What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2023-02-02 · 349 added, 273 removed, 977 unchanged (39% of the section changed)

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(vi) the Company’s presence in the cloud and in growth markets;

(vii) our expectation to grow MSPs;

(vii) our expectation to grow Managed Service Providers (MSPs);

(viii) product and solution developments, enhancements and releases, the timing thereof and the customers targeted;

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(xxii) potential legal and/or regulatory proceedings;

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

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

(xxiv) tax audits;

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

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

(ii) the actual and potential impacts of the use of cash and incurrence of indebtedness, including the granting of security interests related to such debt;

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

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

(vi) actions that have been and may be taken by governmental authorities to

contain the COVID-19 pandemic or to treat its impact on our business (or failure to implement additional stimulus programs) and the availability, effectiveness and use of treatments and vaccines (including the effectiveness of boosters);

(vi) actions that have been and may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact on our

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business (or failure to implement additional stimulus programs) and the availability, effectiveness and use of treatments and vaccines (including the effectiveness of boosters);

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

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

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

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

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

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and (xvi) the ability of the Company’s subsidiaries to make distributions to the Company.

Readers should carefully review Part II, Item 1A “Risk Factors” herein and the Company's Annual Report on Form 10-K, including Part I, Item 1A “Risk Factors” therein, Quarterly Report on Form 10-Q, including Item 1A therein and other documents we file from time to time with the Securities and Exchange Commission (SEC) and other securities regulators.

Readers should carefully review Part II, Item 1A “Risk Factors” herein and the Company's Annual Report on Form 10-K, including Part I, Item 1A “Risk Factors” therein, Quarterly Reports on Form 10-Q, including Item 1A therein and other documents we file from time to time with the Securities and Exchange Commission (SEC) and other securities regulators.

A number of factors may materially affect our business, financial condition, operating results and prospects.

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Unless otherwise required by applicable securities laws, the Company disclaims any intention or

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obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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

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

All dollar and percentage comparisons made herein refer to the three and nine months ended March 31, 2023 compared with the three and nine months ended March 31, 2022, unless otherwise noted.

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

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Our comprehensive Information Management platform and services provide secure and scalable solutions for global companies, small and medium-sized businesses (SMBs), governments and consumers around the world.

We have a complete and integrated portfolio of Information Management solutions delivered at scale in the OpenText Cloud, helping organizations master modern work, power modern experiences and optimize their digital supply chains.

To do this, we bring together our Content Cloud, Business Network Cloud, Experience Cloud, Security Cloud and Developer Cloud.

We have a complete and integrated portfolio of Information Management solutions delivered at scale in the OpenText Cloud, helping organizations master modern work, automate application delivery and modernization, and optimize their digital supply chains.

To do this, we bring together our Content Cloud, Business Network Cloud, Experience Cloud, Cybersecurity Cloud, AI Cloud, DevOps Cloud, IT Operations Cloud and Developer Cloud.

We also accelerate information modernization with intelligent tools and services for moving off paper, automating classification and building clean data lakes for Artificial Intelligence (AI), analytics and automation.

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

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

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

We make information more valuable by connecting it to digital business processes, enriching it with analytics, protecting and securing it throughout its entire lifecycle, and leveraging it to create engaging experiences for employees, suppliers, developers, partners, and customers.

Our solutions range from connecting large digital supply chains to managing HR processes to driving better IT service management in manufacturing, retail and financial services.

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

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

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

As of March 31, 2023, we employed a total of approximately 25,550 individuals, of which approximately 10,600 joined our workforce as part of the Micro Focus Acquisition.

Of the total 25,550 individuals we employed as of March 31, 2023, 9,950 or 39% are in the Americas, 6,100 or 24% are in EMEA and 9,500 or 37% are in Asia Pacific.

Currently, we have employees in 46 countries enabling strong access to multiple talent pools while ensuring reach and proximity to our customers.

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Quarterly Summary:

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

During the third quarter of Fiscal 2023 (which includes the results of Micro Focus from February 1, 2023 to March 31, 2023, which has a significant impact on period-over-period comparisons, as noted below) we saw the following activity:

• Total revenue was $1,244.7 million, up 41.1% compared to the same period in the prior fiscal year;

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up 10.4% after factoring in the unfavorable impact of $8.2 million of foreign exchange rate changes.

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• GAAP-based gross margin was 70.3% compared to 68.9% in the same period in the prior fiscal year.

• Non-GAAP-based gross margin was 75.8% compared to 74.5% in the same period in the prior fiscal year.

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

• GAAP-based net income attributable to OpenText was $57.6 million compared to $74.7 million in the same period in the prior fiscal year.

• Non-GAAP-based net income attributable to OpenText was $197.8 million compared to $190.8 million in the same period in the prior fiscal year.

• GAAP-based earnings per share (EPS), diluted, was $0.21 compared to $0.28 in the same period in the prior fiscal year.

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

• Non-GAAP-based EPS, diluted, was $0.73 compared to $0.70 the same period in the prior fiscal year.

• Adjusted EBITDA was $365.1 million compared to $284.5 million in the same period in the prior fiscal year.

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

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

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

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

We define Enterprise cloud bookings as the total value from cloud services and subscription contracts entered into in the period that is new, committed and incremental to our existing contracts, excluding the impact of Carbonite and Zix.

• Operating cash flow was $663.9 million for the nine months ended March 31, 2023 compared to $729.9 million in the same period in the prior fiscal year, down 9.0%.

• Cash and cash equivalents were $1,396.8 million as of March 31, 2023, compared to $1,693.7 million as of June 30, 2022.

• Acquired Micro Focus for total consideration of $6.2 billion, inclusive of Micro Focus’ cash, subject to final adjustments.

• In connection with the financing of the Micro Focus Acquisition, we drew down the entire $3.585 billion of the Acquisition Term Loan (as defined below) and drew down $450.0 million under the Revolver (as defined below).

• Micro Focus contributed $374.4 million of revenues and $29.8 million of GAAP-based net losses for the three and nine months ended March 31, 2023.

• Enterprise cloud bookings were $108.2 million, which remained stable over the same period in the prior fiscal year.

(Carbonite) and Zix.

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

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Acquisition of Micro Focus

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

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

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

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

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

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

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

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

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

On January 31, 2023, we acquired all of the issued and to be issued share capital of Micro Focus for a total purchase price of $6.2 billion, inclusive of Micro Focus’ cash and repayment of Micro Focus’ outstanding indebtedness, subject to final adjustments.

In connection with the financing of the Micro Focus Acquisition, concurrent with the announcement of the acquisition on August 25, 2022, the Company entered into the Acquisition Term Loan and Bridge Loan (as defined below) as well as certain derivative transactions.

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), amended the Acquisition Term Loan and terminated the Bridge Loan.

On January 31, 2023, we drew down the entire aggregate principal amount of $3.585 billion of the Acquisition Term Loan, net of original issuance discount and other fees, and drew down $450.0 million under the Revolver.

We used these proceeds and cash on hand to fund the purchase price consideration and repayment of Micro Focus’ outstanding indebtedness.

In conjunction with the closing of the Micro Focus Acquisition, the deal-contingent forward contracts and non-contingent forward contract, as described in Note 17 “Derivative Instruments and Hedging Activities” to our Condensed Consolidated Financial Statements were settled.

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

The Micro Focus Acquisition has a significant impact on period-over-period comparability as more fully discussed below.

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Acquisition of Zix Corporation

On December 23, 2021, we acquired all of the equity interest in Zix Corporation (Zix), a leader in software as a service (SaaS) based email encryption, threat protection and compliance cloud solutions for SMBs.

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 SMBs.

Total consideration for Zix was $894.5 million paid in cash, inclusive of $38.3 million of cash acquired and $18.6 million relating to the cash settlement of pre-acquisition vested share-based compensation.

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

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

On a fiscal year-to-date basis (and reflecting Micro Focus results from February 1, 2023 to March 31, 2023), we have invested $430.6 million or 14.4% of revenue in R&D expense, which is in line with our target spend for R&D expense this fiscal year.

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

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Businesses of all sizes rely on a combination of public and private clouds, managed services and off-cloud solutions.

As a result, we are committed to continue to modernize our technology infrastructure and leverage our existing investments in the OpenText Cloud and programs to help customers off-cloud.

The combination of OpenText cloud-native applications and managed services, together with the scalability and

performance of our partner public cloud providers, offer more secure, reliable and compliant solutions to customers wanting to deploy cloud-based Information Management applications.

As a result, we are committed to continue to modernize our technology infrastructure and leverage our existing investments in the OpenText Cloud and programs to help customers off-

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The combination of OpenText cloud-native applications and managed services, together with the scalability and performance of our partner public cloud providers, offer more secure, reliable and compliant solutions to customers wanting to deploy cloud-based Information Management applications.

The OpenText Cloud is designed to build additional flexibility and scalability for our customers:

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

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

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

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

During the third quarter of Fiscal 2023, as part of the Micro Focus Acquisition, the Company made a strategic decision to implement a restructuring plan that will impact its global workforce and further reduce its real estate footprint around the world in an effort to further streamline our operations, consistent with previously announced cost synergies of $400 million (Micro Focus Acquisition Restructuring Plan).

The total size of the plan is expected to result in a reduction in the combined workforce of approximately 8%, or 2,000 employees, with an estimated cost of $135 million to $150 million.

The Micro Focus Acquisition Restructuring Plan is proposed to be completed by the end of Fiscal 2024.

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

The Micro Focus Acquisition has a significant impact on period-over-period comparability as more fully discussed below.

We will continue to closely monitor the potential impacts of COVID-19, inflation with respect to wages, services and goods, concerns regarding any potential recession, rising interest rates, financial market volatility, and the Russia-Ukraine conflict on our business.

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For a full discussion of all our accounting policies, please see Note 2 “Accounting Policies and Recent Accounting Pronouncements” to the Consolidated Financial Statements included in our Annual Report on Form 10-K for Fiscal 2022.

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RESULTS OF OPERATIONS

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

The comparability of our operating results in the third quarter of Fiscal 2023 compared to the same period of Fiscal 2022 was impacted by the recent Micro Focus Acquisition.

Our total revenues increased by $362.4 million across all of our product types in the third quarter of Fiscal 2023, relative to the third quarter of Fiscal 2022, primarily due to revenue contributions from the Micro Focus Acquisition, offset by unfavorable impact of $33.7 million of foreign exchange rate changes.

Micro Focus contributed $374.4 million to our total revenues during the third quarter of Fiscal 2023, of which $251.4 million related to customer support revenues and $73.5 million related to license revenues.

Total cost of revenues increased by $95.5 million in the third quarter of Fiscal 2023, relative to the third quarter of Fiscal 2022, primarily from additional cost of revenues as a result of the Micro Focus Acquisition.

Micro Focus incurred $108.2 million of cost of revenues during the third quarter Fiscal 2023.

Total operating expenses increased by $334.5 million in the third quarter of Fiscal 2023, relative to the third quarter of Fiscal 2022, primarily from additional operating expenses as a result of the Micro Focus Acquisition.

Micro Focus incurred $315.3 million of operating expenses during the third quarter Fiscal 2023, of which $223.7 million was related to research and development, sales and marketing, and general and administrative expenses.

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Summary of Results of Operations

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

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

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

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1) Cloud Services and Subscriptions:

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

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

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

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

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

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

For the quarter ended March 31, 2023, our cloud renewal rate, excluding the impact of Carbonite, Zix and Micro Focus, increased to 95% from 93% over the quarter ended March 31, 2022.

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

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

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Asia Pacific 6.7 % 6.5 % 6.3 % 7.0 %

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

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

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Cloud services and subscriptions revenues increased by $33.5 million or 8.3% during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year;

up 10.4% after factoring in the unfavorable impact of $8.2 million of foreign exchange rate changes.

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

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

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

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

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

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

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

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

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

Geographically, the overall change was attributable to an increase in Americas of $23.2 million, an increase in EMEA of $7.5 million and an increase in Asia Pacific of $2.8 million.

There were 13 cloud services contracts greater than $1.0 million that closed during the third quarter of Fiscal 2023, compared to 21 contracts during the third quarter of Fiscal 2022.

Cost of Cloud services and subscriptions revenues increased by $21.6 million during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year.

This was due to an increase in labour-related costs of $13.7 million and an increase in third-party network usage fees of $8.5 million primarily driven by incremental Cloud services and subscriptions cost of revenues from the Micro Focus Acquisition over the comparative period.

Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased to 64% from 66%.

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Nine Months Ended March 31, 2023 Compared to Nine Months Ended March 31, 2022

Cloud services and subscriptions revenues increased by $125.4 million or 11.2% during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year;

up 14.3% after factoring in the unfavorable impact of $34.9 million of foreign exchange rate changes.

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

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

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

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

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

The increase was partially driven by incremental Cloud services and subscriptions revenues from the Micro Focus Acquisition over the comparative period.

Geographically, the overall change was attributable to an increase in Americas of $106.5 million and an increase in EMEA of $19.2 million, partially offset by a decrease in Asia Pacific of $0.4 million.

There were 54 cloud services contracts greater than $1.0 million that closed during the first nine months of Fiscal 2023, compared to 64 contracts during the first nine months of Fiscal 2022.

Cost of Cloud services and subscriptions revenues increased by $45.8 million during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year.

This was due to an increase in third-party network usage fees of $24.4 million and an increase in labour-related costs of $20.6 million partially driven by incremental Cloud services and subscriptions cost of revenues from the Micro Focus Acquisition over the comparative period.

Overall, the gross margin percentage on Cloud services and subscriptions revenues remained stable at 66%.

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

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

For the quarter ended March 31, 2023, our Customer support renewal rate increased to 95% compared to 94% for the quarter ended March 31, 2022, excluding the impact of Carbonite, Zix and Micro Focus.

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

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

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Asia Pacific 9.4 % 8.2 % 8.7 % 8.4 %

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

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

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Customer support revenues increased by $243.4 million or 73.2% during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year;

up 78.3% after factoring in the unfavorable impact of $16.9 million of foreign exchange rate changes.

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

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

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

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

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

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

The increase was primarily driven by incremental Customer support revenues from the Micro Focus Acquisition over the comparative period.

Geographically, the overall change was attributable to an increase in Americas of $132.5 million, an increase in EMEA of $83.6 million and an increase in Asia Pacific of $27.3 million.

Cost of Customer support revenues increased by $35.3 million during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in labour-related costs of $32.7

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million driven by incremental Customer support cost of revenues from the Micro Focus Acquisition over the comparative period.

Overall, the gross margin percentage on Customer support revenues decreased to 88% from 90%.

Nine Months Ended March 31, 2023 Compared to Nine Months Ended March 31, 2022

Customer support revenues increased by $207.1 million or 20.7% during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year;

up 26.4% after factoring in the unfavorable impact of $57.6 million of foreign exchange rate changes.

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

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

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

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

The increase was primarily driven by incremental Customer support revenues from the Micro Focus Acquisition over the comparative period.

Geographically, the overall change was attributable to an increase in Americas of $132.0 million, an increase in EMEA of $53.3 million and an increase in Asia Pacific of $21.8 million.

Cost of Customer support revenues increased by $32.1 million during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in labour-related costs of $29.4 million driven by incremental Customer support cost of revenues from the Micro Focus Acquisition over the comparative period.

Overall, the gross margin percentage on Customer support revenues decreased to 90% from 91%.

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

1 unchanged sentence

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

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

13 unchanged sentences

Asia Pacific 12.5 % 9.5 % 14.3 % 9.3 %

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

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

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

License revenues increased by $59.1 million or 73.3% during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year;

up 79.9% after factoring in the unfavorable impact of $5.3 million of foreign exchange rate changes.

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

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

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

Cost of License revenues increased by $0.1 million during the three months ended December 31, 2022 as compared to the same period in the prior fiscal year as a result of higher third-party technology costs.

Overall, the gross margin percentage on License revenues decreased to 96% from 97%.

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

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

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

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

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

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

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

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

The increase was primarily driven by incremental License revenues from the Micro Focus Acquisition over the comparative period.

Geographically, the overall change was attributable to an increase in EMEA of $21.6 million, an increase in Americas of $27.6 million and an increase in Asia Pacific of $9.9 million.

During the third quarter of Fiscal 2023, we closed 42 license contracts greater than $0.5 million, of which 22 contracts were greater than $1.0 million, contributing $58.6 million of License revenues.

This was compared to 32 license contracts greater than $0.5 million during the third quarter of Fiscal 2022, of which 11 contracts were greater than $1.0 million, contributing $32.6 million of License revenues.

Cost of License revenues increased by $0.6 million during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year as a result of higher third-party technology costs primarily driven by incremental cost of License revenues from the Micro Focus Acquisition over the comparative period.

Overall, the gross margin percentage on License revenues increased to 97% from 96%.

Nine Months Ended March 31, 2023 Compared to Nine Months Ended March 31, 2022

License revenues increased by $46.6 million or 17.7% during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year;

up 23.7% after factoring in the unfavorable impact of $16.0 million of foreign exchange rate changes.

The increase was primarily driven by incremental License revenues from the Micro Focus Acquisition over the comparative period.

Geographically, the overall change was attributable to an increase in Americas of $25.6 million, an increase in Asia Pacific of $19.7 million and an increase in EMEA of $1.3 million.

Table of Content s

During the first nine months of Fiscal 2023, we closed 102 license contracts greater than $0.5 million, of which 46 contracts were greater than $1.0 million, contributing $124.2 million of License revenues.

This was compared to 81 license contracts greater than $0.5 million during the first nine months of Fiscal 2022, of which 35 contracts were greater than $1.0 million, contributing $94.9 million of License revenues.

Cost of License revenues decreased by $0.4 million during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year as a result of lower third-party technology costs.

Overall, the gross margin percentage on License revenues increased to 97% from 96%.

4) Professional Service and Other:

5 unchanged sentences

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

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

13 unchanged sentences

Asia Pacific 14.2 % 11.2 % 13.2 % 11.4 %

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

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

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Professional service and other revenues increased by $26.4 million or 39.4% during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year;

up 44.1% after factoring in the unfavorable impact of $3.2 million of foreign exchange rate changes.

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

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

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

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

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

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

The increase was primarily driven by incremental Professional service and other revenues from the Micro Focus Acquisition over the comparative period.

Geographically, the overall change was attributable to an increase in EMEA of $13.9 million, an increase in Americas of $6.7 million and an increase in Asia Pacific of $5.8 million.

Cost of Professional service and other revenues increased by $21.8 million during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year.

This was due to an increase in labour-related costs of $22.1 million, primarily driven by incremental Professional service and other cost of revenues from the Micro Focus Acquisition over the comparative period, offset by a decrease in other miscellaneous costs of $0.3 million.

Overall, the gross margin percentage on Professional service and other revenues remained stable at 16%.

Table of Content s

Nine Months Ended March 31, 2023 Compared to Nine Months Ended March 31, 2022

Professional service and other revenues increased by $23.7 million or 11.8% during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year;

up 17.9% after factoring in the unfavorable impact of $12.4 million of foreign exchange rate changes.

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

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

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

The increase was primarily driven by incremental Professional service and other revenues from the Micro Focus Acquisition over the comparative period.

Geographically, the overall change was attributable to an increase in Americas of $12.3 million, an increase in Asia Pacific of $6.8 million and an increase in EMEA of $4.6 million.

Cost of Professional service and other revenues increased by $24.9 million during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year.

This was due to an increase in labour-related costs of $23.8 million primarily driven by incremental Professional service and other cost of revenues from the Micro Focus Acquisition over the comparative period, and an increase in other miscellaneous costs of $1.1 million.

Overall, the gross margin percentage on Professional service and other revenues decreased to 17% from 20%.

Amortization of Acquired Technology-based Intangible Assets

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

2 unchanged sentences

Amortization of acquired technology-based intangible assets $ 62,639 $ 16,075 $ 46,564 $ 146,139 $ (6,194) $ 152,333

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

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

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

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

Amortization of acquired technology-based intangible assets increased during the three months ended March 31, 2023 by $16.1 million as compared to the same period in the prior fiscal year.

This was primarily due to amortization of newly acquired technology-based intangible assets from the Micro Focus Acquisition.

Amortization of acquired technology-based intangible assets decreased during the nine months ended March 31, 2023 by $6.2 million as compared to the same period in the prior fiscal year.

This was primarily due to a reduction of $44.5 million relating to intangible assets from previous acquisitions becoming fully amortized, partially offset by an increase of $36.2 million relating to amortization of newly acquired customer-based intangible assets from the Micro Focus Acquisition.

Operating Expenses

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

15 unchanged sentences

Special charges (recoveries) 6.0 % 1.3 % 3.3 % 0.8 %

Table of Content s

Research and development expenses consist primarily of payroll and payroll-related benefits expenses, contracted research and development expenses, and facility costs.

1 unchanged sentence

The primary drivers are typically software upgrades and development.

Change between Three Months Ended

December 31, 2022 and 2021

Change between Six Months Ended December 31, 2022 and 2021

Change between

Three Months Ended

March 31, 2023 and 2022

Change between

Nine Months Ended

March 31, 2023 and 2022

(In thousands)

7 unchanged sentences

Total change in research and development expenses $ 93,001 $ 109,112

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

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

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

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

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

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

Research and development expenses increased by $93.0 million during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year, primarily as a result of the Micro Focus Acquisition.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $63.6 million, facility-related expenses increased by $15.5 million, share-based compensation expense increased by $6.5 million, and contract labour and consulting increased by $5.7 million.

Overall, our research and development expenses, as a percentage of total revenues, increased to 17% compared to the same period in the prior fiscal year at 13%.

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

Research and development expenses increased by $109.1 million during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year, partially as a result of recent acquisitions.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $65.1 million, facility-related expenses increased by $17.7 million, share-based compensation expense increased by $15.6 million and contract labour and consulting increased by $7.8 million.

Overall, our research and development expenses, as a percentage of total revenues, increased to 14% compared to the same period in the prior fiscal year at 12%.

Our research and development labour resources increased by 4,153 employees, from 4,391 employees at March 31, 2022 to 8,544 employees at March 31, 2023.

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

Change between Three Months Ended

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

Change between

Three Months Ended

March 31, 2023 and 2022

Change between

Nine Months Ended

March 31, 2023 and 2022

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

9 unchanged sentences

Total change in sales and marketing expenses $ 90,058 $ 124,221

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

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

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

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

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

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

Sales and marketing expenses increased by $90.1 million during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year, primarily as a result of the Micro Focus Acquisition.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $53.7 million, commissions increased by $8.0 million, facility-related expenses increased by $7.5 million, share-based compensation expense increased by $6.2 million, marketing expenses increased by $5.1 million and travel and communication expenses increased by $4.7 million.

Overall, our sales and marketing expenses, as a percentage of total revenues, increased to 22% compared to 21% in the same period in the prior fiscal year.

Sales and marketing expenses increased by $124.2 million during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year, partially as a result of the Micro Focus Acquisition.

Payroll and payroll-related benefits,

Table of Content s

which is comprised of salaries, benefits and variable short-term incentives, increased by $58.1 million, share-based compensation expense increased by $12.9 million, marketing expenses increased by $12.5 million, commissions increased by $12.1 million, facility-related expenses increased by $9.3 million, travel and communication expenses increased by $8.5 million, and other miscellaneous costs increased by $5.1 million.

Overall, our sales and marketing expenses, as a percentage of total revenues, increased to 21% from 19% in the same period in the prior fiscal year.

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

Our sales and marketing labour resources increased by 2,316 employees, from 2,770 employees at March 31, 2022 to 5,086 employees at March 31, 2023.

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

Change between Three Months Ended

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

Change between

Three Months Ended

March 31, 2023 and 2022

Change between

Nine Months Ended

March 31, 2023 and 2022

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

6 unchanged sentences

Total change in general and administrative expenses $ 38,910 $ 51,597

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

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

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

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

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

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

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

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

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

General and administrative expenses increased by $38.9 million during the three months ended March 31, 2023 as compared to the same period in the prior fiscal year, primarily as a result of the Micro Focus Acquisition.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $22.8 million, facility-related expenses increased by $5.7 million, contract labour and consulting increased by $4.5 million and travel and communication expenses increased by $4.1 million.

Overall, general and administrative expenses, as a percentage of total revenues, remained stable at 10%.

General and administrative expenses increased by $51.6 million during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year, primarily as a result of the Micro Focus Acquisition.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $22.7 million, other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses, increased by $7.6 million, share-based compensation expense increased by $6.5 million, facilities expense increased by $6.2 million and travel and communications expense increased by $5.0 million.

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

Our general and administrative labour resources increased by 1,836 employees, from 1,980 employees at March 31, 2022 to 3,816 employees at March 31, 2023, primarily as a result of the Micro Focus Acquisition.

Depreciation expenses:

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

2 unchanged sentences

Depreciation $ 30,577 $ 8,207 $ 22,370 $ 76,609 $ 11,074 $ 65,535

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

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

Depreciation expenses increased during the three and nine months ended March 31, 2023 by $8.2 million and $11.1 million, respectively, compared to the same periods in the prior fiscal year, primarily as a result of the Micro Focus Acquisition.

Depreciation expenses, as a percentage of total revenue remained stable for the three and nine months ended March 31, 2023 at 3%, respectively, compared to the same periods in the prior fiscal year.

Amortization of acquired customer-based intangible assets:

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

2 unchanged sentences

Amortization of acquired customer-based intangible assets $ 97,237 $ 41,022 $ 56,215 $ 205,121 $ 44,357 $ 160,764

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

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

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

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

Table of Content s

Amortization of acquired customer-based intangible assets increased during the three months ended March 31, 2023 by $41.0 million as compared to the same period in the prior fiscal year.

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

Amortization of acquired customer-based intangible assets increased during the nine months ended March 31, 2023 by $44.4 million as compared to the same period in the prior fiscal year.

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

Special charges (recoveries):

3 unchanged sentences

In certain limited situations, if the planned activity does not need to be implemented, or an expense lower than anticipated is paid out, we record a recovery of the originally recorded expense to Special charges (recoveries).

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

2 unchanged sentences

Special charges (recoveries) $ 74,350 $ 63,319 $ 11,031 $ 98,937 $ 78,345 $ 20,592

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

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

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

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

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

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

Special charges (recoveries) increased by $63.3 million during the three months ended March 31, 2023 over the comparative period.

Acquisition related costs increased by $33.5 million, primarily due to the Micro Focus Acquisition, other miscellaneous charges increased by $20.0 million primarily due to severance charges and restructuring costs related to the Micro Focus Acquisition increased by $11.2 million.

Special charges (recoveries) increased by $78.3 million during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year.

Acquisition related costs increased by $39.4 million, primarily due to the Micro Focus Acquisition, other miscellaneous charges increased by $21.0 million primarily due to severance charges and restructuring costs related to the Micro Focus Acquisition increased by $11.2 million.

For more details on Special charges (recoveries), see Note 18 “Special Charges (Recoveries)” to our Condensed Consolidated Financial Statements.

Table of Content s

Other Income (Expense), Net

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

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

2 unchanged sentences

Foreign exchange gains (losses) $ 55,558 $ 59,001 $ (3,443) $ 54,257 $ 57,157 $ (2,900)

Unrealized gains (losses) on derivatives

Unrealized losses on derivatives

not designated as hedges (1)

(102,713) (102,713) — (112,567) (112,567) —

Realized gains on derivatives

not designated as hedges (2)

137,471 137,471 — 137,471 137,471 —

OpenText share in net income (loss) of equity investees (3)

2 unchanged sentences

(21) (21) — (8,152) 19,261 (27,413)

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

Total other income (expense), net $ 163,349 $ 188,386 $ (25,037) $ (25,882) $ (30,627) $ 4,745

Other miscellaneous income 135 46 89 362 15 347

Total other income, net $ 85,706 $ 61,314 $ 24,392 $ 59,824 $ 30,687 $ 29,137

__________________________

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

(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” to our Condensed Consolidated Financial Statements for more details).

(2) Represents the realized 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” to our Condensed Consolidated Financial Statements for more details).

(3) 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).

Our interests in each of these investees range from 4% to below 20% and these investments are accounted for using the equity method (see Note 9 “Prepaid Expenses and Other Assets” to our Condensed Consolidated Financial Statements for more details).

(4) 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 $8.2 million related to unamortized debt issuance costs (see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements for more details).

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

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

Interest and Other Related Expense, Net

Interest and other related expense, net is primarily comprised of interest paid and accrued on our debt facilities, offset by interest income earned on our cash and cash equivalents.

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

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

8 unchanged sentences

(1) For more details see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements.

Provision for Income Taxes

Provision for (recovery of) Income Taxes

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

Three Months Ended December 31, Year Ended June 30,

Three Months Ended March 31, Nine Months Ended March 31,

(In thousands) 2023 Change

1 unchanged sentence

increase (decrease) 2022

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

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

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

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

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

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

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

Provision for (recovery of) income taxes $ (12,420) $ (53,461) $ 41,041 $ 71,979 $ (51,778) $ 123,757

The effective tax rate for the three months ended March 31, 2023 was (27.5)% compared to a provision of 35.5% for the three months ended March 31, 2022.

The Company’s tax rate for the three months ended March 31, 2023, differs from the Canadian statutory rate of 26.5% primarily due to tax benefits related to the internal reorganization and a 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 Micro Focus Acquisition (see Note 17 “Derivative Instruments and Hedging Activities” to our Condensed Consolidated

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Financial Statements).

The mark-to-market gains in the quarter are considered capital in nature for income tax purposes and 50% of realized gains are not taxable.

Other items impacting the rate include permanent items such as disallowed stock-based compensation and foreign income inclusions, offset by research and development credits, foreign tax credits and a net decrease in uncertain tax positions.

The Company’s effective tax rate for the three months ended March 31, 2022, differs from the Canadian statutory rate primarily due to US Base Erosion and Anti-Abuse Tax (BEAT), partially offset by research and development credits and tax benefits related to stock-based compensation deductions.

The effective tax rate for the nine months ended March 31, 2023 was 26.5% compared to a provision of 29.6% for the nine months ended March 31, 2022.

The Company’s tax rate for the nine months ended March 31, 2023 differs from the Canadian statutory rate of 26.5% primarily due to a net increase in uncertain tax positions, US BEAT and permanent items such as disallowed stock-based compensation and foreign passive income inclusion, partially offset by research and development credits, foreign tax credits, 50% non-taxable portion of capital gains on mark-to-market derivatives not designated as a hedge and tax benefits of internal reorganizations.

The Company’s effective tax rate for the nine months ended March 31, 2022, differs from the Canadian statutory rate primarily due to US BEAT, partially offset by research and development credits.

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

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We are currently evaluating the applicability and the effect of the new law to our financial results.

For information on certain potential tax contingencies, including the CRA matter, see Note 14 “Guarantees and Contingencies” and Note 15 “Income Taxes” to our Condensed Consolidated Financial Statements.

For information on certain potential tax contingencies, including the Canada Revenue Agency matter, see Note 14 “Guarantees and Contingencies” and Note 15 “Income Taxes” to our Condensed Consolidated Financial Statements.

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

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Use of Non-GAAP Financial Measures

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Non-GAAP-based income from operations is calculated as GAAP-based income from operations, excluding the amortization of acquired intangible assets, special charges (recoveries), and share-based compensation expense.

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and special charges (recoveries).

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for (recovery of) income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and special charges (recoveries).

The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges.

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GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results.

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The following charts provide unaudited reconciliations of U.S.

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

The Micro Focus Acquisition has a significant impact on period-over-period comparability as more fully discussed below.

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

for the three months ended December 31, 2022

for the three months ended March 31, 2023

(In thousands, except for per share data)

Three Months Ended December 31, 2022

Three Months Ended March 31, 2023

GAAP-based Measures GAAP-based Measures

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Other income (expense), net 85,706 (85,706) (6) —

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

Provision for (recovery of) income taxes (12,420) 44,631 (7) 32,211

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 57,556 140,257 (8) 197,813

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

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

Other income (expense) also includes unrealized and realized gains (losses) on our derivatives which are not designated as hedges.

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

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

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

Three Months Ended December 31, 2022

Three Months Ended March 31, 2023

Per share diluted

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Other (income) expense, net (85,706) (0.32)

GAAP-based provision for income taxes 50,774 0.19

GAAP-based provision for (recovery of) income taxes (12,420) (0.04)

Non-GAAP-based provision for income taxes (32,211) (0.12)

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Reconciliation of Adjusted EBITDA

Three Months Ended December 31, 2022

Three Months Ended March 31, 2023

GAAP-based net income, attributable to OpenText $ 57,556

Provision for income taxes 50,774

Provision for (recovery of) income taxes (12,420)

Interest and other related expense, net 104,502

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Adjusted EBITDA $ 365,103

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

for the three months ended December 31, 2021

for the three months ended March 31, 2022

(In thousands, except for per share data)

Three Months Ended December 31, 2021

Three Months Ended March 31, 2022

GAAP-based Measures GAAP-based Measures

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

Three Months Ended December 31, 2021

Three Months Ended March 31, 2022

Per share diluted

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Reconciliation of Adjusted EBITDA

Three Months Ended December 31, 2021

Three Months Ended March 31, 2022

GAAP-based net income, attributable to OpenText $ 74,681

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Adjusted EBITDA $ 284,496

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

for the six months ended December 31, 2022

for the nine months ended March 31, 2023

(In thousands, except for per share data)

Six Months Ended December 31, 2022

Nine Months Ended March 31, 2023

GAAP-based Measures GAAP-based Measures

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

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

Other income (expense) also includes unrealized and realized gains (losses) on our derivatives which are not designated as hedges.

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

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

Six Months Ended December 31, 2022

Nine Months Ended March 31, 2023

Per share diluted

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Reconciliation of Adjusted EBITDA

Six Months Ended December 31, 2022

Nine Months Ended March 31, 2023

GAAP-based net income, attributable to OpenText $ 199,113

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Adjusted EBITDA $ 1,010,071

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

for the six months ended December 31, 2021

for the nine months ended March 31, 2022

(In thousands, except for per share data)

Six Months Ended December 31, 2021

Nine Months Ended March 31, 2022

GAAP-based Measures GAAP-based Measures

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

Six Months Ended December 31, 2021

Nine Months Ended March 31, 2022

Per share diluted

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Reconciliation of Adjusted EBITDA

Six Months Ended December 31, 2021

Nine Months Ended March 31, 2022

GAAP-based net income, attributable to OpenText $ 294,894

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Adjusted EBITDA $ 951,367

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LIQUIDITY AND CAPITAL RESOURCES

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(In thousands)

As of December 31, 2022 Change

As of March 31, 2023 Change

increase (decrease) As of June 30, 2022

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

Six Months Ended December 31,

Nine Months Ended March 31,

(In thousands)

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

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.

As of March 31, 2023, we have recognized a provision of $18.6 million (June 30, 2022—$15.1 million) in respect of deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries and planned periodic repatriations from certain German subsidiaries, that will be subject to withholding taxes upon distribution.

Cash flows provided by operating activities

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

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

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

Cash flows from operating activities decreased by $66.0 million during the nine months ended March 31, 2023, as compared to the same period in the prior fiscal year due to a decrease in net income after the impact of non-cash items of $47.4 million and a decrease in changes from working capital of $18.4 million.

During the third quarter of Fiscal 2023 we had a days sales outstanding (DSO) of 45 days, compared to our DSO of 44 days during the third quarter of Fiscal 2022.

The per day impact of our DSO in the third quarter of Fiscal 2023 and Fiscal 2022 on our cash flows was $9.7 million and $9.8 million, respectively.

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

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

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

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

Cash flows used in investing activities increased by $4,692.0 million during the nine months ended March 31, 2023, as compared to the same period in the prior fiscal year primarily due to the increase in consideration paid for an acquisition during the first nine months of Fiscal 2023, which includes cash paid for the Micro Focus Acquisition of $5,655.6 million, as compared to the cash paid during the first nine months of Fiscal 2022 for the acquisition of Zix of $856.2 million and acquisition of Bricata Inc.

of $17.9 million.

Cash flows provided by financing activities

Our cash flows from financing activities generally consist of long-term debt financing and amounts received from stock options exercised by our employees and Employee Stock Purchase Plan (ESPP) purchases by our employees.

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

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

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

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

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

These inflows are

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

Cash flows provided by financing activities increased by $4.396 billion during the nine months ended March 31, 2023 as compared to the same period in the prior fiscal year.

This is primarily due to the net impact of the following activities:

(i) $3.427 billion increase in proceeds from the issuance of long-term debt and draw down on the Revolver;

(ii) $841.0 million decrease in repayments of long-term debt and Revolver;

(iii) $211.8 million related to less cash used in the repurchases of Common Shares and treasury stock;

(iv) $25.0 million relating to early call termination premium upon redemption of Senior Notes 2026 in Fiscal 2022 that did not occur in Fiscal 2023.

The increases in cash flows provided by financing activities above were partially offset by the following decreases:

(i) $60.1 million increase in debt issuance costs;

(ii) $31.3 million related to lower proceeds from the issuance of Common Shares for the exercise of options and the OpenText ESPP;

(iii) $15.9 million related to higher cash dividends paid to shareholders.

Cash Dividends

During the three and nine months ended March 31, 2023, we declared and paid cash dividends of $0.24299 and $0.72897 per Common Share, respectively, in the aggregate amount of $64.9 million and $194.5 million, respectively (three and nine months ended March 31, 2022—$0.2209 and $0.6627 per Common Share, respectively, in the aggregate amount of $59.1 million and $178.6 million, respectively).

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

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

(ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of OTHI, the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2031;

(ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of OTHI, the Company or the guarantors

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without such subsidiary becoming a subsidiary guarantor of Senior Notes 2031;

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

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Senior Notes 2030

On February 18, 2020 Open Text Holdings, Inc.

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

On February 18, 2020 OTHI, a wholly-owned indirect subsidiary of the Company, issued $900 million in aggregate principal amount of 4.125% Senior Notes due 2030 guaranteed by the Company (Senior Notes 2030) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act), and to certain non-U.S.

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

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

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

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We may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2029, on one or more occasions, prior to December 1, 2024, using the net proceeds from certain qualified equity offerings at a redemption price of 103.875% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions.

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

We may, on one or more occasions, redeem the Senior Notes 2029, in whole or in part, at any time on and after December 1, 2024 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2029, dated as of November 24, 2021, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S.

trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2029 Indenture), plus accrued and unpaid interest, if any, to the redemption date.

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

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

We may, on one or more occasions, redeem the Senior Notes 2028, in whole or in part,

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

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

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

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

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

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

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

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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 a part of a single series with the previously issued $600 million aggregate principal amount of Senior Notes 2026.

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.

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Senior Secured Notes 2027

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

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

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

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

Senior Secured Notes 2027 bear interest at a rate of 6.90% per annum, payable semi-annually in arrears on June

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1 and December 1, commencing on June 1, 2023.

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

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These covenants are subject to a number of important limitations and exceptions as set forth in the 2027 Indenture.

The 2027 Indenture also provides for certain events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal,

premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Secured Notes 2027 to be due and payable immediately.

The 2027 Indenture also provides for certain events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Secured Notes 2027 to be due and payable immediately.

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

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

The 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 the collateral (as defined in the 2027 Indenture) and are structurally subordinated to all existing and future liabilities of each of the Company’s existing and future subsidiaries that do not guarantee the Senior Secured Notes 2027.

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

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Repayments made under Term Loan B are equal to 0.25% of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity.

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

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, the Acquisition Term Loan and Senior Secured Notes 2027.

Term Loan B has a seven-year term, maturing in May 2025.

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

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

As of March 31, 2023, the outstanding balance on the Term Loan B bears an interest rate of 6.38%.

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.

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

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

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trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges.

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

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

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

As of March 31, 2023, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.3:1.

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

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 Bridge Loan.

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.

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

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

During the third quarter of Fiscal 2023, the Company drew down $450.0 million from the Revolver to partially fund the Micro Focus Acquisition, and as of March 31, 2023, $450.0 million remains outstanding (June 30, 2022—nil).

In April 2023, the Company paid $175 million drawn under the Revolver.

For the three and nine months ended March 31, 2023, we recorded interest expense of $5.0 million, respectively, relating to the Revolver (three and nine months ended March 31, 2022—nil).

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).

During the third quarter of Fiscal 2023, the Company drew down $3.585 billion, net of original issuance discount of 3% and other fees, of which the net proceeds were used to fund the Micro Focus Acquisition (see Note 19 “Acquisitions” to our Condensed Consolidated Financial Statements 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.

Borrowings under the Acquisition Term Loan currently bear a floating rate of interest equal to 3.5% plus Term Secured Overnight Financing Rate (SOFR) and the SOFR adjustment.

As of March 31, 2023, the outstanding balance on the Acquisition Term Loan bears an interest rate of 8.22%.

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

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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.

As of March 31, 2023, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.3:1.

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.

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For the three and nine months ended March 31, 2023, we recorded interest expense of $48.1 million, respectively, relating to the Acquisition Term Loan (three and nine months ended March 31, 2022— nil, respectively).

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

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

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

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

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

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 $8.2 million relating to unamortized debt issuance costs (see Note 22 “Other Income (Expense), Net” to our Condensed Consolidated Financial Statements for more details).

As of March 31, 2023, we had no borrowings under the Bridge Loan.

For the three and nine months ended March 31, 2023, we did not record any interest expense relating to the Bridge Loan.

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

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

A short-form base shelf prospectus qualifying

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

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

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

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All Common Shares purchased by us pursuant to the Fiscal 2021 Repurchase Plan were cancelled.

On November 4, 2021, the Board authorized a share repurchase plan (the Fiscal 2022 Repurchase Plan), pursuant to which we may purchase in open market transactions, from time to time over the 12 month period commencing November 12, 2021, up to an aggregate of $350 million of our Common Shares on the NASDAQ Global Select Market, the TSX (as part of a Fiscal 2022 Normal-Course Issuer Bid (NCIB)) and/or other exchanges and alternative trading systems in Canada and/or the United States, if eligible, subject to applicable law and stock exchange rules.

On November 4, 2021, the Board authorized a share repurchase plan (the Fiscal 2022 Repurchase Plan), pursuant to which we were authorized to purchase in open market transactions, from time to time over the 12 month period commencing November 12, 2021, up to an aggregate of $350 million of our Common Shares on the NASDAQ Global Select Market, the TSX (as part of a Fiscal 2022 Normal Course Issuer Bid (NCIB)) and/or other exchanges and alternative trading systems in Canada and/or the United States, if eligible, subject to applicable law and stock exchange rules.

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

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

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

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During the three and nine months ended March 31, 2023, we did not repurchase and cancel any Common Shares (three and nine months ended March 31, 2022—1,000,000 and 2,809,559 Common Shares, respectively, for $45.1 million and $136.1 million, respectively).

Normal Course Issuer Bid

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Under the rules of the TSX, the maximum number of Common Shares that could be purchased in this period was 13,618,774 (representing 5% of the Company’s issued and outstanding Common Shares as of November 4, 2020), and the maximum number of Common Shares that could be purchased on a single day was 143,424 Common Shares, which was 25% of 573,699 (the average daily trading volume for the Common Shares on the TSX for the six months ended October 31, 2020), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18.

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

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

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

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

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

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

Commitments and Contractual Obligations

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

As of March 31, 2023, we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:

Payments due between

(In thousands)

Total January 1, 2023 -

June 30, 2023 July 1, 2023 -

June 30, 2025 July 1, 2025 -

June 30, 2027 July 1, 2027

Total April 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)

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427,771 28,363 185,396 106,668 107,344

Finance lease obligations (3)

12,958 1,475 9,086 2,397 —

Purchase obligations for contracts not accounted for as lease obligations 192,102 15,734 114,106 62,262 —

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

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

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

Please see Note 6 “Leases” to our Condensed Consolidated Financial Statements for more details.

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

Please see Note 6 “Leases” to our Condensed Consolidated Financial Statements for more details.

Guarantees and Indemnifications

We have entered into customer agreements which may include provisions to indemnify our customers against third party claims that our software products or services infringe certain third-party intellectual property rights and for liabilities related to a breach of our confidentiality obligations.

We have not made any material payments in relation to such indemnification provisions and have not accrued any liabilities related to these indemnification provisions in our Condensed Consolidated Financial Statements.

We have not made any material payments in relation to such indemnification

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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.

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As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016.

Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of 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.

Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of March 31, 2023, 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 $73 million.

As of March 31, 2023, 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 March 31, 2023.

The notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 would, as drafted, increase our taxable income by approximately $90 million to $100 million for each of those years, as well as impose a 10% penalty on the proposed adjustment to income.

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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 CRA has audited Fiscal 2017 and Fiscal 2018 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.

CRA’s position for Fiscal 2017 and Fiscal 2018 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 and Fiscal 2018 conflict with the expert valuation prepared by the independent leading accounting and advisory firm that was used to support our original filing position.

The CRA issued notices of reassessment in respect of Fiscal 2017 and Fiscal 2018 on a basis

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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 and on March 15, 2023, we filed our notice of objection regarding the reassessment in respect of Fiscal 2018.

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;

We strongly disagree with the CRA’s position for Fiscal 2017 and Fiscal 2018 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 and Fiscal 2018 due to the utilization of available tax attributes;

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

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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.

The CRA is currently in preliminary stages of auditing Fiscal 2019.

Carbonite Class Action Complaint

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Ali, and Anthony Folger (No.

1:19-cv-11662-LTS).

1:19-cv-11662-LTS) (the Luna Complaint).

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

The complaint generally alleges that the defendants made

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

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

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

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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.

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 United States Court of Appeals for the First Circuit.

On December 21, 2021, the United States Court of Appeals for the First Circuit issued a decision reversing and remanding the Securities Actions to the district court for further proceedings.

The parties are engaged in discovery.

The defendants remain confident in their position, believe the Securities Actions are without merit, and will continue to vigorously defend the matter.

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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.

District Court for the Eastern District of Texas captioned 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.

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.

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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.

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Other Matters

Please see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2022, Part II, Item 1A “Risk Factors” included elsewhere within this Quarterly Report on Form 10-Q as well as Micro Focus’ Audited Consolidated Financial Statements for the years ended October 31, 2022 and 2021, included in our Form 8-K/A filed on April 10, 2023, related to certain historical matters arising prior to the Micro Focus Acquisition.

Off-Balance Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis