OPEN TEXT CORP 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Annual Report on Form 10-K, including this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A 40 of the U.S. Securities Act of 1933, as amended (the Securitie s Act ), and is subject to the safe harbors created by those sections. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. When used in this report, the words “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “could”, “would”, "might", "will" and other similar language, as they relate to Open Text Corporation (OpenText or the Company), are intended to identify forward-looking statements under applicable securities laws. Specific forward-looking statements in this report include, but are not limited to, statements regarding: (i) our focus in the fiscal year beginning July 1, 2021 and ending June 30, 2022 (Fiscal 2022) and July 1, 2022 and ending June 30, 2023 (Fiscal 2023) on growth in earnings and cash flows; (ii) creating value through investments in broader Information Management capabilities; (iii) our future business plans and business planning process; (iv) business trends; (v) distribution; (vi) the Company’s presence in the cloud and in growth markets; (vii) product and solution developments, enhancements and releases and the timing thereof; (viii) the Company’s financial conditions, results of operations and earnings; (ix) the basis for any future growth and for our financial performance; (x) declaration of quarterly dividends; (xi) future tax rates; (xii) the changing regulatory environment; (xiii) annual recurring revenues; (xiv) research and development and related expenditures; (xv) our building, development and consolidation of our network infrastructure; (xvi) competition and changes in the competitive landscape; (xvii) our management and protection of intellectual property and other proprietary rights; (xviii) existing and foreign sales and exchange rate fluctuations; (xix) cyclical or seasonal aspects of our business; (xx) capital expenditures; (xxi) potential legal and/or regulatory proceedings; (xxii) acquisitions and their expected impact; (xxiii) tax audits, including expected payments in connection with the IRS Settlement (as defined below); and (xxiv) 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. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management’s perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The forward-looking statements contained in this report are based on certain assumptions including the following: (i) countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports; (ii) our continued operation of a secure and reliable business network; (iii) the stability of general economic and market conditions, currency exchange rates, and interest rates, including potential for inflation and rising interest rates; (iv) equity and debt markets continuing to provide us with access to capital; (v) our continued ability to identify, source and finance attractive and executable business combination opportunities; and (vi) our continued ability to avoid infringing third party intellectual property rights. Management’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and assumptions will prove to be correct. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (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 (or failure to implement additional stimulus programs) and the availability, effectiveness and use of treatments and vaccines; (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 (as defined herein), 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; (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 41 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; (ii) the ability of the Company to bring new products and services to market and to increase sales; (iii) the strength of the Company’s product development pipeline; (iv) failure to secure and protect patents, trademarks and other proprietary rights; (v) infringement of third-party proprietary rights triggering indemnification obligations and resulting in significant expenses or restrictions on our ability to provide our products or services; (vi) failure to comply with privacy laws and regulations that are extensive, open to various interpretations and complex to implement including General Data Protection Regulation (GDPR), California Consumer Privacy Act (CCPA), and Country by Country Reporting (including with respect to transferring personal data outside of the EEA, as a result of the recent ruling of the Court of Justice of the European Union that the EU-US Privacy Shield is an invalid data transfer mechanism and that Standard Contractual Clauses are a valid transfer mechanism unless the country to which personal data is exported restricts the ability to comply with such Clauses); (vii) the Company’s growth and other profitability prospects; (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; (xiii) system or network failures or information security, cybersecurity or other data breaches in connection with the Company's offerings or the information technology systems used by the Company generally, the risk of which may be increased during times of natural disaster or pandemic (including COVID-19) due to remote working arrangements; and (xiv) failure to attract and retain key personnel to develop and effectively manage the Company's business. Readers should carefully review Part I, Item 1A "Risk Factors" and other documents we file from time to time with the Securities and Exchange Commission (SEC) and other securities regulators. A number of factors may materially affect our business, financial condition, operating results and prospects. These factors include but are not limited to those set forth in Part I, Item 1A "Risk Factors" and elsewhere in this Annual Report on Form 10-K. 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 Form 10-K. All dollar and percentage comparisons made herein refer to the year ended June 30, 2021 (Fiscal 2021) compared with the year ended June 30, 2020 (Fiscal 2020), unless otherwise noted. Please refer to Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2020 for a comparative discussion of our Fiscal 2020 financial results as compared to Fiscal 2019. Where we say “we”, “us”, “our”, “OpenText” or “the Company”, we mean Open Text Corporation or Open Text Corporation and its subsidiaries, as applicable. EXECUTIVE OVERVIEW At OpenText, we believe information and knowledge make business and people better. We are an Information Management company that provides software and services that empower digital businesses of all sizes to become more intelligent, secure and connected. Our innovations maximize the strategic benefits of data and content for our customers, strengthening their productivity, growth and competitive advantage. Our comprehensive Information Management platform and services provide secure and scalable solutions for global companies, small and medium-sized businesses (SMB), governments and consumers around the world. We have a complete and integrated portfolio of Information Management solutions delivered at scale in the OpenText Cloud, helping organizations master modern work, power modern experiences and optimize their digital supply chains. To do this, we bring together our Content Cloud, Business Network Cloud, Experience Cloud, Security and Protection Cloud and Developer Cloud. We also accelerate 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. Through automation and AI, we connect, synthesize and deliver information where 42 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 create engaging digital experiences. Our solutions also connect large digital supply chains in manufacturing, retail and financial services. Our solutions also 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, enable privacy, 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. Our ticker symbol on both the NASDAQ and the TSX is "OTEX". As of June 30, 2021, we employed a total of approximately 14,300 individuals, of which 6,800 or 48% are in the Americas, 2,600 or 18% are in EMEA and 4,900 or 34% are in Asia Pacific. Currently, we have employees in 34 countries enabling strong access to multiple talent pools while ensuring reach and proximity to our customers. Please see "Results of Operations" below for our definitions of geographic regions. Fiscal 2021 Summary: • Total revenue was $3,386.1 million, up 8.9% compared to the prior fiscal year; up 6.3% after factoring in the favorable impact of $81.3 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 $2,741.5 million, up 12.7% compared to the prior fiscal year; up 10.4% after factoring in the favorable impact of $54.9 million of foreign exchange rate changes. • Cloud services and subscriptions revenue was $1,407.4 million, up 21.6% compared to the prior fiscal year; up 20.0% after factoring in the favorable impact of $17.8 million of foreign exchange rate changes. • GAAP-based gross margin was 69.4% compared to 67.7% in the prior fiscal year. • Non-GAAP-based gross margin was 76.1% compared to 74.5% in the prior fiscal year. • GAAP-based net income attributable to OpenText was $310.7 million compared to $234.2 million in the prior fiscal year. • Non-GAAP-based net income attributable to OpenText was $927.2 million compared to $784.5 million in the prior fiscal year. • GAAP-based earnings per share (EPS), diluted, was $1.14 compared to $0.86 in the prior fiscal year. • Non-GAAP-based EPS, diluted, was $3.39 compared to $2.89 in the prior fiscal year. • Adjusted EBITDA was $1,315.0 million compared to $1,148.1 million in the prior fiscal year. • Operating cash flow was $876.1 million compared to $954.5 million in the prior fiscal year, down 8.2%. • During Fiscal 2021, we made payments of $299.6 million relating to the IRS Settlement (as defined herein) and repaid the $600 million previously drawn under the Revolver (as defined herein) using cash on hand. • Cash and cash equivalents were $1,607.3 million as of June 30, 2021, compared to $1,692.9 million as of June 30, 2020. See "Use of Non-GAAP Financial Measures" below for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures. Acquisitions As a result of the continually changing 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. 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. We expect to continue to strategically acquire companies, products, services and technologies to augment our existing business. Our acquisitions, particularly significant ones, can affect the period-to-period comparability of our results. See note 19 "Acquisitions" to our Consolidated Financial Statements for more details. 43 Impacts of COVID-19 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 may continue to 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, the availability, effectiveness and use of treatments and vaccines 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 continue to conduct business with substantial modifications to employee travel and work locations and also virtualization of sales and marketing events, which we expect to remain in place throughout calendar year 2021, along with substantially modified interactions with customers and suppliers, among other modifications. 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 previously disclosed, in order to preemptively mitigate the operational impacts of COVID-19, our Compensation Committee and Board approved certain compensation adjustments, effective for the period May 15, 2020 through June 30, 2021, subject to review and modification as the situation warranted. As a precaution, we also 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. These cost reduction measures were 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 (Recoveries)" to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information. After careful consideration and review, the Compensation Committee and Board approved the restoration, effective December 1, 2020 and ahead of the initially contemplated May 15, 2020 through June 30, 2021 duration described above, of all previously announced compensation adjustments. We continue to closely monitor discretionary spending, and remain active in our hiring across the organization. Additionally, despite the global impact of COVID-19, we were able to deliver strong financial results for Fiscal 2021, including our fourth fiscal quarter, as a result of the hard work and commitment of our dedicated employees. In recognition of their contributions, following the end of Fiscal 2021, the Compensation Committee approved a special one-time cash performance bonus to our broader employee base whose pay had been previously and temporarily reduced, prior to December 1, 2020, as a result of the COVID-19 compensation adjustments described above. These employees will receive an amount equal to the reductions in their Fiscal 2021 salary and annual incentive payout made pursuant to such compensation adjustments. Our Named Executive Officers, members of the executive leadership team and senior management are excluded from this special one-time bonus to our broader employee base. The special performance bonus of approximately $18 million, as it relates to Fiscal 2021 performance and contributions, has been accrued as at June 30, 2021 and will be paid to employees in September 2021. 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. Outlook for Fiscal 2022 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) push product innovation, increasing the value of our offerings to our installed customer base, which includes Global 10,000 companies (G10K), SMB 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 44 growth. Over the last three fiscal years, we have invested a cumulative total of $1.1 billion in R&D or 11.9% of cumulative revenue for that three year period. We typically target to spend 12% to 14% of revenues for R&D each fiscal year. Looking ahead, the destination for innovation is indisputably the cloud. Businesses of all sizes rely on a combination of public and private clouds, managed services and off-cloud solutions. As a result, we are committed to continue to modernize technology infrastructure and leverage our existing investments in the OpenText Cloud. The combination of OpenText cloud-native applications and managed services, together with the scalability and performance of our partner public cloud providers, offer more secure, reliable and compliant solutions to customers wanting to deploy cloud-based Information Management applications. The OpenText Cloud is designed to build additional flexibility and scalability for our customers: becoming cloud-native, connecting anything, and extending capabilities quickly with multi-tenant SaaS applications and services. We will continue to closely monitor the global impacts of COVID-19. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time. Actual results may differ materially from those estimates. Note 2 "Accounting Policies and Recent Accounting Pronouncements" to the Consolidated Financial Statements contains a summary of the policies that involve assumptions, judgments and estimates and have the greatest impact on our Consolidated Financial Statements. The policies listed below are areas that may contain key components of our results of operations and are based on complex rules requiring us to make judgments and estimates and consequently, we consider these to be our critical accounting policies. Some of these accounting policies involve complex situations and require a higher degree of judgment, either in the application and interpretation of existing accounting literature or in the development of estimates that affect our financial statements. The critical accounting policies which we believe are the most important to aid in fully understanding and evaluating our reported financial results include the following: (i) Revenue recognition, (ii) Goodwill, (iii) Acquired intangibles, and (iv) Income taxes. 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, 2021, we have recorded certain estimates in our Consolidated Financial Statements resulting from the pandemic, particularly with respect to the COVID-19 Restructuring Plan and allowance for credit losses, based on management's estimates and assumptions utilizing the most currently available information. 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 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). Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on readily available information, which may include historical, current and forecasted information, taking into consideration the type of customer, the type of transaction and specific facts and circumstances of each arrangement. We report revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue producing transactions. We have four revenue streams: cloud services and subscriptions, customer support, license, and professional service and other. 45 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 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. Our cloud arrangements can be broadly categorized as "platform as a service" (PaaS), "software as a service" (SaaS), cloud subscriptions and managed services. PaaS/ SaaS/ Cloud Subscriptions (collectively referred to here as cloud-based solutions): We offer cloud-based solutions that provide customers the right to access our software through the internet. 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. The payment for cloud-based solutions may be received either at inception of the arrangement, or over the term of the arrangement. These cloud-based solutions are considered to have a single performance obligation where the customer simultaneously receives and consumes the benefit, and as such we recognize revenue for these cloud-based solutions ratably over the term of the contractual agreement. For example, revenue related to cloud-based solutions that are provided on a usage basis, such as the number of users, is recognized based on a customer’s utilization of the services in a given period. Additionally, a software license is present in a cloud-based solutions arrangement if all of the following criteria are met: (i) The customer has the contractual right to take possession of the software at any time without significant penalty; and (ii) It is feasible for the customer to host the software independent of us. In these cases where a software license is present in a cloud-based solutions arrangement it is assessed to determine if it is distinct from the cloud-based solutions arrangement. The revenue allocated to the distinct software license would be recognized at the point in time the software license is transferred to the customer, whereas the revenue allocated to the hosting performance obligation would be recognized ratably on a monthly basis over the contractual term unless evidence suggests that revenue is earned, or obligations are fulfilled in a different pattern over the contractual term of the arrangement. Managed services: We provide comprehensive B2B process outsourcing services for all day-to-day operations of a customers’ B2B integration program. Customers using these managed services are not permitted to take possession of our software and the contract is for a defined period, where customers pay a monthly or quarterly fee. Our performance obligation is satisfied as we provide services of operating and managing a customer's electronic data interchange (EDI) environment. 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, 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. For outsourced professional services, we recognize revenue by measuring progress toward the satisfaction of our performance obligation. Progress for services that are contracted for a fixed price is generally measured based on hours incurred as a portion of total estimated hours. As a practical expedient, when we invoice a customer at an amount that corresponds directly with the value to the customer of our performance to date, we recognize revenue at that amount. Customer support revenue Customer support revenue is associated with perpetual, term license and off-cloud subscription arrangements. 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. Customer support for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Customer support for term and subscription licenses is renewable concurrently with such licenses for the same duration of time. Payments for customer support are generally made at the inception of the contract term or in installments over 46 the term of the maintenance period. Our customer support team is ready to provide these maintenance services, as needed, to the customer during the contract term. As the elements of customer support are delivered concurrently and have the same pattern of transfer, customer support is accounted for as a single performance obligation. The customer benefits evenly throughout the contract period from the guarantee that the customer support resources and personnel will be available to them, and that any unspecified upgrades or unspecified future products developed by us will be made available. Revenue for customer support is recognized ratably over the contract period based on the start and end dates of the maintenance term, in line with how we believe services are provided. 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 (off-cloud). Perpetual licenses : We sell perpetual licenses which provide customers the right to use software for an indefinite period of time in exchange for a one-time license fee, which is generally paid at contract inception. Our perpetual licenses provide a right to use intellectual property (IP) that is functional in nature and have significant stand-alone functionality. Accordingly, for perpetual licenses of functional IP, revenue is recognized at the point-in-time when control has been transferred to the customer, which normally occurs once software activation keys have been made available for download. Term licenses and Subscription licenses: We sell both term and subscription licenses which provide customers the right to use software for a specified period in exchange for a fee, which may be paid at contract inception or paid in installments over the period of the contract. Like perpetual licenses, both our term licenses and subscription licenses are functional IP that have significant stand-alone functionality. Accordingly, for both term and subscription licenses, revenue is recognized at the point-in-time when the customer is able to use and benefit from the software, which is normally once software activation keys have been made available for download at the commencement of the term. Professional service and other revenue 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 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 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 distinct within the context of the contract. 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. As a practical expedient, when we invoice a customer at an amount that corresponds directly with the value to the customer of our performance to date, we will recognize revenue at that amount. Material rights To the extent that we grant our customer an option to acquire additional products or services in one of our arrangements, we will account for the option as a distinct performance obligation in the contract only if the option provides a material right to the customer that the customer would not receive without entering into the contract. For example, if we give the customer an option to acquire additional goods or services in the future at a price that is significantly lower than the current price, this would be a material right as it allows the customer to, in effect, pay in advance for the option to purchase future products or services. If a material right exists in one of our contracts, then revenue allocated to the option is deferred and we would recognize that deferred revenue only when those future products or services are transferred or when the option expires. Based on history, our contracts do not typically contain material rights and when they do, the material right is not significant to our Consolidated Financial Statements. 47 Arrangements with multiple performance obligations Our contracts generally contain more than one of the products and services listed above. Determining whether goods and services are considered distinct performance obligations that should be accounted for separately or as a single performance obligation may require judgment, specifically when assessing whether both of the following two criteria are met: • the customer can benefit from the product or service either on its own or together with other resources that are readily available to the customer; and • our promise to transfer the product or service to the customer is separately identifiable from other promises in the contract. If these criteria are not met, we determine an appropriate measure of progress based on the nature of our overall promise for the single performance obligation. If these criteria are met, each product or service is separately accounted for as a distinct performance obligation and the total transaction price is allocated to each performance obligation on a relative standalone selling price (SSP) basis. Standalone selling price 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. We typically establish a narrow SSP range for our products and services and assess this range on a periodic basis or when material changes in facts and circumstances warrant a review. If the SSP is not directly observable, then we estimate the amount using either the expected cost plus a margin or residual approach. 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 region specific factors, competitive positioning, internal costs, profit objectives, and pricing practices. Transaction Price Allocation In bundled arrangements, where we have more than one distinct performance obligation, we must allocate the transaction price to each performance obligation based on its relative SSP. However, in certain bundled arrangements, the SSP may not always be directly observable. For instance, in bundled arrangements with license and customer support, we allocate the transaction price between the license and customer support performance obligations using the residual approach because we have determined that the SSP for licenses in these arrangements are highly variable. We use the residual approach only for our license arrangements. When the SSP is observable but contractual pricing does not fall within our established SSP range, then an adjustment is required and we will allocate the transaction price between license and customer support at a constant ratio reflecting the mid-point of the established SSP range. When two or more contracts are entered into at or near the same time with the same customer, we evaluate the facts and circumstances associated with the negotiation of those contracts. 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. 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 Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually) and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable. 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 Information Management software and solutions. Therefore, our goodwill impairment assessment is based on the allocation of goodwill to a single reporting unit. We perform a qualitative assessment to test our reporting unit's goodwill for impairment. 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 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. If the carrying value 48 of the net assets of our reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded. Our annual impairment analysis of goodwill was performed as of April 1, 2021. Our qualitative assessment indicated that there were no indications of impairment and therefore there was no impairment of goodwill required to be recorded for Fiscal 2021 (no impairments were recorded for Fiscal 2020 and Fiscal 2019, respectively). Acquired intangibles 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. 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. Examples of critical estimates we may make in valuing certain of the intangible assets that we acquire include, but are not limited to: • future expected cash flows of our individual revenue streams; • historical and expected customer attrition rates and anticipated growth in revenue from acquired customers; • the expected use of the acquired assets; and • discount rates. As a result of the judgments that need to be made, we obtain the assistance of independent valuation firms. We complete these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Although we believe the assumptions and estimates of fair value we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and subject to refinement. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments, based on events that occurred subsequent to the acquisition date, are recorded in our Consolidated Statements of Income. Income taxes 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. These temporary differences are measured using enacted tax rates. A valuation allowance is recorded to reduce deferred tax assets to the extent that we consider it is more likely than not that a deferred tax asset will not be realized. In determining the valuation allowance, we consider factors such as the reversal of deferred income tax liabilities, projected taxable income, and the character of income tax assets and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense. 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. Since tax law is complex and often subject to varied interpretations, it is uncertain whether some of the Company’s tax positions will be sustained upon audit. Our assumptions, judgments and 49 estimates relative to the current provision for income taxes considers current tax laws, our interpretations of current tax laws and possible outcomes of current and future audits conducted by domestic and foreign tax authorities. 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 15 "Income Taxes" to the Consolidated Financial Statements included in this Annual Report on Form 10-K. RESULTS OF OPERATIONS The following tables provide a detailed analysis of our results of operations and financial condition. For each of the periods indicated below, we present our revenues by product type, revenues by major geography, cost of revenues by product type, total gross margin, total operating margin, gross margin by product type, and their corresponding percentage of total revenue. In addition, we provide Non-GAAP measures for the periods discussed in order to provide additional information to investors that we believe will be useful as this presentation is in line with how our management assesses our Company's performance. See "Use of Non-GAAP Financial Measures" below for a reconciliation of GAAP-based measures to Non-GAAP-based measures. 50 Summary of Results of Operations Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Total Revenues by Product Type: Cloud services and subscriptions $ 1,407,445 $ 249,759 $ 1,157,686 $ 249,874 $ 907,812 Customer support 1,334,062 58,476 1,275,586 27,671 1,247,915 License 384,711 (18,140) 402,851 (25,241) 428,092 Professional service and other 259,897 (13,716) 273,613 (11,323) 284,936 Total revenues 3,386,115 276,379 3,109,736 240,981 2,868,755 Total Cost of Revenues 1,034,466 30,691 1,003,775 73,072 930,703 Total GAAP-based Gross Profit 2,351,649 245,688 2,105,961 167,909 1,938,052 Total GAAP-based Gross Margin % 69.4 % 67.7 % 67.6 % Total GAAP-based Operating Expenses 1,610,746 8,314 1,602,432 231,390 1,371,042 Total GAAP-based Income from Operations $ 740,903 $ 237,374 $ 503,529 $ (63,481) $ 567,010 % Revenues by Product Type: Cloud services and subscriptions 41.6 % 37.2 % 31.7 % Customer support 39.4 % 41.0 % 43.5 % License 11.3 % 13.0 % 14.9 % Professional service and other 7.7 % 8.8 % 9.9 % Total Cost of Revenues by Product Type: Cloud services and subscriptions $ 481,818 $ 31,878 $ 449,940 $ 65,947 $ 383,993 Customer support 122,753 (1,141) 123,894 (449) 124,343 License 13,916 2,595 11,321 (3,026) 14,347 Professional service and other 197,183 (15,720) 212,903 (11,732) 224,635 Amortization of acquired technology-based intangible assets 218,796 13,079 205,717 22,332 183,385 Total cost of revenues $ 1,034,466 $ 30,691 $ 1,003,775 $ 73,072 $ 930,703 % GAAP-based Gross Margin by Product Type: Cloud services and subscriptions 65.8 % 61.1 % 57.7 % Customer support 90.8 % 90.3 % 90.0 % License 96.4 % 97.2 % 96.6 % Professional service and other 24.1 % 22.2 % 21.2 % Total Revenues by Geography: (1) Americas (2) $ 2,069,083 $ 165,433 $ 1,903,650 $ 220,368 $ 1,683,282 EMEA (3) 1,031,607 89,326 942,281 21,859 920,422 Asia Pacific (4) 285,425 21,620 263,805 (1,246) 265,051 Total revenues $ 3,386,115 $ 276,379 $ 3,109,736 $ 240,981 $ 2,868,755 % Revenues by Geography: Americas (2) 61.1 % 61.2 % 58.7 % EMEA (3) 30.5 % 30.3 % 32.1 % Asia Pacific (4) 8.4 % 8.5 % 9.2 % Other Metrics: GAAP-based gross margin 69.4 % 67.7 % 67.6 % Non-GAAP-based gross margin (5) 76.1 % 74.5 % 74.1 % Net income, attributable to OpenText $ 310,672 $ 234,225 $ 285,501 GAAP-based EPS, diluted $ 1.14 $ 0.86 $ 1.06 Non-GAAP-based EPS, diluted (5) $ 3.39 $ 2.89 $ 2.76 Adjusted EBITDA (5) $ 1,315,033 $ 1,148,080 $ 1,100,291 (1) Total revenues by geography are determined based on the location of our end customer. (2) Americas consists of countries in North, Central and South America. (3) EMEA primarily consists of countries in Europe, the Middle East and Africa. (4) Asia Pacific primarily consists of Japan, Australia, China, Korea, Philippines, Singapore, India and New Zealand. (5) 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. 51 Revenues, Cost of Revenues and Gross Margin by Product Type 1) Cloud Services and Subscriptions: 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 PaaS, SaaS, cloud subscriptions and managed services. For the year ended June 30, 2021, our cloud renewal rate, excluding the impact of Carbonite Inc. (Carbonite), was approximately 93%, compared to approximately 96% for the year ended June 30, 2020. 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. Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Cloud Services and Subscriptions: Americas $ 1,048,444 $ 209,001 $ 839,443 $ 222,667 $ 616,776 EMEA 256,199 23,343 232,856 26,629 206,227 Asia Pacific 102,802 17,415 85,387 578 84,809 Total Cloud Services and Subscriptions Revenues 1,407,445 249,759 1,157,686 249,874 907,812 Cost of Cloud Services and Subscriptions Revenues 481,818 31,878 449,940 65,947 383,993 GAAP-based Cloud Services and Subscriptions Gross Profit $ 925,627 $ 217,881 $ 707,746 $ 183,927 $ 523,819 GAAP-based Cloud Services and Subscriptions Gross Margin % 65.8 % 61.1 % 57.7 % % Cloud Services and Subscriptions Revenues by Geography: Americas 74.5 % 72.5 % 67.9 % EMEA 18.2 % 20.1 % 22.7 % Asia Pacific 7.3 % 7.4 % 9.4 % Cloud services and subscriptions revenues increased by $249.8 million or 21.6% during the year ended June 30, 2021 as compared to the prior fiscal year; up 20.0% after factoring in the favorable impact of $17.8 million of foreign exchange rates. The increase was primarily driven by incremental Cloud services and subscriptions revenues from acquisitions in the comparative period. Geographically, the overall change was attributable to an increase in Americas of $209.0 million, an increase in EMEA of $23.3 million and an increase in Asia Pacific of $17.4 million. There were 64 cloud services contracts greater than $1.0 million that closed during Fiscal 2021, compared to 44 contracts during Fiscal 2020. Cost of Cloud services and subscriptions revenues increased by $31.9 million during the year ended June 30, 2021 as compared to the prior fiscal year. This was due to an increase in labour-related costs of $16.8 million and an increase in third party network fees of $14.9 million, both primarily the result of recent acquisitions. Overall, the gross margin percentage on Cloud services and subscriptions revenues increased to 66% from 61%. 2) 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 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. Therefore, changes in Customer support revenues do not always correlate directly to the changes in license revenues from period to period. The terms of support and maintenance agreements are typically twelve months, and are renewable, generally on an annual basis, at the option of the customer. 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 year ended June 30, 2021, our Customer support renewal rate was approximately 94%, consistent with the year ended June 30, 2020. Cost of Customer support revenues is comprised primarily of technical support personnel and related costs, as well as third party royalty costs. 52 Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Customer Support Revenues: Americas $ 743,724 $ 9,146 $ 734,578 $ 16,369 $ 718,209 EMEA 481,558 43,111 438,447 10,735 427,712 Asia Pacific 108,780 6,219 102,561 567 101,994 Total Customer Support Revenues 1,334,062 58,476 1,275,586 27,671 1,247,915 Cost of Customer Support Revenues 122,753 (1,141) 123,894 (449) 124,343 GAAP-based Customer Support Gross Profit $ 1,211,309 $ 59,617 $ 1,151,692 $ 28,120 $ 1,123,572 GAAP-based Customer Support Gross Margin % 90.8 % 90.3 % 90.0 % % Customer Support Revenues by Geography: Americas 55.7 % 57.6 % 57.6 % EMEA 36.1 % 34.4 % 34.3 % Asia Pacific 8.2 % 8.0 % 8.1 % Customer support revenues increased by $58.5 million or 4.6% during the year ended June 30, 2021 as compared to the prior fiscal year; up 1.7% after factoring in the favorable impact of $37.1 million of foreign exchange rate changes. Geographically, the overall change was attributable to an increase in EMEA of $43.1 million, an increase in Americas of $9.1 million and an increase in Asia Pacific of $6.2 million. Cost of Customer support revenues decreased by $1.1 million during the year ended June 30, 2021 as compared to the prior fiscal year. This was due to a decrease in third party costs of $0.7 million and a decrease in labour-related costs of $0.6 million, partially offset by an increase in other miscellaneous costs of $0.2 million. Overall, the gross margin percentage on Customer support revenues increased to 91% from 90%. 3) License: 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. Cost of License revenues consists primarily of royalties payable to third parties. Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 License Revenues: Americas $ 159,530 $ (40,116) $ 199,646 $ (16,225) $ 215,871 EMEA 178,503 23,296 155,207 (8,415) 163,622 Asia Pacific 46,678 (1,320) 47,998 (601) 48,599 Total License Revenues 384,711 (18,140) 402,851 (25,241) 428,092 Cost of License Revenues 13,916 2,595 11,321 (3,026) 14,347 GAAP-based License Gross Profit $ 370,795 $ (20,735) $ 391,530 $ (22,215) $ 413,745 GAAP-based License Gross Margin % 96.4 % 97.2 % 96.6 % % License Revenues by Geography: Americas 41.5 % 49.6 % 50.4 % EMEA 46.4 % 38.5 % 38.2 % Asia Pacific 12.1 % 11.9 % 11.4 % License revenues decreased by $18.1 million or 4.5% during the year ended June 30, 2021 as compared to the prior fiscal year; down 8.6% after factoring in the favorable impact of $16.6 million of foreign exchange rate changes. Geographically, the overall change was attributable to a decrease in Americas of $40.1 million and a decrease in Asia Pacific of $1.3 million, partially offset by an increase in EMEA of $23.3 million. During Fiscal 2021, we closed 122 license contracts greater than $0.5 million, of which 45 deals were greater than $1.0 million, contributing $131.6 million of License revenues. This was compared to 120 license contracts greater than $0.5 million during Fiscal 2020, of which 48 deals were greater than $1.0 million, contributing $137.8 million of License revenues. 53 Cost of License revenues increased by $2.6 million during the year ended June 30, 2021 as compared to the prior fiscal year as a result of higher third party technology costs. Overall, the gross margin percentage on License revenues decreased to 96% from 97%. 4) Professional Service and Other: Professional service and other revenues consist of revenues from consulting contracts and contracts to provide implementation, training and integration services (professional services). Other revenues consist of hardware revenues, which are included within the “Professional service and other” category because they are relatively immaterial to our service revenues. Professional services are typically performed after the purchase of new software licenses. Professional service and other revenues can vary from period to period based on the type of engagements as well as those implementations that are assumed by our partner network. Cost of Professional service and other revenues consists primarily of the costs of providing integration, configuration and training with respect to our various software products. The most significant components of these costs are personnel-related expenses, travel costs and third party subcontracting. Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Professional Service and Other Revenues: Americas $ 117,385 $ (12,598) $ 129,983 $ (2,443) $ 132,426 EMEA 115,347 (424) 115,771 (7,090) 122,861 Asia Pacific 27,165 (694) 27,859 (1,790) 29,649 Total Professional Service and Other Revenues 259,897 (13,716) 273,613 (11,323) 284,936 Cost of Professional Service and Other Revenues 197,183 (15,720) 212,903 (11,732) 224,635 GAAP-based Professional Service and Other Gross Profit $ 62,714 $ 2,004 $ 60,710 $ 409 $ 60,301 GAAP-based Professional Service and Other Gross Margin % 24.1 % 22.2 % 21.2 % % Professional Service and Other Revenues by Geography: Americas 45.2 % 47.5 % 46.5 % EMEA 44.4 % 42.3 % 43.1 % Asia Pacific 10.4 % 10.2 % 10.4 % Professional service and other revenues decreased by $13.7 million or 5.0% during the year ended June 30, 2021 as compared to the prior fiscal year; down 8.6% after factoring in the favorable impact of $9.9 million of foreign exchange rate changes. Geographically, the overall change was attributable to a decrease in the Americas of $12.6 million, a decrease in Asia Pacific of $0.7 million and a decrease in EMEA of $0.4 million. Cost of Professional service and other revenues decreased by $15.7 million during the year ended June 30, 2021 as compared to the prior fiscal year. This was due to a decrease in labour and travel-related expenses of $15.8 million resulting from the travel limitations triggered by the COVID-19 pandemic. Overall, the gross margin percentage on Professional service and other revenues increased to 24% from 22%. Amortization of Acquired Technology-based Intangible Assets Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Amortization of acquired technology-based intangible assets $ 218,796 $ 13,079 $ 205,717 $ 22,332 $ 183,385 Amortization of acquired technology-based intangible assets increased by $13.1 million during the year ended June 30, 2021 as compared to the prior fiscal year. This was primarily due to an increase of $45.5 million relating to amortization of newly acquired technology-based intangible assets from recent acquisitions, partially offset by a reduction of $32.4 million relating to intangible assets from certain previous acquisitions becoming fully amortized. 54 Operating Expenses Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Research and development $ 421,447 $ 51,036 $ 370,411 $ 48,575 $ 321,836 Sales and marketing 622,221 37,177 585,044 67,009 518,035 General and administrative 263,521 25,989 237,532 29,623 207,909 Depreciation 85,265 (4,193) 89,458 (8,258) 97,716 Amortization of acquired customer-based intangible assets 216,544 (3,015) 219,559 29,732 189,827 Special charges (recoveries) 1,748 (98,680) 100,428 64,709 35,719 Total operating expenses $ 1,610,746 $ 8,314 $ 1,602,432 $ 231,390 $ 1,371,042 % of Total Revenues: Research and development 12.4 % 11.9 % 11.2 % Sales and marketing 18.4 % 18.8 % 18.1 % General and administrative 7.8 % 7.6 % 7.2 % Depreciation 2.5 % 2.9 % 3.4 % Amortization of acquired customer-based intangible assets 6.4 % 7.1 % 6.6 % Special charges (recoveries) 0.1 % 3.2 % 1.2 % Research and development expenses consist primarily of payroll and payroll-related benefits expenses, contracted research and development expenses, and facility costs. Research and development enables organic growth and improves product stability and functionality, and accordingly, we dedicate extensive efforts to update and upgrade our product offerings. The primary drivers are typically software upgrades and development. Change between Fiscal Years increase (decrease) (In thousands) 2021 and 2020 2020 and 2019 Payroll and payroll-related benefits $ 40,794 $ 37,612 Contract labour and consulting (838) 2,305 Share-based compensation 4,550 35 Travel and communication (1,454) 72 Facilities 8,327 8,684 Other miscellaneous (343) (133) Total change in research and development expenses $ 51,036 $ 48,575 Research and development expenses increased by $51.0 million during the year ended June 30, 2021 as compared to the prior fiscal year as a result of recent acquisitions, partially offset by the impact of the COVID-19 travel and spending reduction discussed under "Outlook for Fiscal 2022" above. Payroll and payroll-related benefits, which includes salaries, benefits and variable short-term incentives, increased by $40.8 million, and facility-related expenses increased by $8.3 million. Additionally, share-based compensation expense increased by $4.6 million. These increases were partially offset by reductions in travel and communication expenses of $1.5 million and contract labour and consulting expenses of $0.8 million. Overall, our research and development expenses, as a percentage of total revenues, remained stable compared to the prior fiscal year at 12%. Our research and development labour resources increased by 104 employees, from 4,072 employees at June 30, 2020 to 4,176 employees at June 30, 2021. 55 Sales and marketing expenses consist primarily of personnel expenses and costs associated with advertising, marketing events and trade shows. Change between Fiscal Years increase (decrease) (In thousands) 2021 and 2020 2020 and 2019 Payroll and payroll-related benefits $ 28,343 $ 40,637 Commissions 11,530 4,306 Contract labour and consulting 135 773 Share-based compensation 8,977 856 Travel and communication (14,641) (2,541) Marketing expenses 11,522 15,926 Facilities (4,151) 7,228 Credit loss expense (4,329) (2,000) Other miscellaneous (209) 1,824 Total change in sales and marketing expenses $ 37,177 $ 67,009 Sales and marketing expenses increased by $37.2 million during the year ended June 30, 2021 as compared to the prior fiscal year as a result of recent acquisitions, partially offset by the impact of the COVID-19 travel and spending reduction discussed under "Outlook for Fiscal 2022" above. Payroll and payroll-related benefits, which includes salaries, benefits and variable short-term incentives, increased by $28.3 million, commissions increased by $11.5 million, marketing expenses increased by $11.5 million and share-based compensation expense increased by $9.0 million. These increases were partially offset by reductions in travel and communications of $14.6 million resulting from travel limitations triggered by the COVID-19 pandemic, reductions in credit loss expense of $4.3 million and reductions in facility related expenses of $4.2 million. Overall, our sales and marketing expenses, as a percentage of total revenues, decreased to 18% from 19% in the prior fiscal year. Our sales and marketing labour resources decreased by 3 employees, from 2,457 employees at June 30, 2020 to 2,454 employees at June 30, 2021. 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 Years increase (decrease) (In thousands) 2021 and 2020 2020 and 2019 Payroll and payroll-related benefits $ 11,580 $ 20,264 Contract labour and consulting 464 232 Share-based compensation 5,159 1,766 Travel and communication (3,922) (480) Facilities (3,838) 4,127 Other miscellaneous 16,546 3,714 Total change in general and administrative expenses $ 25,989 $ 29,623 General and administrative expenses increased by $26.0 million during the year ended June 30, 2021 as compared to the prior fiscal year as a result of recent acquisitions. Other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses, increased by $16.5 million, payroll and payroll-related benefits, which includes salaries, benefits and variable short-term incentives increased by $11.6 million, and share-based compensation expense increased by $5.2 million. These increases were partially offset by reductions in travel and communication of $3.9 million and facility related expenses of $3.8 million, due to the impact of the COVID-19 spending reduction discussed under "Outlook for Fiscal 2022" above. Overall, general and administrative expenses, as a percentage of total revenues, remained stable compared to the prior fiscal year at 8%. Our general and administrative labour resources decreased by 48 employees, from 1,914 employees at June 30, 2020 to 1,866 employees at June 30, 2021. Depreciation expenses: Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Depreciation $ 85,265 $ (4,193) $ 89,458 $ (8,258) $ 97,716 56 Depreciation expenses decreased by $4.2 million during the year ended June 30, 2021 as compared to the prior fiscal year. Depreciation expenses, as a percentage of total revenue, remained stable at 3% for the year ended June 30, 2021 as compared to the prior fiscal year. Amortization of acquired customer-based intangible assets: Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Amortization of acquired customer-based intangible assets $ 216,544 $ (3,015) $ 219,559 $ 29,732 $ 189,827 Amortization of acquired customer-based intangible assets decreased by $3.0 million during year ended June 30, 2021 as compared to the prior fiscal year. This was due to a reduction of $59.0 million relating to intangible assets from certain previous acquisitions becoming fully amortized, partially offset by an increase of $56.0 million relating to amortization of newly acquired customer-based intangible assets from recent acquisitions. Special charges (recoveries): Special charges (recoveries) 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 and most recently in response to the COVID-19 pandemic. Actions related to such restructuring plans are typically completed within a period of one year. In certain limited situations, if the planned activity does not need to be implemented, or an expense lower than anticipated is paid out, we record a recovery of the originally recorded expense to Special charges (recoveries). Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Special charges (recoveries) $ 1,748 $ (98,680) $ 100,428 $ 64,709 $ 35,719 Special charges (recoveries) decreased by $98.7 million during the year ended June 30, 2021 as compared to the prior fiscal year. This was due to a decrease in restructuring activities of $87.0 million, primarily related to the COVID-19 and Fiscal 2020 restructuring plans which were initiated during the second half of Fiscal 2020. Included in the special charges for Fiscal 2021 were net recoveries of $29.5 million associated with the reversal of lease liabilities from facilities abandoned in the prior fiscal year, which have since been assigned or early terminated as well as the release of other facility charges accrued for under the plans. Additionally, acquisition-related costs decreased by $7.8 million and other miscellaneous charges decreased by $3.9 million. For more details on Special charges (recoveries), see note 18 "Special Charges (Recoveries)" to our Consolidated Financial Statements. Other Income (Expense), Net The components of other income (expense), net were as follows: Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Foreign exchange gains (losses) $ (1,273) $ 2,911 $ (4,184) $ 146 $ (4,330) OpenText share in net income (loss) of equity investees (1) 62,897 54,197 8,700 (4,968) 13,668 Loss debt extinguishment (2) — 17,854 (17,854) (17,854) — Other miscellaneous income (expense) (190) (1,582) 1,392 574 818 Total other income (expense), net $ 61,434 $ 73,380 $ (11,946) $ (22,102) $ 10,156 (1) OpenText’s share in net income of equity investees relates to our share of net income, which is based on changes in approximate fair value, at our interest in certain investment funds in which we are a limited partner. Our interests in each of these investees range from 4% to below 20% and these investments are accounted for using the equity method (see note 9 "Prepaid Expenses and Other Assets" for more details). (2) On March 5, 2020, we redeemed in full $800 million aggregate principal amount of our 5.625% Senior Notes due 2023 (Senior Notes 2023), which resulted in a loss on debt extinguishment of $17.9 million. Of this, $6.7 million related to unamortized debt issuance costs and the remaining $11.2 million related to the early termination call premium. 57 Interest and Other Related Expense, Net Interest and other related expense, net is primarily comprised of interest paid and accrued on our debt facilities, offset by interest income earned on our cash and cash equivalents. Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Interest expense related to total outstanding debt (1) $ 145,646 $ (3,558) $ 149,204 $ 11,717 $ 137,487 Interest income (3,856) 7,912 (11,768) (3,754) (8,014) Other miscellaneous expense 9,777 835 8,942 1,823 7,119 Total interest and other related expense, net $ 151,567 $ 5,189 $ 146,378 $ 9,786 $ 136,592 (1) For more details see note 11 "Long-Term Debt" to our Consolidated Financial Statements. Provision for (Recovery of) Income Taxes We operate in several tax jurisdictions and are exposed to various foreign tax rates. Year Ended June 30, (In thousands) 2021 Change increase (decrease) 2020 Change increase (decrease) 2019 Provision for (recovery of) income taxes $ 339,906 $ 229,069 $ 110,837 $ (44,100) $ 154,937 The effective tax rate increased to a provision of 52.2% for the year ended June 30, 2021, compared to a provision of 32.1% for the year ended June 30, 2020. Tax expense increased by $229.1 million from $110.8 million during the year ended June 30, 2020 to $339.9 million during the year ended June 30, 2021. This was primarily due to (i) an increase of $300.5 million relating to the IRS Settlement (as defined herein), (ii) an increase of $76.4 million relating to higher net income including the impact of foreign rates and (iii) an increase of $7.0 million related to the one-time benefit from the US CARES Act in Fiscal 2020 that did not recur in Fiscal 2021. These were partially offset by (i) a decrease of $66.9 million for changes in unrecognized tax benefits, (ii) a decrease of $34.1 million related to tax benefits of internal reorganizations that occurred in Fiscal 2021 (iii) a decrease of $33.2 million related to the US Base Erosion Anti-Abuse Tax (US BEAT), (iv) a decrease of $5.7 million for net changes in valuation allowance, (v) a decrease of $3.1 million related to permanent differences and (vi) a decrease of $3.1 million related to differences in tax filings being higher than estimates. The remainder of the difference was due to normal course movements and non-material items. For information on the IRS Settlement and certain other potential tax contingencies, including the CRA matter, see note 14 "Guarantees and Contingencies" and note 15 "Income Taxes" to our Consolidated Financial Statements. Please also see Part I, Item 1A "Risk Factors" within this Annual Report on Form 10-K. 58 Use of Non-GAAP Financial Measures In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures that are not in accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company's definition may be different from similar Non-GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus it may be more difficult to compare the Company's financial performance to that of other companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its Consolidated Financial Statements, all of which should be considered when evaluating the Company's results. 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. GAAP. 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. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain Non-GAAP measures defined below. Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are 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. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as GAAP-based income from operations, excluding the amortization of acquired intangible assets, special charges (recoveries), and share-based compensation expense. Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and special charges (recoveries). The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management. These items are excluded based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports and are not excluded in the sense that they may be used under U.S. GAAP. The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of Non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company’s operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions and most recently in response to the COVID-19 pandemic, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company’s “Special charges (recoveries)” caption on the Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company's operating results and underlying operational trends. In summary, the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results. The following charts provide unaudited reconciliations of U.S. GAAP-based financial measures to Non-GAAP-based financial measures for the following periods presented. 59 Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2021 (In thousands, except for per share data) Year Ended June 30, 2021 GAAP-based Measures GAAP-based Measures % of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures % of Total Revenue Cost of revenues Cloud services and subscriptions $ 481,818 $ (3,419) (1) $ 478,399 Customer support 122,753 (1,910) (1) 120,843 Professional service and other 197,183 (2,565) (1) 194,618 Amortization of acquired technology-based intangible assets 218,796 (218,796) (2) — GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 2,351,649 69.4% 226,690 (3) 2,578,339 76.1% Operating expenses Research and development 421,447 (9,859) (1) 411,588 Sales and marketing 622,221 (18,312) (1) 603,909 General and administrative 263,521 (15,904) (1) 247,617 Amortization of acquired customer-based intangible assets 216,544 (216,544) (2) — Special charges (recoveries) 1,748 (1,748) (4) — GAAP-based income from operations / Non-GAAP-based income from operations 740,903 489,057 (5) 1,229,960 Other income (expense), net 61,434 (61,434) (6) — Provision for (recovery of) income taxes 339,906 (188,931) (7) 150,975 GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 310,672 616,554 (8) 927,226 GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 1.14 $ 2.25 (8) $ 3.39 (1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. (2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. (3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue. (4) 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 18 "Special charges (recoveries)" to our Consolidated Financial Statements for more details. (5) GAAP-based and Non-GAAP-based income from operations stated in dollars. (6) 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 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. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. (7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 52% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. 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 that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. 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. The GAAP-based tax provision rate for the year ended June 30, 2021 includes the income tax provision charge from the IRS Settlement partially offset by a tax benefit from the release of unrecognized tax benefits due to the conclusion of relevant tax audits that was recognized during the second quarter of Fiscal 2021. 60 (8) Reconciliation of GAAP-based net income to Non-GAAP-based net income: Year Ended June 30, 2021 Per share diluted GAAP-based net income, attributable to OpenText $ 310,672 $ 1.14 Add: Amortization 435,340 1.59 Share-based compensation 51,969 0.19 Special charges (recoveries) 1,748 0.01 Other (income) expense, net (61,434) (0.22) GAAP-based provision for (recovery of) income taxes 339,906 1.23 Non-GAAP-based provision for income taxes (150,975) (0.55) Non-GAAP-based net income, attributable to OpenText $ 927,226 $ 3.39 Reconciliation of Adjusted EBITDA Year Ended June 30, 2021 GAAP-based net income, attributable to OpenText $ 310,672 Add: Provision for (recovery of) income taxes 339,906 Interest and other related expense, net 151,567 Amortization of acquired technology-based intangible assets 218,796 Amortization of acquired customer-based intangible assets 216,544 Depreciation 85,265 Share-based compensation 51,969 Special charges (recoveries) 1,748 Other (income) expense, net (61,434) Adjusted EBITDA $ 1,315,033 61 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) Year Ended June 30, 2020 GAAP-based Measures GAAP-based Measures % of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures % of Total Revenue Cost of revenues Cloud services and subscriptions $ 449,940 $ (1,642) (1) $ 448,298 Customer support 123,894 (1,207) (1) 122,687 Professional service and other 212,903 (1,294) (1) 211,609 Amortization of acquired technology-based intangible assets 205,717 (205,717) (2) — GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 2,105,961 67.7% 209,860 (3) 2,315,821 74.5% Operating expenses Research and development 370,411 (5,309) (1) 365,102 Sales and marketing 585,044 (9,335) (1) 575,709 General and administrative 237,532 (10,745) (1) 226,787 Amortization of acquired customer-based intangible assets 219,559 (219,559) (2) — Special charges (recoveries) 100,428 (100,428) (4) — GAAP-based income from operations / Non-GAAP-based income from operations 503,529 555,236 (5) 1,058,765 Other income (expense), net (11,946) 11,946 (6) — Provision for (recovery of) income taxes 110,837 16,897 (7) 127,734 GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 234,225 550,285 (8) 784,510 GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 0.86 $ 2.03 (8) $ 2.89 (1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. (2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. (3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue. (4) 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 18 "Special charges (recoveries)" to our Consolidated Financial Statements for more details. (5) GAAP-based and Non-GAAP-based income from operations stated in dollars. (6) 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 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. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. (7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 32% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. 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 that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. 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. 62 (8) Reconciliation of GAAP-based net income to Non-GAAP-based net income: Year Ended June 30, 2020 Per share diluted GAAP-based net income, attributable to OpenText $ 234,225 $ 0.86 Add: Amortization 425,276 1.56 Share-based compensation 29,532 0.11 Special charges (recoveries) 100,428 0.37 Other (income) expense, net 11,946 0.04 GAAP-based provision for (recovery of) income taxes 110,837 0.41 Non-GAAP-based provision for income taxes (127,734) (0.46) Non-GAAP-based net income, attributable to OpenText $ 784,510 $ 2.89 Reconciliation of Adjusted EBITDA Year Ended June 30, 2020 GAAP-based net income, attributable to OpenText $ 234,225 Add: Provision for (recovery of) income taxes 110,837 Interest and other related expense, net 146,378 Amortization of acquired technology-based intangible assets 205,717 Amortization of acquired customer-based intangible assets 219,559 Depreciation 89,458 Share-based compensation 29,532 Special charges (recoveries) 100,428 Other (income) expense, net 11,946 Adjusted EBITDA $ 1,148,080 63 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) Year Ended June 30, 2019 GAAP-based Measures GAAP-based Measures % of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures % of Total Revenue Cost of revenues Cloud services and subscriptions $ 383,993 $ (948) (1) $ 383,045 Customer support 124,343 (1,242) (1) 123,101 Professional service and other 224,635 (1,764) (1) 222,871 Amortization of acquired technology-based intangible assets 183,385 (183,385) (2) — GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 1,938,052 67.6% 187,339 (3) 2,125,391 74.1% Operating expenses Research and development 321,836 (4,991) (1) 316,845 Sales and marketing 518,035 (7,880) (1) 510,155 General and administrative 207,909 (9,945) (1) 197,964 Amortization of acquired customer-based intangible assets 189,827 (189,827) (2) — Special charges (recoveries) 35,719 (35,719) (4) — GAAP-based income from operations / Non-GAAP-based income from operations 567,010 435,701 (5) 1,002,711 Other income (expense), net 10,156 (10,156) (6) — Provision for (recovery of) income taxes 154,937 (33,680) (7) 121,257 GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 285,501 459,225 (8) 744,726 GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 1.06 $ 1.70 (8) $ 2.76 (1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. (2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. (3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue. (4) 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 18 "Special charges (recoveries)" to our Consolidated Financial Statements for more details. (5) GAAP-based and Non-GAAP-based income from operations stated in dollars. (6) 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 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. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. (7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 35% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. 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 that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. 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. 64 (8) Reconciliation of GAAP-based net income to Non-GAAP-based net income: Year Ended June 30, 2019 Per share diluted GAAP-based net income, attributable to OpenText $ 285,501 $ 1.06 Add: Amortization 373,212 1.38 Share-based compensation 26,770 0.10 Special charges (recoveries) 35,719 0.13 Other (income) expense, net (10,156) (0.04) GAAP-based provision for (recovery of) income taxes 154,937 0.57 Non-GAAP-based provision for income taxes (121,257) (0.44) Non-GAAP-based net income, attributable to OpenText $ 744,726 $ 2.76 Reconciliation of Adjusted EBITDA Year Ended June 30, 2019 GAAP-based net income, attributable to OpenText $ 285,501 Add: Provision for (recovery of) income taxes 154,937 Interest and other related expense, net 136,592 Amortization of acquired technology-based intangible assets 183,385 Amortization of acquired customer-based intangible assets 189,827 Depreciation 97,716 Share-based compensation 26,770 Special charges (recoveries) 35,719 Other (income) expense, net (10,156) Adjusted EBITDA $ 1,100,291 65 LIQUIDITY AND CAPITAL RESOURCES The following tables set forth changes in cash flows from operating, investing and financing activities for the periods indicated: (In thousands) As of June 30, 2021 Change increase (decrease) As of June 30, 2020 Change increase (decrease) As of June 30, 2019 Cash and cash equivalents $ 1,607,306 $ (85,544) $ 1,692,850 $ 751,841 $ 941,009 Restricted cash (1) 2,494 (1,919) 4,413 1,879 2,534 Total cash, cash equivalents and restricted cash $ 1,609,800 $ (87,463) $ 1,697,263 $ 753,720 $ 943,543 (1) Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Consolidated Balance Sheets (note 9). Year Ended June 30, (In thousands) 2021 Change 2020 Change 2019 Cash provided by operating activities $ 876,120 $ (78,416) $ 954,536 $ 78,258 $ 876,278 Cash used in investing activities $ (68,770) $ 1,400,647 $ (1,469,417) $ (1,004,891) $ (464,526) Cash provided by (used in) financing activities $ (924,547) $ (2,193,326) $ 1,268,779 $ 1,417,143 $ (148,364) Cash and cash equivalents Cash and cash equivalents primarily consist of balances with banks as well as deposits with original maturities of 90 days or less. We continue to anticipate that our cash and cash equivalents, as well as available credit facilities, will be sufficient to fund our anticipated cash requirements for working capital, contractual commitments, capital expenditures, dividends and operating needs for the next twelve months. Any further material or acquisition-related activities may require additional sources of financing and would be subject to the financial covenants established under our credit facilities. For more details, see "Long-term Debt and Credit Facilities" below. During the year ended June 30, 2021, we made payments for U.S. federal taxes and interest of $288.6 million and state taxes and interest of $11.0 million as a result of the IRS Settlement. As of June 30, 2021, the outstanding settlement amount of approximately $0.9 million is recorded within "Income taxes payable" in our Consolidated Balance Sheets. As of June 30, 2021, we have recognized a provision of $27.5 million (June 30, 2020—$24.8 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. We have deferred a total of approximately $99 million of tax payments under the CARES Act and other COVID-19 related tax relief programs in EMEA. During the year ended June 30, 2021, we made repayments of approximately $60 million related to amounts previously deferred. As of June 30, 2021, we have remaining deferrals of $39 million which will become payable throughout Fiscal 2022 and Fiscal 2023. Cash flows provided by operating activities Cash flows from operating activities decreased by $78.4 million, due to a decrease in changes from working capital of $89.7 million, partially offset by an increase in net income before the impact of non-cash items of $11.3 million. The decrease in operating cash flow from changes in working capital was primarily due to the net impact of the following decreases: (i) $105.7 million relating to income taxes payable, net of receivables; (ii) $26.4 million relating to net operating lease assets and liabilities; (iii) $23.5 million relating to accounts receivable; and (iv) $4.5 million relating to accounts payable and accrued liabilities. These decreases in operating cash flows were partially offset by the following increases: (i) $44.6 million relating to prepaid expenses and other current assets; (ii) $14.0 million relating to deferred revenues; (iii) $10.8 million relating to other assets; and (iv) $1.0 million relating to contract assets. 66 During the fourth quarter of Fiscal 2021 our days sales outstanding (DSO) was 44 days, compared to a DSO of 51 days during the fourth quarter of Fiscal 2020, largely as a result of strong improvement in collections efficiency. The per day impact of our DSO in the fourth quarter of Fiscal 2021 and Fiscal 2020 on our cash flows was $9.9 million and $9.2 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. Cash flows used in investing activities 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 decreased by $1.4 billion, primarily due to consideration paid for acquisitions during Fiscal 2020, which included the acquisitions of Carbonite for $1.3 billion 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 repurchases of our Common Shares. Cash flows used in financing activities increased by $2.2 billion, primarily due to the net impact of the following long-term debt financing activities that occurred in Fiscal 2020 and did not reoccur in Fiscal 2021: (i) $1.8 billion relating to proceeds from the issuance of Senior Notes 2028 and Senior Notes 2030 (both defined below), of which a portion of the proceeds were used to redeem $800 million of our Senior Notes 2023; (ii) $750 million in proceeds for amounts drawn and subsequently repaid under the Revolver (defined below); (iii) $153.6 million repayment of convertible notes, inherited through our acquisition of Carbonite, that were surrendered and converted offset by; (iv) $600 million in proceeds for amounts drawn on the Revolver in the third quarter of Fiscal 2020, subsequently repaid during the second quarter of Fiscal 2021. Additionally, cash flows used in financing increased due to the following activities that occurred during Fiscal 2021: (i) $119.1 million relating to the repurchase and cancellation of 2,500,000 Common Shares under the Repurchase Plan (defined herein); (ii) $52.4 million relating to the repurchase Common Shares on the open market for potential reissuance under our stock compensation plans; and (iii) $22.0 million relating to cash dividends paid to shareholders. Cash Dividends During the year ended June 30, 2021, we declared and paid cash dividends of $0.7770 per Common Share in the aggregate amount of $210.7 million (year ended June 30, 2020 and 2019—$0.6984 and $0.6300 per Common Share, respectively, in the aggregate amount of $188.7 million and $168.9 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. Long-term Debt and Credit Facilities Senior Unsecured Fixed Rate Notes 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 the Company (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. 67 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 68 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 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. Senior Notes 2026 bear interest at a rate of 5.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior Notes 2026 will mature on June 1, 2026, unless earlier redeemed, in accordance with their terms, or repurchased. On December 20, 2016, we issued an additional $250 million in aggregate principal amount by reopening our Senior Notes 2026 at an issue price of 102.75%. The additional notes have identical terms, are fungible with and are a part of a single series with the previously issued $600 million aggregate principal amount of Senior Notes 2026. The outstanding aggregate principal amount of Senior Notes 2026, after taking into consideration the additional issuance, is $850 million. We may redeem all or a portion of the Senior Notes 2026 at any time prior to June 1, 2021 at a redemption price equal to 100% of the principal amount of Senior Notes 2026 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. We may also, on one or more occasions, redeem Senior Notes 2026, in whole or in part, at any time on and after June 1, 2021 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2026, dated as of May 31, 2016, 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 2026 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 2026 Indenture, we will be required to make an offer to repurchase Senior Notes 2026 at a price equal to 101% of the principal amount of Senior Notes 2026, plus accrued and unpaid interest, if any, to the date of purchase. The 2026 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 the notes; 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 2026 Indenture. The 2026 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 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 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. The foregoing description of the 2026 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2026 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on May 31, 2016. 69 Term Loan B 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. Repayments made under Term Loan B are equal to 0.25% of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity. Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver. Term Loan B has a seven year term, maturing in May 2025. 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 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, 2021, the outstanding balance on the Term Loan B bears an interest rate of 1.84%. 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. Consolidated senior secured 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, that is secured by our or any of our subsidiaries’ assets, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. Under Term Loan B, 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, 2021, our consolidated net leverage ratio was 1.5:1. Revolver 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%. 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. 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. 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 uncertainty in the global markets resulting from the COVID-19 pandemic. As of June 30, 2020, the proceeds from the $600 million draw down remained outstanding and were presented within "Cash and cash equivalents" and "Current portion of long-term debt" on the Consolidated Balance Sheets. During the second quarter of Fiscal 2021, we repaid $600 million previously drawn on the Revolver using cash on hand. As of June 30, 2021, we had no outstanding balance under the Revolver. For further details relating to our debt, please see note 11 "Long-Term Debt" to our Consolidated Financial Statements. 70 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 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. Share Repurchase Plan / Normal Course Issuer Bid On November 5, 2020, the Board authorized a share repurchase plan, pursuant to which we may purchase in open market transactions, from time to time over the 12 month period commencing November 12, 2020, up to an aggregate of $350 million of our Common Shares on the NASDAQ Global Select Market, the TSX and/or other exchanges and alternative trading systems in Canada and/or the United States, if eligible, subject to applicable law and stock exchange rules (the “Repurchase Plan”). The price that we will pay for Common Shares in open market transactions will be the market price at the time of purchase or such other price as may be permitted by applicable law or stock exchange rules. The Repurchase Plan will be effected in accordance with Rule 10b-18 under the U.S. Securities Exchange Act of 1934. Purchases made under the Repurchase Plan will be subject to a limit of 13,618,774 shares (representing 5% of the Company’s issued and outstanding Common Shares as of November 4, 2020). All Common Shares purchased by us pursuant to the Repurchase Plan will be cancelled. During the year ended June 30, 2021, we repurchased and cancelled 2,500,000 Common Shares for $119.1 million under the Repurchase Plan. Normal Course Issuer Bid The Company established a Normal Course Issuer Bid (the NCIB) in order to provide it with a means to execute purchases over the TSX as part of the overall Repurchase Plan. The TSX approved the Company’s notice of intention to commence the NCIB pursuant to which the Company may purchase Common Shares over the TSX for the period commencing November 12, 2020 until November 11, 2021 in accordance with the TSX's normal course issuer bid rules, including that such purchases are to be made at prevailing market prices or as otherwise permitted. Under the rules of the TSX, the maximum number of Common Shares that may be purchased in this period is 13,618,774 (representing 5% of the Company’s issued and outstanding Common Shares as of November 4, 2020), and the maximum number of Common Shares that may be purchased on a single day is 143,424 Common Shares, which is 25% of 573,699 (the average daily trading volume for the Common Shares on the TSX for the six months ended October 31, 2020), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18. Pensions As of June 30, 2021, our total unfunded pension plan obligations were $77.3 million, of which $2.8 million is payable within the next twelve months. We expect to be able to make the long-term and short-term payments related to these obligations in the normal course of operations. 71 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, CDT GXS GER GXS PHP 2022 $ 880 $ 1,058 $ 42 2023 960 1,046 356 2024 1,039 1,047 140 2025 1,086 1,071 192 2026 1,123 1,059 202 2027 to 2031 6,501 5,142 2,516 Total $ 11,589 $ 10,423 $ 3,448 For a detailed discussion on pensions, see note 12 "Pension Plans and Other Post Retirement Benefits" to our Consolidated Financial Statements. Commitments and Contractual Obligations As of June 30, 2021, we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows: Payments due between Total July 1, 2021 - June 30, 2022 July 1, 2022 - June 30, 2024 July 1, 2024 - June 30, 2026 July 1, 2026 and beyond Long-term debt obligations (1) $ 4,514,954 $ 149,942 $ 299,371 $ 2,047,391 $ 2,018,250 Operating lease obligations (2) 308,349 65,260 103,510 62,033 77,546 Purchase obligations for contracts not accounted for as lease obligations 70,646 42,887 27,759 — — $ 4,893,949 $ 258,089 $ 430,640 $ 2,109,424 $ 2,095,796 (1) Includes interest up to maturity and principal payments. 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 We have entered into customer agreements which may include provisions to indemnify our customers against third party claims that our software products or services infringe certain third party intellectual property rights and for liabilities related to a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification provisions and have not accrued any liabilities related to these indemnification provisions in our Consolidated Financial Statements. Occasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including, among others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such agreements have not had a material effect on our results of operations, financial position or cash flows. Litigation We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 "Loss Contingencies" (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances. 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 accrued liabilities was not material to our consolidated financial position or results of 72 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 IRS Matter As we have previously disclosed, the United States Internal Revenue Service (IRS) has been examining certain of our tax returns for our fiscal year ended June 30, 2010 (Fiscal 2010) through our fiscal year ended June 30, 2012 (Fiscal 2012), and in connection with those examinations has been reviewing our internal reorganization in Fiscal 2010 and Fiscal 2012 to consolidate certain intellectual property ownership in Luxembourg and Canada and our integration of certain acquisitions into the resulting structure. We also previously disclosed that the examinations may lead to proposed adjustments to our taxes that may be material, individually or in the aggregate, and that we had not recorded any material accruals for any such potential adjustments in our Consolidated Financial Statements. We previously disclosed that, as part of these examinations, on July 17, 2015 we received from the IRS an initial Notice of Proposed Adjustment (NOPA) in draft form, for Fiscal 2010 (the 2010 NOPA), and on July 11, 2018, we also received, consistent with previously disclosed expectations, a draft NOPA for Fiscal 2012 (the 2012 NOPA). On January 7, 2019, we received from the IRS official notification of proposed adjustments to our taxable income for Fiscal 2010 and Fiscal 2012, together with the 2010 NOPA and 2012 NOPA in final form. As of December 31, 2020, our estimated potential aggregate liability, as originally proposed by the IRS under the 2010 NOPA and the 2012 NOPA, including additional state income taxes plus penalties and continually accruing interest that may be due, would have been approximately $830 million, comprised of approximately $430 million in U.S. federal and state taxes, approximately $130 million of penalties, and approximately $270 million of interest. As previously disclosed, we disagree with the IRS’ positions and have been vigorously contesting the proposed adjustments to our taxable income, along with the proposed penalties and interest. On December 21, 2020, we entered into a closing agreement with the IRS resolving all of the proposed adjustments to our taxable income for Fiscal 2010 and Fiscal 2012 (the IRS Settlement). The IRS Settlement resulted in charges of $300.5 million during the year ended June 30, 2021 to "Provision for (recovery of) income taxes". In connection with the IRS Settlement, during the year ended June 30, 2021, we made aggregate payments to the IRS of $288.6 million in U.S. federal taxes and interest and $11.0 million of certain associated state tax and interest payments. As of June 30, 2021, the outstanding settlement amount of approximately $0.9 million is recorded within "Income taxes payable" in our Consolidated Balance Sheets. Interest at the applicable statutory rates will continue to accrue until the time of payment. The IRS Settlement also eliminates approximately $90 million in future withholding taxes that we had expected to incur over the next 10 years. We believe the IRS Settlement to be in the best interest of all stakeholders, as it closes all past, present and future items related to this matter. The IRS Settlement provides finality to this longstanding matter. 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 2020. CRA Matter 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, Fiscal 2014, Fiscal 2015 and Fiscal 2016. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of June 30, 2021, in connection with the CRA's reassessments for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, to be limited to penalties, interest and provincial taxes that may be due of approximately $74 million. As of June 30, 2021, we have provisionally paid approximately $28 million in order to fully preserve our rights to object to the CRA's audit positions, being the minimum payment required under Canadian legislation while the matter is in dispute. This amount is recorded within "Long-term income taxes recoverable" on the Consolidated Balance Sheets as of June 30, 2021. The notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 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. 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. 73 We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 (including any penalties) are without merit. We have filed notices of objection for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016. 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, Fiscal 2015 and Fiscal 2016, 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. The CRA is also currently auditing Fiscal 2017 on a basis that we strongly disagree with and will vigorously contest. The focus of the CRA audit has been the valuation of certain intellectual property and goodwill when one of our subsidiaries continued into Canada from Luxembourg in July 2016. In accordance with applicable rules, these assets were recognized for tax purposes at fair market value as of that time, which value was supported by an expert valuation prepared by an independent leading accounting and advisory firm. In conjunction with the Fiscal 2017 audit, the CRA issued a proposal letter dated April 7, 2021 (Proposal Letter) indicating to us that it proposes to reassess our Fiscal 2017 tax year to reduce the depreciable basis of these assets. We are currently engaged in dialogue with the CRA regarding the 2017 audit and expect to be making extensive submissions in support of our position shortly. CRA’s currently-proposed position for Fiscal 2017 relies in significant part on the application of its positions regarding our transfer pricing methodology that are the basis for its reassessment of our fiscal years 2012 to 2016 described above, and that we believe are without merit. Other aspects of CRA’s currently-proposed position for Fiscal 2017 conflict with the expert valuation prepared by the independent leading accounting and advisory firm that was used to support our original filing position. If the CRA determines to issue a notice of reassessment in respect of Fiscal 2017 on the basis of its position set forth in the Proposal Letter and we are ultimately unsuccessful in defending our position, the estimated impact of the proposed adjustment could result in us recording an income tax expense, with no immediate cash payment, to reduce the stated value of our deferred tax assets of up to approximately $470 million. Any such income tax expense could also have a corresponding cash tax impact that would primarily occur over a period of several future years based upon annual income realization in Canada. We strongly disagree with the CRA’s position for Fiscal 2017 and intend to vigorously defend our original filing position. We will continue to vigorously contest the proposed adjustments to our taxable income and any penalty and interest assessments, as well as any proposed reduction to the basis of our depreciable property. We are confident that our original tax filing positions were appropriate. Accordingly, as of the date of this Annual Report on Form 10-K, we have not recorded any accruals in respect of these reassessments or proposed reassessment in our Consolidated Financial Statements. The CRA has also advised us that they are currently in preliminary stages of auditing Fiscal 2018 and Fiscal 2019. 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 a hearing on the motion to dismiss the Securities Actions was held on October 15, 2020. Following the hearing, on October 22, 2020, the court granted with prejudice the defendants’ motion to dismiss the Securities Actions. On November 20, 2020, the lead plaintiff filed a notice of appeal to the Court of Appeals for the First Circuit. The appeal has been fully briefed and oral arguments before the Court of Appeals for the First Circuit were held on July 29, 2021. The court’s decision on the appeal is expected in the coming months and the defendants remain confident in the District Court’s dismissal with prejudice of the Securities Actions. 74 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; that decision was appealed to the U.S. Court of Appeals for the Federal Circuit. By way of Order dated August 19, 2019, the U.S. District Court for the District of Massachusetts stayed the action against Carbonite pending the aforementioned appeal of the dismissal in the Delaware lawsuit. On October 23, 2020, the Appeals Court vacated and remanded the Delaware Court’s decision. Following the Appeals Court's decision, the Massachusetts District Court lifted the stay on the action against Carbonite. On January 21, 2021, the Court held a hearing to construe the claims of the asserted patents. As to the fourth patent asserted against Carbonite, the U.S. Patent & Trademark Office Patent Trial and Appeal Board on September 24, 2019 invalidated certain claims of that patent, including certain claims that had been asserted against Carbonite, and the parties jointly stipulated to dismiss the patent from the action. No trial date has been set in the action against Carbonite. We are vigorously defending the matter. 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.