OPEN TEXT CORP 10-Q

Item 1. Financial Statements OPEN TEXT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars, except share data) December 31, 2022 June 30, 2022 ASSETS (unaudited) Cash and cash equivalents $ 2,820,927 $ 1,693,741 Accounts receivable trade, net of allowance for credit losses of $ 17,089 as of December 31, 2022 and $ 16,473 as of June 30, 2022 (Note 4) 470,794 426,652 Contract assets (Note 3) 25,613 26,167 Income taxes recoverable (Note 15) 10,300 18,255 Prepaid expenses and other current assets (Note 9) 131,172 120,552 Total current assets 3,458,806 2,285,367 Property and equipment (Note 5) 250,706 244,709 Operating lease right of use assets (Note 6) 194,415 198,132 Long-term contract assets (Note 3) 18,603 19,719 Goodwill (Note 7) 5,250,136 5,244,653 Acquired intangible assets (Note 8) 883,748 1,075,208 Deferred tax assets (Note 15) 811,142 810,154 Other assets (Note 9) 303,559 256,987 Long-term income taxes recoverable (Note 15) 47,091 44,044 Total assets $ 11,218,206 $ 10,178,973 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities (Note 10) $ 459,360 $ 448,607 Current portion of long-term debt (Note 11) 10,000 10,000 Operating lease liabilities (Note 6) 58,299 56,380 Deferred revenues (Note 3) 879,226 902,202 Income taxes payable (Note 15) 87,549 51,069 Total current liabilities 1,494,434 1,468,258 Long-term liabilities: Accrued liabilities (Note 10) 18,705 18,208 Pension liability (Note 12) 57,349 60,951 Long-term debt (Note 11) 5,193,158 4,209,567 Long-term operating lease liabilities (Note 6) 188,809 198,695 Long-term deferred revenues (Note 3) 84,681 91,144 Long-term income taxes payable (Note 15) 40,878 34,003 Deferred tax liabilities (Note 15) 18,808 65,887 Total long-term liabilities 5,602,388 4,678,455 Shareholders’ equity: Share capital and additional paid-in capital (Note 13) 270,235,234 and 269,522,639 Common Shares issued and outstanding at December 31, 2022 and June 30, 2022, respectively; authorized Common Shares: unlimited 2,092,079 2,038,674 Accumulated other comprehensive income (loss) (Note 20) ( 1,028 ) ( 7,659 ) Retained earnings 2,171,236 2,160,069 Treasury stock, at cost ( 3,295,043 and 3,706,420 shares at December 31, 2022 and June 30, 2022, respectively) ( 142,126 ) ( 159,966 ) Total OpenText shareholders' equity 4,120,161 4,031,118 Non-controlling interests 1,223 1,142 Total shareholders’ equity 4,121,384 4,032,260 Total liabilities and shareholders’ equity $ 11,218,206 $ 10,178,973 Guarantees and contingencies (Note 14) Related party transactions (Note 24) Subsequent events (Note 25) See accompanying Notes to Condensed Consolidated Financial Statements 3 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands of U.S. dollars, except share and per share data) (unaudited) Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Revenues (Note 3): Cloud services and subscriptions $ 408,674 $ 364,886 $ 813,325 $ 721,475 Customer support 316,508 334,875 633,859 670,112 License 107,960 109,493 170,508 183,022 Professional service and other 64,298 67,545 131,784 134,498 Total revenues 897,440 876,799 1,749,476 1,709,107 Cost of revenues: Cloud services and subscriptions 134,314 122,129 266,113 241,908 Customer support 28,589 29,668 55,943 59,151 License 3,863 3,741 6,621 7,710 Professional service and other 54,064 53,041 107,864 104,766 Amortization of acquired technology-based intangible assets (Note 8) 40,863 52,602 83,500 105,769 Total cost of revenues 261,693 261,181 520,041 519,304 Gross profit 635,747 615,618 1,229,435 1,189,803 Operating expenses: Research and development 109,700 103,622 219,898 203,787 Sales and marketing 177,171 163,938 344,341 310,178 General and administrative 77,603 71,513 155,677 142,990 Depreciation 22,858 21,779 46,032 43,165 Amortization of acquired customer-based intangible assets (Note 8) 53,446 52,665 107,884 104,549 Special charges (recoveries) (Note 18) 10,306 9,217 24,587 9,561 Total operating expenses 451,084 422,734 898,419 814,230 Income from operations 184,663 192,884 331,016 375,573 Other income (expense), net (Note 22) 163,349 ( 25,037 ) ( 25,882 ) 4,745 Interest and other related expense, net ( 38,715 ) ( 40,245 ) ( 79,097 ) ( 77,300 ) Income before income taxes 309,297 127,602 226,037 303,018 Provision for income taxes (Note 15) 50,774 39,266 84,399 82,716 Net income for the period $ 258,523 $ 88,336 $ 141,638 $ 220,302 Net (income) loss attributable to non-controlling interests ( 37 ) ( 38 ) ( 81 ) ( 89 ) Net income attributable to OpenText $ 258,486 $ 88,298 $ 141,557 $ 220,213 Earnings per share—basic attributable to OpenText (Note 23) $ 0.96 $ 0.32 $ 0.52 $ 0.81 Earnings per share—diluted attributable to OpenText (Note 23) $ 0.96 $ 0.32 $ 0.52 $ 0.81 Weighted average number of Common Shares outstanding—basic (in '000's) 270,189 272,112 269,997 272,078 Weighted average number of Common Shares outstanding—diluted (in '000's) 270,189 272,931 270,009 273,074 See accompanying Notes to Condensed Consolidated Financial Statements 4 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands of U.S. dollars) (unaudited) Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Net income for the period $ 258,523 $ 88,336 $ 141,638 $ 220,302 Other comprehensive income (loss)—net of tax: Net foreign currency translation adjustments 39,419 ( 21,347 ) 3,053 ( 31,439 ) Unrealized gain (loss) on cash flow hedges: Unrealized gain (loss) - net of tax expense (recovery) effect of $ 347 and $ 37 for the three months ended December 31, 2022 and 2021, respectively; ($ 859 ) and $( 354 ) for the six months ended December 31, 2022 and 2021, respectively 959 104 ( 2,381 ) ( 982 ) (Gain) loss reclassified into net income - net of tax (expense) recovery effect of $ 397 and $( 7 ) for the three months ended December 31, 2022 and 2021, respectively; $ 609 and $( 110 ) for the six months ended December 31, 2022 and 2021, respectively 1,101 ( 18 ) 1,689 ( 305 ) Actuarial gain (loss) relating to defined benefit pension plans: Actuarial gain (loss) - net of tax expense (recovery) effect of $ 106 and $( 104 ) for the three months ended December 31, 2022 and 2021, respectively; $ 1,210 and $( 336 ) for the six months ended December 31, 2022 and 2021, respectively 32 ( 1,435 ) 4,196 ( 2,484 ) Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $ 25 and $ 67 for the three months ended December 31, 2022 and 2021, respectively; $ 51 and $ 135 for the six months ended December 31, 2022 and 2021, respectively 37 159 74 321 Total other comprehensive income (loss) net, for the period 41,548 ( 22,537 ) 6,631 ( 34,889 ) Total comprehensive income 300,071 65,799 148,269 185,413 Comprehensive (income) loss attributable to non - controlling interests ( 37 ) ( 38 ) ( 81 ) ( 89 ) Total comprehensive income attributable to OpenText $ 300,034 $ 65,761 $ 148,188 $ 185,324 See accompanying Notes to Condensed Consolidated Financial Statements 5 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands of U.S. dollars and shares) (unaudited) Three Months Ended December 31, 2022 Common Shares and Additional Paid in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests Total Shares Amount Shares Amount Balance as of September 30, 2022 269,881 $ 2,067,881 ( 3,586 ) $ ( 154,792 ) $ 1,978,442 $ ( 42,576 ) $ 1,186 $ 3,850,141 Issuance of Common Shares Under employee stock purchase plans 354 8,042 — — — — — 8,042 Share-based compensation — 28,822 — — — — — 28,822 Issuance of treasury stock — ( 12,666 ) 291 12,666 — — — — Dividends declared ($ 0.24299 per Common Share) — — — — ( 65,692 ) — — ( 65,692 ) Other comprehensive income (loss) - net — — — — — 41,548 — 41,548 Net income for the period — — — — 258,486 — 37 258,523 Balance as of December 31, 2022 270,235 $ 2,092,079 ( 3,295 ) $ ( 142,126 ) $ 2,171,236 $ ( 1,028 ) $ 1,223 $ 4,121,384 Three Months Ended December 31, 2021 Common Shares and Additional Paid in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests Total Shares Amount Shares Amount Balance as of September 30, 2021 272,534 $ 1,991,719 ( 1,426 ) $ ( 63,477 ) $ 2,225,363 $ 53,886 $ 1,024 $ 4,208,515 Issuance of Common Shares Under employee stock option plans 56 1,966 — — — — — 1,966 Under employee stock purchase plans 226 9,421 — — — — — 9,421 Share-based compensation — 14,409 — — — — — 14,409 Purchase of treasury stock — — ( 400 ) ( 19,593 ) — — — ( 19,593 ) Issuance of treasury stock — ( 15,104 ) 350 15,104 — — — — Repurchase of Common Shares ( 1,810 ) ( 11,498 ) — — ( 79,536 ) — — ( 91,034 ) Dividends declared ($ 0.2209 per Common Share) — — — — ( 59,658 ) — — ( 59,658 ) Other comprehensive income (loss) - net — — — — — ( 22,537 ) — ( 22,537 ) Net income for the period — — — — 88,298 — 38 88,336 Balance as of December 31, 2021 271,006 $ 1,990,913 ( 1,476 ) $ ( 67,966 ) $ 2,174,467 $ 31,349 $ 1,062 $ 4,129,825 6 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands of U.S. dollars and shares) (unaudited) Six Months Ended December 31, 2022 Common Shares and Additional Paid in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests Total Shares Amount Shares Amount Balance as of June 30, 2022 269,523 $ 2,038,674 ( 3,706 ) $ ( 159,966 ) $ 2,160,069 $ ( 7,659 ) $ 1,142 $ 4,032,260 Issuance of Common Shares Under employee stock option plans 72 1,994 — — — — — 1,994 Under employee stock purchase plans 640 17,221 — — — — — 17,221 Share-based compensation — 52,030 — — — — — 52,030 Issuance of treasury stock — ( 17,840 ) 411 17,840 — — — — Dividends declared ($ 0.4860 per Common Share) — — — — ( 130,390 ) — — ( 130,390 ) Other comprehensive income (loss) - net — — — — — 6,631 — 6,631 Net income for the period — — — — 141,557 — 81 141,638 Balance as of December 31, 2022 270,235 $ 2,092,079 ( 3,295 ) $ ( 142,126 ) $ 2,171,236 $ ( 1,028 ) $ 1,223 $ 4,121,384 Six Months Ended December 31, 2021 Common Shares and Additional Paid in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests Total Shares Amount Shares Amount Balance as of June 30, 2021 271,541 $ 1,947,764 ( 1,568 ) $ ( 69,386 ) $ 2,153,326 $ 66,238 $ 1,511 $ 4,099,453 Issuance of Common Shares Under employee stock option plans 852 29,265 — — — — — 29,265 Under employee stock purchase plans 423 17,910 — — — — — 17,910 Share-based compensation — 28,343 — — — — — 28,343 Purchase of treasury stock — — ( 400 ) ( 19,593 ) — — — ( 19,593 ) Issuance of treasury stock — ( 21,013 ) 492 21,013 — — — — Repurchase of Common Shares ( 1,810 ) ( 11,498 ) — — ( 79,536 ) — — ( 91,034 ) Dividends declared $ 0.4418 per Common Share) — — — — ( 119,536 ) — — ( 119,536 ) Other comprehensive income (loss) - net — — — — — ( 34,889 ) — ( 34,889 ) Distribution to non-controlling interest — 142 — — — — ( 538 ) ( 396 ) Net income for the period — — — — 220,213 — 89 220,302 Balance as of December 31, 2021 271,006 $ 1,990,913 ( 1,476 ) $ ( 67,966 ) $ 2,174,467 $ 31,349 $ 1,062 $ 4,129,825 See accompanying Notes to Condensed Consolidated Financial Statements 7 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) (unaudited) Six Months Ended December 31, 2022 2021 Cash flows from operating activities: Net income for the period $ 141,638 $ 220,302 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangible assets 237,416 253,483 Share-based compensation expense 52,030 28,343 Pension expense 3,444 3,015 Amortization of debt issuance costs 3,166 2,454 Write-off of right of use assets 3,775 — Loss on extinguishment of debt 8,131 27,413 Loss on sale and write down of property and equipment 121 38 Deferred taxes ( 46,802 ) 20,892 Share in net (income) loss of equity investees 6,823 ( 31,357 ) Unrealized loss on financial instruments 9,854 — Changes in operating assets and liabilities: Accounts receivable ( 26,597 ) 51,187 Contract assets ( 18,454 ) ( 18,745 ) Prepaid expenses and other current assets ( 3,065 ) ( 11,221 ) Income taxes 44,240 2,776 Accounts payable and accrued liabilities 8,964 ( 108,629 ) Deferred revenue ( 29,133 ) ( 50,693 ) Other assets ( 60,706 ) 16,913 Operating lease assets and liabilities, net ( 7,716 ) 142 Net cash provided by operating activities 327,129 406,313 Cash flows from investing activities: Additions of property and equipment ( 68,539 ) ( 37,347 ) Purchase of Zix Corporation, net of cash acquired — ( 837,573 ) Purchase of Bricata Inc. — ( 17,927 ) Other investing activities ( 873 ) ( 3,271 ) Net cash used in investing activities ( 69,412 ) ( 896,118 ) Cash flows from financing activities: Proceeds from issuance of Common Shares from exercise of stock options and ESPP 15,773 45,688 Proceeds from long-term debt and Revolver 1,000,000 1,500,000 Repayment of long-term debt and Revolver ( 5,000 ) ( 855,000 ) Debt extinguishment costs — ( 24,969 ) Debt issuance costs ( 11,650 ) ( 15,347 ) Repurchase of Common Shares — ( 91,034 ) Purchase of treasury stock — ( 19,593 ) Distribution to non-controlling interest — ( 396 ) Payments of dividends to shareholders ( 129,562 ) ( 119,536 ) Net cash provided by financing activities 869,561 419,813 Foreign exchange gain (loss) on cash held in foreign currencies ( 271 ) ( 25,713 ) Increase (decrease) in cash, cash equivalents and restricted cash during the period 1,127,007 ( 95,705 ) Cash, cash equivalents and restricted cash at beginning of the period 1,695,911 1,609,800 Cash, cash equivalents and restricted cash at end of the period $ 2,822,918 $ 1,514,095 8 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) (unaudited) Reconciliation of cash, cash equivalents and restricted cash: December 31, 2022 December 31, 2021 Cash and cash equivalents $ 2,820,927 $ 1,511,792 Restricted cash (1) 1,991 2,303 Total cash, cash equivalents and restricted cash $ 2,822,918 $ 1,514,095 _________________________________ (1) Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Condensed Consolidated Balance Sheets (Note 9). Supplemental cash flow disclosures (Note 6 and Note 21) See accompanying Notes to Condensed Consolidated Financial Statements 9 Table of Contents OPEN TEXT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Three and Six Months Ended December 31, 2022 (Tabular amounts in thousands of U.S. dollars, except share and per share data) (unaudited) NOTE 1— BASIS OF PRESENTATION The accompanying Condensed Consolidated Financial Statements include the accounts of Open Text Corporation and our subsidiaries, collectively referred to as “OpenText” or the “Company.” We wholly own all of our subsidiaries with the exception of Open Text South Africa Proprietary Ltd. (OT South Africa), which as of December 31, 2022, was 70 % owned by OpenText. All intercompany balances and transactions have been eliminated. Previously, our ownership in EC1 Pte. Ltd. (GXS Singapore) was 81 %. During the first quarter of Fiscal 2022 (as defined below), we made a final cash distribution of $ 0.4 million to the non-controlling interest holder in GXS Singapore as part of the process to liquidate the subsidiary. During Fiscal 2022, the liquidation of GXS Singapore was completed. The following Fiscal Year terms are used throughout this Quarterly Report on Form 10-Q: Fiscal Year Beginning Date Ending Date Fiscal 2024 July 1, 2023 June 30, 2024 Fiscal 2023 July 1, 2022 June 30, 2023 Fiscal 2022 July 1, 2021 June 30, 2022 Fiscal 2021 July 1, 2020 June 30, 2021 Fiscal 2020 July 1, 2019 June 30, 2020 Fiscal 2019 July 1, 2018 June 30, 2019 Fiscal 2018 July 1, 2017 June 30, 2018 Fiscal 2017 July 1, 2016 June 30, 2017 Fiscal 2016 July 1, 2015 June 30, 2016 Fiscal 2015 July 1, 2014 June 30, 2015 Fiscal 2014 July 1, 2013 June 30, 2014 Fiscal 2013 July 1, 2012 June 30, 2013 Fiscal 2012 July 1, 2011 June 30, 2012 These Condensed Consolidated Financial Statements are expressed in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The information furnished reflects all adjustments necessary for a fair presentation of the results for the periods presented. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. In particular, key estimates, judgments and assumptions include those related to: (i) revenue recognition, (ii) accounting for income taxes, (iii) testing of goodwill for impairment, (iv) the valuation of acquired intangible assets, (v) the valuation of long-lived assets, (vi) the recognition of contingencies, (vii) restructuring accruals, (viii) acquisition accruals and pre-acquisition contingencies, (ix) the valuation of stock options granted and obligations related to share-based payments, including the valuation of our long-term incentive plans, (x) the valuation of pension obligations, and (xi) the valuation of derivative instruments. 10 Table of Contents 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 (each as defined below) as well as certain derivative transactions. 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 $ 1.0 billion in aggregate principal amount of 6.90 % Senior Secured Notes due 2027 (Senior Secured Notes 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 (as defined below). 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. The following Notes include details related to the Micro Focus Acquisition: Note 9 “Prepaid Expenses and Other Assets,” Note 10 “Accounts Payable and Accrued Liabilities,” Note 11 “Long-Term Debt,” Note 16 “Fair Value Measurement,” Note 17 “Derivative Instruments and Hedging Activities,” Note 19 “Acquisitions”, Note 22 “Other Income (Expense), Net,” and Note 25 “Subsequent Events.” NOTE 2— RECENT ACCOUNTING PRONOUNCEMENTS Accounting Pronouncements Adopted in Fiscal 2023 During the three and six months ended December 31, 2022, there have been no new Accounting Standards Updates (ASU) or changes in accounting pronouncements that have had a material impact to our reported financial position, results of operations or cash flows . 11 Table of Contents NOTE 3— REVENUES Disaggregation of Revenue We have four revenue streams: cloud services and subscriptions, customer support, license, and professional service and other. The following tables disaggregate our revenue by significant geographic area, based on the location of our direct end customer, by type of performance obligation and timing of revenue recognition for the periods indicated: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Total Revenues by Geography: Americas (1) $ 583,602 $ 535,306 $ 1,141,390 $ 1,054,998 EMEA (2) 235,305 267,222 463,658 511,819 Asia Pacific (3) 78,533 74,271 144,428 142,290 Total revenues $ 897,440 $ 876,799 $ 1,749,476 $ 1,709,107 Total Revenues by Type of Performance Obligation: Recurring revenues (4) Cloud services and subscriptions revenue $ 408,674 $ 364,886 $ 813,325 $ 721,475 Customer support revenue 316,508 334,875 633,859 670,112 Total recurring revenues $ 725,182 $ 699,761 $ 1,447,184 $ 1,391,587 License revenue (perpetual, term and subscriptions) 107,960 109,493 170,508 183,022 Professional service and other revenue 64,298 67,545 131,784 134,498 Total revenues $ 897,440 $ 876,799 $ 1,749,476 $ 1,709,107 Total Revenues by Timing of Revenue Recognition: Point in time $ 107,960 $ 109,493 $ 170,508 $ 183,022 Over time (including professional service and other revenue) 789,480 767,306 1,578,968 1,526,085 Total revenues $ 897,440 $ 876,799 $ 1,749,476 $ 1,709,107 ___________________________ (1) Americas consists of countries in North, Central and South America. (2) EMEA primarily consists of countries in Europe, the Middle East and Africa. (3) Asia Pacific primarily consists of Japan, Australia, China, Korea, Philippines, Singapore, India and New Zealand. (4) Recurring revenue is defined as the sum of Cloud services and subscriptions revenue and Customer support revenue. Contract Balances A contract asset, net of allowance for credit losses, will be recorded if we have recognized revenue but do not have an unconditional right to the related consideration from the customer. For example, this will be the case if implementation services offered in a cloud arrangement are identified as a separate performance obligation and are provided to a customer prior to us being able to bill the customer. In addition, a contract asset may arise in relation to subscription licenses if the license revenue that is recognized upfront exceeds the amount that we are able to invoice the customer at that time. Contract assets are reclassified to accounts receivable when the rights become unconditional. The balance for our contract assets and contract liabilities (i.e. deferred revenues) for the periods indicated below were as follows: As of December 31, 2022 As of June 30, 2022 Short-term contract assets $ 25,613 $ 26,167 Long-term contract assets $ 18,603 $ 19,719 Short-term deferred revenues $ 879,226 $ 902,202 Long-term deferred revenues $ 84,681 $ 91,144 The difference in the opening and closing balances of our contract assets and deferred revenues primarily results from the timing difference between our performance and the customer’s payments. We fulfill our obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. During the six months ended 12 Table of Contents December 31, 2022, we reclassified $ 20.2 million (six months ended December 31, 2021 — $ 18.3 million) of contract assets to receivables as a result of the right to the transaction consideration becoming unconditional. During the three and six months ended December 31, 2022 and 2021, respectively, there was no significant impairment loss recognized related to contract assets. We recognize deferred revenue when we have received consideration or an amount of consideration is due from the customer for future obligations to transfer products or services. Our deferred revenues primarily relate to cloud services and customer support agreements which have been paid for by customers prior to the performance of those services. The amount of revenue that was recognized during the six months ended December 31, 2022 that was included in the deferred revenue balances at June 30, 2022 was $ 658 million (six months ended December 31, 2021—$ 630 million). Incremental Costs of Obtaining a Contract with a Customer Incremental costs of obtaining a contract include only those costs that we incur to obtain a contract that we would not have incurred if the contract had not been obtained, such as sales commissions. The following table summarizes the changes in total capitalized costs to obtain a contract, since June 30, 2022: Capitalized costs to obtain a contract as of June 30, 2022 $ 82,562 New capitalized costs incurred 16,425 Amortization of capitalized costs ( 15,571 ) Impact of foreign exchange rate changes 123 Capitalized costs to obtain a contract as of December 31, 2022 $ 83,539 During the three and six months ended December 31, 2022 and 2021, respectively, there was no significant impairment loss recognized related to capitalized costs to obtain a contract. Refer to Note 9 “Prepaid Expenses and Other Assets” for additional information on incremental costs of obtaining a contract. Transaction Price Allocated to the Remaining Performance Obligations As of December 31, 2022, approximately $ 1.6 billion of revenue is expected to be recognized from remaining performance obligations on existing contracts. We expect to recognize approximately 46 % of this amount over the next 12 months and the remaining balance substantially over the next three years thereafter. We apply the practical expedient and do not disclose performance obligations that have original expected durations of one year or less. NOTE 4— ALLOWANCE FOR CREDIT LOSSES The following illustrates the activity in our allowance for credit losses on accounts receivable, since June 30, 2022: Balance as of June 30, 2022 $ 16,473 Credit loss expense (recovery) 940 Write-off / adjustments ( 324 ) Balance as of December 31, 2022 $ 17,089 Included in accounts receivable are unbilled receivables in the amount of $ 61.4 million as of December 31, 2022 (June 30, 2022—$ 47.9 million). As of December 31, 2022, we have an allowance for credit losses of $ 0.5 million for contract assets (June 30, 2022—$ 0.7 million). For additional information on contract assets please see Note 3 “Revenues.” 13 Table of Contents NOTE 5— PROPERTY AND EQUIPMENT As of December 31, 2022 Cost Accumulated Depreciation Net Computer hardware $ 359,023 $ ( 245,561 ) $ 113,462 Computer software 151,632 ( 124,639 ) 26,993 Capitalized software development costs 159,449 ( 109,366 ) 50,083 Leasehold improvements 104,256 ( 88,624 ) 15,632 Land and buildings 48,993 ( 17,222 ) 31,771 Furniture, equipment and other 52,482 ( 39,717 ) 12,765 Total $ 875,835 $ ( 625,129 ) $ 250,706 As of June 30, 2022 Cost Accumulated Depreciation Net Computer hardware $ 332,462 $ ( 226,341 ) $ 106,121 Computer software 142,094 ( 117,026 ) 25,068 Capitalized software development costs 149,053 ( 101,874 ) 47,179 Leasehold improvements 107,739 ( 86,514 ) 21,225 Land and buildings 49,011 ( 16,633 ) 32,378 Furniture, equipment and other 52,381 $ ( 39,643 ) 12,738 Total $ 832,740 $ ( 588,031 ) $ 244,709 NOTE 6— LEASES We enter into operating leases, both domestically and internationally, for certain facilities, automobiles, data centers and equipment for use in the ordinary course of business. The duration of the majority of these leases generally ranges from 1 to 10 years, some of which include options to extend for an additional 3 to 5 years after the initial term. Additionally, the land upon which our headquarters in Waterloo, Ontario, Canada is located is leased from the University of Waterloo for a period of 49 years beginning in December 2005, with an option to renew for an additional term of 49 years. Leases with an initial term of 12 months or less are not recorded on our Condensed Consolidated Balance Sheets and we do not have any material finance leases. Lease Costs and Other Information The following illustrates the various components of operating lease costs for the period indicated: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Operating lease cost $ 13,991 $ 15,572 $ 28,302 $ 30,963 Short-term lease cost 170 190 557 309 Variable lease cost 621 577 1,200 1,165 Sublease income ( 2,904 ) ( 1,969 ) ( 5,816 ) ( 3,858 ) Total lease cost $ 11,878 $ 14,370 $ 24,243 $ 28,579 The weighted average remaining lease term and discount rate for the periods indicated below were as follows: As of December 31, 2022 As of June 30, 2022 Weighted-average remaining lease term 5.73 years 6.13 years Weighted-average discount rate 3.43 % 2.95 % 14 Table of Contents Supplemental Cash Flow Information The following table presents supplemental information relating to cash flows arising from lease transactions. Cash payments made for variable lease costs and short-term leases are not included in the measurement of operating lease liabilities, and, as such, are excluded from the amounts below: Six Months Ended December 31, 2022 2021 Cash paid for amounts included in the measurement of operating lease liabilities $ 35,230 $ 35,046 Right of use assets obtained in exchange for new operating lease liabilities (1) $ 25,061 $ 20,416 ___________________________ (1) The six months ended December 31, 2021 excludes the impact of $ 9.7 million of right of use assets obtained through the acquisition of Zix Corporation. See Note 19 "Acquisitions" for further details including the finalization of the purchase price allocation for the acquisition of Zix Corporation. Maturity of Lease Liabilities The following table presents the future minimum lease payments under our operating leases liabilities as of December 31, 2022: Fiscal years ending June 30, 2023 (six months ended) $ 33,886 2024 59,744 2025 47,063 2026 33,634 2027 30,697 Thereafter 66,621 Total lease payments $ 271,645 Less: Imputed interest ( 24,537 ) Total $ 247,108 Reported as: Current operating lease liabilities $ 58,299 Non-current operating lease liabilities 188,809 Total $ 247,108 Operating lease maturity amounts included in the table above do not include sublease income expected to be received under our various sublease agreements with third parties. Under the agreements initiated with third parties, we expect to receive sublease income of $ 6.3 million over the remainder of Fiscal 2023 and $ 43.5 million thereafter. NOTE 7— GOODWILL Goodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable net tangible and intangible assets. The following table summarizes the changes in goodwill since June 30, 2022: Balance as of June 30, 2022 $ 5,244,653 Acquisition of Zix Corporation (Note 19) 4,878 Impact of foreign exchange rate changes 605 Balance as of December 31, 2022 $ 5,250,136 15 Table of Contents NOTE 8— ACQUIRED INTANGIBLE ASSETS As of December 31, 2022 Cost Accumulated Amortization Net Technology assets $ 880,630 $ ( 703,937 ) $ 176,693 Customer assets 1,531,895 ( 824,840 ) 707,055 Total $ 2,412,525 $ ( 1,528,777 ) $ 883,748 As of June 30, 2022 Cost Accumulated Amortization Net Technology assets $ 999,032 $ ( 738,710 ) $ 260,322 Customer assets 1,595,219 ( 780,333 ) 814,886 Total $ 2,594,251 $ ( 1,519,043 ) $ 1,075,208 Where applicable, the above balances as of December 31, 2022 have been reduced to reflect the impact of intangible assets where the gross cost has become fully amortized during the six months ended December 31, 2022. The impact of this resulted in a reduction of $ 119 million to technology assets and $ 64 million to customer assets. The weighted average amortization periods for acquired technology and customer intangible assets are approximately six years and eight years , respectively. The following table shows the estimated future amortization expense for the fiscal years indicated. This calculation assumes no future adjustments to acquired intangible assets: Fiscal years ending June 30, 2023 (six months ended) $ 155,670 2024 267,169 2025 154,394 2026 111,004 2027 41,284 2028 and Thereafter 154,227 Total $ 883,748 16 Table of Contents NOTE 9— PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses and other current assets: As of December 31, 2022 As of June 30, 2022 Deposits and restricted cash $ 2,607 $ 6,300 Capitalized costs to obtain a contract 29,421 27,077 Derivative asset 6,848 — Short-term prepaid expenses and other current assets 92,296 87,175 Total $ 131,172 $ 120,552 Other assets: As of December 31, 2022 As of June 30, 2022 Deposits and restricted cash $ 9,894 $ 6,462 Capitalized costs to obtain a contract 54,118 55,484 Deferred debt issuance costs 54,917 — Investments 164,227 173,205 Long-term prepaid expenses and other long-term assets 20,403 21,836 Total $ 303,559 $ 256,987 Deposits and restricted cash primarily relate to security deposits provided to landlords in accordance with facility lease agreements and cash restricted per the terms of certain contractual-based agreements. Capitalized costs to obtain a contract relate to incremental costs of obtaining a contract, such as sales commissions, which are eligible for capitalization on contracts to the extent that such costs are expected to be recovered (see Note 3 “Revenues”). Derivative asset represents the assets related to the unrealized gains on our derivatives not designated as hedges related to the Micro Focus Acquisition (see Note 17 “Derivative Instruments and Hedging Activities”). Deferred debt issuance costs represents fees incurred related to the Acquisition Term Loan. See Note 11 “Long-Term Debt.” Investments relate to certain investment funds in which we are a limited partner. Our interests in each of these investees range from 4 % to below 20 %. These investments are accounted for using the equity method. Our share of net income or losses based on our interest in these investments, which approximates fair value and is subject to volatility based on market trends and business conditions, is recorded as a component of Other income (expense), net in our Condensed Consolidated Statements of Income (see Note 22 “Other Income (Expense), Net”). During the three and six months ended December 31, 2022, our share of income (loss) from these investments was $( 0.3 ) million and $( 6.8 ) million, respectively (three and six months ended December 31, 2021—$ 2.0 million and $ 31.4 million, respectively). Prepaid expenses and other assets, both short-term and long-term, include advance payments on licenses that are being amortized over the applicable terms of the licenses and other miscellaneous assets. 17 Table of Contents NOTE 10— ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities: As of December 31, 2022 As of June 30, 2022 Accounts payable—trade $ 96,007 $ 113,978 Accrued salaries, incentives and commissions 120,533 193,421 Accrued liabilities 103,245 81,564 Accrued sales and other tax liabilities 24,825 20,423 Derivative liability (1) 16,702 — Deferred debt issuance costs (2) 53,497 — Accrued interest on Senior Notes 37,563 31,813 Amounts payable in respect of restructuring and other special charges 3,969 3,589 Asset retirement obligations 3,019 3,819 Total $ 459,360 $ 448,607 ______________________________ (1) Represents the liability related to the unrealized losses on our derivatives not designated as hedges related to the financing of the Micro Focus Acquisition (see Note 17 “Derivative Instruments and Hedging Activities”). (2) Represents deferred debt issuance costs related to the Acquisition Term Loan in connection with the financing of the Micro Focus Acquisition (see Note 11 “Long-Term Debt”). Long-term accrued liabilities: As of December 31, 2022 As of June 30, 2022 Amounts payable in respect of restructuring and other special charges $ 4,454 $ 5,702 Other accrued liabilities 1,216 563 Asset retirement obligations 13,035 11,943 Total $ 18,705 $ 18,208 Asset retirement obligations We are required to return certain of our leased facilities to their original state at the conclusion of our lease. As of December 31, 2022, the present value of this obligation was $ 16.1 million (June 30, 2022—$ 15.8 million), with an undiscounted value of $ 16.7 million (June 30, 2022—$ 16.4 million). 18 Table of Contents NOTE 11— LONG-TERM DEBT As of December 31, 2022 As of June 30, 2022 Total debt Senior Notes 2031 $ 650,000 $ 650,000 Senior Notes 2030 900,000 900,000 Senior Notes 2029 850,000 850,000 Senior Notes 2028 900,000 900,000 Senior Secured Notes 2027 1,000,000 — Term Loan B 952,500 957,500 Revolver — — Acquisition Term Loan — — Total principal payments due 5,252,500 4,257,500 Debt issuance costs (1) ( 49,342 ) ( 37,933 ) Total amount outstanding 5,203,158 4,219,567 Less: Current portion of long-term debt Term Loan B 10,000 10,000 Total current portion of long-term debt 10,000 10,000 Non-current portion of long-term debt $ 5,193,158 $ 4,209,567 ____________________________ (1) As of December 31, 2022, there was an additional $ 54.9 million of deferred debt issuance costs related to the Acquisition Term Loan included in “Other assets” not included above. Senior Unsecured Fixed Rate Notes Senior Notes 2031 On November 24, 2021, OpenText Holdings, Inc. a wholly-owned indirect subsidiary of the Company, issued $ 650 million in aggregate principal amount of 4.125 % Senior Notes due 2031 guaranteed by the Company (Senior Notes 2031) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act), and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2031 bear interest at a rate of 4.125 % per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022. Senior Notes 2031 will mature on December 1, 2031, unless earlier redeemed, in accordance with their terms, or repurchased. For the three and six months ended December 31, 2022, we recorded interest expense of $ 6.7 million and $ 13.4 million, respectively, relating to Senior Notes 2031 (three and six months ended December 31, 2021 $ 2.7 million, respectively). Senior Notes 2030 On February 18, 2020, OpenText Holdings, Inc. a wholly-owned indirect subsidiary of the Company, issued $ 900 million in aggregate principal amount of 4.125 % Senior Notes due 2030 guaranteed by the Company (Senior Notes 2030) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2030 bear interest at a rate of 4.125 % per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2030 will mature on February 15, 2030, unless earlier redeemed, in accordance with their terms, or repurchased. For the three and six months ended December 31, 2022, we recorded interest expense of $ 9.3 million and $ 18.6 million, respectively, relating to Senior Notes 2030 (three and six months ended December 31, 2021 $ 9.3 million and $ 18.6 million, respectively). Senior Notes 2029 On November 24, 2021, we issued $ 850 million in aggregate principal amount of 3.875 % Senior Notes due 2029 (Senior Notes 2029) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to 19 Table of Contents certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2029 bear interest at a rate of 3.875 % per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022. Senior Notes 2029 will mature on December 1, 2029, unless earlier redeemed, in accordance with their terms, or repurchased. For the three and six months ended December 31, 2022, we recorded interest expense of $ 8.2 million and $ 16.4 million, respectively, relating to Senior Notes 2029 (three and six months ended December 31, 2021 $ 3.3 million, respectively). Senior Notes 2028 On February 18, 2020, we issued $ 900 million in aggregate principal amount of 3.875 % Senior Notes due 2028 (Senior Notes 2028) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2028 bear interest at a rate of 3.875 % per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2028 will mature on February 15, 2028, unless earlier redeemed, in accordance with their terms, or repurchased. For the three and six months ended December 31, 2022, we recorded interest expense of $ 8.7 million and $ 17.4 million, respectively, relating to Senior Notes 2028 (three and six months ended December 31, 2021—$ 8.7 million and $ 17.4 million, respectively). Senior Notes 2026 On May 31, 2016, we issued $ 600 million in aggregate principal amount of 5.875 % Senior Notes due 2026 (Senior Notes 2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 had interest at a rate of 5.875 % per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior Notes 2026 would have matured on June 1, 2026. On December 20, 2016, we issued an additional $ 250 million in aggregate principal amount by reopening our Senior Notes 2026 at an issue price of 102.75 %. The additional notes had identical terms, were fungible with and were part of a single series with the previously issued $ 600 million aggregate principal amount of Senior Notes 2026. The outstanding aggregate principal amount of Senior Notes 2026, after taking into consideration the additional issuance, was $ 850 million as of December 9, 2021. On December 9, 2021, we redeemed Senior Notes 2026 in full at a price equal to 102.9375 % of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date. A portion of the net proceeds from the offerings of Senior Notes 2029 and Senior Notes 2031 was used to redeem Senior Notes 2026. Upon redemption, Senior Notes 2026 were cancelled and any obligation thereunder was extinguished. The resulting loss of $ 27.4 million, consisting of $ 25.0 million relating to the early termination call premium, $ 6.2 million relating to unamortized debt issuance costs and $( 3.8 ) million relating to unamortized premium, has been recorded as a component of Other income (expense), net in our Condensed Consolidated Statements of Income. See Note 22 “Other Income (Expense), Net.” For the three and six months ended December 31, 2022, we did not record any interest expense relating to Senior Notes 2026 (three and six months ended December 31, 2021—$ 9.4 million and $ 21.9 million, respectively). 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 and, together with the Senior Notes 2031, Senior Notes 2030, Senior Notes 2029 and Senior Notes 2028, the Senior Notes) 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 (which would have occurred in accordance with the terms of the indenture, had we not completed the Micro Focus Acquisition (see Note 25 “Subsequent Events”)), in accordance with their terms, or repurchased. 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 are effectively senior to all of the Company’s and the guarantors’ senior unsecured debt to the extent of the value of 20 Table of Contents the collateral (as defined in the indenture to the Senior Secured Notes 2027) 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. For the three and six months ended December 31, 2022, we recorded interest expense of $ 5.8 million, relating to Senior Secured Notes 2027 (three and six months ended December 31, 2021— nil ). Term Loan B On May 30, 2018, we refinanced our existing term loan facility, by entering into a new $ 1 billion term loan facility (Term Loan B), whereby we borrowed $ 1 billion on that day and repaid in full the loans under our prior $ 800 million term loan facility originally entered into on January 16, 2014. Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver (as defined below), Acquisition Term Loan (as defined below) and Senior Secured Notes 2027. Term Loan B has a seven-year term, maturing in May 2025, and repayments made under Term Loan B are equal to 0.25 % of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity. Borrowings under Term Loan B currently bear a floating rate of interest equal to 1.75 % plus LIBOR. 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. Under Term Loan B, we must maintain a “consolidated net leverage” ratio of no more than 4 :1 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. As of December 31, 2022, our consolidated net leverage ratio was 2.0 :1. For the three and six months ended December 31, 2022, we recorded interest expense of $ 13.2 million and $ 22.9 million, respectively, relating to Term Loan B (three and six months ended December 31, 2021—$ 4.5 million and $ 9.1 million, respectively). Revolver On October 31, 2019, we amended our committed revolving credit facility (the Revolver) to increase the total commitments under the Revolver from $ 450 million to $ 750 million as well as to extend the maturity from May 5, 2022 to October 31, 2024. Borrowings under the Revolver are secured by a first charge over substantially all of our assets, on a pari passu basis with Term Loan B, the Acquisition Term Loan and Senior Secured Notes 2027. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25 % to 1.75 %. For more information regarding the impact 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. As of December 31, 2022, we had no outstanding balance under the Revolver (June 30, 2022— nil ). For the three and six months ended December 31, 2022, we did not record any interest expense relating to the Revolver (three and six months ended December 31, 2021— nil ). On January 27, 2023, the Company drew down $ 450.0 million from the Revolver to finance the Micro Focus Acquisition. Acquisition Term Loan 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. 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. Consolidated senior secured net leverage ratio is defined for this purpose as the proportion of the Company’s total debt reduced 21 Table of Contents by unrestricted cash, including guarantees and letters of credit, that is secured by the Company’s or any of the Company’s subsidiaries’ assets, over the Company’s trailing four financial quarter net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. 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. 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 (three and six months ended December 31, 2021— nil , respectively). Bridge Loan On August 25, 2022, we entered into a bridge loan agreement (Bridge Loan) which provided for commitments of up to $ 2.0 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) . For the three and six months ended December 31, 2022, we did not have any borrowings or record any interest expense relating to the Bridge Loan (three and six months ended December 31, 2021— nil , respectively). Debt Issuance Costs Debt issuance costs relate primarily to costs incurred for the purpose of obtaining our credit facilities and issuing our Senior Notes and are being amortized through interest expense over the respective terms of the Senior Notes, Term Loan B, and Acquisition Term Loan using the effective interest method and straight line method for the Revolver. Additionally, as of December 31, 2022, we had $ 54.9 million in deferred debt issuance costs included in “Other Assets” (see Note 9 “Prepaid Expenses and Other Assets” for more details). NOTE 12— PENSION PLANS AND OTHER POST RETIREMENT BENEFITS Defined Benefit Plans CDT Plan CDT sponsors an unfunded defined benefit pension plan covering substantially all CDT employees (CDT plan) which provides for old age, disability and survivors’ benefits. Benefits under the CDT plan are generally based on age at retirement, years of service and the employee’s annual earnings. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. No contributions have been made since the inception of the plan. GXS GER Plan As part of our acquisition of GXS Group, Inc. (GXS) in Fiscal 2014, we assumed an unfunded defined benefit pension plan covering certain German employees which provides for old age, disability and survivors' benefits. The GXS GER plan has been closed to new participants since 2006. Benefits under the GXS GER plan are generally based on a participant’s remuneration, date of hire, years of eligible service and age at retirement. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. No contributions have been made since the inception of the plan. GXS PHP Plan As part of our acquisition of GXS in Fiscal 2014, we assumed a primarily unfunded defined benefit pension plan covering substantially all of the GXS Philippines employees which provides for retirement, disability and survivors' benefits. Benefits 22 Table of Contents under the GXS PHP plan are generally based on a participant’s remuneration, years of eligible service and age at retirement. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. Aside from an initial contribution which has a fair value of $( 0.03 ) million as of December 31, 2022, no additional contributions have been made since the inception of the plan. The following are details of net pension expense relating to the following pension plans: Three Months Ended December 31, 2022 2021 Pension expense: CDT GXS GER GXS PHP Total CDT GXS GER GXS PHP Total Service cost $ 57 $ 27 $ 315 $ 399 $ 91 $ 42 $ 472 $ 605 Interest cost 210 129 161 500 109 77 160 346 Amortization of actuarial (gains) losses — ( 17 ) ( 140 ) ( 157 ) 121 6 ( 23 ) 104 Net pension expense $ 267 $ 139 $ 336 $ 742 $ 321 $ 125 $ 609 $ 1,055 Six Months Ended December 31, 2022 2021 Pension expense: CDT GXS GER GXS PHP Total CDT GXS GER GXS PHP Total Service cost $ 109 $ 52 $ 666 $ 827 $ 185 $ 85 $ 900 $ 1,170 Interest cost 405 248 310 963 221 157 293 671 Amortization of actuarial (gains) losses — ( 32 ) ( 94 ) ( 126 ) 246 12 ( 46 ) 212 Net pension expense $ 514 $ 268 $ 882 $ 1,664 $ 652 $ 254 $ 1,147 $ 2,053 Service-related net periodic pension costs are recorded within operating expense and all other non-service related net periodic pension costs are classified under “Interest and other related expense, net” on our Condensed Consolidated Statements of Income. Other Plans Other plans include defined benefit pension plans that are offered or statutorily required by certain of our foreign subsidiaries. Many of these plans were assumed through our acquisitions or are required by local regulatory requirements. These other plans are primarily unfunded, with the aggregate projected benefit obligation included in our pension liability. The net periodic costs of these plans are determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. NOTE 13— SHARE CAPITAL, OPTION PLANS AND SHARE-BASED PAYMENTS Cash Dividends For the three and six months ended December 31, 2022, pursuant to the Company’s dividend policy, we declared total non-cumulative dividends of $ 0.24299 and $ 0.48598 per Common Share, respectively, in the aggregate amount of $ 64.9 million and $ 129.6 million, respectively, which we paid during the same period (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). Share Capital Our authorized share capital includes an unlimited number of Common Shares and an unlimited number of Preference Shares. No Preference Shares have been issued. 23 Table of Contents Treasury Stock From time to time we may provide funds to an independent agent to facilitate repurchases of our Common Shares in connection with the settlement of awards under the Long-Term Incentive Plans (LTIP) or other plans. During the three and six months ended December 31, 2022, we did not repurchase any Common Shares on the open market for potential settlement of awards under our LTIP or other plans as described below (three and six months ended December 31, 2021— 400,000 Common Shares, respectively, at a cost of $ 19.6 million, respectively). During the three and six months ended December 31, 2022, we delivered to eligible participants 290,970 and 411,376 Common Shares, respectively, that were purchased in the open market in connection with the settlement of awards and other plans (three and six months ended December 31, 2021— 349,792 and 491,244 Common Shares, respectively). Share Repurchase Plan On November 4, 2021, the Board authorized a share repurchase plan (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. 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). Share-Based Payments Share-based compensation expense for the periods indicated below is detailed as follows: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Stock Options (issued under Stock Option Plans) $ 5,724 $ 4,748 $ 9,309 $ 9,015 Performance Share Units (issued under LTIP) 5,025 3,726 9,260 7,171 Restricted Share Units (issued under LTIP) 2,644 1,930 4,819 4,096 Restricted Share Units (other) 12,720 1,019 23,357 2,747 Deferred Share Units (directors) 1,288 1,324 2,249 2,154 Employee Stock Purchase Plan 1,421 1,662 3,036 3,160 Total share-based compensation expense $ 28,822 $ 14,409 $ 52,030 $ 28,343 A summary of unrecognized compensation cost for unvested shared-based payment awards is as follows: As of December 31, 2022 Unrecognized Compensation Cost Weighted Average Recognition Period (years) Stock Options (issued under Stock Option Plans) 56,107.3 2.7 Performance Share Units (issued under LTIP) 39,747.4 2.2 Restricted Share Units (issued under LTIP) 20,520.4 2.2 Restricted Share Units (other) 102,643.0 1.9 Total unrecognized share-based compensation cost $ 219,018.1 24 Table of Contents Stock Option Plans Stock Options A summary of activity under our stock option plans for the six months ended December 31, 2022 is as follows: Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($’000's) Outstanding at June 30, 2022 8,820,662 $ 42.74 4.68 $ 7,111 Granted 4,289,650 30.49 Exercised ( 72,080 ) 27.66 Forfeited or expired ( 734,555 ) 43.54 Outstanding at December 31, 2022 12,303,677 $ 38.51 5.07 $ 6,857 Exercisable at December 31, 2022 3,645,950 $ 39.19 3.08 $ 16 As of December 31, 2022, 6,039,749 options to purchase Common Shares were available for issuance under our stock option plans. We estimate the fair value of stock options using the Black-Scholes option-pricing model or, where appropriate, the Monte Carlo pricing model, consistent with the provisions of ASC Topic 718, “Compensation—Stock Compensation” (Topic 718) and SEC Staff Accounting Bulletin No. 107. The option-pricing models require input of subjective assumptions, including the estimated life of the option and the expected volatility of the underlying stock over the estimated life of the option. We use historical volatility as a basis for projecting the expected volatility of the underlying stock and estimate the expected life of our stock options based upon historical data. We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair value of our stock option grants. Estimates of fair value are not intended, however, to predict actual future events or the value ultimately realized by employees who receive equity awards. For the periods indicated, the weighted-average fair value of options and weighted-average assumptions estimated under the Black-Scholes option-pricing model were as follows: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Weighted–average fair value of options granted $ 5.77 $ 9.73 $ 6.40 $ 9.74 Weighted-average assumptions used: Expected volatility 28.87 % 26.66 % 28.50 % 26.63 % Risk–free interest rate 4.46 % 0.90 % 4.03 % 0.64 % Expected dividend yield 3.46 % 1.63 % 3.16 % 1.58 % Expected life (in years) 4.20 4.13 4.19 4.15 Forfeiture rate (based on historical rates) 7 % 7 % 7 % 7 % Average exercise share price $ 26.81 $ 51.61 $ 30.07 $ 52.35 25 Table of Contents Performance Options During the three and six months ended December 31, 2022, we granted zero and 1,000,000 performance options, respectively (during the three and six months ended December 31, 2021— nil , respectively). For the period in which performance options were granted, the weighted-average fair value of performance options and weighted-average assumptions estimated under the Monte Carlo pricing model were as follows: Six Months Ended December 31, 2022 Weighted–average fair value of options granted $ 8.09 Derived service period (in years) 1.7 Weighted-average assumptions used: Expected volatility 26.00 % Risk–free interest rate 3.21 % Expected dividend yield 2.00 % Average exercise share price $ 31.89 Long-Term Incentive Plans We incentivize certain eligible employees, in part, with long-term compensation pursuant to our LTIP. The LTIP is a rolling three-year program that grants eligible employees a certain number of target Performance Share Units (PSUs) and/or Restricted Share Units (RSUs). Target PSUs become vested upon the achievement of certain financial and/or operational performance criteria (the Performance Conditions) that are determined at the time of the grant. RSUs become vested when an eligible employee remains employed throughout the vesting period. PSUs and RSUs granted under the LTIP have been measured at fair value as of the effective date, consistent with Topic 718, and will be charged to share-based compensation expense over the remaining life of the plan. We estimate the fair value of PSUs using the Monte Carlo pricing model and RSUs have been valued based upon their grant date fair value. Stock options granted under the LTIP have been measured using the Black-Scholes option-pricing model, consistent with Topic 718. LTIP 2025 Grants made in Fiscal 2023 under the LTIP (collectively referred to as LTIP 2025), consisting of PSUs and RSUs, took effect in Fiscal 2023 starting on August 8, 2022. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the LTIP 2025. We expect to settle the LTIP 2025 awards in Common Shares. The LTIP 2025 PSU and RSU awards are eligible to receive dividend equivalent units that vest under the same conditions as the underlying grants. Performance Share Units (Issued Under LTIP) A summary of activity under our performance share units issued under the LTIP for the six months ended December 31, 2022 is as follows: Units Weighted-Average Grant Date Fair Value Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($’000's) Outstanding at June 30, 2022 812,937 $ 61.29 1.89 $ 30,762 Granted (1) 533,694 54.56 Vested (1) ( 224,593 ) 41.75 Forfeited or expired ( 70,006 ) 66.30 Outstanding at December 31, 2022 1,052,032 $ 61.64 2.27 $ 31,182 __________________________ (1) PSUs are earned based on market conditions and the actual number of PSUs earned, if any, is dependent upon performance and may range from 0 to 200 percent. 26 Table of Contents For the periods indicated, the weighted-average fair value of PSUs issued under LTIP, and weighted-average assumptions estimated under the Monte Carlo pricing model were as follows: Six Months Ended December 31, 2022 2021 Weighted–average fair value of performance share units granted $ 43.10 - $ 55.06 $ 69.78 - $ 75.15 Weighted-average assumptions used: Expected volatility 29 % - 31 % 28.00 % Risk–free interest rate 3.13 % - 3.39 % 0.45 % - 0.71 % Expected dividend yield — % 1.70 % - 1.80 % Expected life (in years) 3.11 3.10 Restricted Share Units (Issued Under LTIP) A summary of activity under our RSUs issued under the LTIP for the six months ended December 31, 2022 is as follows: Units Weighted-Average Grant Date Fair Value Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($’000's) Outstanding at June 30, 2022 611,743 $ 44.14 1.62 $ 23,148 Granted 400,299 38.82 Vested ( 147,223 ) 36.83 Forfeited or expired ( 56,686 ) 45.30 Outstanding at December 31, 2022 808,133 $ 42.22 2.20 $ 23,953 Restricted Share Units (Other) In addition to the grants made in connection with the LTIP discussed above, from time to time, we may grant RSUs to certain employees in accordance with employment and other non-LTIP related agreements. RSUs (other) vest over a specified contract date, typically two or three years from the respective date of grants. A summary of activity under our RSUs (other) issued for the six months ended December 31, 2022 is as follows: Units Weighted-Average Grant Date Fair Value Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($’000's) Outstanding at June 30, 2022 2,593,707 $ 44.90 2.86 $ 98,146 Granted 1,479,192 28.27 Vested ( 120,406 ) 45.73 Forfeited or expired ( 156,133 ) 43.74 Outstanding at December 31, 2022 3,796,360 $ 38.60 2.65 $ 112,524 Deferred Share Units (DSUs) The DSUs are granted to certain non-employee directors. DSUs are issued under our Deferred Share Unit Plan. DSUs granted as compensation for director fees vest immediately, whereas all other DSUs granted vest at our next annual general meeting following the granting of the DSUs. No DSUs are payable by us until the director ceases to be a member of the Board. A summary of activity under our deferred share units issued for the six months ended December 31, 2022 is as follows: Units Weighted-Average Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($’000's) Outstanding at June 30, 2022 (1) 885,701 $ 31.49 0.36 $ 33,515 Granted 125,918 28.76 Outstanding at December 31, 2022 (2) 1,011,619 $ 29.82 0.85 $ 29,984 27 Table of Contents ______________________ (1) Includes 55,520 unvested DSUs. (2) Includes 90,906 unvested DSUs. Employee Stock Purchase Plan (ESPP) Our ESPP offers employees the opportunity to purchase our Common Shares at a purchase price discount of 15 %. During the three and six months ended December 31, 2022, 227,885 and 582,350 Common Shares, respectively, were eligible for issuance to employees enrolled in the ESPP (three and six months ended December 31, 2021— 172,782 and 398,513 Common Shares, respectively). During the three and six months ended December 31, 2022, cash in the amount of $ 5.8 million and $ 13.8 million, respectively was received from employees relating to the ESPP (three and six months ended December 31, 2021—$ 7.0 million and $ 16.4 million, respectively). NOTE 14— GUARANTEES AND CONTINGENCIES We have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows: Payments due between Total January 1, 2023 - June 30, 2023 July 1, 2023 - June 30, 2025 July 1, 2025 - June 30, 2027 July 1, 2027 and beyond Long-term debt obligations (1) $ 6,673,929 $ 133,371 $ 1,455,308 $ 401,500 $ 4,683,750 Purchase obligations for contracts not accounted for as lease obligations (2) 86,305 28,619 45,007 12,679 — $ 6,760,234 $ 161,990 $ 1,500,315 $ 414,179 $ 4,683,750 _________________________ (1) Includes interest up to maturity and principal payments. Please see Note 11 “Long-Term Debt” for more details. The table above does not reflect 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) For contractual obligations relating to leases and purchase obligations accounted for under ASC Topic 842, please see Note 6 “Leases.” Guarantees and Indemnifications We have entered into customer agreements which may include provisions to indemnify our customers against third-party claims that our software products or services infringe certain third-party intellectual property rights and for liabilities related to a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification provisions and have not accrued any liabilities related to these indemnification provisions in our Condensed Consolidated Financial Statements. Occasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including, among others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such agreements have not had a material effect on our results of operations, financial position or cash flows. Litigation We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 “Loss Contingencies” (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this Quarterly Report on Form 10-Q, the aggregate of such accrued liabilities was not material to our consolidated financial position or results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations. As 28 Table of Contents described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters. Contingencies CRA Matter As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of 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. Audits by the CRA of our tax returns for fiscal years prior to Fiscal 2012 have been completed with no reassessment of our income tax liability. 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 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. The CRA has audited Fiscal 2017 on a basis that we strongly disagree with and are contesting. The focus of the CRA audit has been the valuation of certain intellectual property and goodwill when one of our subsidiaries continued into Canada from Luxembourg in July 2016. In accordance with applicable rules, these assets were recognized for tax purposes at fair market value as of that time, which value was supported by an expert valuation prepared by an independent leading accounting and advisory firm. CRA’s position for Fiscal 2017 relies in significant part on the application of its positions regarding our transfer pricing methodology that are the basis for its reassessment of our fiscal years 2012 to 2016 described above, and that we believe are without merit. Other aspects of CRA’s position for Fiscal 2017 conflict with the expert valuation prepared by the independent leading accounting and advisory firm that was used to support our original filing position. On January 27, 2022, the CRA issued a notice of reassessment in respect of Fiscal 2017 on a basis consistent with its proposal to reduce the available depreciable basis of assets in Canada. On April 19, 2022, we filed our notice of objection regarding the reassessment in respect of Fiscal 2017. If we are ultimately unsuccessful in defending our position, the estimated impact of the proposed adjustment could result in us recording an income tax expense, with no immediate cash payment, to reduce the stated value of our deferred tax assets of up to approximately $ 470 million. Any such income tax expense could also have a corresponding cash tax impact that would primarily occur over a period of several future years based upon annual income realization in Canada. We strongly disagree with the CRA’s position for Fiscal 2017 and intend to vigorously defend our original filing position. We 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. We will continue to vigorously contest the adjustments to our taxable income and any penalty and interest assessments, as well as any reduction to the basis of our depreciable property. We are confident that our original tax filing positions were appropriate. Accordingly, as of the date of this Quarterly Report on Form 10-Q, we have not recorded any accruals in respect of these reassessments or proposed reassessment in our Condensed Consolidated Financial Statements. The CRA is currently in preliminary stages of auditing Fiscal 2018 and Fiscal 2019. Carbonite Class Action Complaint On August 1, 2019, prior to our acquisition of Carbonite, a purported stockholder of Carbonite filed a putative class action complaint against Carbonite, its former Chief Executive Officer, Mohamad S. Ali, and its former Chief Financial Officer, 29 Table of Contents Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A. Luna, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19-cv-11662-LTS). The complaint alleges violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint generally alleges that the defendants made materially false and misleading statements in connection with Carbonite’s Server Backup VM Edition, and seeks, among other things, the designation of the action as a class action, an award of unspecified compensatory damages, costs and expenses, including counsel fees and expert fees, and other relief as the court deems appropriate. On August 23, 2019, a nearly identical complaint was filed in the same court captioned William Feng, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19- cv-11808-LTS) (together with the Luna Complaint, the “Securities Actions”). On November 21, 2019, the district court consolidated the Securities Actions, appointed a lead plaintiff, and designated a lead counsel. On January 15, 2020, the lead plaintiff filed a consolidated amended complaint generally making the same allegations and seeking the same relief as the complaint filed on August 1, 2019. The defendants moved to dismiss the Securities Actions on March 10, 2020. The motion was fully briefed in June 2020 and a hearing on the motion to dismiss the Securities Actions was held on October 15, 2020. Following the hearing, on October 22, 2020, the district court granted with prejudice the defendants’ motion to dismiss the Securities Actions. On November 20, 2020, the lead plaintiff filed a notice of appeal to the Court of Appeals for the First Circuit. On December 21, 2021, the First Circuit issued a decision reversing and remanding the Securities Actions to the district court for further proceedings. The defendants remain confident in their position, believe the Securities Actions are without merit, and will continue to vigorously defend the matter. Carbonite vs Realtime Data On February 27, 2017, before our acquisition of Carbonite, a non-practicing entity named Realtime Data LLC (Realtime Data) filed a lawsuit against Carbonite in the U.S. District Court for the Eastern District of Texas “Realtime Data LLC v. Carbonite, Inc. et al (No 6:17-cv-00121-RWS-JDL).” Therein, it alleged that certain of Carbonite’s cloud storage services infringe upon certain patents held by Realtime Data. Realtime Data’s complaint against Carbonite sought damages in an unspecified amount and injunctive relief. On December 19, 2017, the U.S. District Court for the Eastern District of Texas transferred the case to the U.S. District Court for the District of Massachusetts (No. 1:17-cv-12499). Realtime Data has also filed numerous other patent suits on the same asserted patents against other companies. After a stay pending appeal in one of those suits, on January 21, 2021, the district court held a hearing to construe the claims of the asserted patents. As to the fourth patent asserted against Carbonite, on September 24, 2019, the U.S. Patent & Trademark Office Patent Trial and Appeal Board invalidated certain claims of that patent, including certain claims that had been asserted against Carbonite. The parties then jointly stipulated to dismiss that patent from this action. On August 23, 2021, in one of the suits against other companies, the District of Delaware (No. 1:17-cv-800), held all of the patents asserted against Carbonite to be invalid. Realtime Data has appealed that decision to the U.S. Court of Appeals for the Federal Circuit. We continue to vigorously defend the matter, and the U.S. District Court for the District of Massachusetts has issued a claim construction order. We have not accrued a loss contingency related to this matter because litigation related to a non-practicing entity is inherently unpredictable. Although a loss is reasonably possible, an unfavorable outcome is not considered by management to be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss associated with this litigation. Please also see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2022. NOTE 15— INCOME TAXES The Company’s 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 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 effective 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. 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 and amending a prior year return to reduce the prior year US Base Erosion and Anti-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 Company’s effective 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 30 Table of Contents 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. As of December 31, 2022, the gross amount of unrecognized tax benefits accrued is $ 66.6 million, which is inclusive of interest and penalties accrued of $ 9.1 million (June 30, 2022 — $ 54.1 million and $ 8.4 million, respectively). We believe that it is reasonably possible that the gross unrecognized tax benefit could decrease by $ 6.5 million in the next 12 months, relating primarily to the expiration of competent authority relief and tax years becoming statute barred for purposes of future tax examinations by local taxing jurisdictions. We are subject to income tax audits in all major taxing jurisdictions in which we operate, and remain subject to income tax audits by applicable tax authorities for a certain length of time following the tax year to which those tax filings relate. We currently have income tax audits open in Canada, the United States, Germany and other immaterial jurisdictions. The earliest fiscal years open for examination for our major jurisdictions are 2012 for Canada, 2016 for the United States and 2016 for Germany. On a quarterly basis we assess the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income and other taxes. Statements regarding the Canada audits are included in Note 14 “Guarantees and Contingencies.” The timing of the resolution of income tax audits is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax audits in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on tax filings. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes. For more information relating to certain income tax audits, please refer to Note 14 “Guarantees and Contingencies.” 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. We have not provided for additional foreign withholding taxes or deferred income tax liabilities related to undistributed earnings of all other non-Canadian subsidiaries, since such earnings are considered permanently invested in those subsidiaries or are not subject to withholding taxes. It is not practicable to reasonably estimate the amount of additional deferred income tax liabilities or foreign withholding taxes that may be payable should these earnings be distributed in the future. NOTE 16— FAIR VALUE MEASUREMENT ASC Topic 820 “Fair Value Measurement” (Topic 820) defines fair value, establishes a framework for measuring fair value, and addresses disclosure requirements for fair value measurements. Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value, in this context, should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including our own credit risk. In addition to defining fair value and addressing disclosure requirements, Topic 820 establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are: • Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. • Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques. 31 Table of Contents Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis: Our financial assets and liabilities that are measured at fair value on a recurring basis consisted of the following types of instruments as of December 31, 2022 and June 30, 2022: Fair Value Fair Value Hierarchy December 31, 2022 June 30, 2022 Financial Assets (Liabilities): Designated as Hedging Instruments Cash flow hedge (Note 17) Level 2 $ ( 1,834 ) $ ( 892 ) Not Designated as Hedging Instruments Deal-contingent forward contracts (Note 17) Level 3 $ 285 $ — Non-contingent forward contract (Note 17) Level 2 $ 6,563 $ — Cross currency swap contract (Note 17) Level 2 $ ( 16,702 ) $ — Changes in Level 3 Fair Value Measurements The following tables provides a reconciliation of changes in the fair value of our Level 3 deal-contingent foreign currency forward contract between June 30, 2022 and December 31, 2022. Deal-contingent foreign currency forward contract Balance as of June 30, 2022 $ — Gain (loss) recognized in income 285 Balance as of December 31, 2022 $ 285 Our valuation techniques used to measure the fair value of our Level 2 and Level 3 derivative instruments, the counterparties to which have high credit ratings, were derived from pricing models including discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data, as no quoted market prices exist for these instruments. Our discounted cash flow techniques use observable market inputs, such as, where applicable, foreign currency spot and forward rates. The valuation technique for our Level 3 derivative instrument utilizes management estimates related to the probability and timing of our Micro Focus Acquisition that are unobservable, and are not deemed to be significant inputs for the overall valuation. Our cash and cash equivalents, along with our accounts receivable and accounts payable and accrued liabilities balances, are measured and recognized in our Condensed Consolidated Financial Statements at an amount that approximates the fair value (a Level 2 measurement) due to their short maturities. The fair value of our Senior Notes is determined based on observable market prices and categorized as a Level 2 measurement. As of December 31, 2022, the fair value was $ 3.7 billion (June 30, 2022—$ 2.8 billion). The carrying value of our other long-term debt facilities approximates the fair value since the interest rate is at market. Please see Note 11 “Long-Term Debt” for further details. If applicable, we will recognize transfers between levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. During the three and six months ended December 31, 2022 and 2021, respectively, we did not have any transfers between Level 1, Level 2 or Level 3. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities are recognized at fair value when they are deemed to be other-than-temporarily impaired. During the three and six months ended December 31, 2022 and 2021, respectively, no indications of impairments were identified and therefore no fair value measurements were required. 32 Table of Contents NOTE 17— DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Cash Flow Hedge We are engaged in hedging programs with various banks to limit the potential foreign exchange fluctuations incurred on future cash flows relating to a portion of our Canadian dollar payroll expenses. We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of our business, in particular to changes in the Canadian dollar on account of large costs that are incurred from our centralized Canadian operations, which are denominated in Canadian dollars. As part of our risk management strategy, we use foreign currency forward contracts to hedge portions of our payroll exposure with typical maturities of between one and twelve months . We do not use foreign currency forward contracts for speculative purposes. We have designated these transactions as cash flow hedges of forecasted transactions under ASC Topic 815 “Derivatives and Hedging” (Topic 815). As the critical terms of the hedging instrument and of the entire hedged forecasted transaction are the same, in accordance with Topic 815, we have been able to conclude that changes in fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, quarterly unrealized gains or losses on the effective portion of these forward contracts have been included within “Other Comprehensive Income (Loss) - net.” As of December 31, 2022, the fair value of the contracts is recorded within “Accounts payable and accrued liabilities” and represents the net loss before tax effect that is expected to be reclassified from accumulated other comprehensive income (loss) into earnings with the next twelve months. As of December 31, 2022, the notional amount of forward contracts we held to sell U.S. dollars in exchange for Canadian dollars was $ 87.6 million (June 30, 2022—$ 66.5 million). Non-designated Hedges In connection with the Micro Focus Acquisition, in August 2022, the Company entered into certain derivative transactions to meet certain foreign currency obligations under UK cash confirmation requirements related to the purchase price of the Micro Focus Acquisition, mitigate the risk of foreign currency appreciation in the GBP denominated purchase price and mitigate the risk of foreign currency appreciation in the EUR denominated existing debt held by Micro Focus. The Company entered into the following derivatives: (i) three deal-contingent forward contracts, (ii) a non-contingent forward contract, and (iii) EUR/USD cross currency swaps. The deal-contingent forward contracts have an aggregate notional amount of £ 1.475 billion. The non-contingent forward contract has a notional amount of £ 350 million. The cross currency swaps are comprised of a 5 year EUR/USD cross currency swap with a notional amount of € 690 million and a 7 year EUR/USD cross currency swap with a notional amount of € 690 million. 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. These instruments were entered into as economic hedges to mitigate foreign currency risks associated with the Micro Focus Acquisition. The instruments do not qualify for hedge accounting at inception. Derivative financial instruments that do not apply hedge accounting are recognized on the Condensed Consolidated Balance Sheets as either assets or liabilities. As of December 31, 2022, the forward contracts are in a net asset position and are classified within “Prepaid expenses and other current assets” and the cross currency swaps are in a net liability position and are classified within “Accounts payable and accrued liabilities.” The forward contracts and cross currency swaps are measured at fair value with changes to fair value being recognized in the Condensed Consolidated Statements of Income within “Other income (expense), net.” 33 Table of Contents Fair Value of Derivative Instruments and Effect of Derivative Instruments on Financial Performance The fair values of outstanding derivative instruments are as follows: As of December 31, 2022 As of June 30, 2022 Instrument Balance Sheet Location Asset Liability Asset Liability Derivatives designated as hedges: Cash flow hedge Accounts payable and accrued liabilities $ — $ ( 1,834 ) $ — $ ( 892 ) Total derivatives designated as hedges: $ — $ ( 1,834 ) $ — $ ( 892 ) Derivatives not designated as hedges: Deal-contingent forward contracts Prepaid expenses and other current assets 285 — — — Non-contingent forward contract Prepaid expenses and other current assets 6,563 — — — Cross currency swap contracts Accounts payable and accrued liabilities — ( 16,702 ) — — Total derivatives not designated as hedges: $ 6,848 $ ( 16,702 ) $ — $ — Total derivatives $ 6,848 $ ( 18,536 ) $ — $ ( 892 ) The effects of gains (losses) from derivative instruments on our Condensed Consolidated Statements of Income is as follows: Three Months Ended December 31, Six Months Ended December 31, Instrument Income Statement Location 2022 2021 2022 2021 Derivatives designated as hedges: Cash flow hedges Operating expenses $ ( 1,498 ) $ 25 $ ( 2,298 ) $ 415 Derivatives not designated as hedges: Deal-contingent forward contract Other income (expense), net 125,616 — 285 — Non-contingent forward contract Other income (expense), net 32,766 — 6,563 — Cross currency swap contracts Other income (expense), net 13,225 — ( 16,702 ) — Total $ 170,109 $ 25 $ ( 12,152 ) $ 415 The effects of the cash flow hedges on our Condensed Consolidated Statements of Comprehensive Income: Three Months Ended December 31, Six Months Ended December 31, Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income Location 2022 2021 2022 2021 Gain (loss) recognized in OCI (loss) on derivatives (effective portion) Unrealized gain (loss) on cash flow hedges $ 1,306 $ 141 $ ( 3,240 ) $ ( 1,336 ) Gain (loss) reclassified from AOCI into income (effective portion) Operating expenses $ ( 1,498 ) $ 25 $ ( 2,298 ) $ 415 34 Table of Contents NOTE 18— SPECIAL CHARGES (RECOVERIES) Special charges (recoveries) include costs and recoveries that relate to certain restructuring initiatives that we have undertaken from time to time under our various restructuring plans, as well as acquisition-related costs and other charges. Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Fiscal 2022 Restructuring Plan $ 1,991 $ — $ 8,101 $ — Other historical restructuring plans ( 622 ) ( 440 ) ( 1,090 ) ( 1,042 ) Acquisition-related costs 6,003 3,937 10,588 4,665 Other charges (recoveries) 2,934 5,720 6,988 5,938 Total $ 10,306 $ 9,217 $ 24,587 $ 9,561 Fiscal 2022 Restructuring Plan During the third quarter of Fiscal 2022, as part of our return to office planning, we made a strategic decision to implement restructuring activities to streamline our operations and further reduce our real estate footprint around the world (Fiscal 2022 Restructuring Plan). The Fiscal 2022 Restructuring Plan charges will relate to facility costs and workforce reductions. Facility costs will include the accelerated amortization associated with the abandonment of ROU assets, the write-off of fixed assets and other related variable lease and exit costs. These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate. During the three and six months ended December 31, 2022, we recognized costs of $ 0.5 million and $ 4.3 million respectively related to abandoned office space that have been early terminated or assigned to a third party, of which $ 1 million and $ 3.9 million were related to the write-off of right of use assets. As of December 31, 2022, we expect total costs to be incurred in connection with the Fiscal 2022 Restructuring Plan to be approximately $ 35.0 million to $ 40.0 million, of which $ 33.9 million has been recorded within “Special charges (recoveries)” to date. A reconciliation of the beginning and ending restructuring liability, which is included within “Accounts payable and accrued liabilities” in our Condensed Consolidated Balance Sheets, for the six months ended December 31, 2022 is shown below. Fiscal 2022 Restructuring Plan Workforce reduction Facility charges Total Balance payable as of June 30, 2022 $ 989 $ 5,410 $ 6,399 Accruals and adjustments 3,628 441 4,069 Cash payments ( 3,158 ) ( 987 ) ( 4,145 ) Foreign exchange and other non-cash adjustments ( 30 ) ( 99 ) ( 129 ) Balance payable as of December 31, 2022 $ 1,429 $ 4,765 $ 6,194 Acquisition-related costs Acquisition-related costs, recorded within “Special charges (recoveries)” include direct costs of potential and completed acquisitions. Acquisition-related costs for the three and six months ended December 31, 2022 were $ 6.0 million and $ 10.6 million, respectively (three and six months ended December 31, 2021—$ 3.9 million and $ 4.7 million, respectively). Other charges (recoveries) For the three and six months ended December 31, 2022, “Other charges (recoveries)” includes $ 3.6 million and $ 7.2 million, respectively, related to pre-acquisition equity incentives of Zix Corporation (Zix), which upon acquisition were replaced by equivalent value cash settlements (see Note 19 “Acquisitions”) and $( 0.7 ) million and $( 0.2 ) million, respectively, related to other miscellaneous charges (recoveries). For the three and six months ended December 31, 2021, “Other charges” includes $ 2.0 million, respectively, related to Zix pre-acquisition equity incentives, which upon acquisition were replaced by equivalent value cash settlements (see Note 19 “Acquisitions”) and $ 3.7 million and $ 3.9 million, respectively, related to other miscellaneous charges. 35 Table of Contents NOTE 19— ACQUISITIONS Fiscal 2023 Acquisitions 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 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 (see Note 22 “Other Income (Expense), Net”). On October 18, 2022, the shareholders of Micro Focus approved the all-cash offer. On December 1, 2022, the Company issued and sold $ 1 billion in aggregate principal amount of 6.90 % Senior Secured Notes 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-related costs for Micro Focus included in “Special Charges (Recoveries)” in the Condensed Consolidated Financial Statements for the three and six months ended December 31, 2022 were $ 5.9 million and $ 10.3 million. Fiscal 2022 Acquisitions Acquisition of Zix Corporation On December 23, 2021, we acquired all of the equity interest in Zix, a leader in software as a service (SaaS) based email encryption, threat protection and compliance cloud solutions for small and medium-sized businesses (SMB). Total consideration for Zix was $ 894.5 million paid in cash, inclusive of cash acquired and $ 18.6 million relating to the cash settlement of pre-acquisition vested share-based compensation that was previously accrued but since paid as of March 31, 2022. In accordance with Accounting Standards Codification (ASC) Topic 805 “Business Combinations” (Topic 805), this acquisition was accounted for as a business combination. We believe the acquisition increases our position in the data protection, threat management, email security and compliance solutions spaces. The results of operations of Zix have been consolidated with those of OpenText beginning December 23, 2021. 36 Table of Contents Purchase Price Allocation The recognized amounts of identifiable assets acquired and liabilities assumed, based on their fair values as of December 23, 2021, are set forth below: Current assets (inclusive of cash acquired of $ 38.3 million) $ 71,527 Non-current tangible assets 13,450 Intangible customer assets 212,400 Intangible technology assets 92,650 Liabilities assumed ( 81,476 ) Total identifiable net assets 308,551 Goodwill 585,910 Net assets acquired $ 894,461 The goodwill of $ 585.9 million is primarily attributable to the synergies expected to arise after the acquisition. There is $ 103.7 million of goodwill that is deductible for tax purposes. The fair value of current assets acquired includes accounts receivable with a fair value of $ 26.0 million. The gross amount receivable was $ 32.6 million, of which $ 6.6 million is expected to be uncollectible. Acquisition-related costs for Zix included in “Special Charges (Recoveries)” in the Condensed Consolidated Financial Statements for the three and six months ended December 31, 2022 were nil and $ 0.2 million, respectively. Pre-acquisition equity incentives of $ 26.4 million were replaced upon acquisition by equivalent value cash settlements to be settled in accordance with the original vesting dates, primarily over the two years after the date of the acquisition. Of these equity incentives, $ 3.6 million and $ 7.2 million, respectively, for the three and six months ended December 31, 2022 were included in “Special Charges (Recoveries).” The finalization of the purchase price allocation during the three months ended December 31, 2022 did not result in any significant changes to the preliminary amounts previously disclosed. Acquisition of Bricata Inc. On November 24, 2021, we acquired all of the equity interest in Bricata Inc. (Bricata) for $ 17.8 million. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe the acquisition strengthens our OpenText Security and Protection Cloud with Network Detection and Response technologies. The results of operations of Bricata have been consolidated with those of OpenText beginning November 24, 2021. NOTE 20— ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Three Months Ended December 31, 2022 Foreign Currency Translation Adjustments Cash Flow Hedges Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance as of September 30, 2022 $ ( 39,682 ) $ ( 3,408 ) $ 514 $ ( 42,576 ) Other comprehensive income (loss) before reclassifications, net of tax 39,419 959 32 40,410 Amounts reclassified into net income, net of tax — 1,101 37 1,138 Total other comprehensive income (loss) net, for the period 39,419 2,060 69 41,548 Balance as of December 31, 2022 $ ( 263 ) $ ( 1,348 ) $ 583 $ ( 1,028 ) 37 Table of Contents Six Months Ended December 31, 2022 Foreign Currency Translation Adjustments Cash Flow Hedges Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance as of June 30, 2022 $ ( 3,316 ) $ ( 656 ) $ ( 3,687 ) $ ( 7,659 ) Other comprehensive income (loss) before reclassifications, net of tax 3,053 ( 2,381 ) 4,196 4,868 Amounts reclassified into net income, net of tax — 1,689 74 1,763 Total other comprehensive income (loss) net, for the period 3,053 ( 692 ) 4,270 6,631 Balance as of December 31, 2022 $ ( 263 ) $ ( 1,348 ) $ 583 $ ( 1,028 ) Three Months Ended December 31, 2021 Foreign Currency Translation Adjustments Cash Flow Hedges Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance as of September 30, 2021 $ 65,316 $ ( 543 ) $ ( 10,887 ) $ 53,886 Other comprehensive income (loss) before reclassifications, net of tax ( 21,347 ) 104 ( 1,435 ) ( 22,678 ) Amounts reclassified into net income, net of tax — ( 18 ) 159 141 Total other comprehensive income (loss) net, for the period ( 21,347 ) 86 ( 1,276 ) ( 22,537 ) Balance as of December 31, 2021 $ 43,969 $ ( 457 ) $ ( 12,163 ) $ 31,349 Six Months Ended December 31, 2021 Foreign Currency Translation Adjustments Cash Flow Hedges Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance as of June 30, 2021 $ 75,408 $ 830 $ ( 10,000 ) $ 66,238 Other comprehensive income (loss) before reclassifications, net of tax ( 31,439 ) ( 982 ) ( 2,484 ) ( 34,905 ) Amounts reclassified into net income, net of tax — ( 305 ) 321 16 Total other comprehensive income (loss) net, for the period ( 31,439 ) ( 1,287 ) ( 2,163 ) ( 34,889 ) Balance as of December 31, 2021 $ 43,969 $ ( 457 ) $ ( 12,163 ) $ 31,349 NOTE 21— SUPPLEMENTAL CASH FLOW DISCLOSURES Six Months Ended December 31, 2022 2021 Cash paid during the period for interest $ 92,016 $ 73,389 Cash received during the period for interest $ 21,525 $ 1,531 Cash paid during the period for income taxes $ 91,444 $ 60,293 NOTE 22— OTHER INCOME (EXPENSE), NET Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Foreign exchange gains (losses) $ 60 $ 192 $ ( 1,301 ) $ 543 Unrealized gains (losses) on derivatives not designated as hedges (1) 171,607 — ( 9,854 ) — OpenText share in net income of equity investees (2) ( 289 ) 2,042 ( 6,823 ) 31,357 Loss on debt extinguishment (3) (4) ( 8,131 ) ( 27,413 ) ( 8,131 ) ( 27,413 ) Other miscellaneous income (expense) 102 142 227 258 Total other income (expense), net $ 163,349 $ ( 25,037 ) $ ( 25,882 ) $ 4,745 38 Table of Contents ____________________________________ (1) Represents the unrealized gains (losses) on our derivatives not designated as hedges related to the financing of the 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). NOTE 23— EARNINGS PER SHARE Basic earnings per share are computed by dividing net income attributable to OpenText, by the weighted average number of Common Shares outstanding during the period. Diluted earnings per share are computed by dividing net income attributable to OpenText, by the shares used in the calculation of basic earnings per share plus the dilutive effect of Common Share equivalents, such as stock options, using the treasury stock method. Common Share equivalents are excluded from the computation of diluted earnings per share if their effect is anti-dilutive. Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Basic earnings per share Net income attributable to OpenText $ 258,486 $ 88,298 $ 141,557 $ 220,213 Basic earnings per share attributable to OpenText $ 0.96 $ 0.32 $ 0.52 $ 0.81 Diluted earnings per share Net income attributable to OpenText $ 258,486 $ 88,298 $ 141,557 $ 220,213 Diluted earnings per share attributable to OpenText $ 0.96 $ 0.32 $ 0.52 $ 0.81 Weighted-average number of shares outstanding (in '000's) Basic 270,189 272,112 269,997 272,078 Effect of dilutive securities — 819 12 996 Diluted 270,189 272,931 270,009 273,074 Excluded as anti-dilutive (1) 11,462 3,108 10,331 2,845 ____________________________________ (1) Represents options to purchase Common Shares excluded from the calculation of diluted earnings per share because the exercise price of the stock options was greater than or equal to the average price of the Common Shares during the period. NOTE 24— RELATED PARTY TRANSACTIONS Our procedure regarding the approval of any related party transaction requires that the material facts of such transaction be reviewed by the independent members of the Audit Committee and the transaction be approved by a majority of the independent members of the Audit Committee. The Audit Committee reviews all transactions in which we are, or will be, a participant and any related party has or will have a direct or indirect interest in the transaction. In determining whether to approve a related party transaction, the Audit Committee generally takes into account, among other facts it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent and nature of the related person’s interest in the transaction; the benefits to the Company of the proposed transaction; if applicable, the effects on a director’s independence; and if applicable, the availability of other sources of comparable services or products. During the six months ended December 31, 2022, Mr. Stephen Sadler, a member of the Board of Directors, earned $ 7 thousand (six months ended December 31, 2021 — $ 0.4 million) in consulting fees from OpenText for assistance with acquisition-related business activities. Mr. Sadler abstained from voting on all transactions from which he would potentially derive consulting fees. 39 Table of Contents NOTE 25— SUBSEQUENT EVENTS Cash Dividends As part of our quarterly, non-cumulative cash dividend program, we declared, on February 1, 2023, a dividend of $ 0.24299 per Common Share. The record date for this dividend is March 3, 2023 and the payment date is March 23, 2023. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of our Board. 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. 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. In accordance with Topic 805, the Micro Focus Acquisition will be accounted for as a business combination. The major classes of assets acquired through the Micro Focus Acquisition include, current assets, non-current tangible assets, intangible technology assets and intangible customer assets, as well as certain liabilities assumed. Due to the limited time since the acquisition date and the size and complexity of the transaction, the accounting for the business combination is not yet complete. The Company is not able to provide the allocation of consideration paid to the assets acquired or liabilities assumed. As such, it is impractical for the Company to present pro forma and comparative statements as of the date of this filing and such statements will be included in a subsequent Form 8-K. The results of operations of Micro Focus will be consolidated with those of OpenText beginning in the third quarter of Fiscal 2023. Refer to the Notes which include details related to the Micro Focus Acquisition: Note 9 “Prepaid Expenses and Other Assets,” Note 10 “Accounts Payable and Accrued Liabilities,” Note 11 “Long-Term Debt,” Note 16 “Fair Value Measurement,” Note 17 “Derivative Instruments and Hedging Activities,” Note 19 “Acquisitions” and Note 22 “Other Income (Expense), Net” along with Part II, Item 1A, “Risk Factors” included within this Quarterly Report on Form 10-Q. 40 Table of Contents