OPEN TEXT CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the U.S. Securities Act of 1933, as amended (the Securitie s Act ), and is subject to the safe harbors created by those sections. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. When used in this report, the words “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “could”, “would”, “might”, “will” and other similar language, as they relate to Open Text Corporation (OpenText or the Company), are intended to identify forward-looking statements under applicable securities laws. Specific forward-looking statements in this report include, but are not limited to, statements regarding: (i) our focus in the fiscal year beginning July 1, 2022 and ending June 30, 2023 (Fiscal 2023) and July 1, 2023 and ending June 30, 2024 (Fiscal 2024) on growth in earnings and cash flows; (ii) creating value through investments in broader Information Management capabilities; (iii) our future business plans and operations, and business planning process; (iv) business trends; (v) distribution; (vi) the Company’s presence in the cloud and in growth markets; (vii) our expectation to grow Managed Service Providers (MSPs); (viii) product and solution developments, enhancements and releases, the timing thereof and the customers targeted; (ix) the Company’s financial condition, results of operations and earnings; (x) the basis for any future growth and for our financial performance; (xi) declaration of quarterly dividends; (xii) future tax rates; (xiii) the changing regulatory environment; (xiv) annual recurring revenues; (xv) research and development and related expenditures; (xvi) our building, development and consolidation of our network infrastructure; (xvii) competition and changes in the competitive landscape; (xviii) our management and protection of intellectual property and other proprietary rights; (xix) existing and foreign sales and exchange rate fluctuations; (xx) cyclical or seasonal aspects of our business; (xxi) capital expenditures; (xxii) potential legal and/or regulatory proceedings; (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; (xxv) the expected impact of our decision to cease all direct business in Russia and Belarus and with known Russian-owned companies;(xxvi) expected costs of the restructuring plans; (xxvii) targets regarding greenhouse gas emissions, waste diversion, energy consumption and Equity, Diversity and Inclusion (ED&I) initiatives; (xviii) integration of Micro Focus and the results and timing thereof; and (xxix) other matters. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management’s perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The forward-looking statements contained in this report are based on certain assumptions including the following: (i) countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports; (ii) our continued operation of a secure and reliable business network; (iii) the stability of general political, economic and market conditions, including any potential recession; (iv) our ability to manage inflation, including increased labour costs associated with attracting and retaining employees and rising interest rates; (v) our continued ability to manage certain foreign currency risk through hedging; (vi) equity and debt markets continuing to provide us with access to capital; (vii) our continued ability to identify, source and finance attractive and executable business combination opportunities; (viii) our continued ability to avoid infringing third party intellectual property rights; and (ix) our ability to successfully implement our restructuring plans. Management’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and assumptions will prove to be correct. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) 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; (iii) the change in scope and size of our operations as a result of the Micro Focus Acquisition; (iv) the uncertainty around expectations related to Micro Focus’s business prospects; (v) actual and potential risks and uncertainties relating to the ultimate geographic spread of COVID-19, the severity of the disease and the duration of the COVID-19 pandemic and issues relating to the resurgence of COVID-19 and/or new strains of COVID-19, including potential material adverse effects on our business, operations and financial performance; (vi) actions that have been and may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact on our 44 Table of Content s 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 and Micro Focus, (x) the potential for the incurrence of or assumption of debt in connection with acquisitions, its impact on future operations and on the ratings or outlooks of rating agencies on our outstanding debt securities, and the possibility of not being able to generate sufficient cash to service all indebtedness; (xi) the possibility that the Company may be unable to meet its future reporting requirements under the Exchange Act, and the rules promulgated thereunder, or applicable Canadian securities regulation; (xii) the risks associated with bringing new products and services to market; (xiii) fluctuations in currency exchange rates (including as a result of the impact of any policy changes resulting from trade and tariff disputes) and the impact of mark-to-market valuation relating to associated derivatives; (xiv) delays in the purchasing decisions of the Company’s customers; (xv) competition the Company faces in its industry and/or marketplace; (xvi) the final determination of litigation, tax audits (including tax examinations in Canada, the United States or elsewhere) and other legal proceedings; (xvii) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, United States or international tax regimes; (xviii) the possibility of technical, logistical or planning issues in connection with the deployment of the Company’s products or services; (xix) the continuous commitment of the Company’s customers; (xx) demand for the Company’s products and services; (xxi) increase in exposure to international business risks (including the impact of geopolitical instability, political unrest, war and other global conflicts, as we continue to increase our international operations; (xxii) adverse macroeconomic conditions, including inflation, disruptions in global supply chains and increased labour costs; (xxiii) inability to raise capital at all or on not unfavorable terms in the future; (xxiv) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions); and (xxv) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities. Other factors that may affect forward-looking statements include, but are not limited to: (i) the future performance, financial and otherwise, of the Company; (ii) the ability of the Company to bring new products and services to market and to increase sales; (iii) the strength of the Company’s product development pipeline; (iv) failure to secure and protect patents, trademarks and other proprietary rights; (v) infringement of third-party proprietary rights triggering indemnification obligations and resulting in significant expenses or restrictions on our ability to provide our products or services; (vi) failure to comply with privacy laws and regulations that are extensive, open to various interpretations and complex to implement including General Data Protection Regulation (GDPR), California Consumer Privacy Act, California Privacy Rights Act, Virginia Consumer Data Protection Act, Colorado Privacy Act, Connecticut Data Privacy Act, Utah Consumer Privacy Act, and Country by Country Reporting (including with respect to transferring personal data outside of the European Economic Area and the United Kingdom, as a result of the ruling of the Court of Justice of the European Union that the EU-US Privacy Shield is an invalid data transfer mechanism and that Standard Contractual Clauses (SCCs) are a valid transfer mechanism unless the country to which personal data is exported restricts the ability to comply with such Clauses (Schrems II), and with respect to the new SCCs published by the European Commission and the International Data Transfer Agreement and Addendum published by the United Kingdom’s Information Commissioner’s Office to meet the requirements of GDPR and Schrems II); (vii) the Company’s growth and other profitability prospects; (viii) the estimated size and growth prospects of the Information Management market; (ix) the Company’s competitive position in the Information Management market and its ability to take advantage of future opportunities in this market; (x) the benefits of the Company’s products and services to be realized by customers; (xi) the demand for the Company’s products and services and the extent of deployment of the Company’s products and services in the Information Management marketplace; (xii) the Company’s financial condition and capital requirements; (xiii) system or network failures or information security, cybersecurity or other data breaches in connection with the Company’s offerings or the information technology systems used by the Company generally, the risk of which may be increased during times of natural disaster or pandemic (including COVID-19) due to remote working arrangements; (xiv) failure to achieve our environmental goals on energy consumption, waste diversion and greenhouse gas emissions or our targets relating to ED&I initiatives; and (xv) failure to attract and retain key personnel to develop and effectively manage the Company’s business; 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 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. These factors include but are not limited to those set forth in Part II, Item 1A “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in the Company's Annual Report on Form 10-K. Any one of these factors, and other factors that we are unaware of, or currently deem immaterial, may cause our actual results to differ materially from recent results or from our anticipated future results. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless otherwise required by applicable securities laws, the Company disclaims any intention or 45 Table of Content s obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following MD&A is intended to help readers understand our results of operations and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and 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 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. EXECUTIVE OVERVIEW At OpenText, we believe information and knowledge make business and people better. We are an Information Management company that provides software and services that empower digital businesses of all sizes to become more intelligent, connected and responsible. Our innovations maximize the strategic benefits of data and content for our customers, strengthening their productivity, growth and competitive advantage. Our comprehensive Information Management platform and services provide secure and scalable solutions for global companies, small and medium-sized businesses (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, 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. We are fundamentally integrated into the parts of our customers' businesses that matter, so they can securely manage the complexity of information flow end to end. Through automation and AI, we connect, synthesize and deliver information where 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 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. Our initial public offering was on the NASDAQ in 1996 and we were subsequently listed on the Toronto Stock Exchange (TSX) in 1998. Our ticker symbol on both the NASDAQ and the TSX is “OTEX.” As of 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. Please see “Results of Operations” below for our definitions of geographic regions. Quarterly Summary: 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; up 44.9% after factoring in the unfavorable impact of $33.7 million of foreign exchange rate changes. • Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and customer support revenue, was $1,011.3 million, up 37.7% compared to the same period in the prior fiscal year; up 41.1% after factoring in the unfavorable impact of $25.1 million of foreign exchange rate changes. • Cloud services and subscriptions revenue was $435.4 million, up 8.3% 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. 46 Table of Content s • 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 $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, 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 $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. 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 Inc. (Carbonite) and Zix. See “Use of Non-GAAP Financial Measures” below for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures. See “Acquisitions” below for the impact of acquisitions on the period-to-period comparability of results. Acquisitions As a result of the continually changing marketplace in which we operate, we regularly evaluate acquisition opportunities within our market and at any time may be in various stages of discussions with respect to such opportunities. Acquisition of Micro Focus 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. 47 Table of Content s Acquisition of Zix Corporation On December 23, 2021, we acquired all of the equity interest in Zix, a leader in software as a service (SaaS) based email encryption, threat protection and compliance cloud solutions for 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. We believe the acquisition increases our position in the data protection, threat management, email security and compliance solutions spaces. The results of operations of Zix have been consolidated with those of OpenText beginning December 23, 2021. See Note 19 “Acquisitions” to our Condensed Consolidated Financial Statements for more details. Impacts of COVID-19 We continue to closely monitor the potential effects and impact of the spread of COVID-19 on our operations, businesses and financial performance, including liquidity and capital usage. We have conducted business with modifications to employee travel and work locations and also virtualization of certain events, along with modified interactions with customers and suppliers, among other modifications. In addition, we have implemented a Flex-Office program in which a majority of our employees work a portion of their time in the office and a portion remotely. We will continue to actively monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies, and may take further actions that alter our business operations as may be required by governments, or that we determine are in the best interest of our employees, customers, partners, suppliers and shareholders. The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control. For more information, please see Part II, Item 1A “Risk Factors” included elsewhere within this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2022. Impacts of Russia-Ukraine Conflict We have ceased all direct business in Russia and Belarus and with known Russian-owned companies. To support certain of our cloud customers headquartered in the United States or allied countries that rely on our network to manage their global business (including their business in Russia), we have nonetheless allowed these customers to continue to use our services to the extent that it can be done in strict compliance with all applicable sanctions and export controls. However, we may adjust our business practices as required by applicable rules and regulations. While we do not expect our decision to cease all direct business in Russia and Belarus and with known Russian-owned companies to have a material adverse effect on our overall business, results of operations or financial condition, it is not possible to predict the broader consequences of this conflict, including adverse effects on the global economy, on our business and operations as well as those of our customers, partners and third party service providers. For more information, please see Part I, Item 1A “Risk Factors” included in our Annual Report on Form 10-K for Fiscal 2022. Outlook for Remainder of Fiscal 2023 As an organization, we are committed to “Total Growth,” meaning we strive towards delivering value through organic initiatives, innovations and acquisitions, as well as financial performance. With an emphasis on increasing recurring revenues and expanding our margins, we believe our Total Growth strategy will ultimately drive overall cash flow generation, thus helping to fuel our disciplined capital allocation approach and further our ability to deepen our account coverage and identify and execute strategic acquisitions. With strategic acquisitions, we are well positioned to expand our product portfolio and improve our ability to innovate and grow organically, which will help us to meet our long-term growth targets. We believe our Total Growth strategy is a durable model that will create both near and long-term shareholder value through organic and acquired growth, capital efficiency and profitability. We are committed to continuous innovation. Our investments in research and development (R&D) push product innovation, increasing the value of our offerings to our installed customer base and new customers, which includes Global 10,000 companies (G10K), SMB and consumers. The G10K are the world's largest companies, ranked by estimated total revenues, as well as the world's largest governments and organizations. More valuable products, coupled with our established global partner program, lead to greater distribution and cross-selling opportunities which further help us to achieve organic growth. 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. Looking ahead, the destination for innovation is hybrid-cloud. Businesses of all sizes rely on a combination of public and private clouds, managed services and off-cloud solutions. As a result, we are committed to continue to modernize our technology infrastructure and leverage our existing investments in the OpenText Cloud and programs to help customers off- 48 Table of Content s cloud. The combination of OpenText cloud-native applications and managed services, together with the scalability and performance of our partner public cloud providers, offer more secure, reliable and compliant solutions to customers wanting to deploy cloud-based Information Management applications. The OpenText Cloud is designed to build additional flexibility and scalability for our customers: becoming cloud-native, connecting anything, and extending capabilities quickly with multi-tenant SaaS applications and services. On January 31, 2023, we completed the Micro Focus Acquisition. The Micro Focus Acquisition will substantially expand our scope and size by adding substantial assets and operations to our existing business. We have incurred significant transaction costs in connection with the Micro Focus Acquisition. We have incurred and will continue to incur additional integration costs following the close of the Micro Focus Acquisition. 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. We do not expect our decision to cease all direct business in Russia and Belarus and with known Russian-owned companies to have a material adverse effect on our overall business, results of operations or financial condition. See Part II, Item 1A, “Risk Factors” included within this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2022. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time. Actual results may differ materially from those estimates. The policies listed below are areas that may contain key components of our results of operations and are based on complex rules requiring us to make judgments and estimates and consequently, we consider these to be our critical accounting policies. Some of these accounting policies involve complex situations and require a higher degree of judgment, either in the application and interpretation of existing accounting literature or in the development of estimates that affect our financial statements. The critical accounting policies which we believe are the most important to aid in fully understanding and evaluating our reported financial results include the following: (i) Revenue recognition, (ii) Goodwill, (iii) Acquired intangibles, and (iv) Income taxes. For a full discussion of all our accounting policies, please see Note 2 “Accounting Policies and Recent Accounting Pronouncements” to the Consolidated Financial Statements included in our Annual Report on Form 10-K for Fiscal 2022. 49 Table of Content s RESULTS OF OPERATIONS The following tables provide a detailed analysis of our results of operations and financial condition. For each of the periods indicated below, we present our revenues by product type, revenues by major geography, cost of revenues by product type, total gross margin, total operating margin, gross margin by product type, and their corresponding percentage of total revenue. In addition, we provide Non-GAAP measures for the periods discussed to provide additional information to investors that we believe will be useful as this presentation aligns with how our management assesses our Company's performance. See “Use of Non-GAAP Financial Measures” below for a reconciliation of GAAP-based measures to Non-GAAP-based measures. 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. 50 Table of Content s Summary of Results of Operations Three Months Ended March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 Total Revenues by Product Type: Cloud services and subscriptions $ 435,449 $ 33,502 $ 401,947 $ 1,248,774 $ 125,352 $ 1,123,422 Customer support 575,884 243,370 332,514 1,209,743 207,117 1,002,626 License 139,722 59,081 80,641 310,230 46,567 263,663 Professional service and other 93,619 26,438 67,181 225,403 23,724 201,679 Total revenues 1,244,674 362,391 882,283 2,994,150 402,760 2,591,390 Total Cost of Revenues 369,730 95,494 274,236 889,771 96,231 793,540 Total GAAP-based Gross Profit 874,944 266,897 608,047 2,104,379 306,529 1,797,850 Total GAAP-based Gross Margin % 70.3 % 68.9 % 70.3 % 69.4 % Total GAAP-based Operating Expenses 810,955 334,517 476,438 1,709,374 418,706 1,290,668 Total GAAP-based Income from Operations $ 63,989 $ (67,620) $ 131,609 $ 395,005 $ (112,177) $ 507,182 % Revenues by Product Type: Cloud services and subscriptions 35.0 % 45.6 % 41.7 % 43.4 % Customer support 46.3 % 37.7 % 40.4 % 38.7 % License 11.2 % 9.1 % 10.4 % 10.2 % Professional service and other 7.5 % 7.6 % 7.5 % 7.7 % Total Cost of Revenues by Product Type: Cloud services and subscriptions $ 157,658 $ 21,638 $ 136,020 $ 423,771 $ 45,843 $ 377,928 Customer support 67,067 35,304 31,763 123,010 32,096 90,914 License 3,840 644 3,196 10,461 (445) 10,906 Professional service and other 78,526 21,833 56,693 186,390 24,931 161,459 Amortization of acquired technology-based intangible assets 62,639 16,075 46,564 146,139 (6,194) 152,333 Total cost of revenues $ 369,730 $ 95,494 $ 274,236 $ 889,771 $ 96,231 $ 793,540 % GAAP-based Gross Margin by Product Type: Cloud services and subscriptions 63.8 % 66.2 % 66.1 % 66.4 % Customer support 88.4 % 90.4 % 89.8 % 90.9 % License 97.3 % 96.0 % 96.6 % 95.9 % Professional service and other 16.1 % 15.6 % 17.3 % 19.9 % Total Revenues by Geography: (1) Americas (2) $ 750,999 $ 190,030 $ 560,969 $ 1,892,389 $ 276,422 $ 1,615,967 EMEA (3) 379,430 126,542 252,888 843,088 78,381 764,707 Asia Pacific (4) 114,245 45,819 68,426 258,673 47,957 210,716 Total revenues $ 1,244,674 $ 362,391 $ 882,283 $ 2,994,150 $ 402,760 $ 2,591,390 % Revenues by Geography: Americas (2) 60.3 % 63.6 % 63.2 % 62.4 % EMEA (3) 30.5 % 28.7 % 28.2 % 29.5 % Asia Pacific (4) 9.2 % 7.7 % 8.6 % 8.1 % Other Metrics: GAAP-based gross margin 70.3 % 68.9 % 70.3 % 69.4 % Non-GAAP-based gross margin (5) 75.8 % 74.5 % 75.7 % 75.5 % Net income (loss), attributable to OpenText $ 57,556 $ 74,681 $ 199,113 $ 294,894 GAAP-based EPS (loss), diluted $ 0.21 $ 0.28 $ 0.74 $ 1.08 Non-GAAP-based EPS, diluted (5) $ 0.73 $ 0.70 $ 2.39 $ 2.43 Adjusted EBITDA (5) $ 365,103 $ 284,496 $ 1,010,071 $ 951,367 _______________________________ (1) Total revenues by geography are determined based on the location of our direct end customer. (2) Americas consists of countries in North, Central and South America. (3) EMEA primarily consists of countries in Europe, the Middle East and Africa. (4) Asia Pacific primarily consists of Japan, Australia, China, Korea, Philippines, Singapore, India and New Zealand. 51 Table of Content s (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. Revenues, Cost of Revenues and Gross Margin by Product Type 1) Cloud Services and Subscriptions: Cloud services and subscriptions revenues are from hosting arrangements where in connection with the licensing of software, the end user does not take possession of the software, as well as from end-to-end fully outsourced 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 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 March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 Cloud Services and Subscriptions: Americas $ 326,343 $ 23,160 $ 303,183 $ 951,296 $ 106,535 $ 844,761 EMEA 80,273 7,500 72,773 219,133 19,247 199,886 Asia Pacific 28,833 2,842 25,991 78,345 (430) 78,775 Total Cloud Services and Subscriptions Revenues 435,449 33,502 401,947 1,248,774 125,352 1,123,422 Cost of Cloud Services and Subscriptions Revenues 157,658 21,638 136,020 423,771 45,843 377,928 GAAP-based Cloud Services and Subscriptions Gross Profit $ 277,791 $ 11,864 $ 265,927 $ 825,003 $ 79,509 $ 745,494 GAAP-based Cloud Services and Subscriptions Gross Margin % 63.8 % 66.2 % 66.1 % 66.4 % % Cloud Services and Subscriptions Revenues by Geography: Americas 74.9 % 75.4 % 76.2 % 75.2 % EMEA 18.4 % 18.1 % 17.5 % 17.8 % Asia Pacific 6.7 % 6.5 % 6.3 % 7.0 % 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 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%. 52 Table of Content s 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 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%. 2) Customer Support: Customer support revenues consist of revenues from our customer support and maintenance agreements. These agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software products when available. Customer support revenues are generated from support and maintenance relating to current year sales of software products and from the renewal of existing maintenance agreements for software licenses sold in prior periods. Therefore, changes in Customer support revenues do not always correlate directly to the changes in license revenues from period to period. The terms of support and maintenance agreements are typically twelve months, and are renewable, generally on an annual basis, at the option of the customer. Our management reviews our Customer support renewal rates on a quarterly basis, and we use these rates as a method of monitoring our customer service performance. For the 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 March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 Customer Support Revenues: Americas $ 318,184 $ 132,524 $ 185,660 $ 687,771 $ 132,013 $ 555,758 EMEA 203,106 83,550 119,556 415,739 53,271 362,468 Asia Pacific 54,594 27,296 27,298 106,233 21,833 84,400 Total Customer Support Revenues 575,884 243,370 332,514 1,209,743 207,117 1,002,626 Cost of Customer Support Revenues 67,067 35,304 31,763 123,010 32,096 90,914 GAAP-based Customer Support Gross Profit $ 508,817 $ 208,066 $ 300,751 $ 1,086,733 $ 175,021 $ 911,712 GAAP-based Customer Support Gross Margin % 88.4 % 90.4 % 89.8 % 90.9 % % Customer Support Revenues by Geography: Americas 55.3 % 55.8 % 56.9 % 55.4 % EMEA 35.3 % 36.0 % 34.4 % 36.2 % Asia Pacific 9.4 % 8.2 % 8.7 % 8.4 % 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. 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 53 Table of Content s 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. 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%. 3) License: Our License revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses. Our License revenues are impacted by the strength of general economic and industry conditions, the competitive strength of our software products, and our acquisitions. Cost of License revenues consists primarily of royalties payable to third parties. Three Months Ended March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 License Revenues: Americas $ 68,305 $ 27,627 $ 40,678 $ 149,819 $ 25,562 $ 124,257 EMEA 53,918 21,560 32,358 116,103 1,272 114,831 Asia Pacific 17,499 9,894 7,605 44,308 19,733 24,575 Total License Revenues 139,722 59,081 80,641 310,230 46,567 263,663 Cost of License Revenues 3,840 644 3,196 10,461 (445) 10,906 GAAP-based License Gross Profit $ 135,882 $ 58,437 $ 77,445 $ 299,769 $ 47,012 $ 252,757 GAAP-based License Gross Margin % 97.3 % 96.0 % 96.6 % 95.9 % % License Revenues by Geography: Americas 48.9 % 50.4 % 48.3 % 47.1 % EMEA 38.6 % 40.1 % 37.4 % 43.6 % Asia Pacific 12.5 % 9.5 % 14.3 % 9.3 % 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. 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. 54 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: Professional service and other revenues consist of revenues from consulting contracts and contracts to provide implementation, training and integration services (professional services). Other revenues consist of hardware revenues, which are included within the “Professional service and other” category because they are relatively immaterial to our service revenues. Professional services are typically performed after the purchase of new software licenses. Professional service and other revenues can vary from period to period based on the type of engagements as well as those implementations that are assumed by our partner network. Cost of Professional service and other revenues consists primarily of the costs of providing integration, configuration and training with respect to our various software products. The most significant components of these costs are personnel-related expenses, travel costs and third-party subcontracting. Three Months Ended March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 Professional Service and Other Revenues: Americas $ 38,167 $ 6,719 $ 31,448 $ 103,503 $ 12,312 $ 91,191 EMEA 42,133 13,932 28,201 92,113 4,591 87,522 Asia Pacific 13,319 5,787 7,532 29,787 6,821 22,966 Total Professional Service and Other Revenues 93,619 26,438 67,181 225,403 23,724 201,679 Cost of Professional Service and Other Revenues 78,526 21,833 56,693 186,390 24,931 161,459 GAAP-based Professional Service and Other Gross Profit $ 15,093 $ 4,605 $ 10,488 $ 39,013 $ (1,207) $ 40,220 GAAP-based Professional Service and Other Gross Margin % 16.1 % 15.6 % 17.3 % 19.9 % % Professional Service and Other Revenues by Geography: Americas 40.8 % 46.8 % 45.9 % 45.2 % EMEA 45.0 % 42.0 % 40.9 % 43.4 % Asia Pacific 14.2 % 11.2 % 13.2 % 11.4 % 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. 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%. 55 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. 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 March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 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 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 March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 Research and development $ 210,731 $ 93,001 $ 117,730 $ 430,629 $ 109,112 $ 321,517 Sales and marketing 271,013 90,058 180,955 615,354 124,221 491,133 General and administrative 127,047 38,910 88,137 282,724 51,597 231,127 Depreciation 30,577 8,207 22,370 76,609 11,074 65,535 Amortization of acquired customer-based intangible assets 97,237 41,022 56,215 205,121 44,357 160,764 Special charges (recoveries) 74,350 63,319 11,031 98,937 78,345 20,592 Total operating expenses $ 810,955 $ 334,517 $ 476,438 $ 1,709,374 $ 418,706 $ 1,290,668 % of Total Revenues: Research and development 16.9 % 13.3 % 14.4 % 12.4 % Sales and marketing 21.8 % 20.5 % 20.6 % 19.0 % General and administrative 10.2 % 10.0 % 9.4 % 8.9 % Depreciation 2.5 % 2.5 % 2.6 % 2.5 % Amortization of acquired customer-based intangible assets 7.8 % 6.4 % 6.9 % 6.2 % Special charges (recoveries) 6.0 % 1.3 % 3.3 % 0.8 % 56 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. Research and development enables organic growth and improves product stability and functionality, and accordingly, we dedicate extensive efforts to update and upgrade our product offerings. The primary drivers are typically software upgrades and development. Change between Three Months Ended March 31, 2023 and 2022 Change between Nine Months Ended March 31, 2023 and 2022 (In thousands) increase (decrease) increase (decrease) Payroll and payroll-related benefits $ 63,565 $ 65,139 Contract labour and consulting 5,708 7,797 Share-based compensation 6,459 15,553 Travel and communication 432 970 Facilities 15,478 17,675 Other miscellaneous 1,359 1,978 Total change in research and development expenses $ 93,001 $ 109,112 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%. 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 March 31, 2023 and 2022 Change between Nine Months Ended March 31, 2023 and 2022 (In thousands) increase (decrease) increase (decrease) Payroll and payroll-related benefits $ 53,658 $ 58,090 Commissions 7,986 12,148 Contract labour and consulting 3,469 3,968 Share-based compensation 6,186 12,866 Travel and communication 4,733 8,510 Marketing expenses 5,062 12,521 Facilities 7,544 9,315 Credit loss expense (recovery) (1,401) 1,737 Other miscellaneous 2,821 5,066 Total change in sales and marketing expenses $ 90,058 $ 124,221 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, 57 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 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 March 31, 2023 and 2022 Change between Nine Months Ended March 31, 2023 and 2022 (In thousands) increase (decrease) increase (decrease) Payroll and payroll-related benefits $ 22,760 $ 22,696 Contract labour and consulting 4,491 3,638 Share-based compensation 3,675 6,500 Travel and communication 4,130 5,046 Facilities 5,692 6,151 Other miscellaneous (1,838) 7,566 Total change in general and administrative expenses $ 38,910 $ 51,597 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 March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 Depreciation $ 30,577 $ 8,207 $ 22,370 $ 76,609 $ 11,074 $ 65,535 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 March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 Amortization of acquired customer-based intangible assets $ 97,237 $ 41,022 $ 56,215 $ 205,121 $ 44,357 $ 160,764 58 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): Special charges (recoveries) typically relate to amounts that we expect to pay in connection with restructuring plans, acquisition-related costs and other similar charges and recoveries. Generally, we implement such plans in the context of integrating acquired entities with existing OpenText operations and most recently in response to our return to office planning. Actions related to such restructuring plans are typically completed within a period of one year. In certain limited situations, if the planned activity does not need to be implemented, or an expense lower than anticipated is paid out, we record a recovery of the originally recorded expense to Special charges (recoveries). Three Months Ended March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 Special charges (recoveries) $ 74,350 $ 63,319 $ 11,031 $ 98,937 $ 78,345 $ 20,592 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. 59 Table of Content s Other Income (Expense), Net The components of other income (expense), net were as follows: Three Months Ended March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 Foreign exchange gains (losses) $ 55,558 $ 59,001 $ (3,443) $ 54,257 $ 57,157 $ (2,900) 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) (4,724) (32,470) 27,746 (11,547) (70,650) 59,103 Loss on debt extinguishment (4) (5) (21) (21) — (8,152) 19,261 (27,413) 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 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” 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” to our Condensed Consolidated Financial Statements 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 March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 Interest expense related to total outstanding debt (1) $ 118,574 $ 80,581 $ 37,993 $ 214,159 $ 102,188 $ 111,971 Interest income (19,488) (18,637) (851) (41,013) (38,631) (2,382) Other miscellaneous expense 5,416 2,320 3,096 10,453 2,504 7,949 Total interest and other related expense, net $ 104,502 $ 64,264 $ 40,238 $ 183,599 $ 66,061 $ 117,538 __________________________ (1) For more details see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements. Provision for (recovery of) Income Taxes We operate in several tax jurisdictions and are exposed to various foreign tax rates. Three Months Ended March 31, Nine Months Ended March 31, (In thousands) 2023 Change increase (decrease) 2022 2023 Change increase (decrease) 2022 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 60 Table of Content s 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. If not deferred, modified or repealed, this provision may materially increase future cash taxes. The Inflation Reduction Act and CHIPS and Science Act were signed into law in August 2022. The Inflation Reduction Act introduced new provisions, including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period. The corporate minimum tax will be effective for Fiscal 2024. 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 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. 61 Table of Content s Use of Non-GAAP Financial Measures In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures that are not in accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company's definition may be different from similar Non-GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus, it may be more difficult to compare the Company's financial performance to that of other companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its Condensed Consolidated Financial Statements, all of which should be considered when evaluating the Company's results. The Company uses these Non-GAAP financial measures to supplement the information provided in its Condensed Consolidated Financial Statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures is not meant to be a substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain Non-GAAP measures defined below. Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are consistently calculated as GAAP-based net income or earnings (loss) per share, attributable to OpenText, on a diluted basis, excluding the effects of the amortization of acquired intangible assets, other income (expense), share-based compensation, and special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as GAAP-based income from operations, excluding the amortization of acquired intangible assets, special charges (recoveries), and share-based compensation expense. Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for (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. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management. These items are excluded based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports and are not excluded in the sense that they may be used under U.S. GAAP. The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of Non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company’s operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions and most recently in response to our return to office planning, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company’s “Special charges (recoveries)” caption on the Condensed Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company's operating results and underlying operational trends. In summary, the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results. 62 Table of Content s 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 March 31, 2023 (In thousands, except for per share data) Three Months Ended March 31, 2023 GAAP-based Measures GAAP-based Measures % of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures % of Total Revenue Cost of revenues Cloud services and subscriptions $ 157,658 $ (2,943) (1) $ 154,715 Customer support 67,067 (1,157) (1) 65,910 Professional service and other 78,526 (1,884) (1) 76,642 Amortization of acquired technology-based intangible assets 62,639 (62,639) (2) — GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 874,944 70.3% 68,623 (3) 943,567 75.8% Operating expenses Research and development 210,731 (10,801) (1) 199,930 Sales and marketing 271,013 (11,947) (1) 259,066 General and administrative 127,047 (7,636) (1) 119,411 Amortization of acquired customer-based intangible assets 97,237 (97,237) (2) — Special charges (recoveries) 74,350 (74,350) (4) — GAAP-based income from operations / Non-GAAP-based income from operations 63,989 270,594 (5) 334,583 Other income (expense), net 85,706 (85,706) (6) — 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 GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 0.21 $ 0.52 (8) $ 0.73 _________________________________ (1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. (2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. (3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue. (4) Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note 18 “Special Charges (Recoveries)” to our Condensed Consolidated Financial Statements for more details. (5) GAAP-based and Non-GAAP-based income from operations stated in dollars. (6) Adjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. Other income (expense) also includes unrealized 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. (7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 27% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. 63 Table of Content s (8) Reconciliation of GAAP-based net income (loss) to Non-GAAP-based net income: Three Months Ended March 31, 2023 Per share diluted GAAP-based net income, attributable to OpenText $ 57,556 $ 0.21 Add: Amortization 159,876 0.59 Share-based compensation 36,368 0.13 Special charges (recoveries) 74,350 0.28 Other (income) expense, net (85,706) (0.32) GAAP-based provision for (recovery of) income taxes (12,420) (0.04) Non-GAAP-based provision for income taxes (32,211) (0.12) Non-GAAP-based net income, attributable to OpenText $ 197,813 $ 0.73 Reconciliation of Adjusted EBITDA Three Months Ended March 31, 2023 GAAP-based net income, attributable to OpenText $ 57,556 Add: Provision for (recovery of) income taxes (12,420) Interest and other related expense, net 104,502 Amortization of acquired technology-based intangible assets 62,639 Amortization of acquired customer-based intangible assets 97,237 Depreciation 30,577 Share-based compensation 36,368 Special charges (recoveries) 74,350 Other (income) expense, net (85,706) Adjusted EBITDA $ 365,103 64 Table of Content s Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended March 31, 2022 (In thousands, except for per share data) Three Months Ended March 31, 2022 GAAP-based Measures GAAP-based Measures % of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures % of Total Revenue Cost of revenues Cloud services and subscriptions $ 136,020 $ (1,268) (1) $ 134,752 Customer support 31,763 (501) (1) 31,262 Professional service and other 56,693 (907) (1) 55,786 Amortization of acquired technology-based intangible assets 46,564 (46,564) (2) — GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 608,047 68.9% 49,240 (3) 657,287 74.5% Operating expenses Research and development 117,730 (4,350) (1) 113,380 Sales and marketing 180,955 (5,761) (1) 175,194 General and administrative 88,137 (3,961) (1) 84,176 Amortization of acquired customer-based intangible assets 56,215 (56,215) (2) — Special charges (recoveries) 11,031 (11,031) (4) — GAAP-based income from operations / Non-GAAP-based income from operations 131,609 130,558 (5) 262,167 Other income (expense), net 24,392 (24,392) (6) — Provision for income taxes 41,041 (9,971) (7) 31,070 GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 74,681 116,137 (8) 190,818 GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 0.28 $ 0.42 (8) $ 0.70 ______________________________ (1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. (2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. (3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue. (4) Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note 18 “Special Charges (Recoveries)” to our Condensed Consolidated Financial Statements for more details. (5) GAAP-based and Non-GAAP-based income from operations stated in dollars. (6) Adjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. (7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 35% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. 65 Table of Content s (8) Reconciliation of GAAP-based net income to Non-GAAP-based net income: Three Months Ended March 31, 2022 Per share diluted GAAP-based net income, attributable to OpenText $ 74,681 $ 0.28 Add: Amortization 102,779 0.38 Share-based compensation 16,748 0.06 Special charges (recoveries) 11,031 0.04 Other (income) expense, net (24,392) (0.09) GAAP-based provision for income taxes 41,041 0.15 Non-GAAP-based provision for income taxes (31,070) (0.12) Non-GAAP-based net income, attributable to OpenText $ 190,818 $ 0.70 Reconciliation of Adjusted EBITDA Three Months Ended March 31, 2022 GAAP-based net income, attributable to OpenText $ 74,681 Add: Provision for income taxes 41,041 Interest and other related expense, net 40,238 Amortization of acquired technology-based intangible assets 46,564 Amortization of acquired customer-based intangible assets 56,215 Depreciation 22,370 Share-based compensation 16,748 Special charges (recoveries) 11,031 Other (income) expense, net (24,392) Adjusted EBITDA $ 284,496 66 Table of Content s Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the nine months ended March 31, 2023 (In thousands, except for per share data) Nine Months Ended March 31, 2023 GAAP-based Measures GAAP-based Measures % of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures % of Total Revenue Cost of revenues Cloud services and subscriptions $ 423,771 $ (7,788) (1) $ 415,983 Customer support 123,010 (2,414) (1) 120,596 Professional service and other 186,390 (5,172) (1) 181,218 Amortization of acquired technology-based intangible assets 146,139 (146,139) (2) — GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 2,104,379 70.3% 161,513 (3) 2,265,892 75.7% Operating expenses Research and development 430,629 (25,481) (1) 405,148 Sales and marketing 615,354 (28,243) (1) 587,111 General and administrative 282,724 (19,300) (1) 263,424 Amortization of acquired customer-based intangible assets 205,121 (205,121) (2) — Special charges (recoveries) 98,937 (98,937) (4) — GAAP-based income from operations / Non-GAAP-based income from operations 395,005 538,595 (5) 933,600 Other income (expense), net 59,824 (59,824) (6) — Provision for income taxes 71,979 33,021 (7) 105,000 GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 199,113 445,750 (8) 644,863 GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 0.74 $ 1.65 (8) $ 2.39 _________________________________ (1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. (2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. (3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue. (4) Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note 18 “Special Charges (Recoveries)” to our Condensed Consolidated Financial Statements for more details. (5) GAAP-based and Non-GAAP-based income from operations stated in dollars. (6) Adjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. Other income (expense) also includes unrealized 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. (7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 27% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. 67 Table of Content s (8) Reconciliation of GAAP-based net income (loss) to Non-GAAP-based net income: Nine Months Ended March 31, 2023 Per share diluted GAAP-based net income, attributable to OpenText $ 199,113 $ 0.74 Add: Amortization 351,260 1.30 Share-based compensation 88,398 0.32 Special charges (recoveries) 98,937 0.37 Other (income) expense, net (59,824) (0.22) GAAP-based provision for income taxes 71,979 0.27 Non-GAAP-based provision for income taxes (105,000) (0.39) Non-GAAP-based net income, attributable to OpenText $ 644,863 $ 2.39 Reconciliation of Adjusted EBITDA Nine Months Ended March 31, 2023 GAAP-based net income, attributable to OpenText $ 199,113 Add: Provision for income taxes 71,979 Interest and other related expense, net 183,599 Amortization of acquired technology-based intangible assets 146,139 Amortization of acquired customer-based intangible assets 205,121 Depreciation 76,609 Share-based compensation 88,398 Special charges (recoveries) 98,937 Other (income) expense, net (59,824) Adjusted EBITDA $ 1,010,071 68 Table of Content s Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the nine months ended March 31, 2022 (In thousands, except for per share data) Nine Months Ended March 31, 2022 GAAP-based Measures GAAP-based Measures % of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures % of Total Revenue Cost of revenues Cloud services and subscriptions $ 377,928 $ (3,072) (1) $ 374,856 Customer support 90,914 (1,631) (1) 89,283 Professional service and other 161,459 (2,275) (1) 159,184 Amortization of acquired technology-based intangible assets 152,333 (152,333) (2) — GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 1,797,850 69.4% 159,311 (3) 1,957,161 75.5% Operating expenses Research and development 321,517 (9,936) (1) 311,581 Sales and marketing 491,133 (15,377) (1) 475,756 General and administrative 231,127 (12,800) (1) 218,327 Amortization of acquired customer-based intangible assets 160,764 (160,764) (2) — Special charges (recoveries) 20,592 (20,592) (4) — GAAP-based income from operations / Non-GAAP-based income from operations 507,182 378,780 (5) 885,962 Other income (expense), net 29,137 (29,137) (6) — Provision for income taxes 123,757 (16,178) (7) 107,579 GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 294,894 365,821 (8) 660,715 GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 1.08 $ 1.35 (8) $ 2.43 ___________________________________ (1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. (2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. (3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue. (4) Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note 18 “Special Charges (Recoveries)” to our Condensed Consolidated Financial Statements for more details. (5) GAAP-based and Non-GAAP-based income from operations stated in dollars. (6) Adjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. (7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 30% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. 69 Table of Content s (8) Reconciliation of GAAP-based net income to Non-GAAP-based net income: Nine Months Ended March 31, 2022 Per share diluted GAAP-based net income, attributable to OpenText $ 294,894 $ 1.08 Add: Amortization 313,097 1.15 Share-based compensation 45,091 0.17 Special charges (recoveries) 20,592 0.08 Other (income) expense, net (29,137) (0.11) GAAP-based provision for income taxes 123,757 0.45 Non-GAAP-based provision for income taxes (107,579) (0.39) Non-GAAP-based net income, attributable to OpenText $ 660,715 $ 2.43 Reconciliation of Adjusted EBITDA Nine Months Ended March 31, 2022 GAAP-based net income, attributable to OpenText $ 294,894 Add: Provision for income taxes 123,757 Interest and other related expense, net 117,538 Amortization of acquired technology-based intangible assets 152,333 Amortization of acquired customer-based intangible assets 160,764 Depreciation 65,535 Share-based compensation 45,091 Special charges (recoveries) 20,592 Other (income) expense, net (29,137) Adjusted EBITDA $ 951,367 70 Table of Content s LIQUIDITY AND CAPITAL RESOURCES The following tables set forth changes in cash flows from operating, investing and financing activities for the periods indicated: (In thousands) As of March 31, 2023 Change increase (decrease) As of June 30, 2022 Cash and cash equivalents $ 1,396,817 $ (296,924) $ 1,693,741 Restricted cash (1) 2,903 733 2,170 Total cash, cash equivalents and restricted cash $ 1,399,720 $ (296,191) $ 1,695,911 __________________________ (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). Nine Months Ended March 31, (In thousands) 2023 Change 2022 Cash provided by operating activities $ 663,904 $ (65,966) $ 729,870 Cash used in investing activities $ (5,625,003) $ (4,692,042) $ (932,961) Cash provided by financing activities $ 4,662,276 $ 4,396,214 $ 266,062 Cash and cash equivalents Cash and cash equivalents primarily consist of balances with banks as well as deposits with original maturities of 90 days or less. We continue to anticipate that our cash and cash equivalents, as well as available credit facilities, will be sufficient to fund our anticipated cash requirements for working capital, contractual commitments, capital expenditures, dividends, operating needs and pending acquisitions for the next twelve months. Any further material or acquisition-related activities may require additional sources of financing and would be subject to the financial covenants established under our credit facilities. For more details, see “Long-term Debt and Credit Facilities” below. As of 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 $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. Cash flows used in investing activities Our cash flows used in investing activities is primarily on account of acquisitions and additions of property and equipment. Cash flows used in investing activities 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 71 Table of Content s 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; and (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; and (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. See Item 5 “Dividend Policy” included within our Annual Report on Form 10-K for Fiscal 2022 for more information. Long-term Debt and Credit Facilities Senior Unsecured Fixed Rate Notes Senior Notes 2031 On November 24, 2021, OpenText Holdings, Inc. (OTHI), a wholly-owned indirect subsidiary of the Company, issued $650 million in aggregate principal amount of 4.125% Senior Notes due 2031 guaranteed by the Company (Senior Notes 2031) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act), and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2031 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022. Senior Notes 2031 will mature on December 1, 2031, unless earlier redeemed, in accordance with their terms, or repurchased. OTHI may redeem all or a portion of the Senior Notes 2031 at any time prior to December 1, 2026 at a redemption price equal to 100% of the principal amount of the Senior Notes 2031 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. OTHI may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2031, on one or more occasions, prior to December 1, 2024, using the net proceeds from certain qualified equity offerings at a redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. OTHI may, on one or more occasions, redeem the Senior Notes 2031, in whole or in part, at any time on and after December 1, 2026 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2031, dated as of November 24, 2021, among OTHI, the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2031 Indenture), plus accrued and unpaid interest, if any, to the redemption date. If we experience one of the kinds of change of control triggering events specified in the 2031 Indenture, OTHI will be required to make an offer to repurchase the Senior Notes 2031 at a price equal to 101% of the principal amount of the Senior Notes 2031, plus accrued and unpaid interest, if any, to the date of purchase. The 2031 Indenture contains covenants that limit OTHI, the Company and certain of the Company’s subsidiaries’ ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of OTHI, the Company or the guarantors 72 Table of Content s 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. These covenants are subject to a number of important limitations and exceptions as set forth in the 2031 Indenture. The 2031 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2031 to be due and payable immediately. Senior Notes 2031 are guaranteed on a senior unsecured basis by the Company and the Company’s existing and future wholly-owned subsidiaries (other than OTHI) that borrow or guarantee the obligations under our senior credit facilities. Senior Notes 2031 and the guarantees rank equally in right of payment with all of the Company’s, OTHI’s and the guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of the Company’s, OTHI’s and the guarantors’ future subordinated debt. Senior Notes 2031 and the guarantees will be effectively subordinated to all of the Company’s, OTHI’s and the guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt. The foregoing description of the 2031 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2031 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on November 24, 2021. Senior Notes 2030 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. Senior Notes 2030 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2030 will mature on February 15, 2030, unless earlier redeemed, in accordance with their terms, or repurchased. OTHI may redeem all or a portion of the Senior Notes 2030 at any time prior to February 15, 2025 at a redemption price equal to 100% of the principal amount of the Senior Notes 2030 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. OTHI may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2030, on one or more occasions, prior to February 15, 2025, using the net proceeds from certain qualified equity offerings at a redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. OTHI may, on one or more occasions, redeem the Senior Notes 2030, in whole or in part, at any time on and after February 15, 2025 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2030, dated as of February 18, 2020, among OTHI, the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2030 Indenture), plus accrued and unpaid interest, if any, to the redemption date. If we experience one of the kinds of change of control triggering events specified in the 2030 Indenture, OTHI will be required to make an offer to repurchase the Senior Notes 2030 at a price equal to 101% of the principal amount of the Senior Notes 2030, plus accrued and unpaid interest, if any, to the date of purchase. The 2030 Indenture contains covenants that limit the Company, OTHI and certain of the Company's subsidiaries’ ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of the Company, OTHI or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2030; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2030 Indenture. The 2030 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2030 to be due and payable immediately. Senior Notes 2030 are guaranteed on a senior unsecured basis by the Company and the Company's existing and future wholly-owned subsidiaries (other than OTHI) that borrow or guarantee the obligations under our senior credit facilities. Senior Notes 2030 and the guarantees rank equally in right of payment with all of the Company, OTHI and the guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of the Company, OTHI and the guarantors’ future subordinated debt. Senior Notes 2030 and the guarantees will be effectively subordinated to all of the Company, OTHI and the guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt. 73 Table of Content s The foregoing description of the 2030 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2030 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on February 18, 2020. Senior Notes 2029 On November 24, 2021, we issued $850 million in aggregate principal amount of 3.875% Senior Notes due 2029 (Senior Notes 2029) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2029 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022. Senior Notes 2029 will mature on December 1, 2029, unless earlier redeemed, in accordance with their terms, or repurchased. We may redeem all or a portion of the Senior Notes 2029 at any time prior to December 1, 2024 at a redemption price equal to 100% of the principal amount of the Senior Notes 2029 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. We may also redeem up to 40% of the aggregate principal amount of the Senior Notes 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. 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. If we experience one of the kinds of change of control triggering events specified in the 2029 Indenture, we will be required to make an offer to repurchase the Senior Notes 2029 at a price equal to 101% of the principal amount of the Senior Notes 2029, plus accrued and unpaid interest, if any, to the date of purchase. The 2029 Indenture contains covenants that limit our and certain of our subsidiaries’ ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2029; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2029 Indenture. The 2029 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2029 to be due and payable immediately. Senior Notes 2029 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our senior credit facilities. Senior Notes 2029 and the guarantees rank equally in right of payment with all of our and our guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of our and our guarantors’ future subordinated debt. Senior Notes 2029 and the guarantees will be effectively subordinated to all of our and our guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt. The foregoing description of the 2029 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2029 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on November 24, 2021. Senior Notes 2028 On February 18, 2020 we issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 (Senior Notes 2028) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2028 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2028 will mature on February 15, 2028, unless earlier redeemed, in accordance with their terms, or repurchased. We may redeem all or a portion of the Senior Notes 2028 at any time prior to February 15, 2023 at a redemption price equal to 100% of the principal amount of the Senior Notes 2028 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. We may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2028, on one or more occasions, prior to February 15, 2023, using the net proceeds from certain qualified equity offerings at a redemption price of 103.875% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. We may, on one or more occasions, redeem the Senior Notes 2028, in whole or in part, 74 Table of Content s at any time on and after February 15, 2023 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2028, dated as of February 18, 2020, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2028 Indenture), plus accrued and unpaid interest, if any, to the redemption date. If we experience one of the kinds of change of control triggering events specified in the 2028 Indenture, we will be required to make an offer to repurchase the Senior Notes 2028 at a price equal to 101% of the principal amount of the Senior Notes 2028, plus accrued and unpaid interest, if any, to the date of purchase. The 2028 Indenture contains covenants that limit our and certain of our subsidiaries’ ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2028; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2028 Indenture. The 2028 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2028 to be due and payable immediately. Senior Notes 2028 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our senior credit facilities. Senior Notes 2028 and the guarantees rank equally in right of payment with all of our and our guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of our and our guarantors’ future subordinated debt. Senior Notes 2028 and the guarantees will be effectively subordinated to all of our and our guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt. The foregoing description of the 2028 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2028 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on February 18, 2020. Senior Notes 2026 On May 31, 2016 we issued $600 million in aggregate principal amount of 5.875% Senior Notes due 2026 (Senior Notes 2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 had interest at a rate of 5.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior Notes 2026 would have matured on June 1, 2026. On December 20, 2016, we issued an additional $250 million in aggregate principal amount by reopening our Senior Notes 2026 at an issue price of 102.75%. The additional notes had identical terms, were fungible with and were part of a single series with the previously issued $600 million aggregate principal amount of Senior Notes 2026. The outstanding aggregate principal amount of Senior Notes 2026, after taking into consideration the additional issuance, was $850 million as of December 9, 2021. On December 9, 2021, we redeemed Senior Notes 2026 in full at a price equal to 102.9375% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date. A portion of the net proceeds from the offerings of Senior Notes 2029 and Senior Notes 2031 was used to redeem Senior Notes 2026. Upon redemption, Senior Notes 2026 were cancelled, and any obligation thereunder was extinguished. The resulting loss of $27.4 million, consisting of $25.0 million relating to the early termination call premium, $6.2 million relating to unamortized debt issuance costs and $(3.8) million relating to unamortized premium, has been recorded as a component of Other income (expense), net in our Condensed Consolidated Statements of Income. See Note 22 “Other Income (Expense), Net” to our Condensed Consolidated Financial Statements. Senior Secured Fixed Rate Notes Senior Secured Notes 2027 On December 1, 2022, we issued $1 billion in aggregate principal amount of 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 75 Table of Content s 1 and December 1, commencing on June 1, 2023. Senior Secured Notes 2027 will mature on December 1, 2027, unless earlier redeemed, in accordance with their terms, or repurchased. We may redeem all or a portion of the Senior Secured Notes 2027 at any time prior to November 1, 2027 at a redemption price equal to the greater of 100% of the principal amount of the Senior Secured Notes 2027 to be redeemed and (b) the net present value of the remaining scheduled payments of principal and interest thereon discounted to the Par Call Date less interest accrued to the date of redemption, plus accrued and unpaid interest to, but excluding, the redemption date. On or after the Par Call Date, the Company may redeem the Senior Secured Notes 2027, in whole or in part, at any time and from time to time, at a redemption price equal to 100% of the principal amount of the Senior Secured Notes 2027 being redeemed plus accrued and unpaid interest thereon to the redemption date. If we experience one of the kinds of change of control triggering events specified in the indenture governing the Senior Secured Notes 2027 dated as of December 1, 2022, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2027 Indenture), we will be required to make an offer to repurchase the Senior Secured Notes 2027 at a price equal to 101% of the principal amount of the Senior Secured Notes 2027, plus accrued and unpaid interest, if any, to the date of purchase. The 2027 Indenture contains covenants that limit our and certain of the Company’s subsidiaries’ ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) create, assume, incur or guarantee additional indebtedness of the Company or certain of the Company’s subsidiaries without such subsidiary becoming a subsidiary guarantor of the Senior Secured Notes 2027; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of the Company’s property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2027 Indenture. The 2027 Indenture also provides for certain events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Secured Notes 2027 to be due and payable immediately. The Senior Secured Notes 2027 are guaranteed on a senior secured basis by certain of the Company’s subsidiaries and are secured with the same priority as the Company’s senior credit facilities. The Senior Secured Notes 2027 and the related guarantees 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. Term Loan B On May 30, 2018, we entered into a credit facility, which provides for a $1 billion term loan facility with certain lenders named therein, Barclays Bank PLC (Barclays), as sole administrative agent and collateral agent, and as lead arranger and joint bookrunner (Term Loan B) and borrowed the full amount on May 30, 2018 to, among other things, repay in full the loans under our prior $800 million term loan credit facility originally entered into on January 16, 2014. Repayments made under Term Loan B are equal to 0.25% of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity. Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver, the Acquisition Term Loan and Senior Secured Notes 2027. Term Loan B has a seven-year term, maturing in May 2025. Borrowings under Term Loan B bear interest at a rate per annum equal to an applicable margin plus, at the borrower’s option, either (1) the Eurodollar rate for the interest period relevant to such borrowing or (2) an ABR rate. The applicable margin for borrowings under Term Loan B is 1.75%, with respect to LIBOR advances and 0.75%, with respect to ABR advances. The interest on the current outstanding balance for Term Loan B is equal to 1.75% plus LIBOR (subject to a 0.00% floor). As of 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 76 Table of Content s 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 March 31, 2023, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.3:1. Revolver On October 31, 2019, we amended our committed revolving credit facility (the Revolver) to increase the total commitments under the Revolver from $450 million to $750 million as well as to extend the maturity from May 5, 2022 to October 31, 2024. Borrowings under the Revolver are secured by a first charge over substantially all of our assets, on a pari passu basis with Term Loan B, the Acquisition Term Loan and Senior Secured Notes 2027. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%. For more information regarding the impact and discontinuance of LIBOR, see “Stress in the global financial system may adversely affect our finances and operations in ways that may be hard to predict or to defend against” included within Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2022. Under the Revolver, we must maintain a “consolidated net leverage” ratio of no more than 4:1 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. During the 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. 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 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. Consolidated senior secured 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, that is secured by the Company’s or any of the Company’s subsidiaries’ assets, over the Company’s trailing four financial quarter net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. Under the Acquisition Term Loan, we must maintain a “consolidated net leverage” ratio of no more than 4.5:1.00 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of the Company’s total debt reduced by unrestricted cash, including guarantees and letters of credit, over the Company’s trailing four financial quarter net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges as defined in the Acquisition Term Loan. As of 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. 77 Table of Content s 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. Bridge Loan On August 25, 2022, we entered into a bridge loan agreement (Bridge Loan) which provided for commitments of up to $2.0 billion to finance a portion of the repayment of Micro Focus’ existing debt. On December 1, 2022, we entered into an amendment to the Bridge Loan that reallocated commitments under the Bridge Loan to the Acquisition Term Loan. In connection with the amendment to the Bridge Loan and the receipt of proceeds from the issuance of the Senior Secured Notes 2027, all remaining commitments under the Bridge Loan were reduced to zero and the Bridge Loan was terminated, which resulted in a loss on debt extinguishment of $8.2 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. For further details relating to our debt, please see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements. Shelf Registration Statement On December 6, 2021, we filed a universal shelf registration statement on Form S-3 with the SEC, which became effective automatically (the Shelf Registration Statement). The Shelf Registration Statement allows for primary and secondary offerings from time to time of equity, debt and other securities, including Common Shares, Preference Shares, debt securities, depositary shares, warrants, purchase contracts, units and subscription receipts. A 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. Share Repurchase Plan / Normal Course Issuer Bid On November 5, 2020, the Board authorized a share repurchase plan (the Fiscal 2021 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, 2020, up to an aggregate of $350 million of our Common Shares on the NASDAQ Global Select Market, the TSX and/or other exchanges and alternative trading systems in Canada and/or the United States, if eligible, subject to applicable law and stock exchange rules. The price that we were authorized to pay for Common Shares in open market transactions was the market price at the time of purchase or such other price as was permitted by applicable law or stock exchange rules. The Fiscal 2021 Repurchase Plan was effected in accordance with Rule 10b-18 under the Exchange Act (Rule 10b-18). Purchases made under the Fiscal 2021 Repurchase Plan were subject to a limit of 13,618,774 shares (representing 5% of the Company’s issued and outstanding Common Shares as of November 4, 2020). All Common Shares purchased by us pursuant to the 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 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. The Fiscal 2022 Repurchase Plan was effected in accordance with Rule 10b-18. All Common Shares purchased by us pursuant to the Fiscal 2022 Repurchase Plan were cancelled. 78 Table of Content s 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 The Company established the Fiscal 2021 NCIB in order to provide it with a means to execute purchases over the TSX as part of the overall Fiscal 2021 Repurchase Plan. The TSX approved the Company’s notice of intention to commence the Fiscal 2021 NCIB, pursuant to which the Company was authorized to purchase Common Shares over the TSX for the period commencing November 12, 2020 until November 11, 2021 in accordance with the TSX's normal course issuer bid rules, including that such purchases 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 13,618,774 (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 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. Under the rules of the TSX, the maximum number of Common Shares that could be purchased in this period was 13,638,008 (representing 5% of the Company’s issued and outstanding Common Shares as of October 31, 2021), and the maximum number of Common Shares that could be purchased on a single day was 112,590 Common Shares, which is 25% of 450,361 (the average daily trading volume for the Common Shares on the TSX for the six months ended October 31, 2021), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18. Commitments and Contractual Obligations As of 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 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) $ 12,653,743 $ 173,013 $ 2,616,207 $ 1,050,435 $ 8,814,088 Operating lease obligations (2) 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 — $ 13,286,574 $ 218,585 $ 2,924,795 $ 1,221,762 $ 8,921,432 __________________________ (1) Includes interest up to maturity and principal payments. Please see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements for more details. (2) Represents the undiscounted future minimum lease payments under our operating leases liabilities and excludes sublease income expected to be received under our various sublease agreements with third parties. Please see Note 6 “Leases” to our 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 79 Table of Content s provisions and have not accrued any liabilities related to these indemnification provisions in our Condensed Consolidated Financial Statements. Occasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including, among others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such agreements have not had a material effect on our results of operations, financial position or cash flows. Litigation We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 “Loss Contingencies” (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this Quarterly Report on Form 10-Q, the aggregate of such accrued liabilities was not material to our consolidated financial position or results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations. As described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters. Contingencies CRA Matter As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of 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. Audits by the CRA of our tax returns for fiscal years prior to Fiscal 2012 have been completed with no reassessment of our income tax liability. We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 (including any penalties) are without merit, and we are continuing to contest these reassessments. On June 30, 2022, we filed a notice of appeal with the Tax Court of Canada seeking to reverse all such reassessments (including penalties) in full and the customary court process is ongoing. Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, we have elective deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above. The CRA has audited Fiscal 2017 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 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 80 Table of Content s 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 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. We will continue to vigorously contest the adjustments to our taxable income and any penalty and interest assessments, as well as any reduction to the basis of our depreciable property. We are confident that our original tax filing positions were appropriate. Accordingly, as of the date of this Quarterly Report on Form 10-Q, we have not recorded any accruals in respect of these reassessments or proposed reassessment in our Condensed Consolidated Financial Statements. The CRA is currently in preliminary stages of auditing Fiscal 2019. Carbonite Class Action Complaint On August 1, 2019, prior to our acquisition of Carbonite, a purported stockholder of Carbonite filed a putative class action complaint against Carbonite, its former Chief Executive Officer, Mohamad S. Ali, and its former Chief Financial Officer, Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A. Luna, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19-cv-11662-LTS) (the 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. On August 23, 2019, a nearly identical complaint was filed in the same court captioned William Feng, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19- cv-11808-LTS) (together with the Luna Complaint, the Securities Actions). On November 21, 2019, the district court consolidated the Securities Actions, appointed a lead plaintiff, and designated a lead counsel. On January 15, 2020, the lead plaintiff filed a consolidated amended complaint generally making the same allegations and seeking the same relief as the complaint filed on August 1, 2019. The defendants moved to dismiss the Securities Actions on March 10, 2020. 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. Carbonite vs Realtime Data On February 27, 2017, before our acquisition of Carbonite, a non-practicing entity named Realtime Data LLC (Realtime Data) filed a lawsuit against Carbonite in the U.S. District Court for the Eastern District of Texas 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. Realtime Data’s complaint against Carbonite sought damages in an unspecified amount and injunctive relief. On December 19, 2017, the U.S. District Court for the Eastern District of Texas transferred the case to the U.S. District Court for the District of Massachusetts (No. 1:17-cv-12499). Realtime Data has also filed numerous other patent suits on the same asserted patents against other companies. After a stay pending appeal in one of those suits, on January 21, 2021, the district court held a hearing to construe the claims of the asserted patents. As to the fourth patent asserted against Carbonite, on September 24, 2019, the U.S. Patent & Trademark Office Patent Trial and Appeal Board invalidated certain claims of that patent, including certain claims that had been asserted against Carbonite. The parties then jointly stipulated to dismiss that patent from this action. On August 23, 2021, in one of the suits against other companies, the District of Delaware (No. 1:17-cv-800), held all of the patents asserted against Carbonite to be invalid. Realtime Data has appealed that decision to the U.S. Court of Appeals for the Federal Circuit. We continue to vigorously defend the matter, and the U.S. District Court for the District of Massachusetts has issued a claim construction order. We have not accrued a loss contingency related to this matter because litigation related to a non-practicing entity is inherently unpredictable. Although a loss is reasonably possible, an unfavorable outcome is not considered by management to be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss associated with this litigation. 81 Table of Content s 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 We do not enter into off-balance sheet financing as a matter of practice, except for guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business.