OPEN TEXT CORP 10-Q

Item 1. Financial Statements OPEN TEXT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars, except share data) December 31, 2023 June 30, 2023 ASSETS (unaudited) Cash and cash equivalents $ 1,003,134 $ 1,231,625 Accounts receivable trade, net of allowance for credit losses of $ 10,642 as of December 31, 2023 and $ 13,828 as of June 30, 2023 (Note 4) 735,346 682,517 Contract assets (Note 3) 70,656 71,196 Income taxes recoverable (Note 15) 8,342 68,161 Prepaid expenses and other current assets (Note 9) 215,396 221,732 Assets held for sale (Note 19) 2,051,116 — Total current assets 4,083,990 2,275,231 Property and equipment (Note 5) 352,570 356,904 Operating lease right of use assets (Note 6) 245,118 285,723 Long-term contract assets (Note 3) 45,427 64,553 Goodwill (Note 7) 7,604,409 8,662,603 Acquired intangible assets (Note 8) 2,773,220 4,080,879 Deferred tax assets (Note 15) 925,282 926,719 Other assets (Note 9) 318,783 342,318 Long-term income taxes recoverable (Note 15) 94,465 94,270 Total assets $ 16,443,264 $ 17,089,200 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities (Note 10) $ 948,921 $ 996,261 Current portion of long-term debt (Note 11) 45,850 320,850 Operating lease liabilities (Note 6) 86,868 91,425 Deferred revenues (Note 3) 1,535,322 1,721,781 Income taxes payable (Note 15) 119,400 89,297 Liabilities held for sale (Note 19) 222,814 — Total current liabilities 2,959,175 3,219,614 Long-term liabilities: Accrued liabilities (Note 10) 52,632 51,961 Pension liability, net (Note 12) 129,238 126,312 Long-term debt (Note 11) 8,474,599 8,562,096 Long-term operating lease liabilities (Note 6) 236,481 271,579 Long-term deferred revenues (Note 3) 170,273 217,771 Long-term income taxes payable (Note 15) 152,046 193,808 Deferred tax liabilities (Note 15) 238,473 423,955 Total long-term liabilities 9,453,742 9,847,482 Shareholders’ equity: Share capital and additional paid-in capital (Note 13) 271,854,655 and 270,902,571 Common Shares issued and outstanding at December 31, 2023 and June 30, 2023, respectively; authorized Common Shares: unlimited 2,261,856 2,176,947 Accumulated other comprehensive income (loss) (Note 20) ( 83,499 ) ( 53,559 ) Retained earnings 2,029,643 2,048,984 Treasury stock, at cost ( 4,400,034 and 3,536,375 shares at December 31, 2023 and June 30, 2023, respectively) ( 179,089 ) ( 151,597 ) Total OpenText shareholders' equity 4,028,911 4,020,775 Non-controlling interests 1,436 1,329 Total shareholders’ equity 4,030,347 4,022,104 Total liabilities and shareholders’ equity $ 16,443,264 $ 17,089,200 Guarantees and contingencies (Note 14) Related party transactions (Note 24) Subsequent events (Note 25) See accompanying Notes to Condensed Consolidated Financial Statements 3 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands of U.S. dollars, except share and per share data) (unaudited) Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Revenues (Note 3): Cloud services and subscriptions $ 450,091 $ 408,674 $ 901,105 $ 813,325 Customer support 695,762 316,508 1,393,475 633,859 License 289,238 107,960 462,264 170,508 Professional service and other 99,777 64,298 203,453 131,784 Total revenues 1,534,868 897,440 2,960,297 1,749,476 Cost of revenues: Cloud services and subscriptions 180,148 134,314 351,560 266,113 Customer support 73,374 28,589 148,388 55,943 License 5,983 3,863 9,822 6,621 Professional service and other 75,459 54,064 155,381 107,864 Amortization of acquired technology-based intangible assets (Note 8) 70,784 40,863 147,608 83,500 Total cost of revenues 405,748 261,693 812,759 520,041 Gross profit 1,129,120 635,747 2,147,538 1,229,435 Operating expenses: Research and development 220,220 109,700 454,657 219,898 Sales and marketing 280,263 177,171 552,064 344,341 General and administrative 173,264 77,603 304,475 155,677 Depreciation 33,415 22,858 67,506 46,032 Amortization of acquired customer-based intangible assets (Note 8) 113,925 53,446 234,117 107,884 Special charges (recoveries) (Note 18) 54,166 10,306 67,960 24,587 Total operating expenses 875,253 451,084 1,680,779 898,419 Income from operations 253,867 184,663 466,759 331,016 Other income (expense), net (Note 22) ( 68,784 ) 163,349 ( 48,614 ) ( 25,882 ) Interest and other related expense, net ( 139,292 ) ( 38,715 ) ( 281,056 ) ( 79,097 ) Income before income taxes 45,791 309,297 137,089 226,037 Provision for income taxes (Note 15) 8,054 50,774 18,406 84,399 Net income for the period $ 37,737 $ 258,523 $ 118,683 $ 141,638 Net (income) attributable to non-controlling interests ( 62 ) ( 37 ) ( 107 ) ( 81 ) Net income attributable to OpenText $ 37,675 $ 258,486 $ 118,576 $ 141,557 Earnings per share—basic attributable to OpenText (Note 23) $ 0.14 $ 0.96 $ 0.44 $ 0.52 Earnings per share—diluted attributable to OpenText (Note 23) $ 0.14 $ 0.96 $ 0.44 $ 0.52 Weighted average number of Common Shares outstanding—basic (in '000's) 271,568 270,189 271,373 269,997 Weighted average number of Common Shares outstanding—diluted (in '000's) 272,141 270,189 272,019 270,009 See accompanying Notes to Condensed Consolidated Financial Statements 4 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands of U.S. dollars) (unaudited) Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Net income for the period $ 37,737 $ 258,523 $ 118,683 $ 141,638 Other comprehensive income (loss)—net of tax: Net foreign currency translation adjustments ( 15,796 ) 39,419 ( 30,379 ) 3,053 Unrealized gain (loss) on cash flow hedges: Unrealized gain (loss) - net of tax (1) 1,522 959 ( 319 ) ( 2,381 ) (Gain) loss reclassified into net income - net of tax (2) 328 1,101 337 1,689 Unrealized gain (loss) on available-for-sale financial assets: Unrealized gain (loss) - net of tax (3) 450 — 229 — Actuarial gain (loss) relating to defined benefit pension plans: Actuarial gain (loss) - net of tax (4) ( 91 ) 32 ( 110 ) 4,196 Amortization of actuarial (gain) loss into net income - net of tax (5) 113 37 302 74 Total other comprehensive income (loss) net, for the period ( 13,474 ) 41,548 ( 29,940 ) 6,631 Total comprehensive income 24,263 300,071 88,743 148,269 Comprehensive income attributable to non - controlling interests ( 62 ) ( 37 ) ( 107 ) ( 81 ) Total comprehensive income attributable to OpenText $ 24,201 $ 300,034 $ 88,636 $ 148,188 ______________________ (1) Net of tax expense (recovery) of $ 549 and $ 347 for the three months ended December 31, 2023 and 2022, respectively; $( 115 ) and $( 859 ) for the six months ended December 31, 2023 and 2022, respectively. (2) Net of tax expense (recovery) of $ 118 and $ 397 for the three months ended December 31, 2023 and 2022, respectively; $ 121 and $ 609 for the six months ended December 31, 2023 and 2022, respectively. (3) Net of tax expense (recovery) of ($ 119 ) and $ — for the three months ended December 31, 2023 and 2022, respectively; ($ 60 ) and $ — for the six months ended December 31, 2023 and 2022, respectively. (4) Net of tax expense (recovery) of $ 91 and $ 106 for the three months ended December 31, 2023 and 2022, respectively; $ 110 and $ 1,210 for the six months ended December 31, 2023 and 2022, respectively. (5) Net of tax expense (recovery) of $ 50 and $ 25 for the three months ended December 31, 2023 and 2022, respectively; $ 125 and $ 51 for the six months ended December 31, 2023 and 2022, respectively . See accompanying Notes to Condensed Consolidated Financial Statements 5 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands of U.S. dollars and shares) (unaudited) Three Months Ended December 31, 2023 Common Shares and Additional Paid in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests Total Shares Amount Shares Amount Balance as of September 30, 2023 271,228 $ 2,216,921 ( 4,753 ) $ ( 196,119 ) $ 2,062,107 $ ( 70,025 ) $ 1,374 $ 4,014,258 Issuance of Common Shares Under employee stock option plans 340 11,111 — — — — — 11,111 Under employee stock purchase plans 287 8,370 — — — — — 8,370 Share-based compensation — 39,993 — — — — — 39,993 Issuance of treasury stock — ( 14,539 ) 353 17,030 ( 2,491 ) — — — Dividends declared ($ 0.25 per Common Share) — — — — ( 67,648 ) — — ( 67,648 ) Other comprehensive income (loss) - net — — — — — ( 13,474 ) — ( 13,474 ) Net income for the period — — — — 37,675 — 62 37,737 Balance as of December 31, 2023 271,855 $ 2,261,856 ( 4,400 ) $ ( 179,089 ) $ 2,029,643 $ ( 83,499 ) $ 1,436 $ 4,030,347 Three Months Ended December 31, 2022 Common Shares and Additional Paid in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests Total Shares Amount Shares Amount Balance as of September 30, 2022 269,881 $ 2,067,881 ( 3,586 ) $ ( 154,792 ) $ 1,978,442 $ ( 42,576 ) $ 1,186 $ 3,850,141 Issuance of Common Shares Under employee stock purchase plans 354 8,042 — — — — — 8,042 Share-based compensation — 28,822 — — — — — 28,822 Issuance of treasury stock — ( 12,666 ) 291 12,666 — — — — Dividends declared ($ 0.24299 per Common Share) — — — — ( 65,692 ) — — ( 65,692 ) Other comprehensive income (loss) - net — — — — — 41,548 — 41,548 Net income for the period — — — — 258,486 — 37 258,523 Balance as of December 31, 2022 270,235 $ 2,092,079 ( 3,295 ) $ ( 142,126 ) $ 2,171,236 $ ( 1,028 ) $ 1,223 $ 4,121,384 6 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands of U.S. dollars and shares) (unaudited) Six Months Ended December 31, 2023 Common Shares and Additional Paid in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests Total Shares Amount Shares Amount Balance as of June 30, 2023 270,903 $ 2,176,947 ( 3,536 ) $ ( 151,597 ) $ 2,048,984 $ ( 53,559 ) $ 1,329 $ 4,022,104 Issuance of Common Shares Under employee stock option plans 425 14,003 — — — — — 14,003 Under employee stock purchase plans 527 17,011 — — — — — 17,011 Share-based compensation — 76,997 — — — — — 76,997 Purchase of treasury stock — — ( 1,400 ) ( 53,085 ) — — — ( 53,085 ) Issuance of treasury stock — ( 23,102 ) 536 25,593 ( 2,491 ) — — — Dividends declared ($ 0.50 per Common Share) — — — — ( 135,426 ) — — ( 135,426 ) Other comprehensive income (loss) - net — — — — — ( 29,940 ) — ( 29,940 ) Net income for the period — — — — 118,576 — 107 118,683 Balance as of December 31, 2023 271,855 $ 2,261,856 ( 4,400 ) $ ( 179,089 ) $ 2,029,643 $ ( 83,499 ) $ 1,436 $ 4,030,347 Six Months Ended December 31, 2022 Common Shares and Additional Paid in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests Total Shares Amount Shares Amount Balance as of June 30, 2022 269,523 $ 2,038,674 ( 3,706 ) $ ( 159,966 ) $ 2,160,069 $ ( 7,659 ) $ 1,142 $ 4,032,260 Issuance of Common Shares Under employee stock option plans 72 1,994 — — — — — 1,994 Under employee stock purchase plans 640 17,221 — — — — — 17,221 Share-based compensation — 52,030 — — — — — 52,030 Issuance of treasury stock — ( 17,840 ) 411 17,840 — — — — Dividends declared ($ 0.48598 per Common Share) — — — — ( 130,390 ) — — ( 130,390 ) Other comprehensive income (loss) - net — — — — — 6,631 — 6,631 Net income for the period — — — — 141,557 — 81 141,638 Balance as of December 31, 2022 270,235 $ 2,092,079 ( 3,295 ) $ ( 142,126 ) $ 2,171,236 $ ( 1,028 ) $ 1,223 $ 4,121,384 See accompanying Notes to Condensed Consolidated Financial Statements 7 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) (unaudited) Six Months Ended December 31, 2023 2022 Cash flows from operating activities: Net income for the period $ 118,683 $ 141,638 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangible assets 449,231 237,416 Share-based compensation expense 77,270 52,030 Pension expense 6,383 3,444 Amortization of debt discount and issuance costs 12,821 3,166 Write-off of right of use assets 10,963 3,775 Loss on extinguishment of debt — 8,131 Loss on sale and write down of property and equipment 1,877 121 Deferred taxes ( 177,030 ) ( 46,802 ) Share in net loss of equity investees 18,178 6,823 Changes in financial instruments 20,222 9,854 Changes in operating assets and liabilities: Accounts receivable ( 60,285 ) ( 26,597 ) Contract assets ( 46,627 ) ( 18,454 ) Prepaid expenses and other current assets 3,989 ( 3,065 ) Income taxes 58,733 44,240 Accounts payable and accrued liabilities ( 48,156 ) 8,964 Deferred revenue ( 42,502 ) ( 29,133 ) Other assets 5,218 ( 60,706 ) Operating lease assets and liabilities, net ( 11,194 ) ( 7,716 ) Net cash provided by operating activities 397,774 327,129 Cash flows from investing activities: Additions of property and equipment ( 82,779 ) ( 68,539 ) Micro Focus acquisition ( 9,272 ) — Proceeds from net investment hedge derivative contracts 1,966 — Other investing activities ( 6,783 ) ( 873 ) Net cash used in investing activities ( 96,868 ) ( 69,412 ) Cash flows from financing activities: Proceeds from issuance of Common Shares from exercise of stock options and ESPP 29,257 15,773 Proceeds from long-term debt and Revolver — 1,000,000 Repayment of long-term debt and Revolver ( 372,926 ) ( 5,000 ) Debt issuance costs ( 2,792 ) ( 11,650 ) Purchase of treasury stock ( 53,085 ) — Payments of dividends to shareholders ( 133,379 ) ( 129,562 ) Net cash provided by (used in) financing activities ( 532,925 ) 869,561 Foreign exchange gain (loss) on cash held in foreign currencies 3,539 ( 271 ) Increase (decrease) in cash, cash equivalents and restricted cash during the period ( 228,480 ) 1,127,007 Cash, cash equivalents and restricted cash at beginning of the period 1,233,952 1,695,911 Cash, cash equivalents and restricted cash at end of the period $ 1,005,472 $ 2,822,918 8 Table of Contents OPEN TEXT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) (unaudited) Reconciliation of cash, cash equivalents and restricted cash: December 31, 2023 December 31, 2022 Cash and cash equivalents $ 1,003,134 $ 2,820,927 Restricted cash (1) 2,338 1,991 Total cash, cash equivalents and restricted cash $ 1,005,472 $ 2,822,918 ______________________ (1) Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Condensed Consolidated Balance Sheets (Note 9). Supplemental cash flow disclosures (Note 6 and Note 21) See accompanying Notes to Condensed Consolidated Financial Statements 9 Table of Contents OPEN TEXT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Three and Six Months Ended December 31, 2023 (Tabular amounts in thousands of U.S. dollars, except share and per share data) (unaudited) NOTE 1— BASIS OF PRESENTATION The accompanying Condensed Consolidated Financial Statements include the accounts of Open Text Corporation and our subsidiaries, collectively referred to as “OpenText” or the “Company.” We wholly own all of our subsidiaries with the exception of Open Text South Africa Proprietary Ltd. (OT South Africa), which as of December 31, 2023, was 70 % owned by OpenText. All intercompany balances and transactions have been eliminated. The following Fiscal Year terms are used throughout this Quarterly Report on Form 10-Q: Fiscal Year Beginning Date Ending Date Fiscal 2025 July 1, 2024 June 30, 2025 Fiscal 2024 July 1, 2023 June 30, 2024 Fiscal 2023 July 1, 2022 June 30, 2023 Fiscal 2022 July 1, 2021 June 30, 2022 Fiscal 2021 July 1, 2020 June 30, 2021 Fiscal 2020 July 1, 2019 June 30, 2020 Fiscal 2019 July 1, 2018 June 30, 2019 Fiscal 2018 July 1, 2017 June 30, 2018 Fiscal 2017 July 1, 2016 June 30, 2017 Fiscal 2016 July 1, 2015 June 30, 2016 Fiscal 2015 July 1, 2014 June 30, 2015 Fiscal 2014 July 1, 2013 June 30, 2014 Fiscal 2013 July 1, 2012 June 30, 2013 Fiscal 2012 July 1, 2011 June 30, 2012 These Condensed Consolidated Financial Statements are expressed in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The information furnished reflects all adjustments necessary for a fair presentation of the results for the periods presented and includes the consolidated financial results of Micro Focus International Limited, formerly Micro Focus International plc, and its subsidiaries (Micro Focus), with effect from February 1, 2023 (see below and Note 19 “Acquisitions and Divestitures”). Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. In particular, key estimates, judgments and assumptions include those related to: (i) revenue recognition, (ii) accounting for income taxes, (iii) testing of goodwill for impairment, (iv) the valuation of acquired intangible assets, (v) the valuation of long-lived assets, (vi) the recognition of contingencies, (vii) restructuring accruals, (viii) acquisition accruals and pre-acquisition contingencies, (ix) the valuation of stock options granted and obligations related to share-based payments, including the valuation of our long-term incentive plans, (x) the valuation of pension obligations and pension assets, (xi) the valuation of available-for-sale investments, (xii) the valuation of derivative instruments and (xiii) the accounting for assets held for sale and proposed divestitures. 10 Table of Contents Acquisition of Micro Focus On January 31, 2023, we acquired all of the issued and to be issued share capital of Micro Focus (the Micro Focus Acquisition) for a total purchase price of $ 6.2 billion, inclusive of Micro Focus’ cash and repayment of Micro Focus’ outstanding indebtedness, subject to final adjustments. The results of operations of Micro Focus have been consolidated with those of OpenText with effect from February 1, 2023. See Note 19 “Acquisitions and Divestitures” 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 Application Modernization and Connectivity (AMC) business to Rocket Software, Inc. (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. NOTE 2— ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS Accounting Policies Held for Sale Classification Assessments for held for sale accounting classification are performed by the Company when events or changes in business circumstances indicate that a change in classification may be necessary. The Company classifies assets and liabilities to be disposed of as held for sale in the period in which they are available for immediate sale in their present condition and when the sale is probable and expected to be completed within one year. Assets and liabilities classified as held for sale are presented separately within current assets and liabilities in our Condensed Consolidated Balance Sheets and are measured at the lower of their carrying amount or fair value less costs to sell. Further, the Company ceases to record depreciation and amortization expense on assets that are classified as held for sale. The Company has classified assets and liabilities held for sale as of December 31, 2023 related to the proposed divestiture of our AMC business and the proposed sale of a company owned facility (which is unrelated to the divestiture of our AMC business). Accounting Pronouncements Adopted in Fiscal 2024 During Fiscal 2024, we have adopted the following Accounting Standards Updates (ASU): Supplier Financing Program Obligations In September 2022, the Financial Accounting Standards Board (FASB) issued ASU 2022-04 “Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” This standard requires companies that participate in supplier finance programs in connection with the procurement of goods or services to disclose quantitative and qualitative information about the programs. We adopted this ASU as of July 1, 2023 which did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures, as we had no material supplier finance program obligations as of December 31, 2023. Accounting Pronouncements Not Yet Adopted in Fiscal 2024 Segment Reporting In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which provides guidance to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. Public entities 11 Table of Contents must adopt the new guidance for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments in this ASU must be applied on a retrospective basis to all prior periods presented in the financial statements and early adoption is permitted. We are currently evaluating the potential impact of the adoption of ASU 2023-07 on the Company’s financial disclosures. Income Taxes In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” that addresses requests for improved income tax disclosures from investors that use the financial statements to make capital allocation decisions. Public entities must adopt the new guidance for fiscal years beginning after December 15, 2024. The amendments in this ASU must be applied on a retrospective basis to all prior periods presented in the financial statements and early adoption is permitted. We are currently evaluating the potential impact of the adoption of ASU 2023-09 on the Company’s financial disclosures. NOTE 3— REVENUES Disaggregation of Revenue We have four revenue streams: cloud services and subscriptions, customer support, license, and professional service and other. The following tables disaggregate our revenue by significant geographic area, based on the location of our direct end customer, by type of performance obligation and timing of revenue recognition for the periods indicated: Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Total Revenues by Geography: Americas (1) $ 884,287 $ 583,602 $ 1,729,514 $ 1,141,390 EMEA (2) 504,885 235,305 950,325 463,658 Asia Pacific (3) 145,696 78,533 280,458 144,428 Total revenues $ 1,534,868 $ 897,440 $ 2,960,297 $ 1,749,476 Total Revenues by Type of Performance Obligation: Recurring revenues (4) Cloud services and subscriptions revenue $ 450,091 $ 408,674 $ 901,105 $ 813,325 Customer support revenue 695,762 316,508 1,393,475 633,859 Total recurring revenues $ 1,145,853 $ 725,182 $ 2,294,580 $ 1,447,184 License revenue (perpetual, term and subscriptions) 289,238 107,960 462,264 170,508 Professional service and other revenue 99,777 64,298 203,453 131,784 Total revenues $ 1,534,868 $ 897,440 $ 2,960,297 $ 1,749,476 Total Revenues by Timing of Revenue Recognition: Point in time $ 289,238 $ 107,960 $ 462,264 $ 170,508 Over time (including professional service and other revenue) 1,245,630 789,480 2,498,033 1,578,968 Total revenues $ 1,534,868 $ 897,440 $ 2,960,297 $ 1,749,476 ______________________ (1) Americas consists of countries in North, Central and South America. (2) EMEA consists of countries in Europe, the Middle East and Africa. (3) Asia Pacific primarily consists of Japan, Australia, China, Korea, Philippines, Singapore, India and New Zealand. (4) Recurring revenue is defined as the sum of Cloud services and subscriptions revenue and Customer support revenue. 12 Table of Contents Contract Balances A contract asset, net of allowance for credit losses, will be recorded if we have recognized revenue but do not have an unconditional right to the related consideration from the customer. For example, this will be the case if implementation services offered in a cloud arrangement are identified as a separate performance obligation and are provided to a customer prior to us being able to bill the customer. In addition, a contract asset may arise in relation to subscription licenses if the license revenue that is recognized upfront exceeds the amount that we are able to invoice the customer at that time. Contract assets are reclassified to accounts receivable when the rights become unconditional. The balance for our contract assets and contract liabilities (i.e. deferred revenues) for the periods indicated below were as follows: As of December 31, 2023 As of June 30, 2023 Short-term contract assets (1) $ 70,656 $ 71,196 Long-term contract assets (1) $ 45,427 $ 64,553 Short-term deferred revenues (1) $ 1,535,322 $ 1,721,781 Long-term deferred revenues (1) $ 170,273 $ 217,771 ______________________ (1) Excludes $ 4.9 million of short-term contract assets and $ 2.7 million of long-term contract assets that have been reclassified to Assets held for sale, as well as $ 172.8 million of short-term deferred revenues and $ 23.1 million of long-term deferred revenues that have been reclassified to Liabilities held for sale as of December 31, 2023, related to the proposed divestiture of the AMC business. See Note 19 “Acquisitions and Divestitures.” The difference in the opening and closing balances of our contract assets and deferred revenues, excluding the impact of assets held for sale, primarily results from the timing difference between our performance and the customer’s payments. We fulfill our obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. During the six months ended December 31, 2023, we reclassified $ 58.5 million (six months ended December 31, 2022 — $ 20.2 million) of contract assets to receivables as a result of the right to the transaction consideration becoming unconditional. During the three and six months ended December 31, 2023 and 2022, respectively, there was no significant impairment loss recognized related to contract assets. We recognize deferred revenue when we have received consideration or an amount of consideration is due from the customer for future obligations to transfer products or services. Our deferred revenues, excluding the impact of liabilities held for sale, primarily relate to cloud services and customer support agreements which have been paid for by customers prior to the performance of those services. The amount of revenue that was recognized during the six months ended December 31, 2023 that was included in the deferred revenue balances at June 30, 2023 was $ 1,268 million (six months ended December 31, 2022—$ 658 million). Incremental Costs of Obtaining a Contract with a Customer Incremental costs of obtaining a contract include only those costs that we incur to obtain a contract that we would not have incurred if the contract had not been obtained, such as sales commissions. The following table summarizes the changes in total capitalized costs to obtain a contract, since June 30, 2023: Capitalized costs to obtain a contract as of June 30, 2023 $ 97,207 New capitalized costs incurred 26,522 Amortization of capitalized costs ( 19,507 ) Impact of foreign exchange rate changes 400 Reclassification to Assets held for sale (1) ( 2,588 ) Capitalized costs to obtain a contract as of December 31, 2023 $ 102,034 ______________________ (1) Capitalized costs to obtain a contract of $ 2.6 million have been reclassified to Assets held for sale related to the proposed divestiture of our AMC business. See Note 19 “Acquisitions and Divestitures.” During the three and six months ended December 31, 2023 and 2022, respectively, there was no significant impairment loss recognized related to capitalized costs to obtain a contract. Refer to Note 9 “Prepaid Expenses and Other Assets” for additional information on incremental costs of obtaining a contract. 13 Table of Contents Transaction Price Allocated to the Remaining Performance Obligations As of December 31, 2023, approximately $ 2.5 billion of revenue is expected to be recognized from remaining performance obligations on existing contracts, excluding performance obligations related to the proposed divestiture of our AMC business which are reported within Liabilities held for sale. We expect to recognize approximately 46 % of this amount over the next 12 months and the remaining balance substantially over the next three years thereafter. As of December 31, 2023, approximately $ 128.9 million of revenue is expected to be recognized from remaining performance obligations on existing contracts relates to the proposed divestiture of our AMC business and we expect to recognize approximately 49 % of this amount over the next 12 months. We apply the practical expedient and do not disclose performance obligations that have original expected durations of one year or less. NOTE 4— ALLOWANCE FOR CREDIT LOSSES The following illustrates the activity in our allowance for credit losses on accounts receivable, since June 30, 2023: Balance as of June 30, 2023 $ 13,828 Credit loss expense (recovery) 3,871 Write-off / adjustments ( 5,980 ) Reclassification to Assets held for sale (1) ( 1,077 ) Balance as of December 31, 2023 $ 10,642 ______________________ (1) Allowance for credit losses of $ 1.1 million have been reclassified to Assets held for sale related to the proposed divestiture of our AMC business. See Note 19 “Acquisitions and Divestitures.” Included in accounts receivable are unbilled receivables in the amount of $ 108.2 million as of December 31, 2023 (June 30, 2023—$ 66.5 million). As of December 31, 2023, we have an allowance for credit losses of $ 0.2 million for contract assets (June 30, 2023—$ 0.3 million). For additional information on contract assets please see Note 3 “Revenues.” NOTE 5— PROPERTY AND EQUIPMENT As of December 31, 2023 Cost (1) Accumulated Depreciation (1) Net (1) Computer hardware $ 407,624 $ ( 271,429 ) $ 136,195 Computer software 190,661 ( 150,177 ) 40,484 Capitalized software development costs 232,266 ( 137,290 ) 94,976 Leasehold improvements 121,413 ( 93,688 ) 27,725 Land and buildings 58,290 ( 18,629 ) 39,661 Furniture, equipment and other 54,242 ( 40,713 ) 13,529 Total $ 1,064,496 $ ( 711,926 ) $ 352,570 ______________________ (1) Excludes Property and equipment with cost of $ 6.3 million, accumulated depreciation of $ 1.0 million and a net book value of $ 5.3 million that have been reclassified to Assets held for sale related to the proposed divestiture of our AMC business and proposed divestiture of certain facilities owned by the Company. See Note 19 “Acquisitions and Divestitures.” As of June 30, 2023 Cost Accumulated Depreciation Net Computer hardware $ 386,400 $ ( 254,131 ) $ 132,269 Computer software 178,899 ( 135,123 ) 43,776 Capitalized software development costs 216,762 ( 122,730 ) 94,032 Leasehold improvements 123,607 ( 94,721 ) 28,886 Land and buildings 62,041 ( 18,020 ) 44,021 Furniture, equipment and other 55,741 $ ( 41,821 ) 13,920 Total $ 1,023,450 $ ( 666,546 ) $ 356,904 14 Table of Contents Proposed Sale of Company Owned Facility During the three months ended December 31, 2023, the Company entered into a Purchase and Sale Agreement to dispose of a Company owned facility which has a carrying value of $ 4.4 million and has been classified as held for sale as of December 31, 2023. NOTE 6— LEASES We enter into operating leases, both domestically and internationally, for certain facilities, automobiles, data centers and equipment for use in the ordinary course of business. The duration of the majority of these leases generally ranges from 1 to 10 years, some of which include options to extend for an additional 3 to 5 years after the initial term. Additionally, the land upon which our headquarters in Waterloo, Ontario, Canada is located is leased from the University of Waterloo for a period of 49 years beginning in December 2005, with an option to renew for an additional term of 49 years. We also have finance lease liabilities comprised of equipment lease arrangements with an average duration of 4 to 5 years, all of which are currently being sublet. Leases with an initial term of 12 months or less are not recorded on our Condensed Consolidated Balance Sheets. The following illustrates the Condensed Consolidated Balance Sheets information related to leases: As of December 31, 2023 As of June 30, 2023 Operating Leases Balance Sheet Location Operating lease right of use assets (1) Operating lease right of use assets $ 245,118 $ 285,723 Operating lease liabilities (current) (1) Operating lease liabilities $ 86,868 $ 91,425 Operating lease liabilities (noncurrent) (1) Long-term operating lease liabilities 236,481 271,579 Total operating lease liabilities $ 323,349 $ 363,004 Finance Leases Finance lease receivables (current) Prepaid expenses and other current assets $ 4,911 $ 6,362 Finance lease receivables (noncurrent) Other assets 3,676 5,515 Total finance lease receivables $ 8,587 $ 11,877 Finance lease liabilities (current) Accounts payable and accrued liabilities $ 4,413 $ 5,281 Finance lease liabilities (noncurrent) Accrued liabilities 3,672 5,500 Total finance lease liabilities $ 8,085 $ 10,781 ______________________ (1) Excludes Operating lease right of use assets of $ 0.7 million that have been reclassified to Assets held for sale, as well as $ 0.3 million of Operating lease liabilities and $ 0.4 million of Long-term operating lease liabilities that have been reclassified to Liabilities held for sale related to the proposed divestiture of our AMC business. See Note 19 “Acquisitions and Divestitures.” The weighted average remaining lease term and discount rate, inclusive of assets held, for sale for the periods indicated below were as follows: As of December 31, 2023 As of June 30, 2023 Weighted-average remaining lease term Operating leases 5.33 years 5.62 years Finance leases 2.07 years 2.40 years Weighted-average discount rate Operating leases 4.77 % 4.66 % Finance leases 5.55 % 5.60 % 15 Table of Contents Lease Costs and Other Information The following illustrates the various components of lease costs for the period indicated: Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Operating lease cost $ 22,594 $ 13,991 $ 46,334 $ 28,302 Short-term lease cost 737 170 1,892 557 Variable lease cost 1,321 621 2,456 1,200 Sublease income ( 3,375 ) ( 2,904 ) ( 6,713 ) ( 5,816 ) Total lease cost $ 21,277 $ 11,878 $ 43,969 $ 24,243 Supplemental Cash Flow Information The following table presents supplemental information relating to cash flows arising from lease transactions. Cash payments made for variable lease costs and short-term leases are not included in the measurement of lease liabilities, and, as such, are excluded from the amounts below: Six Months Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating leases $ 55,800 $ 35,230 Finance leases $ 2,763 $ — Right of use assets obtained in exchange for new lease liabilities: Operating leases $ 9,219 $ 25,061 Maturity of Lease Liabilities The following table presents the future minimum lease payments under our lease liabilities as of December 31, 2023: Fiscal years ending June 30, Operating Leases Finance Leases 2024 (six months ended) $ 52,754 $ 2,757 2025 85,793 3,373 2026 65,735 1,941 2027 53,788 459 2028 40,336 — Thereafter 66,235 — Total lease payments $ 364,641 $ 8,530 Less: Imputed interest ( 40,636 ) ( 445 ) Total $ 324,005 $ 8,085 Operating lease maturity amounts included in the table above are inclusive of liabilities classified as held for sale and do not include sublease income expected to be received under our various sublease agreements with third parties. Under the agreements initiated with third parties, we expect to receive sublease income of $ 6.3 million over the remainder of Fiscal 2024 and $ 34.1 million thereafter. 16 Table of Contents NOTE 7— GOODWILL Goodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable net tangible and intangible assets. The following table summarizes the changes in goodwill since June 30, 2023: Balance as of June 30, 2023 $ 8,662,603 Acquisition of Micro Focus (Note 19) (1) ( 23,809 ) Impact of foreign exchange rate changes 2,344 Other acquisition (Note 19) 1,250 Reclassification to Assets held for sale (2) ( 1,037,979 ) Balance as of December 31, 2023 $ 7,604,409 ______________________ (1) Adjustments relate to open measurement period. (2) Adjustment to reclassify goodwill to Assets held for sale related to the proposed divestiture of our AMC business . See Note 19 “Acquisitions and Divestitures.” NOTE 8— ACQUIRED INTANGIBLE ASSETS As of December 31, 2023 Cost (1) Accumulated Amortization (1) Net (1) Technology assets $ 1,157,195 $ ( 257,880 ) $ 899,315 Customer assets 3,085,048 ( 1,211,143 ) 1,873,905 Total $ 4,242,243 $ ( 1,469,023 ) $ 2,773,220 As of June 30, 2023 Cost Accumulated Amortization Net Technology assets $ 1,815,260 $ ( 385,868 ) $ 1,429,392 Customer assets 3,691,252 ( 1,039,765 ) 2,651,487 Total $ 5,506,512 $ ( 1,425,633 ) $ 4,080,879 ______________________ (1) Excludes technology and customer intangible net assets with cost of $ 432.1 million and $ 610.2 million respectively, accumulated amortization of $ 48.7 million and $ 62.9 million respectively, and net book value of $ 383.4 million and $ 547.3 million, respectively, that have been reclassified to Assets held for sale related to the proposed divestiture of our AMC business. See Note 19 “Acquisitions and Divestitures.” Where applicable, the above balances as of December 31, 2023 have been reduced to reflect the impact of intangible assets where the gross cost has become fully amortized during the six months ended December 31, 2023. The impact of this resulted in a reduction of $ 228 million to technology assets and accumulated amortization. The weighted average amortization periods for acquired technology and customer intangible assets are approximately six years and eight years , respectively. The following table shows the estimated future amortization expense for the fiscal years indicated. This calculation assumes no future adjustments to acquired intangible assets: Fiscal years ending June 30, 2024 (six months ended) $ 295,133 2025 509,083 2026 466,116 2027 395,693 2028 378,026 2029 and Thereafter 729,169 Total $ 2,773,220 17 Table of Contents NOTE 9— PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses and other current assets: As of December 31, 2023 As of June 30, 2023 Deposits and restricted cash $ 4,253 $ 2,621 Capitalized costs to obtain a contract (2) 37,922 39,685 Short-term prepaid expenses and other current assets (2) 169,574 175,879 Derivative asset (1) 3,647 3,547 Total $ 215,396 $ 221,732 ______________________ (1) Represents the asset related to our derivative instrument activity. See Note 17 “Derivative Instruments and Hedging Activities.” (2) Excludes Capitalized costs to obtain a contract of $ 1.2 million and Short-term prepaid expenses and other current assets of $ 0.1 million that have been reclassified to Assets held for sale as of December 31, 2023 related to the proposed divestiture of our AMC business. See Note 19 “Acquisitions and Divestitures.” Other assets: As of December 31, 2023 As of June 30, 2023 Deposits and restricted cash $ 19,463 $ 20,418 Capitalized costs to obtain a contract (1) 64,112 57,522 Investments 127,320 147,974 Available-for-sale financial assets 40,877 39,858 Long-term prepaid expenses and other long-term assets 67,011 76,546 Total $ 318,783 $ 342,318 ______________________ (1) Excludes Capitalized costs to obtain a contract of $ 1.4 million that has been reclassified to Assets held for sale as of December 31, 2023 related to the proposed divestiture of our AMC business. See Note 19 “Acquisitions and Divestitures.” Deposits and restricted cash primarily relate to security deposits provided to landlords in accordance with facility lease agreements and cash restricted per the terms of certain contractual-based agreements. Capitalized costs to obtain a contract relate to incremental costs of obtaining a contract, such as sales commissions, which are eligible for capitalization on contracts to the extent that such costs are expected to be recovered (see Note 3 “Revenues”). Investments relate to certain investment funds in which we are a limited partner. Our interests in each of these investees range from 4 % to below 20 %. These investments are accounted for using the equity method. Our share of net income or losses based on our interest in these investments, which approximates fair value and is subject to volatility based on market trends and business conditions, is recorded as a component of Other income (expense), net in our Condensed Consolidated Statements of Income (see Note 22 “Other Income (Expense), Net”). During the three and six months ended December 31, 2023, our share of income (loss) from these investments was $( 8.5 ) million and $( 18.2 ) million, respectively (three and six months ended December 31, 2022—$( 0.3 ) million and $( 6.8 ) million, respectively). As part of the Micro Focus Acquisition, we acquired the rights to certain available-for-sale financial assets. A portion of the available-for-sale financial assets relate to contractual arrangements under insurance policies held by the Company with guaranteed interest rates that are utilized to meet certain pension and post-retirement obligations but do not meet the definition of a plan asset. The remaining portion of available-for-sale financial assets are primarily comprised of various debt and equity funds, which are valued utilizing market quotes provided by our third-party custodian. These arrangements are treated as available-for-sale financial assets measured at fair value quarterly (see Note 16 “Fair Value Measurement”) with unrealized gains and losses recorded within “Other Comprehensive Income (Loss) Net” (see Note 20 “Accumulated Other Comprehensive Income (Loss)”). Prepaid expenses and other assets, both short-term and long-term, include advance payments on licenses that are being amortized over the applicable terms of the licenses and other miscellaneous assets. 18 Table of Contents NOTE 10— ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities: As of December 31, 2023 As of June 30, 2023 Accounts payable—trade $ 144,219 $ 162,720 Accrued salaries, incentives and commissions 241,286 333,543 Accrued liabilities 252,478 239,817 Accrued sales and other tax liabilities 27,738 25,439 Derivative liability (1) 207,427 161,191 Accrued interest on long-term debt 39,524 37,563 Amounts payable in respect of restructuring and other special charges 29,525 30,073 Asset retirement obligations 6,724 5,915 Total (2) $ 948,921 $ 996,261 ______________________ (1) Represents the liability related to our derivative instrument activity (see Note 17 “Derivative Instruments and Hedging Activities”). (2) Excludes $ 24.8 million of Accounts payable and accrued liabilities that have been reclassified to Liabilities held for sale related to the proposed divestiture of our AMC business. See Note 19 “Acquisitions and Divestitures.” Long-term accrued liabilities: As of December 31, 2023 As of June 30, 2023 Amounts payable in respect of restructuring and other special charges $ 10,926 $ 8,875 Other accrued liabilities 18,019 17,749 Asset retirement obligations 23,687 25,337 Total (1) $ 52,632 $ 51,961 ______________________ (1) Excludes $ 0.1 million of Long-term accrued liabilities that have been reclassified to Liabilities held for sale related to the proposed divestiture of our AMC business. See Note 19 “Acquisitions and Divestitures.” Asset retirement obligations We are required to return certain of our leased facilities to their original state at the conclusion of our lease. As of December 31, 2023, the present value of this obligation was $ 30.4 million (June 30, 2023—$ 31.3 million), with an undiscounted value of $ 33.9 million (June 30, 2023—$ 35.0 million). 19 Table of Contents NOTE 11— LONG-TERM DEBT As of December 31, 2023 As of June 30, 2023 Total debt Senior Notes 2031 $ 650,000 $ 650,000 Senior Notes 2030 900,000 900,000 Senior Notes 2029 850,000 850,000 Senior Notes 2028 900,000 900,000 Senior Secured Notes 2027 1,000,000 1,000,000 Term Loan B 942,500 947,500 Acquisition Term Loan 3,474,150 3,567,075 Revolver — 275,000 Total principal payments due 8,716,650 9,089,575 Unamortized debt discount and issuance costs (1) ( 196,201 ) ( 206,629 ) Total amount outstanding 8,520,449 8,882,946 Less: Current portion of long-term debt Term Loan B 10,000 10,000 Acquisition Term Loan 35,850 35,850 Revolver — 275,000 Total current portion of long-term debt 45,850 320,850 Non-current portion of long-term debt $ 8,474,599 $ 8,562,096 ______________________ (1) During the three and six months ended December 31, 2023, we recorded $ 0.8 million and $ 2.4 million of debt issuance costs, respectively, related to the amendment of the Revolver (as defined below) and the modification of the Acquisition Term Loan (as defined below). Senior Unsecured Fixed Rate Notes Senior Notes 2031 On November 24, 2021, OpenText Holdings, Inc. a wholly-owned indirect subsidiary of the Company, issued $ 650 million in aggregate principal amount of 4.125 % Senior Notes due 2031 guaranteed by the Company (Senior Notes 2031) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act), and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2031 bear interest at a rate of 4.125 % per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022. Senior Notes 2031 will mature on December 1, 2031, unless earlier redeemed, in accordance with their terms, or repurchased. For the three and six months ended December 31, 2023, we recorded interest expense of $ 6.7 million and $ 13.4 million, respectively, relating to Senior Notes 2031 (three and six months ended December 31, 2022—$ 6.7 million and $ 13.4 million, respectively). Senior Notes 2030 On February 18, 2020, OpenText Holdings, Inc. a wholly-owned indirect subsidiary of the Company, issued $ 900 million in aggregate principal amount of 4.125 % Senior Notes due 2030 guaranteed by the Company (Senior Notes 2030) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2030 bear interest at a rate of 4.125 % per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2030 will mature on February 15, 2030, unless earlier redeemed, in accordance with their terms, or repurchased. For the three and six months ended December 31, 2023, we recorded interest expense of $ 9.3 million and $ 18.6 million, respectively, relating to Senior Notes 2030 (three and six months ended December 31, 2022—$ 9.3 million and $ 18.6 million, respectively). 20 Table of Contents Senior Notes 2029 On November 24, 2021, we issued $ 850 million in aggregate principal amount of 3.875 % Senior Notes due 2029 (Senior Notes 2029) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2029 bear interest at a rate of 3.875 % per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022. Senior Notes 2029 will mature on December 1, 2029, unless earlier redeemed, in accordance with their terms, or repurchased. For the three and six months ended December 31, 2023, we recorded interest expense of $ 8.2 million and $ 16.4 million, respectively, relating to Senior Notes 2029 (three and six months ended December 31, 2022—$ 8.2 million and $ 16.4 million, respectively). Senior Notes 2028 On February 18, 2020, we issued $ 900 million in aggregate principal amount of 3.875 % Senior Notes due 2028 (Senior Notes 2028, and together with the Senior Notes 2031, Senior Notes 2030, Senior Notes 2029 and Senior Notes 2027, the Senior Notes) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2028 bear interest at a rate of 3.875 % per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2028 will mature on February 15, 2028, unless earlier redeemed, in accordance with their terms, or repurchased. For the three and six months ended December 31, 2023, we recorded interest expense of $ 8.7 million and $ 17.4 million, respectively, relating to Senior Notes 2028 (three and six months ended December 31, 2022—$ 8.7 million and $ 17.4 million, respectively). Senior Secured Fixed Rate Notes Senior Secured Notes 2027 On December 1, 2022, we issued $ 1 billion in aggregate principal amount of Senior Secured Notes due 2027 (Senior Secured Notes 2027) in connection with the financing of the Micro Focus Acquisition in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Secured Notes 2027 bear interest at a rate of 6.90 % per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2023. Senior Secured Notes 2027 will mature on December 1, 2027, unless earlier redeemed, in accordance with their terms, or repurchased. The Senior Secured Notes 2027 are guaranteed on a senior secured basis by certain of the Company’s subsidiaries, and are secured with the same priority as the Company’s senior credit facilities. The Senior Secured Notes 2027 and the related guarantees are effectively senior to all of the Company’s and the guarantors’ senior unsecured debt to the extent of the value of the Collateral (as defined in the indenture to the Senior Secured Notes 2027) and are structurally subordinated to all existing and future liabilities of each of the Company’s existing and future subsidiaries that do not guarantee the Senior Secured Notes 2027. As of December 31, 2023, the Senior Secured Notes 2027 bear an effective interest rate of 7.39 %. The effective interest rate includes interest expense of $ 34.6 million and amortization of debt discount and issuance costs of $ 0.7 million. For the three and six months ended December 31, 2023, we recorded interest expense of $ 17.3 million and $ 34.6 million, respectively, relating to Senior Secured Notes 2027 (three and six months ended December 31, 2022—$ 5.8 million). Term Loan B On May 30, 2018, we refinanced our existing term loan facility, by entering into a new $ 1 billion term loan facility (Term Loan B), whereby we borrowed $ 1 billion on that day and repaid in full the loans under our prior $ 800 million term loan facility originally entered into on January 16, 2014. Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver (as defined below), Acquisition Term Loan (as defined below) and Senior Secured Notes 2027. On June 6, 2023, we amended the Term Loan B to replace the LIBOR benchmark rate applicable to borrowings under Term Loan B with a Secured Overnight Financing Rate (SOFR) benchmark rate. Term Loan B has a seven-year term, maturing in May 2025, and repayments made under Term Loan B are equal to 0.25 % of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity. Borrowings under Term Loan B currently bear a floating rate of interest equal to Adjusted Term SOFR (as defined in the Term Loan B) and the applicable margin of 1.75 %. As of December 31, 2023, the outstanding balance on the Term Loan B bears an interest rate of 7.20 %. As of December 31, 2023, the Term Loan B bears an effective interest rate of 7.49 %. The effective interest rate includes interest expense of $ 34.5 million and amortization of debt discount and issuance costs of $ 0.8 million. 21 Table of Contents Under Term Loan B, we must maintain a “consolidated net leverage” ratio of no more than 4.00 :1.00 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. As of December 31, 2023, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.70 :1.00. For the three and six months ended December 31, 2023, we recorded interest expense of $ 17.3 million and $ 34.5 million, respectively, relating to Term Loan B (three and six months ended December 31, 2022—$ 13.2 million and $ 22.9 million, respectively). Revolver 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, and 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 (as defined below) and Senior Secured Notes 2027. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear interest per annum at a floating rate of 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 %. 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 ). Acquisition Term Loan On December 1, 2022, we amended our first lien term loan facility (the Acquisition Term Loan), dated as of August 25, 2022, to increase the aggregate commitments under the senior secured delayed-draw term loan facility from an aggregate principal amount of $ 2.585 billion to an aggregate principal amount of $ 3.585 billion. During the third quarter of Fiscal 2023, the Company drew down $ 3.585 billion from the Acquisition Term Loan, net of original issuance discount of 3 % and other fees (see Note 19 “Acquisitions and Divestitures” 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. The reduction in interest rate margin on the Acquisition Term Loan resulting from the amendment was accounted for by the Company as a debt modification. The Acquisition Term Loan has a seven -year term from the date of funding, and repayments under the Acquisition Term Loan are equal to 0.25 % of the principal amount in equal quarterly installments for the life of the Acquisition Term Loan, with the remainder due at maturity. Borrowings under the Acquisition Term Loan currently bear a floating rate of interest equal to 2.75 % plus Adjusted Term SOFR (as defined in the Acquisition Term Loan). 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. The Acquisition Term Loan has incremental facility capacity of (i) $ 250 million plus (ii) additional amounts, subject to meeting a “consolidated senior secured net leverage” ratio not exceeding 2.75 :1.00, in each case subject to certain conditions. Consolidated senior secured net leverage ratio is defined for this purpose as the proportion of the Company’s total debt reduced by unrestricted cash, including guarantees and letters of credit, that is secured by the Company’s or any of the Company’s subsidiaries’ assets, over the Company’s trailing four financial quarter net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. Under the Acquisition Term Loan, we must maintain a “consolidated net leverage” ratio of no more than 4.50 :1.00 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of the Company’s total debt reduced by unrestricted cash, including guarantees and letters of credit, over the Company’s trailing four financial quarter net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges as defined in the Acquisition Term Loan. As of December 31, 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 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 , respectively). 22 Table of Contents 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). Bridge Loan On August 25, 2022, we entered into a bridge loan agreement (Bridge Loan) which provided for commitments of up to $ 2.0 billion to finance a portion of the repayment of Micro Focus’ existing debt. On December 1, 2022, we entered into an amendment to the Bridge Loan that reallocated commitments under the Bridge Loan to the Acquisition Term Loan. In connection with the amendment to the Bridge Loan and the receipt of proceeds from the issuance of the Senior Secured Notes 2027, all remaining commitments under the Bridge Loan were reduced to zero and the Bridge Loan was terminated, which resulted in a loss on debt extinguishment of $ 8.1 million relating to unamortized debt issuance costs in the second quarter of Fiscal 2023 . For the three and six months ended December 31, 2023, we did not have any borrowings or record any interest expense relating to the Bridge Loan (three and six months ended December 31, 2022— nil ). Debt Issuance Costs Debt issuance costs relate primarily to costs incurred for the purpose of obtaining or amending our credit facilities and issuing our Senior Notes and are being amortized through interest expense over the respective terms of the Senior Notes, Senior Secured Notes, Term Loan B, and Acquisition Term Loan using the effective interest method and straight-line method for the Revolver. NOTE 12— PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS Defined Benefit and Other Post-Retirement Benefit Plans The Company has 52 pension and other post-retirement plans in multiple countries. All of our pension and other post-retirement plans are located outside of Canada and the United States. The plans are primarily located in Germany, which as of December 31, 2023, make up approximately 63 % of the Company’s total net benefit pension obligations. Our defined benefit pension plans include a mix of final salary type plans which provide for retirement, old age, disability and survivor’s benefits. Final salary pension plans provide benefits to members either in the form of a lump sum payment or a guaranteed level of pension payable for life in the case of retirement, disability and death. Benefits under our final salary type plans are generally based on the participant’s age, compensation and years of service as well as the social security ceiling and other factors. Many of these plans are closed to new members. The net periodic costs of these plans are determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. Other post-retirement plans include statutory plans that offer termination, indemnity or other end of service benefits. Many of these plans were assumed through our acquisitions or are required by local regulatory and statutory requirements. All of our defined benefit and other post-retirement plans are included in the aggregate projected benefit obligation within “Pension liability” on our Condensed Consolidated Balance Sheets. The following are details of net pension expense relating to the defined benefit pension plans: Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Pension expense: Service cost $ 2,828 $ 1,048 $ 5,553 $ 2,107 Interest cost 3,122 1,032 6,211 2,002 Expected return of plan assets ( 2,903 ) ( 431 ) ( 5,711 ) ( 834 ) Amortization of actuarial (gains) losses 165 62 330 125 Net pension expense $ 3,212 $ 1,711 $ 6,383 $ 3,400 Service-related net periodic pension costs are recorded within operating expense and all other non-service related net periodic pension costs are classified under “Interest and other related expense, net” on our Condensed Consolidated Statements of Income. 23 Table of Contents NOTE 13— SHARE CAPITAL, OPTION PLANS AND SHARE-BASED PAYMENTS Cash Dividends For the three and six months ended December 31, 2023, pursuant to the Company’s dividend policy, we declared total non-cumulative dividends of $ 0.25 and $ 0.50 per Common Share, respectively, in the aggregate amount of $ 66.4 million and $ 133.4 million, respectively, which we paid during the same periods (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). Share Capital Our authorized share capital includes an unlimited number of Common Shares and an unlimited number of Preference Shares. No Preference Shares have been issued. Treasury Stock From time to time we may provide funds to an independent agent to facilitate repurchases of our Common Shares in connection with the settlement of awards under the Long-Term Incentive Plans (LTIP) or other plans. During the three and six months ended December 31, 2023, nil and 1,400,000 Common Shares were purchased on the open market at a cost of nil and $ 53.1 million, respectively, and held under trust for potential settlement of awards under our LTIP or other plans as described below (three and six months ended December 31, 2022— no Common Shares were purchased, respectively). During the three and six months ended December 31, 2023, we delivered to eligible participants 353,247 and 536,560 Common Shares, respectively, that were purchased in the open market in connection with the settlement of awards and other plans (three and six months ended December 31, 2022— 290,970 and 411,376 Common Shares, respectively). Share Repurchase Plan On November 4, 2021, the Board authorized a share repurchase plan (Fiscal 2022 Repurchase Plan), pursuant to which we may purchase in open market transactions, from time to time over the 12-month period commencing November 12, 2021, up to an aggregate of $ 350 million of our Common Shares. During the three and six months ended December 31, 2023 and 2022, we did not repurchase and cancel any Common Shares. Share-Based Payments Share-based compensation expense for the periods indicated below is detailed as follows: Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Stock Options (issued under Stock Option Plans) $ 5,716 $ 5,724 $ 10,260 $ 9,309 Performance Share Units (issued under LTIP) 6,928 5,025 12,817 9,260 Restricted Share Units (issued under LTIP) 3,034 2,644 5,915 4,819 Restricted Share Units (other) 22,299 12,720 43,671 23,357 Deferred Share Units (directors) 688 1,288 1,602 2,249 Employee Stock Purchase Plan 1,510 1,421 3,005 3,036 Total share-based compensation expense $ 40,175 $ 28,822 $ 77,270 $ 52,030 24 Table of Contents A summary of unrecognized compensation cost for unvested share-based payment awards is as follows: As of December 31, 2023 Unrecognized Compensation Cost Weighted Average Recognition Period (years) Stock Options (issued under Stock Option Plans) 46,865 2.6 Performance Share Units (issued under LTIP) 60,693 2.1 Restricted Share Units (issued under LTIP) 24,495 2.2 Restricted Share Units (other) 112,782 1.8 Total unrecognized share-based compensation cost 244,835 Stock Option Plans Stock Options A summary of activity under our stock option plans for the six months ended December 31, 2023 is as follows: Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($’000's) Outstanding at June 30, 2023 12,219,439 $ 38.44 4.68 $ 62,473 Granted 1,294,230 37.96 Exercised ( 424,812 ) 32.96 Forfeited or expired ( 252,923 ) 41.57 Outstanding at December 31, 2023 12,835,934 $ 38.51 4.52 $ 66,700 Exercisable at December 31, 2023 4,833,489 $ 40.49 3.07 $ 16,956 As of December 31, 2023, 4,909,525 options to purchase Common Shares were available for issuance under our stock option plans. We estimate the fair value of stock options using the Black-Scholes option-pricing model or, where appropriate, the Monte Carlo pricing model, consistent with the provisions of ASC Topic 718, “Compensation—Stock Compensation” (Topic 718) and SEC Staff Accounting Bulletin No. 107. The option-pricing models require input of subjective assumptions, including the estimated life of the option and the expected volatility of the underlying stock over the estimated life of the option. We use historical volatility as a basis for projecting the expected volatility of the underlying stock and estimate the expected life of our stock options based upon historical data. We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair value of our stock option grants. Estimates of fair value are not intended, however, to predict actual future events or the value ultimately realized by employees who receive equity awards. For the periods indicated, the weighted-average fair value of options and weighted-average assumptions estimated under the Black-Scholes option-pricing model were as follows: Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Weighted–average fair value of options granted $ 10.34 $ 5.77 $ 9.57 $ 6.40 Weighted-average assumptions used: Expected volatility 31.33 % 28.87 % 31.07 % 28.50 % Risk–free interest rate 4.40 % 4.46 % 4.42 % 4.03 % Expected dividend yield 2.44 % 3.46 % 2.58 % 3.16 % Expected life (in years) 4.27 4.20 4.25 4.19 Forfeiture rate (based on historical rates) 7 % 7 % 7 % 7 % Average exercise share price $ 40.14 $ 26.81 $ 37.96 $ 30.07 25 Table of Contents Performance Options During the three and six months ended December 31, 2023, we did not grant performance options (during the three and six months ended December 31, 2022— nil and 1,000,000 , respectively). For the period in which performance options were granted, the weighted-average fair value of performance options and weighted-average assumptions estimated under the Monte Carlo pricing model were as follows: Six Months Ended December 31, 2022 Weighted–average fair value of options granted $ 8.09 Derived service period (in years) 1.7 Weighted-average assumptions used: Expected volatility 26.00 % Risk–free interest rate 3.21 % Expected dividend yield 2.00 % Average exercise share price $ 31.89 Long-Term Incentive Plans We incentivize certain eligible employees, in part, with long-term compensation pursuant to our LTIP. The LTIP is a rolling three-year program that grants eligible employees a certain number of target Performance Share Units (PSUs) and/or Restricted Share Units (RSUs). Target PSUs become vested upon the achievement of certain financial and/or operational performance criteria (the Performance Conditions) that are determined at the time of the grant. The Performance Conditions for vesting of the outstanding PSUs are based on market conditions or performance-based revenue conditions. RSUs become vested when an eligible employee remains employed throughout the vesting period. PSUs and RSUs granted under the LTIP have been measured at fair value as of the effective date, consistent with ASC Topic 718, and will be charged to share-based compensation expense over the remaining life of the plan. We estimate the fair value of PSUs with market-based conditions using the Monte Carlo pricing model and RSUs have been valued based upon their grant date fair value. The fair value of PSUs with performance-based conditions have been valued based upon their grant date fair value. Beginning in Fiscal 2023, certain PSU and RSU grants were eligible to receive dividend equivalent units that vest under the same conditions as the underlying grants. Performance Share Units (Issued Under LTIP) A summary of activity under our performance share units issued under the LTIP for the six months ended December 31, 2023 is as follows: Units Weighted-Average Grant Date Fair Value Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($’000's) Outstanding at June 30, 2023 1,013,385 $ 61.64 1.75 $ 42,106 Granted (1) 918,831 52.90 Vested (1) ( 240,741 ) 61.23 Forfeited or expired ( 40,083 ) 59.02 Outstanding at December 31, 2023 1,651,392 $ 57.15 2.21 $ 69,392 ______________________ (1) PSUs are earned based on market or performance conditions and the actual number of PSUs earned, if any, is dependent upon performance and may range from 0 to 200 percent. 26 Table of Contents For the periods indicated, the weighted-average fair value of market-based PSUs issued under LTIP, and weighted-average assumptions estimated under the Monte Carlo pricing model were as follows: Six Months Ended December 31, 2023 2022 Weighted–average fair value of performance share units granted $ 59.48 $ 43.10 - $ 55.06 Weighted-average assumptions used: Expected volatility 28 % 29 % - 31 % Risk–free interest rate 4.38 % 3.13 % - 3.39 % Expected dividend yield — % — % Expected life (in years) 3.10 3.11 The weighted-average fair value of the performance-based PSUs granted was $ 40.14 for the six months ended December 31, 2023. Restricted Share Units (Issued Under LTIP) A summary of activity under our RSUs issued under the LTIP for the six months ended December 31, 2023 is as follows: Units Weighted-Average Grant Date Fair Value Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($’000's) Outstanding at June 30, 2023 774,360 $ 42.83 1.68 $ 32,175 Granted 491,738 36.12 Vested ( 224,010 ) 43.38 Forfeited or expired ( 34,035 ) 40.45 Outstanding at December 31, 2023 1,008,053 $ 39.94 2.30 $ 42,358 Restricted Share Units (Other) In addition to the grants made in connection with the LTIP discussed above, from time to time, we may grant RSUs to certain employees in accordance with employment and other non-LTIP related agreements. RSUs (other) vest over a specified contract date, typically two or three years from the respective date of grants. A summary of activity under our RSUs (other) issued for the six months ended December 31, 2023 is as follows: Units Weighted-Average Grant Date Fair Value Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($’000's) Outstanding at June 30, 2023 5,310,595 $ 36.43 1.97 $ 220,655 Granted 1,377,226 39.18 Vested ( 312,331 ) 36.66 Forfeited or expired ( 186,875 ) 37.06 Outstanding at December 31, 2023 6,188,615 $ 37.06 2.07 $ 260,046 Deferred Share Units (DSUs) The DSUs are granted to certain non-employee directors. DSUs are issued under our Deferred Share Unit Plan. DSUs granted as compensation for director fees vest immediately, whereas all other DSUs granted vest at our next annual general meeting following the granting of the DSUs. No DSUs are payable by us until the director ceases to be a member of the Board. 27 Table of Contents A summary of activity under our DSUs issued for the six months ended December 31, 2023 is as follows: Units Weighted-Average Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($’000's) Outstanding at June 30, 2023 (1) 994,568 $ 29.98 0.36 $ 41,324 Granted 69,789 39.69 Outstanding at December 31, 2023 (2) 1,064,357 $ 30.62 0.91 $ 44,724 ______________________ (1) Includes 90,906 unvested DSUs. (2) Includes 47,871 unvested DSUs. Employee Stock Purchase Plan (ESPP) Our ESPP offers employees the opportunity to purchase our Common Shares at a purchase price discount of 15 %. During the three and six months ended December 31, 2023, 186,974 and 473,746 Common Shares, respectively, were eligible for issuance to employees enrolled in the ESPP (three and six months ended December 31, 2022— 227,885 and 582,350 Common Shares, respectively). During the three and six months ended December 31, 2023, cash in the amount of $ 6.7 million and $ 15.3 million, respectively, was received from employees relating to the ESPP (three and six months ended December 31, 2022—$ 5.8 million and $ 13.8 million, respectively). NOTE 14— GUARANTEES AND CONTINGENCIES We have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows: Payments due between Total January 1, 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) $ 11,584,399 $ 303,321 $ 2,042,458 $ 2,896,912 $ 6,341,708 Purchase obligations for contracts not accounted for as lease obligations (2) 427,043 106,237 301,550 19,256 — $ 12,011,442 $ 409,558 $ 2,344,008 $ 2,916,168 $ 6,341,708 ______________________ (1) Includes interest up to maturity and principal payments. Please see Note 11 “Long-Term Debt” for more details. (2) For contractual obligations relating to leases and purchase obligations accounted for under ASC Topic 842, please see Note 6 “Leases.” Guarantees and Indemnifications We have entered into customer agreements which may include provisions to indemnify our customers against third-party claims that our software products or services infringe certain third-party intellectual property rights and for liabilities related to a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification provisions and have not accrued any liabilities related to these indemnification provisions in our Condensed Consolidated Financial Statements. Occasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including, among others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such agreements have not had a material effect on our results of operations, financial position or cash flows. Litigation We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 “Loss Contingencies” (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim 28 Table of Contents that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this Quarterly Report on Form 10-Q, the aggregate of such accrued liabilities was not material to our consolidated financial position or results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations. As described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters. Contingencies CRA Matter As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of 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. Audits by the CRA of our tax returns for fiscal years prior to Fiscal 2012 have been completed with no reassessment of our income tax liability. We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 (including any penalties) are without merit, and we are continuing to contest these reassessments. On June 30, 2022, we filed a notice of appeal with the Tax Court of Canada seeking to reverse all such reassessments (including penalties) in full and the customary court process is ongoing. Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, we have elective deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above. The CRA has audited Fiscal 2017, Fiscal 2018 and Fiscal 2019 on a basis that we strongly disagree with and are contesting. The focus of the CRA audit has been the valuation of certain intellectual property and goodwill when one of our subsidiaries continued into Canada from Luxembourg in July 2016. In accordance with applicable rules, these assets were recognized for tax purposes at fair market value as of that time, which value was supported by an expert valuation prepared by an independent leading accounting and advisory firm. CRA’s position for Fiscal 2017 through Fiscal 2019 relies in significant part on the application of its positions regarding our transfer pricing methodology that are the basis for its reassessment of our fiscal years 2012 to 2016 described above, and that we believe are without merit. Other aspects of CRA’s position for Fiscal 2017 through Fiscal 2019 conflict with the expert valuation prepared by the independent leading accounting and advisory firm that was used to support our original filing position. The CRA issued notices of reassessment in respect of Fiscal 2017, Fiscal 2018 and Fiscal 2019 on a basis consistent with its proposal to reduce the available depreciable basis of assets in Canada. On April 19, 2022, we filed our notice of objection regarding the reassessment in respect of Fiscal 2017 and on March 15, 2023, we filed our notice of objection regarding the reassessment in respect of Fiscal 2018. 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. Any such income tax expense could also have a corresponding cash tax impact that would primarily occur over a period of several future years based upon annual income realization in Canada. We strongly disagree with the CRA’s position for Fiscal 2017 through Fiscal 2019 and intend to vigorously defend our original filing position. We are not required to provisionally pay any cash amounts to the CRA as a result of the reassessment in respect of Fiscal 2017 through Fiscal 2019 due to the utilization of available tax attributes; however, to the extent the CRA reassesses subsequent fiscal years on a similar basis, we expect to make certain minimum payments required under Canadian legislation, which may need to be provisionally made starting in Fiscal 2024 while the matter is in dispute. 29 Table of Contents We will continue to vigorously contest the adjustments to our taxable income and any penalty and interest assessments, as well as any reduction to the basis of our depreciable property. We are confident that our original tax filing positions were appropriate. Accordingly, as of the date of this Quarterly Report on Form 10-Q, we have not recorded any accruals in respect of these reassessments or proposed reassessment in our Condensed Consolidated Financial Statements. The CRA is also in preliminary stages of auditing Fiscal 2020. Carbonite Class Action Complaint On August 1, 2019, prior to our acquisition of Carbonite Inc. (Carbonite), a purported stockholder of Carbonite filed a putative class action complaint against Carbonite, its former Chief Executive Officer, Mohamad S. Ali, and its former Chief Financial Officer, Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A. Luna, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19-cv-11662-LTS) (the Luna Complaint). The complaint alleges violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint generally alleges that the defendants made materially false and misleading statements in connection with Carbonite’s Server Backup VM Edition, and seeks, among other things, the designation of the action as a class action, an award of unspecified compensatory damages, costs and expenses, including counsel fees and expert fees, and other relief as the court deems appropriate. On August 23, 2019, a nearly identical complaint was filed in the same court captioned William Feng, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19- cv-11808-LTS) (together with the Luna Complaint, the Securities Actions). On November 21, 2019, the district court consolidated the Securities Actions, appointed a lead plaintiff, and designated a lead counsel. On January 15, 2020, the lead plaintiff filed a consolidated amended complaint generally making the same allegations and seeking the same relief as the complaint filed on August 1, 2019. The defendants moved to dismiss the Securities Actions on March 10, 2020. On October 22, 2020, the district court granted with prejudice the defendants’ motion to dismiss the Securities Actions. On November 20, 2020, the lead plaintiff filed a notice of appeal to the United States Court of Appeals for the First Circuit. On December 21, 2021, the United States Court of Appeals for the First Circuit issued a decision reversing and remanding the Securities Actions to the district court for further proceedings. 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 On February 27, 2017, before our acquisition of Carbonite, a non-practicing entity named Realtime Data LLC (Realtime Data) filed a lawsuit against Carbonite in the U.S. District Court for the Eastern District of Texas captioned Realtime Data LLC v. Carbonite, Inc. et al (No 6:17-cv-00121-RWS-JDL). Therein, it alleged that certain of Carbonite’s cloud storage services infringe upon certain patents held by Realtime Data. Realtime Data’s complaint against Carbonite sought damages in an unspecified amount and injunctive relief. On December 19, 2017, the U.S. District Court for the Eastern District of Texas transferred the case to the U.S. District Court for the District of Massachusetts (No. 1:17-cv-12499). Realtime Data has also filed numerous other patent suits on the same asserted patents against other companies. After a stay pending appeal in one of those suits, on January 21, 2021, the district court held a hearing to construe the claims of the asserted patents. As to the fourth patent asserted against Carbonite, on September 24, 2019, the U.S. Patent & Trademark Office Patent Trial and Appeal Board invalidated certain claims of that patent, including certain claims that had been asserted against Carbonite. The parties then jointly stipulated to dismiss that patent from this action. On August 23, 2021, in one of the suits against other companies, the District of Delaware (No. 1:17-cv-800), held all of the patents asserted against Carbonite to be invalid. Realtime Data has appealed that decision to the U.S. Court of Appeals for the Federal Circuit. Based upon the order in the Delaware case, the U.S. District Court for the District of Massachusetts granted summary judgment in Carbonite’s favor. Realtime Data appealed the order, but stipulated to stay the appeal pending the outcome of their appeal in the District of Delaware case and agreed that if the U.S. Court of Appeals for the Federal Circuit affirmed the District of Delaware’s judgment of invalidity, Realtime Data would subsequently dismiss their appeal against Carbonite. On August 2, 2023, the U.S. Court of Appeals for the Federal Circuit affirmed the invalidity of the patents asserted against Carbonite. Pursuant to the parties’ stipulation, Realtime Data dismissed its appeal against Carbonite to fully resolve this matter. NOTE 15— INCOME TAXES 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 six 30 Table of Contents 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 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, 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. As of December 31, 2023, the gross amount of unrecognized tax benefits accrued was $ 182.7 million (June 30, 2023 — $ 178.7 million), which is inclusive of interest and penalties accrued of $ 19.3 million (June 30, 2023 — $ 13.5 million). We believe that it is reasonably possible that the gross unrecognized tax benefit could decrease by $ 31.3 million in the next 12 months, relating primarily to the expiration of competent authority relief and tax years becoming statute barred for purposes of future tax examinations by local taxing jurisdictions. We are subject to income tax audits in all major taxing jurisdictions in which we operate. Our four most significant jurisdictions are Canada, the United States, United Kingdom and Germany. Our tax filings remain subject to income tax audits by applicable tax authorities for a certain length of time following the tax year to which those tax filings relate. We currently have income tax audits open in Canada, the United States, United Kingdom, Germany and other immaterial jurisdictions. The earliest fiscal years open for examination for our major jurisdictions are 2012 for Canada, 2020 for the United States, 2015 for the United Kingdom and 2016 for Germany. On a quarterly basis we assess the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income and other taxes. Statements regarding the Canada audits are included in Note 14 “Guarantees and Contingencies.” The timing of the resolution of income tax audits is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax audits in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on tax filings. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes. For more information relating to certain income tax audits, please refer to Note 14 “Guarantees and Contingencies.” As of December 31, 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. We have not provided for additional foreign withholding taxes or deferred income tax liabilities related to undistributed earnings of all other non-Canadian subsidiaries, since such earnings are considered permanently invested in those subsidiaries or are not subject to withholding taxes. It is not practicable to reasonably estimate the amount of additional deferred income tax liabilities or foreign withholding taxes that may be payable should these earnings be distributed in the future. State Aid Matter In April 2019, the European Commission published its final decision on its State Aid investigation into the UK’s “Financing Company Partial Exemption” legislation and concluded that part of the legislation was in breach of EU State Aid rules. The UK government and certain UK-based international companies, supported by Micro Focus, appealed to the General Court of the Court of Justice of the European Union (General Court of the CJEU) against the decision. In February 2021, Micro Focus received and settled GBP denominated State Aid charging notices issued by HM Revenue and Customs, following the requirement for the UK government to start collection proceedings. As a result, Micro Focus recorded a long-term income tax receivable of $ 44.6 million. This reflects the payment that was made following the final decision published by the European Commission on its State Aid investigation into the UK’s ‘Financing Company Partial Exemption’ legislation. Based on management’s assessment of the value of the underlying tax benefit under dispute, and as supported by external professional advice, Micro Focus believed they had no liability in respect of these matters and therefore no tax charge was recorded. On June 8, 2022, the General Court of the CJEU found in favor of the European Commission’s decision that the UK’s ‘Financing Company Partial Exemption’ legislation is in breach of EU State Aid rules. The UK government and UK-based 31 Table of Contents international companies, supported by Micro Focus, lodged an appeal against the judgement with the CJEU. Micro Focus previously received and settled State Aid charging notices from HM Revenue and Customs (including historic interest) and given that an appeal would be expected to take more than a year, a long-term income tax recoverable continues to be recognized as part of non-current tangible assets as of December 31, 2023, in the preliminary purchase price allocation relating to the Micro Focus Acquisition, as described in Note 19 “Acquisitions and Divestitures.” NOTE 16— FAIR VALUE MEASUREMENT ASC Topic 820 “Fair Value Measurement” (Topic 820) defines fair value, establishes a framework for measuring fair value, and addresses disclosure requirements for fair value measurements. Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value, in this context, should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including our own credit risk. In addition to defining fair value and addressing disclosure requirements, Topic 820 establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are: • Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. • Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques. Financial Assets and Liabilities Measured at Fair Value Our cash and cash equivalents, along with our accounts receivable and accounts payable and accrued liabilities balances, are measured and recognized in our Condensed Consolidated Financial Statements at an amount that approximates the fair value (a Level 2 measurement) due to their short maturities. The carrying value of our other long-term debt facilities approximates the fair value since the interest rate is at market. See Note 11 “Long-Term Debt” for further details. 32 Table of Contents The following table summarizes the fair value of our financial instruments as of December 31, 2023 and June 30, 2023: Fair Value Fair Value Hierarchy December 31, 2023 June 30, 2023 Assets: Available-for-sale financial assets (Note 9) Level 2 $ 15,889 $ 15,231 Available-for-sale financial assets (Note 9) Level 3 $ 24,988 $ 24,627 Derivative asset (Note 17) Level 2 $ 3,647 $ 3,547 Liabilities: Derivative liability (Note 17) Level 2 $ ( 207,427 ) $ ( 161,191 ) Senior Notes (Note 11) (1) Level 2 $ ( 4,034,140 ) $ ( 3,827,888 ) ______________________ (1) Senior Notes are presented within the Condensed Consolidated Balance Sheets at amortized cost. See Note 11 “Long-Term Debt” for further details. Changes in Level 3 Fair Value Measurements The following table provides a reconciliation of changes in the fair value of our Level 3 available-for-sale financial assets between June 30, 2023 and December 31, 2023. Available-for-sale financial assets Balance as of June 30, 2023 $ 24,627 Gain (loss) recognized in income 361 Balance as of December 31, 2023 $ 24,988 Our derivative liabilities and our derivative assets are classified as Level 2 and are comprised of foreign currency forward and swap contracts. Our valuation techniques used to measure the fair value of the derivative instruments, the counterparties to which have high credit ratings, were derived from pricing models including discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data, as no quoted market prices exist for these instruments. Our discounted cash flow techniques use observable market inputs, such as, where applicable, foreign currency spot and forward rates. Our available-for-sale financial assets are classified as either Level 2 or Level 3. Our Level 2 available-for-sale financial assets are comprised primarily of various debt and equity funds, which are valued utilizing market quotes provided by our third-party custodian. Our Level 3 available-for-sale financial assets are comprised of insurance contracts which are valued by an external insurance expert by applying a discount rate to the future cash flows and taking into account the fixed interest rate, mortality rates and term of the insurance contracts. See Note 9 “Prepaid Expenses and Other Assets” for further details. If applicable, we will recognize transfers between levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. During the three and six months ended December 31, 2023 and 2022, respectively, we did not have any transfers between Level 1, Level 2 or Level 3. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities are recognized at fair value when they are deemed to be other-than-temporarily impaired. During the three and six months ended December 31, 2023 and 2022, respectively, no indications of impairments were identified and therefore no fair value measurements were required. NOTE 17— DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Non-designated Hedges In connection with the Micro Focus Acquisition, in August 2022, we entered into certain derivative transactions to meet certain foreign currency obligations under UK cash confirmation requirements related to the purchase price of the Micro Focus Acquisition, mitigate the risk of foreign currency appreciation in the GBP denominated purchase price and mitigate the risk of 33 Table of Contents foreign currency appreciation in the EUR denominated existing debt held by Micro Focus. We entered into the following derivatives: (i) three deal-contingent forward contracts, (ii) a non-contingent forward contract, and (iii) EUR/USD cross currency swaps. The deal-contingent forward contracts had an aggregate notional amount of £ 1.475 billion. The non-contingent forward contract had a notional amount of £ 350 million. The cross currency swaps are comprised of 5-year EUR/USD cross currency swaps with a notional amount of € 690 million and 7-year EUR/USD cross currency swaps with a notional amount of € 690 million. These instruments were entered into as economic hedges to mitigate foreign currency risks associated with the Micro Focus Acquisition. The instruments did not initially qualify for hedge accounting at the time they were entered into. In connection with the closing of the Micro Focus Acquisition, the deal-contingent forward and non-deal contingent forward contracts were settled and we designated the 7-year EUR/USD cross currency swaps as net investment hedges (see further details below). The 5-year EUR/USD cross currency swaps are non-designated and are measured at fair value with changes to fair value being recognized in the Condensed Consolidated Statements of Income within “Other income (expense), net.” Net Investment Hedge During the third quarter of Fiscal 2023, the Company designated the € 690 million of 7-year EUR/USD cross currency swaps as net investment hedges in accordance with “Derivatives and Hedging” (Topic 815). The Company utilizes the designated cross currency swaps to protect our EUR-denominated operations against exchange rate fluctuations. The Company assesses the hedge effectiveness of its net investment hedges on a quarterly basis utilizing a method based on the changes in spot price. As such, for derivative instruments designated as net investment hedges, changes in fair value of the designated hedging instruments attributable to fluctuations in the foreign currency spot exchange rates are initially recorded as a component of currency translation adjustments included within Condensed Consolidated Statements of Comprehensive Income until the hedged foreign operations are either sold or substantially liquidated. In accordance with Topic 815 certain components of the designated cross currency swaps relating to counterparty credit risk and forward exchange rates were excluded from the above effectiveness assessment. The fair value of these excluded components will be amortized over the life of the hedging instruments within “Interest and other related expense, net” within the Condensed Consolidated Statements of Income. Additionally, we will record the cash flows related to the periodic interest settlements on the 5-year EUR/USD cross currency swaps within the investing activities section of the Condensed Consolidated Statements of Cash Flows. Any gains or losses recognized upon settlement of the cross currency swaps will be recorded within the investing activities section of the Condensed Consolidated Statements of Cash Flows. Cash Flow Hedge We are engaged in hedging programs with various banks to limit the potential foreign exchange fluctuations incurred on future cash flows relating to a portion of our Canadian dollar payroll expenses. We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of our business, in particular to changes in the Canadian dollar on account of large costs that are incurred from our centralized Canadian operations, which are denominated in Canadian dollars. As part of our risk management strategy, we use foreign currency forward contracts to hedge portions of our payroll exposure with typical maturities of between one and twelve months . We do not use foreign currency forward contracts for speculative purposes. We have designated these transactions as cash flow hedges of forecasted transactions under Topic 815. As the critical terms of the hedging instrument and of the entire hedged forecasted transaction are the same, in accordance with Topic 815, we have been able to conclude that changes in fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, quarterly unrealized gains or losses on the effective portion of these forward contracts have been included within “Other Comprehensive Income (Loss) - net.” As of December 31, 2023, the fair value of the contracts is recorded within “Prepaid expenses and other current assets” and represents the net gain before tax effect that is expected to be reclassified from accumulated other comprehensive income (loss) into earnings with the next twelve months. As of December 31, 2023, the notional amount of forward contracts we held to sell U.S. dollars in exchange for Canadian dollars was $ 96.3 million (June 30, 2023—$ 96.3 million). 34 Table of Contents Fair Value of Derivative Instruments and Effect of Derivative Instruments on Financial Performance The fair values of outstanding derivative instruments are as follows: As of December 31, 2023 As of June 30, 2023 Instrument Balance Sheet Location Asset Liability Asset Liability Derivatives designated as hedges: Cash flow hedge Prepaid expenses and other current assets $ 1,554 $ — $ 1,530 $ — Net investment hedge Prepaid expenses and other current assets (Accounts payable and accrued liabilities) 636 ( 113,870 ) 596 ( 87,855 ) Total derivatives designated as hedges: $ 2,190 $ ( 113,870 ) $ 2,126 $ ( 87,855 ) Derivatives not designated as hedges: Cross currency swap contracts Prepaid expenses and other current assets (Accounts payable and accrued liabilities) 1,457 ( 93,557 ) 1,421 ( 73,336 ) Total derivatives not designated as hedges: $ 1,457 $ ( 93,557 ) $ 1,421 $ ( 73,336 ) Total derivatives $ 3,647 $ ( 207,427 ) $ 3,547 $ ( 161,191 ) The effects of gains (losses) from derivative instruments on our Condensed Consolidated Statements of Income is as follows: Three Months Ended December 31, Six Months Ended December 31, Instrument Income Statement Location 2023 2022 2023 2022 Derivatives designated as hedges: Cash flow hedge Operating expenses $ ( 446 ) $ ( 1,498 ) $ ( 458 ) $ ( 2,298 ) Net investment hedge Interest and other related expense, net 893 — 1,815 — Derivatives not designated as hedges: Deal-contingent forward contract Other income (expense), net — 125,616 — 285 Non-contingent forward contract Other income (expense), net — 32,766 — 6,563 Cross currency swap contracts Other income (expense), net ( 38,117 ) 13,225 ( 20,222 ) ( 16,702 ) Cross currency swap contracts Interest and other related expense, net 830 — 1,686 — Total $ ( 36,840 ) $ 170,109 $ ( 17,179 ) $ ( 12,152 ) The effects of the cash flow and net investment hedges on our Condensed Consolidated Statements of Comprehensive Income: Three Months Ended December 31, Six Months Ended December 31, Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income Location 2023 2022 2023 2022 Gain (loss) recognized in OCI (loss) on cash flow hedge (effective portion) Unrealized gain (loss) on cash flow hedge $ 2,071 $ 1,306 $ ( 434 ) $ ( 3,240 ) Gain (loss) recognized in OCI (loss) on net investment hedge (effective portion) Net foreign currency translation adjustment $ ( 43,122 ) $ — $ ( 26,015 ) $ — Gain (loss) reclassified from AOCI into income (effective portion) - cash flow hedge Operating expenses $ ( 446 ) $ ( 1,498 ) $ ( 458 ) $ ( 2,298 ) Gain (loss) reclassified from AOCI into income (excluded from effectiveness testing) - net investment hedge Interest and other related expense, net $ 561 $ — $ 1,122 $ — 35 Table of Contents NOTE 18— SPECIAL CHARGES (RECOVERIES) Special charges (recoveries) include costs and recoveries that relate to certain restructuring initiatives that we have undertaken from time to time under our various restructuring plans, as well as acquisition-related costs and other charges. Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Micro Focus Acquisition Restructuring Plan $ 44,760 $ — $ 51,624 $ — Fiscal 2022 Restructuring Plan ( 99 ) 1,991 74 8,101 Other historical restructuring plans ( 167 ) ( 622 ) ( 457 ) ( 1,090 ) Divestiture-related costs 5,385 — 6,982 — Acquisition-related costs 50 6,003 1,120 10,588 Other charges (recoveries) 4,237 2,934 8,617 6,988 Total $ 54,166 $ 10,306 $ 67,960 $ 24,587 Micro Focus Acquisition Restructuring Plan During the third quarter of Fiscal 2023, as part of the Micro Focus Acquisition, we made a strategic decision to implement restructuring activities to reduce our overall workforce and further reduce our real estate footprint around the world (Micro Focus Acquisition Restructuring Plan). The Micro Focus Acquisition Restructuring Plan charges relate to facility costs and workforce reductions. Facility costs will include the accelerated amortization associated with the abandonment of right of use assets, the write-off of property and equipment and other related variable lease and exit costs. These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate. During the three and six months ended December 31, 2023, we recognized costs of $ 12.3 million and $ 17.7 million, respectively, related to abandoned office spaces that have been early terminated or assigned to a third party, of which $ 6.1 million and $ 10.2 million, respectively, were related to the write-off of right of use assets, and $ 1.0 million and $ 1.5 million, respectively, in charges associated with the write-off of property and equipment as part of the Micro Focus Acquisition Restructuring Plan. As of December 31, 2023, we expect total costs to be incurred in connection with the Micro Focus Acquisition Restructuring Plan to be approximately $ 160.0 million to $ 175.0 million, of which $ 123.9 million has been recorded within “Special charges (recoveries)” to date. A reconciliation of the beginning and ending restructuring liability, which is included within “Accounts payable and accrued liabilities” in our Condensed Consolidated Balance Sheets, for the six months ended December 31, 2023 is shown below. Micro Focus Acquisition Restructuring Plan Workforce reduction Facility charges Total Balance payable as of June 30, 2023 $ 25,816 $ 7,276 $ 33,092 Accruals and adjustments 33,905 7,527 41,432 Cash payments ( 35,396 ) ( 2,055 ) ( 37,451 ) Foreign exchange and other non-cash adjustments 529 ( 1,703 ) ( 1,174 ) Balance payable as of December 31, 2023 $ 24,854 $ 11,045 $ 35,899 36 Table of Contents Fiscal 2022 Restructuring Plan During the third quarter of Fiscal 2022, as part of our return to office planning, we made a strategic decision to implement restructuring activities to streamline our operations and further reduce our real estate footprint around the world (Fiscal 2022 Restructuring Plan). The Fiscal 2022 Restructuring Plan charges relate to facility costs and workforce reductions. Facility costs include the accelerated amortization associated with the abandonment of right of use assets, the write-off of property and equipment and other related variable lease and exit costs. These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate. During the three and six months ended December 31, 2023, we recognized costs of $ 0.1 million and $ 0.2 million, respectively, related to abandoned office space that have been early terminated or assigned to a third party, of which nil related to the write-off of right of use assets. Since the inception of the Fiscal 2022 Restructuring Plan, $ 32.6 million has been recorded within “Special charges (recoveries)” to date. We do not expect to incur any further significant charges relating to the Fiscal 2022 Restructuring Plan. A reconciliation of the beginning and ending restructuring liability, which is included within “Accounts payable and accrued liabilities” in our Condensed Consolidated Balance Sheets, for the six months ended December 31, 2023 is shown below. Fiscal 2022 Restructuring Plan Workforce reduction Facility charges Total Balance payable as of June 30, 2023 $ 497 $ 3,308 $ 3,805 Accruals and adjustments ( 159 ) 185 26 Cash payments ( 156 ) ( 548 ) ( 704 ) Foreign exchange and other non-cash adjustments ( 6 ) ( 112 ) ( 118 ) Balance payable as of December 31, 2023 $ 176 $ 2,833 $ 3,009 Divestiture-related costs Divestiture-related costs recorded within “Special charges (recoveries)” include the direct costs related to the proposed divestiture of our AMC business. For the three and six months ended December 31, 2023, divestiture-related costs were $ 5.4 million and $ 7.0 million, respectively (three and six months ended December 31, 2022— nil ). Acquisition-related costs Acquisition-related costs, recorded within “Special charges (recoveries)” include direct costs of potential and completed acquisitions. Acquisition-related costs for the three and six months ended December 31, 2023 were $ 0.1 million and $ 1.1 million, respectively (three and six months ended December 31, 2022—$ 6.0 million and $ 10.6 million, respectively). Other charges (recoveries) For the three months ended December 31, 2023, “Other charges (recoveries)” includes $ 2.5 million of compensation related charges and $ 1.3 million of other miscellaneous charges, both associated with the Micro Focus Acquisition, and $ 0.5 million related to pre-acquisition equity incentives of Zix Corporation (Zix), which upon acquisition were replaced by equivalent value cash settlements (see Note 19 “Acquisitions and Divestitures”). For the six months ended December 31, 2023, “Other charges (recoveries)” includes $ 5.4 million of compensation related charges and $ 2.4 million of other miscellaneous charges, both associated with the Micro Focus Acquisition, and $ 0.9 million related to pre-acquisition equity incentives of Zix, which upon acquisition were replaced by equivalent value cash settlements. For the three and six months ended December 31, 2022, “Other charges” includes $ 3.6 million and $ 7.2 million, respectively, related to Zix pre-acquisition equity incentives, which upon acquisition were replaced by equivalent value cash settlements, and $( 0.7 ) million and $( 0.2 ) million, respectively, related to other miscellaneous charges (recoveries). 37 Table of Contents NOTE 19— ACQUISITIONS AND DIVESTITURES Fiscal 2024 Acquisitions Other Acquisition On August 23, 2023, we acquired all of the equity interest in KineMatik Ltd. (KineMatik), a provider of automated business process and project management solutions built on OpenText’s Content Server. In accordance with ASC Topic 805, “Business Combinations”, this acquisition was accounted for as a business combination. The results of operations of KineMatik have been consolidated with those of OpenText beginning August 24, 2023. The results of KineMatik are not considered to be material to our business. Fiscal 2023 Acquisitions Acquisition of Micro Focus On January 31, 2023, we acquired all of the issued and to be issued share capital of Micro Focus for a total purchase price of $ 6.2 billion, inclusive of Micro Focus’ cash and repayment of Micro Focus’ outstanding indebtedness, subject to final adjustments. In connection with the financing of the Micro Focus Acquisition, concurrent with the announcement of the acquisition on August 25, 2022, the Company entered into the Acquisition Term Loan and Bridge Loan as well as certain derivative transactions. On December 1, 2022, the Company issued and sold $ 1 billion in aggregate principal amount of 6.90 % Senior Secured Notes due 2027, amended the Acquisition Term Loan and terminated the Bridge Loan. On January 31, 2023, we drew down the entire aggregate principal amount of $ 3.585 billion of the Acquisition Term Loan, net of original issuance discount and other fees, and drew down $ 450 million under the Revolver. We used these proceeds and cash on hand to fund the purchase price consideration and repayment of Micro Focus’ outstanding indebtedness. In conjunction with the closing of the Micro Focus Acquisition, the deal-contingent forward contracts and non-contingent forward contract, as described in Note 17 “Derivative Instruments and Hedging Activities,” were settled. The results of operations of Micro Focus have been consolidated with those of OpenText beginning February 1, 2023. Preliminary Purchase Price Allocation As of December 31, 2023, the recognized amounts of identifiable assets acquired and liabilities assumed, based on their fair values as of January 31, 2023, are set forth below: Cash and cash equivalents $ 541,584 Accounts receivable, net of allowances for credit losses (1) 408,921 Other current assets (3) 299,042 Non-current tangible assets 448,506 Goodwill (2) (3) 3,393,825 Intangible customer assets 2,162,400 Intangible technology assets 1,392,300 Accounts payable and accrued liabilities ( 505,234 ) Deferred revenues ( 1,107,627 ) Other liabilities (3) ( 787,280 ) Net assets acquired $ 6,246,437 ______________________ (1) The gross amount receivable was $ 418.2 million of which $ 9.3 million of this receivable was expected to be uncollectible. (2) The goodwill of $ 3.4 billion is primarily attributable to the synergies expected to arise after the acquisition. There is $ 67.3 million of goodwill that is deductible for tax purposes. (3) Current period purchase price allocation adjustments of $ 23.8 million for the six months ended December 31, 2023, were primarily driven by changes in other current assets and other liabilities related to adjustments of pre-acquisition other current assets and deferred tax liabilities. 38 Table of Contents A settlement related to Micro Focus’ securities litigation that was agreed to prior to the Micro Focus Acquisition has been accrued as part of the liabilities assumed. This settlement, which received final court approval and is now resolved, was fully paid from insurance coverage, and therefore a receivable was recognized as part of the assets acquired. During the third quarter of Fiscal 2023, payment was made into escrow by insurers, and therefore both the associated receivable and liability are no longer included on the Condensed Consolidated Balance Sheets as of June 30, 2023. The finalization of the above purchase price allocation is pending the finalization of the valuation of fair value for the assets acquired and liabilities assumed, including intangible assets and taxation-related balances as well as for potential unrecorded liabilities. We expect to finalize this determination as of January 31, 2024. The unaudited pro forma revenues and net income (loss) of the combined entity for the three and six months ended December 31, 2022, had the Micro Focus Acquisition been consummated on July 1, 2021, are set forth below: Three Months Ended December 31, Six Months Ended December 31, Supplemental Unaudited Pro Forma Information 2022 2022 Revenues $ 1,522,771 $ 2,985,383 Net income (loss) (1) ( 373,733 ) ( 452,537 ) Net income (loss) attributable to OpenText (1) ( 373,770 ) ( 452,618 ) ______________________ (1) Included in the pro forma net loss for the three and six months ended December 31, 2022, is a $ 448.2 million goodwill impairment by Micro Focus in its pre-acquisition historical results as a result of the Company’s offer to acquire Micro Focus at a price of 532 pence per share. The unaudited pro forma financial information in the table above is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the Micro Focus Acquisition had taken place at the beginning of the periods presented or the results that may be realized in the future. Fiscal 2024 Divestiture 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. 39 Table of Contents The following are classified as held for sale in the Condensed Consolidated Balance Sheets, which are related to the proposed divestiture of our AMC business. The following balances incorporate the use of management estimates and are subject to change based on developments leading up to the closing date of the transaction. Refer to Note 1 “Basis of Presentation”. As of December 31, 2023 Assets held for sale Accounts receivable trade, net of allowance for credit losses $ 66,192 Contract assets 4,907 Prepaid expenses and other current assets 1,289 Property and equipment 960 Operating lease right of use assets 685 Long-term contract assets 2,664 Goodwill 1,037,979 Acquired intangible assets 930,712 Other assets 1,375 Total assets held for sale $ 2,046,763 Liabilities held for sale Accounts payable and accrued liabilities $ 24,849 Operating lease liabilities 259 Deferred revenues 172,842 Long-term Accrued liabilities 50 Pension liability, net 1,322 Long-term operating lease liabilities 398 Long-term deferred revenues 23,094 Total liabilities held for sale $ 222,814 NOTE 20— ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Three Months Ended December 31, 2023 Foreign Currency Translation Adjustments (1) Cash Flow Hedges Available-for-Sale Financial Assets Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance as of September 30, 2023 $ ( 58,697 ) $ ( 708 ) $ ( 823 ) $ ( 9,797 ) $ ( 70,025 ) Other comprehensive income (loss) before reclassifications, net of tax ( 15,796 ) 1,522 450 ( 91 ) ( 13,915 ) Amounts reclassified into net income, net of tax — 328 — 113 441 Total other comprehensive income (loss) net, for the period ( 15,796 ) 1,850 450 22 ( 13,474 ) Balance as of December 31, 2023 $ ( 74,493 ) $ 1,142 $ ( 373 ) $ ( 9,775 ) $ ( 83,499 ) 40 Table of Contents Six Months Ended December 31, 2023 Foreign Currency Translation Adjustments (1) Cash Flow Hedges Available-for-Sale Investments Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance as of June 30, 2023 $ ( 44,114 ) $ 1,124 $ ( 602 ) $ ( 9,967 ) $ ( 53,559 ) Other comprehensive income (loss) before reclassifications, net of tax ( 30,379 ) ( 319 ) 229 ( 110 ) ( 30,579 ) Amounts reclassified into net income, net of tax — 337 — 302 639 Total other comprehensive income (loss) net, for the period ( 30,379 ) 18 229 192 ( 29,940 ) Balance as of December 31, 2023 $ ( 74,493 ) $ 1,142 $ ( 373 ) $ ( 9,775 ) $ ( 83,499 ) ______________________ (1) The amount of foreign currency translation recognized in other comprehensive income during the three and six months ended December 31, 2023 included net gains (losses) relating to our net investment hedges of $( 43.1 ) million and $( 26.0 ) million, respectively, as further discussed in Note 17 “Derivative Instruments and Hedging Activities.” Three Months Ended December 31, 2022 Foreign Currency Translation Adjustments Cash Flow Hedges Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance as of September 30, 2022 $ ( 39,682 ) $ ( 3,408 ) $ 514 $ ( 42,576 ) Other comprehensive income (loss) before reclassifications, net of tax 39,419 959 32 40,410 Amounts reclassified into net income, net of tax — 1,101 37 1,138 Total other comprehensive income (loss) net, for the period 39,419 2,060 69 41,548 Balance as of December 31, 2022 $ ( 263 ) $ ( 1,348 ) $ 583 $ ( 1,028 ) Six Months Ended December 31, 2022 Foreign Currency Translation Adjustments Cash Flow Hedges Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance as of June 30, 2022 $ ( 3,316 ) $ ( 656 ) $ ( 3,687 ) $ ( 7,659 ) Other comprehensive income (loss) before reclassifications, net of tax 3,053 ( 2,381 ) 4,196 4,868 Amounts reclassified into net income, net of tax — 1,689 74 1,763 Total other comprehensive income (loss) net, for the period 3,053 ( 692 ) 4,270 6,631 Balance as of December 31, 2022 $ ( 263 ) $ ( 1,348 ) $ 583 $ ( 1,028 ) NOTE 21— SUPPLEMENTAL CASH FLOW DISCLOSURES Six Months Ended December 31, 2023 2022 Cash paid during the period for interest $ 286,471 $ 92,016 Cash received during the period for interest $ 19,092 $ 21,525 Cash paid during the period for income taxes $ 143,645 $ 91,444 41 Table of Contents NOTE 22— OTHER INCOME (EXPENSE), NET Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Foreign exchange gains (losses) $ ( 19,624 ) $ 60 $ ( 8,190 ) $ ( 1,301 ) Unrealized gains (losses) on derivatives not designated as hedges (1) ( 38,117 ) 171,607 ( 20,222 ) ( 9,854 ) OpenText share in net income (loss) of equity investees (2) ( 8,482 ) ( 289 ) ( 18,178 ) ( 6,823 ) Loss on debt extinguishment (3) — ( 8,131 ) — ( 8,131 ) Other miscellaneous income (expense) ( 2,561 ) 102 ( 2,024 ) 227 Total other income (expense), net $ ( 68,784 ) $ 163,349 $ ( 48,614 ) $ ( 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 (losses) of equity investees, which approximates fair value and subject to volatility based on market trends and business conditions, based on our interest in certain investment funds in which we are a limited partner. Our interests in each of these investees range from 4 % to below 20 % and these investments are accounted for using the equity method (see Note 9 “Prepaid Expenses and Other Assets” for more details). (3) On December 1, 2022, we amended the Acquisition Term Loan and Bridge Loan to reallocate commitments under the Bridge Loan to the Acquisition Term Loan and terminated all remaining commitments under the Bridge Loan which resulted in a loss on debt extinguishment related to unamortized debt issuance costs (see Note 11 “Long-Term Debt” for more details). NOTE 23— EARNINGS (LOSS) PER SHARE Basic earnings per share is computed by dividing net income attributable to OpenText, by the weighted average number of Common Shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to OpenText, by the shares used in the calculation of basic earnings per share plus the dilutive effect of Common Share equivalents, such as stock options, using the treasury stock method. Common Share equivalents are excluded from the computation of diluted earnings per share if their effect is anti-dilutive. Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Basic earnings per share Net income attributable to OpenText $ 37,675 $ 258,486 $ 118,576 $ 141,557 Basic earnings per share attributable to OpenText $ 0.14 $ 0.96 $ 0.44 $ 0.52 Diluted earnings per share Net income attributable to OpenText $ 37,675 $ 258,486 $ 118,576 $ 141,557 Diluted earnings per share attributable to OpenText $ 0.14 $ 0.96 $ 0.44 $ 0.52 Weighted-average number of shares outstanding (in ‘000’s) Basic 271,568 270,189 271,373 269,997 Effect of dilutive securities 573 — 646 12 Diluted 272,141 270,189 272,019 270,009 Excluded as anti-dilutive (1) 8,353 11,462 8,151 10,331 ______________________ (1) Represents options to purchase Common Shares excluded from the calculation of diluted earnings per share because the exercise price of the stock options was greater than or equal to the average price of the Common Shares during the period. 42 Table of Contents NOTE 24— RELATED PARTY TRANSACTIONS Our procedure regarding the approval of any related party transaction requires that the material facts of such transaction be reviewed by the independent members of the Audit Committee and the transaction be approved by a majority of the independent members of the Audit Committee. The Audit Committee reviews all transactions in which we are, or will be, a participant and any related party has or will have a direct or indirect interest in the transaction. In determining whether to approve a related party transaction, the Audit Committee generally takes into account, among other facts it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent and nature of the related person’s interest in the transaction; the benefits to the Company of the proposed transaction; if applicable, the effects on a director’s independence; and if applicable, the availability of other sources of comparable services or products. During the six months ended December 31, 2023, Mr. Stephen Sadler, a member of the Board of Directors, earned $ 4 thousand (six months ended December 31, 2022 — $ 7 thousand) in consulting fees from OpenText for assistance with acquisition-related business activities. Mr. Sadler abstained from voting on all transactions from which he would potentially derive consulting fees. NOTE 25— SUBSEQUENT EVENTS Cash Dividends As part of our quarterly, non-cumulative cash dividend program, we declared, on January 31, 2024, a dividend of $ 0.25 per Common Share. The record date for this dividend is March 1, 2024 and the payment date is March 20, 2024. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of our Board. Debt Repayment Following the end of the quarter, on January 22, 2024 we repaid an additional $ 175 million on the Acquisition Term Loan using cash on hand. As of January 31, 2024, we had a balance of $ 3.3 billion outstanding on our Acquisition Term Loan. 43 Table of Contents