What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-02 compared with 2022-11-03 · 423 added, 230 removed, 827 unchanged (44% of the section changed)

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(xxii) potential legal and/or regulatory proceedings;

(xxiii) acquisitions and their expected impact, including expectations regarding the financing of pending acquisitions, our ability to close on pending acquisitions and our ability to realize the benefits expected from the acquisitions and to successfully integrate the assets we acquire or utilize such assets to their full capacity, including in connection with the acquisition of Zix Corporation and the proposed Micro Focus Acquisition (see Note 19 “Acquisitions” to our Condensed Consolidated Financial Statements for more details);

(xxiii) acquisitions and their expected impact, including expectations regarding the financing of pending acquisitions, our ability to close on pending acquisitions and our ability to realize the benefits expected from the acquisitions and to successfully integrate the assets we acquire or utilize such assets to their full capacity, including in connection with the acquisition of Zix Corporation and Micro Focus International PLC (Micro Focus) (see Note 19 “Acquisitions” to our Condensed Consolidated Financial Statements for more details);

(xxiv) tax audits;

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(xxvii) targets regarding greenhouse gas emissions, waste diversion, energy consumption and Equity, Diversity and Inclusion (ED&I) initiatives;

and (xxviii) other matters.

(xviii) integration of Micro Focus and the results and timing thereof;

and (xxix) other matters.

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

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The risks and uncertainties that may affect forward-looking statements include, but are not limited to:

(i) those relating to the failure of the Micro Focus Acquisition to be consummated on these terms or at all for any reason;

(ii) those relating to the significant transaction costs incurred in connection with the Micro Focus Acquisition;

(iii) the inability to obtain required governmental and regulatory approvals for the Micro Focus Acquisition;

(iv) the inability of us to realize successfully any anticipated synergy benefits when the Micro Focus Acquisition is implemented;

(v) the actual and potential impacts of the use of cash and incurrence of indebtedness, including the granting of security interests related to such debt, in connection with financing of the Micro Focus Acquisition;

(vi) the actual and potential change in scope and size of our operations following the Micro Focus Acquisition;

(vii) the uncertainty around expectations related to Micro Focus’s business prospects;

(viii) 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 the resurgence of COVID-19 and/

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or new strains of COVID-19, including potential material adverse effects on our business, operations and financial performance;

(ix) actions that have been and 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 (including the effectiveness of boosters);

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

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

(xii) the possibility that we may be unable to successfully integrate the assets we acquire or fail to utilize such assets to their full capacity and not realize the benefits we expect from our acquired portfolios and businesses, including the acquisition of Zix Corporation, (xiii) the potential for the incurrence of or assumption of debt in connection with acquisitions, its impact on future operations and on the ratings or outlooks of rating agencies on our outstanding debt securities, and the possibility of not being able to generate sufficient cash to service all indebtedness;

(xiv) 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;

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

(xvi) fluctuations in currency exchange rates (including as a result of the impact of any policy changes resulting from trade and tariff disputes) and the impact of mark-to-market valuation relating to associated derivatives;

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

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

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

(xx) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, United States or international tax regimes;

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

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

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

(xxiv) increase in exposure to international business risks (including the impact of geopolitical instability, political unrest, war and other global conflicts, as we continue to increase our international operations;

(xxv) adverse macroeconomic conditions, including inflation, disruptions in global supply chains and increased labour costs;

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

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

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

(i) the inability of us to realize successfully any anticipated synergy benefits from the acquisition of Micro Focus (Micro Focus Acquisition);

(ii) the actual and potential impacts of the use of cash and incurrence of indebtedness, including the granting of security interests related to such debt, in connection with financing of the Micro Focus Acquisition;

(iii) the change in scope and size of our operations as a result of the Micro Focus Acquisition;

(iv) the uncertainty around expectations related to Micro Focus’s business prospects;

(v) 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 the resurgence of COVID-19 and/or new strains of COVID-19, including potential material adverse effects on our business, operations and financial performance;

(vi) actions that have been and 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 (including the effectiveness of boosters);

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

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

(ix) the possibility that we may be unable to successfully integrate the assets we acquire or fail to utilize such assets to their full capacity and not realize the benefits we expect from our acquired portfolios and businesses, including the acquisition of Zix Corporation and Micro Focus, (x) the potential for the incurrence of or assumption of debt in connection with acquisitions, its impact on future operations and on the ratings or outlooks of rating agencies on our outstanding debt securities, and the possibility of not being able to generate sufficient cash to service all indebtedness;

(xi) 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;

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

(xiii) fluctuations in currency exchange rates (including as a result of the impact of any policy changes resulting from trade and tariff disputes) and the impact of mark-to-market valuation relating to associated derivatives;

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

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

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

(xvii) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, United States or international tax regimes;

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

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

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

(xxi) increase in exposure to international business risks (including the impact of geopolitical instability, political unrest, war and other global conflicts, as we continue to increase our international operations;

(xxii) adverse macroeconomic conditions, including inflation, disruptions in global supply chains and increased labour costs;

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

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

and (xxv) 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:

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These factors include but are not limited to those set forth in Part II, Item 1A “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in the Company's 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

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future results.

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.

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

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the accompanying Notes to our Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q.

All dollar and percentage comparisons made herein refer to the three months ended September 30, 2022 compared with the three months ended September 30, 2021, unless otherwise noted.

All dollar and percentage comparisons made herein refer to the three and six months ended December 31, 2022 compared with the three and six months ended December 31, 2021, unless otherwise noted.

Where we say “we”, “us”, “our”, “OpenText” or “the Company”, we mean Open Text Corporation or Open Text Corporation and its subsidiaries, as applicable.

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Our ticker symbol on both the NASDAQ and the TSX is “OTEX”.

As of September 30, 2022, we employed a total of approximately 14,500 individuals, of which 6,900 or 48% are in the Americas, 2,720 or 19% are in EMEA and 4,880 or 34% are in Asia Pacific.

As of December 31, 2022, we employed a total of approximately 14,400 individuals, of which 6,850 or 48% are in the Americas, 2,650 or 18% are in EMEA and 4,900 or 34% are in Asia Pacific.

Currently, we have employees in 35 countries enabling strong access to multiple talent pools while ensuring reach and proximity to our customers.

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Quarterly Summary:

During the first quarter of Fiscal 2022 we saw the following activity:

During the second quarter of Fiscal 2023 we saw the following activity:

• Total revenue was $897.4 million, up 2.4% compared to the same period in the prior fiscal year;

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• GAAP-based gross margin was 70.8% compared to 70.2% in the same period in the prior fiscal year.

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• Non-GAAP-based gross margin was 76.0% compared to 76.4% in the same period in the prior fiscal year.

• GAAP-based net income (loss) attributable to OpenText was $(116.9) million compared to $131.9 million in the same period in the prior fiscal year, primarily due to $181.5 million unrealized losses on derivatives not designated as hedges.

• GAAP-based net income attributable to OpenText was $258.5 million compared to $88.3 million in the same period in the prior fiscal year, primarily due to $171.6 million unrealized gains on derivatives not designated as hedges.

• Non-GAAP-based net income attributable to OpenText was $240.2 million compared to $242.1 million in the same period in the prior fiscal year.

• GAAP-based earnings (loss) per share (EPS), diluted, was $(0.43) compared to $0.48 in the same period in the prior fiscal year.

• Non-GAAP-based EPS, diluted, was $0.77 compared to $0.83 in the same period in the prior fiscal year.

• GAAP-based earnings per share (EPS), diluted, was $0.96 compared to $0.32 in the same period in the prior fiscal year.

• Non-GAAP-based EPS, diluted, remained flat at $0.89 compared to the same period in the prior fiscal year.

• Adjusted EBITDA was $340.9 million compared to $343.5 million in the same period in the prior fiscal year.

• Operating cash flow was $132.0 million compared to $189.7 million in the same period in the prior fiscal year, down 30.4%.

• Cash and cash equivalents were $1,704.4 million as of September 30, 2022, compared to $1,693.7 million as of June 30, 2022.

• Operating cash flow was $327.1 million for the six months ended December 31, 2022 compared to $406.3 million in the same period in the prior fiscal year, down 19.5%.

• Cash and cash equivalents were $2,820.9 million as of December 31, 2022, compared to $1,693.7 million as of June 30, 2022.

• Issued $1 billion in aggregate principal amount of Senior Secured Notes 2027 and successfully fully syndicated the Acquisition Term Loan in the amount of $3.585 billion.

• Enterprise cloud bookings were $144.7 million, an increase of approximately 12% over the same period in the prior fiscal year.

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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.

Proposed Acquisition of Micro Focus

On August 25, 2022, we announced an agreement on the terms of an all-cash offer (through our wholly-owned subsidiary), to acquire the entire issued and to be issued share capital of Micro Focus, at a price of 532 pence per share, for a total purchase price of approximately $6.0 billion, inclusive of Micro Focus’ cash and debt.

The all-cash consideration for the Micro Focus Acquisition is expected to be funded by new debt, cash on hand and a draw on our Revolver.

Concurrent with the announcement of the Micro Focus Acquisition, the Company entered into the Acquisition Term Loan and Bridge Loan (see Note 11 “Long-Term Debt”) as well as certain derivative transactions (see Note 17 “Derivative Instruments and Hedging Activities”).

These derivative transactions were marked-to-market during the three months ended September 30, 2022, with the resulting unrealized gains (losses) on these derivatives recognized in Other Income (Expense) within our Condensed Consolidated Statements of Income.

On October 18, 2022 the shareholders of Micro Focus approved the all-cash offer.

The Micro Focus Acquisition is expected to close in the first quarter of calendar 2023, subject to the satisfaction (or, where applicable, waiver) of certain conditions.

Micro Focus’s leadership positions in key complementary markets will expand OpenText’s strategic presence in high value segments.

See Note 1 “Basis of Presentation” to our Condensed Consolidated Financial Statements for more details, and see Part II, Item 1A, “Risk Factors” included within this Quarterly Report on Form 10-Q.

Acquisition of Micro Focus

On August 25, 2022, we announced an agreement on the terms of an all-cash offer (through our wholly-owned subsidiary), to acquire the entire issued and to be issued share capital of Micro Focus International PLC (Micro Focus), for a total purchase price of approximately $5.8 billion, inclusive of Micro Focus’ cash and debt, subject to final adjustments.

Concurrent with the announcement of the acquisition of Micro Focus (Micro Focus Acquisition), the Company entered into the Acquisition Term Loan and Bridge Loan (see Note 11 “Long-Term Debt”) as well as certain derivative transactions (see Note 17 “Derivative Instruments and Hedging Activities”).

These derivative transactions were marked-to-market during the three and six months ended December 31, 2022, with the resulting unrealized gains (losses) on these derivatives recognized in Other Income (Expense) within our Condensed Consolidated Statements of Income.

On December 1, 2022, the Company issued and sold $1 billion in aggregate principal amount of 6.90% Senior Secured Notes due 2027 and amended the Acquisition Term Loan to increase commitments to an aggregate principal amount of $3.585 billion.

In connection with the issuance of the Senior Secured Notes 2027 and increase in the Acquisition Term Loan, all remaining commitments under the Bridge Loan were reduced to zero and the Bridge Loan was terminated.

On January 31, 2023, we completed the Micro Focus Acquisition and repaid Micro Focus’ outstanding indebtedness.

In connection with the financing of the Micro Focus Acquisition, we drew down the entire amount of the Acquisition Term Loan, less original issuance discount and other fees, and drew down $450.0 million under the Revolver.

We used proceeds from the issuance of the Senior Secured Notes 2027 and cash on hand to fund the remaining purchase price consideration.

The deal-contingent forward contracts and non-contingent forward contract, as described in Note 17 “Derivative Instruments and Hedging Activities,” entered into to hedge certain foreign currency obligations in relation to the Micro Focus Acquisition, are expected to be settled on February 9, 2023.

Acquisition of Zix Corporation

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See Note 19 “Acquisitions” to our Condensed Consolidated Financial Statements for more details.

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Impacts of COVID-19

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

On a fiscal year-to-date basis, we have invested $110.2 million or 12.9% of revenue in R&D expense, in line with our target to spend 12% to 14% of revenues for R&D expense this fiscal year.

On a fiscal year-to-date basis, we have invested $219.9 million or 12.6% of revenue in R&D expense, which is in line with our target spend for R&D expense this fiscal year.

As a result of the Micro Focus Acquisition, we will target to spend 13% to 15% of revenues for R&D expense for the remainder of this fiscal year.

Looking ahead, the destination for innovation is hybrid-cloud.

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As a result, we are committed to continue to modernize our technology infrastructure and leverage our existing investments in the OpenText Cloud and programs to help customers off-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 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 anticipate that we will complete the Micro Focus Acquisition in the first quarter of calendar year 2023, subject to the satisfaction (or, where applicable, waiver) of certain conditions.

On January 31, 2023, we completed the Micro Focus Acquisition.

The Micro Focus Acquisition will substantially expand our scope and size by adding substantial assets and operations to our existing business.

We have incurred and will continue to incur, transaction costs in connection with the Micro Focus Acquisition, including payment of certain fees and expenses to obtain financing for the Micro Focus Acquisition.

Concurrent with the announcement of the Micro Focus Acquisition, the Company entered into the Acquisition Term Loan and Bridge Loan (see Note 11 “Long-Term Debt”) as well as certain derivative

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transactions (see Note 17 “Derivative Instruments and Hedging Activities”).

We intend to reduce the commitments or borrowings under the Bridge Loan by accessing the debt capital markets directly or through certain affiliates prior to or following the closing of the Micro Focus Acquisition, but no assurance can be given that the Company will be able to do so.

Derivative transactions that were entered into were marked-to-market during the three months ended September 30, 2022, with the resulting unrealized gains (losses) on these derivatives recognized in Other Income (Expense) within our Condensed Consolidated Statements of Income (see Note 22 “Other Income (Expense), Net”).

We anticipate mark-to-market valuation adjustments to continue, based on market fluctuations, and will be recognized in Other Income (Expense) up to the completion of the Micro Focus Acquisition.

For the tax impact of the mark-to-market valuation adjustment (see Note 15 “Income Taxes”).

We anticipate we will also incur additional integration costs following the close of the Micro Focus Acquisition.

We have incurred significant transaction costs in connection with the Micro Focus Acquisition.

We have incurred and will continue to incur additional integration costs following the close of the Micro Focus Acquisition.

On January 31, 2023, the Company announced a restructuring plan that will impact its global workforce following the Micro Focus Acquisition in an effort to further streamline our operations, consistent with previously announced cost synergies of $400 million (Fiscal 2023 Restructuring Plan).

The total size of the plan is expected to result in a reduction in the combined workforce of approximately 8% or 2,000 employees with an estimated cost of $70 to $80 million.

The Fiscal 2023 Restructuring Plan is proposed to be completed by the end of Fiscal 2023.

See also Part II, Item 1A, “Risk Factors” included within this Quarterly Report on Form 10-Q.

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See “Use of Non-GAAP Financial Measures” below for a reconciliation of GAAP-based measures to Non-GAAP-based measures.

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Summary of Results of Operations

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

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Asia Pacific (4)

8.8 % 8.4 % 8.3 % 8.4 %

Other Metrics:

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(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.

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Revenues, Cost of Revenues and Gross Margin by Product Type

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

For the quarter ended September 30, 2022, our cloud renewal rate, excluding the impact of Carbonite Inc.

(Carbonite) and Zix, increased to 94% from 93% over the quarter ended September 30, 2021.

For the quarter ended December 31, 2022, our cloud renewal rate, excluding the impact of Carbonite Inc.

(Carbonite) and Zix, increased to 94% from 93% over the quarter ended December 31, 2021.

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.

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

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Asia Pacific 6.0 % 7.3 % 6.1 % 7.3 %

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Cloud services and subscriptions revenues increased by $48.1 million or 13.5% during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year;

Three Months Ended December 31, 2022 Compared to Three Months Ended December 31, 2021

Cloud services and subscriptions revenues increased by $43.8 million or 12.0% during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year;

up 16.0% after factoring in the unfavorable impact of $14.5 million of foreign exchange rate changes.

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Geographically, the overall change was attributable to an increase in Americas of $43.1 million and an increase in EMEA of $2.9 million, partially offset by a decrease in Asia Pacific of $2.3 million.

There were 18 cloud services contracts greater than $1.0 million that closed during the first quarter of Fiscal 2023, compared to 16 contracts during the first quarter of Fiscal 2022.

Cost of Cloud services and subscriptions revenues increased by $12.0 million during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in third-party network usage fees of $8.1 million.

Overall, the gross margin percentage on Cloud services and subscriptions revenues increased to 67% from 66%.

There were 23 cloud services contracts greater than $1.0 million that closed during the second quarter of Fiscal 2023, compared to 27 contracts during the second quarter of Fiscal 2022.

Cost of Cloud services and subscriptions revenues increased by $12.2 million during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year.

This was due to an increase in third-party network usage fees of $7.9 million and an increase in labour-related costs of $3.9 million primarily driven by incremental Cloud services and subscriptions cost of revenues from acquisitions over the comparative period.

Overall, the gross margin percentage on Cloud services and subscriptions revenues remained stable at 67%.

Six Months Ended December 31, 2022 Compared to Six Months Ended December 31, 2021

Cloud services and subscriptions revenues increased by $91.9 million or 12.7% during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year;

up 16.4% after factoring in the unfavorable impact of $26.6 million of foreign exchange rate changes.

The increase was primarily driven by incremental Cloud services and subscriptions revenues from acquisitions over the comparative period.

Geographically, the overall change was attributable to an increase in Americas of $83.4 million, an increase in EMEA of $11.7 million and a decrease in Asia Pacific of $3.3 million.

There were 41 cloud services contracts greater than $1.0 million that closed during the first six months of Fiscal 2023, compared to 43 contracts during the first six months of Fiscal 2022.

Cost of Cloud services and subscriptions revenues increased by $24.2 million during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year.

This was due to an increase in third-party network usage fees of $15.9 million, an increase in labour-related costs of $7.0 million and an increase in other miscellaneous costs of $1.2 million primarily driven by incremental Cloud services and subscriptions cost of revenues from acquisitions over the comparative period.

Overall, the gross margin percentage on Cloud services and subscriptions revenues remained stable at 67%.

2) Customer Support:

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

For the quarter ended September 30, 2022, our Customer support renewal rate increased to 95%, compared to 94% for the quarter ended September 30, 2021.

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For the quarter ended December 31, 2022, our Customer support renewal rate increased to 95% compared to 94% for the quarter ended December 31, 2021.

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

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

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Asia Pacific 8.1 % 8.4 % 8.2 % 8.6 %

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Customer support revenues decreased by $17.9 million or 5.3% during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year;

Three Months Ended December 31, 2022 Compared to Three Months Ended December 31, 2021

Customer support revenues decreased by $18.4 million or 5.5% during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year;

up 0.9% after factoring in the unfavorable impact of $21.2 million of foreign exchange rate changes.

Geographically, the overall change was attributable to a decrease in EMEA of $13.9 million, a decrease in Americas of $1.0 million and a decrease in Asia Pacific of $3.0 million.

Cost of Customer support revenues decreased by $2.1 million during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year.

Geographically, the overall change was attributable to a decrease in EMEA of $16.3 million, an increase in Americas of $0.5 million and a decrease in Asia Pacific of $2.5 million.

Cost of Customer support revenues decreased by $1.1 million during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year.

This was primarily due to a decrease in labour-related costs of $1.0 million.

Overall, the gross margin percentage on Customer support revenues remained stable at 91%.

Six Months Ended December 31, 2022 Compared to Six Months Ended December 31, 2021

Customer support revenues decreased by $36.3 million or 5.4% during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year;

up 0.7% after factoring in the unfavorable impact of $40.7 million of foreign exchange rate changes.

Geographically, the overall change was attributable to a decrease in EMEA of $30.3 million, a decrease in Asia Pacific of $5.5 million, and a decrease in Americas of $0.5 million.

Cost of Customer support revenues decreased by $3.2 million during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year.

This was primarily due to a decrease in labour-related costs of $3.3 million.

Overall, the gross margin percentage on Customer support revenues remained stable at 91%.

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

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Cost of License revenues consists primarily of royalties payable to third parties.

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

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Asia Pacific 18.5 % 10.1 % 15.7 % 9.2 %

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

License revenues decreased by $11.0 million or 14.9% during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year;

Three Months Ended December 31, 2022 Compared to Three Months Ended December 31, 2021

License revenues decreased by $1.5 million or 1.4% during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year;

up 4.8% after factoring in the unfavorable impact of $6.8 million of foreign exchange rate changes.

Geographically, the overall change was attributable to a decrease in EMEA of $13.5 million, partially offset by an increase in Americas of $3.1 million and an increase in Asia Pacific of $8.9 million.

During the second quarter of Fiscal 2023, we closed 38 license contracts greater than $0.5 million, of which 15 contracts were greater than $1.0 million, contributing $43.0 million of License revenues.

This was compared to 32 license contracts greater than $0.5 million during the second quarter of Fiscal 2022, of which 15 contracts were greater than $1.0 million, contributing $41.4 million of License revenues.

Cost of License revenues increased by $0.1 million during the three months ended December 31, 2022 as compared to the same period in 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%.

Six Months Ended December 31, 2022 Compared to Six Months Ended December 31, 2021

License revenues decreased by $12.5 million or 6.8% during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year;

down 1.0% after factoring in the unfavorable impact of $10.7 million of foreign exchange rate changes.

Geographically, the overall change was attributable to a decrease in Americas of $2.1 million and a decrease in EMEA of $20.3 million, partially offset by an increase in Asia Pacific of $9.8 million.

During the first quarter of Fiscal 2023, we closed 22 license contracts greater than $0.5 million, of which 9 contracts were greater than $1.0 million, contributing $22.6 million of License revenues.

This was compared to 17 license contracts greater

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than $0.5 million during the first quarter of Fiscal 2022, of which 9 contracts were greater than $1.0 million, contributing $20.9 million of License revenues.

Cost of License revenues decreased by $1.2 million during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year as a result of lower third-party technology costs.

Overall, the gross margin percentage on License revenues increased to 96% from 95%.

During the first six months of Fiscal 2023, we closed 60 license contracts greater than $0.5 million, of which 24 contracts were greater than $1.0 million, contributing $65.6 million of License revenues.

This was compared to 49 license contracts greater than $0.5 million during the first six months of Fiscal 2022, of which 24 contracts were greater than $1.0 million, contributing $62.3 million of License revenues.

Cost of License revenues decreased by $1.1 million during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year as a result of lower third-party technology costs.

Overall, the gross margin percentage on License revenues remained stable at 96%.

4) Professional Service and Other:

5 unchanged sentences

The most significant components of these costs are personnel-related expenses, travel costs and third-party subcontracting.

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

11 unchanged sentences

Asia Pacific 12.7 % 12.0 % 12.5 % 11.5 %

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Professional service and other revenues increased by $0.5 million or 0.8% during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year;

Three Months Ended December 31, 2022 Compared to Three Months Ended December 31, 2021

Professional service and other revenues decreased by $3.2 million or 4.8% during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year;

up 2.5% after factoring in the unfavorable impact of $4.9 million of foreign exchange rate changes.

Geographically, the overall change was attributable to an increase in Americas of $4.0 million and an increase in Asia Pacific of $0.9 million, offset by a decrease in EMEA of $4.4 million.

Cost of Professional service and other revenues increased by $2.1 million during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in labour-related costs of $1.3 million.

Geographically, the overall change was attributable to an increase in Americas of $1.6 million and increase in Asia Pacific of $0.2 million, offset by a decrease in EMEA of $5.0 million.

Cost of Professional service and other revenues increased by $1.0 million during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in labour-related costs of $0.4 million and an increase in other miscellaneous costs of $0.7 million.

Overall, the gross margin percentage on Professional service and other revenues decreased to 16% from 22%.

Six Months Ended December 31, 2022 Compared to Six Months Ended December 31, 2021

Professional service and other revenues decreased by $2.7 million or 2.0% during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year;

up 4.8% after factoring in the unfavorable impact of $9.2 million of foreign exchange rate changes.

Geographically, the overall change was attributable to a decrease in EMEA of $9.3 million and offset by an increase in Americas of $5.6 million and an increase in Asia Pacific of $1.0 million.

Cost of Professional service and other revenues increased by $3.1 million during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in labour-related costs of $1.7 million and an increase in other miscellaneous costs of $1.4 million.

Overall, the gross margin percentage on Professional service and other revenues decreased to 18% from 22%.

Amortization of Acquired Technology-based Intangible Assets

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

Amortization of acquired technology-based intangible assets $ 40,863 $ (11,739) $ 52,602 $ 83,500 $ (22,269) $ 105,769

Amortization of acquired technology-based intangible assets decreased during the three months ended September 30, 2022 by $10.5 million as compared to the same period in the prior fiscal year.

Amortization of acquired technology-based intangible assets decreased during the three months ended December 31, 2022 by $11.7 million as compared to the same period in the prior fiscal year.

This was primarily due to certain intangible assets from previous acquisitions becoming fully amortized.

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Amortization of acquired technology-based intangible assets decreased during the six months ended December 31, 2022 by $22.3 million as compared to the same period in the prior fiscal year.

This was primarily due to certain intangible assets from previous acquisitions becoming fully amortized.

Operating Expenses

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

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Change between Three Months Ended

September 30, 2022 and 2021

December 31, 2022 and 2021

Change between Six Months Ended December 31, 2022 and 2021

(In thousands)

increase (decrease)

increase (decrease) increase (decrease)

Payroll and payroll-related benefits $ (1,124) $ 1,574

5 unchanged sentences

Total change in research and development expenses $ 6,078 $ 16,111

Research and development expenses increased by $10.0 million during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year, primarily as a result of recent acquisitions.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $2.7 million, share-based compensation expense increased by $3.9 million and facility-related expenses increased by $1.6 million.

Research and development expenses increased by $6.1 million during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year, primarily as a result of recent acquisitions.

Share-based compensation expense increased by $5.2 million, contract labour and consulting increased by $1.2 million and facility-related expenses increased by $0.6 million, these increases were partially offset by decreased payroll and payroll-related benefits of $1.1 million,

which is comprised of salaries, benefits and variable short-term incentives.

Overall, our research and development expenses, as a percentage of total revenues, remained stable compared to the same period in the prior fiscal year at 12%.

Research and development expenses increased by $16.1 million during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year, partially as a result of recent acquisitions.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $1.6 million, share-based compensation expense increased by $9.1 million, contract labour and consulting increased by $2.1 million and facility-related expenses increased by $2.2 million.

Overall, our research and development expenses, as a percentage of total revenues, increased to 13% compared to the same period in the prior fiscal year at 12%.

Our research and development labour resources increased by 111 employees, from 4,182 employees at September 30, 2021 to 4,293 employees at September 30, 2022.

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Our research and development labour resources decreased by 89 employees, from 4,364 employees at December 31, 2021 to 4,275 employees at December 31, 2022.

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

Change between Three Months Ended

September 30, 2022 and 2021

(In thousands) increase (decrease)

December 31, 2022 and 2021 Change between Six Months Ended December 31, 2022 and 2021

(In thousands) increase (decrease) increase (decrease)

Payroll and payroll-related benefits $ (793) $ 4,432

8 unchanged sentences

Total change in sales and marketing expenses $ 13,233 $ 34,163

Sales and marketing expenses increased by $20.9 million during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year, partially as a result of recent acquisitions.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $5.2 million, commissions increased by $4.4 million, marketing expenses increased by $2.6 million, share-based compensation expense increased by $2.2 million, other miscellaneous costs increased by $1.9 million, credit loss expense increased by $1.8 million and travel and communication expenses increased by $1.7 million.

Sales and marketing expenses increased by $13.2 million during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year, partially as a result of recent acquisitions.

Marketing expenses increased by $4.9 million, share-based compensation expense increased by $4.4 million, travel and communication expenses increased by $2.1 million, credit loss expense increased by $1.4 million, facility-related expenses increased by $0.8 million and other miscellaneous costs increased by $0.3 million.

These increases were partially offset by decreases in payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, by $0.8 million and commissions by $0.3 million.

Overall, our sales and marketing expenses, as a percentage of total revenues, increased to 20% compared to the same period in the prior fiscal year at 19%.

Our sales and marketing labour resources increased by 100 employees, from 2,556 employees at September 30, 2021 to 2,656 employees at September 30, 2022.

Sales and marketing expenses increased by $34.2 million during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year, partially as a result of recent acquisitions.

Marketing expenses increased by $7.5 million, share-based compensation expense increased by $6.7 million, payroll and payroll-related benefits increased by $4.4 million, commissions increased by $4.2 million, travel and communication expenses increased by $3.8 million, credit loss expense increased by $3.1 million, other miscellaneous costs increased by $2.2 million, and facility-related expenses increased by $1.8 million.

Overall, our sales and marketing expenses, as a percentage of total revenues, increased to 20% from 18% in the same period in the prior fiscal year.

Our sales and marketing labour resources decreased by 64 employees, from 2,717 employees at December 31, 2021 to 2,653 employees at December 31, 2022.

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 Three Months Ended

September 30, 2022 and 2021

(In thousands) increase (decrease)

December 31, 2022 and 2021 Change between Six Months Ended December 31, 2022 and 2021

(In thousands) increase (decrease) increase (decrease)

Payroll and payroll-related benefits $ (2,112) $ (64)

5 unchanged sentences

Total change in general and administrative expenses $ 6,090 $ 12,687

General and administrative expenses increased by $6.6 million during the three months ended September 30, 2022 as compared to the same period in the prior fiscal year, partially as a result of recent acquisitions.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $2.0 million.

Additionally, share-based compensation expense increased by $1.3 million, other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses increased by $1.3 million, travel and communication expenses increased by $1.0 million and facility-related expenses increased by $0.8 million.

Overall, general and administrative expenses, as a percentage of total revenues, remained stable at 9%.

Our general and administrative labour resources decreased by 48 employees, from 1,912 employees at September 30, 2021 to 1,864 employees at September 30, 2022.

Table of C ontents

General and administrative expenses increased by $6.1 million during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year, partially as a result of recent acquisitions.

Other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses, increased by $8.1 million and share-based compensation expense increased by $1.5 million.

These increases were partially offset by reductions in payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, which decreased by $2.1 million and contract labour and consulting decreased by $1.0 million.

Overall, general and administrative expenses, as a percentage of total revenues, increased to 9% from 8% in the same period in the prior fiscal year.

General and administrative expenses increased by $12.7 million during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year, partially as a result of recent acquisitions.

Other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses, increased by $9.4 million and share-based compensation expense increased by $2.8 million.

These increases were partially offset by reductions in contract labour and consulting expenses which decreased by $0.9 million and payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives which decreased by $0.1 million.

Overall, general and administrative expenses, as a percentage of total revenues, increased to 9% from 8% in the same period in the prior fiscal year.

Our general and administrative labour resources decreased by 126 employees, from 1,992 employees at December 31, 2021 to 1,866 employees at December 31, 2022.

Depreciation expenses:

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

Depreciation $ 22,858 $ 1,079 $ 21,779 $ 46,032 $ 2,867 $ 43,165

Depreciation expenses increased during the three months ended September 30, 2022 by $1.8 million compared to the same periods in the prior fiscal year.

Depreciation expenses as a percentage of total revenue remained stable for the three months ended September 30, 2022 at 3% compared to the same periods in the prior fiscal year.

Depreciation expenses increased during the three and six months ended December 31, 2022 by $1.1 million and $2.9 million, respectively, compared to the same periods in the prior fiscal year.

Depreciation expenses, as a percentage of total revenue remained stable for the three and six months ended December 31, 2022 at 3%, respectively, compared to the same periods in the prior fiscal year.

Amortization of acquired customer-based intangible assets:

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

Amortization of acquired customer-based intangible assets $ 53,446 $ 781 $ 52,665 $ 107,884 $ 3,335 $ 104,549

Amortization of acquired customer-based intangible assets increased during the three months ended September 30, 2022 by $2.6 million as compared to the same period in the prior fiscal year.

Amortization of acquired customer-based intangible assets increased during the three months ended December 31, 2022 by $0.8 million as compared to the same period in the prior fiscal year.

This was primarily related to amortization of newly acquired customer-based intangible assets from recent acquisitions over the prior fiscal year.

Amortization of acquired customer-based intangible assets increased during the six months ended December 31, 2022 by $3.3 million as compared to the same period in the prior fiscal year.

This was primarily related to amortization of newly acquired customer-based intangible assets from recent acquisitions over the prior fiscal year.

Special charges (recoveries):

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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).

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

Special charges (recoveries) $ 10,306 $ 1,089 $ 9,217 $ 24,587 $ 15,026 $ 9,561

Special charges (recoveries) increased by $13.9 million during the three months ended September 30, 2022 over the comparative period.

Restructuring activities increased by $6.1 million during the three months ended September 30, 2022 primarily related to the Fiscal 2022 Restructuring Plan.

Special charges (recoveries) increased by $1.1 million during the three months ended December 31, 2022 over the comparative period.

Restructuring activities increased by $2.0 million during the three months ended December 31, 2022 primarily related to the Fiscal 2022 Restructuring Plan.

Additionally, acquisition related costs increased by $2.1 million, primarily due to the Micro Focus Acquisition, and other miscellaneous charges decreased by $2.8 million, primarily driven by lower pre-acquisition equity incentives of Zix, which upon acquisition were replaced by equivalent value cash settlements (see Note 19 “Acquisitions” to our Condensed Consolidated Financial Statements) compared to the same period in the prior fiscal year.

Special charges (recoveries) increased by $15.0 million during the six months ended December 31, 2022 as compared to the same period in the prior fiscal year.

Restructuring activities increased by $8.1 million during the six months ended December 31, 2022 primarily related to the Fiscal 2022 Restructuring Plan.

Additionally, acquisition related costs increased by $5.9 million, primarily due to the Micro Focus Acquisition, and other miscellaneous charges increased by $1.1 million, primarily driven by pre-acquisition equity incentives of Zix, which upon acquisition were replaced by equivalent value cash settlements (see Note 19 “Acquisitions” to our Condensed Consolidated Financial Statements) compared to the same period in the prior fiscal year.

2 unchanged sentences

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

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

Foreign exchange gains (losses) $ 60 $ (132) $ 192 $ (1,301) $ (1,844) $ 543

$ (1,361) $ (1,712) $ 351

Unrealized losses on derivatives not designated as hedges (1)

Unrealized gains (losses) on derivatives

not designated as hedges (1)

171,607 171,607 — (9,854) (9,854) —

1 unchanged sentence

(289) (2,331) 2,042 (6,823) (38,180) 31,357

Loss on debt extinguishment (3) (4)

(8,131) 19,282 (27,413) (8,131) 19,282 (27,413)

Other miscellaneous income (expense) 102 (40) 142 227 (31) 258

1 unchanged sentence

__________________________

(1) Represents the unrealized losses on our derivatives not designated as hedges related to the proposed Micro Focus Acquisition (see Note 17 “Derivative Instruments and Hedging Activities” for more details).

(2) Represents our share in net income (loss) of equity investees, which approximates fair value and subject to volatility based on market trends and business conditions, based on 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” to our Condensed Consolidated Financial Statements for more details).

Table of C ontents

(1) Represents the unrealized gains (losses) on our derivatives not designated as hedges related to the financing of Micro Focus Acquisition (see Note 17 “Derivative Instruments and Hedging Activities” for more details).

(2) Represents our share in net income (losses) of equity investees, which approximates fair value and subject to volatility based on market trends and business conditions, based on 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).

(3) On December 1, 2022, we amended the Acquisition Term Loan and Bridge Loan to reallocate commitments under the Bridge Loan to the Acquisition Term Loan and terminated all remaining commitments under the Bridge Loan which resulted in a loss on debt extinguishment of $8.1 million related to unamortized debt issuance costs (see Note 11 “Long-Term Debt” for more details).

(4) On December 9, 2021, we redeemed Senior Notes 2026 in full, which resulted in a loss on debt extinguishment of $27.4 million.

Of this, $25.0 million related to the early termination call premium, $6.2 million related to unamortized debt issuance costs and $(3.8) million related to unamortized premium (see Note 11 “Long-Term Debt” for more details).

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.

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

8 unchanged sentences

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

Three Months Ended September 30,

Three Months Ended December 31, Year Ended June 30,

(In thousands) 2022 Change

increase (decrease) 2021 2022 Change

increase (decrease) 2021

Provision for income taxes $ 50,774 $ 11,508 $ 39,266 $ 84,399 $ 1,683 $ 82,716

The Company’s effective tax rate for the three months ended September 30, 2022 was (40.4)%, compared to a provision of 24.8% for the three months ended September 30, 2021.

The Company’s effective tax rate for the three months ended September 30, 2022 differs from the Canadian statutory rate of 26.5% primarily due to the pre-tax loss created by the mark-to-market valuation on the derivatives not designated as hedges that the Company entered into in connection with the proposed Micro Focus Acquisition, and the inability to recognize a majority of the mark-to-market losses for tax purposes (see Note 17 “Derivative Instruments and Hedging Activities”).

The mark-to-market losses are considered capital losses for tax purposes and require capital income to be recognized.

Therefore we recorded a valuation allowance on the portion of the losses that are not supportable by capital gains.

Other items impacting the rate include provision to return adjustments, a net increase in uncertain tax positions, and permanent items such as disallowed stock-based compensation and foreign passive income inclusion, partially offset by research and development credits.

The Company’s effective tax rate for the three months ended September 30, 2021 differs from the Canadian statutory rate primarily due to research and development credits, partially offset by the US Base Erosion and Anti-Abuse Tax (US BEAT).

The effective tax rate for the three months ended December 31, 2022 was 16.4% compared to a provision of 30.8% for the three months ended December 31, 2021.

The Company’s tax rate for the three months ended December 31, 2022, differs from the Canadian statutory rate of 26.5% primarily due to the pre-tax gain created by the mark-to-market valuation on the derivatives not designated as hedges that the Company entered into in connection with the financing of the Micro Focus Acquisition (see Note 17 “Derivative Instruments and Hedging Activities”).

The mark-to-market gains in the quarter are considered capital income for tax purposes and enabled us to recognize the capital losses in the prior quarter that were previously unrecognized.

Abuse Tax (BEAT).

The Company’s effective tax rate for the three months ended December 31, 2021, differs from the Canadian statutory rate primarily due to US BEAT, partially offset by research and development credits.

The effective tax rate for the six months ended December 31, 2022 was 37.3% compared to a provision of 27.3% for the six months ended December 31, 2021.

The Company’s tax rate for the six months ended December 31, 2022 differs from the Canadian statutory rate of 26.5% primarily due to a net increase in uncertain tax positions and permanent items such as disallowed stock-based compensation and foreign passive income inclusion, partially offset by research and development credits.

The Company’s effective tax rate for the six months ended December 31, 2021, differs from the Canadian statutory rate primarily due to US BEAT, partially offset by research and development credits.

Additionally, the provision from the Tax Cuts and Jobs Act of 2017 that requires capitalization and amortization of research and development costs is effective starting Fiscal 2023.

6 unchanged sentences

Please also see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2022.

Table of C ontents

Use of Non-GAAP Financial Measures

30 unchanged sentences

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

Table of C ontents

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

for the three months ended September 30, 2022

for the three months ended December 31, 2022

(In thousands, except for per share data)

Three Months Ended September 30, 2022

Three Months Ended December 31, 2022

GAAP-based Measures GAAP-based Measures

16 unchanged sentences

Provision for income taxes 50,774 (11,660) (7) 39,114

GAAP-based net income (loss) / Non-GAAP-based net income, attributable to OpenText (116,929) 323,745 (8) 206,816

GAAP-based earnings (loss) per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ (0.43) $ 1.20 (8) $ 0.77

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 258,486 (18,252) (8) 240,234

GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 0.96 $ (0.07) (8) $ 0.89

_________________________________

17 unchanged sentences

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.

Table of C ontents

(8) Reconciliation of GAAP-based net income (loss) to Non-GAAP-based net income:

Three Months Ended September 30, 2022

Three Months Ended December 31, 2022

Per share diluted

GAAP-based net income (loss), attributable to OpenText $ (116,929) $ (0.43)

GAAP-based net income, attributable to OpenText $ 258,486 $ 0.96

Amortization 94,309 0.35

6 unchanged sentences

Reconciliation of Adjusted EBITDA

Three Months Ended September 30, 2022

GAAP-based net income (loss), attributable to OpenText $ (116,929)

Three Months Ended December 31, 2022

GAAP-based net income, attributable to OpenText $ 258,486

Provision for income taxes 50,774

7 unchanged sentences

Adjusted EBITDA $ 340,921

Table of C ontents

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

for the three months ended September 30, 2021

for the three months ended December 31, 2021

(In thousands, except for per share data)

Three Months Ended September 30, 2021

Three Months Ended December 31, 2021

GAAP-based Measures GAAP-based Measures

35 unchanged sentences

Table of C ontents

(8) Reconciliation of GAAP-based net income to Non-GAAP-based net income:

Three Months Ended September 30, 2021

Three Months Ended December 31, 2021

Per share diluted

8 unchanged sentences

Reconciliation of Adjusted EBITDA

Three Months Ended September 30, 2021

Three Months Ended December 31, 2021

GAAP-based net income, attributable to OpenText $ 88,298

8 unchanged sentences

Adjusted EBITDA $ 343,518

Table of C ontents

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

for the six months ended December 31, 2022

(In thousands, except for per share data)

Six Months Ended December 31, 2022

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 $ 266,113 $ (4,845) (1) $ 261,268

Customer support 55,943 (1,257) (1) 54,686

Professional service and other 107,864 (3,288) (1) 104,576

Amortization of acquired technology-based intangible assets 83,500 (83,500) (2) —

GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 1,229,435 70.3% 92,890 (3) 1,322,325 75.6%

Operating expenses

Research and development 219,898 (14,680) (1) 205,218

Sales and marketing 344,341 (16,296) (1) 328,045

General and administrative 155,677 (11,664) (1) 144,013

Amortization of acquired customer-based intangible assets 107,884 (107,884) (2) —

Special charges (recoveries) 24,587 (24,587) (4) —

GAAP-based income from operations / Non-GAAP-based income from operations 331,016 268,001 (5) 599,017

Other income (expense), net (25,882) 25,882 (6) —

Provision for income taxes 84,399 (11,610) (7) 72,789

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 141,557 305,493 (8) 447,050

GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 0.52 $ 1.14 (8) $ 1.66

_________________________________

(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 Condensed 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.

Other income (expense) also includes unrealized gains (losses) on our derivatives which are not designated as hedges, that are related to the financing of the Micro Focus Acquisition.

We exclude gains and losses on these derivatives as we do not believe they are reflective on our ongoing business and operating results.

(7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 37% 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 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.

(8) Reconciliation of GAAP-based net income (loss) to Non-GAAP-based net income:

Six Months Ended December 31, 2022

Per share diluted

GAAP-based net income, attributable to OpenText $ 141,557 $ 0.52

Amortization 191,384 0.71

Share-based compensation 52,030 0.19

Special charges (recoveries) 24,587 0.09

Other (income) expense, net 25,882 0.10

GAAP-based provision for income taxes 84,399 0.31

Non-GAAP-based provision for income taxes (72,789) (0.26)

Non-GAAP-based net income, attributable to OpenText $ 447,050 $ 1.66

Reconciliation of Adjusted EBITDA

Six Months Ended December 31, 2022

GAAP-based net income, attributable to OpenText $ 141,557

Provision for income taxes 84,399

Interest and other related expense, net 79,097

Amortization of acquired technology-based intangible assets 83,500

Amortization of acquired customer-based intangible assets 107,884

Depreciation 46,032

Share-based compensation 52,030

Special charges (recoveries) 24,587

Other (income) expense, net 25,882

Adjusted EBITDA $ 644,968

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

for the six months ended December 31, 2021

(In thousands, except for per share data)

Six Months Ended December 31, 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 $ 241,908 $ (1,804) (1) $ 240,104

Customer support 59,151 (1,130) (1) 58,021

Professional service and other 104,766 (1,368) (1) 103,398

Amortization of acquired technology-based intangible assets 105,769 (105,769) (2) —

GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 1,189,803 69.6% 110,071 (3) 1,299,874 76.1%

Operating expenses

Research and development 203,787 (5,586) (1) 198,201

Sales and marketing 310,178 (9,616) (1) 300,562

General and administrative 142,990 (8,839) (1) 134,151

Amortization of acquired customer-based intangible assets 104,549 (104,549) (2) —

Special charges (recoveries) 9,561 (9,561) (4) —

GAAP-based income from operations / Non-GAAP-based income from operations 375,573 248,222 (5) 623,795

Other income (expense), net 4,745 (4,745) (6) —

Provision for income taxes 82,716 (6,207) (7) 76,509

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 220,213 249,684 (8) 469,897

GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 0.81 $ 0.91 (8) $ 1.72

_________________________________________

(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.

(3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.

See Note 18 “Special Charges (Recoveries)” to our Condensed Consolidated Financial Statements for more details.

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

Other income (expense) also includes our share of income (losses) from our holdings in 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 27% 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.

(8) Reconciliation of GAAP-based net income to Non-GAAP-based net income:

Six Months Ended December 31, 2021

Per share diluted

GAAP-based net income, attributable to OpenText $ 220,213 $ 0.81

Amortization 210,318 0.77

Share-based compensation 28,343 0.10

Special charges (recoveries) 9,561 0.04

Other (income) expense, net (4,745) (0.02)

GAAP-based provision for income taxes 82,716 0.30

Non-GAAP-based provision for income taxes (76,509) (0.28)

Non-GAAP-based net income, attributable to OpenText $ 469,897 $ 1.72

Reconciliation of Adjusted EBITDA

Six Months Ended December 31, 2021

GAAP-based net income, attributable to OpenText $ 220,213

Provision for income taxes 82,716

Interest and other related expense, net 77,300

Amortization of acquired technology-based intangible assets 105,769

Amortization of acquired customer-based intangible assets 104,549

Depreciation 43,165

Share-based compensation 28,343

Special charges (recoveries) 9,561

Other (income) expense, net (4,745)

Adjusted EBITDA $ 666,871

LIQUIDITY AND CAPITAL RESOURCES

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(In thousands)

As of September 30, 2022 Change

As of December 31, 2022 Change

increase (decrease) As of June 30, 2022

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(1) Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Condensed Consolidated Balance Sheets (see Note 9 “Prepaid Expenses and Other Assets” to our Condensed Consolidated Financial Statements for more details).

Three Months Ended September 30,

Six Months Ended December 31,

(In thousands)

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Cash used in investing activities $ (69,412) $ 826,706 $ (896,118)

Cash used in financing activities $ (57,161) $ (31,107) $ (26,054)

Cash provided by financing activities $ 869,561 $ 449,748 $ 419,813

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.

As of September 30, 2022, we have recognized a provision of $20.7 million (June 30, 2022—$19.9 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.

As of December 31, 2022, we have recognized a provision of $21.8 million (June 30, 2022—$19.9 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.

Cash flows provided by operating activities

Cash flows from operating activities decreased by $57.7 million, due to a decrease in net income after the impact of non-cash items of $60.8 million, and an increase in changes from working capital of $3.2 million.

During the first quarter of Fiscal 2023 our days sales outstanding (DSO) of 40 days remained stable compared to our DSO during the first quarter of Fiscal 2022.

The per day impact of our DSO in the first quarter of Fiscal 2023 and Fiscal 2022 on our cash flows was $9.5 million and $9.2 million, respectively.

Cash flows from operating activities decreased by $79.2 million, due to a decrease in net income after the impact of non-cash items of $105 million, partially offset by an increase in changes from working capital of $25.7 million.

During the second quarter of Fiscal 2023 our days sales outstanding (DSO) of 47 days, compared to our DSO of 44 days during the second quarter of Fiscal 2022.

The per day impact of our DSO in the second quarter of Fiscal 2023 and Fiscal 2022 on our cash flows was $10.0 million and $9.7 million, respectively.

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

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

Cash flows used in investing activities increased by $9.9 million, primarily due to an increase in purchases of property and equipment of $9.6 million.

Cash flows used in financing activities

Cash flows used in investing activities decreased by $826.7 million, primarily due to the purchase of Zix Corporation for $837.6 million and purchase of Bricata Inc.

for $17.9 million during the second quarter of Fiscal 2022.

Cash flows provided by 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 and Employee Stock Purchase Plan (ESPP) purchases 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.

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Cash flows used in financing activities increased by $31.1 million.

This is primarily due to higher cash dividends paid to shareholders by $4.8 million and lower proceeds from the issuance of Common Shares on the exercise of options and the ESPP by $26.7 million.

During the three months ended September 30, 2022, we declared and paid cash dividends of $0.24299 per Common Share in the aggregate amount of $64.7 million (three months ended September 30, 2021—$0.2209 per Common Share in the aggregate amount of $59.9 million).

Cash flows provided by financing activities increased by $449.7 million.

This is primarily due to a net increase of $378.7 million in cash proceeds from the issuance and redemption of long-term debt, inclusive of debt issuance costs and debt

extinguishment costs, during the second quarter of Fiscal 2023 as compared to the second quarter of Fiscal 2022, and a decrease of $110.7 million related to the repurchase of common shares and treasury stock, partially offset by reduced proceeds of $29.9 million related to the issuance of common shares and increased dividend payments of $10.0 million.

During the three and six months ended December 31, 2022, we declared and paid cash dividends of $0.24299 and $0.48598 per Common Share, respectively, in the aggregate amount of $64.9 million and $129.6 million, respectively (three and six months ended December 31, 2021—$0.2209 and $0.4418 per Common Share, respectively, in the aggregate amount of $59.7 million and $119.5 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.

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The 2031 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 2031 to be due and payable immediately.

Senior Notes 2031 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 2031 and the guarantees rank equally in right of payment with all of the Company’s, OTHI’s and the guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of the Company’s, OTHI’s and the guarantors’ future subordinated debt.

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The foregoing description of the 2031 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2031 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on November 24, 2021.

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Senior Notes 2030

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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.

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We may, on one or more occasions, redeem the Senior Notes 2029, in whole or in part, at any time on and after December 1, 2024 at the applicable redemption prices set forth in the indenture governing the Senior

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Notes 2029, dated as of November 24, 2021, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S.

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The 2029 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 2029 to be due and payable immediately.

Senior Notes 2029 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 2029 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our senior credit facilities.

Senior Notes 2029 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.

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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

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senior in right of payment to all of our and our guarantors’ future subordinated debt.

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 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.

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See Note 22 “Other Income (Expense), Net” to our Condensed Consolidated Financial Statements.

Senior Secured Fixed Rate Notes

Senior Secured Notes 2027

On December 1, 2022, we issued $1 billion in aggregate principal amount of 6.90% Senior Secured Notes due 2027 (Senior Secured Notes 2027) in connection with the financing of the Micro Focus Acquisition in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S.

persons in offshore transactions pursuant to Regulation S under the Securities Act.

Senior Secured Notes 2027 bear interest at a rate of 6.90% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2023.

Senior Secured Notes 2027 will mature on December 1, 2027, unless earlier redeemed, in accordance with their terms, or repurchased.

We may redeem all or a portion of the Senior Secured Notes 2027 at any time prior to November 1, 2027 at a redemption price equal to the greater of 100% of the principal amount of the Senior Secured Notes 2027 to be redeemed and (b) the net present value of the remaining scheduled payments of principal and interest thereon discounted to the Par Call Date less interest accrued to the date of redemption, plus accrued and unpaid interest to, but excluding, the redemption date.

On or after the Par Call Date, the Company may redeem the Senior Secured Notes 2027, in whole or in part, at any time and from time to time, at a redemption price equal to 100% of the principal amount of the Senior Secured Notes 2027 being redeemed plus accrued and unpaid interest thereon to the redemption date.

If we experience one of the kinds of change of control triggering events specified in the indenture governing the Senior Secured Notes 2027 dated as of December 1, 2022, 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 2027 Indenture), we will be required to make an offer to repurchase the Senior Secured Notes 2027 at a price equal to 101% of the principal amount of the Senior Secured Notes 2027, plus accrued and unpaid interest, if any, to the date of purchase.

The 2027 Indenture contains covenants that limit our 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 or certain of the Company’s subsidiaries without such subsidiary becoming a subsidiary guarantor of the Senior Secured Notes 2027;

and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of the Company’s 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 2027 Indenture.

The 2027 Indenture also provides for certain 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 Secured Notes 2027 to be due and payable immediately.

The Senior Secured Notes 2027 are guaranteed on a senior secured basis by certain of the Company’s subsidiaries and are secured with the same priority as the Company’s senior credit facilities.

The Senior Secured Notes 2027 and the related guarantees will be effectively senior to all of the Company’s and the guarantors’ senior unsecured debt to the extent of the value of the collateral (as defined in the 2027 Indenture) and are structurally subordinated to all existing and future liabilities of each of the Company’s existing and future subsidiaries that do not guarantee the Senior Secured Notes 2027.

The foregoing description of the 2027 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2027 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 1, 2022.

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

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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 September 30, 2022, the outstanding balance on the Term Loan B bears an interest rate of 4.27%.

As of December 31, 2022, the outstanding balance on the Term Loan B bears an interest rate of 5.82%.

For more information regarding the impact and discontinuance 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, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2022.

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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 September 30, 2022, our consolidated net leverage ratio was 2.1:1.

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As of December 31, 2022, our consolidated net leverage ratio was 2.0:1.

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.

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As of September 30, 2022, we had no outstanding balance under the Revolver (June 30, 2022—nil).

As of December 31, 2022, we had no outstanding balance under the Revolver (June 30, 2022—nil).

On January 27, 2023, the Company drew down $450 million from the Revolver to finance the Micro Focus Acquisition.

Acquisition Term Loan

On August 25, 2022, we entered into a first lien term loan facility (the Acquisition Term Loan) which provides for a senior secured delayed-draw term loan facility in an aggregate principal amount of $2.585 billion.

The proceeds of the Acquisition Term Loan, if drawn, will be used solely by the Company to finance the Micro Focus Acquisition (see Note 19 — “Acquisitions” for more details).

On December 1, 2022, we amended our first lien term loan facility (the Acquisition Term Loan), dated as of August 25, 2022, to increase the aggregate commitments under the senior secured delayed-draw term loan facility from an aggregate principal amount of $2.585 billion to an aggregate principal amount of $3.585 billion.

On January 31, 2023, the Company drew down the entire amount of the Acquisition Term Loan, less original issuance discount and other fees, of which the net proceeds were used to finance the Micro Focus Acquisition (see Note 19 — “Acquisitions” for more details).

The Acquisition Term Loan has a seven-year term from the date of funding, and repayments under the Acquisition Term Loan are equal to 0.25% of the principal amount in equal quarterly installments for the life of the Acquisition Term Loan, with the remainder due at maturity.

Borrowings under the Acquisition Term Loan will bear interest at rates as specified in the Acquisition Term Loan Agreement.

Borrowings under the Acquisition Term Loan will bear interest at rates as specified in the Acquisition Term Loan.

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

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Under the Acquisition Term Loan, we must maintain a “consolidated net leverage” ratio of no more than 4.5:1.00 at the end of each financial quarter.

Consolidated net leverage ratio is defined for this purpose as the proportion of the Company’s total debt reduced by unrestricted cash, including guarantees and letters of credit, over the Company’s trailing four financial quarter net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges as defined in the Acquisition Term Loan Agreement.

As of September 30, 2022, our consolidated net leverage ratio was 2.1:1.

The Acquisition Term Loan is unconditionally guaranteed by certain subsidiary guarantors, as defined in the Acquisition Term Loan Agreement, and is secured by a first charge on substantially all of the assets of the Company and the subsidiary guarantors on a pari passu basis with the Revolver, Term Loan B and the Bridge Loan.

Certain adjustments may be made to the applicable margin and other terms of the Acquisition Term Loan in limited circumstances where necessary to achieve successful syndication.

As of September 30, 2022, we had no borrowings under the Acquisition Term Loan.

For the three months ended September 30, 2022, we did not record any interest expense relating to the Acquisition Term Loan (three months ended September 30, 2021—nil).

As of December 31, 2022, our consolidated net leverage ratio was 2.0:1.

The Acquisition Term Loan is unconditionally guaranteed by certain subsidiary guarantors, as defined in the Acquisition Term Loan, and is secured by a first charge on substantially all of the assets of the Company and the subsidiary guarantors on a pari passu basis with the Revolver, Term Loan B and the Senior Secured Notes 2027.

As of December 31, 2022, we had no borrowings under the Acquisition Term Loan.

For the three and six months ended December 31, 2022, we did not record any interest expense relating to the Acquisition Term Loan.

The foregoing description of the Acquisition Term Loan does not purport to be complete and is qualified in its entirety by reference to the full text of the Acquisition Term Loan, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on August 25, 2022.

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On August 25, 2022, we entered into a bridge loan agreement (Bridge Loan) which provides for commitments of up to $2 billion to finance a portion of the repayment of Micro Focus’ existing debt.

The Bridge Loan has a one-year term from the initial date of funding, with an extension mechanism pursuant to which such borrowings would convert into secured financing maturing five years from the initial funding date.

Borrowings under the Bridge Loan would bear interest at rates as specified in the Bridge Loan Agreement, subject to a total cap.

The Bridge Loan is unconditionally guaranteed by certain subsidiary guarantors, as defined in the Bridge Loan Agreement, and is secured by a first charge on substantially all of the assets of the Company and the subsidiary guarantors on a pari passu basis with the Revolver, Term Loan B and Acquisition Term Loan.

The Company intends to reduce commitments or the borrowings under the Bridge Loan by accessing the debt capital markets directly or through certain affiliates prior to or following the closing of the Micro Focus Acquisition, but no assurance can be given that the Company will be able to do so.

The Company expects that such debt to also be secured.

As of September 30, 2022, we had no borrowings under the Bridge Loan.

For the three months ended September 30, 2022, we did not record any interest expense relating to the Bridge Loan (three months ended September 30, 2021—nil).

On August 25, 2022, we entered into a bridge loan agreement (Bridge Loan) which provided for commitments of up to $2 billion to finance a portion of the repayment of Micro Focus’ existing debt.

On December 1, 2022, we entered into an amendment to the Bridge Loan that reallocated commitments under the Bridge Loan to the Acquisition Term Loan.

In connection with the amendment to the Bridge Loan and the receipt of proceeds from the issuance of the Senior Secured Notes 2027, all remaining commitments under the Bridge Loan were reduced to zero and the Bridge Loan was terminated, which resulted in a loss on debt extinguishment of $8.1 million relating to unamortized debt issuance costs (see Note 22 “Other Income (Expense), Net” for more details).

As of December 31, 2022, we had no borrowings under the Bridge Loan.

For the three and six months ended December 31, 2022, we did not record any interest expense relating to the Bridge Loan.

The foregoing description of the Bridge Loan does not purport to be complete and is qualified in its entirety by reference to the full text of the Bridge Loan, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on August 25, 2022.

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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 short-form base shelf prospectus qualifying the distribution of such securities was concurrently filed with Canadian securities regulators on December 6, 2021.

A short-form base shelf prospectus qualifying

the distribution of such securities was concurrently filed with Canadian securities regulators on December 6, 2021.

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

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On November 4, 2021, the Board authorized a share repurchase plan (the Fiscal 2022 Repurchase Plan), pursuant to which we may purchase in open market transactions, from time to time over the 12 month period commencing November 12, 2021, up to an aggregate of $350 million of our Common Shares on the NASDAQ Global Select Market, the TSX (as part of a Fiscal 2022 Normal-Course Issuer Bid (NCIB)) 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 price that we have paid and will pay for Common Shares in open market transactions has been and 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 Fiscal 2022 Repurchase Plan has been and will be effected in accordance with Rule 10b-18.

Purchases made under the Fiscal 2022 Repurchase Plan are subject to a limit of 13,638,008 shares (representing 5% of the Company’s issued and outstanding Common Shares as of October 31, 2021).

All Common Shares purchased by us pursuant to the Fiscal 2022 Repurchase Plan have been and will be cancelled.

During the three months ended September 30, 2022 and 2021, we did not repurchase and cancel any Common Shares.

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The price that we paid for Common Shares in open market transactions was the market price at the time of purchase or such other price as was permitted by applicable law or stock exchange rules.

The Fiscal 2022 Repurchase Plan was effected in accordance with Rule 10b-18.

All Common Shares purchased by us pursuant to the Fiscal 2022 Repurchase Plan were cancelled.

During the three and six months ended December 31, 2022, we did not repurchase and cancel any Common Shares (three and six months ended December 31, 2021—1,809,559 Common Shares, respectively, for $91.0 million, respectively).

Normal Course Issuer Bid

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The Company renewed the Fiscal 2022 NCIB in order to provide it with a means to execute purchases over the TSX as part of the overall Fiscal 2022 Repurchase Plan.

The TSX approved the Company's notice of intention to commence the Fiscal 2022 NCIB pursuant to which the Company may purchase Common Shares over the TSX for the period commencing November 12, 2021 until November 11, 2022 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 13,638,008 (representing 5% of the Company’s issued and outstanding Common Shares as of October 31, 2021), and the maximum number of Common Shares that may be purchased on a single day is 112,590 Common Shares, which is 25% of 450,361 (the average daily trading volume for the Common Shares on the TSX for the six months ended October 31, 2021), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18.

The TSX approved the Company's notice of intention to commence the Fiscal 2022 NCIB pursuant to which the Company could purchase Common Shares over the TSX for the period commencing November 12, 2021 until November 11, 2022 in accordance with the TSX's normal course issuer bid rules, including that such purchases were to be made at prevailing market prices or as otherwise permitted.

Under the rules of the TSX, the maximum number of Common Shares that could be purchased in this period was 13,638,008 (representing 5% of the Company’s issued and outstanding Common Shares as of October 31, 2021), and the maximum number of Common Shares that could be purchased on a single day was 112,590 Common Shares, which is 25% of 450,361 (the average daily trading volume for the Common Shares on the TSX for the six months ended

October 31, 2021), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18.

Commitments and Contractual Obligations

As of September 30, 2022, we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:

As of December 31, 2022, we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:

Payments due between

(In thousands)

Total October 1, 2022 -

Total January 1, 2023 -

June 30, 2023 July 1, 2023 -

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Please see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements for more details.

The table above does not reflect the amounts drawn on the Revolver or the Acquisition Term Loan related to the financing of the Micro Focus Acquisition subsequent to December 31, 2022.

(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.

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Such agreements have not had a material effect on our results of operations, financial position or cash flows.

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We are currently involved in various claims and legal proceedings.

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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 September 30, 2022, 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 $70 million.

As of September 30, 2022, we have provisionally paid approximately $32 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 Condensed Consolidated Balance Sheets as of September 30, 2022.

Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of December 31, 2022, 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 $72 million.

As of December 31, 2022, we have provisionally paid approximately $32 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 Condensed Consolidated Balance Sheets as of December 31, 2022.

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.

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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, and we are continuing to contest these reassessments.

On June 30, 2022, we filed a notice of appeal with the Tax Court of Canada seeking to reverse all such reassessments (including penalties) in full.

On June 30, 2022, we filed a notice of appeal with the Tax Court of Canada seeking to reverse all such reassessments (including penalties) in full and the customary court process is ongoing.

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.

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We strongly disagree with the CRA’s position for Fiscal 2017 and intend to vigorously defend our original filing position.

We are not required to provisionally pay any cash amounts to the CRA as a result of the reassessment in respect of Fiscal 2017 due to the

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utilization of available tax attributes;

We are not required to provisionally pay any cash amounts to the CRA as a result of the reassessment in respect of Fiscal 2017 due to the utilization of available tax attributes;

however, to the extent the CRA reassesses subsequent fiscal years on a similar basis, we expect to make certain minimum payments required under Canadian legislation, which may need to be provisionally made starting in Fiscal 2024 while the matter is in dispute.

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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.

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.

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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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis