person.

These covenants are subject to a number of important limitations and exceptions as set forth in the 2028 Indenture.

The 2028 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2028 to be due and payable immediately.

Senior Notes 2028 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our existing senior credit facilities.

Senior Notes 2028 and the guarantees rank equally in right of payment with all of our and our guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of the our and our guarantors’ future subordinated debt.

Senior Notes 2028 and the guarantees will be effectively subordinated to all of our and our guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt.

The foregoing description of the 2028 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2028 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on February 18, 2020.

Senior Notes 2026

On May 31, 2016 we issued $600 million in aggregate principal amount of 5.875% Senior Notes due 2026 (Senior Notes 2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act.

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Senior Notes 2026 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our existing senior credit facilities.

Senior Notes 2026 and the guarantees rank equally in right of payment with all of our and our guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of the our and our guarantors’ future subordinated debt.

Senior Notes 2026 and the guarantees rank equally in right of payment with all of our and our guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of our and our guarantors’ future subordinated debt.

Senior Notes 2026 and the guarantees will be effectively subordinated to all of our and our guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt.

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On January 15, 2015, we issued $800 million in aggregate principal amount of our 5.625% Senior Notes due 2023 (Senior Notes 2023) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act.

Senior Notes 2023 bear interest at a rate of 5.625% per annum, payable semi-annually in arrears on January 15 and July 15, commencing on July 15, 2015.

Senior Notes 2023 will mature on January 15, 2023, unless earlier redeemed in accordance with their terms, or repurchased.

We may, on one or more occasion, redeem Senior Notes 2023, in whole or in part, at any time at the applicable redemption prices set forth in the indenture governing the Senior Notes 2023, dated as of January 15, 2015, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon (as successor to Citibank N.A.), as U.S.

trustee, and BNY Trust Company of Canada (as successor to Citi Trust Company Canada), as Canadian trustee (the 2023 Indenture), plus accrued and unpaid interest, if any, to the redemption date.

If we experience one of the kinds of changes of control triggering events specified in the 2023 Indenture, we will be required to make an offer to repurchase Senior Notes 2023 at a price equal to 101% of the principal amount of Senior Notes 2023, plus accrued and unpaid interest, if any, to the date of purchase.

The 2023 Indenture contains covenants that limit our and certain of our subsidiaries’ ability to, among other things:

(i) create certain liens and enter into sale and lease-back transactions;

(ii) create, assume, incur or guarantee additional indebtedness of the Company or the subsidiary guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2023;

and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person.

These covenants are subject to a number of important limitations and exceptions as set forth in the 2023 Indenture.

The 2023 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding notes to be due and payable immediately.

Senior Notes 2023 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our existing senior credit facilities.

Senior Notes 2023 and the guarantees rank equally in right of payment with all of our and our subsidiary guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of our and our subsidiary guarantors’ future subordinated debt.

Senior Notes 2023 and the guarantees will be effectively subordinated to all of ours and our guarantors’ existing and future secured debt, including the obligations under the Revolver and Term Loan B (as defined herein), to the extent of the value of the assets securing such secured debt.

The foregoing description of the 2023 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2023 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on January 15, 2015.

Senior Notes 2023 bore interest at a rate of 5.625% per annum, payable semi-annually in arrears on January 15 and July 15, commencing on July 15, 2015.

Senior Notes 2023 were to mature on January 15, 2023, unless earlier redeemed in accordance with their terms, or repurchased.

On March 5, 2020 , we redeemed Senior Notes 2023 in full at a price equal to 101.406% of the principal amount plus accrued and unpaid interest up to but excluding the redemption date.

A portion of the net proceeds from the offerings of Senior Notes 2028 and Senior Notes 2030 was used to redeem Senior Notes 2023.

Upon redemption, Senior Notes 2023 were cancelled and any obligation thereunder was extinguished.

The resulting loss of $17.9 million has been recorded as a component of Other income (expense), net in our Consolidated Statements of Income .

See note 23 "Other Income (Expense), Net" to our Consolidated Financial Statements .

Notes due 2022

Following our acquisition of Carbonite, our consolidated debt reflected $143.8 million of principal debt convertible notes (Notes due 2022).

Notes due 2022 were originally issued by Carbonite, on April 4, 2017, in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The Notes due 2022 were issued under an Indenture (the 2022 Notes Indenture) between Carbonite and U.S.

Bank National Association, as trustee (the 2022 Notes Trustee).

The Notes due 2022 accrued interest at 2.5% per year, which was payable semiannually in arrears on April 1 and October 1 of each year.

The Notes due 2022 were to mature on April 1, 2022, unless earlier repurchased, redeemed or converted.

Carbonite, now a subsidiary of OpenText, was the sole obligor on the Notes due 2022.

In connection with our acquisition of Carbonite, and as required by the 2022 Notes Indenture, Carbonite and the 2022 Notes Trustee entered into a first supplemental indenture, dated as of December 24, 2019 (the 2022 Notes Supplemental Indenture).

The 2022 Notes Supplemental Indenture provided that, at and after the effective time of our acquisition of Carbonite, the right to convert each $1,000 principal amount of the Notes due 2022 was changed into the right to convert such principal amount of the Notes due 2022 solely into cash in an amount equal to the Conversion Rate (as defined in the 2022 Notes Indenture) in effect on the Conversion Date (as defined in the 2022 Notes Indenture) multiplied by $23.00 , which was the price per share we paid in connection with our acquisition of Carbonite.

As a result of our acquisition of Carbonite, the Conversion Rate for the Notes due 2022 was temporarily increased by 7.7633 per $1,000 principal amount of Notes due 2022 to yield a Conversion Rate of 46.4667 per $1,000 principal amount of Notes due 2022.

The increased Conversion Rate was in effect until the close of business on February 27, 2020.

As of February 27, 2020, all Notes due 2022 had been surrendered and converted at a rate of $1,068.7341 in cash for each $1,000 principal amount.

As of such date, there are no remaining Notes due 2022 outstanding.

On May 30, 2018, we entered into a credit facility, which provides for a $1 billion term loan facility with certain lenders named therein, Barclays Bank PLC (Barclays), as sole administrative agent and collateral agent, and as lead arranger and joint bookrunner (Term Loan B) and borrowed the full amount on May 30, 2018 to, among other things, repay in full the loans under our prior $800 million term loan credit facility originally entered into on January 16, 2014.

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Borrowings under Term Loan B bear interest at a rate per annum equal to an applicable margin plus, at the borrower’s option, either (1) the Eurodollar rate for the interest period relevant to such borrowing or (2) an ABR rate.

The applicable

margin for borrowings under Term Loan B is 1.75%, with respect to LIBOR advances and 0.75%, with respect to ABR advances.

The applicable margin for borrowings under Term Loan B is 1.75%, with respect to LIBOR advances and 0.75%, with respect to ABR advances.

The interest on the current outstanding balance for Term Loan B is equal to 1.75% plus LIBOR (subject to a 0.00% floor).

As of June 30, 2019 , the outstanding balance on the Term Loan B bears an interest rate of approximately 4.19% .

As of June 30, 2020 , the outstanding balance on the Term Loan B bears an interest rate of 1.92% .

For more information regarding the impact of LIBOR, see "-Stress in the global financial system may adversely affect our finances and operations in ways that may be hard to predict or to defend against" included within Part I, Item 1A of this Annual Report on Form 10-K.

Term Loan B has incremental facility capacity of (i) $250 million plus (ii) additional amounts, subject to meeting a “consolidated senior secured net leverage” ratio not exceeding 2.75:1.00, in each case subject to certain conditions.

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As of June 30, 2020 , our consolidated net leverage ratio was 2.0 :1.

We currently have a $450 million committed revolving credit facility (the Revolver) which matures on May 5, 2022.

Borrowings under the Revolver are secured by a first charge over substantially all of our assets, and on a pari passu basis with Term Loan B.

On October 31, 2019, we amended our committed revolving credit facility (the Revolver) to increase the total commitments under the Revolver from $450 million to $750 million as well as to extend the maturity from May 5, 2022 to October 31, 2024.

Borrowings under the Revolver are secured by a first charge over substantially all of our assets, on a pari passu basis with Term Loan B.

The Revolver has no fixed repayment date prior to the end of the term.

Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75% .

As of June 30, 2019 , we have no outstanding balance on the Revolver.

There was no activity during the year ended June 30, 2019 and we recorded no interest expense.

During the year ended June 30, 2018 , we drew down $200 million from the Revolver, partially to finance acquisitions (June 30, 2017—$225 million).

Additionally, during the year ended June 30, 2018 , we repaid $375 million and recorded interest expense of $9.0 million relating to amounts drawn on the Revolver (June 30, 2017—$50 million and $2.6 million, respectively).

Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage

ratio ranging from 1.25% to 1.75% .

As of June 30, 2020 , the outstanding balance on the Revolver bears an interest rate of 1.94% .

During the second quarter of Fiscal 2020, we drew down $750 million from the Revolver to partially fund the acquisition of Carbonite.

In February 2020, we repaid $750 million drawn under the Revolver with a portion of the proceeds from the Senior Notes 2030 and Senior Notes 2028.

In March 2020, we drew down $600 million from the Revolver as a preemptive measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic.

The proceeds from the $600 million draw down are presented within cash and cash equivalents and within the current portion of long-term debt in our Consolidated Balance Sheet as of June 30, 2020 .

Under the Revolver, we must maintain a “consolidated net leverage” ratio of no more than 4:1 at the end of each financial quarter.

Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges.

As of June 30, 2020 , our consolidated net leverage ratio was 2.0 :1.

As of June 30, 2020 , we have $600 million outstanding balance on the Revolver ( June 30, 2019 — nil ) and $150 million remains available to be drawn.

As of June 30, 2019 , we had no outstanding balance on the Revolver.

There was no activity during the year ended June 30, 2019 .

For further details relating to our debt, please see note 11 "Long-Term Debt" to our Consolidated Financial Statements .

Shelf Registration Statement

On August 30, 2017, we filed a universal shelf registration statement on Form S-3 with the SEC, which became effective automatically (the Shelf Registration Statement).

On November 29, 2019, we filed a universal shelf registration statement on Form S-3 with the SEC, which became effective automatically (the Shelf Registration Statement).

The Shelf Registration Statement allows for primary and secondary offerings from time to time of equity, debt and other securities, including Common Shares, Preference Shares, debt securities, depositary shares, warrants, purchase contracts, units and subscription receipts.

A base shelf short-form prospectus qualifying the distribution of such securities was concurrently filed with Canadian securities regulators on August 30, 2017.

A base shelf short-form prospectus qualifying the distribution of such securities was concurrently filed with Canadian securities regulators on November 29, 2019.

The type of securities and the specific terms thereof will be determined at the time of any offering and will be described in the applicable prospectus supplement to be filed separately with the SEC and Canadian securities regulators.

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We expect to be able to make the long-term and short-term payments related to these obligations in the normal course of operations.

Our anticipated payments under our most significant plans for the fiscal years indicated below are as follows:

Our anticipated payments under our most significant plans, Open Text Document Technologies GmbH (CDT), GXS GmbH ( GXS GER ), GXS Philippines, Inc.

( GXS PHP ), for the fiscal years indicated below are as follows:

Fiscal years ending June 30,

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Commitments and Contractual Obligations

As of June 30, 2019 , we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:

As of June 30, 2020 , we have entered the following contractual obligations with minimum payments for the indicated fiscal periods as follows:

Payments due between

July 1, 2019—

June 30, 2020

July 1, 2020—

June 30, 2022

July 1, 2022—

June 30, 2024

July 1, 2020 - June 30, 2021

July 1, 2021 - June 30, 2023

July 1, 2023 - June 30, 2025

Long-term debt obligations (1)

Operating lease obligations (2)

Purchase obligations

Purchase obligations for contracts not accounted for as lease obligations

(1) Includes interest up to maturity and principal payments.

Please see note 10 "Long-Term Debt" for more details.

(2) Net of $30.7 million of sublease income to be received from properties which we have subleased to third parties.

Excludes $600 million currently drawn on the Revolver, which we expect to repay within one year.

Please see note 11 "Long-Term Debt" to our Consolidated Financial Statements for more details.

(2) Represents the undiscounted future minimum lease payments under our operating leases liabilities and excludes sublease income expected to be received under our various sublease agreements with third parties.

Please see note 6 "Leases" to our Consolidated Financial Statements for more details.

Guarantees and Indemnifications

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If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20.

As of the date of this Annual Report on Form 10-K , the aggregate of such estimated losses was not material to our consolidated financial position or results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations.

As of the date of this Annual Report on Form 10-K , the aggregate of such accrued liabilities was not material to our consolidated financial position or results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations.

As more fully described below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters.

Contingencies

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As previously disclosed and noted above, we strongly disagree with the IRS’ positions and we are vigorously contesting the proposed adjustments to our taxable income, along with the proposed penalties and interest.

We are examining various alternatives available to taxpayers to contest the proposed adjustments, including through IRS Appeals and U.S.

We are pursuing various alternatives available to taxpayers to contest the proposed adjustments, including currently through IRS Appeals and potentially U.S.

Federal court.

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For additional information regarding the history of this IRS matter, please see note 14 "Guarantees and Contingencies" in our Annual Report on Form 10-K for Fiscal 2018.

As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014.

Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of June 30, 2019 , in connection with the CRA's reassessments for Fiscal 2012, Fiscal 2013 and Fiscal 2014 to be limited to penalties and interest that may be due of approximately $25 million .

The notices of reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014 would, as drafted, increase our taxable income by approximately $90 million to $100 million for each of those years, as well as impose a 10% penalty on the proposed adjustment to income.

We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013 and Fiscal 2014 (including any penalties) are without merit.

We have filed notices of objection for Fiscal 2012 and Fiscal 2013, and we are currently seeking competent authority consideration under applicable international treaties in respect of these reassessments.

We intend to file the notice of objection for Fiscal 2014 shortly.

Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013 and Fiscal 2014, or potential reassessments that may be proposed for subsequent years currently under audit, we have elective deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above.

Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of June 30, 2020 , in connection with the CRA's reassessments for Fiscal 2012, Fiscal 2013, Fiscal 2014 and Fiscal 2015 to be limited to penalties and interest that may be due of approximately $44 million .

The notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014 and Fiscal 2015 would, as drafted, increase our taxable income by approximately $90 million to $100 million for each of those years, as well as impose a 10% penalty on the proposed adjustment to income.

We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013, Fiscal 2014 and Fiscal 2015 (including any penalties) are without merit.

We have filed notices of objection for Fiscal 2012, Fiscal 2013 and Fiscal 2014, and we will be filing a notice of objection for Fiscal 2015 shortly.

We are currently seeking competent authority consideration under applicable international treaties in respect of these reassessments.

Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013, Fiscal 2014 and Fiscal 2015, or potential reassessments that may be proposed for subsequent years currently under audit, we have elective deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above.

We will continue to vigorously contest the proposed adjustments to our taxable income and any penalty and interest assessments.

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Audits by the CRA of our tax returns for fiscal years prior to Fiscal 2012 have been completed with no reassessment of our income tax liability in respect of our international transactions, including the transfer pricing methodology applied to them.

The CRA is currently auditing Fiscal 2015, Fiscal 2016 and Fiscal 2017 and have proposed to reassess Fiscal 2015 in a manner consistent with Fiscal 2012, Fiscal 2013 and Fiscal 2014.

The CRA is currently auditing Fiscal 2016 and Fiscal 2017.

We are engaged in ongoing discussions with the CRA and continue to vigorously contest the CRA's audit positions.

GXS Brazil Matter

As previously disclosed and in connection with the intercompany charges between GXS Group, Inc.

and its subsidiary, GXS Tecnologia da Informação (Brasil) Ltda., based on the historical transfer pricing studies, approximately $1.5 million accrued in relation to this matter became statute barred during the year ended June 30, 2019 and accordingly was released as a recovery under "Special charges".

GXS India Matter

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We have accrued $1.2 million to cover our anticipated financial exposure in this matter.

Carbonite Class Action Complaint

On August 1, 2019, prior to our acquisition of Carbonite, a purported stockholder of Carbonite filed a putative class action complaint against Carbonite, its former Chief Executive Officer, Mohamad S.

Ali, and its former Chief Financial Officer, Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A.

Luna, Individually and on Behalf of All Others Similarly Situated v.

Carbonite, Inc., Mohamad S.

Ali, and Anthony Folger (No.

1:19-cv-11662-LTS).

The complaint alleges violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder.

The complaint generally alleges that the defendants made materially false and misleading statements in connection with Carbonite’s Server Backup VM Edition, and seeks, among other things, the designation of the action as a class action, an award of unspecified compensatory damages, costs and expenses, including counsel fees and expert fees, and other relief as the court deems appropriate.

On August 23, 2019, a nearly identical complaint was filed in the same court captioned William Feng, Individually and on Behalf of All Others Similarly Situated v.

Carbonite, Inc., Mohamad S.

Ali, and Anthony Folger (No.

1:19- cv-11808-LTS) (together with the Luna Complaint, the “Securities Actions”).

On November 21, 2019, the court consolidated the Securities Actions, appointed a lead plaintiff, and designated a lead counsel.

On January 15, 2020, the lead plaintiff filed a consolidated amended complaint generally making the same allegations and seeking the same relief as the complaint filed on August 1, 2019.

The defendants moved to dismiss the Securities Actions on March 10, 2020.

The motion was fully briefed in June 2020 and awaits the court's decision.

In light of, among other things, the early stage of the litigation, we are unable to predict the outcome of this action and are unable to reasonably estimate the amount or range of loss, if any, that could result from this proceeding.

Carbonite vs Realtime Data

On February 27, 2017, prior to our acquisition of Carbonite, a non-practicing entity named Realtime Data LLC (“Realtime Data”) filed a lawsuit against Carbonite in the U.S.

District Court for the Eastern District of Texas "Realtime Data LLC v.

Carbonite, Inc.

et al (No 6:17-cv-00121-RWS-JDL)", alleging that certain of Carbonite’s cloud storage services infringe upon certain patents held by Realtime Data.

Realtime Data’s complaint against Carbonite sought damages in an unspecified amount and injunctive relief.

On December 19, 2017, the U.S.

District Court for the Eastern District of Texas transferred the case to the U.S District Court for the District of Massachusetts (No.

1:17-cv-12499).

Realtime Data has also filed numerous other patent suits on the asserted patents against other companies around the country.

In one of those suits, filed in the U.S.

District Court for the District of Delaware, the Delaware Court on July 29, 2019 dismissed the lawsuit after declaring invalid three of the four patents asserted by Realtime Data against Carbonite.

By way of Order dated August 19, 2019, the U.S.

District Court for the District of Massachusetts stayed the action against Carbonite pending appeal of the dismissal in the Delaware lawsuit.

As to the fourth patent, the U.S.

Patent & Trademark Office Patent Trial and Appeal Board on September 24, 2019 invalidated certain claims of that patent.

No trial date has been set in the action against Carbonite.

The Company is defending Carbonite vigorously.

We have not accrued a loss contingency related to this matter because litigation related to a non-practicing entity is inherently unpredictable.

Although a loss is reasonably possible, an unfavorable outcome is not considered by management to be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss associated with this litigation.

Please also see Part I, Item 1A "Risk Factors" in this Annual Report on Form 10-K .

Off-Balance Sheet Arrangements

We do not enter into off-balance sheet financing as a matter of practice, except for guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business, and the use of operating leases for office space, computer equipment, and vehicles.

None of the operating leases described in the previous sentence has, and we currently do not believe that they potentially may have, a material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

In accordance with U.S.

GAAP, neither the lease liability nor the underlying asset is carried on the balance sheet, as the terms of the leases do not meet the criteria for capitalization.

We do not enter into off-balance sheet financing as a matter of practice, except for guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis