OPEN TEXT CORP 10-K

Item 8. Financial Statements and Supplementary Data The response to this Item 8 is submitted as a separate section of this Annual Report on Form 10-K. See Part IV, Item 15. 81 Table of Contents Use of Non-GAAP Financial Measures In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures that are not in accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company’s definition may be different from similar Non-GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus, it may be more difficult to compare the Company’s financial performance to that of other companies. However, the Company’s management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its Consolidated Financial Statements, all of which should be considered when evaluating the Company’s results. The Company uses these Non-GAAP financial measures to supplement the information provided in its Consolidated Financial Statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures is not meant to be a substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain Non-GAAP measures defined below. Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are consistently calculated as GAAP-based net income or earnings (loss) per share, attributable to OpenText, on a diluted basis, excluding the effects of the amortization of acquired intangible assets, other income (expense), share-based compensation, and special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as GAAP-based income from operations, excluding the amortization of acquired intangible assets, special charges (recoveries), and share-based compensation expense. Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for (recovery of) income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and special charges (recoveries). The Company’s management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company’s management. These items are excluded based upon the way the Company’s management evaluates the performance of the Company’s business for use in the Company’s internal reports and are not excluded in the sense that they may be used under U.S. GAAP. The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of Non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company’s operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions and most recently in response to our return to office planning, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company’s Special charges (recoveries) caption on the Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company’s operating results and underlying operational trends. In summary, the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company’s core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText’s performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results. The following charts provide unaudited reconciliations of U.S. GAAP-based financial measures to Non-GAAP-based financial measures for the following periods presented. The Micro Focus Acquisition significantly impacts period-over-period comparability. 82 Table of Contents Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2024 (In thousands, except for per share data) Year Ended June 30, 2024 GAAP-based Measures GAAP-based Measures % of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures % of Total Revenue Cost of revenues Cloud services and subscriptions $ 713,759 $ (12,858) (1) $ 700,901 Customer support 292,733 (4,357) (1) 288,376 Professional service and other 302,527 (6,298) (1) 296,229 Amortization of acquired technology-based intangible assets 243,922 (243,922) (2) — GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 4,191,028 72.6% 267,435 (3) 4,458,463 77.3% Operating expenses Research and development 893,932 (40,612) (1) 853,320 Sales and marketing 1,133,665 (46,572) (1) 1,087,093 General and administrative 577,038 (29,382) (1) 547,656 Amortization of acquired customer-based intangible assets 432,404 (432,404) (2) — Special charges (recoveries) 135,305 (135,305) (4) — GAAP-based income from operations / Non-GAAP-based income from operations 887,085 951,710 (5) 1,838,795 Other income (expense), net 358,391 (358,391) (6) — Provision for income taxes 264,012 (78,845) (7) 185,167 GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 465,090 672,164 (8) 1,137,254 GAAP-based EPS / Non-GAAP-based EPS-diluted, attributable to OpenText $ 1.71 $ 2.46 (8) $ 4.17 ______________________ (1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. (2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. (3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue. (4) Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note 18 “Special Charges (Recoveries)” to our Consolidated Financial Statements for more details. (5) GAAP-based and Non-GAAP-based income from operations stated in dollars. (6) Adjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. Other income (expense) also includes unrealized and realized gains (losses) on our derivatives which are not designated as hedges. We exclude gains and losses on these derivatives as we do not believe they are reflective of our ongoing business and operating results. (7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 36% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. 83 Table of Contents (8) Reconciliation of GAAP-based net income to Non-GAAP-based net income: Year Ended June 30, 2024 Per share diluted GAAP-based net income, attributable to OpenText $ 465,090 $ 1.71 Add: Amortization 676,326 2.48 Share-based compensation 140,079 0.51 Special charges (recoveries) 135,305 0.50 Other (income) expense, net (358,391) (1.32) GAAP-based provision for income taxes 264,012 0.97 Non-GAAP-based provision for income taxes (185,167) (0.68) Non-GAAP-based net income, attributable to OpenText $ 1,137,254 $ 4.17 Reconciliation of Adjusted EBITDA Year Ended June 30, 2024 GAAP-based net income, attributable to OpenText $ 465,090 Add: Provision for income taxes 264,012 Interest and other related expense, net 516,180 Amortization of acquired technology-based intangible assets 243,922 Amortization of acquired customer-based intangible assets 432,404 Depreciation 131,599 Share-based compensation 140,079 Special charges (recoveries) 135,305 Other (income) expense, net (358,391) Adjusted EBITDA $ 1,970,200 84 Table of Contents Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2023 (In thousands, except for per share data) Year Ended June 30, 2023 GAAP-based Measures GAAP-based Measures % of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures % of Total Revenue Cost of revenues Cloud services and subscriptions $ 590,165 $ (10,664) (1) $ 579,501 Customer support 209,705 (3,627) (1) 206,078 Professional service and other 276,888 (6,998) (1) 269,890 Amortization of acquired technology-based intangible assets 223,184 (223,184) (2) — GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 3,168,393 70.6% 244,473 (3) 3,412,866 76.1% Operating expenses Research and development 680,587 (39,065) (1) 641,522 Sales and marketing 948,598 (41,710) (1) 906,888 General and administrative 419,590 (28,238) (1) 391,352 Amortization of acquired customer-based intangible assets 326,406 (326,406) (2) — Special charges (recoveries) 169,159 (169,159) (4) — GAAP-based income from operations / Non-GAAP-based income from operations 516,292 849,051 (5) 1,365,343 Other income (expense), net 34,469 (34,469) (6) — Provision for income taxes 70,767 74,261 (7) 145,028 GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 150,379 740,321 (8) 890,700 GAAP-based EPS / Non-GAAP-based EPS-diluted, attributable to OpenText $ 0.56 $ 2.73 (8) $ 3.29 ______________________ (1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. (2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. (3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue. (4) Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note 18 “Special Charges (Recoveries)” to our Consolidated Financial Statements for more details. (5) GAAP-based and Non-GAAP-based income from operations stated in dollars. (6) Adjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. (7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 32% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. 85 Table of Contents (8) Reconciliation of GAAP-based net income to Non-GAAP-based net income: Year Ended June 30, 2023 Per share diluted GAAP-based net income, attributable to OpenText $ 150,379 $ 0.56 Add: Amortization 549,590 2.03 Share-based compensation 130,302 0.48 Special charges (recoveries) 169,159 0.63 Other (income) expense, net (34,469) (0.13) GAAP-based provision for income taxes 70,767 0.26 Non-GAAP-based recovery of income taxes (145,028) (0.54) Non-GAAP-based net income, attributable to OpenText $ 890,700 $ 3.29 Reconciliation of Adjusted EBITDA Year Ended June 30, 2023 GAAP-based net income, attributable to OpenText $ 150,379 Add: Provision for income taxes 70,767 Interest and other related expense, net 329,428 Amortization of acquired technology-based intangible assets 223,184 Amortization of acquired customer-based intangible assets 326,406 Depreciation 107,761 Share-based compensation 130,302 Special charges (recoveries) 169,159 Other (income) expense, net (34,469) Adjusted EBITDA $ 1,472,917 86 Table of Contents Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2022 (In thousands, except for per share data) Year Ended June 30, 2022 GAAP-based Measures GAAP-based Measures % of Total Revenue Adjustments Note Non-GAAP-based Measures Non-GAAP-based Measures % of Total Revenue Cost of revenues Cloud services and subscriptions $ 511,713 $ (5,285) (1) $ 506,428 Customer support 121,485 (2,399) (1) 119,086 Professional service and other 216,895 (3,740) (1) 213,155 Amortization of acquired technology-based intangible assets 198,607 (198,607) (2) — GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 2,431,643 69.6% 210,031 (3) 2,641,674 75.6% Operating expenses Research and development 440,448 (17,122) (1) 423,326 Sales and marketing 677,118 (22,628) (1) 654,490 General and administrative 317,085 (18,382) (1) 298,703 Amortization of acquired customer-based intangible assets 217,105 (217,105) (2) — Special charges (recoveries) 46,873 (46,873) (4) — GAAP-based income from operations / Non-GAAP-based income from operations 644,773 532,141 (5) 1,176,914 Other income (expense), net 29,118 (29,118) (6) — Provision for income taxes 118,752 23,913 (7) 142,665 GAAP-based net income / Non-GAAP-based net income, attributable to OpenText 397,090 479,110 (8) 876,200 GAAP-based EPS/ Non-GAAP-based EPS-diluted, attributable to OpenText $ 1.46 $ 1.76 (8) $ 3.22 ______________________ (1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results. (2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results. (3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue. (4) Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note 18 “Special Charges (Recoveries)” to our Consolidated Financial Statements for more details. (5) GAAP-based and Non-GAAP-based income from operations stated in dollars. (6) Adjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. (7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 23% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. The GAAP-based tax provision rate for the year ended June 30, 2022 includes an income tax provision charge from IRS settlements partially offset by a tax benefit from the release of unrecognized tax benefits due to the conclusion of relevant tax audits that was recognized during the second quarter of Fiscal 2021. 87 Table of Contents (8) Reconciliation of GAAP-based net income to Non-GAAP-based net income: Year Ended June 30, 2022 Per share diluted GAAP-based net income, attributable to OpenText $ 397,090 $ 1.46 Add: Amortization 415,712 1.52 Share-based compensation 69,556 0.26 Special charges (recoveries) 46,873 0.17 Other (income) expense, net (29,118) (0.11) GAAP-based provision for income taxes 118,752 0.44 Non-GAAP-based recovery of income taxes (142,665) (0.52) Non-GAAP-based net income, attributable to OpenText $ 876,200 $ 3.22 Reconciliation of Adjusted EBITDA Year Ended June 30, 2022 GAAP-based net income, attributable to OpenText $ 397,090 Add: Provision for income taxes 118,752 Interest and other related expense, net 157,880 Amortization of acquired technology-based intangible assets 198,607 Amortization of acquired customer-based intangible assets 217,105 Depreciation 88,241 Share-based compensation 69,556 Special charges (recoveries) 46,873 Other (income) expense, net (29,118) Adjusted EBITDA $ 1,264,986 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.