What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-05-02 · 232 added, 708 removed, 625 unchanged (60% of the section changed)

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(ii) creating value through investments in broader Information Management capabilities;

(iii) our future business plans and operations, and business planning process;

(iii) our future business plans and operations, strategic goals and business planning process, including the Company’s business optimization plan announced in July 2024 (the Business Optimization Plan);

(iv) business trends;

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(x) declaration of quarterly dividends;

(xi) future tax rates;

(xi) future tax rates, including Canada's newly enacted global minimum tax act;

(xii) the changing regulatory environment;

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(xx) capital expenditures;

(xxi) potential legal and/or regulatory proceedings;

(xxi) potential legal and/or regulatory proceedings, including the Company's expected refund of the State Aid charging notice relating to the CJEU's judgment on the ruling of the European Commission;

(xxii) acquisitions and their expected impact, including our ability to realize the benefits expected from the acquisitions and to successfully integrate the assets we acquire or utilize such assets to their full capacity, including in connection with the acquisition of Micro Focus International Limited, formerly Micro Focus International plc, and its subsidiaries (Micro Focus) (see Note 17 “Acquisitions and Divestitures” to our Condensed Consolidated Financial Statements for more details);

(xxiii) tax audits;

(xxiv) the expected impact of our decision to cease all direct business in Russia and Belarus and with known Russian-owned companies;(xxv) expected costs of the restructuring plans;

(xxiv) the expected impact of the Russia-Ukraine and Middle East conflicts on our business;(xxv) expected costs of the restructuring and business optimization plans;

(xxvi) targets regarding greenhouse gas emissions, waste diversion, energy consumption and Equity, Diversity and Inclusion (ED&I) initiatives;

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

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

(xxix) our intention to use the net proceeds of the AMC Divestiture to prepay certain debt and the timing thereof (see Note 25 “Subsequent Events” to our Condensed Consolidated Financial Statements for more details);

(xxx) expected size and timing of the Fiscal 2024 Repurchase Plan, including execution thereof;

and (xxxi) other matters.

(xxviii) divestitures and their expected impact, including in connection with the divestiture of the Application, Modernization and Connectivity (AMC) business (the AMC Divestiture) and the accompanying transition services agreement (Transition Services Agreement) (see Note 17 “Acquisitions and Divestitures” to our Condensed Consolidated Financial Statements for more details);

and (xxix) other matters.

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

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(iii) the stability of general political, economic and market conditions;

(iv) our ability to manage inflation, including increased labour costs associated with attracting and retaining employees, and rising interest rates;

(iv) our ability to manage inflation, including increased labour costs associated with attracting and retaining employees, and higher interest rates;

(v) our continued ability to manage certain foreign currency risk through hedging;

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

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

(ii) the actual and potential impacts of the use of cash and incurrence of indebtedness,

including the granting of security interests related to such debt;

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

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

business prospects;

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

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

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

(vii) the potential for the incurrence of or assumption of debt in connection with acquisitions, its impact on future operations and on the ratings or outlooks of rating agencies on our outstanding debt securities, and the possibility of not being able to generate sufficient cash to service all indebtedness;

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

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(xvii) demand for the Company’s products and services;

(xviii) increase in exposure to international business risks including the impact of geopolitical instability, political unrest, war and other global conflicts, and other geopolitical tensions, including the Russia-Ukraine and the Israel-Hamas wars, as we continue to increase our international operations;

(xviii) increase in exposure to international business risks including the impact of geopolitical instability, political unrest, war and other global conflicts, and other geopolitical tensions, including the Russia-Ukraine and the Middle East conflicts, as we continue to increase our international operations;

(xix) adverse macroeconomic conditions, including inflation, disruptions in global supply chains and increased labour costs;

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

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

and (xxiii) risks related to the AMC Divestiture, Transition Services Agreement, and the impact of the divestiture on our remaining business.

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

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The following MD&A is intended to help readers understand our results of operations and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying Notes to our Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q.

All dollar and percentage comparisons made herein refer to the three and nine months ended March 31, 2024 compared with the three and nine months ended March 31, 2023, unless otherwise noted.

All dollar and percentage comparisons made herein refer to the three months ended September 30, 2024 compared with the three months ended September 30, 2023, unless otherwise noted.

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

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

To do this, we bring together our Content Cloud, Cybersecurity Cloud, Business Network Cloud, IT Operations Management Cloud, Application Automation Cloud and Analytics & AI Cloud.

To do this, we bring together our Content Cloud, Cybersecurity Cloud, Business Network Cloud, IT Operations Management Cloud, Application Modernization Cloud and Analytics Cloud.

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

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

As of March 31, 2024, we employed a total of approximately 23,700 individuals.

Of the total 23,700 individuals we employed as of March 31, 2024, 8,700 or 37% are in the Americas, 5,400 or 23% are in EMEA and 9,600 or 40% are in Asia Pacific.

As of September 30, 2024, we employed a total of approximately 21,800 individuals.

Of the total 21,800 individuals we employed as of September 30, 2024, 7,700 or 35% are in the Americas, 4,800 or 22% are in EMEA and 9,300 or 43% are in Asia Pacific.

Currently, we have employees in 42 countries enabling strong access to multiple talent pools while ensuring reach and proximity to our customers.

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Quarterly Summary:

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

• Total revenue was $1,447.1 million, up 16.3% compared to the same period in the prior fiscal year;

up 16.0% after factoring in the favorable impact of $3.5 million of foreign exchange rate changes.

• Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and customer support revenue, was $1,146.0 million, up 13.3% compared to the same period in the prior fiscal year;

up 13.1% after factoring in the favorable impact of $2.6 million of foreign exchange rate changes.

During the first quarter of Fiscal 2025 we saw the following activity, as compared to the first quarter of Fiscal 2024, which includes the results of the AMC Business prior to the AMC Divestiture, which has an impact on period-over-period comparisons.

See “Divestiture of AMC Business” under “Results of Operations”, below for more details:

• Total revenue was $1,269.0 million, down 11.0% compared to the same period in the prior fiscal year;

down 10.7% after factoring in the unfavorable impact of $4.2 million of foreign exchange rate changes.

• Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and customer support revenue, was $1,052.5 million, down 8.4% compared to the same period in the prior fiscal year;

down 8.0% after factoring in the unfavorable impact of $4.1 million of foreign exchange rate changes.

• Cloud services and subscriptions revenue was $457.0 million, up 1.3% compared to the same period in the prior fiscal year;

up 4.4% after factoring in the favorable impact of $0.1 million of foreign exchange rate changes.

up 1.7% after factoring in the unfavorable impact of $1.6 million of foreign exchange rate changes.

• GAAP-based gross margin was 71.7% compared to 71.4% in the same period in the prior fiscal year.

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• Adjusted EBITDA, a non-GAAP measure, was $443.8 million compared to $494.8 million in the same period in the prior fiscal year.

• Operating cash flow was $782.5 million for the nine months ended March 31, 2024 compared to $663.9 million in the same period in the prior fiscal year, up 17.9%.

• Cash and cash equivalents were $1,125.3 million as of March 31, 2024, compared to $1,231.6 million as of June 30, 2023.

• We repaid $175 million drawn under the Acquisition Term Loan in January 2024.

• Operating cash flow was $(77.8) million for the three months ended September 30, 2024 compared to $47.1 million in the same period in the prior fiscal year, down 265.1%.

• Cash and cash equivalents were $1,000.2 million as of September 30, 2024, compared to $1,280.7 million as of June 30, 2024.

• Enterprise cloud bookings were $133.5 million, compared to $121.0 million in the same period in the prior fiscal year.

We define Enterprise cloud bookings as the total value from cloud services and subscription contracts entered into in the period that is new, committed and incremental to our existing contracts, entered into with our enterprise-based customers.

Following the end of the third quarter of Fiscal 2024, we saw the following activity:

• On May 1, 2024, we completed the previously announced sale of our AMC business to Rocket Software, for $2.275 billion in cash before taxes, fees and other adjustments.

As part of this sale, we have agreed to provide certain transition services to Rocket Software following completion of the divestiture for up to 24 months.

• On May 1, 2024, we provided notices to prepay $2.0 billion of our aggregate outstanding debt including an additional $1.06 billion on the Acquisition Term Loan and $940 million under Term Loan B using net proceeds from the AMC Divestiture.

We expect the prepayments to be made on or about May 6, 2024, at which point the remaining balance of the Acquisition Term Loan will be $2.23 billion and the Term Loan B will have been repaid in full.

• During the three months ended September 30, 2024, we repurchased and cancelled 2,649,131 Common Shares for $86.5 million, inclusive of 2% Canadian excise taxes recorded (nil in the three months ended September 30, 2023).

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

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As a result of the continually changing marketplace in which we operate, we regularly evaluate acquisition opportunities within our market and at any time may be in various stages of discussions with respect to such opportunities.

Acquisition of Micro Focus

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

The results of operations of Micro Focus have been consolidated with those of OpenText beginning February 1, 2023.

The Micro Focus Acquisition has contributed to the growth in our revenues and impacts period-over-period comparability.

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

Divestiture of AMC Business

On May 1, 2024, the Company completed the previously announced sale of its AMC business to Rocket Software for $2.275 billion in cash before taxes, fees and other adjustments.

For the three and nine months ended March 31, 2024, the results of the AMC business were recorded and presented within our Condensed Consolidated Financial Statements.

See Note 25 “Subsequent Events” to our Condensed Consolidated Financial Statements for more details.

As of March 31, 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.

The Company has determined that the AMC business does not constitute a component, as its operations and cash flows cannot 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 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.

On May 1, 2024, the Company completed the AMC Divestiture for $2.275 billion in cash before taxes, fees and other adjustments.

For the three months ended September 30, 2023, the results of the AMC business were recorded and presented within our Condensed Consolidated Financial Statements.

See Note 17 “Acquisitions and Divestitures” to our Condensed Consolidated Financial Statements for more details.

Impacts of Geopolitical Conflicts and Diplomatic Tensions

We continue to monitor the geopolitical conflicts and diplomatic tensions around the world, including the Russia-Ukraine and Israel-Hamas wars.

We have ceased all direct business in Russia and Belarus and with known Russian-owned companies.

We continue to monitor the geopolitical conflicts and diplomatic tensions around the world, including the Russia-Ukraine and Middle East conflicts.

We have ceased all direct business in Russia and Belarus.

We continue to operate our Israeli-based business and support our employees in the region.

While our operations within these locations are not material and we do not expect these geopolitical conflicts to have a material adverse effect on our overall business, results of operations or financial condition, it is not possible to predict the broader consequences of these conflicts, including adverse effects on the global economy, on our business and operations as well as those of our customers, partners and third party service providers.

While our operations within these locations are not material and we do not expect these geopolitical conflicts to have a material adverse effect on our overall business, results of operations or financial condition, it is not possible to predict the broader consequences or broader expansion of these conflicts, including adverse effects on the global economy, on our business and operations as well as those of our customers, partners and third party service providers.

For more information, see Part I, Item 1A “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for Fiscal 2024.

Outlook for Remainder of Fiscal 2025

As an organization, we are committed to “Total Growth,” meaning we strive towards delivering value through organic initiatives, innovations and acquisitions, as well as financial performance.

As an organization, we are committed to “Total Growth,” meaning we strive towards delivering value through organic initiatives and innovations and acquisitions.

With an emphasis on increasing recurring revenues and expanding profitability, we believe our Total Growth strategy will ultimately drive cash flow growth, thus helping to fuel our innovation, broaden our go-to-market distribution and identify and execute strategic acquisitions.

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becoming cloud-native, connecting anything, and extending capabilities quickly with multi-tenant SaaS applications and services.

The completion of the Micro Focus Acquisition during Fiscal 2023 substantially expanded our scope and size by adding assets and operations to our existing business.

We have incurred and will continue to incur additional integration costs.

As part of the Micro Focus Acquisition, we made a strategic decision to implement a restructuring plan that impacted its global workforce and further reduced our real estate footprint around the world in an effort to further streamline our operations, consistent with previously announced cost synergies of $400 million (Micro Focus Acquisition Restructuring Plan).

The total size of the plan is expected to result in a reduction in the combined workforce of approximately 8%, or 2,000 employees, with an estimated cost of $155 million to $170 million, of which we have incurred $133.5 million as of March 31, 2024.

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

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

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

On May 1, 2024, we completed the previously announced sale of the AMC business to Rocket Software, for $2.275 billion in cash before taxes, fees and other adjustments.

For the three and nine months ended March 31, 2024, the results of the AMC business were recorded and presented within our Condensed Consolidated Financial Statements.

See Note 25 “Subsequent Events” to our Condensed Consolidated Financial Statements for more details.

On May 1, 2024, we provided notices to prepay $2.0 billion of our aggregate outstanding debt including $940 million of the aggregate principal amounts outstanding under the Term Loan B (as defined below) and $1.06 billion of the outstanding balance on the Acquisition Term Loan (as defined below), using the net proceeds from the AMC Divestiture.

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

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

Due to the limited time since the transaction’s closing date and the size and complexity of the transaction, the Company has not completed the accounting for the business divestiture, including the determination of the gain or loss to be recognized in connection with its completion.

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

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

See Part II, Item 1A “Risk Factors” herein and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2024.

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

The comparability of our operating results for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was impacted by the Micro Focus Acquisition, the results of which were consolidated with those of Open Text beginning February 1, 2023.

As such, consolidated operating results for the three months ended March 31, 2023 and 2024 include two and three months, respectively, of Micro Focus operating results.

Our total revenues increased by $202.5 million across all of our product types for the three months ended March 31, 2024, relative to the three months ended March 31, 2023, primarily due to revenue contributions from the Micro Focus Acquisition and a favorable impact of $3.5 million of foreign exchange rate changes.

Micro Focus contributed $564.7 million to our total revenues for the three months ended March 31, 2024, of which $366.5 million related to customer support revenues and $117.6 million related to license revenues.

Micro Focus total revenues increased by $190.3 million during the three months ended March 31, 2024, as compared to the same period in the prior fiscal year.

Total cost of revenues increased by $21.6 million for the three months ended March 31, 2024, relative to the three months ended March 31, 2023, primarily from additional cost of revenues as a result of the Micro Focus Acquisition, partially offset by

reductions in amortization related to intangible assets associated with the AMC Divestiture and its held for sale classification.

Micro Focus incurred $140.4 million of cost of revenues during the three months ended March 31, 2024, an increase of $32.2 million as compared to the same period in the prior fiscal year.

Total operating expenses increased by $17.8 million for the three months ended March 31, 2024, relative to the three months ended March 31, 2023, primarily from additional operating expenses as a result of the Micro Focus Acquisition, partially offset by decreased acquisition related costs.

Micro Focus incurred $321.1 million of operating expenses during the three months ended March 31, 2024, of which $262.4 million was related to research and development, sales and marketing, and general and administrative expenses.

Micro Focus total operating expenses increased by $5.8 million during the three months ended March 31, 2024, of which $38.7 million was related to research and development, sales and marketing, and

general and administrative expenses, which were partly offset by decreased acquisition related costs, as compared to the same period in the prior fiscal year.

The comparability of our operating results for the nine months ended March 31, 2024, as compared to the nine months ended March 31, 2023, was impacted by the Micro Focus Acquisition, the results of which were consolidated with those of Open Text beginning February 1, 2023.

As such, consolidated operating results for the nine months ended March 31, 2023 and 2024 include two and nine months, respectively, of Micro Focus operating results.

Our total revenues increased by $1,413.3 million across all of our product types for the nine months ended March 31, 2024 relative to the nine months ended March 31, 2023, primarily due to revenue contributions from the Micro Focus Acquisition and the favorable impact of $45.0 million of foreign exchange rate changes.

Micro Focus contributed $1,729.0 million to our total revenues for the nine months ended March 31, 2024, of which $1,105.8 million related to customer support revenues and $386.4 million related to license revenues.

Micro Focus total revenues increased by $1,354.6 million during the nine months ended March 31, 2024, as compared to the same period in the prior fiscal year.

Total cost of revenues increased by $314.3 million for the nine months ended March 31, 2024 relative to the nine months ended March 31, 2023, primarily from additional cost of revenues as a result of the Micro Focus Acquisition.

Micro Focus incurred $454.0 million of cost of revenues for the nine months ended March 31, 2024, an increase of $345.8 million as compared to the same period in the prior fiscal year.

Total operating expenses increased by $800.1 million for the nine months ended March 31, 2024, relative to the nine months ended March 31, 2023, primarily from additional operating expenses as a result of the Micro Focus Acquisition.

Micro Focus incurred $1,029.6 million of operating expenses for the nine months ended March 31, 2024, of which $784.5 million was related to research and development, sales and marketing, and general and administrative expenses.

Micro Focus total operating expenses increased by $714.3 million during the nine months ended March 31, 2024, of which $560.8 million was related to research and development, sales and marketing, and general and administrative expenses, as compared to the same period in the prior fiscal year.

Divestiture of AMC Business

On May 1, 2024, the Company completed the sale of its AMC business to Rocket Software.

The AMC business was comprised of the legacy OpenText connectivity business and the legacy Micro Focus AMC business.

The comparability of our operating results for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was impacted by the recent divestiture of our AMC business, the results of which were excluded from those of OpenText beginning May 1, 2024.

As such, consolidated operating results for the three months ended September 30, 2023 and 2024 included three and nil months, respectively, of AMC business operating results.

Our total revenues decreased by $156.4 million primarily across license and customer support product types in the three months ended September 30, 2024, relative to the three months ended September 30, 2023, primarily due to the exclusion of revenue contributions from the AMC business, in addition to a unfavorable impact of $4.2 million of foreign exchange rate changes.

The AMC business contributed $132.8 million to our total revenues during the three months ended September 30, 2023, of which $84.1 million related to customer support revenues, $44.2 million related to license revenues, and $4.5 million related to professional services and other revenue.

Transition Services Agreement

In connection with the AMC Divestiture, we entered into a Transition Service Agreement (TSA) with Rocket Software, whereby we will provide certain transition services to Rocket Software for up to 24 months from May 1, 2024.

These transition service costs are reimbursable by Rocket Software.

During the three months ended September 30, 2024, we billed Rocket Software $14.5 million under the TSA.

The following table illustrates the financial statement impact of these TSA reimbursements, which have been recorded as an offset to the respective costs incurred, within our Condensed Consolidated Statements of Income.

Three Months Ended September 30,

Professional service and other cost of revenue

Customer support cost of revenue

Research and development

Sales and marketing

General and administrative

Summary of Results of Operations

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

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Asia Pacific (4)

9.4 % 9.2 % 9.5 % 8.6 %

Other Metrics:

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75.8 % 77.3 %

Net income (loss), attributable to OpenText $ 98,285 $ 57,556 $ 216,861 $ 199,113

GAAP-based EPS (loss), diluted $ 0.36 $ 0.21 $ 0.80 $ 0.74

Net income attributable to OpenText

$ 84,368 $ 80,901

GAAP-based EPS, diluted

$ 0.32 $ 0.30

Non-GAAP-based EPS, diluted (5)

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

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

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

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

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

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

For the quarter ended March 31, 2024, our cloud renewal rate, excluding the impact of Carbonite, Zix and Micro Focus, decreased to 92% from 95% over the quarter ended March 31, 2023.

Our cloud arrangements can be broadly categorized as platform as a service, software as a service, cloud subscriptions and managed services.

Beginning with the quarter ended September 30, 2024, we are disclosing the cloud renewal rate on a net basis (cloud net renewal rate).

The cloud net renewal rate, excluding the impact of Carbonite Inc.

and Zix, was 94% for the quarter ended September 30, 2024.

This rate includes increases and decreases in renewed contract values driven by product mix, volume and consumption, and changes for price adjustments relating to renewed contract values, which were not part of the historical calculation of the cloud renewal rate.

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

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

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Asia Pacific 6.3 % 6.5 %

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Cloud services and subscriptions revenues increased by $19.1 million or 4.4% during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year;

up 4.4% after factoring in the favorable impact of $0.1 million of foreign exchange rate changes.

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

Geographically, the overall change was attributable to an increase in EMEA of $8.0 million, an increase in Americas of $12.1 million and a decrease in Asia Pacific of $1.0 million.

There were 28 cloud services contracts greater than $1.0 million that closed during the third quarter of Fiscal 2024, compared to 13 contracts during the third quarter of Fiscal 2023.

Cost of Cloud services and subscriptions revenues increased by $28.7 million during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year.

This was due to an increase in third-party network usage fees of $25.3 million and an increase in labour-related costs of $3.9 million both partially driven by incremental Cloud services and subscriptions costs of revenues from the Micro Focus Acquisition.

Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased to 59% from 64%.

Nine Months Ended March 31, 2024 Compared to Nine Months Ended March 31, 2023

Cloud services and subscriptions revenues increased by $106.9 million or 8.6% during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year;

up 8.0% after factoring in the favorable impact of $6.5 million of foreign exchange rate changes.

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

Geographically, the overall change was attributable to an increase in Americas of $56.6 million, an increase in EMEA of $43.0 million and an increase in Asia Pacific of $7.3 million.

There were 97 cloud services contracts greater than $1.0 million that closed during the first nine months of Fiscal 2024, compared to 54 contracts during the first nine months of Fiscal 2023.

Cost of Cloud services and subscriptions revenues increased by $114.2 million during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year.

This was due to an increase in third-party network usage fees of $70.2 million and an increase in labour-related costs of $44.3 million both partially driven by incremental Cloud services and subscriptions costs of revenues from the Micro Focus Acquisition.

Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased to 60% from 66%.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Cloud services and subscriptions revenues increased by $6.0 million or 1.3% during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year;

up 1.7% after factoring in the unfavorable impact of $1.6 million of foreign exchange rate changes.

Geographically, the overall change was attributable to a decrease in Americas of $2.4 million, an increase in EMEA of $9.0 million, and a decrease in Asia Pacific of $0.7 million.

There were 23 cloud services contracts greater than $1.0 million that closed during the first quarter of Fiscal 2025, compared to 21 contracts during the first quarter of Fiscal 2024.

Cost of Cloud services and subscriptions revenues increased by $3.8 million during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in third-party network usage fees of $12.3 million, partially offset by a decrease in labour-related costs of $8.7 million.

Overall, the gross margin percentage on Cloud services and subscriptions revenues remained stable at 62%.

2) Customer Support:

5 unchanged sentences

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

For the quarter ended March 31, 2024, our Customer support renewal rate remained stable at 95% compared to the quarter ended March 31, 2023, excluding the impact of Carbonite, Zix and Micro Focus.

Beginning with the quarter ended September 30, 2024, we are disclosing the customer support renewal rate on a net basis (customer support net renewal rate).

The customer support net renewal rate was 91% for the quarter ended September 30, 2024.

This rate includes increases in renewed contract values driven by volume and consumption, and excludes reductions driven by shifts from customer support renewals where customers migrate to other product types, which were not part of the historical calculation of the customer support renewal rate.

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

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

11 unchanged sentences

Asia Pacific 9.9 % 9.2 %

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Customer support revenues increased by $115.6 million or 20.1% during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year;

up 19.6% after factoring in the favorable impact of $2.5 million of foreign exchange rate changes.

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

Geographically, the overall change was attributable to an increase in Americas of $41.9 million, an increase in EMEA of $55.1 million and an increase in Asia Pacific of $18.6 million.

Cost of Customer support revenues increased by $7.6 million during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in labour-related costs of $8.2 million driven by incremental Customer support cost of revenues from the Micro Focus Acquisition over the comparative period.

Overall, the gross margin percentage on Customer support revenues increased to 89% from 88%.

Nine Months Ended March 31, 2024 Compared to Nine Months Ended March 31, 2023

Customer support revenues increased by $875.2 million or 72.3% during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year;

up 70.3% after factoring in the favorable impact of $25.2 million of foreign exchange rate changes.

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

Geographically, the overall change was attributable to an increase in Americas of $433.9 million, an increase in EMEA of $341.7 million and an increase in Asia Pacific of $99.6 million.

Cost of Customer support revenues increased by $100.0 million during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year.

This was primarily due to an increase in labour-related costs of $96.6

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

Overall, the gross margin percentage on Customer support revenues decreased to 89% from 90%.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Customer support revenues decreased by $102.2 million or 14.7% during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year;

down 14.3% after factoring in the unfavorable impact of $2.5 million of foreign exchange rate changes.

The decrease was primarily due to the exclusion of customer support revenue contributions as a result of the AMC Divestiture.

Geographically, the overall change was attributable to a decrease in Americas of $76.4 million, a decrease in EMEA of $20.2 million, and a decrease in Asia Pacific of $5.6 million.

Cost of Customer support revenues decreased by $12.4 million during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year.

This was primarily due to a decrease in labour-related costs of $11.9 million over the comparative period.

Overall, the gross margin percentage on Customer support revenues remained stable at 89%.

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

1 unchanged sentence

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

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

11 unchanged sentences

Asia Pacific 17.3 % 16.1 %

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

License revenues increased by $60.6 million or 43.4% during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year;

up 43.2% after factoring in the favorable impact of $0.3 million of foreign exchange rate changes.

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

Geographically, the overall change was attributable to an increase in Americas of $24.7 million, an increase in EMEA of $30.1 million and an increase in Asia Pacific of $5.8 million.

During the third quarter of Fiscal 2024, we closed 55 license contracts greater than $0.5 million, of which 23 contracts were greater than $1.0 million, contributing $92.3 million of License revenues.

This was compared to 42 license contracts greater than $0.5 million during the third quarter of Fiscal 2023, of which 22 contracts were greater than $1.0 million, contributing $58.6 million of License revenues.

Cost of License revenues increased by $2.9 million during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year as a result of higher third-party technology costs primarily driven by incremental cost of License revenues from the Micro Focus Acquisition over the comparative period.

Overall, the gross margin percentage on License revenues remained stable at 97%, compared with the same period in the prior fiscal year.

Nine Months Ended March 31, 2024 Compared to Nine Months Ended March 31, 2023

License revenues increased by $352.4 million or 113.6% during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year;

up 110.9% after factoring in the favorable impact of $8.4 million of foreign exchange rate changes.

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

Geographically, the overall change was attributable to an increase in Americas of $160.6 million, an increase in EMEA of $148.0 million and an increase in Asia Pacific of $43.9 million.

During the first nine months of Fiscal 2024, we closed 189 license contracts greater than $0.5 million, of which 79 contracts were greater than $1.0 million, contributing $303.9 million of License revenues.

This was compared to 102 license contracts greater than $0.5 million during the first nine months of Fiscal 2023, of which 46 contracts were greater than $1.0 million, contributing $124.2 million of License revenues.

Cost of License revenues increased by $6.1 million during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year as a result of increased third-party technology costs.

Overall, the gross margin percentage on License revenues remained stable at 97%, compared with the same period in the prior fiscal year.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

License revenues decreased by $47.2 million or 27.3% during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year;

down 27.2% after factoring in the unfavorable impact of $0.1 million of foreign exchange rate changes.

The decrease was primarily due to the exclusion of license revenue contributions as a result of the AMC Divestiture.

Geographically, the overall change was attributable to a decrease in Americas of $31.0 million, a decrease in EMEA of $10.1 million, and a decrease in Asia Pacific of $6.1 million.

During the first quarter of Fiscal 2025, we closed 39 license contracts greater than $0.5 million, of which 15 contracts were greater than $1.0 million, contributing $39.6 million of License revenues.

This was compared to 51 license contracts greater than $0.5 million during the first quarter of Fiscal 2024, of which 21 contracts were greater than $1.0 million, contributing $63.9 million of License revenues.

Cost of License revenues increased by $2.8 million during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year.

Overall, the gross margin percentage on License revenues decreased to 95% from 98%.

4) Professional Service and Other:

5 unchanged sentences

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

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

11 unchanged sentences

Asia Pacific 13.2 % 12.4 %

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Professional service and other revenues increased by $7.2 million or 7.7% during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year;

up 7.0% after factoring in the favorable impact of $0.6 million of foreign exchange rate changes.

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

Geographically, the overall change was attributable to an increase in EMEA of $8.6 million, a decrease in Americas of $0.9 million and a decrease in Asia Pacific of $0.5 million.

Cost of Professional service and other revenues decreased by $3.1 million during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year.

This was driven by a decrease in labour-related costs of $3.0 million.

Overall, the gross margin percentage on Professional service and other revenues increased to 25% from 16% in the same period in the prior fiscal year.

Nine Months Ended March 31, 2024 Compared to Nine Months Ended March 31, 2023

Professional service and other revenues increased by $78.8 million or 35.0% during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year;

up 32.8% after factoring in the favorable impact of $4.9 million of foreign exchange rate changes.

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

Geographically, the overall change was attributable to an increase in Americas of $14.9 million, an increase in Asia Pacific of $8.2 million and an increase in EMEA of $55.8 million.

Cost of Professional service and other revenues increased by $44.4 million during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year.

This was due to an increase in labour-related costs of $46.1 million primarily driven by incremental Professional service and other cost of revenues from the Micro Focus Acquisition over the comparative period, offset by a decrease in other miscellaneous costs of $1.7 million.

Overall, the gross margin percentage on Professional service and other revenues increased to 24% from 17% in the same period in the prior fiscal year.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Professional service and other revenues decreased by $13.0 million or 12.5% during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year;

down 12.5% after factoring in the impact of foreign exchange rate changes.

The decrease was partially due to the exclusion of professional services revenue contributions as a result of the AMC Divestiture.

Geographically, the overall change was attributable to a decrease in Americas of $7.2 million, a decrease in EMEA of $4.9 million and a decrease in Asia Pacific of $0.9 million.

Cost of Professional service and other revenues decreased by $13.0 million during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year.

This was primarily due to a decrease in labour-related costs of $12.9 million.

Overall, the gross margin percentage on Professional service and other revenues increased to 26% from 23%.

Amortization of Acquired Technology-based Intangible Assets

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

Amortization of acquired technology-based intangible assets $ 47,244 $ (29,580) $ 76,824

Amortization of acquired technology-based intangible assets decreased during the three months ended March 31, 2024 by $14.5 million as compared to the same period in the prior fiscal year.

This was primarily due to intangible assets from previous acquisitions becoming fully amortized and reduced amortization related to the AMC Divestiture’s held for sale classification, partially offset by amortization of newly acquired technology-based intangible assets from the Micro Focus Acquisition.

Amortization of acquired technology-based intangible assets increased during the nine months ended March 31, 2024 by $49.6 million as compared to the same period in the prior fiscal year.

This was primarily due to amortization of newly acquired technology-based intangible assets from the Micro Focus Acquisition, partially offset by intangible assets from previous acquisitions becoming fully amortized and reduced amortization related to the AMC Divestiture’s held for sale classification.

Amortization of acquired technology-based intangible assets decreased during the three months ended September 30, 2024 by $29.6 million as compared to the same period in the prior fiscal year.

This was primarily due to a reduction in amortization related to technology-based intangible assets from previous acquisitions becoming fully amortized and reduced amortization related to the AMC Divestiture.

Operating Expenses

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

Research and development (1)

$ 190,693 $ (35,538) $ 226,231

Sales and marketing (1)

245,882 (34,125) 280,007

General and administrative 106,730 (24,481) 131,211

10 unchanged sentences

Special charges (recoveries) 3.7 % 1.0 %

__________________________

(1) Beginning in the first quarter of Fiscal 2025, the Company reclassified certain expenses previously included within Research and development to Sales and marketing in the Condensed Consolidated Statements of Income to provide a better representation of the function of the expenses and reclassified prior period information to conform to the current presentation.

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

1 unchanged sentence

The primary drivers are typically software upgrades and development.

Change between

Three Months Ended

March 31, 2024 and 2023

Change between

Nine Months Ended

March 31, 2024 and 2023

Change between Three Months Ended

September 30, 2024 and 2023

(In thousands)

increase (decrease) increase (decrease)

increase (decrease)

Payroll and payroll-related benefits $ (21,849)

5 unchanged sentences

Total change in research and development expenses $ (35,538)

Research and development expenses increased by $23.3 million during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year, primarily as a result of the Micro Focus Acquisition.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $13.4 million, facility-

related expenses increased by $8.7 million and travel and communication increased by $1.1 million.

These increases were partially offset by a reduction in contract labour and consulting of $1.8 million.

Research and development expenses decreased by $35.5 million during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, decreased by $21.8 million, facility-related expenses decreased by $7.2 million, share-based compensation expense decreased by $3.3 million, and contract labour and consulting expense decreased by $2.3 million.

Overall, our research and development expenses, as a percentage of total revenues, decreased to 15% compared to the same period in the prior fiscal year at 16%.

Research and development expenses increased by $258.1 million during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year, primarily as a result of the Micro Focus Acquisition.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $172.9 million, facility-related expenses increased by $56.1 million, contract labour and consulting increased by $9.0 million, and share-based compensation expense increased by $9.8 million.

Overall, our research and development expenses, as a percentage of total revenues, increased to 16% compared to the same period in the prior fiscal year at 14%.

Our research and development labour resources decreased by 564 employees, from 8,544 employees at March 31, 2023 to 7,980 employees at March 31, 2024.

Our research and development labour resources decreased by 809 employees, from 8,235 employees at September 30, 2023 to 7,426 employees at September 30, 2024.

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

Change between

Three Months Ended

March 31, 2024 and 2023

Change between

Nine Months Ended

March 31, 2024 and 2023

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

Change between Three Months Ended

September 30, 2024 and 2023

(In thousands) increase (decrease)

Payroll and payroll-related benefits $ (22,655)

8 unchanged sentences

Total change in sales and marketing expenses $ (34,125)

Sales and marketing expenses increased by $25.2 million during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year, primarily as a result of the Micro Focus Acquisition.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $17.7 million, credit loss expense increased by $4.8 million, commissions increased by $4.3 million and facility-related expenses increased by $1.5 million.

Overall, our sales and marketing expenses, as a percentage of total revenues, decreased to 20% compared to 22% in the same period in the prior fiscal year.

Sales and marketing expenses increased by $233.0 million during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year, primarily as a result of the Micro Focus Acquisition.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $161.0 million, commissions increased by $20.4 million, facility-related expenses increased by $18.1 million, share-based compensation expense increased by $9.1 million, contract labour and consulting expenses increased by $8.7 million, travel and communication expenses increased by $7.9 million and marketing expenses increased by $5.1 million.

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

Our sales and marketing labour resources decreased by 566 employees, from 5,086 employees at March 31, 2023 to 4,520 employees at March 31, 2024.

Sales and marketing expenses decreased by $34.1 million during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year.

Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, decreased by $22.7 million, facility-related expenses decreased by $3.8 million, marketing expenses decreased by $3.0 million, share-based compensation expense decreased by $2.8 million, and travel and communication expenses decreased by $1.4 million.

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

Our sales and marketing labour resources decreased by 732 employees, from 4,654 employees at September 30, 2023 to 3,922 employees at September 30, 2024.

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

Change between

Three Months Ended

March 31, 2024 and 2023

Change between

Nine Months Ended

March 31, 2024 and 2023

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

Change between Three Months Ended

September 30, 2024 and 2023

(In thousands) increase (decrease)

Payroll and payroll-related benefits $ (7,883)

5 unchanged sentences

Total change in general and administrative expenses $ (24,481)

General and administrative expenses increased by $18.9 million during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year.

Other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses, increased by $24.9 million primarily driven by increased costs related to IP, including the grant of certain IP rights and the resolution of certain historical IP related matters and higher professional fees.

These increases were partially offset by reductions in facility-related expenses of $3.9 million and travel and communication of $1.4 million.

Overall, general and administrative expenses, as a percentage of total revenues, remained stable at 10% compared to the same period in the prior fiscal year.

General and administrative expenses increased by $167.7 million during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year, driven by the Micro Focus Acquisition and other miscellaneous costs.

Other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses, increased by $81.6 million primarily driven by increased costs related to IP, including the grant of certain IP rights and the resolution of certain historical IP related matters and higher professional fees.

Additionally, payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $61.2 million, contract labour and consulting expenses increased by $15.8 million, travel and communication expenses increased by $5.4 million and share-based compensation expenses increased by $3.1 million.

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

Our general and administrative labour resources decreased by 302 employees, from 3,816 employees at March 31, 2023 to 3,514 employees at March 31, 2024.

General and administrative expenses decreased by $24.5 million during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year.

Contract labour and consulting expenses decreased by $10.3 million, payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, decreased by $7.9 million, travel and communication expenses decreased by $3.7 million, and other miscellaneous costs, which include professional fees such as legal, audit and tax related expenses decreased by $2.5 million.

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

Our general and administrative labour resources decreased by 221 employees, from 3,463 employees at September 30, 2023 to 3,242 employees at September 30, 2024.

Depreciation expenses:

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

Depreciation $ 32,171 $ (1,920) $ 34,091

Depreciation expenses increased during the three and nine months ended March 31, 2024 by $1.5 million and $23.0 million, respectively, compared to the same periods in the prior fiscal year, primarily as a result of the Micro Focus Acquisition.

Depreciation expenses, as a percentage of total revenue remained stable for the three and nine months ended March 31, 2024 at 2% compared to 2% for the same periods in the prior fiscal year.

Depreciation expenses decreased during the three months ended September 30, 2024 by $1.9 million compared to the same periods in the prior fiscal year.

Depreciation expenses, as a percentage of total revenues, increased for the three months ended September 30, 2024 to 3% compared to 2% for the same period in the prior fiscal year.

Amortization of acquired customer-based intangible assets:

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

Amortization of acquired customer-based intangible assets $ 81,504 $ (38,688) $ 120,192

Amortization of acquired customer-based intangible assets increased during the three months ended March 31, 2024 by $3.6 million as compared to the same period in the prior fiscal year.

This was primarily related to amortization of newly acquired customer-based intangible assets from the Micro Focus Acquisition, partially offset by reduced amortization related to the AMC Divestiture’s held for sale classification in the current period.

Amortization of acquired customer-based intangible assets increased during the nine months ended March 31, 2024 by $129.8 million as compared to the same period in the prior fiscal year.

Amortization of acquired customer-based intangible assets decreased during the three months ended September 30, 2024 by $38.7 million as compared to the same period in the prior fiscal year.

This was primarily due to a reduction in amortization related to customer-based intangible assets from previous acquisitions becoming fully amortized and reduced amortization related to the AMC Divestiture.

Special charges (recoveries):

Special charges (recoveries) typically relate to amounts that we expect to pay in connection with restructuring plans, acquisition-related costs and other similar charges and recoveries.

Generally, we implement such plans in the context of integrating acquired entities with existing OpenText operations and most recently in response to our return to office planning.

Special charges (recoveries) typically relate to amounts that we expect to pay in connection with restructuring plans, acquisition and divestiture-related costs and other similar charges and recoveries.

Generally, we implement such plans in the context of integrating acquired entities with existing OpenText operations.

Actions related to such restructuring plans are typically completed within a period of one year.

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

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

Special charges (recoveries) $ 47,136 $ 33,342 $ 13,794

Special charges (recoveries) decreased by $54.8 million during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year.

Acquisition related costs decreased by $34.1 million and other miscellaneous charges decreased by $27.6 million, which includes severance and other costs associated with the Micro Focus Acquisition.

These costs were partially offset by divestiture costs related to the AMC Divestiture, which increased by $7.3 million, as compared to the same period in the prior fiscal year.

Special charges (recoveries) decreased by $11.4 million during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year.

Acquisition related costs decreased by $43.6 million and other miscellaneous charges decreased by $26.0 million, which includes severance and other costs associated with the Micro Focus Acquisition.

These decreases were partially offset by increased restructuring costs related to the Micro Focus Acquisition of $50.0 million and increased divestiture costs of $14.3 million related to the AMC Divestiture, as compared to the same period in the prior fiscal year.

Special charges (recoveries) increased by $33.3 million during the three months ended September 30, 2024 over the comparative period.

This was primarily due to an increase in restructuring costs of $42.5 million related to the Business Optimization Plan and an increase in divestiture costs of $2.6 million, partially offset by a decrease of $8.7 million related to Micro Focus Restructuring Plan, as compared to the same period in the prior fiscal year.

For more details on Special charges (recoveries), see Note 16 “Special Charges (Recoveries)” to our Condensed Consolidated Financial Statements.

1 unchanged sentence

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

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

1 unchanged sentence

$ (11,379) $ (22,813) $ 11,434

Unrealized gains (losses) on derivatives

not designated as hedges (2)

16,671 119,384 (102,713) (3,551) 109,016 (112,567)

Realized gains on derivatives

not designated as hedges (3)

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

(24,935) (42,830) 17,895

1 unchanged sentence

455 10,151 (9,696)

Loss on debt extinguishment (5)(6)

(10,803) (10,782) (21) (10,803) (2,651) (8,152)

Other miscellaneous income (expense) 204 (333) 537

1 unchanged sentence

__________________________

(1) The three and nine months ended March 31, 2023 include a foreign exchange gain of $36.6 million resulting from the delayed payment of a portion of the purchase consideration, settled on February 9, 2023, related to the Micro Focus Acquisition (see Note 19 “Acquisitions and Divestitures” to our Condensed Consolidated Financial Statements for more details).

(1) Represents the unrealized gains (losses) on our derivatives not designated as hedges related to the Micro Focus Acquisition (see Note 15 “Derivative Instruments and Hedging Activities” to our Condensed Consolidated Financial Statements for more details).

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

(4) 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.

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

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 7 “Prepaid Expenses and Other Assets” to our Condensed Consolidated Financial Statements for more details).

(5) On December 1, 2022, we amended the Acquisition Term Loan and Bridge Loan to reallocate commitments under the Bridge Loan to the Acquisition Term Loan and terminated all remaining commitments under the Bridge Loan, which resulted in a loss on debt extinguishment of $8.2 million related to unamortized debt issuance costs (see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements for more details).

(6) During the three and nine months ended March 31, 2024, we recognized a loss on debt extinguishment of $10.8 million related to the acceleration and recognition of unamortized debt discount and issuance costs resulting from the optional repayments of the Acquisition Term Loan in Fiscal 2024 (see Note 11 “Long-Term Debt” to our Condensed Consolidated Financial Statements for more details).

Interest and Other Related Expense, Net

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

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

3 unchanged sentences

Other miscellaneous expense (2)

5,157 (1,305) 6,462

Total interest and other related expense, net $ 84,282 $ (57,482) $ 141,764

1 unchanged sentence

(1) For more details, see Note 9 “Long-Term Debt” to our Condensed Consolidated Financial Statements.

Provision for (recovery of) Income Taxes

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

For more details, see Note 9 “Long-Term Debt” to our Condensed Consolidated Financial Statements.

Provision for Income Taxes

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

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

Three Months Ended September 30,

(In thousands) 2024 Change

increase (decrease) 2023 2024 Change

increase (decrease) 2023

Provision for (recovery of) income taxes $ 6,028 $ 18,448 $ (12,420) $ 24,434 $ (47,545) $ 71,979

The Company’s effective tax rate for the three months ended March 31, 2024 increased to a provision of 5.8% compared to a provision of (27.5)% for the three months ended March 31, 2023.

The Company’s effective tax rate for the three months ended March 31, 2024, differs from the Canadian statutory rate of 26.5% primarily due to tax benefits related to change in

valuation allowance, foreign tax credits, and research and development credits, partially offset by U.S.

Base Erosion and Anti-Abuse Tax (BEAT), withholding taxes, and an increase to uncertain tax positions.

The Company’s effective tax rate for the three months ended March 31, 2023, differs from the Canadian statutory rate primarily due to tax benefits related to the internal reorganization and a pre-tax gain created by the mark-to-market valuation on the derivatives not designated as hedges that the Company entered into in connection with the Micro Focus Acquisition (see Note 17 “Derivative Instruments and Hedging Activities” to our Condensed Consolidated Financial Statements).

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

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

The Company’s effective tax rate for the nine months ended March 31, 2024 decreased to a provision of 10.1% compared to a provision of 26.5% for the nine months ended March 31, 2023.

The Company’s effective tax rate for the nine months ended March 31, 2024 differs from the Canadian statutory rate of 26.5% primarily due to tax benefits related to foreign tax credits, research and development credits, and a change in valuation allowance, partially offset by U.S.

BEAT and withholding taxes.

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

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

The Inflation Reduction Act introduced new provisions, including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period.

The corporate minimum tax will be effective for Fiscal 2024.

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

For information on certain potential tax contingencies, including the Canada Revenue Agency matter, see Note 14 “Guarantees and Contingencies” and Note 15 “Income Taxes” to our Condensed Consolidated Financial Statements, as well as Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2023.

Provision for income taxes

$ 1,883 $ (8,469) $ 10,352

The Company’s effective tax rate for the three months ended September 30, 2024 was 2.2%, compared to a provision of 11.3% for the three months ended September 30, 2023.

The Company’s effective tax rate for the three months ended September 30, 2024, differs from the Canadian statutory rate of 26.5% primarily due to tax benefits related to foreign tax credits, research and development credits, changes in unrecognized tax benefits, and differences in tax filings from provision, partially offset by disallowed share based compensation deductions, foreign source income inclusion in the U.S., and withholding taxes.

The Company’s effective tax rate for the three months ended September 30, 2023 differs from the Canadian

statutory rate primarily due to tax benefits related to foreign tax rate differences, foreign tax credits and research and development credits, partially offset by the U.S.

Base Erosion and Anti-Abuse Tax (BEAT).

Numerous countries have agreed to a statement in support of the Organization for Economic Co-Operation and Development model rules that propose a global minimum tax rate of 15.0% for companies with revenue above €750.0 million, calculated on a country-by-country basis, and E.U.

member states have agreed to implement the global minimum tax.

On June 20, 2024, Canada enacted the new Global Minimum Tax Act (GMTA), imposing a 15.0% global minimum tax on profits.

Certain other countries have enacted or are expected to enact legislation, with widespread implementation of a global minimum tax expected by 2025.

We are unable to predict when and how such rules in various jurisdictions will be enacted into law;

however, it is possible that the implementation of relevant legislation could impact our liability for taxes.

As of the three months ended September 30, 2024, the impact of the global minimum tax is not material.

For information on certain potential tax contingencies, including the CRA matter, see Note 12 “Guarantees and Contingencies” and Note 13 “Income Taxes” to our Condensed Consolidated Financial Statements, as well as Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2024.

Use of Non-GAAP Financial Measures

22 unchanged sentences

The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of Non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company’s operating results and underlying operational trends.

Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions and most recently in response to our return to office planning, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company’s Special charges (recoveries) caption on the Condensed Consolidated Statements of Income.

Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company’s Special charges (recoveries) caption on the Condensed Consolidated Statements of Income.

Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period.

7 unchanged sentences

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

for the three months ended March 31, 2024

for the three months ended September 30, 2024

(In thousands, except for per share data)

Three Months Ended March 31, 2024

Three Months Ended September 30, 2024

GAAP-based Measures GAAP-based Measures

38 unchanged sentences

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.

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

Three Months Ended March 31, 2024

Per share diluted

GAAP-based net income, attributable to OpenText

$ 98,285 $ 0.36

Amortization 148,935 0.55

Share-based compensation 36,042 0.13

Special charges (recoveries) 19,561 0.07

Other (income) expense, net (9,950) (0.04)

GAAP-based provision for income taxes

Non-GAAP-based provision for income taxes

(41,852) (0.15)

Non-GAAP-based net income, attributable to OpenText

$ 257,049 $ 0.94

Reconciliation of Adjusted EBITDA

Three Months Ended March 31, 2024

GAAP-based net income, attributable to OpenText

Provision for income taxes

Interest and other related expense, net 132,663

Amortization of acquired technology-based intangible assets 48,094

Amortization of acquired customer-based intangible assets 100,841

Depreciation 32,109

Share-based compensation 36,042

Special charges (recoveries) 19,561

Other (income) expense, net (9,950)

Adjusted EBITDA $ 463,673

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

for the three months ended March 31, 2023

(In thousands, except for per share data)

Three Months Ended March 31, 2023

GAAP-based Measures GAAP-based Measures

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

% of Total Revenue

Cost of revenues

Cloud services and subscriptions $ 157,658 $ (2,943) (1) $ 154,715

Customer support 67,067 (1,157) (1) 65,910

Professional service and other 78,526 (1,884) (1) 76,642

Amortization of acquired technology-based intangible assets 62,639 (62,639) (2) —

GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 874,944 70.3% 68,623 (3) 943,567 75.8%

Operating expenses

Research and development 210,731 (10,801) (1) 199,930

Sales and marketing 271,013 (11,947) (1) 259,066

General and administrative 127,047 (7,636) (1) 119,411

Amortization of acquired customer-based intangible assets 97,237 (97,237) (2) —

Special charges (recoveries) 74,350 (74,350) (4) —

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

63,989 270,594 (5) 334,583

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

Provision for (recovery of) income taxes

(12,420) 44,631 (7) 32,211

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

57,556 140,257 (8) 197,813

GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 0.21 $ 0.52 (8) $ 0.73

______________________

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

(2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

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

(4) Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.

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

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

(6) Adjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.

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

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

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

(7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 27% and a Non-GAAP-based tax rate of approximately 14%;

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

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

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

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

Three Months Ended March 31, 2023

Per share diluted

GAAP-based net income, attributable to OpenText

$ 57,556 $ 0.21

Amortization 159,876 0.59

Share-based compensation 36,368 0.13

Special charges (recoveries) 74,350 0.28

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

GAAP-based recovery of income taxes

(12,420) (0.04)

Non-GAAP-based provision for income taxes

(32,211) (0.12)

Non-GAAP-based net income, attributable to OpenText

$ 197,813 $ 0.73

Reconciliation of Adjusted EBITDA

Three Months Ended March 31, 2023

GAAP-based net income, attributable to OpenText

Recovery of income taxes

Interest and other related expense, net 104,502

Amortization of acquired technology-based intangible assets 62,639

Amortization of acquired customer-based intangible assets 97,237

Depreciation 30,577

Share-based compensation 36,368

Special charges (recoveries) 74,350

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

Adjusted EBITDA $ 365,103

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

for the nine months ended March 31, 2024

(In thousands, except for per share data)

Nine Months Ended March 31, 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 $ 537,960 $ (9,892) (1) $ 528,068

Customer support 223,027 (3,335) (1) 219,692

Professional service and other 230,836 (5,096) (1) 225,740

Amortization of acquired technology-based intangible assets 195,702 (195,702) (2) —

GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%) 3,203,312 72.7% 214,025 (3) 3,417,337 77.5%

Operating expenses

Research and development 688,679 (35,300) (1) 653,379

Sales and marketing 848,313 (37,294) (1) 811,019

General and administrative 450,399 (22,395) (1) 428,004

Amortization of acquired customer-based intangible assets 334,958 (334,958) (2) —

Special charges (recoveries) 87,521 (87,521) (4) —

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

693,827 731,493 (5) 1,425,320

Other income (expense), net (38,664) 38,664 (6) —

Provision for income taxes

24,434 117,191 (7) 141,625

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

216,861 652,966 (8) 869,827

GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText $ 0.80 $ 2.39 (8) $ 3.19

______________________

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

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

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

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

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

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

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

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

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

(7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 10% 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.

Beginning in Fiscal 2025, net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 have been fully utilized and are no longer included.

In arriving at our Non-GAAP-based tax rate of approximately 24%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

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

Nine Months Ended March 31, 2024

Three Months Ended September 30, 2024

Per share diluted

11 unchanged sentences

Reconciliation of Adjusted EBITDA

Nine Months Ended March 31, 2024

Three Months Ended September 30, 2024

GAAP-based net income, attributable to OpenText

9 unchanged sentences

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

for the nine months ended March 31, 2023

for the three months ended September 30, 2023

(In thousands, except for per share data)

Nine Months Ended March 31, 2023

Three Months Ended September 30, 2023

GAAP-based Measures GAAP-based Measures

39 unchanged sentences

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

Nine Months Ended March 31, 2023

Three Months Ended September 30, 2023

Per share diluted

11 unchanged sentences

Reconciliation of Adjusted EBITDA

Nine Months Ended March 31, 2023

Three Months Ended September 30, 2023

GAAP-based net income, attributable to OpenText

11 unchanged sentences

(In thousands)

As of March 31, 2024 Change

As of September 30, 2024 Change

increase (decrease) As of June 30, 2024

5 unchanged sentences

(1) Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Condensed Consolidated Balance Sheets (see Note 7 “Prepaid Expenses and Other Assets” to our Condensed Consolidated Financial Statements for more details).

Nine Months Ended March 31,

Three Months Ended September 30,

(In thousands)

2024 Change 2023

Cash provided by operating activities

Cash provided by (used in) operating activities

$ (77,806) $ (124,927) $ 47,121

1 unchanged sentence

$ (36,440) $ 13,959 $ (50,399)

Cash provided by (used in) financing activities

Cash used in financing activities

$ (185,273) $ 111,748 $ (297,021)

1 unchanged sentence

Cash and cash equivalents primarily consist of balances with banks as well as deposits with original maturities of 90 days or less.

We continue to anticipate that our cash and cash equivalents, as well as available credit facilities, will be sufficient to fund our anticipated cash requirements for working capital, contractual commitments, capital expenditures, dividends, operating needs and pending acquisitions for the next twelve months.

Any further material or acquisition-related activities may require additional sources of financing and would be subject to the financial covenants established under our credit facilities.

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

As of March 31, 2024, we have recognized a deferred income tax liability of $28.5 million (June 30, 2023—$28.3 million) on taxable temporary differences related to the undistributed earnings of certain non-United States subsidiaries and planned periodic repatriations from certain German subsidiaries, that will be subject to withholding taxes upon distribution.

Cash flows from operating activitie s

Cash flows from operating activities increased by $118.6 million during the nine months ended March 31, 2024, as compared to the same period in the prior fiscal year due to an increase in net income after the impact of non-cash items of $99.0 million and an increase in changes from working capital of $19.6 million.

During the third quarter of Fiscal 2024 we had a days sales outstanding (DSO) of 45 days, which remained stable as compared to our DSO of 45 days during the third quarter of Fiscal 2023.

The per day impact of our DSO in the third quarter of Fiscal 2024 and Fiscal 2023 on our cash flows was $16.1 million and $9.7 million, respectively primarily as a result of the Micro Focus Acquisition.

As of September 30, 2024, we have recognized a deferred income tax liability of $16.8 million (June 30, 2024—$15.9 million) on taxable temporary differences related to the undistributed earnings of certain non-United States subsidiaries and planned periodic repatriations from certain German subsidiaries, that will be subject to withholding taxes upon distribution.

Cash flows from operating activities

Cash flows from operating activities decreased by $124.9 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year principally related to a decrease in changes from working capital of $124.8 million primarily from tax payments made related to the AMC Divestiture, offset by a decrease in net income after the impact of non-cash items of $0.2 million.

During the first quarter of Fiscal 2025 we had a days sales outstanding (DSO) of 42 days, compared to our DSO of 43 days during the first quarter of Fiscal 2024.

The per day impact of our DSO in the first quarter of Fiscal 2025 and Fiscal 2024 on our cash flows was $14.1 million and $15.8 million, respectively.

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

Cash flows from investing activities

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

Cash flows used in investing activities decreased by $5.5 billion during the nine months ended March 31, 2024, as compared to the same period in the prior fiscal year primarily due to the cash consideration paid for the Micro Focus Acquisition of $5.7 billion in the prior fiscal year, offset by higher additions to property and equipment during the first nine months of Fiscal 2024.

Our cash flows from investing activities are primarily on account of acquisitions and additions of property and equipment.

Cash flows from investing activities decreased by $14.0 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year primarily due to a decrease in consideration paid for acquisitions, partially offset by an increase in additions of property and equipment.

Cash flows from financing activities

1 unchanged sentence

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

Cash flows provided by financing activities decreased by $5.4 billion during the nine months ended March 31, 2024 as compared to the same period in the prior fiscal year.

Cash flows from financing activities decreased by $111.7 million during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year.

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

(i) $4.9 billion decrease in proceeds due to the issuance of long-term debt and draw down on the Revolver in the prior fiscal year;

(ii) $542.9 million increase in repayments of long-term debt and the Revolver;

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

(iv) $6.2 million related to higher cash dividends paid to shareholders.

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

(i) $74.4 million reduction in debt issuance costs;

(ii) $31.9 million related to higher proceeds from the issuance of Common Shares for the exercise of options and the OpenText ESPP.

(i) $177.5 million decrease due to reduced repayments of long-term debt and the Revolver;

(ii) $2.0 million due to decreased proceeds from the issuance of Common Shares for the exercise of options and the OpenText ESPP.

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

(i) $59.3 million related to an increase in cash used in the repurchases of Common Shares and treasury stock;

(ii) $4.3 million due to net change in TSA obligation driven by cash collections on behalf of Rocket Software related to certain transition services performed by the Company related to the divested AMC business.

(iii) $2.1 million related to higher cash dividends paid to shareholders;

(iv) $2.0 million increase due to reduced debt issuance costs payments.

Cash Dividends

During the three and nine months ended March 31, 2024, we declared and paid cash dividends of $0.25 and $0.75 per Common Share, respectively, in the aggregate amount of $67.3 million and $200.7 million, respectively (three and nine months ended March 31, 2023—$0.24299 and $0.72897 per Common Share, respectively, in the aggregate amount of $64.9 million and $194.5 million, respectively).

During the three months ended September 30, 2024, we declared and paid cash dividends of $0.2625 per Common Share in the aggregate amount of $69.1 million (three months ended September 30, 2023—$0.25 per Common Share in the aggregate amount of $67.0 million).

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

1 unchanged sentence

Long-Term Debt and Credit Facilities

Senior Unsecured Fixed Rate Notes

Senior Notes 2031

On November 24, 2021, OpenText Holdings, Inc.

(OTHI), a wholly-owned indirect subsidiary of the Company, issued $650 million in aggregate principal amount of 4.125% Senior Notes due 2031 guaranteed by the Company (Senior Notes 2031) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act), and to certain non-U.S.

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

Senior Notes 2031 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022.

Senior Notes 2031 will mature on December 1, 2031, unless earlier redeemed, in accordance with their terms, or repurchased.

OTHI may redeem all or a portion of the Senior Notes 2031 at any time prior to December 1, 2026 at a redemption price equal to 100% of the principal amount of the Senior Notes 2031 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date.

OTHI may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2031, on one or more occasions, prior to December 1, 2024, using the net proceeds from certain qualified equity offerings at a redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions.

OTHI may, on one or more occasions, redeem the Senior Notes 2031, in whole or in part, at any time on and after December 1, 2026 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2031, dated as of November 24, 2021, among OTHI, the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S.

trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2031 Indenture), plus accrued and unpaid interest, if any, to the redemption date.

If we experience one of the kinds of change of control triggering events specified in the 2031 Indenture, OTHI will be required to make an offer to repurchase the Senior Notes 2031 at a price equal to 101% of the principal amount of the Senior Notes 2031, plus accrued and unpaid interest, if any, to the date of purchase.

The 2031 Indenture contains covenants that limit OTHI, the Company and certain of the Company’s subsidiaries’ ability to, among other things:

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

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

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

These covenants are subject to a number of important limitations and exceptions as set forth in the 2031 Indenture.

The 2031 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the

principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2031 to be due and payable immediately.

Senior Notes 2031 are guaranteed on a senior unsecured basis by the Company and the Company’s existing and future wholly-owned subsidiaries (other than OTHI) that borrow or guarantee the obligations under our senior credit facilities.

Senior Notes 2031 and the guarantees rank equally in right of payment with all of the Company’s, OTHI’s and the guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of the Company’s, OTHI’s and the guarantors’ future subordinated debt.

Senior Notes 2031 and the guarantees will be effectively subordinated to all of the Company’s, OTHI’s and the guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt.

The foregoing description of the 2031 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2031 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on November 24, 2021.

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

Senior Notes 2030

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

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

Senior Notes 2030 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020.

Senior Notes 2030 will mature on February 15, 2030, unless earlier redeemed, in accordance with their terms, or repurchased.

OTHI may redeem all or a portion of the Senior Notes 2030 at any time prior to February 15, 2025 at a redemption price equal to 100% of the principal amount of the Senior Notes 2030 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date.

OTHI may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2030, on one or more occasions, prior to February 15, 2025, using the net proceeds from certain qualified equity offerings at a redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions.

OTHI may, on one or more occasions, redeem the Senior Notes 2030, in whole or in part, at any time on and after February 15, 2025 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2030, dated as of February 18, 2020, among OTHI, the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S.

trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2030 Indenture), plus accrued and unpaid interest, if any, to the redemption date.

If we experience one of the kinds of change of control triggering events specified in the 2030 Indenture, OTHI will be required to make an offer to repurchase the Senior Notes 2030 at a price equal to 101% of the principal amount of the Senior Notes 2030, plus accrued and unpaid interest, if any, to the date of purchase.

The 2030 Indenture contains covenants that limit the Company, OTHI and certain of the Company's subsidiaries’ ability to, among other things:

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

(ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of the Company, OTHI or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2030;

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

These covenants are subject to a number of important limitations and exceptions as set forth in the 2030 Indenture.

The 2030 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2030 to be due and payable immediately.

Senior Notes 2030 are guaranteed on a senior unsecured basis by the Company and the Company's existing and future wholly-owned subsidiaries (other than OTHI) that borrow or guarantee the obligations under our senior credit facilities.

Senior Notes 2030 and the guarantees rank equally in right of payment with all of the Company, OTHI and the guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of the Company, OTHI and the guarantors’ future subordinated debt.

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

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

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

Senior Notes 2029

On November 24, 2021, we issued $850 million in aggregate principal amount of 3.875% Senior Notes due 2029 (Senior Notes 2029) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S.

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

Senior Notes 2029 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022.

Senior Notes 2029 will mature on December 1, 2029, unless earlier redeemed, in accordance with their terms, or repurchased.

We may redeem all or a portion of the Senior Notes 2029 at any time prior to December 1, 2024 at a redemption price equal to 100% of the principal amount of the Senior Notes 2029 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date.

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

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

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

If we experience one of the kinds of change of control triggering events specified in the 2029 Indenture, we will be required to make an offer to repurchase the Senior Notes 2029 at a price equal to 101% of the principal amount of the Senior Notes 2029, plus accrued and unpaid interest, if any, to the date of purchase.

The 2029 Indenture contains covenants that limit our and certain of our subsidiaries’ ability to, among other things:

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

(ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2029;

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

These covenants are subject to a number of important limitations and exceptions as set forth in the 2029 Indenture.

The 2029 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2029 to be due and payable immediately.

Senior Notes 2029 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our senior credit facilities.

Senior Notes 2029 and the guarantees rank equally in right of payment with all of our and our guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of our and our guarantors’ future subordinated debt.

Senior Notes 2029 and the guarantees will be effectively subordinated to all of our and our guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt.

The foregoing description of the 2029 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2029 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on November 24, 2021.

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

Senior Notes 2028

On February 18, 2020 we issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 (Senior Notes 2028) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S.

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

Senior Notes 2028 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020.

Senior Notes 2028 will mature on February 15, 2028, unless earlier redeemed, in accordance with their terms, or repurchased.

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

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

to compliance with certain conditions.

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

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

If we experience one of the kinds of change of control triggering events specified in the 2028 Indenture, we will be required to make an offer to repurchase the Senior Notes 2028 at a price equal to 101% of the principal amount of the Senior Notes 2028, plus accrued and unpaid interest, if any, to the date of purchase.

The 2028 Indenture contains covenants that limit our and certain of our subsidiaries’ ability to, among other things:

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

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

These covenants are subject to a number of important limitations and exceptions as set forth in the 2028 Indenture.

The 2028 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2028 to be due and payable immediately.

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

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

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

The foregoing description of the 2028 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2028 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on February 18, 2020.

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

Senior Secured Fixed Rate Notes

Senior Secured Notes 2027

On December 1, 2022, we issued $1 billion in aggregate principal amount of Senior Secured Notes 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.

We may redeem all or a portion of the Senior Secured Notes 2027 at any time prior to November 1, 2027 at a redemption price equal to the greater of (a) 100% of the principal amount of the Senior Secured Notes 2027 to be redeemed and (b) the net present value of the remaining scheduled payments of principal and interest thereon discounted to the Par Call Date less interest accrued to the date of redemption, plus accrued and unpaid interest to, but excluding, the redemption date.

On or after the Par Call Date (as defined in the 2027 Indenture), the Company may redeem the Senior Secured Notes 2027, in whole or in part, at any time and from time to time, at a redemption price equal to 100% of the principal amount of the Senior Secured Notes 2027 being redeemed plus accrued and unpaid interest thereon to the redemption date.

If we experience one of the kinds of change of control triggering events specified in the indenture governing the Senior Secured Notes 2027 dated as of December 1, 2022, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S.

trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2027 Indenture), we will be required to make an offer to repurchase the Senior Secured Notes 2027 at a price equal to 101% of the principal amount of the Senior Secured Notes 2027, plus accrued and unpaid interest, if any, to the date of purchase.

The 2027 Indenture contains covenants that limit our and certain of the Company’s subsidiaries’ ability to, among other things:

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

(ii) create, assume, incur or guarantee additional indebtedness of the Company or certain of the Company’s subsidiaries without such subsidiary becoming a subsidiary guarantor of the Senior Secured Notes 2027;

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

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

The 2027 Indenture also provides

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

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

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

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

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

On May 30, 2018, we entered into a credit facility, which provides for a $1 billion term loan facility with certain lenders named therein, Barclays Bank PLC (Barclays), as sole administrative agent and collateral agent, and as lead arranger and joint bookrunner (Term Loan B) and borrowed the full amount on May 30, 2018 to, among other things, repay in full the loans under our prior $800 million term loan credit facility originally entered into on January 16, 2014.

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

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

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

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 SOFR benchmark rate.

Borrowings under Term Loan B bear interest at a rate per annum equal to an applicable margin plus, at the borrower’s option, either (1) the SOFR benchmark rate for the interest period relevant to such borrowing or (2) an alternate base rate (ABR).

The applicable margin for borrowings under Term Loan B is 1.75%, with respect to SOFR advances and 0.75%, with respect to ABR advances.

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

As of March 31, 2024, the outstanding balance on the Term Loan B bears an interest rate of 7.18%.

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

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

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 March 31, 2024, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.82:1.00.

Following the end of the quarter, on May 1, 2024, we provided notices to prepay $2.0 billion of our aggregate outstanding debt including $940 million of the aggregate principal amount outstanding under Term Loan B, using the net proceeds from the AMC Divestiture.

We expect the prepayment to be made on or about May 6, 2024.

See Note 25 “Subsequent Events” to our Condensed Consolidated Financial Statements for more details.

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

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

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

The Revolver has no fixed repayment date prior to the end of the term.

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

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

As of March 31, 2024, we had no outstanding balance under the Revolver (June 30, 2023—$275 million).

For the three and nine months ended March 31, 2024, we recorded interest expense of nil and $2.2 million, respectively, relating to the Revolver (three and nine months ended March 31, 2023—$5.0 million).

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

Our long-term debt and credit facilities consist of senior notes, a term loan facility, and a revolving credit facility, as described below and further detailed in Note 9 “Long-Term Debt” to our Condensed Consolidated Financial Statements.

On May 6, 2024, we used a portion of the net proceeds from the AMC Divestiture to prepay in full the outstanding principal balance of $940 million under Term Loan B, at which point all remaining commitments under Term Loan B were reduced to zero and Term Loan B was terminated.

For the three months ended September 30, 2024, we recorded interest expense of nil relating to Term Loan B (three months ended September 30, 2023—$17.2 million).

As of September 30, 2024, we had senior debt outstanding, with maturities starting in 2027 and extending through 2031 with a total carrying value of $4.300 billion.

The senior notes bear interest at rates between 3.875% and 6.90%, in each case payable semi-annually in arrears.

Our senior secured notes due 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.

Acquisition Term Loan

On December 1, 2022, we amended our first lien term loan facility (the Acquisition Term Loan), dated as of August 25, 2022, to increase the aggregate commitments under the senior secured delayed-draw term loan facility from an aggregate principal amount of $2.585 billion to an aggregate principal amount of $3.585 billion.

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

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

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 March 31, 2024, the outstanding balance on the Acquisition Term Loan bears an interest rate of 8.18%.

As of March 31, 2024, the Acquisition Term Loan bears an effective interest rate of 9.29%.

The effective interest rate includes interest expense of $219.5 million and amortization of debt discount and issuance costs of $14.5 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 March 31, 2024, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.82:1:00.

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 nine months ended March 31, 2024, we recorded interest expense of $69.2 million and $219.5 million, respectively, relating to the Acquisition Term Loan (three and nine months ended March 31, 2023— $48.1 million).

Following the end of the quarter, on May 1, 2024, we provided notices to prepay $2.0 billion of our aggregate outstanding debt including an additional$1.06 billion drawn under the Acquisition Term Loan using net proceeds from the AMC Divestiture.

We expect the prepayment to be made on or about May 6, 2024, at which point the Term Loan B will have been repaid in full.

See Note 25 “Subsequent Events” to our Condensed Consolidated Financial Statements for more details.

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

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

On August 25, 2022, we entered into a bridge loan agreement (Bridge Loan) which provided for commitments of up to $2.0 billion to finance a portion of the repayment of Micro Focus’ existing debt.

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

In connection with the amendment to the Bridge Loan and the receipt of proceeds from the issuance of the Senior Secured Notes 2027, all remaining commitments under the Bridge Loan were reduced to zero and the Bridge Loan was terminated, which resulted in a loss on debt extinguishment of $8.2 million relating to unamortized debt issuance costs in the second quarter of Fiscal 2023.

As of March 31, 2024, we had no borrowings under the Bridge Loan.

For the three and nine months ended March 31, 2024, we did not record any interest expense relating to the Bridge Loan.

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

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

In August 2022, we entered into a $2.585 billion first lien term loan facility (Acquisition Term Loan) with a seven-year term from the date of funding.

The Acquisition Term Loan was amended in December 2022 to increase the aggregate principal amount to $3.585 billion.

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 Term SOFR (as defined in the Acquisition Term Loan) plus an applicable margin of 2.25%.

As of September 30, 2024, the balance outstanding under the Acquisition Term Loan was $2.212 billion.

On December 19, 2023, we amended our $750 million committed revolving credit facility (the Revolver) to, among other things, extend the Revolver's maturity date to December 19, 2028.

There were no outstanding borrowings under the Revolver as of September 30, 2024.

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

Borrowings under the Revolver

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

Shelf Registration Statement

4 unchanged sentences

Share Repurchase Plan / Normal Course Issuer Bid

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

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

The Fiscal 2022 Repurchase Plan was effected in accordance with Rule 10b-18 under the Exchange Act.

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

During the three and nine months ended March 31, 2024 and 2023, we did not repurchase and cancel any Common Shares.

On April 30, 2024, the Board authorized a share repurchase plan (the Fiscal 2024 Repurchase Plan), pursuant to which we may purchase for cancellation, in open market transactions from time to time over the 12 month period commencing on May 7, 2024 until May 6, 2025, up to an aggregate of $250 million of our Common Shares on the NASDAQ Global Select Market, the TSX (as part of a Fiscal 2024 NCIB, defined below) and/or other exchanges and alternative trading systems in Canada and/or the United States, if eligible, subject to applicable law and stock exchange rules.

On April 30, 2024, the Board authorized a share repurchase plan (the Fiscal 2024 Repurchase Plan), pursuant to which we could purchase for cancellation, in open market transactions from time to time over the 12 month period commencing on May 7, 2024 until May 6, 2025, up to an aggregate of $250 million of our Common Shares on the NASDAQ Global Select Market, the TSX (as part of a Fiscal 2024 NCIB, defined below) and/or other exchanges and alternative trading systems in Canada and/or the United States, if eligible, subject to applicable law and stock exchange rules.

On July 31, 2024, in order to align our share repurchase plan to its fiscal year, the Board approved the early termination of the Fiscal 2024 Repurchase Plan and authorized a new share repurchase plan (the Fiscal 2025 Repurchase Plan), pursuant to which we may purchase for cancellation in open market transactions, from time to time over the 12 month period commencing on August 7, 2024 until August 6, 2025, if considered advisable, up to an aggregate of $300 million of our common shares on the TSX (as part of a Fiscal 2025 NCIB, defined below), NASDAQ and/or alternative trading systems in Canada and/or the United States, if eligible, subject to applicable law and stock exchange rules.

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

The Fiscal 2025 Repurchase Plan will be effected in accordance with Rule 10b-18.

During the three months ended September 30, 2024, we repurchased and cancelled 2,649,131 Common Shares for $86.5 million, inclusive of 2% Canadian excise taxes recorded (three months ended September 30, 2023— nil Common Shares for nil).

Normal Course Issuer Bid

The Company established a Normal Course Issuer Bid (the Fiscal 2022 NCIB) in order to provide it with a means to execute purchases over the TSX as part of the overall Fiscal 2022 Repurchase Plan.

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

at prevailing market prices or as otherwise permitted.

Under the rules of the TSX, the maximum number of Common Shares that could be purchased in this period was 13,638,008 (representing 5% of the Company’s issued and outstanding Common Shares as of October 31, 2021), and the maximum number of Common Shares that could be purchased on a single day was 112,590 Common Shares, which is 25% of 450,361 (the average daily trading volume for the Common Shares on the TSX for the six months ended October 31, 2021), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18 under the Exchange Act.

On April 30, 2024, the Company established a Normal Course Issuer Bid (the Fiscal 2024 NCIB) in order to provide it with a means to execute purchases over the TSX as part of the overall Fiscal 2024 Repurchase Plan.

The TSX approved the Company’s notice of intention to commence the Fiscal 2024 NCIB, pursuant to which the Company may purchase Common Shares over the TSX for the period commencing on May 7, 2024 until May 6, 2025 in accordance with the TSX's normal course issuer bid rules, including that such purchases were to be made at prevailing market prices or as otherwise permitted.

Under the rules of the TSX, the maximum number of Common Shares that may be purchased in this period is 13,643,472 (representing 5% of the Company’s issued and outstanding Common Shares as of April 26, 2024), and the maximum number of Common Shares that could be purchased on a single day was 138,175 Common Shares, which is 25% of 552,700 (the average daily trading volume for the Common Shares on the TSX for the six months ended March 31, 2024), subject to certain exceptions for block purchases, and subject in any case to the volume and other limitations under Rule 10b-18 under the Exchange Act.

The TSX approved the Company’s notice of intention to commence the Fiscal 2024 NCIB, pursuant to which the Company could purchase Common Shares over the TSX for the period commencing on May 7, 2024 until May 6, 2025 in accordance with the TSX's normal course issuer bid rules, including that such purchases were to be made at prevailing market prices or as otherwise permitted.

Under the rules of the TSX, the maximum number of Common Shares that could have been purchased in this period was 13,643,472 (representing 5% of the Company’s issued and outstanding Common Shares as of April 26, 2024), and the maximum number of Common Shares that could be purchased on a single day was 138,175 Common Shares, which is 25% of 552,700 (the average daily trading volume for the Common Shares on the TSX for the six months ended March 31, 2024), subject to certain exceptions for block purchases, and subject in any case to the volume and other limitations under Rule 10b-18.

On July 31, 2024, the Company voluntarily terminated the Fiscal 2024 NCIB and established a new normal course issuer bid (the Fiscal 2025 NCIB) in order to provide it with a means to execute purchases over the TSX as part of the overall Fiscal 2025 Repurchase Plan.

The TSX approved the Company’s notice of intention to commence the Fiscal 2025 NCIB, pursuant to which the Company may purchase Common Shares over the TSX for the period commencing on August 7, 2024 until August 6, 2025 in accordance with the TSX's normal course issuer bid rules, including that such purchases were to be made at prevailing market prices or as otherwise permitted.

Under the rules of the TSX, the maximum number of Common Shares that may be purchased in this period is 21,179,064 (representing 10% of the Company’s public float (calculated in accordance with TSX rules) as of July 24, 2024, less the 5,073,913 Common Shares purchased under the Fiscal 2024 Repurchase Plan), and the maximum number of Common Shares that can be purchased on a single day is 138,175 Common Shares, which is 25% of 552,700 (the average daily trading volume for the Common Shares on the TSX for the six months ended March 31, 2024), subject to certain exceptions for block purchases, and subject in any case to the volume and other limitations under Rule 10b-18.

Commitments and Contractual Obligations

As of March 31, 2024, we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:

As of September 30, 2024, we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:

Payments due between

(In thousands)

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

Total October 1, 2024 - June 30, 2025 July 1, 2025 - June 30, 2027 July 1, 2027 - June 30, 2029 July 1, 2029 and beyond

Long-term debt obligations (1)

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Such agreements have not had a material effect on our results of operations, financial position or cash flows.

Refer to Note 12 “Guarantees and Contingencies” to our Condensed Consolidated Financial Statements for more details.

We are currently involved in various claims and legal proceedings.

Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 “Loss Contingencies” (Topic 450-20).

Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances.

If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20.

As of the date of this Quarterly Report on Form 10-Q, the aggregate of such accrued liabilities was not material to our consolidated financial position or results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations.

As described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters.

Refer to Note 12 “Guarantees and Contingencies” to our Condensed Consolidated Financial Statements for more details.

Contingencies

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

Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of March 31, 2024, 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 March 31, 2024, 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 March 31, 2024.

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.

We filed notices of objection regarding the reassessments.

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.

disagree with the CRA’s position for Fiscal 2017 through Fiscal 2019 and intend to vigorously defend our original filing position.

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.

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

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

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 Exchange Act 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 and, on February 1, 2024, the court issued a preliminary approval order.

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

Other Matters

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

The CRA is currently auditing Fiscal 2020.

Refer to Note 12 “Guarantees and Contingencies” to our Condensed Consolidated Financial Statements for more details.

Off-Balance Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis