What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-01 compared with 2023-11-02 · 435 added, 186 removed, 863 unchanged (42% of the section changed)

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(xxi) potential legal and/or regulatory proceedings;

(xxii) 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 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);

(xxii) 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 Micro Focus International Limited, formerly Micro Focus International plc, and its subsidiaries (Micro Focus) (see Note 19 “Acquisitions and Divestitures” to our Condensed Consolidated Financial Statements for more details);

(xxiii) tax audits;

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(xvii) integration of Micro Focus, resulting synergies and timing thereof;

and (xxviii) other matters.

(xxviii) divestitures and their expected impact, including in connection with the proposed divestiture of the AMC business (see Note 19 “Acquisitions and Divestitures” to our Condensed Consolidated Financial Statements for more details);

and (xxix) other matters.

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

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(viii) our continued ability to avoid infringing third party intellectual property rights;

and (ix) our ability to successfully implement our restructuring plans.

(ix) our ability to successfully complete the proposed divestiture of the AMC business;

and (x) 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.

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(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;

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

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

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

(vi) 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 Micro Focus, (vii) 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;

portfolios and businesses, including the acquisition of Micro Focus, (vii) 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;

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

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

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

(xxii) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities;

and (xxiii) risks related to the proposed divestiture of the AMC business and the impact of the divestiture on our remaining business.

Other factors that may affect forward-looking statements include, but are not limited to:

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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 months ended September 30, 2023 compared with the three months ended September 30, 2022, unless otherwise noted.

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

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

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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, secure and responsible.

We are an Information Management company that provides software and services that empower digital businesses of all sizes to become more intelligent, connected, secure and responsible.

Our innovations maximize the strategic benefits of data and content for our customers, strengthening their productivity, growth and competitive advantage.

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

As of September 30, 2023, we employed a total of approximately 24,050 individuals.

Of the total 24,050 individuals we employed as of September 30, 2023, 9,000 or 37% are in the Americas, 5,600 or 23% are in EMEA and 9,450 or 39% are in Asia Pacific.

As of December 31, 2023, we employed a total of approximately 23,600 individuals.

Of the total 23,600 individuals we employed as of December 31, 2023, 8,700 or 37% are in the Americas, 5,400 or 23% are in EMEA and 9,500 or 40% are in Asia Pacific.

Currently, we have employees in 44 countries enabling strong access to multiple talent pools while ensuring reach and proximity to our customers.

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Quarterly Summary:

During the first quarter of Fiscal 2024 (which includes the results of Micro Focus, which has a significant impact on period-over-period comparisons) we saw the following activity:

• Total revenue was $1.4 billion, up 67.3% compared to the same period in the prior fiscal year;

During the second quarter of Fiscal 2024 (which includes the results of Micro Focus, which has a significant impact on period-over-period comparisons) we saw the following activity:

• Total revenue was $1,534.9 million, up 71.0% compared to the same period in the prior fiscal year;

up 68.2% after factoring in the favorable impact of $25.6 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 $1.1 billion, up 59.1% compared to the same period in the prior fiscal year;

• Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and customer support revenue, was $1,145.9 million, up 58.0% compared to the same period in the prior fiscal year;

up 55.6% after factoring in the favorable impact of $17.5 million of foreign exchange rate changes.

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• Non-GAAP-based gross margin was 78.6% compared to 76.0% in the same period in the prior fiscal year.

• GAAP-based net income (loss) attributable to OpenText was $80.9 million compared to $(116.9) million in the same period in the prior fiscal year.

• GAAP-based net income attributable to OpenText was $37.7 million compared to $258.5 million in the same period in the prior fiscal year.

• Non-GAAP-based net income attributable to OpenText was $338.5 million compared to $240.2 million in the same period in the prior fiscal year.

• GAAP-based earnings (loss) per share (EPS), diluted, was $0.30 compared to $(0.43) in the same period in the prior fiscal year.

• GAAP-based earnings per share (EPS), diluted, was $0.14 compared to $0.96 in the same period in the prior fiscal year.

• Non-GAAP-based EPS, diluted, was $1.24 compared to $0.89 the same period in the prior fiscal year.

• Adjusted EBITDA, a non-GAAP measure, was $566.3 million compared to $340.9 million in the same period in the prior fiscal year.

• Operating cash flow was $47.1 million for the three months ended September 30, 2023 compared to $132.0 million in the same period in the prior fiscal year, down 64.3%.

• Cash and cash equivalents were $919.9 million as of September 30, 2023, compared to $1.2 billion as of June 30, 2023.

• We repaid $175 million of the outstanding balance on the Revolver.

Subsequent to the first quarter, in October 2023, we repaid the $100 million outstanding balance drawn under the Revolver and $75 million drawn under the Acquisition Term Loan.

• Operating cash flow was $397.8 million for the six months ended December 31, 2023 compared to $327.1 million in the same period in the prior fiscal year, up 21.6%.

• Cash and cash equivalents were $1,003.1 million as of December 31, 2023, compared to $1,231.6 million as of June 30, 2023.

• We entered into a definitive agreement to divest the AMC business to Rocket Software for consideration of $2.275 billion in cash, before taxes, fees and other adjustments, and subject to certain regulatory approvals and other customary closing conditions.

• We repaid the outstanding balance on the Revolver of $100 million and repaid $75 million drawn under on the Acquisition Term Loan.

Subsequent to the end of the second quarter, on January 22, 2024, we repaid an additional $175 million of the Acquisition Term Loan.

• Enterprise cloud bookings were $235.5 million, compared to $144.7 million in the same period in the prior fiscal year.

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

Proposed Divestiture of AMC Business

On November 28, 2023, the Company entered into an agreement to sell its AMC business to Rocket Software, for $2.275 billion in cash before taxes, fees and other adjustments.

The transaction remains subject to certain regulatory approvals and other customary closing conditions and is expected to close in the fourth quarter of Fiscal 2024.

The Company determined that the assets and liabilities of the AMC business met the criteria for held for sale classification and the respective assets and liabilities have been reclassified to assets held for sale and liabilities held for sale reported in our Condensed Consolidated Balance Sheets as of December 31, 2023.

The Company has determined that the AMC business does not constitute a component, as its operations and cash flows can not be clearly distinguished from the rest of the Company’s operations and cash flows due to significant shared costs, therefore, the transaction does not meet the discontinued operations criteria, and the results of operations from the AMC business are presented within income from operations in our Condensed Consolidated Statements of Income.

The Company expects that the sale proceeds less costs to sell will exceed the preliminary estimate of the carrying value of the net assets for the AMC business.

The carrying value is subject to change based on developments leading up to the closing date.

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

Impacts of Geopolitical Conflicts and Diplomatic Tensions

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

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

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.

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As part of the Micro Focus Acquisition, we made a strategic decision to implement a restructuring plan that impacted its global workforce and further reduced our 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, of which we have incurred $79.1 million.

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 $160 million to $175 million, of which we have incurred $123.9 million as of December 31, 2023.

We expect the Micro Focus Acquisition Restructuring Plan to be completed by the end of Fiscal 2024.

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

On November 28, 2023, the Company entered into an agreement to sell its AMC business to Rocket Software, for $2.275 billion in cash before taxes, fees and other adjustments.

The transaction remains subject to certain regulatory approvals and other customary closing conditions and is expected to close in the fourth quarter of Fiscal 2024.

We do not expect the divestiture to have a material impact to our Fiscal 2024 results.

See Part II, Item 1A “Risk Factors” herein and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2023.

We will continue to closely monitor the potential impacts of inflation with respect to wages, services and goods, concerns regarding any potential recession, rising interest rates, financial market volatility, the Russia-Ukraine and Israel-Hamas conflicts and other geopolitical disputes on our business.

See Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2023.

See Part II, Item 1A “Risk Factors” herein and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2023.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

The comparability of our operating results for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was impacted by the recent Micro Focus Acquisition, including with regard to the split of our revenues by geography.

Our total revenues increased by $573.4 million across all of our product types in the three months ended September 30, 2023, relative to the three months ended September 30, 2022, primarily due to revenue contributions from the Micro Focus Acquisition, in addition to a favorable impact of $15.9 million of foreign exchange rate changes.

The Micro Focus Acquisition contributed $562.9 million to our total revenues during the three months ended September 30, 2023, of which $369.9 million related to customer support revenues and $115.5 million related to license revenues.

Total cost of revenues increased by $148.7 million in the three months ended September 30, 2023, relative to the three months ended September 30, 2022, primarily from additional cost of revenues of $158.2 million as a result of the Micro Focus Acquisition.

Total operating expenses increased by $358.2 million in the three months ended September 30, 2023, relative to the three months ended September 30, 2022, primarily from additional operating expenses of $350.9 million as a result of the Micro Focus Acquisition, of which $267.9 million was related to research and development, sales and marketing, and general and administrative expenses.

The comparability of our operating results for the three months ended December 31, 2023 as compared to the three months ended December 31, 2022 was impacted by the recent Micro Focus Acquisition.

Our total revenues increased by $637.4 million across all of our product types for the three months ended December 31, 2023, relative to the three months ended December 31, 2022, primarily due to revenue contributions from the Micro Focus Acquisition and a favorable impact of $25.6 million of foreign exchange rate changes.

Micro Focus contributed $601.4 million to our total revenues for the three months ended December 31, 2023, of which $369.5 million related to customer support revenues and $153.3 million related to license revenues.

Total cost of revenues increased by $144.1 million for the three months ended December 31, 2023, relative to the three months ended December 31, 2022, primarily from additional cost of revenues as a result of the Micro Focus Acquisition.

Micro Focus incurred $155.4 million of cost of revenues during the three months ended December 31, 2023.

Total operating expenses increased by $424.2 million for the three months ended December 31, 2023, relative to the three months ended December 31, 2022, primarily from additional operating expenses as a result of the Micro Focus Acquisition.

Micro Focus incurred $357.6 million of operating expenses during the three months ended December 31, 2023, of which $254.1 million was related to research and development, sales and marketing, and general and administrative expenses.

The comparability of our operating results for the six months ended December 31, 2023 as compared to the six months ended December 31, 2022 was impacted by the recent Micro Focus Acquisition.

Our total revenues increased by $1,210.8 million across all of our product types for the six months ended December 31, 2023 relative to the six months ended December 31, 2022, primarily due to revenue contributions from the Micro Focus Acquisition, and the favorable impact of $41.5 million of foreign exchange rate changes.

Micro Focus contributed $1,164.3 million to our total revenues for the six months ended December 31, 2023, of which $739.4 million related to customer support revenues and $268.8 million related to license revenues.

Total cost of revenues increased by $292.7 million for the six months ended December 31, 2023 relative to the six months ended December 31, 2022, primarily from additional cost of revenues as a result of the Micro Focus Acquisition.

Micro Focus incurred $313.5 million of cost of revenues for the six months ended December 31, 2023.

Total operating expenses increased by $782.4 million for the six months ended December 31, 2023, relative to the six months ended December 31, 2022, primarily from additional operating expenses as a result of the Micro Focus Acquisition.

Micro Focus incurred $708.5 million of operating expenses for the six months ended December 31, 2023, of which $522.1 million was related to research and development, sales and marketing, and general and administrative expenses.

Summary of Results of Operations

Three Months Ended September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

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Asia Pacific (4)

9.5 % 8.8 % 9.5 % 8.3 %

Other Metrics:

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(2) Americas consists of countries in North, Central and South America.

(3) EMEA consists of countries in Europe, the Middle East and Africa.

(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.

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1) Cloud Services and Subscriptions:

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

Cloud services and subscriptions revenues are from hosting arrangements where in connection with the licensing of software, the end user does not take possession of the software, as well as from end-to-end fully outsourced business-to-business 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 September 30, 2023, our cloud renewal rate, excluding the impact of Carbonite, Zix and Micro Focus remained stable at 94% over the quarter ended September 30, 2022.

For the quarter ended December 31, 2023, our cloud renewal rate, excluding the impact of Carbonite, Zix and Micro Focus, decreased to 93% from 94% over the quarter ended December 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 September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

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Asia Pacific 6.3 % 6.0 % 6.4 % 6.1 %

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Cloud services and subscriptions revenues increased by $46.4 million or 11.5% during the three months ended September 30, 2023 as compared to the same period in the prior fiscal year;

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

Cloud services and subscriptions revenues increased by $41.4 million or 10.1% during the three months ended December 31, 2023 as compared to the same period in the prior fiscal year;

up 9.2% after factoring in the favorable impact of $4.0 million of foreign exchange rate changes.

The increase was primarily driven by incremental revenues from the Micro Focus Acquisition, as well as partially driven by organic revenue growth over the comparative period.

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 EMEA of $20.2 million, an increase in Americas of $17.7 million and an increase in Asia Pacific of $3.5 million.

There were 48 cloud services contracts greater than $1.0 million that closed during the second quarter of Fiscal 2024, compared to 23 contracts during the second quarter of Fiscal 2023.

Cost of Cloud services and subscriptions revenues increased by $45.8 million during the three months ended December 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 $32.3 million and an increase in labour-related costs of $13.3 million both partially driven by incremental Cloud services and subscriptions cost of revenues from the Micro Focus Acquisition.

Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased to 60% from 67%.

Six Months Ended December 31, 2023 Compared to Six Months Ended December 31, 2022

Cloud services and subscriptions revenues increased by $87.8 million or 10.8% during the six months ended December 31, 2023 as compared to the same period in the prior fiscal year;

up 10.0% after factoring in the favorable impact of $6.4 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 $44.4 million, an increase in EMEA of $35.1 million and an increase in Asia Pacific of $8.3 million.

There were 21 cloud services contracts greater than $1.0 million that closed during the first quarter of Fiscal 2024, compared to 18 contracts during the first quarter of Fiscal 2023.

Cost of Cloud services and subscriptions revenues increased by $39.6 million during the three months ended September 30, 2023 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in labour-related costs of $27.1 million and an increase in third-party network usage fees of $12.6 million partially driven by incremental Cloud service and subscriptions cost of revenues from the Micro Focus Acquisition over the comparative period.

There were 69 cloud services contracts greater than $1.0 million that closed during the first six months of Fiscal 2024, compared to 41 contracts during the first six months of Fiscal 2023.

Cost of Cloud services and subscriptions revenues increased by $85.4 million during the six months ended December 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 $44.9 million and an increase in labour-related costs of $40.4 million both partially driven by incremental Cloud services and subscriptions costs of revenue from the Micro Focus Acquisition.

Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased to 61% from 67%.

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

For the quarter ended September 30, 2023, our Customer support renewal rate decreased to 94%, compared to 95% for the quarter ended September 30, 2022.

For the quarter ended December 31, 2023, our Customer support renewal rate remained stable at 95% compared to the quarter ended December 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 September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

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Asia Pacific 9.8 % 8.1 % 9.5 % 8.2 %

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Customer support revenues increased by $380.4 million or 119.9% during the three months ended September 30, 2023 as compared to the same period in the prior fiscal year;

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

Customer support revenues increased by $379.3 million or 119.8% during the three months ended December 31, 2023 as compared to the same period in the prior fiscal year;

up 115.6% after factoring in the favorable impact of $13.5 million of foreign exchange rate changes.

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

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 $189.6 million, an increase in EMEA of $147.1 million and an increase in Asia Pacific of $42.5 million.

Cost of Customer support revenues increased by $47.7 million during the three months ended September 30, 2023 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in labour-related costs of $45.9 million primarily driven by incremental Customer support cost of revenues from the Micro Focus Acquisition over the comparative period.

Cost of Customer support revenues increased by $44.8 million during the three months ended December 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 $42.6 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 89% from 91%.

Six Months Ended December 31, 2023 Compared to Six Months Ended December 31, 2022

Customer support revenues increased by $759.6 million or 119.8% during the six months ended December 31, 2023 as compared to the same period in the prior fiscal year;

up 116.3% after factoring in the favorable impact of $22.7 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 $392.0 million, an increase in EMEA of $286.6 million and an increase in Asia Pacific of $81.0 million.

Cost of Customer support revenues increased by $92.4 million during the six months ended December 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 $88.5

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 89% from 91%.

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

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

Three Months Ended September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

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Asia Pacific 12.8 % 18.5 % 14.1 % 15.7 %

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

License revenues increased by $110.5 million or 176.6% during the three months ended September 30, 2023 as compared to the same period in the prior fiscal year;

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

License revenues increased by $181.3 million or 167.9% during the three months ended December 31, 2023 as compared to the same period in the prior fiscal year;

up 162.7% after factoring in the favorable impact of $5.7 million of foreign exchange rate changes.

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

The increase was primarily driven by incremental License revenues from the Micro Focus Acquisition over the comparative period and license revenue relating to the grant of certain IP rights.

Geographically, the overall change was attributable to an increase in Americas of $84.9 million, an increase in EMEA of $79.3 million and an increase in Asia Pacific of $17.1 million.

During the first quarter of Fiscal 2024, we closed 51 license contracts greater than $0.5 million, of which 21 contracts were greater than $1.0 million, contributing $63.9 million of License revenues.

This was compared to 22 license contracts greater than $0.5 million during the first quarter of Fiscal 2023, of which 9 contracts were greater than $1.0 million, contributing $22.6 million of License revenues.

Cost of License revenues increased by $1.1 million during the three months ended September 30, 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 revenue from the Micro Focus Acquisition over the comparative period.

During the second quarter of Fiscal 2024, we closed 83 license contracts greater than $0.5 million, of which 35 contracts were greater than $1.0 million, contributing $147.7 million of License revenues.

This was compared to 38 license contracts greater than $0.5 million during the second quarter of Fiscal 2023, of which 15 contracts were greater than $1.0 million, contributing $43.0 million of License revenues.

Cost of License revenues increased by $2.1 million during the three months ended December 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 98% from 96%.

Six Months Ended December 31, 2023 Compared to Six Months Ended December 31, 2022

License revenues increased by $291.8 million or 171.1% during the six months ended December 31, 2023 as compared to the same period in the prior fiscal year;

up 166.4% after factoring in the favorable impact of $8.0 million of foreign exchange rate changes.

The increase was primarily driven by incremental License revenues from the Micro Focus Acquisition over the comparative period and license revenue relating to the grant of certain IP rights.

Geographically, the overall change was attributable to an increase in Americas of $135.8 million, an increase in EMEA of $117.8 million and an increase in Asia Pacific of $38.1 million.

During the first six months of Fiscal 2024, we closed 134 license contracts greater than $0.5 million, of which 56 contracts were greater than $1.0 million, contributing $211.6 million of License revenues.

This was compared to 60 license contracts greater than $0.5 million during the first six months of Fiscal 2023, of which 24 contracts were greater than $1.0 million, contributing $65.6 million of License revenues.

Cost of License revenues increased by $3.2 million during the six months ended December 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 98% from 96%.

4) Professional Service and Other:

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

Three Months Ended September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

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Asia Pacific 12.3 % 12.7 % 12.4 % 12.5 %

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Professional service and other revenues increased by $36.2 million or 53.6% during the three months ended September 30, 2023 as compared to the same period in the prior fiscal year;

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

Professional service and other revenues increased by $35.5 million or 55.2% during the three months ended December 31, 2023 as compared to the same period in the prior fiscal year;

up 51.3% after factoring in the favorable impact of $2.5 million of foreign exchange rate changes.

1 unchanged sentence

Geographically, the overall change was attributable to an increase in EMEA of $23.0 million, an increase in Americas of $8.4 million and an increase in Asia Pacific of $4.1 million.

Cost of Professional service and other revenues increased by $26.1 million during the three months ended September 30, 2023 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in labour-related costs of $27.0 million primarily driven by the incremental Professional service and other cost of revenues from the Micro Focus Acquisition over the comparative period.

Overall, the gross margin percentage on Professional service and other revenues increased to 23% from 20%.

Cost of Professional service and other revenues increased by $21.4 million during the three months ended December 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 $0.7 million.

Overall, the gross margin percentage on Professional service and other revenues increased to 24% from 16% in the same period in the prior fiscal year.

Six Months Ended December 31, 2023 Compared to Six Months Ended December 31, 2022

Professional service and other revenues increased by $71.7 million or 54.4% during the six months ended December 31, 2023 as compared to the same period in the prior fiscal year;

up 51.1% after factoring in the favorable impact of $4.4 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 $15.8 million, an increase in Asia Pacific of $8.7 million and an increase in EMEA of $47.2 million.

Cost of Professional service and other revenues increased by $47.5 million during the six months ended December 31, 2023 as compared to the same period in the prior fiscal year.

This was due to an increase in labour-related costs of $49.1 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 $1.6 million.

Overall, the gross margin percentage on Professional service and other revenues increased to 24% from 18% in the same period in the prior fiscal year.

Amortization of Acquired Technology-based Intangible Assets

Three Months Ended September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

Amortization of acquired technology-based intangible assets $ 70,784 $ 29,921 $ 40,863 $ 147,608 $ 64,108 $ 83,500

Amortization of acquired technology-based intangible assets increased during the three months ended September 30, 2023 by $34.2 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, partially offset by a reduction in amortization related to technology-based intangible assets from previous acquisitions becoming fully amortized.

Amortization of acquired technology-based intangible assets increased during the three months ended December 31, 2023 by $29.9 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, partially offset by intangible assets from previous acquisitions becoming fully amortized.

Amortization of acquired technology-based intangible assets increased during the six months ended December 31, 2023 by $64.1 million as compared to the same period in the prior fiscal year.

This was primarily due to amortization of newly acquired customer-based intangible assets from the Micro Focus Acquisition, partially offset by intangible assets from previous acquisitions becoming fully amortized.

Operating Expenses

Three Months Ended September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

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The primary drivers are typically software upgrades and development.

Change between Three Months Ended

September 30, 2023 and 2022

Change between

Three Months Ended

December 31, 2023 and 2022

Change between

Six Months Ended

December 31, 2023 and 2022

(In thousands)

increase (decrease)

increase (decrease) increase (decrease)

Payroll and payroll-related benefits $ 74,057 $ 159,478

5 unchanged sentences

Total change in research and development expenses $ 110,520 $ 234,759

Research and development expenses increased by $124.2 million during the three months ended September 30, 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 $85.4 million, facility-related expenses increased by $25.2 million, contract labour and consulting expense increased by $5.8 million, and share-based compensation expense increased by $4.9 million.

Research and development expenses increased by $110.5 million during the three months ended December 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 $74.1 million, facility-

related expenses increased by $22.2 million, contract labour and consulting increased by $5.1 million, and share-based compensation expense increased by $4.9 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 3,942 employees, from 4,293 employees at September 30, 2022 to 8,235 employees at September 30, 2023, primarily as a result of the Micro Focus Acquisition.

Research and development expenses increased by $234.8 million during the six months ended December 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, which is comprised of salaries, benefits and variable short-term incentives, increased by $159.5 million, facility-related expenses increased by $47.4 million, contract labour and consulting increased by $10.8 million, and share-based compensation expense increased by $9.8 million.

Overall, our research and development expenses, as a percentage of total revenues, increased to 15% compared to the same period in the prior fiscal year at 13%.

Our research and development labour resources increased by 3,787 employees, from 4,275 employees at December 31, 2022 to 8,062 employees at December 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

September 30, 2023 and 2022

(In thousands) increase (decrease)

Change between

Three Months Ended

December 31, 2023 and 2022

Change between

Six Months Ended

December 31, 2023 and 2022

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

Payroll and payroll-related benefits $ 71,837 $ 143,387

8 unchanged sentences

Total change in sales and marketing expenses $ 103,092 $ 207,723

Sales and marketing expenses increased by $104.6 million during the three months ended September 30, 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 $71.6 million, facility-related expenses increased by $9.6 million, commissions increased by $6.1 million, marketing expenses increased by $5.2 million, share-based compensation expense increased by $4.9 million, and travel and communication expenses increased by $3.4 million.

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

Our sales and marketing labour resources increased by 1,998 employees, from 2,656 employees at September 30, 2022 to 4,654 employees at September 30, 2023, primarily as a result of the Micro Focus Acquisition.

Sales and marketing expenses increased by $103.1 million during the three months ended December 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 $71.8 million, commissions increased by $10.0 million, facility-related expenses increased by $7.0 million, contract labour and consulting expenses increased by $4.2 million, share-based compensation expense increased by $3.8 million, and travel and communication expenses increased by $3.7 million.

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

Sales and marketing expenses increased by $207.7 million during the six months ended December 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 $143.4 million, facility-related expenses increased by $16.6 million, commissions increased by $16.1 million, share-based compensation expense increased by $8.7 million, contract labour and consulting expenses increased by $8.6 million, travel and communication expenses increased by $7.1 million and marketing expenses increased by $6.9 million.

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

Our sales and marketing labour resources increased by 1,858 employees, from 2,653 employees at December 31, 2022 to 4,511 employees at December 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

September 30, 2023 and 2022

(In thousands) increase (decrease)

Change between

Three Months Ended

December 31, 2023 and 2022

Change between

Six Months Ended

December 31, 2023 and 2022

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

Payroll and payroll-related benefits $ 31,152 $ 62,333

5 unchanged sentences

Total change in general and administrative expenses $ 95,661 $ 148,798

General and administrative expenses increased by $53.1 million during the three months ended September 30, 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 $31.2 million, contract labour and consulting expenses increased by $7.6 million, other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses increased by $5.7 million, travel and communication expenses increased by $4.4 million, share-based compensation expense increased by $2.3 million, and facility-related expenses increased by $2.0 million.

Overall, general and administrative expenses, as a percentage of total revenues, remained stable at 9% compared to the same period in the prior fiscal year.

Our general and administrative labour resources increased by 1,599 employees, from 1,864 employees at September 30, 2022 to 3,463 employees at September 30, 2023, primarily as a result of the Micro Focus Acquisition.

General and administrative expenses increased by $95.7 million during the three months ended December 31, 2023 as compared to the same period in the prior fiscal year, primarily as a result of the Micro Focus Acquisition and other miscellaneous costs.

Other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses, increased by $51.1 million primarily driven by costs related to IP, including the grant of certain IP rights and the resolution of certain historical IP related matters.

Overall, general and administrative expenses, as a percentage of total revenues, increased to 11% from 9% in the same period in the prior fiscal year.

General and administrative expenses increased by $148.8 million during the six months ended December 31, 2023 as compared to the same period in the prior fiscal year, primarily as a result of the Micro Focus Acquisition and other miscellaneous costs.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $62.3 million, other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses, increased by $56.8 million primarily driven by costs related to IP, including the grant of certain IP rights and the resolution of certain historical IP related matters, contract labour and consulting expenses increased by $14.9 million, travel and communications expenses increased by $6.9 million, facility-related expenses increased by $4.3 million and share-based compensation expenses increased by $3.6 million.

Overall, general and administrative expenses, as a percentage of total revenues, increased to 10% from 9% in the same period in the prior fiscal year.

Our general and administrative labour resources increased by 1,562 employees, from 1,866 employees at December 31, 2022 to 3,428 employees at December 31, 2023, primarily as a result of the Micro Focus Acquisition.

Depreciation expenses:

Three Months Ended September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

Depreciation $ 33,415 $ 10,557 $ 22,858 $ 67,506 $ 21,474 $ 46,032

Depreciation expenses increased during the three months ended September 30, 2023 by $10.9 million 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 decreased for the three months ended September 30, 2023 at 2% compared to the same period in the prior fiscal year at 3%.

Depreciation expenses increased during the three and six months ended December 31, 2023 by $10.6 million and $21.5 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 decreased for the three and six months ended December 31, 2023 at 2% compared to 3% for the same periods in the prior fiscal year.

Amortization of acquired customer-based intangible assets:

Three Months Ended September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

Amortization of acquired customer-based intangible assets $ 113,925 $ 60,479 $ 53,446 $ 234,117 $ 126,233 $ 107,884

Amortization of acquired customer-based intangible assets increased during the three months ended September 30, 2023 by $65.8 million as compared to the same period in the prior fiscal year.

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

Amortization of acquired customer-based intangible assets increased during the three months ended December 31, 2023 by $60.5 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 six months ended December 31, 2023 by $126.2 million as compared to the same period in the prior fiscal year.

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

Special charges (recoveries):

3 unchanged sentences

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

Three Months Ended September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

Special charges (recoveries) $ 54,166 $ 43,860 $ 10,306 $ 67,960 $ 43,373 $ 24,587

Special charges (recoveries) decreased by $(0.5) million during the three months ended September 30, 2023 over the comparative period.

This was primarily due to a decrease in acquisition related costs of $3.5 million, offset by an increase of other charges (recoveries) of $1.9 million and an increase in restructuring costs of $1.1 million, as compared to the same period in the prior fiscal year.

Special charges (recoveries) increased by $43.9 million during the three months ended December 31, 2023 as compared to the same period in the prior fiscal year.

Restructuring costs related to the Micro Focus Acquisition increased by $44.8 million and divestiture costs related to the proposed divestiture of the AMC business increased by $5.4 million, offset by acquisition related costs which decreased by $6.0 million, as compared to the same period in the prior fiscal year.

Special charges (recoveries) increased by $43.4 million during the six months ended December 31, 2023 as compared to the same period in the prior fiscal year.

Restructuring costs related to the Micro Focus Acquisition increased by $51.6 million, divestiture costs related to the proposed divestiture of the AMC business increased by $7.0 million and other miscellaneous charges increased by $1.6 million, offset by acquisition related costs which decreased by $9.5 million as compared to the same period in the prior fiscal year.

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

1 unchanged sentence

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

Three Months Ended September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

Foreign exchange gains (losses) $ (19,624) $ (19,684) $ 60 $ (8,190) $ (6,889) $ (1,301)

$ 11,434 $ 12,795 $ (1,361)

Unrealized gains (losses) on derivatives not designated as hedges (1)

Unrealized gains (losses) on derivatives

not designated as hedges (1)

(38,117) (209,724) 171,607 (20,222) (10,368) (9,854)

1 unchanged sentence

(8,482) (8,193) (289) (18,178) (11,355) (6,823)

Loss on debt extinguishment (3)

— 8,131 (8,131) — 8,131 (8,131)

Other miscellaneous income (expense)

(2,561) (2,663) 102 (2,024) (2,251) 227

Total other income (expense), net

$ (68,784) $ (232,133) $ 163,349 $ (48,614) $ (22,732) $ (25,882)

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

(2) Represents our share in net income (loss) of equity investees, which approximates fair value and subject to volatility based on market trends and business conditions, based on our interest in certain investment funds in which we are a limited partner.

__________________________

(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 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).

(3) On December 1, 2022, we amended the Acquisition Term Loan and Bridge Loan to reallocate commitments under the Bridge Loan to the Acquisition Term Loan and terminated all remaining commitments under the Bridge Loan which resulted in a loss on debt extinguishment of $8.1 million related to unamortized debt issuance costs (see Note 11 “Long-Term Debt” 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 September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

3 unchanged sentences

Other miscellaneous expense 7,703 5,311 2,392 14,165 9,128 5,037

6,462 3,817 2,645

Total interest and other related expense, net $ 139,292 $ 100,577 $ 38,715 $ 281,056 $ 201,959 $ 79,097

1 unchanged sentence

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

(2) Other miscellaneous expense primarily consists of the amortization of debt discount and the debt issuance costs.

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

Provision for Income Taxes

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

Three Months Ended September 30,

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

(In thousands) 2023 Change

increase (decrease) 2022 2023 Change

increase (decrease) 2022

Provision for income taxes

$ 10,352 $ (23,273) $ 33,625

The Company’s effective tax rate for the three months ended September 30, 2023 was 11.3%, compared to a provision of (40.4)% for the three months ended September 30, 2022.

The Company’s effective tax rate for the three months ended September 30, 2023, differs from the Canadian statutory rate of 26.5% primarily due to tax benefits related to foreign tax rate differences, foreign tax credits and research and development credits, partially offset by US Base Erosion and Anti-Abuse Tax (BEAT).

The Company’s effective tax rate for the three months ended September 30, 2022 differs from the Canadian statutory rate primarily due to pre-tax losses 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, and the inability to recognize the tax benefit of mark-to-market losses.

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

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

The Inflation Reduction Act and Creating Helpful Incentives to Produce Semiconductors (CHIPS) were signed into law in August 2022.

Provision for (recovery of) income taxes $ 8,054 $ (42,720) $ 50,774 $ 18,406 $ (65,993) $ 84,399

The Company’s effective tax rate for the three months ended December 31, 2023 increased to a provision of 17.6% compared to a provision of 16.4% for the three months ended December 31, 2022.

The Company’s effective tax rate for the three months ended December 31, 2023, differs from the Canadian statutory rate of 26.5% primarily due to tax benefits related to foreign tax credits, research and development credits, partially offset by US Base Erosion and Anti-Abuse Tax (BEAT).

The Company’s effective tax rate for the three months ended December 31, 2022, differs from the Canadian statutory rate primarily due to tax benefits related to benefits of internal reorganizations partially offset by permanent items and uncertain tax positions.

The Company’s effective tax rate for the six months ended December 31, 2023 decreased to a provision of 13.4% compared to a provision of 37.3% for the six months ended December 31, 2022.

The Company’s effective tax rate for the six months ended December 31, 2023 differs from the Canadian statutory rate of 26.5% primarily due to tax benefits related to foreign tax credits and research and development credits, partially offset by US BEAT.

The Company’s effective tax rate for the

six months ended December 31, 2022, differs from the Canadian statutory rate primarily due to permanent items and uncertain tax positions, partially offset by research and development credits..

The Inflation Reduction Act of 2022 (Inflation Reduction Act) and Creating Helpful Incentives to Produce Semiconductors (CHIPS) 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 laws to our financial results.

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

We are currently evaluating the applicability and potential effects of the new law on our financial results for future periods.

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 2023.

33 unchanged sentences

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

for the three months ended September 30, 2023

for the three months ended December 31, 2023

(In thousands, except for per share data)

Three Months Ended September 30, 2023

Three Months Ended December 31, 2023

GAAP-based Measures GAAP-based Measures

41 unchanged sentences

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

Three Months Ended September 30, 2023

Three Months Ended December 31, 2023

Per share diluted

11 unchanged sentences

Reconciliation of Adjusted EBITDA

Three Months Ended September 30, 2023

Three Months Ended December 31, 2023

GAAP-based net income, attributable to OpenText

9 unchanged sentences

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

for the three months ended September 30, 2022

for the three months ended December 31, 2022

(In thousands, except for per share data)

Three Months Ended September 30, 2022

Three Months Ended December 31, 2022

GAAP-based Measures GAAP-based Measures

18 unchanged sentences

50,774 (11,660) (7) 39,114

GAAP-based net loss / Non-GAAP-based net income, attributable to OpenText

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText

258,486 (18,252) (8) 240,234

17 unchanged sentences

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

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

Three Months Ended September 30, 2022

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

Three Months Ended December 31, 2022

Per share diluted

GAAP-based net loss, attributable to OpenText

GAAP-based net income, attributable to OpenText

$ 258,486 $ 0.96

9 unchanged sentences

Reconciliation of Adjusted EBITDA

Three Months Ended September 30, 2022

GAAP-based net loss, attributable to OpenText

Three Months Ended December 31, 2022

GAAP-based net income, attributable to OpenText

Provision for income taxes

7 unchanged sentences

Adjusted EBITDA $ 340,921

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

for the six months ended December 31, 2023

(In thousands, except for per share data)

Six Months Ended December 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 $ 351,560 $ (6,600) (1) $ 344,960

Customer support 148,388 (2,186) (1) 146,202

Professional service and other 155,381 (3,638) (1) 151,743

Amortization of acquired technology-based intangible assets 147,608 (147,608) (2) —

GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 2,147,538 72.5% 160,032 (3) 2,307,570 78.0%

Operating expenses

Research and development 454,657 (24,501) (1) 430,156

Sales and marketing 552,064 (25,034) (1) 527,030

General and administrative 304,475 (15,311) (1) 289,164

Amortization of acquired customer-based intangible assets 234,117 (234,117) (2) —

Special charges (recoveries) 67,960 (67,960) (4) —

GAAP-based income from operations / Non-GAAP-based income from operations

466,759 526,955 (5) 993,714

Other income (expense), net (48,614) 48,614 (6) —

Provision for income taxes

18,406 81,367 (7) 99,773

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText

118,576 494,202 (8) 612,778

GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 0.44 $ 1.81 (8) $ 2.25

______________________

(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 13% and a Non-GAAP-based tax rate of approximately 14%;

these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based net income.

Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net.

Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and “book to return” adjustments for tax return filings and tax assessments.

Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period.

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

Six Months Ended December 31, 2023

Per share diluted

GAAP-based net income, attributable to OpenText

$ 118,576 $ 0.44

Amortization 381,725 1.40

Share-based compensation 77,270 0.29

Special charges (recoveries) 67,960 0.25

Other (income) expense, net 48,614 0.16

GAAP-based provision for income taxes

Non-GAAP-based provision for income taxes

(99,773) (0.36)

Non-GAAP-based net income, attributable to OpenText

$ 612,778 $ 2.25

Reconciliation of Adjusted EBITDA

Six Months Ended December 31, 2023

GAAP-based net income, attributable to OpenText

Provision for income taxes

Interest and other related expense, net 281,056

Amortization of acquired technology-based intangible assets 147,608

Amortization of acquired customer-based intangible assets 234,117

Depreciation 67,506

Share-based compensation 77,270

Special charges (recoveries) 67,960

Other (income) expense, net 48,614

Adjusted EBITDA $ 1,061,113

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

for the six months ended December 31, 2022

(In thousands, except for per share data)

Six Months Ended December 31, 2022

GAAP-based Measures GAAP-based Measures

% of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures

% of Total Revenue

Cost of revenues

Cloud services and subscriptions $ 266,113 $ (4,845) (1) $ 261,268

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

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

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

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

Operating expenses

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

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

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

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

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

GAAP-based income from operations / Non-GAAP-based income from operations

331,016 268,001 (5) 599,017

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

Provision for income taxes

84,399 (11,610) (7) 72,789

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText

141,557 305,493 (8) 447,050

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

______________________

(1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

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

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

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

Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner.

We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments.

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

(7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 37% and a Non-GAAP-based tax rate of approximately 14%;

these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income.

Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net.

Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments.

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

Six Months Ended December 31, 2022

Per share diluted

GAAP-based net income, attributable to OpenText

$ 141,557 $ 0.52

Amortization 191,384 0.71

Share-based compensation 52,030 0.19

Special charges (recoveries) 24,587 0.09

Other (income) expense, net 25,882 0.10

GAAP-based provision for income taxes

Non-GAAP-based provision for income taxes

(72,789) (0.26)

Non-GAAP-based net income, attributable to OpenText

$ 447,050 $ 1.66

Reconciliation of Adjusted EBITDA

Six Months Ended December 31, 2022

GAAP-based net income, attributable to OpenText

Provision for income taxes

Interest and other related expense, net 79,097

Amortization of acquired technology-based intangible assets 83,500

Amortization of acquired customer-based intangible assets 107,884

Depreciation 46,032

Share-based compensation 52,030

Special charges (recoveries) 24,587

Other (income) expense, net 25,882

Adjusted EBITDA $ 644,968

LIQUIDITY AND CAPITAL RESOURCES

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(In thousands)

As of September 30, 2023 Change

As of December 31, 2023 Change

increase (decrease) As of June 30, 2023

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

Three Months Ended September 30,

Six Months Ended December 31,

(In thousands)

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$ (96,868) $ (27,456) $ (69,412)

Cash used in financing activities

Cash provided by (used in) financing activities

$ (532,925) $ (1,402,486) $ 869,561

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

As of September 30, 2023, we have recognized a deferred income tax liability of $29.2 million (June 30, 2023—$28.3 million) on taxable 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 $84.8 million during the three months ended September 30, 2023, as compared to the same period in the prior fiscal year primarily due to a decrease in changes from working capital of $151.4 million offset by an increase in net income after the impact of non-cash items of $66.6 million.

During the first quarter of Fiscal 2024 we had a days sales outstanding (DSO) of 43 days, compared to our DSO of 40 days during the first quarter of Fiscal 2023.

The per day impact of our DSO in the first quarter of Fiscal 2024 and Fiscal 2023 on our cash flows was $15.8 million and $9.5 million, respectively.

As of December 31, 2023, we have recognized a deferred income tax liability of $29.5 million (June 30, 2023—$28.3 million) on taxable 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 activitie s

Cash flows from operating activities increased by $70.6 million during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year due to an increase in net income after the impact of non-cash items of $119.0 million partially offset by a decrease in changes from working capital of $48.4 million.

During the second quarter of Fiscal 2024 we had a days sales outstanding (DSO) of 47 days, compared to our DSO of 47 days during the second quarter of Fiscal 2023.

The per day impact of our DSO in the second quarter of Fiscal 2024 and Fiscal 2023 on our cash flows was $17.1 million and $10.0 million, respectively.

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

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

Cash flows used in investing activities increased by $14.1 million during the three months ended September 30, 2023, as compared to the same period in the prior fiscal year primarily due to an increase in consideration paid for acquisitions, which includes cash paid for the Micro Focus Acquisition of $9.3 million and other investing activities of $5.6 million.

Cash flows used in financing activities

Cash flows used in investing activities increased by $27.5 million during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year primarily due to higher additions to property and equipment and the increase in consideration paid during the first six months of Fiscal 2024 for acquisitions, which includes cash paid for the Micro Focus Acquisition of $9.3 million and other investing activities of $5.9 million.

Cash flows provided by (used in) financing activities

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

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

Cash flows used in financing activities increased by $239.9 million during the three months ended September 30, 2023 as compared to the same period in the prior fiscal year.

Cash flows provided by financing activities decreased by $1.4 billion during the six months ended December 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) $184.0 million increase due to repayments of long-term debt and the Revolver;

(ii) $53.1 million related to more cash used in the repurchases of treasury stock;

(iii) $2.3 million related to higher cash dividends paid to shareholders;

(iv) $2.0 million increase in debt issuance costs.

The increases in cash flows used in financing activities above were partially offset by $1.4 million due to increased proceeds from the issuance of Common Shares for the exercise of options and the OpenText ESPP.

(i) $1.0 billion decrease in proceeds due to lower issuance of long-term debt and decreased draw down on the Revolver;

(ii) $367.9 million increase in repayments of long-term debt and the Revolver;

(iii) $53.1 million related to the increase in cash used in the repurchases of treasury stock;

(iv) $3.8 million related to higher cash dividends paid to shareholders.

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

(i) $13.5 million related to higher proceeds from the issuance of Common Shares for the exercise of options and the OpenText ESPP;

(ii) $8.9 million reduction in debt issuance costs.

Cash Dividends

During the three months ended September 30, 2023, we declared and paid cash dividends of $0.25 per Common Share in the aggregate amount of $67.0 million (three months ended September 30, 2022—$0.24299 per Common Share in the aggregate amount of $64.7 million).

During the three and six months ended December 31, 2023, we declared and paid cash dividends of $0.25 and $0.50 per Common Share, respectively, in the aggregate amount of $66.4 million and $133.4 million, respectively (three and six months ended December 31, 2022—$0.24299 and $0.48598 per Common Share, respectively, in the aggregate amount of $64.9 million and $129.6 million, respectively).

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

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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.

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.

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 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.

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We may redeem all or a portion of the Senior Notes 2028 at any time prior to February 15, 2023 at a redemption price equal to 100% of the principal amount of the Senior Notes 2028 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date.

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

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

York Mellon, as U.S.

to compliance with certain conditions.

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

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

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

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

The 2027 Indenture also provides

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

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

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

Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver, the Acquisition Term Loan and Senior Secured Notes 2027.

Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver (as defined below), the Acquisition Term Loan (as defined below) and Senior Secured Notes 2027.

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

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The interest on the current outstanding balance for Term Loan B is equal to 1.75% plus Adjusted Term SOFR (as defined in the Term Loan B).

As of September 30, 2023, the outstanding balance on the Term Loan B bears an interest rate of 7.18%.

As of December 31, 2023, the outstanding balance on the Term Loan B bears an interest rate of 7.20%.

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.

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

As of September 30, 2023, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.64:1.00.

As of December 31, 2023, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.70:1.00.

For further details relating to our debt, please see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements.

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.

On December 19, 2023, we amended our committed revolving credit facility (the Revolver) to, among other things, extend the maturity from October 31, 2024 to December 19, 2028, as well as to remove the 10-basis point credit spread adjustment for loans bearing interest based on the SOFR rate.

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.

On June 6, 2023, we amended the Revolver to replace the LIBOR benchmark rate applicable to borrowings with a SOFR benchmark rate.

Borrowings under the Revolver currently bear interest per annum at a floating rate of interest equal to Adjusted Term SOFR (as defined in the Revolver) and a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%.

Borrowings under the Revolver currently bear interest per annum at a floating rate of interest equal to Term SOFR (as defined in the Revolver) and a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%.

Under the Revolver, we must maintain a “consolidated net leverage” ratio of no more than 4.50:1.00 at the end of each financial quarter.

As of September 30, 2023, we had $100 million outstanding balance under the Revolver (June 30, 2023—$275 million).

For the three months ended September 30, 2023, we recorded interest expense of $2.0 million, respectively, relating to the Revolver (three months ended September 30, 2022—nil).

In October 2023, the Company repaid the $100 million outstanding balance drawn under the Revolver.

As of December 31, 2023, we had no outstanding balance under the Revolver (June 30, 2023—$275 million).

For the three and six months ended December 31, 2023, we recorded interest expense of $0.2 million and $2.2 million, respectively, relating to the Revolver (three and six months ended December 31, 2022—nil).

For further details relating to our debt, please see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements.

1 unchanged sentence

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).

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

On August 14, 2023, we amended the Acquisition Term Loan, to reduce the applicable interest rate margin by 0.75% over the remaining term of the Acquisition Term Loan.

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Borrowings under the Acquisition Term Loan currently bear a floating rate of interest equal to 2.75% plus Adjusted Term SOFR (as defined in the Acquisition Term Loan).

As of September 30, 2023, the outstanding balance on the Acquisition Term Loan bears an interest rate of 8.18%.

As of September 30, 2023, the Acquisition Term Loan bears an effective interest rate of 9.27%.

As of December 31, 2023, the outstanding balance on the Acquisition Term Loan bears an interest rate of 8.20%.

As of December 31, 2023, the Acquisition Term Loan bears an effective interest rate of 9.31%.

The effective interest rate includes interest expense of $150.3 million and amortization of debt discount and issuance costs of $9.9 million.

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

As of September 30, 2023, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.64:1:00.

As of December 31, 2023, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.70:1:00.

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.

For the three months ended September 30, 2023, we recorded interest expense of $77.2 million, relating to the Acquisition Term Loan (three months ended September 30, 2022— nil).

In October 2023, the Company repaid $75 million drawn under the Acquisition Term Loan.

For the three and six months ended December 31, 2023, we recorded interest expense of $73.1 million and $150.3 million, respectively, relating to the Acquisition Term Loan (three and six months ended December 31, 2022— nil).

Following the end of the quarter, on January 22, 2024, the Company repaid an additional $175 million drawn under the Acquisition Term Loan (see Note 25 “Subsequent Events” to our Condensed Consolidated Financial Statements for more details).

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.

For further details relating to our debt, please see “Long-Term Debt” to our Condensed Consolidated Financial Statements.

For further details relating to our debt, please see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements.

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 in the second quarter of Fiscal 2023.

As of September 30, 2023, we had no borrowings under the Bridge Loan.

For the three months ended September 30, 2023, we did not record any interest expense relating to the Bridge Loan.

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.

connection with the amendment to the Bridge Loan and the receipt of proceeds from the issuance of the Senior Secured Notes 2027, all remaining commitments under the Bridge Loan were reduced to zero and the Bridge Loan was terminated, which resulted in a loss on debt extinguishment of $8.1 million relating to unamortized debt issuance costs in the second quarter of Fiscal 2023.

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

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

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

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

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

As the Company qualifies as a “well-known seasoned issuer” in Canada, a short-form base shelf prospectus qualifying the distribution of such securities was concurrently filed with Canadian securities regulators on December 15, 2023.

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

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

During the three months ended September 30, 2023 and 2022, we did not repurchase and cancel any Common Shares.

During the three and six months ended December 31, 2023 and 2022, we did not repurchase and cancel any Common Shares.

Normal Course Issuer Bid

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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.

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.

Following the expiration of the Fiscal 2022 NCIB, the Company does not currently have any NCIB in place.

Commitments and Contractual Obligations

As of September 30, 2023, we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:

As of December 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 October 1, 2023 - June 30, 2024 July 1, 2024 - June 30, 2026 July 1, 2026 - June 30, 2028 July 1, 2028 and beyond

Total January 1, 2024 - June 30, 2024 July 1, 2024 - June 30, 2026 July 1, 2026 - June 30, 2028 July 1, 2028 and beyond

Long-term debt obligations (1)

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

Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of September 30, 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 $76 million.

As of September 30, 2023, we have provisionally paid approximately $33 million in order to fully preserve our rights to object to the CRA's audit positions, being the minimum payment required under Canadian legislation while the matter is in dispute.

This amount is recorded within “Long-term income taxes recoverable” on the Condensed Consolidated Balance Sheets as of September 30, 2023.

Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of December 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 $79 million.

As of December 31, 2023, we have provisionally paid approximately $33 million in order to fully preserve our rights to object to the CRA's audit positions, being the minimum payment required under Canadian legislation while the matter is in dispute.

This amount is recorded within “Long-term income taxes recoverable” on the Condensed Consolidated Balance Sheets as of December 31, 2023.

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

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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.

We intend to file a notice of objection regarding Fiscal 2019.

On December 11, 2023 we filed a notice of objection regarding Fiscal 2019.

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.

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Accordingly, as of the date of this Quarterly Report on Form 10-Q, we have not recorded any accruals in respect of these reassessments or proposed reassessment in our Condensed Consolidated Financial Statements.

The CRA is also in preliminary stages of auditing Fiscal 2020.

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

Carbonite Class Action Complaint

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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 have completed discovery.

On July 14, 2023, the district court certified the lead plaintiff’s proposed class.

The defendants have filed a motion for class decertification and a motion for summary judgment, both of which are pending.

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

On July 14, 2023, the district court certified the lead plaintiff’s proposed class, following which the defendants filed a motion for class decertification.

On January 31, 2024 the parties filed a motion for preliminary approval of a settlement to fully resolve the litigation.

The proposed settlement is subject to the court’s approvals and, if approved, will be substantially paid from insurance coverage, with any remaining amount not covered by insurance expected to be immaterial to the Company.

All defendants have denied, and continue to deny, the merit of the claims alleged in the case and the settlement does not reflect any admission of fault, wrongdoing, or liability as to any defendant.

Carbonite vs Realtime Data

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Pursuant to the parties’ stipulation, Realtime Data dismissed its appeal against Carbonite to fully resolve this matter.

Other Matters

Please see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2023.

Off-Balance Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis