UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

______________________

FORM 10-Q

______________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020.

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 0-27544

______________________________________

OPEN TEXT CORPORATION

(Exact name of Registrant as specified in its charter)  

______________________

Canada	98-0154400
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

275 Frank Tompa Drive,			N2L 0A1
Waterloo,	Ontario	Canada
(Address of principal executive offices)			(Zip code)

Registrant's telephone number, including area code: (519) 888-7111

Securities registered pursuant to Section 12(b) of the Act:  

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock without par value	OTEX	NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☒  Accelerated filer  ☐ Non-accelerated filer  ☐ Smaller reporting company ☐ Emerging growth company ☐ 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐   No  ☒

At April 28, 2020, there were 271,642,649 outstanding Common Shares of the registrant.

    1

OPEN TEXT CORPORATION

TABLE OF CONTENTS

		Page No
Part I Financial Information
Item 1. Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2020 (unaudited) and June 30, 2019	3
	Condensed Consolidated Statements of Income - Three and Nine Months Ended March 31, 2020 and 2019 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income - Three and Nine Months Ended March 31, 2020 and 2019 (unaudited)	5
	Condensed Consolidated Statements of Shareholders' Equity - Three and Nine Months Ended March 31, 2020 and 2019 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows - Nine Months Ended March 31, 2020 and 2019 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		45
Item 3. Quantitative and Qualitative Disclosures about Market Risk		78
Item 4. Controls and Procedures		80
Part II Other Information
Item 1A. Risk Factors		81
Item 5. Other Matters		83
Item 6. Exhibits		84
Signatures		85

    2

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share data)

	March 31, 2020			June 30, 2019
ASSETS	(unaudited)
Cash and cash equivalents	$	1,452,570		$	941,009
Accounts receivable trade, net of allowance for doubtful accounts of $18,301 as of March 31, 2020 and $17,011 as of June 30, 2019 (note 4)	459,348			463,785
Contract assets (note 3)	27,057			20,956
Income taxes recoverable (note 15)	59,930			38,340
Prepaid expenses and other current assets	112,073			97,238
Total current assets	2,110,978			1,561,328
Property and equipment (note 5)	258,892			249,453
Operating lease right of use assets (note 6)	243,611			—
Long-term contract assets (note 3)	14,225			15,386
Goodwill (note 7)	4,678,686			3,769,908
Acquired intangible assets (note 8)	1,731,781			1,146,504
Deferred tax assets (note 15)	921,643			1,004,450
Other assets (note 9)	171,107			148,977
Long-term income taxes recoverable (note 15)	31,149			37,969
Total assets	$	10,162,072		$	7,933,975
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 10)	$	324,890		$	329,903
Current portion of long-term debt (note 11)	610,000			10,000
Operating lease liabilities (note 6)	68,871			—
Deferred revenues (note 3)	819,273			641,656
Income taxes payable (note 15)	31,711			33,158
Total current liabilities	1,854,745			1,014,717
Long-term liabilities:
Accrued liabilities (note 10)	14,634			49,441
Pension liability (note 12)	67,438			75,239
Long-term debt (note 11)	3,585,684			2,604,878
Long-term operating lease liabilities (note 6)	205,789			—
Deferred revenues (note 3)	92,341			46,974
Long-term income taxes payable (note 15)	184,459			202,184
Deferred tax liabilities (note 15)	158,805			55,872
Total long-term liabilities	4,309,150			3,034,588
Shareholders’ equity:
Share capital and additional paid-in capital (note 13)
271,634,149 and 269,834,442 Common Shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively; authorized Common Shares: unlimited	1,839,150			1,774,214
Accumulated other comprehensive income	9,466			24,124
Retained earnings	2,180,339			2,113,883
Treasury stock, at cost (847,369 shares at March 31, 2020 and 802,871 shares at June 30, 2019, respectively)	(32,066		)	(28,766		)
Total OpenText shareholders' equity	3,996,889			3,883,455
Non-controlling interests	1,288			1,215
Total shareholders’ equity	3,998,177			3,884,670
Total liabilities and shareholders’ equity	$	10,162,072		$	7,933,975

Guarantees and contingencies (note 14)

Related party transactions (note 23)

Subsequent events (note 24)

See accompanying Notes to Condensed Consolidated Financial Statements

    3

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands of U.S. dollars, except share and per share data)

(unaudited)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Revenues (note 3):
License	$	81,055		$	98,721		$	297,048		$	308,364
Cloud services and subscriptions	339,463			238,607			825,068			665,923
Customer support	322,865			310,762			950,671			932,667
Professional service and other	71,296			71,056			210,337			214,580
Total revenues	814,679			719,146			2,283,124			2,121,534
Cost of revenues:
License	2,544			2,692			7,917			10,219
Cloud services and subscriptions	127,565			103,873			333,371			280,274
Customer support	32,151			31,844			91,326			93,582
Professional service and other	56,526			56,626			164,468			169,452
Amortization of acquired technology-based intangible assets (note 8)	63,401			44,596			145,998			140,439
Total cost of revenues	282,187			239,631			743,080			693,966
Gross profit	532,492			479,515			1,540,044			1,427,568
Operating expenses:
Research and development	108,184			84,905			269,645			238,128
Sales and marketing	166,234			132,244			432,162			378,619
General and administrative	68,828			51,833			174,958			154,955
Depreciation	24,820			25,028			65,809			72,716
Amortization of acquired customer-based intangible assets (note 8)	59,943			48,832			160,561			140,627
Special charges (recoveries) (note 18)	9,406			796			24,579			33,487
Total operating expenses	437,415			343,638			1,127,714			1,018,532
Income from operations	95,077			135,877			412,330			409,036
Other income (expense), net (note 21)	(18,923		)	5,065			(19,736		)	6,965
Interest and other related expense, net	(41,263		)	(35,607		)	(105,849		)	(103,751		)
Income before income taxes	34,891			105,335			286,745			312,250
Provision for (recovery of) income taxes (note 15)	8,891			32,542			78,800			98,628
Net income for the period	$	26,000		$	72,793		$	207,945		$	213,622
Net (income) loss attributable to non-controlling interests	(35		)	(31		)	(112		)	(104		)
Net income attributable to OpenText	$	25,965		$	72,762		$	207,833		$	213,518
Earnings per share—basic attributable to OpenText (note 22)	$	0.10		$	0.27		$	0.77		$	0.80
Earnings per share—diluted attributable to OpenText (note 22)	$	0.10		$	0.27		$	0.77		$	0.79
Weighted average number of Common Shares outstanding—basic (in '000's)	271,221			268,991			270,559			268,511
Weighted average number of Common Shares outstanding—diluted (in '000's)	272,202			270,030			271,643			269,606

See accompanying Notes to Condensed Consolidated Financial Statements

    4

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

(unaudited)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Net income for the period	$	26,000		$	72,793		$	207,945		$	213,622
Other comprehensive income (loss)—net of tax:
Net foreign currency translation adjustments	(15,484		)	3,189			(16,220		)	(3,749		)
Unrealized gain (loss) on cash flow hedges:
Unrealized gain (loss) - net of tax expense (recovery) effect of ($1,276) and $222 for the three months ended March 31, 2020 and 2019, respectively; ($1,181) and ($274) for the nine months ended March 31, 2020 and 2019, respectively	(3,539		)	615			(3,278		)	(760		)
(Gain) loss reclassified into net income - net of tax (expense) recovery effect of $121 and $124 for the three months ended March 31, 2020 and 2019, respectively; $98 and $425 for the nine months ended March 31, 2020 and 2019, respectively	337			346			273			1,179
Actuarial gain (loss) relating to defined benefit pension plans:
Actuarial gain (loss) - net of tax expense (recovery) effect of $1,495 and ($1,177) for the three months ended March 31, 2020 and 2019, respectively; $1,554 and ($1,390) for the nine months ended March 31, 2020 and 2019, respectively	3,309			(4,785		)	3,923			(5,109		)
Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $203 and $78 for the three months ended March 31, 2020 and 2019, respectively; $446 and $223 for the nine months ended March 31, 2020 and 2019, respectively	153			82			644			212
Total other comprehensive income (loss) net, for the period	(15,224		)	(553		)	(14,658		)	(8,227		)
Total comprehensive income	10,776			72,240			193,287			205,395
Comprehensive (income) loss attributable to non-controlling interests	(35		)	(31		)	(112		)	(104		)
Total comprehensive income attributable to OpenText	$	10,741		$	72,209		$	193,175		$	205,291

See accompanying Notes to Condensed Consolidated Financial Statements

    5

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands of U.S. dollars and shares)

(unaudited)

	Three Months Ended March 31, 2020
	Common Shares and Additional Paid in Capital			Treasury Stock					Retained Earnings			Accumulated  Other Comprehensive Income			Non-Controlling Interests			Total
	Shares	Amount		Shares		Amount
Balance as of December 31, 2019	270,609	$	1,803,663	(847	)	$	(32,066	)	$	2,201,653		$	24,690		$	1,292		$	3,999,232
Issuance of Common Shares
Under employee stock option plans	886	23,414		—		—			—			—			—			23,414
Under employee stock purchase plans	139	5,217		—		—			—			—			—			5,217
Share-based compensation	—	6,856		—		—			—			—			—			6,856
Dividends declared ($0.1746 per Common Share)	—	—		—		—			(47,279		)	—			—			(47,279		)
Other comprehensive income (loss) - net	—	—		—		—			—			(15,224		)	—			(15,224		)
Non-controlling interest	—	—		—		—			—			—			(39		)	(39		)
Net income for the period	—	—		—		—			25,965			—			35			26,000
Balance as of March 31, 2020	271,634	$	1,839,150	(847	)	$	(32,066	)	$	2,180,339		$	9,466		$	1,288		$	3,998,177

	Three Months Ended March 31, 2019
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated  Other Comprehensive Income			Non-Controlling Interests		Total
	Shares	Amount			Shares		Amount
Balance as of December 31, 2018	268,569	$	1,731,299		(817	)	$	(29,241	)	$	2,056,831		$	25,971		$	1,152	$	3,786,012
Issuance of Common Shares
Under employee stock option plans	544	11,661			—		—			—			—			—		11,661
Under employee stock purchase plans	161	4,447			—		—			—			—			—		4,447
Share-based compensation	—	6,712			—		—			—			—			—		6,712
Purchase of treasury stock	—	—			(52	)	(1,965		)	—			—			—		(1,965		)
Issuance of treasury stock	—	(2,308		)	62		2,308			—			—			—		—
Dividends declared ($0.1518 per Common Share)	—	—			—		—			(40,735		)	—			—		(40,735		)
Other comprehensive income - net	—	—			—		—			—			(553		)	—		(553		)
Net income for the period	—	—			—		—			72,762			—			31		72,793
Balance as of March 31, 2019	269,274	$	1,751,811		(807	)	$	(28,898	)	$	2,088,858		$	25,418		$	1,183	$	3,838,372

See accompanying Notes to Condensed Consolidated Financial Statements

    6

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands of U.S. dollars and shares)

(unaudited)

	Nine Months Ended March 31, 2020
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated  Other Comprehensive Income			Non-Controlling Interests			Total
	Shares	Amount			Shares		Amount
Balance as of June 30, 2019	269,834	$	1,774,214		(803	)	$	(28,766	)	$	2,113,883		$	24,124		$	1,215		$	3,884,670
Issuance of Common Shares
Under employee stock option plans	1,301	34,773			—		—			—			—			—			34,773
Under employee stock purchase plans	499	17,757			—		—			—			—			—			17,757
Share-based compensation	—	21,530			—		—			—			—			—			21,530
Purchase of treasury stock	—	—			(300	)	(12,424		)	—			—			—			(12,424		)
Issuance of treasury stock	—	(9,124		)	256		9,124			—			—			—			—
Dividends declared ($0.5238 per Common Share)	—	—			—		—			(141,377		)	—			—			(141,377		)
Other comprehensive income (loss) - net	—	—			—		—			—			(14,658		)	—			(14,658		)
Non-controlling interest	—	—			—		—			—			—			(39		)	(39		)
Net income for the period	—	—			—		—			207,833			—			112			207,945
Balance as of March 31, 2020	271,634	$	1,839,150		(847	)	$	(32,066	)	$	2,180,339		$	9,466		$	1,288		$	3,998,177

	Nine Months Ended March 31, 2019
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated  Other Comprehensive Income			Non-Controlling Interests		Total
	Shares	Amount			Shares		Amount
Balance as of June 30, 2018	267,651	$	1,707,073		(691	)	$	(18,732	)	$	1,994,235		$	33,645		$	1,037	$	3,717,258
Adoption of ASU 2016-16 - cumulative effect	—	—			—		—			(26,780		)	—			—		(26,780		)
Adoption of Topic 606 - cumulative effect	—	—			—		—			29,786			—			—		29,786
Issuance of Common Shares
Under employee stock option plans	1,100	25,832			—		—			—			—			—		25,832
Under employee stock purchase plans	523	15,712			—		—			—			—			—		15,712
Share-based compensation	—	20,152			—		—			—			—			—		20,152
Purchase of treasury stock	—	—			(726	)	(26,499		)	—			—			—		(26,499		)
Issuance of treasury stock	—	(16,333		)	610		16,333			—			—			—		—
Dividends declared ($0.4554 per Common Share)	—	—			—		—			(121,901		)	—			—		(121,901		)
Other comprehensive income - net	—	—			—		—			—			(8,227		)	—		(8,227		)
Non-controlling interest	—	(625		)	—		—			—			—			42		(583		)
Net income for the period	—	—			—		—			213,518			—			104		213,622
Balance as of March 31, 2019	269,274	$	1,751,811		(807	)	$	(28,898	)	$	2,088,858		$	25,418		$	1,183	$	3,838,372

See accompanying Notes to Condensed Consolidated Financial Statements

    7

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)

	Nine Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net income for the period	$	207,945		$	213,622
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangible assets	372,368			353,782
Share-based compensation expense	21,530			20,152
Pension expense	4,323			3,412
Amortization of debt issuance costs	3,503			3,234
Loss on extinguishment of debt	17,854			—
Loss on sale and write down of property and equipment	—			9,438
Deferred taxes	36,711			11,307
Share in net (income) loss of equity investees	(6,475		)	(10,652		)
Changes in operating assets and liabilities:
Accounts receivable	86,188			52,777
Contract assets	(26,665		)	(28,872		)
Prepaid expenses and other current assets	(7,355		)	(495		)
Income taxes	(34,608		)	21,006
Accounts payable and accrued liabilities	(42,263		)	(30,644		)
Deferred revenue	38,280			24,134
Other assets	7,436			4,300
Operating lease assets and liabilities, net	(4,486		)	—
Net cash provided by operating activities	674,286			646,501
Cash flows from investing activities:
Additions of property and equipment	(55,005		)	(50,432		)
Purchase of XMedius	(73,335		)	—
Purchase of Carbonite, Inc., net of cash and restricted cash acquired	(1,305,097		)	—
Purchase of Dynamic Solutions Group Inc.	(4,149		)	—
Purchase of Catalyst Repository Systems Inc.	—			(70,800		)
Purchase of Liaison Technologies, Inc.	—			(310,644		)
Purchase of Guidance Software, Inc., net of cash acquired	—			(2,279		)
Other investing activities	(11,344		)	(8,204		)
Net cash used in investing activities	(1,448,930		)	(442,359		)
Cash flows from financing activities:
Proceeds from issuance of Common Shares from exercise of stock options and ESPP	53,107			42,097
Proceeds from long-term debt and Revolver	3,150,000			—
Repayment of long-term debt and Revolver	(1,711,131		)	(7,500		)
Debt extinguishment costs (note 21)	(11,248		)	—
Debt issuance costs	(18,170		)	(322		)
Purchase of Treasury Stock	(12,424		)	(26,499		)
Purchase of non-controlling interests	—			(583		)
Payments of dividends to shareholders	(141,377		)	(121,901		)
Net cash provided by (used in) financing activities	1,308,757			(114,708		)
Foreign exchange gain (loss) on cash held in foreign currencies	(20,060		)	(3,909		)
Increase (decrease) in cash, cash equivalents and restricted cash during the period	514,053			85,525
Cash, cash equivalents and restricted cash at beginning of the period	943,543			683,991
Cash, cash equivalents and restricted cash at end of the period	$	1,457,596		$	769,516

Reconciliation of cash, cash equivalents and restricted cash:	March 31, 2020		March 31, 2019
Cash and cash equivalents	$	1,452,570	$	765,224
Restricted cash included in Other assets	5,026		4,292
Total cash, cash equivalents and restricted cash	$	1,457,596	$	769,516

Supplemental cash flow disclosures (note 20)

See accompanying Notes to Condensed Consolidated Financial Statements

    8

OPEN TEXT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Months Ended March 31, 2020

(Tabular amounts in thousands of U.S. dollars, except share and per share data)

(unaudited)

NOTE 1—BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements include the accounts of Open Text Corporation and our subsidiaries, collectively referred to as "OpenText" or the "Company". We wholly own all of our subsidiaries with the exception of Open Text South Africa Proprietary Ltd. (OT South Africa) and EC1 Pte. Ltd. (GXS Singapore), which as of March 31, 2020, were 70% and 81% owned, respectively, by OpenText. All inter-company balances and transactions have been eliminated.

Throughout this Quarterly Report on Form 10-Q: (i) the term “Fiscal 2020” means our fiscal year beginning on July 1, 2019 and ending June 30, 2020; (ii) the term “Fiscal 2019” means our fiscal year beginning on July 1, 2018 and ended June 30, 2019; (iii) the term “Fiscal 2018” means our fiscal year beginning on July 1, 2017 and ended June 30, 2018; (iv) the term “Fiscal 2017” means our fiscal year beginning on July 1, 2016 and ended June 30, 2017; and (v) the term “Fiscal 2016” means our fiscal year beginning on July 1, 2015 and ended June 30, 2016.

These Condensed Consolidated Financial Statements are expressed in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The information furnished reflects all adjustments necessary for a fair presentation of the results for the periods presented and includes certain assets and liabilities of Dynamic Solutions Group Inc. (The Fax Guys), with effect from December 2, 2019, the financial results of Carbonite, Inc. (Carbonite), with effect from December 24, 2019 and the financial results of XMedius with effect from March 9, 2020 (see note 19 "Acquisitions").

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. In particular, key estimates, judgments and assumptions include those related to: (i) revenue recognition, (ii) accounting for income taxes, (iii) testing of goodwill for impairment, (iv) the valuation of acquired intangible assets, (v) the valuation of long-lived assets, (vi) the recognition of contingencies, (vii) restructuring accruals, (viii) acquisition accruals and pre-acquisition contingencies, (ix) the realization of investment tax credits, (x) the valuation of stock options granted and obligations related to share-based payments, including the valuation of our long-term incentive plans, and (xi) the valuation of pension obligations.

On March 3, 2020, COVID-19 was characterized as a pandemic by the World Health Organization. The spread of COVID-19 has significantly impacted the global economy. We will continue to monitor the potential impact of COVID-19 on our financial statements and related disclosures, including the need for additional estimates going forward, which could include costs related to potential items such as special charges, restructurings, asset impairments and other non-recurring costs. As of March 31, 2020, we have not recorded any estimated amounts with respect to COVID-19 in our Condensed Consolidated Financial Statements. Please also see "Risk Factors" included within Part II, Item 1A of this Quarterly Report on Form 10-Q.

Impact of Recently Adopted Accounting Pronouncements

Leases

Effective July 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02 “Leases (Topic 842)” (Topic 842) using the modified retrospective transition approach. In accordance with this adoption method, results for reporting periods as of July 1, 2019 are presented under the new standard, while prior period results continue to be reported under the previous standard. Additionally, we elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed us to (i) carry forward the historical lease classification for any expired or existing leases, (ii) not reassess whether any expired or existing contracts contain leases and (iii) not reassess any initial direct cost for existing leases. We did not elect the practical expedient of hindsight when determining the lease term of existing contracts at the effective date. As a result of this adoption, we recorded the following adjustments as of July 1, 2019 on the Consolidated Balance Sheets:

    9

• An increase in operating lease right of use assets of approximately $217.5 million;

• An increase in total operating lease liabilities of approximately $253.5 million;

• A decrease in prepaid expenses and other current assets of approximately $6.6 million in connection with lease fair value adjustments and prepaid rent;

• A decrease in other assets of approximately $0.2 million in connection with lease fair value adjustments; and

• A decrease in total accrued liabilities of approximately $42.8 million in connection with tenant allowances, deferred rent, lease fair value adjustments, and amounts payable in respect of restructured facilities.

The adoption of Topic 842 had no impact to the Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statement of Shareholders' Equity or Condensed Consolidated Statements of Cash Flows. Please refer to note 6 “Leases” for additional information.

NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Adopted in Fiscal 2020

During Fiscal 2020, we have adopted the following ASUs, in addition to those discussed in note 1 "Basis of Presentation". The ASUs listed below did not have a material impact to our reported financial position, results of operations or cash flows:

• ASU No. 2017-12 “Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities” (ASU 2017-12)

• ASU No. 2018-15 “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract”

Accounting Pronouncements Not Yet Adopted

Retirement Benefits

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-14 “Compensation-Retirement Benefits-Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans” (ASU 2018-14), which modifies the disclosure requirements for defined benefit pension plans and other post retirement plans. ASU 2018-14 is effective for us in the first quarter of our fiscal year ending June 30, 2021. We are currently evaluating the impact of our pending adoption of ASU 2018-14 on our consolidated financial statements.

Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, and ASU 2020-02 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. Topic 326 is effective for us in our first quarter of our fiscal year ending June 30, 2021. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings. We are currently evaluating Topic 326, including its potential impact to our process and controls. We believe the effect on our consolidated financial statements will largely depend on the composition and credit quality of our financial assets and the economic conditions at the time of adoption.

NOTE 3—REVENUES

In accordance with Accounting Standards Codification (ASC) Topic 606 "Revenue from Contracts with Customers" (Topic 606), we account for a customer contract when we obtain written approval, the contract is committed, the rights of the parties, including the payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Revenue is recognized when, or as, control of a promised product or service is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for our products and services (at its transaction price). Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on readily available information, which may include historical, current and forecasted information, taking into consideration the type of customer, the type of transaction and specific facts and circumstances of each arrangement.

    10

We report revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue producing transactions.

We have four revenue streams: license, cloud services and subscriptions, customer support, and professional service and other.

License revenue

Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of which are deployed on the customer’s premises (on-premise).

Perpetual licenses: We sell perpetual licenses which provide customers the right to use software for an indefinite period of time in exchange for a one-time license fee, which is generally paid at contract inception. Our perpetual licenses provide a right to use intellectual property (IP) that is functional in nature and have significant stand-alone functionality. Accordingly, for perpetual licenses of functional IP, revenue is recognized at the point-in-time when control has been transferred to the customer, which normally occurs once software activation keys have been made available for download.

Term licenses and Subscription licenses: We sell both term and subscription licenses which provide customers the right to use software for a specified period in exchange for a fee, which may be paid at contract inception or paid in installments over the period of the contract. Like perpetual licenses, both our term licenses and subscription licenses are functional IP that have significant stand-alone functionality. Accordingly, for both term and subscription licenses, revenue is recognized at the point-in-time when the customer is able to use and benefit from the software, which is normally once software activation keys have been made available for download at the commencement of the term.

Cloud services and subscriptions revenue

Cloud services and subscriptions revenue are from hosting arrangements where in connection with the licensing of software, the end user does not take possession of the software, as well as from end-to-end fully outsourced business-to-business (B2B) integration solutions to our customers (collectively referred to as cloud arrangements). The software application resides on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis. Our cloud arrangements can be broadly categorized as "platform as a service" (PaaS), "software as a service" (SaaS), cloud subscriptions and managed services.

PaaS/ SaaS/ Cloud Subscriptions (collectively referred to here as cloud-based solutions): We offer cloud-based solutions that provide customers the right to access our software through the internet. Our cloud-based solutions represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. These services are made available to the customer continuously throughout the contractual period, however, the extent to which the customer uses the services may vary at the customer’s discretion. The payment for cloud-based solutions may be received either at inception of the arrangement, or over the term of the arrangement.

These cloud-based solutions are considered to have a single performance obligation where the customer simultaneously receives and consumes the benefit, and as such we recognize revenue for these cloud-based solutions ratably over the term of the contractual agreement. For example, revenue related to cloud-based solutions that are provided on a usage basis, such as the number of users, is recognized based on a customer’s utilization of the services in a given period.

Additionally, a software license is present in a cloud-based solutions arrangement if all of the following criteria are met:

(i) The customer has the contractual right to take possession of the software at any time without significant penalty; and

(ii) It is feasible for the customer to host the software independent of us.

In these cases where a software license is present in a cloud-based solutions arrangement it is assessed to determine if it is distinct from the cloud-based solutions arrangement. The revenue allocated to the distinct software license would be recognized at the point in time the software license is transferred to the customer, whereas the revenue allocated to the hosting performance obligation would be recognized ratably on a monthly basis over the contractual term unless evidence suggests that revenue is earned, or obligations are fulfilled in a different pattern over the contractual term of the arrangement.

Managed services: We provide comprehensive B2B process outsourcing services for all day-to-day operations of a customers’ B2B integration program. Customers using these managed services are not permitted to take possession of our software and the contract is for a defined period, where customers pay a monthly or quarterly fee. Our performance obligation is satisfied as we provide services of operating and managing a customer's electronic data interchange (EDI) environment. Revenue relating to these services is recognized using an output method based on the expected level of service we will provide over the term of the contract.

    11

In connection with cloud subscription and managed service contracts, we often agree to perform a variety of services before the customer goes live, such as for example, converting and migrating customer data, building interfaces and providing training. These services are considered an outsourced suite of professional services which can involve certain project-based activities. These services can be provided at the initiation of a contract, during the implementation or on an ongoing basis as part of the customer life cycle. These services can be charged separately on a fixed fee or time and materials basis, or the costs associated may be recovered as part of the ongoing cloud subscription or managed services fee. These outsourced professional services are considered to be distinct from the ongoing hosting services and represent a separate performance obligation within our cloud subscription or managed services arrangements. The obligation to provide outsourced professional services is satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligations. For outsourced professional services, we recognize revenue by measuring progress toward the satisfaction of our performance obligation. Progress for services that are contracted for a fixed price is generally measured based on hours incurred as a portion of total estimated hours. As a practical expedient, when we invoice a customer at an amount that corresponds directly with the value to the customer of our performance to date, we recognize revenue at that amount.

Customer support revenue

Customer support revenue is associated with perpetual, term license and on-premise subscription arrangements. As customer support is not critical to the customer's ability to derive benefit from its right to use our software, customer support is considered as a distinct performance obligation when sold together in a bundled arrangement along with the software.

Customer support consists primarily of technical support and the provision of unspecified updates and upgrades on a when-and-if-available basis. Customer support for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Customer support for term and subscription licenses is renewable concurrently with such licenses for the same duration of time. Payments for customer support are generally made at the inception of the contract term or in installments over the term of the maintenance period. Our customer support team is ready to provide these maintenance services, as needed, to the customer during the contract term. As the elements of customer support are delivered concurrently and have the same pattern of transfer, customer support is accounted for as a single performance obligation. The customer benefits evenly throughout the contract period from the guarantee that the customer support resources and personnel will be available to them, and that any unspecified upgrades or unspecified future products developed by us will be made available. Revenue for customer support is recognized ratably over the contract period based on the start and end dates of the maintenance term, in line with how we believe services are provided.

Professional service and other revenue

Our professional services, when offered along with software licenses, consists primarily of technical services and training services. Technical services may include installation, customization, implementation or consulting services. Training services may include access to online modules or delivering a training package customized to the customer’s needs. At the customer’s discretion, we may offer one, all, or a mix of these services. Payment for professional services is generally a fixed fee or is a fee based on time and materials.

Professional services can be arranged in the same contract as the software license or in a separate contract.

As our professional services do not significantly change the functionality of the license and our customers can benefit from our professional services on their own or together with other readily available resources, we consider professional services as distinct within the context of the contract.

Professional service revenue is recognized over time so long as: (i) the customer simultaneously receives and consumes the benefits as we perform them, (ii) our performance creates or enhances an asset the customer controls as we perform, and (iii) our performance does not create an asset with alternative use and we have enforceable right to payment.

If all of the above criteria are met, we use an input-based measure of progress for recognizing professional service revenue. For example we may consider total labor hours incurred compared to total expected labor hours. As a practical expedient, when we invoice a customer at an amount that corresponds directly with the value to the customer of our performance to date, we will recognize revenue at that amount.

Material rights

To the extent that we grant our customer an option to acquire additional products or services in one of our arrangements, we will account for the option as a distinct performance obligation in the contract only if the option provides a material right to the customer that the customer would not receive without entering into the contract. For example if we give the customer an option to acquire additional goods or services in the future at a price that is significantly lower than the current price, this would be a material right as it allows the customer to, in effect, pay in advance for the option to purchase future products or services.

    12

If a material right exists in one of our contracts then revenue allocated to the option is deferred and we would recognize revenue only when those future products or services are transferred or when the option expires.

Based on history, our contracts do not typically contain material rights and when they do, the material right is not significant to our consolidated financial statements.

Arrangements with multiple performance obligations

Our contracts generally contain more than one of the products and services listed above. Determining whether goods and services are considered distinct performance obligations that should be accounted for separately or as a single performance obligation may require judgment, specifically when assessing whether both of the following two criteria are met:

• the customer can benefit from the product or service either on its own or together with other resources that are readily available to the customer; and

• our promise to transfer the product or service to the customer is separately identifiable from other promises in the contract.

If these criteria are not met, we determine an appropriate measure of progress based on the nature of our overall promise for the single performance obligation.

If these criteria are met, each product or service is separately accounted for as a distinct performance obligation and the total transaction price is allocated to each performance obligation on a relative standalone selling price (SSP) basis.

Standalone selling price

The SSP reflects the price we would charge for a specific product or service if it was sold separately in similar circumstances and to similar customers. In most cases we are able to establish the SSP based on observable data. We typically establish a narrow SSP range for our products and services and assess this range on a periodic basis or when material changes in facts and circumstances warrant a review.

If the SSP is not directly observable, then we estimate the amount using either the expected cost plus a margin or residual approach. Estimating SSP requires judgment that could impact the amount and timing of revenue recognized. SSP is a formal process whereby management considers multiple factors including, but not limited to, geographic or regional specific factors, competitive positioning, internal costs, profit objectives, and pricing practices.

Transaction Price Allocation

In bundled arrangements, where we have more than one distinct performance obligation, we must allocate the transaction price to each performance obligation based on its relative SSP. However, in certain bundled arrangements, the SSP may not always be directly observable. For instance, in bundled arrangements with license and customer support, we allocate the transaction price between the license and customer support performance obligations using the residual approach because we have determined that the SSP for licenses in these arrangements are highly variable. We use the residual approach only for our license arrangements. When the SSP is observable but contractual pricing does not fall within our established SSP range, then an adjustment is required and we will allocate the transaction price between license and customer support at a constant ratio reflecting the mid-point of the established SSP range.

When two or more contracts are entered into at or near the same time with the same customer, we evaluate the facts and circumstances associated with the negotiation of those contracts. Where the contracts are negotiated as a package, we will account for them as a single arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.

Sales to resellers

We execute certain sales contracts through resellers, distributors and channel partners (collectively referred to as resellers). For these type of agreements, we assess whether we are considered the principal or the agent in the arrangement. We consider factors such as, but not limited to, whether or not the reseller has the ability to set the price for which they sell our software products to end users and whether or not resellers distribution rights are limited such that any potential sales are subject to OpenText’s review and approval before delivery of the software product can be made. If we determine that we are the principal in the arrangement, then revenue is recognized based on the transaction price for the sale of the software product to the end user at the gross amount. If that is not known, then the net amount received from the reseller is the transaction price. If we determine that we are the agent in the agreement, then revenue is recognized based on the transaction price for the sale of the software product to the reseller, less any applicable commissions paid or discounts or rebates, if offered. Costs or commissions paid to the reseller would be recognized as a reduction of revenue unless we received a distinct good or service in return. Similarly, any discounts or rebates offered by the reseller would be recognized as a reduction of revenue.

    13

Typically, we conclude that we are the principal in our reseller agreements, as we have control over the service and products prior to being transferred to the end customer.

We also assess the creditworthiness of each reseller and if they are newly formed, undercapitalized or in financial difficulty, we defer any revenues expected to emanate from such reseller and recognize revenue only when cash is received, and all other revenue recognition criteria under Topic 606 are met.

Rights of return and other incentives

We do not generally offer rights of return or any other incentives such as concessions, product rotation, or price protection and, therefore, do not provide for or make estimates of rights of return and similar incentives. However, we do offer consumers who purchase certain of our products on-line directly from us an unconditional full 70-days money-back guarantee. Distributors and resellers are also permitted to return the consumer products, subject to certain limitations. Revenue is reduced for such rights based on the estimate of future returns originating from contractual agreements with these customers.

Additionally, in some contracts, however, discounts may be offered to the customer for future software purchases and other additional products or services. Such arrangements grant the customer an option to acquire additional goods or services in the future at a discount and therefore are evaluated under guidance related to “material rights” as discussed above.

Other policies

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days of the invoice date. In certain arrangements, we will receive payment from a customer either before or after the performance obligation to which the invoice relates has been satisfied. As a practical expedient, we do not account for significant financing components if the period between when we transfer the promised good or service to the customer and when the customer pays for the product or service will be one year or less. On that basis, our contracts for license and maintenance typically do not contain a significant financing component, however, in determining the transaction price we consider whether we need to adjust the promised consideration for the effects of the time value of money if the timing of payments provides either the customer or OpenText with a significant benefit of financing. Our managed services contracts may not include an upfront charge for outsourced professional services performed as part of an implementation and are recovered through an ongoing fee. Therefore, these contracts may be expected to have a financing component associated with revenue being recognized in advance of billings.

We may modify contracts to offer customers additional products or services. The additional products and services will be considered distinct from those products or services transferred to the customer before the modification and will be accounted for as a separate contract. We evaluate whether the price for the additional products and services reflects the SSP adjusted as appropriate for facts and circumstances applicable to that contract. In determining whether an adjustment is appropriate, we evaluate whether the incremental consideration is consistent with the prices previously paid by the customer or similar customers.

Certain of our subscription services and product support arrangements generally contain performance response time guarantees. For subscription services arrangements, we estimate variable consideration using a portfolio approach because performance penalties are tied to standard response time requirements. For product support arrangements, we estimate variable consideration on a contract basis because such arrangements are customer-specific. For both subscription services and product support arrangements, we use an expected value approach to estimate variable consideration based on historical business practices and current and future performance expectations to determine the likelihood of incurring penalties.

    14

Performance Obligations

A summary of our typical performance obligations and when the obligations are satisfied are as follows:

Performance Obligation	When Performance Obligation is Typically Satisfied
License revenue:
Software licenses (Perpetual,Term, Subscription)	When software activation keys have been made available for download (point in time)
Cloud services and subscriptions revenue:
Outsourced Professional Services	As the services are provided (over time)
Managed Services / Ongoing Hosting / SaaS	Over the contract term, beginning on the date that service is made available (i.e. "Go live") to the customer (over time)
Customer support revenue:
When and if available updates and upgrades and technical support	Ratable over the course of the service term (over time)
Professional service and other revenue:
Professional services	As the services are provided (over time)

Disaggregation of Revenue

The following table disaggregates our revenue by significant geographic area, based on the location of our end customer, and by type of performance obligation and timing of revenue recognition for the periods indicated:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2020		2019		2020		2019
Total Revenues by Geography:
Americas (1)	$	509,778	$	436,873	$	1,380,179	$	1,246,909
EMEA (2)	240,529		216,287		702,964		674,699
Asia Pacific (3)	64,372		65,986		199,981		199,926
Total Revenues	$	814,679	$	719,146	$	2,283,124	$	2,121,534

	Three Months Ended March 31,				Nine Months Ended March 31,
	2020		2019		2020		2019
Total Revenues by Type of Performance Obligation:
Recurring revenue (4)
Cloud services and subscriptions revenue	$	339,463	$	238,607	$	825,068	$	665,923
Customer support revenue	322,865		310,762		950,671		932,667
Total recurring revenues	$	662,328	$	549,369	$	1,775,739	$	1,598,590
License revenue (perpetual, term and subscriptions)	81,055		98,721		297,048		308,364
Professional service and other revenue	71,296		71,056		210,337		214,580
Total revenues	$	814,679	$	719,146	$	2,283,124	$	2,121,534
Total Revenues by Timing of Revenue Recognition
Point in time	$	81,055	$	98,721	$	297,048	$	308,364
Over time (including professional service and other revenue)	733,624		620,425		1,986,076		1,813,170
Total revenues	$	814,679	$	719,146	$	2,283,124	$	2,121,534

⁽¹⁾ Americas consists of countries in North, Central and South America.

⁽²⁾ EMEA primarily consists of countries in Europe, the Middle East and Africa.

⁽³⁾ Asia Pacific primarily consists of the countries Japan, Australia, China, Korea, Philippines, Singapore and New Zealand.

⁽⁴⁾ Recurring revenue is defined as the sum of cloud services and subscriptions revenue and customer support revenue.

    15

Contract Balances

A contract asset will be recorded if we have recognized revenue but do not have an unconditional right to the related consideration from the customer. For example, this will be the case if implementation services offered in a cloud arrangement are identified as a separate performance obligation and are provided to a customer prior to us being able to bill the customer. In addition, a contract asset may arise in relation to subscription licenses if the license revenue that is recognized upfront exceeds the amount that we are able to invoice the customer at that time. Contract assets are reclassified to accounts receivable when the rights become unconditional.

The balance for our contract assets and contract liabilities (i.e. deferred revenues) for the periods indicated below were as follows:

	As of March 31, 2020		As of June 30, 2019
Short-term contract assets	$	27,057	$	20,956
Long-term contract assets	$	14,225	$	15,386
Short-term deferred revenue	$	819,273	$	641,656
Long-term deferred revenue	$	92,341	$	46,974

The difference in the opening and closing balances of our contract assets and deferred revenues primarily results from the timing difference between our performance and the customer’s payments. We fulfill our obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. During the nine months ended March 31, 2020, we reclassified $23.5 million of contract assets to receivables as a result of the right to the transaction consideration becoming unconditional. During the three and nine months ended March 31, 2020, respectively, there was no significant impairment loss recognized related to contract assets.

We recognize deferred revenue when we have received consideration or an amount of consideration is due from the customer for future obligations to transfer products or services. Our deferred revenues primarily relate to customer support agreements which have been paid for by customers prior to the performance of those services. The amount of revenue that was recognized during the nine months ended March 31, 2020 that was included in the deferred revenue balances at June 30, 2019 was approximately $591 million.

Incremental Costs of Obtaining a Contract with a Customer

Incremental costs of obtaining a contract include only those costs that we incur to obtain a contract that we would not have incurred if the contract had not been obtained, such as sales commissions. We have determined that certain of our commission programs meet the requirements to be capitalized. Some commission programs are not subject to capitalization as the commission expense is paid and recognized as the related revenue is recognized. In assessing costs to obtain a contract, we apply a practical expedient that allows us to assess our incremental costs on a portfolio of contracts with similar characteristics instead of assessing the incremental costs on each individual contract. We do not expect the financial statement effects of applying this practical expedient to the portfolio of contracts to be materially different than if we were to apply the new standard to each individual contract.

We pay commissions on the sale of new customer contracts as well as for renewals of existing contracts to the extent the renewals generate incremental revenue. Commissions paid on renewal contracts are limited to the incremental new revenue and therefore these payments are not commensurate with the commission paid on the original sale. We allocate commission costs to the performance obligations in an arrangement consistent with the allocation of the transaction price. Commissions allocated to the license performance obligation are expensed at the time the license revenue is recognized. Commissions allocated to professional service performance obligations are expensed as incurred, as these contracts are generally for one year or less and we apply a practical expedient to expense costs as incurred if the amortization period would have been one year or less. Commissions allocated to maintenance, managed services, on-going hosting arrangements or other recurring services, are capitalized and amortized consistent with the pattern of transfer to the customer of the services over the period expected to benefit from the commission payment. As commissions paid on renewals are not commensurate with the original sale, the period of benefit considers anticipated renewals. The benefit period is estimated to be approximately six years which is based on our customer contracts and the estimated life of our technology.

Expenses for incremental costs associated with obtaining a contract are recorded within sales and marketing expense in the Condensed Consolidated Statements of Income.

Our short term capitalized costs to obtain a contract are included in "Prepaid expenses and other assets", while our long-term capitalized costs to obtain a contract are included in "Other assets" on our Condensed Consolidated Balance Sheets.

The following table summarizes the changes in total capitalized costs since June 30, 2019:

    16

Capitalized costs to obtain a contract as of June 30, 2019	$	48,284
New capitalized costs incurred	19,207
Amortization of capitalized costs	(12,106		)
Adjustments on account of foreign exchange	(1,357		)
Capitalized costs to obtain a contract as of March 31, 2020	$	54,028

During the three and nine months ended March 31, 2020, respectively, there was no significant impairment loss recognized in relation to costs capitalized.

Transaction Price Allocated to the Remaining Performance Obligations

As of March 31, 2020, approximately $1.3 billion of revenue is expected to be recognized from remaining performance obligations on existing contracts. We expect to recognize approximately 50% of this amount over the next 12 months and the remaining balance thereafter. We apply the practical expedient and do not disclose performance obligations that have original expected durations of one year or less.

NOTE 4—ALLOWANCE FOR DOUBTFUL ACCOUNTS

Balance as of June 30, 2019	$	17,011
Bad debt expense	6,444
Write-off /adjustments	(5,154		)
Balance as of March 31, 2020	$	18,301

Included in accounts receivable are unbilled receivables in the amount of $59.4 million as of March 31, 2020 (June 30, 2019—$56.1 million).

NOTE 5—PROPERTY AND EQUIPMENT

	As of March 31, 2020
	Cost		Accumulated Depreciation			Net
Furniture and fixtures	$	43,856	$	(30,054	)	$	13,802
Office equipment	2,231		(1,263		)	968
Computer hardware	286,077		(189,986		)	96,091
Computer software	124,804		(98,898		)	25,906
Capitalized software development costs	106,500		(66,297		)	40,203
Leasehold improvements	123,314		(75,973		)	47,341
Land and buildings	49,563		(14,982		)	34,581
Total	$	736,345	$	(477,453	)	$	258,892

 

	As of June 30, 2019
	Cost		Accumulated Depreciation			Net
Furniture and fixtures	$	40,260	$	(26,492	)	$	13,768
Office equipment	1,993		(1,576		)	417
Computer hardware	258,802		(177,402		)	81,400
Computer software	119,018		(87,240		)	31,778
Capitalized software development costs	95,729		(56,205		)	39,524
Leasehold improvements	113,510		(66,520		)	46,990
Land and buildings	49,557		(13,981		)	35,576
Total	$	678,869	$	(429,416	)	$	249,453

    17

NOTE 6—LEASES

We enter into operating leases, both domestically and internationally, for certain facilities, automobiles, data centers and equipment for use in the ordinary course of business. The duration of the majority of these leases generally range from 1 to 10 years, some of which include options to extend for an additional 3 to 5 years after the initial term. Additionally, the land upon which our headquarters in Waterloo, Ontario, Canada is located, is leased from the University of Waterloo for a period of 49 years beginning in December 2005, with an option to renew for an additional term of 49 years. Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets and we do not have any material finance leases.

We account for a contract as a lease when we have the right to direct the use of the asset for a period of time while obtaining substantially all of the asset’s economic benefits. We determine the initial classification and measurement of our right of use (ROU) assets and lease liabilities at the lease commencement date and thereafter if modified.

ROU assets represent our right to control the underlying assets under lease, and the lease liability is our obligation to make the lease payments related to the underlying assets under lease, over the contractual term. ROU assets and lease liabilities are recognized on the Condensed Consolidated Balance Sheets based on the present value of future minimum lease payments to be made over the lease term. When available, we will use the rate implicit in the lease to discount lease payments to present value. However, real estate leases generally do not provide a readily determinable implicit rate, therefore, we must estimate our incremental borrowing rate to discount the lease payments. We estimate our incremental borrowing rate based on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located.

The ROU asset equals the lease liability, adjusted for any initial direct costs, prepaid rent and lease incentives. Fixed lease costs are included in the recognition of ROU assets and lease liabilities. Variable lease costs are not included in the measurement of the lease liability. These variable lease payments are recognized in the Condensed Consolidated Statements of Income in the period in which the obligation for those payments is incurred. Consistent with previous lease accounting rules under ASC Topic 840, lease expense for minimum lease payments continue to be recognized in the Condensed Consolidated Statements of Income on a straight-line basis over the lease term.

We have not elected the practical expedient to combine lease and non-lease components in the determination of lease costs for our facility leases. For all other asset classes, we have elected the practical expedient to combine the lease and the non-lease components. The lease liability includes lease payments related to options to extend or renew the lease term only if we are reasonably certain we will exercise those options. Our leases typically do not contain any material residual value guarantees or restrictive covenants.

In certain circumstances, we sublease all or a portion of a leased facility, to various other companies through a sublease agreement.

Lease Costs and Other Information

The following illustrates the various components of operating lease costs for the period indicated:

	Three Months Ended March 31, 2020			Nine Months Ended March 31, 2020
Operating lease cost	$	19,157		$	51,259
Short-term lease cost	455			743
Variable lease cost	1,140			2,647
Sublease income	(1,481		)	(4,618		)
Total lease cost	$	19,271		$	50,031

The following table summarizes the weighted average remaining lease term and discount rate as of March 31, 2020:

Weighted-average remaining lease term	5.82 years
Weighted-average discount rate	3.25	%

Supplemental Cash Flow Information

The following table presents supplemental information relating to cash flows arising from lease transactions. Cash payment made for variable lease cost and short-term lease are not included in the measurement of operating lease liabilities, and, as such, are excluded from the amounts below:

    18

	Three Months Ended March 31, 2020		Nine Months Ended March 31, 2020
Cash paid for amounts included in the measurement of operating lease liabilities:	$	17,926	$	53,996
Right of use assets obtained in exchange for new operating lease liabilities(1) :	$	4,129	$	15,964

⁽¹⁾ Excludes the impact of $60.1 million of ROU assets acquired as part of the acquisition of Carbonite during the nine months ended March 31, 2020 and $2.9 million of ROU assets acquired as part of the acquisition of XMedius during the three and nine months ended March 31, 2020, respectively.

Maturity of Lease Liabilities

The following table presents the future minimum lease payments under our operating leases liabilities as of March 31, 2020:

Fiscal years ending June 30,
2020 (three months ended June 30)	$	23,221
2021	68,819
2022	56,128
2023	41,905
2024	30,921
Thereafter	79,646
Total Lease payments	$	300,640
Less: Imputed interest	(25,980		)
Total	$	274,660
Reported as
Current operating lease liabilities	68,871
Non-current operating lease liabilities	205,789
Total	$	274,660

Operating lease maturity amounts included in the table above do not include sublease income expected to be received under our various sublease agreements with third parties. Under these agreements, we expect to receive sublease income of approximately $1.8 million over the remainder of Fiscal 2020, and approximately $27.1 million thereafter.

The following table presents the future minimum lease payments under our operating leases, based on the expected due dates of the various agreements as of June 30, 2019, as previously reported in our Annual Report on Form 10-K for the year ended June 30, 2019, prior to the adoption of Topic 842:

Fiscal years ending June 30,
2020	$	72,853
2021	59,451
2022	46,943
2023	33,871
2024	25,570
Thereafter	80,163
Total minimum lease payments (1)	$	318,851

⁽¹⁾ Net of $30.7 million of sublease income to be received from properties which we have subleased to third parties.

    19

NOTE 7—GOODWILL

Goodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable net tangible and intangible assets. The following table summarizes the changes in goodwill since June 30, 2019:

Balance as of June 30, 2019	$	3,769,908
Acquisition of XMedius (note 19)	49,899
Acquisition of Carbonite (note 19)	868,365
Acquisition of The Fax Guys (note 19)	1,951
Adjustments relating to acquisitions prior to Fiscal 2020 that had open measurement periods (note 19)	1,476
Adjustments on account of foreign exchange	(12,913		)
Balance as of March 31, 2020	$	4,678,686

NOTE 8—ACQUIRED INTANGIBLE ASSETS

	As of March 31, 2020
	Cost		Accumulated Amortization			Net
Technology assets	$	1,137,744	$	(495,257	)	$	642,487
Customer assets	1,560,932		(471,638		)	1,089,294
Total	$	2,698,676	$	(966,895	)	$	1,731,781
	As of June 30, 2019
	Cost		Accumulated Amortization			Net
Technology assets	$	835,498	$	(349,259	)	$	486,239
Customer assets	1,397,937		(737,672		)	660,265
Total	$	2,233,435	$	(1,086,931	)	$	1,146,504

Where applicable, the above balances as of March 31, 2020 have been reduced to reflect the impact of intangible assets where the gross cost has become fully amortized during the nine months ended March 31, 2020. The impact of this resulted in a reduction of $426.6 million to customer assets.

The weighted average amortization periods for acquired technology and customer intangible assets are approximately five years and seven years, respectively.

The following table shows the estimated future amortization expense for the fiscal years indicated. This calculation assumes no future adjustments to acquired intangible assets:

Fiscal years ending June 30,
2020 (three months ended June 30)	$	119,996
2021	435,005
2022	395,617
2023	310,451
2024	231,845
2025 and beyond	238,867
Total	$	1,731,781

 

    20

NOTE 9—OTHER ASSETS

	As of March 31, 2020		As of June 30, 2019
Deposits and restricted cash	$	13,269	$	13,671
Capitalized costs to obtain a contract	39,702		35,593
Investments	73,061		67,002
Long-term prepaid expenses and other long-term assets	45,075		32,711
Total	$	171,107	$	148,977

Deposits and restricted cash primarily relate to security deposits provided to landlords in accordance with facility lease agreements and cash restricted per the terms of certain contractual-based agreements.

Capitalized costs to obtain a contract relate to incremental costs of obtaining a contract, such as sales commissions, which are eligible for capitalization on contracts to the extent that such costs are expected to be recovered (see note 3 "Revenues").

Investments relate to certain investment funds in which we are a limited partner. Our interests in each of these investees range from 4% to below 20%. These investments are accounted for using the equity method. Our share of net income or losses based on our interest in these investments is recorded as a component of other income (expense), net in our Condensed Consolidated Statements of Income (see note 21 "Other income (expense), net"). During the three and nine months ended March 31, 2020, our share of income (loss) from these investments was approximately $4.5 million and $6.5 million, respectively, (three and nine months ended March 31, 2019 — $2.8 million and $10.7 million, respectively).

Long-term prepaid expenses and other long-term assets includes advance payments on long-term licenses that are being amortized over the applicable terms of the licenses and other miscellaneous assets.

NOTE 10—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Current liabilities

Accounts payable and accrued liabilities are comprised of the following:

 

	As of March 31, 2020		As of June 30, 2019
Accounts payable—trade	$	50,078	$	46,323
Accrued salaries and commissions	127,106		131,430
Accrued liabilities(1)	114,275		117,551
Accrued interest on Senior Notes	25,246		24,786
Amounts payable in respect of restructuring and other Special charges(1)	3,884		8,153
Asset retirement obligations	4,301		1,660
Total	$	324,890	$	329,903

Long-term accrued liabilities 

	As of March 31, 2020		As of June 30, 2019
Amounts payable in respect of restructuring and other Special charges(1)	$	—	$	4,804
Other accrued liabilities(1)	2,049		30,338
Asset retirement obligations	12,585		14,299
Total	$	14,634	$	49,441

⁽¹⁾ Previously, in Fiscal 2019, tenant allowances, deferred rent, lease fair value adjustments and amounts payable relating to restructured facilities were included in total accrued liabilities. Effective July 1, 2019, these balances were reclassified to operating lease right of use assets in accordance with the adoption of Topic 842. See note 1 "Basis of Presentation" and note 6 "Leases" for more information.

Asset retirement obligations

We are required to return certain of our leased facilities to their original state at the conclusion of our lease. As of March 31, 2020, the present value of this obligation was $16.9 million (June 30, 2019—$16.0 million), with an undiscounted value of $18.4 million (June 30, 2019—$17.6 million).

    21

NOTE 11—LONG-TERM DEBT

Long-term debt

Long-term debt is comprised of the following:

	As of March 31, 2020			As of June 30, 2019
Total debt
Senior Notes 2030	$	900,000		$	—
Senior Notes 2028	900,000			—
Senior Notes 2026	850,000			850,000
Senior Notes 2023	—			800,000
Term Loan B	980,000			987,500
Revolver	600,000			—
Total principal payments due	4,230,000			2,637,500
Premium on Senior Notes 2026	4,921			5,405
Debt issuance costs	(39,237		)	(28,027		)
Total amount outstanding	4,195,684			2,614,878
Less:
Current portion of long-term debt
Term Loan B	10,000			10,000
Revolver	600,000			—
Total current portion of long-term debt	610,000			10,000
Non-current portion of long-term debt	$	3,585,684		$	2,604,878

Senior Unsecured Fixed Rate Notes

Senior Notes 2030

On February 18, 2020, OpenText Holdings, Inc. a wholly-owned indirect subsidiary of the Company, issued $900 million in aggregate principal amount of 4.125% Senior Notes due 2030 guaranteed by the Company (Senior Notes 2030) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act), and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2030 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2030 will mature on February 15, 2030, unless earlier redeemed, in accordance with their terms, or repurchased.

For the three and nine months ended March 31, 2020, we recorded interest expense of $4.4 million, respectively, relating to Senior Notes 2030.

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 persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2028 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2028 will mature on February 15, 2028, unless earlier redeemed, in accordance with their terms, or repurchased.

For the three and nine months ended March 31, 2020, we recorded interest expense of $4.2 million, respectively, relating to Senior Notes 2028.

    22

Senior Notes 2026

On May 31, 2016, we issued $600 million in aggregate principal amount of 5.875% Senior Notes due 2026 (Senior Notes 2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 bear interest at a rate of 5.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior Notes 2026 will mature on June 1, 2026, unless earlier redeemed, in accordance with their terms, or repurchased.

On December 20, 2016, we issued an additional $250 million in aggregate principal amount by reopening our Senior Notes 2026 at an issue price of 102.75%. The additional notes have identical terms, are fungible with and are a part of a single series with the previously issued $600 million aggregate principal amount of Senior Notes 2026. The outstanding aggregate principal amount of Senior Notes 2026, after taking into consideration the additional issuance, is $850 million.

For the three and nine months ended March 31, 2020, we recorded interest expense of $12.5 million and $37.5 million, respectively, relating to Senior Notes 2026 (three and nine months ended March 31, 2019— $12.5 million and $37.5 million, respectively).

Senior Notes 2023

On January 15, 2015, we issued $800 million in aggregate principal amount of 5.625% Senior Notes due 2023 (Senior Notes 2023) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2023 bore interest at a rate of 5.625% per annum, payable semi-annually in arrears on January 15 and July 15, commencing on July 15, 2015. Senior Notes 2023 were to mature on January 15, 2023, unless earlier redeemed, in accordance with their terms, or repurchased.

On March 5, 2020, we redeemed Senior Notes 2023 in full at a price equal to 101.406% of the principal amount plus accrued and unpaid interest up to but excluding the redemption date. A portion of the proceeds from the offerings of Senior Notes 2028 and Senior Notes 2030 was used to redeem Senior Notes 2023. Upon redemption, Senior Notes 2023 were cancelled and any obligation thereunder was extinguished. The resulting loss of $17.9 million has been recorded as a component of other income (expense), net in our Condensed Consolidated Statements of Income. See note 21 "Other income (Expense), net".

For the three and nine months ended March 31, 2020, we recorded interest expense of $8.1 million and $30.6 million, respectively, relating to Senior Notes 2023 (three and nine months ended March 31, 2019— $11.2 million and $33.7 million, respectively).

Notes due 2022

Following our acquisition of Carbonite (see note 19 "Acquisitions"), our consolidated debt reflected $143.8 million of principal debt convertible notes (Notes due 2022). Notes due 2022 were originally issued by Carbonite, on April 4, 2017, in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Notes due 2022 were issued under an Indenture (the 2022 Notes Indenture) between Carbonite and U.S. Bank National Association, as trustee (the 2022 Notes Trustee). The Notes due 2022 accrued interest at 2.5% per year, which was payable semiannually in arrears on April 1 and October 1 of each year. The Notes due 2022 were to mature on April 1, 2022, unless earlier repurchased, redeemed or converted. Carbonite, now a subsidiary of OpenText, was the sole obligor on the Notes due 2022.

In connection with our acquisition of Carbonite, and as required by the 2022 Notes Indenture, Carbonite and the 2022 Notes Trustee entered into a first supplemental indenture, dated as of December 24, 2019 (the 2022 Notes Supplemental Indenture). The 2022 Notes Supplemental Indenture provides that, at and after the effective time of our acquisition of Carbonite, the right to convert each $1,000 principal amount of the Notes due 2022 was changed into the right to convert such principal amount of the Notes due 2022 solely into cash in an amount equal to the Conversion Rate (as defined in the 2022 Notes Indenture) in effect on the Conversion Date (as defined in the 2022 Notes Indenture) multiplied by $23.00, which was the price per share we paid in connection with our acquisition of Carbonite.

As a result of our acquisition of Carbonite, the Conversion Rate for the Notes due 2022 was temporarily increased by 7.7633 per $1,000 principal amount of Notes due 2022 to yield a Conversion Rate of 46.4667 per $1,000 principal amount of Notes due 2022.  The increased Conversion Rate was in effect until the close of business (5:00 P.M. New York City time) on February 27, 2020.  As of February 27, 2020, all Notes due 2022 had been surrendered and converted at a rate of $1,068.7341 in cash for each $1,000 principal amount. As of March 31, 2020, all Notes due 2022 have been fully settled in cash and there are no remaining Notes due 2022 outstanding.

    23

Term Loan B

On May 30, 2018, we refinanced our existing term loan facility, by entering into a new $1 billion term loan facility (Term Loan B), whereby we borrowed $1 billion on that day and repaid in full the loans under our prior $800 million term loan facility originally entered into on January 16, 2014. Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver (defined below).

Term Loan B has a seven year term, maturing in May 2025, and repayments made under Term Loan B are equal to 0.25% of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity. Borrowings under Term Loan B currently bear a floating rate of interest equal to 1.75% plus LIBOR. As of March 31, 2020, the outstanding balance on the Term Loan B bears an interest rate of approximately 3.35%.

Under Term Loan B, we must maintain a “consolidated net leverage” ratio of no more than 4:1 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. As of March 31, 2020, our consolidated net leverage ratio was 2.3:1.

For the three and nine months ended March 31, 2020, we recorded interest expense of $8.5 million and $27.6 million, respectively, relating to Term Loan B (three and nine months ended March 31, 2019—$10.5 million and $30.6 million).

Revolver

On October 31, 2019, we amended our committed revolving credit facility (the Revolver) to increase the total commitments under the Revolver from $450 million to $750 million as well as to extend the maturity from May 5, 2022 to October 31, 2024. Borrowings under the Revolver are secured by a first charge over substantially all of our assets, on a pari passu basis with Term Loan B. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%. As of March 31, 2020, the outstanding balance on the Revolver bears an interest rate of approximately 2.50%.

Under the Revolver, we must maintain a “consolidated net leverage” ratio of no more than 4:1 at the end of each financial quarter. As of March 31, 2020, our consolidated net leverage ratio was 2.3:1.

During the second quarter of Fiscal 2020, we drew down $750 million from the Revolver to partially fund the acquisition of Carbonite. In February 2020, we repaid $750 million drawn under the Revolver with a portion of the use of proceeds from the Senior Notes 2030 and Senior Notes 2028. In March 2020, we drew down $600 million from the Revolver as a preemptive measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak. The proceeds from the $600 million draw down are presented within cash and cash equivalents and within the current portion of long-term debt in our Condensed Consolidated Balance Sheet as of March 31, 2020.

As of March 31, 2020, we have outstanding borrowings of $600 million under the Revolver (June 30, 2019—nil) and $150 million remains available to be drawn.

During the three and nine months ended March 31, 2020, we recorded interest expense relating to amounts drawn of approximately $3.7 million and $4.3 million, respectively.

As of March 31, 2019, we had no outstanding balance on the Revolver. There was no activity during the three and nine months ended March 31, 2019 and we recorded no interest expense.

Debt Issuance Costs and Premium on Senior Notes

Debt issuance costs relate primarily to costs incurred for the purpose of obtaining our credit facilities and issuing our Senior Notes 2026, Senior Notes 2028 and Senior Notes 2030 (collectively referred to as the Senior Notes) and are being amortized over the respective terms of the Senior Notes and Term Loan B and the Revolver using the effective interest method.

The premium on Senior Notes 2026 represents the excess of the proceeds received over the face value of Senior Notes 2026. This premium is amortized as a reduction to interest expense over the term of Senior Notes 2026 using the effective interest method.

    24

NOTE 12—PENSION PLANS AND OTHER POST RETIREMENT BENEFITS

The following table provides details of our defined benefit pension plans and long-term employee benefit obligations for Open Text Document Technologies GmbH (CDT), GXS GmbH (GXS GER), GXS Philippines, Inc. (GXS PHP) and other plans as of March 31, 2020 and June 30, 2019:

	As of March 31, 2020
	Total benefit obligation		Current portion of benefit obligation*		Non-current portion of benefit obligation
CDT defined benefit plan	$	31,717	$	700	$	31,017
GXS GER defined benefit plan	22,144		959		21,185
GXS PHP defined benefit plan	8,155		141		8,014
Other plans	7,930		708		7,222
Total	$	69,946	$	2,508	$	67,438

	As of June 30, 2019
	Total benefit obligation		Current portion of benefit obligation*		Non-current portion of benefit obligation
CDT defined benefit plan	$	35,836	$	675	$	35,161
GXS GER defined benefit plan	26,739		1,012		25,727
GXS PHP defined benefit plan	6,904		124		6,780
Other plans	8,052		481		7,571
Total	$	77,531	$	2,292	$	75,239

* The current portion of the benefit obligation has been included within "Accrued salaries and commissions", all within "Accounts payable and accrued liabilities" in the Condensed Consolidated Balance Sheets (see note 10 "Accounts Payable and Accrued Liabilities").

Defined Benefit Plans

CDT Plan

CDT sponsors an unfunded defined benefit pension plan covering substantially all CDT employees (CDT plan) which provides for old age, disability and survivors’ benefits. Benefits under the CDT plan are generally based on age at retirement, years of service and the employee’s annual earnings. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. No contributions have been made since the inception of the plan. Actuarial gains or losses in excess of 10% of the projected benefit obligation are being amortized and recognized as a component of net periodic benefit costs over the average remaining service period of the plan's active employees. As of March 31, 2020, there is approximately $0.2 million in accumulated other comprehensive income related to the CDT plan that is expected to be recognized as a component of net periodic benefit costs over the remainder of Fiscal 2020.

GXS GER Plan

As part of our acquisition of GXS Group, Inc. (GXS) in Fiscal 2014, we assumed an unfunded defined benefit pension plan covering certain German employees which provides for old age, disability and survivors' benefits. The GXS GER plan has been closed to new participants since 2006. Benefits under the GXS GER plan are generally based on a participant’s remuneration, date of hire, years of eligible service and age at retirement. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. No contributions have been made since the inception of the plan. Actuarial gains or losses in excess of 10% of the projected benefit obligation are being amortized and recognized as a component of net periodic benefit costs over the average remaining service period of the plan’s active employees. As of March 31, 2020, there is approximately $0.1 million in accumulated other comprehensive income related to the GXS GER plan that is expected to be recognized as a component of net periodic benefit costs over the remainder of Fiscal 2020.

    25

GXS PHP Plan

As part of our acquisition of GXS in Fiscal 2014, we assumed a primarily unfunded defined benefit pension plan covering substantially all of the GXS Philippines employees which provides for retirement, disability and survivors' benefits. Benefits under the GXS PHP plan are generally based on a participant’s remuneration, years of eligible service and age at retirement. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. Aside from an initial contribution which has a fair value of approximately $0.03 million as of March 31, 2020, no additional contributions have been made since the inception of the plan. Actuarial gains or losses in excess of 10% of the projected benefit obligation are being amortized and recognized as a component of net periodic benefit costs over the average remaining service period of the plan’s active employees. As of March 31, 2020, there is approximately $0.1 million in accumulated other comprehensive income related to the GXS PHP plan that is expected to be recognized as a component of net periodic benefit costs over the remainder of Fiscal 2020.

The following are the details of the change in the benefit obligation for each of the above mentioned pension plans for the periods indicated: 

	As of March 31, 2020												As of June 30, 2019
	CDT			GXS GER			GXS PHP			Total			CDT			GXS GER			GXS PHP			Total
Benefit obligation—beginning of fiscal year	$	35,836		$	26,739		$	6,904		$	69,479		$	32,651		$	25,382		$	3,853		$	61,886
Service cost	426			237			914			1,577			550			566			771			1,887
Interest cost	341			250			265			856			642			489			300			1,431
Benefits paid	(469		)	(693		)	(119		)	(1,281		)	(626		)	(996		)	(140		)	(1,762		)
Actuarial (gain) loss	(2,575		)	(3,033		)	125			(5,483		)	3,365			1,872			1,957			7,194
Foreign exchange (gain) loss	(1,842		)	(1,356		)	66			(3,132		)	(746		)	(574		)	163			(1,157		)
Benefit obligation—end of period	31,717			22,144			8,155			62,016			35,836			26,739			6,904			69,479
Less: Current portion	(700		)	(959		)	(141		)	(1,800		)	(675		)	(1,012		)	(124		)	(1,811		)
Non-current portion of benefit obligation	$	31,017		$	21,185		$	8,014		$	60,216		$	35,161		$	25,727		$	6,780		$	67,668

The following are details of net pension expense relating to the following pension plans:

	Three Months Ended March 31,
	2020									2019
Pension expense:	CDT		GXS GER		GXS PHP			Total		CDT		GXS GER		GXS PHP			Total
Service cost	$	140	$	78	$	305		$	523	$	136	$	141	$	185		$	462
Interest cost	112		82		92			286		159		121		77			357
Amortization of actuarial (gains) and losses	234		61		(72		)	223		173		32		(142		)	63
Net pension expense	$	486	$	221	$	325		$	1,032	$	468	$	294	$	120		$	882

	Nine Months Ended March 31,
	2020									2019
Pension expense:	CDT		GXS GER		GXS PHP			Total		CDT		GXS GER		GXS PHP			Total
Service cost	$	426	$	237	$	914		$	1,577	$	413	$	426	$	520		$	1,359
Interest cost	341		250		265			856		483		368		217			1,068
Amortization of actuarial (gains) and losses	703		183		(215		)	671		524		98		(421		)	201
Net pension expense	$	1,470	$	670	$	964		$	3,104	$	1,420	$	892	$	316		$	2,628

    26

Service-related net periodic pension costs are recorded within operating expense and all other non-service related net periodic pension costs are classified under "Other income (expense), net" on our Condensed Consolidated Statements of Income.

In determining the fair value of the pension plan benefit obligations as of March 31, 2020 and June 30, 2019, respectively, we used the following weighted-average key assumptions:

	As of March 31, 2020			As of June 30, 2019
	CDT	GXS GER	GXS PHP	CDT	GXS GER	GXS PHP
Assumptions:
Salary increases	2.50%	2.50%	6.50%	2.50%	2.50%	6.50%
Pension increases	2.00%	2.00%	N/A	2.00%	2.00%	N/A
Discount rate	1.76%	1.76%	5.00%	1.32%	1.32%	5.00%
Normal retirement age	65-67	65-67	60	65-67	65-67	60
Employee fluctuation rate:
to age 20	—%	—%	12.19%	—%	—%	12.19%
to age 25	—%	—%	16.58%	—%	—%	16.58%
to age 30	1.00%	—%	13.97%	1.00%	—%	13.97%
to age 35	0.50%	—%	10.77%	0.50%	—%	10.77%
to age 40	—%	—%	7.39%	—%	—%	7.39%
to age 45	0.50%	—%	3.28%	0.50%	—%	3.28%
to age 50	0.50%	—%	—%	0.50%	—%	—%
from age 51	1.00%	—%	—%	1.00%	—%	—%

Anticipated pension payments under the pension plans for the fiscal years indicated below are as follows:

	Fiscal years ending June 30,
	CDT		GXS GER		GXS PHP
2020 (three months ended June 30)	$	161	$	240	$	10
2021	719		959		264
2022	789		990		341
2023	885		990		244
2024	987		995		304
2025 to 2029	5,695		5,034		3,068
Total	$	9,236	$	9,208	$	4,231

Other Plans

Other plans include defined benefit pension plans that are offered by certain of our foreign subsidiaries. Many of these plans were assumed through our acquisitions or are required by local regulatory requirements. These other plans are primarily unfunded, with the aggregate projected benefit obligation included in our pension liability. The net periodic costs of these plans are determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs.

NOTE 13—SHARE CAPITAL, OPTION PLANS AND SHARE-BASED PAYMENTS

Cash Dividends

For the three and nine months ended March 31, 2020, pursuant to the Company’s dividend policy, we declared total non-cumulative dividends of $0.1746 and $0.5238, respectively, per Common Share in the aggregate amount of $47.3 million and $141.4 million, respectively, which we paid during the same period.

For the three and nine months ended March 31, 2019, pursuant to the Company’s dividend policy, we paid total non-cumulative dividends of $0.1518 and $0.4554, respectively, per Common Share in the aggregate amount of $40.7 million and $121.9 million, respectively.

    27

Share Capital

Our authorized share capital includes an unlimited number of Common Shares and an unlimited number of Preference Shares. No Preference Shares have been issued.

Treasury Stock

Repurchase

From time to time we may provide funds to an independent agent to facilitate repurchases of our Common Shares in connection with the settlement of awards under the Long-Term Incentive Plans (LTIP) or other plans.

During the three and nine months ended March 31, 2020, we repurchased nil and 300,000, respectively, of our Common Shares in the open market, at a cost of approximately nil and $12.4 million, respectively, for potential reissuance under our LTIP or other plans (three and nine months ended March 31, 2019—51,794 and 726,059, respectively, Common Shares at a cost of $2.0 million and $26.5 million, respectively). See below for more details on our various plans.

Reissuance

During the three and nine months ended March 31, 2020, we reissued nil and 255,502 Common Shares, respectively, from treasury stock (three and nine months ended March 31, 2019—61,794 and 609,691 Common Shares, respectively), in connection with the settlement of awards.

Share-Based Payments

Total share-based compensation expense for the periods indicated below is detailed as follows: 

	Three Months Ended March 31,				Nine Months Ended March 31,
	2020		2019		2020		2019
Stock options	$	2,143	$	2,616	$	6,820	$	7,537
Performance Share Units (issued under LTIP)	1,515		879		4,436		2,573
Restricted Share Units (issued under LTIP)	1,478		1,687		4,447		4,698
Restricted Share Units (other)	64		36		84		169
Deferred Share Units (directors)	735		709		2,610		2,402
Employee Share Purchase Plan	921		785		3,133		2,773
Total share-based compensation expense	$	6,856	$	6,712	$	21,530	$	20,152

Summary of Outstanding Stock Options

As of March 31, 2020, an aggregate of 7,359,490 options to purchase Common Shares were outstanding and an additional 7,840,000 options to purchase Common Shares were available for issuance under our stock option plans. Our stock options generally vest over four years and expire between seven and ten years from the date of the grant. Currently we also have options outstanding that vest over five years, as well as options outstanding that vest based on meeting certain market conditions. The exercise price of all our options is set at an amount that is not less than the closing price of our Common Shares on the NASDAQ on the trading day immediately preceding the applicable grant date.

A summary of activity under our stock option plans for the nine months ended March 31, 2020 is as follows:

	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic  Value ($’000s)
Outstanding at June 30, 2019	7,102,753		$	31.82
Granted	2,301,230		42.57
Exercised	(1,300,742	)	26.73
Forfeited or expired	(743,751	)	32.96
Outstanding at March 31, 2020	7,359,490		$	35.96	4.85	$	15,496
Exercisable at March 31, 2020	2,137,643		$	29.72	2.92	$	11,953

    28

We estimate the fair value of stock options using the Black-Scholes option-pricing model or, where appropriate, the Monte Carlo Valuation Method, consistent with the provisions of ASC Topic 718, "Compensation—Stock Compensation" (Topic 718) and SEC Staff Accounting Bulletin No. 107. The option-pricing models require input of subjective assumptions, including the estimated life of the option and the expected volatility of the underlying stock over the estimated life of the option. We use historical volatility as a basis for projecting the expected volatility of the underlying stock and estimate the expected life of our stock options based upon historical data.

We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair value of our stock option grants. Estimates of fair value are not intended, however, to predict actual future events or the value ultimately realized by employees who receive equity awards.

For the periods indicated, the weighted-average fair value of options and weighted-average assumptions were as follows:

	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Weighted–average fair value of options granted	$	7.28		$	7.64		$	6.95		$	8.28
Weighted-average assumptions used:
Expected volatility	21.80		%	25.60		%	21.92		%	25.92		%
Risk–free interest rate	1.38		%	2.51		%	1.49		%	2.73		%
Expected dividend yield	1.55		%	1.63		%	1.60		%	1.53		%
Expected life (in years)	4.14			4.11			4.13			4.26
Forfeiture rate (based on historical rates)	7		%	6		%	7		%	6		%
Average exercise share price	$	44.99		$	37.24		$	42.57		$	38.16

As of March 31, 2020, the total compensation cost related to the unvested stock option awards not yet recognized was approximately $30.3 million, which will be recognized over a weighted-average period of approximately 3.0 years.

No cash was used by us to settle equity instruments granted under share-based compensation arrangements in any of the periods presented.

We have not capitalized any share-based compensation costs as part of the cost of an asset in any of the periods presented.

For the three and nine months ended March 31, 2020, cash in the amount of $23.4 million and $34.8 million, respectively, was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the three and nine months ended March 31, 2020 from the exercise of options eligible for a tax deduction was $0.4 million and $1.3 million, respectively.

For the three and nine months ended March 31, 2019, cash in the amount of $11.6 million and $25.8 million, respectively, was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the three and nine months ended March 31, 2019 from the exercise of options eligible for a tax deduction was $1.1 million and $2.0 million, respectively.

Long-Term Incentive Plans

We incentivize certain eligible employees, in part, with long-term compensation pursuant to our LTIP. The LTIP is a rolling three year program that grants eligible employees a certain number of target Performance Share Units (PSUs) and/or Restricted Share Units (RSUs). Target PSUs become vested upon the achievement of certain financial and/or operational performance criteria (the Performance Conditions) that are determined at the time of the grant. Target RSUs become vested when an eligible employee remains employed throughout the vesting period.

PSUs and RSUs granted under the LTIPs have been measured at fair value as of the effective date, consistent with Topic 718, and will be charged to share-based compensation expense over the remaining life of the plan. Stock options granted under the LTIPs have been measured using the Black-Scholes option-pricing model, consistent with Topic 718. We estimate the fair value of PSUs using the Monte Carlo pricing model and RSUs have been valued based upon their grant date fair value.

As of March 31, 2020, the total expected compensation cost related to the unvested LTIP awards not yet recognized was $21.7 million, which is expected to be recognized over a weighted average period of 1.9 years.

LTIP grants that have recently vested, or have yet to vest, are described below. LTIP grants are referred to in this Quarterly Report on Form 10-Q based upon the year in which the grants are expected to vest.

    29

Fiscal 2019 LTIP

Grants made in Fiscal 2017 under the LTIP (collectively referred to as Fiscal 2019 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2017 starting on August 14, 2016. We settled the Fiscal 2019 LTIP awards by issuing 255,502 Common Shares from treasury stock during the three months ended December 31, 2019, with a cost of $9.1 million.

Fiscal 2020 LTIP

Grants made in Fiscal 2018 under the LTIP (collectively referred to as Fiscal 2020 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2018 starting on August 7, 2017. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2020 LTIP. We expect to settle the Fiscal 2020 LTIP awards in stock.

Fiscal 2021 LTIP

Grants made in Fiscal 2019 under the LTIP (collectively referred to as Fiscal 2021 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2019 starting on August 6, 2018. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2021 LTIP. We expect to settle the Fiscal 2021 LTIP awards in stock.

Fiscal 2022 LTIP

Grants made in Fiscal 2020 under the LTIP (collectively referred to as Fiscal 2022 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2020 starting on August 5, 2019. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2022 LTIP. We expect to settle the Fiscal 2022 LTIP awards in stock.

Restricted Share Units (RSUs)

During the three and nine months ended March 31, 2020, we granted 15,000 RSUs to employees in accordance with employment and other non-LTIP related agreements (three and nine months ended March 31, 2019—nil, respectively). RSUs vest over a specified contract date, typically three years from the respective date of grants. We expect to settle RSU awards in stock.

During the three and nine months ended March 31, 2020, we did not issue any Common Shares from treasury stock in connection with the settlement of vested RSUs (three and nine months ended March 31, 2019—10,000 and 18,794 Common Shares, respectively, with a cost of $0.3 million and $0.6 million, respectively).

Deferred Share Units (DSUs)

During the three and nine months ended March 31, 2020, we granted 4,479 and 78,887 DSUs, respectively, to certain non-employee directors (three and nine months ended March 31, 2019—3,406 and 96,748 DSUs, respectively). The DSUs were issued under our Deferred Share Unit Plan. DSUs granted as compensation for director fees vest immediately, whereas all other DSUs granted vest at our next annual general meeting following the granting of the DSUs. No DSUs are payable by us until the director ceases to be a member of the Board.

Employee Share Purchase Plan (ESPP)

Our ESPP offers employees a purchase price discount of 15%.

During the three and nine months ended March 31, 2020, 221,738 and 549,281 Common Shares, respectively, were eligible for issuance to employees enrolled in the ESPP (three and nine months ended March 31, 2019—187,705 and 523,867 Common Shares, respectively).

During the three and nine months ended March 31, 2020, cash in the amount of approximately $6.6 million and $18.3 million, respectively, was received from employees relating to the ESPP (three and nine months ended March 31, 2019—$6.1 million and $16.2 million, respectively).

    30

NOTE 14—GUARANTEES AND CONTINGENCIES

We have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:

	Payments due between
	Total		April 1, 2020— June 30, 2020		July 1, 2020— June 30, 2022		July 1, 2022— June 30, 2024		July 1, 2024 and beyond
Long-term debt obligations (1)	$	4,772,778	$	35,776	$	329,750	$	328,478	$	4,078,774
Purchase obligations for contracts not accounted for as lease obligations (2)	52,938		14,975		32,963		5,000		—
	$	4,825,716	$	50,751	$	362,713	$	333,478	$	4,078,774

⁽¹⁾ Includes interest up to maturity and principal payments. Excludes $600 million currently drawn on the Revolver, which we expect to repay within one year. Please see note 11 "Long-Term Debt" for more details.

⁽²⁾ For contractual obligations relating to leases and purchase obligations accounted for under Topic 842, please see note 6 "Leases".

Guarantees and Indemnifications

We have entered into customer agreements which may include provisions to indemnify our customers against third party claims that our software products or services infringe certain third party intellectual property rights and for liabilities related to a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification provisions and have not accrued any liabilities related to these indemnification provisions in our Condensed Consolidated Financial Statements.

Occasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including, among others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such agreements have not had a material effect on our results of operations, financial position or cash flows.

Litigation

We are currently involved in various claims and legal proceedings.

Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 "Loss Contingencies" (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances.

If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this Quarterly Report on Form 10-Q, the aggregate of such accrued liabilities was not material to our consolidated financial position or results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations. As described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters.

Contingencies

IRS Matter

As we have previously disclosed, the United States Internal Revenue Service (IRS) is examining certain of our tax returns for our fiscal year ended June 30, 2010 (Fiscal 2010) through our fiscal year ended June 30, 2012 (Fiscal 2012), and in connection with those examinations is reviewing our internal reorganization in Fiscal 2010 to consolidate certain intellectual property ownership in Luxembourg and Canada and our integration of certain acquisitions into the resulting structure. We also previously disclosed that the examinations may lead to proposed adjustments to our taxes that may be material, individually or in the aggregate, and that we have not recorded any material accruals for any such potential adjustments in our Condensed Consolidated Financial Statements.

    31

We previously disclosed that, as part of these examinations, on July 17, 2015 we received from the IRS an initial Notice of Proposed Adjustment (NOPA) in draft form, that, as revised by the IRS on July 11, 2018 proposes a one-time approximately $335 million increase to our U.S. federal taxes arising from the reorganization in Fiscal 2010 (the 2010 NOPA), plus penalties equal to 20% of the additional proposed taxes for Fiscal 2010, and interest at the applicable statutory rate published by the IRS.

On July 11, 2018, we also received, consistent with previously disclosed expectations, a draft NOPA proposing a one time approximately $80 million increase to our U.S. federal taxes for Fiscal 2012 (the 2012 NOPA) arising from the integration of Global 360 Holding Corp. into the structure that resulted from the internal reorganization in Fiscal 2010, plus penalties equal to 40% of the additional proposed taxes for Fiscal 2012, and interest.

On January 7, 2019, we received from the IRS official notification of proposed adjustments to our taxable income for Fiscal 2010 and Fiscal 2012, together with the 2010 NOPA and 2012 NOPA in final form. In each case, such documentation was as expected and on substantially the same terms as provided for in the previously disclosed respective draft NOPAs, with the exception of an additional proposed penalty as part of the 2012 NOPA.

A NOPA is an IRS position and does not impose an obligation to pay tax. We continue to strongly disagree with the IRS’ positions within the NOPAs and we are vigorously contesting the proposed adjustments to our taxable income, along with any proposed penalties and interest.

As of our receipt of the final 2010 NOPA and 2012 NOPA, our estimated potential aggregate liability, as proposed by the IRS, including additional state income taxes plus penalties and interest that may be due, was approximately $770 million, comprised of approximately $455 million in U.S. federal and state taxes, approximately $130 million of penalties, and approximately $185 million of interest. Interest will continue to accrue at the applicable statutory rates until the matter is resolved and may be substantial.

As previously disclosed and noted above, we strongly disagree with the IRS’ positions and we are vigorously contesting the proposed adjustments to our taxable income, along with the proposed penalties and interest. We are examining various alternatives available to taxpayers to contest the proposed adjustments, including through IRS Appeals and U.S. Federal court. Any such alternatives could involve a lengthy process and result in the incurrence of significant expenses. As of the date of this Quarterly Report on Form 10-Q, we have not recorded any material accruals in respect of these examinations in our Condensed Consolidated Financial Statements. An adverse outcome of these tax examinations could have a material adverse effect on our financial position and results of operations.

For additional information regarding the history of this IRS matter, please see Note 13 "Guarantees and Contingencies" in our Annual Report on Form 10-K for Fiscal 2018.

CRA Matter

As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of March 31, 2020, in connection with the CRA's reassessments for Fiscal 2012, Fiscal 2013 and Fiscal 2014 to be limited to penalties and interest that may be due of approximately $25 million.

The notices of reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014 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.

We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013 and Fiscal 2014 (including any penalties) are without merit. We have filed notices of objection for Fiscal 2012, Fiscal 2013 and Fiscal 2014, and we are currently seeking competent authority consideration under applicable international treaties in respect of these reassessments.

Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013 and Fiscal 2014, or potential reassessments that may be proposed for subsequent years currently under audit, 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.

We will continue to vigorously contest the proposed adjustments to our taxable income and any penalty and interest assessments. As of the date of this Quarterly Report on Form 10-Q, we have not recorded any accruals in respect of these reassessments in our Condensed Consolidated Financial Statements. 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 in respect of our international transactions, including the transfer pricing methodology applied to them. The CRA is currently auditing Fiscal 2015, Fiscal 2016 and Fiscal 2017 and have proposed to reassess Fiscal 2015 in a manner consistent with Fiscal 2012, Fiscal 2013 and Fiscal 2014. We are engaged in ongoing discussions with the CRA and continue to vigorously contest the CRA's audit positions.

    32

GXS India Matter

Our Indian subsidiary, GXS India Technology Centre Private Limited (GXS India), is subject to potential assessments by Indian tax authorities in the city of Bangalore. GXS India has received assessment orders from the Indian tax authorities alleging that the transfer price applied to intercompany transactions was not appropriate. Based on advice from our tax advisors, we believe that the facts that the Indian tax authorities are using to support their assessment are incorrect. We have filed appeals and anticipate an eventual settlement with the Indian tax authorities. We have accrued $1.2 million to cover our anticipated financial exposure in this matter.

Carbonite Class Action Complaint

On August 1, 2019, prior to our acquisition of Carbonite, a purported stockholder of Carbonite filed a putative class action complaint against Carbonite, its former Chief Executive Officer, Mohamad S. Ali, and its former Chief Financial Officer, Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A. Luna, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19-cv-11662-LTS). The complaint alleges violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint generally alleges that the defendants made materially false and misleading statements in connection with Carbonite’s Server Backup VM Edition, and seeks, among other things, the designation of the action as a class action, an award of unspecified compensatory damages, costs and expenses, including counsel fees and expert fees, and other relief as the court deems appropriate. On August 23, 2019, a nearly identical complaint was filed in the same court captioned William Feng, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19- cv-11808-LTS) (together with the Luna Complaint, the “Securities Actions”). On November 21, 2019, the 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. The lead counsel's opposition is currently due May 4, 2020. In light of, among other things, the early stage of the litigation, we are unable to predict the outcome of this action and are unable to reasonably estimate the amount or range of loss, if any, that could result from this proceeding.

Carbonite vs Realtime Data

On February 27, 2017, prior to 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 "Realtime Data LLC v. Carbonite, Inc. et al (No 6:17-cv-00121-RWS-JDL)", alleging 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 asserted patents against other companies around the country. In one of those suits, filed in the U.S. District Court for the District of Delaware, the Delaware Court on July 29, 2019 dismissed the lawsuit after declaring invalid three of the four patents asserted by Realtime Data against Carbonite. By way of Order dated August 19, 2019, the U.S. District Court for the District of Massachusetts stayed the action against Carbonite pending appeal of the dismissal in the Delaware lawsuit. As to the fourth patent, the U.S. Patent & Trademark Office Patent Trial and Appeal Board on September 24, 2019 invalidated certain claims of that patent. No trial date has been set in the action against Carbonite. The Company is defending Carbonite vigorously. We have not accrued a loss contingency related to this matter because litigation related to a non-practicing entity is inherently unpredictable. Although a loss is reasonably possible, an unfavorable outcome is not considered by management to be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss associated with this litigation.

Please also see "Risk Factors" included within Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part 1, Item 1A of our Annual Report on Form 10-K for Fiscal 2019.

NOTE 15—INCOME TAXES

Our effective tax rate represents the net effect of the mix of income earned in various tax jurisdictions that are subject to a wide range of income tax rates.

The effective tax rate decreased to a provision of 25.5% for the three months ended March 31, 2020, compared to a provision of 30.9% for the three months ended March 31, 2019. The decrease in tax expense of $23.7 million was primarily due to (i) a decrease of $20.0 million relating to lower net income including the impact of foreign rates, (ii) a decrease of $9.0 million from tax rate differential in tax years applicable to United States loss carryforwards that became eligible for carryback under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act enacted in the third quarter of Fiscal 2020, and (iii)

    33

a decrease of $7.9 million related to tax costs of internal reorganizations that did not recur in Fiscal 2020. These were partially offset by (i) an increase of $4.8 million related to the US Base Erosion Anti-avoidance Tax (US BEAT), (ii) an increase in tax filings in excess of estimates of $3.0 million, (iii) a decrease in tax credits for research and development of $2.9 million resulting from filings in excess of estimates in Fiscal 2019 that did not recur in Fiscal 2020 and (iv) an increase in accruals for repatriations from foreign subsidiaries of $1.7 million. The remainder of the difference was due to normal course movements and non-material items.

The effective tax rate decreased to a provision of 27.5% for the nine months ended March 31, 2020, compared to a provision of 31.6% for the nine months ended March 31, 2019. Tax expense decreased by $19.8 million primarily due to (i) a decrease of $21.5 million in reserves for unrecognized tax benefits resulting from clarifications provided by tax regulations and taxation years becoming statute barred, (ii) a decrease of $15.8 million relating to the tax impact of internal reorganizations of subsidiaries that did not recur in Fiscal 2020, (iii) a decrease of $9.0 million from tax rate differential in tax years applicable to United States loss carryforwards that became eligible for carryback under the CARES Act enacted in the third quarter of Fiscal 2020, (iv) a decrease in net income taxed at foreign rates of $8.3 million, and (v) an increase in tax credits for research and development of $2.9 million. These were partially offset by (i) an increase of $16.6 million relating to a one-time reversal of accruals for repatriations from subsidiaries in the United States in Fiscal 2019 that did not recur in Fiscal 2020, (ii) an increase in tax filings in excess of estimates of $10.4 million, and (iii) the impact of US BEAT of $9.9 million. The remainder of the difference was due to normal course movements and non-material items.

We recognize interest expense and penalties related to income tax matters in income tax expense. For the three and nine months ended March 31, 2020 and 2019, we recognized the following amounts as income tax-related interest expense and penalties:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2020		2019		2020		2019
Interest expense (recoveries)	$	2,814	$	2,823	$	4,048	$	7,430
Penalties expense (recoveries)	100		9		175		568
Total	$	2,914	$	2,832	$	4,223	$	7,998

The following amounts have been accrued on account of income tax-related interest expense and penalties:

	As of March 31, 2020		As of June 30, 2019
Interest expense accrued *	$	68,707	$	64,530
Penalties accrued *	$	2,580	$	2,525

* These balances are primarily included within "Long-term income taxes payable" within the Condensed Consolidated Balance Sheets.

We believe that it is reasonably possible that the gross unrecognized tax benefits, as of March 31, 2020, could decrease tax expense in the next 12 months by $9.3 million, relating primarily to the expiration of competent authority relief and tax years becoming statute barred for purposes of future tax examinations by local taxing jurisdictions.

Our four most significant tax jurisdictions are Canada, the United States, Luxembourg and Germany. Our tax filings remain subject to audits by applicable tax authorities for a certain length of time following the tax year to which those filings relate. The earliest fiscal years open for examination are 2012 for Germany, 2010 for the United States, 2012 for Luxembourg, and 2012 for Canada.

We are subject to tax audits in all major taxing jurisdictions in which we operate and currently have tax audits open in Canada, the United States, Germany, India, the United Kingdom, Italy and Japan. On a quarterly basis we assess the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income and other taxes. Statements regarding the United States and Canada audits are included in note 14 "Guarantees and Contingencies".

The timing of the resolution of income tax audits is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax audits in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on tax filings. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes. For more information relating to certain tax audits, please refer to note 14 "Guarantees and Contingencies".

As at March 31, 2020, we have recognized a provision of $21.7 million (June 30, 2019—$17.4 million) in respect of both additional foreign taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of

    34

certain non-United States subsidiaries and planned periodic repatriations from certain German subsidiaries, that will be subject to withholding taxes upon distribution. We have not provided for additional foreign withholding taxes or deferred income tax liabilities related to undistributed earnings of all other non-Canadian subsidiaries, since such earnings are considered permanently invested in those subsidiaries or are not subject to withholding taxes. It is not practicable to reasonably estimate the amount of additional deferred income tax liabilities or foreign withholding taxes that may be payable should these earnings be distributed in the future.

NOTE 16—FAIR VALUE MEASUREMENT

ASC Topic 820 “Fair Value Measurement” (Topic 820) defines fair value, establishes a framework for measuring fair value, and addresses disclosure requirements for fair value measurements. Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value, in this context, should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including our own credit risk.

In addition to defining fair value and addressing disclosure requirements, Topic 820 establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are: 

• Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

• Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis:

Our financial assets and liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of March 31, 2020 and June 30, 2019:

March 31, 2020

June 30, 2019

Fair Market Measurements using:

Fair Market Measurements using:

March 31, 2020

Quoted prices in active markets for identical assets/ (liabilities)

Significant other observable inputs

Significant unobservable inputs

June 30, 2019

Quoted prices in active markets for identical assets/ (liabilities)

Significant other observable inputs

Significant unobservable inputs

(Level 1)

(Level 2)

(Level 3)

(Level 1)

(Level 2)

(Level 3)

Financial Assets:

Foreign currency forward contracts designated as cash flow hedges (note 17)

$

—

N/A

$

—

N/A

$

736

N/A

$

736

N/A

Financial Liabilities:

Foreign currency forward contracts designated as cash flow hedges (note 17)

$

(3,352

)

N/A

$

(3,352

)

N/A

$

—

N/A

$

—

N/A

Our valuation techniques used to measure the fair values of the derivative instruments, the counterparty to which has high credit ratings, were derived from pricing models including discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data, as no quoted market prices exist for these instruments. Our discounted cash flow techniques use observable market inputs, such as, where applicable, foreign currency spot and forward rates.

    35

Our cash and cash equivalents, along with our accounts receivable and accounts payable and accrued liabilities balances, are measured and recognized in our Condensed Consolidated Financial Statements at an amount that approximates their fair value (a Level 2 measurement) due to their short maturities.

If applicable, we will recognize transfers between levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. During the three and nine months ended March 31, 2020 and 2019, we did not have any transfers between Level 1, Level 2 or Level 3.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities are recognized at fair value when they are deemed to be other-than-temporarily impaired. During the three and nine months ended March 31, 2020 and 2019, no indications of impairment were identified and therefore no fair value measurements were required.

NOTE 17—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Foreign Currency Forward Contracts

We are engaged in hedging programs with various banks to limit the potential foreign exchange fluctuations incurred on future cash flows relating to a portion of our Canadian dollar payroll expenses. We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of our business, in particular to changes in the Canadian dollar on account of large costs that are incurred from our centralized Canadian operations, which are denominated in Canadian dollars. As part of our risk management strategy, we use foreign currency forward contracts to hedge portions of our payroll exposure with typical maturities of between one and twelve months. We do not use foreign currency forward contracts for speculative purposes.

We have designated these transactions as cash flow hedges of forecasted transactions under ASC Topic 815 “Derivatives and Hedging” (Topic 815). As the critical terms of the hedging instrument and of the entire hedged forecasted transaction are the same, in accordance with Topic 815, we have been able to conclude that changes in fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, quarterly unrealized gains or losses on the effective portion of these forward contracts have been included within other comprehensive income. The fair value of the contracts, as of March 31, 2020, is recorded within "Accounts payable and accrued liabilities".

As of March 31, 2020, the notional amount of forward contracts we held to sell U.S. dollars in exchange for Canadian dollars was $63.2 million (June 30, 2019—$62.0 million).

Fair Value of Derivative Instruments and Effect of Derivative Instruments on Financial Performance

The effect of these derivative instruments on our Condensed Consolidated Financial Statements for the periods indicated below were as follows (amounts presented do not include any income tax effects).

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets (see note 16 "Fair Value Measurement")

		As of March 31, 2020			As of June 30, 2019
Derivatives	Balance Sheet Location	Fair Value Asset (Liability)			Fair Value Asset (Liability)
Foreign currency forward contracts designated as cash flow hedges	Prepaid expenses and other current assets (Accounts payable and accrued liabilities)	$	(3,352	)	$	736

    36

Effects of Derivative Instruments on Income and Other Comprehensive Income (OCI)

Three and Nine Months Ended March 31, 2020
Derivatives in Cash Flow Hedging Relationship	Amount of Gain or (Loss) Recognized in OCI on Derivatives  (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Three Months Ended March 31, 2020			Nine Months Ended March 31, 2020				Three Months Ended March 31, 2020			Nine Months Ended March 31, 2020
Foreign currency forward contracts	$	(4,815	)	$	(4,459	)	Operating expenses	$	(458	)	$	(371	)
Three and Nine Months Ended March 31, 2019
Derivatives in Cash Flow Hedging Relationship	Amount of Gain or (Loss) Recognized in OCI on Derivatives  (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Three Months Ended March 31, 2019			Nine Months Ended March 31, 2019				Three Months Ended March 31, 2019			Nine Months Ended March 31, 2019
Foreign currency forward contracts	$	837		$	(1,034	)	Operating expenses	$	(470	)	$	(1,604	)

NOTE 18—SPECIAL CHARGES (RECOVERIES)

Special charges (recoveries) include costs and recoveries that relate to certain restructuring initiatives that we have undertaken from time to time under our various restructuring plans, as well as acquisition-related costs and other charges. 

	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Fiscal 2020 Restructuring Plan	$	5,899		$	—		$	5,899		$	—
Fiscal 2019 Restructuring Plan	(29		)	667			1,650			26,906
Fiscal 2018 Restructuring Plan	—			7			86			517
Restructuring Plans prior to Fiscal 2018 Restructuring Plan	50			(65		)	(232		)	410
Acquisition-related costs	2,453			1,430			12,898			5,134
Other charges (recoveries)	1,033			(1,243		)	4,278			520
Total	$	9,406		$	796		$	24,579		$	33,487

Fiscal 2020 Restructuring Plan

During Fiscal 2020, we began to implement restructuring activities to streamline our operations (Fiscal 2020 Restructuring Plan), including in connection with our acquisitions of Carbonite and XMedius, to take further steps to improve our operational efficiency. The Fiscal 2020 Restructuring Plan charges relate to workforce reductions and facility consolidations. These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate.

As of March 31, 2020, we expect total costs to be incurred in connection with the Fiscal 2020 Restructuring Plan to be approximately $26 million to $34 million, of which approximately $5.9 million has been recorded within "Special charges (recoveries)" to date.

    37

A reconciliation of the beginning and ending restructuring liability, which is included within "Accounts payable and accrued liabilities" in our Condensed Consolidated Balance Sheets, for the nine months ended March 31, 2020 is shown below.

Fiscal 2020 Restructuring Plan	Workforce reduction			Facility costs			Total
Balance payable as at June 30, 2019	$	—		$	—		$	—
Accruals and adjustments	5,505			394			5,899
Cash payments	(2,295		)	(36		)	(2,331		)
Foreign exchange and other non-cash adjustments	(166		)	(94		)	(260		)
Balance payable as at March 31, 2020	$	3,044		$	264		$	3,308

We incurred no charges associated with the re-measurement of facility related ROU assets during the three and nine months ended March 31, 2020, respectively, as part of the Fiscal 2020 Restructuring Plan.

Fiscal 2019 Restructuring Plan

During Fiscal 2019, we began to implement restructuring activities to streamline our operations (Fiscal 2019 Restructuring Plan), including in connection with our acquisitions of Catalyst Repository Systems Inc. (Catalyst) and Liaison Technologies, Inc. (Liaison), to take further steps to improve our operational efficiency. The Fiscal 2019 Restructuring Plan charges relate to workforce reductions and facility consolidations. These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate.

Since the inception of the plan, approximately $30.0 million has been recorded within "Special charges (recoveries)" to date. We do not expect to incur any further significant charges relating to this plan.

A reconciliation of the beginning and ending liability for the nine months ended March 31, 2020 is shown below.

Fiscal 2019 Restructuring Plan	Workforce reduction			Facility costs			Total
Balance payable as at June 30, 2019	$	1,819		$	5,288		$	7,107
Adjustment for Topic 842 (note 1 and note 6)	—			(5,288		)	(5,288		)
Accruals and adjustments	560			1,090			1,650
Cash payments	(1,637		)	(1,090		)	(2,727		)
Foreign exchange and other non-cash adjustments	(249		)	—			(249		)
Balance payable as at March 31, 2020	$	493		$	—		$	493

Fiscal 2018 Restructuring Plan

During Fiscal 2018 and in the context of our acquisitions of Covisint Corporation, Guidance Software Inc. and Hightail, Inc., we implemented restructuring activities to streamline our operations (collectively referred to as the Fiscal 2018 Restructuring Plan). The Fiscal 2018 Restructuring Plan charges relate to workforce reductions and facility consolidations. These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate.

Since the inception of the plan, approximately $10.8 million has been recorded within "Special charges (recoveries)" to date. We do not expect to incur any further significant charges relating to this plan.

A reconciliation of the beginning and ending liability for the nine months ended March 31, 2020 is shown below.

Fiscal 2018 Restructuring Plan	Workforce reduction			Facility costs			Total
Balance payable as at June 30, 2019	$	150		$	486		$	636
Adjustment for Topic 842 (note 1 and note 6)	—			(486		)	(486		)
Accruals and adjustments	(62		)	148			86
Cash payments	(39		)	(148		)	(187		)
Foreign exchange and other non-cash adjustments	(10		)	—			(10		)
Balance payable as at March 31, 2020	$	39		$	—		$	39

    38

Other charges (recoveries)

For the three months ended March 31, 2020, "Other charges" includes $1.0 million relating to other miscellaneous charges.

For the nine months ended March 31, 2020, "Other charges" includes $0.7 million relating to the write-off of ROU assets and approximately $3.6 million relating to other miscellaneous charges.

For the three months ended March 31, 2019, "Other recoveries" include $1.5 million relating to certain pre-acquisition sales and use tax liabilities becoming statute barred, partially offset by $0.2 million relating to other miscellaneous charges.

For the nine months ended March 31, 2019, "Other charges" include (i) $1.1 million relating to one-time system implementation costs and (ii) $0.9 million relating to other miscellaneous charges. These charges were partially offset by a recovery of $1.5 million relating to certain pre-acquisition sales and use tax liabilities becoming statute barred.

NOTE 19—ACQUISITIONS

Fiscal 2020 Acquisitions

Acquisition of XMedius

On March 9, 2020, we acquired all of the equity interest in XMedius for approximately $73.3 million in an all cash transaction. XMedius is a provider of secure information exchange and unified communication solutions. In accordance with ASC Topic 805 "Business Combinations" (Topic 805), this acquisition was accounted for as a business combination. We believe the acquisition will complement our Customer Experience Management (CEM) and Business Network (BN) platforms.

The results of operations of this acquisition have been consolidated with those of OpenText beginning March 9, 2020.

Preliminary Purchase Price Allocation

The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as of March 9, 2020, are set forth below:

Current assets	$	8,433
Non-current tangible assets	3,792
Intangible customer assets	35,910
Intangible technology assets	11,143
Liabilities assumed	(35,842		)
Total identifiable net assets	23,436
Goodwill	49,899
Net assets acquired	$	73,335

The goodwill of approximately $49.9 million is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately $0.1 million is expected to be deductible for tax purposes.

Included in total identifiable net assets is acquired deferred revenue with a fair value of $18.5 million, which represents our estimate of the fair value of the contractual obligations assumed based on a valuation. In arriving at this fair value, we reduced the acquired company’s original carrying value by approximately $2.7 million.

The fair value of current assets acquired includes accounts receivable with a fair value of $6.5 million. The gross amount receivable was $6.7 million, of which $0.2 million is expected to be uncollectible.

Acquisition-related costs for XMedius included in "Special charges (recoveries)" in the Condensed Consolidated Financial Statements for the three and nine months ended March 31, 2020 were $0.8 million, respectively.

The finalization of the above purchase price allocation is pending the finalization of the valuation of fair value for the assets acquired and liabilities assumed, including intangible assets and taxation-related balances as well as for potential unrecorded liabilities. We expect to finalize this determination on or before our quarter ending March 31, 2021.

Since the date of acquisition, the acquisition had no significant impact on revenues and net earnings for the three and nine months ended March 31, 2020. Pro forma results of operations for this acquisition have not been presented because they are not material to our consolidated results of operations.

    39

Acquisition of Carbonite

On December 24, 2019, we acquired all of the equity interest in Carbonite, a leading provider of cloud-based subscription backup, disaster recovery and endpoint security to small and medium-sized businesses (SMB), consumers, and a wide variety of partners. Total consideration for Carbonite was approximately $1.4 billion paid in cash (inclusive of cash acquired) and inclusive of approximately $0.1 billion, relating to the cash settlement of pre-acquisition stock compensation that was previously accrued but since paid as of March 31, 2020. In accordance with ASC Topic 805, this acquisition was accounted for as a business combination. We believe the acquisition will increase our position in the data protection and endpoint security space, further strengthen our cloud capabilities and open a new route to connect with customers through Carbonite's marquee SMB and consumer channels and products.

The results of operations of Carbonite have been consolidated with those of OpenText beginning December 24, 2019.

Preliminary Purchase Price Allocation

The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as of December 24, 2019, are set forth below:

Current assets (inclusive of cash acquired of $62.9 million)	$	129,779
Non-current tangible assets (inclusive of restricted cash acquired of $2.4 million)	102,936
Intangible customer assets	549,000
Intangible technology assets	291,000
Liabilities assumed	(570,656		)
Total identifiable net assets	502,059
Goodwill	868,365
Net assets acquired	$	1,370,424

The goodwill of approximately $868.4 million is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately $6.9 million is expected to be deductible for tax purposes.

Included in total identifiable net assets is acquired deferred revenue with a fair value of approximately $171.0 million, which represents our estimate of the fair value of the contractual obligations assumed. In arriving at this fair value, we reduced the acquired company’s original carrying value by approximately $74.7 million.

The fair value of current assets acquired includes accounts receivable with a fair value of $45.7 million. The gross amount receivable was $47.1 million of which $1.4 million of this receivable was expected to be uncollectible.

Acquisition-related costs for Carbonite included in "Special charges (recoveries)" in the Condensed Consolidated Financial Statements for the three and nine months ended March 31, 2020 were $1.1 million and $8.5 million, respectively.

The finalization of the above purchase price allocation is pending the finalization of the valuation of fair value for the assets acquired and liabilities assumed, including intangible assets and taxation-related balances as well as for potential unrecorded liabilities. We expect to finalize this determination on or before our quarter ending December 31, 2020.

The amount of Carbonite's revenues and net loss included in our Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2020 is set forth below:

	January 1, 2020 - March 31, 2020			December 24, 2019 - March 31, 2020
Revenues	$	110,351		$	119,862
Net Loss *	(27,877		)	(31,531		)

* Net loss for the three and nine months ended includes one-time fees of approximately $2.8 million and $5.4 million, respectively, on account of special charges and $48.0 million and $52.2 million, respectively, of amortization charges relating to intangible assets, all net of tax.

The unaudited pro forma revenues and net income of the combined entity for the three and nine months ended March 31, 2020 and 2019, respectively, had the acquisition been consummated on July 1, 2018, are set forth below:

    40

	Three Months Ended March 31,		Nine Months Ended March 31,
Supplemental Unaudited Pro Forma Information(1)	2019		2020		2019
Total Revenues	$	800,361	$	2,524,726	$	2,357,397
Net Income (2) (3)	44,984		134,778		35,236

⁽¹⁾Carbonite acquired Webroot Inc. in March 2019. The supplemental pro forma revenues and net income shown above do not include the results of operations of Webroot Inc. for periods prior to the Webroot acquisition date.

⁽²⁾ Included in pro forma net income for the nine months ended March 31, 2019 are approximately $127 million of one-time expenses incurred by Carbonite on account of the acquisition and the related tax effect of approximately $33 million. These one-time expenses included i) approximately $74 million related to the accelerated vesting of historical Carbonite equity awards, ii) approximately $29 million of one time fees, primarily related to transaction costs triggered by the closing of the acquisition, iii) $21 million related to the extinguishment of certain of Carbonite's historical debt and interest rate swaps and iv) approximately $3 million in employee severance costs.

⁽³⁾ Included in pro forma net income for the nine months ended March 31, 2020 and three and nine months ended March 31, 2019 are estimated amortization charges relating to the allocated value of intangible assets.

There was no pro forma impact during the three months ended March 31, 2020. The unaudited pro forma financial information in the table above is presented for information purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the periods presented or the results that may be realized in the future.

Acquisition of Dynamic Solutions Group Inc. (The Fax Guys)

On December 2, 2019, we acquired certain assets and assumed certain liabilities of The Fax Guys, for approximately $5.1 million, of which $1.0 million is currently held back and unpaid in accordance with the terms of the purchase agreement. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements our Enterprise Information Management (EIM) portfolio.

The results of operations of The Fax Guys have been consolidated with those of OpenText beginning December 2, 2019.

Since the date of acquisition, the acquisition had no significant impact on revenues and net earnings for the three and nine months ended March 31, 2020. Pro forma results of operations for this acquisition have not been presented because they are not material to our consolidated results of operations.

Fiscal 2019 Acquisitions

Acquisition of Catalyst Repository Systems Inc.

On January 31, 2019, we acquired all of the equity interest in Catalyst, a leading provider of eDiscovery that designs, develops and supports market-leading cloud eDiscovery software. Total consideration for Catalyst was approximately $71.4 million, of which $70.8 million was paid in cash and approximately $0.6 million is currently held back and unpaid in accordance with the purchase agreement. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements and extends our EIM portfolio.

The results of operations of this acquisition have been consolidated with those of OpenText beginning January 31, 2019.

Purchase Price Allocation

The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of January 31, 2019, are set forth below:

Current assets	$	9,699
Non-current tangible assets	5,754
Intangible customer assets	30,607
Intangible technology assets	11,658
Liabilities assumed	(17,891		)
Total identifiable net assets	39,827
Goodwill	31,607
Net assets acquired	$	71,434

    41

The goodwill of approximately $31.6 million is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately $3.1 million is expected to be deductible for tax purposes.

Included in total identifiable net assets is acquired deferred revenue with a fair value of $0.8 million, which represents our estimate of the fair value of the contractual obligations assumed based on a valuation. In arriving at this fair value, we reduced the acquired company’s original carrying value by an insignificant amount.

The fair value of current assets acquired includes accounts receivable with a fair value of $10.8 million. The gross amount receivable was $11.8 million, of which $1.0 million is expected to be uncollectible.

The finalization of the purchase price allocation during the three months ended March 31, 2020 resulted in an adjustment to amounts previously disclosed of approximately $0.6 million.

Acquisition of Liaison Technologies, Inc.

On December 17, 2018, we acquired all of the equity interest in Liaison, a leading provider of cloud-based business to business integration, for approximately $310.6 million in an all cash transaction. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements and extends our EIM portfolio.

The results of operations of this acquisition have been consolidated with those of OpenText beginning December 17, 2018.

Purchase Price Allocation

The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of December 17, 2018, are set forth below:

Current assets	$	23,006
Non-current tangible assets	5,168
Intangible customer assets	68,300
Intangible technology assets	107,000
Liabilities assumed	(57,265		)
Total identifiable net assets	146,209
Goodwill	164,434
Net assets acquired	$	310,643

The goodwill of approximately $164.4 million is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately $2.2 million is expected to be deductible for tax purposes.

Included in total identifiable net assets is acquired deferred revenue with a fair value of $7.6 million, which represents our estimate of the fair value of the contractual obligations assumed. In arriving at this fair value, we reduced the acquired company’s original carrying value by an insignificant amount.

The fair value of current assets acquired includes accounts receivable with a fair value of $20.5 million. The gross amount receivable was $22.2 million, of which $1.7 million is expected to be uncollectible.

The finalization of the purchase price allocation during the three months ended December 31, 2019 did not result in any significant changes to the preliminary amounts previously disclosed.

NOTE 20—SUPPLEMENTAL CASH FLOW DISCLOSURES

	Three Months Ended March 31,				Nine Months Ended March 31,
	2020		2019		2020		2019
Cash paid during the period for interest	$	43,657	$	33,585	$	111,786	$	102,348
Cash received during the period for interest	$	2,743	$	987	$	10,166	$	4,346
Cash paid during the period for income taxes	$	42,509	$	26,190	$	75,881	$	66,002

NOTE 21—OTHER INCOME (EXPENSE), NET

Other income (expense), net relates to certain non-operational charges primarily consisting of debt extinguishment costs, income or losses in our share of investments accounted for under the equity method and of transactional foreign exchange gains (losses). The income (expense) from foreign exchange is dependent upon the change in foreign currency exchange rates vis-à-

    42

vis the functional currency of the legal entity.

	Three Months Ended March 31,					Nine Months Ended March 31,
	2020			2019		2020			2019
Foreign exchange gains (losses)	$	(5,766	)	$	2,033	$	(9,073	)	$	(4,124	)
OpenText share in net income of equity investees (note 9)	4,527			2,789		6,475			10,652
Loss on debt extinguishment (1)	(17,854		)	—		(17,854		)	—
Other miscellaneous income (expense)	170			243		716			437
Total other income (expense), net	$	(18,923	)	$	5,065	$	(19,736	)	$	6,965

⁽¹⁾ On March 5, 2020 we redeemed Senior Notes 2023 in full, which resulted in a loss on extinguishment of debt of approximately $17.9 million. Of this, approximately $6.7 million relates to unamortized debt issuance costs and the remaining $11.2 million relates to the early termination call premium. See note 11 "Long-Term Debt".

NOTE 22—EARNINGS PER SHARE

Basic earnings per share are computed by dividing net income, attributable to OpenText, by the weighted average number of Common Shares outstanding during the period. Diluted earnings per share are computed by dividing net income, attributable to OpenText, by the shares used in the calculation of basic earnings per share plus the dilutive effect of Common Share equivalents, such as stock options, using the treasury stock method. Common Share equivalents are excluded from the computation of diluted earnings per share if their effect is anti-dilutive.

	Three Months Ended March 31,				Nine Months Ended March 31,
	2020		2019		2020		2019
Basic earnings per share
Net income attributable to OpenText	$	25,965	$	72,762	$	207,833	$	213,518
Basic earnings per share attributable to OpenText	$	0.10	$	0.27	$	0.77	$	0.80
Diluted earnings per share
Net income attributable to OpenText	$	25,965	$	72,762	$	207,833	$	213,518
Diluted earnings per share attributable to OpenText	$	0.10	$	0.27	$	0.77	$	0.79
Weighted-average number of shares outstanding (in 000's)
Basic	271,221		268,991		270,559		268,511
Effect of dilutive securities	981		1,039		1,084		1,095
Diluted	272,202		270,030		271,643		269,606
Excluded as anti-dilutive(1)	3,361		2,928		2,681		2,643

⁽¹⁾ Represents options to purchase Common Shares excluded from the calculation of diluted earnings per share because the exercise price of the stock options was greater than or equal to the average price of the Common Shares during the period.

NOTE 23—RELATED PARTY TRANSACTIONS

Our procedure regarding the approval of any related party transaction requires that the material facts of such transaction be reviewed by the independent members of the Audit Committee and the transaction be approved by a majority of the independent members of the Audit Committee. The Audit Committee reviews all transactions in which we are, or will be, a participant and any related party has or will have a direct or indirect interest in the transaction. In determining whether to approve a related party transaction, the Audit Committee generally takes into account, among other facts it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent and nature of the related person’s interest in the transaction; the benefits to the Company of the proposed transaction; if applicable, the effects on a director’s independence; and if applicable, the availability of other sources of comparable services or products.

During the nine months ended March 31, 2020, Mr. Stephen Sadler, a member of the Board of Directors, earned approximately $0.7 million (nine months ended March 31, 2019—$0.6 million) in consulting fees from OpenText for assistance with acquisition-related business activities. Mr. Sadler abstained from voting on all transactions from which he would potentially derive consulting fees.

    43

NOTE 24—SUBSEQUENT EVENTS

Cash Dividends

As part of our quarterly, non-cumulative cash dividend program, we declared, on April 29, 2020, a dividend of $0.1746 per Common Share. The record date for this dividend is May 29, 2020 and the payment date is June 19, 2020. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of our Board.

COVID-19 Restructuring Plan

On March 3, 2020, COVID-19 was characterized as a pandemic by the World Health Organization. The spread of COVID-19 has significantly impacted the global economy and is expected to adversely impact our operational and financial performance. The extent of the adverse impact of the pandemic on the global economy and markets will depend, in part, on the length and severity of the measures taken to limit the spread of the virus and, in part, on the size and effectiveness of the compensating measures taken by governments. We are closely monitoring the potential effects and impact on our operations, businesses and financial performance, including liquidity and capital usage, though the extent of the impact is difficult to fully predict at this time due to the rapid evolution of this uncertain situation.

On April 29, 2020, our Board approved a restructuring plan that will impact our global workforce and execute a significant reduction in our real estate footprint around the world. The estimated total cost of the plan is expected to be in the range of $80 million to $100 million and the plan is expected to be implemented over the next six to twelve months.

The Company has made a strategic decision to move towards a significant work from home (WFH) model. As a result of COVID-19, more than 95% of our employees are currently WFH, and we are now making plans for the future return to office strategy for our nearly 15,000 employees. We currently have approximately 120 offices around the world, and our intent, over time, is to make a significant reduction in the number of offices, anticipated to be over 50% of our global offices impacting approximately 15% of our employees. Based upon our plan, we estimate that this transition can be executed over the next six to twelve months. Management has estimated cost of this restructuring to be in the range of $65 million to $80 million, including the write-off of ROU assets relating to leases, the write-off of leases and fixed assets and other related costs.

We have also approved and begun executing an employee rationalization program across various departments in order to further reduce our cost base in light of the anticipated adverse effects and impact of COVID-19. We estimate severance costs to be in the range of $15 million to $20 million.

    44

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q, including this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the U.S. Securities Act of 1933, as amended (the Securities Act), and is subject to the safe harbors created by those sections. All statements other than statements of historical facts are statements that could be deemed forward-looking statements.

When used in this report, the words “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “could”, “would”, "might", "will" and other similar language, as they relate to Open Text Corporation (“OpenText” or the “Company”), are intended to identify forward-looking statements under applicable securities laws. Specific forward-looking statements in this report include, but are not limited to: (i) statements about our focus in the fiscal year beginning July 1, 2019 and ending June 30, 2020 (Fiscal 2020) on growth in earnings and cash flows; (ii) creating value through investments in broader Information Management (IM) capabilities; (iii) our future business plans and business planning process; (iv) statements relating to business trends; (v) statements relating to distribution; (vi) the Company’s presence in the cloud and in growth markets; (vii) product and solution developments, enhancements and releases and the timing thereof; (viii) the Company’s financial conditions, results of operations and earnings; (ix) the basis for any future growth and for our financial performance; (x) declaration of quarterly dividends; (xi) future tax rates; (xii) the changing regulatory environment; (xiii) annual recurring revenues; (xiv) research and development and related expenditures; (xv) our building, development and consolidation of our network infrastructure; (xvi) competition and changes in the competitive landscape; (xvii) our management and protection of intellectual property and other proprietary rights; (xviii) existing and foreign sales and exchange rate fluctuations; (xix) cyclical or seasonal aspects of our business; (xx) capital expenditures; (xxi) potential legal and/or regulatory proceedings; (xxii) statements about acquisitions and their expected impact; and (xxiii) other matters.

In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management’s perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The forward-looking statements contained in this report are based on certain assumptions including the following: (i) countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports; (ii) our continued operation of a secure and reliable business network; (iii) the stability of general economic and market conditions, currency exchange rates, and interest rates; (iv) equity and debt markets continuing to provide us with access to capital; (v) our continued ability to identify, source and finance attractive and executable business combination opportunities; and (vi) our continued compliance with third party intellectual property rights. Management’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and assumptions will prove to be correct.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (ii) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on our outstanding debt securities; (iii) 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; (iv) the risks associated with bringing new products and services to market; (v) fluctuations in currency exchange rates (including as a result of the impact of Brexit and any policy changes resulting from trade and tariff disputes); (vi) delays in the purchasing decisions of the Company’s customers; (vii) the competition the Company faces in its industry and/or marketplace; (viii) the final determination of litigation, tax audits (including tax examinations in the United States, Canada or elsewhere) and other legal proceedings; (ix) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, U.S. or international tax regimes; (x) the possibility of technical, logistical or planning issues in connection with the deployment of the Company’s products or services; (xi) the continuous commitment of the Company’s customers; (xii) demand for the Company’s products and services; (xiii) increase in exposure to international business risks (including as a result of the impact of Brexit and any policy changes resulting from the transition from the North American Free Trade Agreement to the United States-Mexico-Canada Agreement) as we continue to increase our international operations; (xiv) inability to raise capital at all or on not unfavorable terms in the future; (xv) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions); and (xvi) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities. Other factors that may affect forward-looking statements include, but are not limited to: (i) the future performance, financial and otherwise, of the Company; (ii) the ability of the Company to bring new products and services to market and to increase sales; (iii) the strength of the Company’s product

    45

development pipeline; (iv) failure to secure and protect patents, trademarks and other proprietary rights; (v) infringement of third-party proprietary rights triggering indemnification obligations and resulting in significant expenses or restrictions on our ability to provide our products or services; (vi) failure to comply with privacy laws and regulations that are extensive, open to various interpretations and complex to implement including General Data Protection Regulation (GDPR) and Country by Country Reporting; (vii) the Company’s growth and other profitability prospects; (viii) the estimated size and growth prospects of the IM market; (ix) the Company’s competitive position in the IM market and its ability to take advantage of future opportunities in this market; (x) the benefits of the Company’s products and services to be realized by customers; (xi) the demand for the Company’s products and services and the extent of deployment of the Company’s products and services in the IM marketplace; (xii) the Company’s financial condition and capital requirements; (xiii) system or network failures or information security breaches in connection with the Company's offerings and information technology systems generally; (xiv) failure to attract and retain key personnel to develop and effectively manage the Company's business; (xv) potential risks and uncertainties relating to the ultimate geographic spread of COVID-19, the severity of the disease and the duration of the COVID-19 outbreak, including potential material adverse effect on our business, operations and financial performance; (xvi) actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact on our business; (xvii) the potential negative impacts of COVID-19 on the global economy and financial markets; and (xviii) the potential risk and uncertainties relating to the implementation of our COVID-19 restructuring plan, including the possibility that the actual cash or non-cash cost of restructuring might exceed the estimated amounts.

For additional information with respect to risks and other factors which could occur, see Part II, Item 1A "Risk Factors" herein and the Company's Annual Report on Form 10-K, including Part I, Item 1A "Risk Factors" therein; Quarterly Reports on Form 10-Q, including Item 1A herein and other documents we file from time to time with the Securities and Exchange Commission (SEC) and other securities regulators. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless otherwise required by applicable securities laws, the

Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new

information, future events or otherwise.

The following MD&A is intended to help readers understand our results of operations and financial condition, and is

provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and

the accompanying Notes to our Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on

Form 10-Q.

All dollar and percentage comparisons made herein refer to the three and nine months ended March 31, 2020 compared with the three and nine months ended March 31, 2019, 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.

    46

EXECUTIVE OVERVIEW

OpenText is an information management company, historically focused primarily on enabling the intelligent and connect enterprise. With our recent acquisition of Carbonite Inc. (Carbonite), we believe we have entered into the next phase of our Total Growth strategy where we have an opportunity to take advantage of Carbonite's world-class channel organization and partners, to bring our information management (IM) solutions to all size customers, including small and medium businesses (SMB) and consumers. The comprehensive OpenText IM platform and suite of software products and services provide secure and scalable solutions for global companies, SMBs, governments and consumers around the world. With our software, organizations manage a valuable asset - information: information that is made more valuable by connecting it to digital business processes, information that is enriched with analytics, information that is protected and secure throughout its entire lifecycle, information that captivates customers, and information that connects and fuels some of the world's largest digital supply chains in manufacturing, retail, and financial services. Our IM solutions are designed to enable organizations and professional consumers to secure their information so that they can collaborate with confidence, validate endpoints with all machines and the Internet of Things (IoT), stay ahead of the regulatory technology curve, identify threats that cross their networks, leverage discovery with information forensics, and gain insight and action through analytics, artificial intelligence (AI) and automation.

We offer software through traditional on-premises solutions, cloud solutions or a combination of both. We believe our customers will operate in hybrid on-premises and cloud environments, and we are ready to support the delivery method the customer prefers. In providing choice and flexibility, we strive to maximize the lifetime value of the relationship with our customers.

Our initial public offering was on the NASDAQ in 1996 and we were subsequently listed on the Toronto Stock Exchange (TSX) in 1998. We are a multinational company and as of March 31, 2020, employed approximately 15,000 people worldwide.

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

Quarterly Summary:

During the third quarter of Fiscal 2020 we saw the following activity:

• Total revenue was $814.7 million, up 13.3% compared to the same period in the prior fiscal year; up 14.1% after factoring in the impact of $5.7 million of foreign exchange rate changes.

• Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and customer support revenue, was $662.3 million, up 20.6% compared to the same period in the prior fiscal year; up 21.3% after factoring in the impact of $4.0 million of foreign exchange rate changes.

• Cloud services and subscriptions revenue was $339.5 million, up 42.3% compared to the same period in the prior fiscal year; up 42.8% after factoring in the impact of $1.2 million of foreign exchange rate changes.

• License revenue was $81.1 million, down 17.9% compared to the same period in the prior fiscal year; down 17.0% after factoring in the impact of $0.9 million of foreign exchange rate changes.

• GAAP-based EPS, diluted, was $0.10 compared to $0.27 in the same period in the prior fiscal year.

• Non-GAAP-based EPS, diluted, was $0.61 compared to $0.64 in the same period in the prior fiscal year.

• GAAP-based gross margin was 65.4% compared to 66.7% in the same period in the prior fiscal year.

• Non-GAAP-based gross margin was 73.3% compared to 73.0% in the same period in the prior fiscal year.

• GAAP-based net income attributable to OpenText was $26.0 million compared to $72.8 million in the same period in the prior fiscal year.

• Non-GAAP-based net income attributable to OpenText was $166.3 million compared to $173.0 million in the same period in the prior fiscal year.

• Adjusted EBITDA was $259.5 million compared to $261.8 million in the same period in the prior fiscal year.

• Operating cash flow was $674.3 million for the nine months ended March 31, 2020, up 4.3% from the same period in the prior fiscal year.

• Cash and cash equivalents was $1,452.6 million as of March 31, 2020, compared to $941.0 million as of June 30, 2019. As of March 31, 2020, our cash and cash equivalents and the current portion of our long-term debt include a $600 million draw down on the Revolver in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak.

• Issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 and $900 million in aggregate principal amount of 4.125% Senior Notes due 2030.

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

    47

See "Acquisitions" below for the impact of acquisitions on the period-to-period comparability of results.

Acquisitions

Our competitive position in the marketplace requires us to maintain an evolving array of technologies, products, services and capabilities. In light of the continually evolving marketplace in which we operate, on an ongoing basis 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 XMedius

On March 9, 2020, we acquired all of the equity interest in XMedius for approximately $73.3 million in an all cash transaction. XMedius is a provider of secure information exchange and unified communication solutions. We believe the acquisition will complement our Customer Experience Management (CEM) and Business Network (BN) platforms. The results of operations of this acquisition have been consolidated with those of OpenText beginning March 9, 2020.

Acquisition of Carbonite

On December 24, 2019, we acquired all of the equity interest in Carbonite, a leading provider of cloud-based subscription backup, disaster recovery and endpoint security to SMB, consumers, and a wide variety of partners. Total consideration for Carbonite was approximately $1.4 billion, paid in cash (inclusive of cash acquired) and inclusive of approximately $0.1 billion relating to the cash settlement of pre-acquisition stock compensation that was previously accrued but since paid as of March 31, 2020. We believe the acquisition will increase our position in the data protection and endpoint security space, further strengthen our cloud capabilities and open a new route to connect with customers through Carbonite's marquee SMB and consumer channels and products. The results of operations of Carbonite have been consolidated with those of OpenText beginning December 24, 2019.

Acquisition of Dynamic Solutions Group Inc. (The Fax Guys)

On December 2, 2019, we acquired certain assets and certain liabilities of The Fax Guys, for approximately $5.1 million, of which $1.0 million is currently held back and unpaid in accordance with the terms of the purchase agreement. The results of operations of The Fax Guys have been consolidated with those of OpenText beginning December 2, 2019.

We believe our acquisitions support our long-term strategic direction, strengthen our competitive position, expand our customer base, provide greater scale to accelerate innovation, grow our earnings and provide superior shareholder value. We expect to continue to strategically acquire companies, products, services and technologies to augment our existing business. Our acquisitions, particularly significant ones, can affect the period-to-period comparability of our results. See note 19 "Acquisitions" to our Condensed Consolidated Financial Statements for more details.

Outlook for remainder of Fiscal 2020

As an organization, our management believes in delivering “Total Growth”, meaning we strive towards delivering value through organic initiatives, innovations and acquisitions, as well as financial performance. This growth is further enhanced through our direct and indirect sales distribution channels. With an emphasis on improving productivity, increasing recurring revenues and expanding our margins, we believe our “Total Growth” strategy will ultimately drive overall cash flow generation, thus helping to fuel our disciplined capital allocation approach and further drive our ability to deepen our account coverage and identify and execute strategic acquisitions. With strategic acquisitions, we are better positioned to expand our product portfolio and improve our ability to innovate and grow organically, which then further helps us to meet our long-term growth targets. We believe this “Total Growth” strategy is a durable model that will create shareholder value over both the near and long-term.

We are committed to continuous innovation. Our investments in research and development (R&D) drive product innovation, increasing the value of our offerings to our installed customer base, which includes Global 10,000 companies, SMBs and consumers. More valuable products, coupled with our established global partner program, lead to greater distribution and cross-selling opportunities which further help us to achieve organic growth. On a fiscal year to date basis, we have invested approximately $270 million or approximately 12% of revenue in R&D, in line with our target to spend approximately 11% to 13% of revenues for R&D this fiscal year.

The cloud has become a business imperative. What used to be discussed as a potential option for managing budgets, is now a strategic direction that drives competitive positioning, product innovation, business agility, and cost management. We are committed to continue our investment in the OpenText Cloud, which is a purpose-built cloud environment for solutions spanning Information Management, Compliance, and B2B Integration. Supported by a global, scalable, and secure

    48

infrastructure, the OpenText Cloud includes a foundational platform of technology services, and packaged business applications for industry and business processes. The OpenText Cloud enables organizations to protect and manage information in public, private or hybrid deployments.

We remain a value oriented and disciplined strategic acquirer, having efficiently deployed approximately $7.4 billion on acquisitions over the last 10 years. Mergers and acquisitions are one of our leading growth drivers. We believe in creating value by focusing on acquiring strategic businesses, integrating them into our business model and using our acquired assets to innovate. We have developed a philosophy, which we refer to as “The OpenText Business System”, that is designed to create value by leveraging a clear set of operational mandates for integrating newly acquired companies and assets. We see our ability to successfully integrate acquired companies and assets into our business as a strength and pursuing strategic acquisitions is an important aspect to our Total Growth strategy.

On March 3, 2020, COVID-19 was characterized as a pandemic by the World Health Organization. The spread of COVID-19 has significantly impacted the global economy and is expected to adversely impact our operational and financial performance. The extent of the adverse impact of the pandemic on the global economy and markets will depend, in part, on the length and severity of the measures taken to limit the spread of the virus and, in part, on the size and effectiveness of the compensating measures taken by governments. We are closely monitoring the potential effects and impact on our operations, businesses and financial performance, including liquidity and capital usage, though the extent is difficult to fully predict at this time due to the rapid evolution of this uncertain situation.

We are conducting business with substantial modifications to employee travel, employee work locations and virtualization or cancellations of all sales and marketing events, along with substantially modified interactions with customers and suppliers, among other modifications. In March 2020, we also drew down $600 million from the Revolver as a preemptive measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak. We will continue to actively monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies, including customer purchasing decisions, and may take further actions that alter our business operations as may be required by governments, or that we determine are in the best interest of our employees, customers, partners, suppliers, and shareholders. It is uncertain and difficult to predict what the potential effects any such alterations or modifications may have on our business including the effects on our customers and prospects, or our financial results and our ability to successfully execute our business strategies and initiatives. As a precaution, we have temporarily significantly reduced all hiring and reduced discretionary spending, while taking note of some savings to be achieved through travel restrictions and the cancellation of certain events.

In addition, in order to further mitigate the operational impacts of COVID-19, our Compensation Committee and Board have approved the following measures effective for the period May 15, 2020 through June 30, 2021, subject to review and modification as the situation warrants:

• 15% base salary reduction and forbearance of any annual variable cash compensation effective May 15, 2020 for Fiscal 2020 and for all of Fiscal 2021, totaling an approximate 60% reduction in targeted cash compensation, for our CEO & CTO;

• 15% base salary reduction and 15% reduction in target annual variable cash compensation for our other Named Executive Officers and members of the executive leadership team (ELT);

• 10% base salary reduction and 10% reduction in target annual variable cash compensation, as applicable, for Vice-President- director-, and manager-level employees;

• 5% base salary reduction for all other employees subject to exception for certain of our employees, such as our employees in Asia who are earning less than the equivalent of $20,000 per year;

• 15% reduction in cash retainer compensation fees payable to the Board of Directors; and

• Suspend employer paid contributions to retirement benefits in the United States and Canada for the remainder of Fiscal 2020 and Fiscal 2021.

These cost reduction measures are in addition to other previously disclosed facilities and workforce related actions as part of our COVID-19 restructuring plan. Please see Note 24 "Subsequent Events" for more information.

The ongoing and ultimate impact of the COVID-19 outbreak on our operations and financial performance depends on many factors that are not within our control. For more information, please see note 24 "Subsequent Events" to our Condensed Consolidated Financial Statements and Part II, Item 1A "Risk Factors" included elsewhere within this Quarterly Report on Form 10-Q.

    49

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time. Actual results may differ materially from those estimates. The policies listed below are areas that may contain key components of our results of operations and are based on complex rules requiring us to make judgments and estimates and consequently, we consider these to be our critical accounting policies. Some of these accounting policies involve complex situations and require a higher degree of judgment, either in the application and interpretation of existing accounting literature or in the development of estimates that affect our financial statements. The critical accounting policies which we believe are the most important to aid in fully understanding and evaluating our reported financial results include the following:

(i) Revenue recognition,

(ii) Goodwill,

(iii) Acquired intangibles, and

(iv) Income taxes.

For a full discussion of all our accounting policies, please see note 2 "Accounting Policies and Recent Accounting Pronouncements" to our Consolidated Financial Statements included in our Annual Report on Form 10-K for our fiscal year ended June 30, 2019 and note 6 "Leases" to our Condensed Consolidated Financial Statements elsewhere in this Quarterly Report on Form 10-Q.

We will continue to monitor the potential impact of COVID-19 on our financial statements and related disclosures, including the need for additional estimates going forward, which could include costs related to items such as special charges, restructurings, asset impairments and other non-recurring costs. For more information, please see note 24 "Subsequent Events" to our Condensed Consolidated Financial Statements. As of March 31, 2020, we have not recorded any estimated amounts with respect to COVID-19 in our Condensed Consolidated Financial Statements. Please also see "Risk Factors" included within Part II, Item 1A of this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

The following tables provide a detailed analysis of our results of operations and financial condition. For each of the periods indicated below, we present our revenues by product type, revenues by major geography, cost of revenues by product type, total gross margin, total operating margin, gross margin by product type, and their corresponding percentage of total revenue.

In addition, we provide Non-GAAP measures for the periods discussed in order to provide additional information to investors that we believe will be useful as this presentation is in line with how our management assesses our Company's performance. See "Use of Non-GAAP Financial Measures" below for a reconciliation of GAAP-based measures to Non-GAAP-based measures.

Summary of Results of Operations

	Three Months Ended March 31,									Nine Months Ended March 31,
(In thousands)	2020			Change increase (decrease)			2019			2020			Change increase (decrease)			2019
Total Revenues by Product Type:
License	$	81,055		$	(17,666	)	$	98,721		$	297,048		$	(11,316	)	$	308,364
Cloud services and subscriptions	339,463			100,856			238,607			825,068			159,145			665,923
Customer support	322,865			12,103			310,762			950,671			18,004			932,667
Professional service and other	71,296			240			71,056			210,337			(4,243		)	214,580
Total revenues	814,679			95,533			719,146			2,283,124			161,590			2,121,534
Total Cost of Revenues	282,187			42,556			239,631			743,080			49,114			693,966
Total GAAP-based Gross Profit	532,492			52,977			479,515			1,540,044			112,476			1,427,568
Total GAAP-based Gross Margin %	65.4		%				66.7		%	67.5		%				67.3		%
Total GAAP-based Operating Expenses	437,415			93,777			343,638			1,127,714			109,182			1,018,532
Total GAAP-based Income from Operations	$	95,077		$	(40,800	)	$	135,877		$	412,330		$	3,294		$	409,036

    50

	Three Months Ended March 31,									Nine Months Ended March 31,
(In thousands)	2020			Change increase (decrease)			2019			2020			Change increase (decrease)			2019
% Revenues by Product Type:
License	9.9		%				13.7		%	13.0		%				14.5		%
Cloud services and subscriptions	41.7		%				33.2		%	36.1		%				31.4		%
Customer support	39.6		%				43.2		%	41.7		%				44.0		%
Professional service and other	8.8		%				9.9		%	9.2		%				10.1		%
Total Cost of Revenues by Product Type:
License	$	2,544		$	(148	)	$	2,692		$	7,917		$	(2,302	)	$	10,219
Cloud services and subscriptions	127,565			23,692			103,873			333,371			53,097			280,274
Customer support	32,151			307			31,844			91,326			(2,256		)	93,582
Professional service and other	56,526			(100		)	56,626			164,468			(4,984		)	169,452
Amortization of acquired technology-based intangible assets	63,401			18,805			44,596			145,998			5,559			140,439
Total cost of revenues	$	282,187		$	42,556		$	239,631		$	743,080		$	49,114		$	693,966
% GAAP-based Gross Margin by Product Type:
License	96.9		%				97.3		%	97.3		%				96.7		%
Cloud services and subscriptions	62.4		%				56.5		%	59.6		%				57.9		%
Customer support	90.0		%				89.8		%	90.4		%				90.0		%
Professional service and other	20.7		%				20.3		%	21.8		%				21.0		%
Total Revenues by Geography:(1)
Americas (2)	$	509,778		$	72,905		$	436,873		$	1,380,179		$	133,270		$	1,246,909
EMEA (3)	240,529			24,242			216,287			702,964			28,265			674,699
Asia Pacific (4)	64,372			(1,614		)	65,986			199,981			55			199,926
Total revenues	$	814,679		$	95,533		$	719,146		$	2,283,124		$	161,590		$	2,121,534
% Revenues by Geography:
Americas (2)	62.6		%				60.7		%	60.5		%				58.8		%
EMEA (3)	29.5		%				30.1		%	30.8		%				31.8		%
Asia Pacific (4)	7.9		%				9.2		%	8.7		%				9.4		%
Other Metrics:
GAAP-based gross margin	65.4		%				66.7		%	67.5		%				67.3		%
GAAP-based EPS, diluted	$	0.10					$	0.27		$	0.77					$	0.79
Net income, attributable to OpenText	$	25,965					$	72,762		$	207,833					$	213,518
Non-GAAP-based gross margin (5)	73.3		%				73.0		%	74.0		%				74.1		%
Non-GAAP-based EPS, diluted (5)	$	0.61					$	0.64		$	2.09					$	2.04
Adjusted EBITDA (5)	$	259,468					$	261,810		$	830,695					$	816,353

(1)	Total revenues by geography are determined based on the location of our end customer.
(2)	Americas consists of countries in North, Central and South America.
(3)	EMEA primarily consists of countries in Europe, the Middle East and Africa.
(4)	Asia Pacific primarily consists of the countries Japan, Australia, China, Korea, Philippines, Singapore and New Zealand.
(5)	See "Use of Non-GAAP Financial Measures" (discussed later in this MD&A) for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures.

    51

Revenues, Cost of Revenues and Gross Margin by Product Type

1)    License:

Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of which are deployed on the customer’s premises (on-premise). Our license revenues are impacted by the strength of general economic and industry conditions, the competitive strength of our software products, and our acquisitions. Cost of license revenues consists primarily of royalties payable to third parties.

	Three Months Ended March 31,									Nine Months Ended March 31,
(In thousands)	2020			Change increase (decrease)			2019			2020			Change increase (decrease)			2019
License Revenues:
Americas	$	38,360		$	(18,555	)	$	56,915		$	143,857		$	(18,455	)	$	162,312
EMEA	32,216			2,179			30,037			117,009			9,763			107,246
Asia Pacific	10,479			(1,290		)	11,769			36,182			(2,624		)	38,806
Total License Revenues	81,055			(17,666		)	98,721			297,048			(11,316		)	308,364
Cost of License Revenues	2,544			(148		)	2,692			7,917			(2,302		)	10,219
GAAP-based License Gross Profit	$	78,511		$	(17,518	)	$	96,029		$	289,131		$	(9,014	)	$	298,145
GAAP-based License Gross Margin %	96.9		%				97.3		%	97.3		%				96.7		%
% License Revenues by Geography:
Americas	47.3		%				57.7		%	48.4		%				52.6		%
EMEA	39.8		%				30.4		%	39.4		%				34.8		%
Asia Pacific	12.9		%				11.9		%	12.2		%				12.6		%

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

License revenues decreased by $17.7 million or 17.9% during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year; down 17.0% after factoring in the impact of $0.9 million of foreign exchange rate changes. Geographically, the overall change was attributable to a decrease in Americas of $18.6 million and a decrease in Asia Pacific of $1.3 million, partially offset by an increase in EMEA of $2.2 million.

During the third quarter of Fiscal 2020, we closed 23 license deals greater than $0.5 million, of which 8 deals were greater than $1.0 million, contributing approximately $25.0 million of license revenues. This was compared to 29 deals greater than $0.5 million closed during the third quarter of Fiscal 2019, of which 12 deals were greater than $1.0 million, contributing $43.3 million of license revenues.

Cost of license revenues decreased by $0.1 million during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year, primarily as a result of lower third party technology costs. Overall, the gross margin percentage on license revenues remained stable at approximately 97%.

Nine Months Ended March 31, 2020 Compared to Nine Months Ended March 31, 2019

License revenues decreased by $11.3 million or 3.7% during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year; down 2.3% after factoring in the impact of $4.3 million of foreign exchange rate changes. Geographically, the overall change was attributable to a decrease in Americas of $18.5 million and a decrease in Asia Pacific of $2.6 million, partially offset by an increase in EMEA of $9.8 million.

During the first nine months of Fiscal 2020, we closed 85 license deals greater than $0.5 million, of which 32 deals were greater than $1.0 million, contributing approximately $98.6 million of license revenues. This was compared to 100 deals greater than $0.5 million that closed during the first nine months of Fiscal 2019, of which 36 deals were greater than $1.0 million, contributing $115.8 million of license revenues.

Cost of license revenues decreased by $2.3 million during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year, primarily as a result of lower third party technology costs. Overall, the gross margin percentage on license revenues remained stable at approximately 97%.

    52

2)    Cloud Services and Subscriptions:

Cloud services and subscriptions revenues are from hosting arrangements where in connection with the licensing of software, the end user does not take possession of the software, as well as from end-to-end fully outsourced business-to-business (B2B) integration solutions to our customers (collectively referred to as cloud arrangements). The software application resides on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis via an identified line. Our cloud arrangements can be broadly categorized as "platform as a service" (PaaS), "software as a service" (SaaS), cloud subscriptions and managed services.

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

	Three Months Ended March 31,									Nine Months Ended March 31,
(In thousands)	2020			Change increase (decrease)			2019			2020			Change increase (decrease)		2019
Cloud Services and Subscriptions:
Americas	$	253,315		$	86,783		$	166,532		$	590,390		$	140,025	$	450,365
EMEA	65,130			14,331			50,799			169,627			16,147		153,480
Asia Pacific	21,018			(258		)	21,276			65,051			2,973		62,078
Total Cloud Services and Subscriptions Revenues	339,463			100,856			238,607			825,068			159,145		665,923
Cost of Cloud Services and Subscriptions Revenues	127,565			23,692			103,873			333,371			53,097		280,274
GAAP-based Cloud Services and Subscriptions Gross Profit	$	211,898		$	77,164		$	134,734		$	491,697		$	106,048	$	385,649
GAAP-based Cloud Services and Subscriptions Gross Margin %	62.4		%				56.5		%	59.6		%			57.9		%
% Cloud Services and Subscriptions Revenues by Geography:
Americas	74.6		%				69.8		%	71.6		%			67.6		%
EMEA	19.2		%				21.3		%	20.6		%			23.0		%
Asia Pacific	6.2		%				8.9		%	7.8		%			9.4		%

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Cloud services and subscriptions revenues increased by $100.9 million or 42.3% during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year. This was primarily driven by the impact of recent acquisitions. After factoring in the impact of $1.2 million of foreign exchange rate changes, cloud services and subscriptions revenues were up 42.8%. Geographically, the overall change was attributable to an increase in Americas of $86.8 million, an increase in EMEA of $14.3 million and a decrease in Asia Pacific of $0.3 million.

The number of Cloud services deals greater than $1.0 million that closed during the third quarter of Fiscal 2020 was 5 deals, compared to 8 deals greater than $1.0 million that closed during the third quarter of Fiscal 2019.

Cost of Cloud services and subscriptions revenues increased by $23.7 million during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year. This was due to an increase in labour-related costs of $19.8 million, primarily due to increased headcount from recent acquisitions, an increase in third party network usage fees of $2.9 million and an increase in other miscellaneous costs of $1.0 million.

Overall, the gross margin percentage on Cloud services and subscriptions revenues increased to approximately 62% from approximately 56%.

Nine Months Ended March 31, 2020 Compared to Nine Months Ended March 31, 2019

Cloud services and subscriptions revenues increased by $159.1 million or 23.9% during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year; up 24.7% after factoring in the impact of $5.1 million of foreign exchange rate changes. Geographically, the overall change was attributable to an increase in Americas of $140.0 million, an increase in Asia Pacific of $3.0 million and an increase in EMEA of $16.1 million.

The number of Cloud services deals greater than $1.0 million that closed during the first nine months of Fiscal 2020 was 28 deals, compared to 33 deals during the first nine months of Fiscal 2019.

    53

Cost of Cloud services and subscriptions revenues increased by $53.1 million during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year. This was due to an increase in labour-related costs of $42.7 million, primarily due to increased headcount from recent acquisitions, an increase in third party network usage fees of $9.2 million and an increase in other miscellaneous costs of $1.2 million.

Overall, the gross margin percentage on Cloud services and subscriptions revenues increased to approximately 60% from approximately 58%.

3)    Customer Support:

Customer support revenues consist of revenues from our customer support and maintenance agreements. These agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software products when available. Customer support revenues are generated from support and maintenance relating to current year sales of software products and from the renewal of existing maintenance agreements for software licenses sold in prior periods. Therefore, changes in Customer support revenues do not always correlate directly to the changes in license revenues from period to period. The terms of support and maintenance agreements are typically twelve months, and are renewable, generally on an annual basis, at the option of the customer. Our management reviews our Customer support renewal rates on a quarterly basis and we use these rates as a method of monitoring our customer service performance. For the quarter ended March 31, 2020, our Customer support renewal rate was approximately 94%, compared with the Customer support renewal rate of 91% during the quarter ended March 31, 2019.

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

	Three Months Ended March 31,								Nine Months Ended March 31,
(In thousands)	2020			Change increase (decrease)		2019			2020			Change increase (decrease)			2019
Customer Support Revenues:
Americas	$	184,621		$	4,962	$	179,659		$	545,627		$	9,577		$	536,050
EMEA	112,456			7,045		105,411			327,531			7,259			320,272
Asia Pacific	25,788			96		25,692			77,513			1,168			76,345
Total Customer Support Revenues	322,865			12,103		310,762			950,671			18,004			932,667
Cost of Customer Support Revenues	32,151			307		31,844			91,326			(2,256		)	93,582
GAAP-based Customer Support Gross Profit	$	290,714		$	11,796	$	278,918		$	859,345		$	20,260		$	839,085
GAAP-based Customer Support Gross Margin %	90.0		%			89.8		%	90.4		%				90.0		%
% Customer Support Revenues by Geography:
Americas	57.2		%			57.8		%	57.4		%				57.5		%
EMEA	34.8		%			33.9		%	34.5		%				34.3		%
Asia Pacific	8.0		%			8.3		%	8.1		%				8.2		%

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Customer support revenues increased by $12.1 million or 3.9% during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year; up 4.8% after factoring in the impact of $2.8 million of foreign exchange rate changes. Geographically, the overall change was attributable to an increase in EMEA of $7.0 million, an increase in Americas of $5.0 million, and an increase in Asia Pacific of $0.1 million.

Cost of Customer support revenues increased by $0.3 million during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year. This was primarily due to an increase in third party costs of $0.4 million and a decrease in other miscellaneous costs of $0.1 million. Overall, the gross margin percentage on Customer support revenues remained stable at approximately 90%.

Nine Months Ended March 31, 2020 Compared to Nine Months Ended March 31, 2019

Customer support revenues increased by $18.0 million or 1.9% during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year; up 3.3% after factoring in the impact of $12.9 million of foreign exchange rate changes. Geographically, the overall change was attributable to an increase in Americas of $9.6 million, an increase in EMEA of $7.3 million, and an increase in Asia Pacific of $1.2 million.

    54

Cost of Customer support revenues decreased by $2.3 million during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year, due to a decrease in labour-related costs of approximately $2.2 million and a decrease in other miscellaneous costs of $0.1 million. Overall, the gross margin percentage on Customer support revenues remained stable at approximately 90%.

4)    Professional Service and Other:

Professional service and other revenues consist of revenues from consulting contracts and contracts to provide implementation, training and integration services (professional services). Other revenues consist of hardware revenues, which are grouped within the “Professional service and other” category because they are relatively immaterial to our service revenues. Professional services are typically performed after the purchase of new software licenses. Professional service and other revenues can vary from period to period based on the type of engagements as well as those implementations that are assumed by our partner network.

Cost of professional service and other revenues consists primarily of the costs of providing integration, configuration and training with respect to our various software products. The most significant components of these costs are personnel-related expenses, travel costs and third party subcontracting.

	Three Months Ended March 31,									Nine Months Ended March 31,
(In thousands)	2020			Change increase (decrease)			2019			2020			Change increase (decrease)			2019
Professional Service and Other Revenues:
Americas	$	33,482		$	(285	)	$	33,767		$	100,305		$	2,123		$	98,182
EMEA	30,727			687			30,040			88,797			(4,904		)	93,701
Asia Pacific	7,087			(162		)	7,249			21,235			(1,462		)	22,697
Total Professional Service and Other Revenues	71,296			240			71,056			210,337			(4,243		)	214,580
Cost of Professional Service and Other Revenues	56,526			(100		)	56,626			164,468			(4,984		)	169,452
GAAP-based Professional Service and Other Gross Profit	$	14,770		$	340		$	14,430		$	45,869		$	741		$	45,128
GAAP-based Professional Service and Other Gross Margin %	20.7		%				20.3		%	21.8		%				21.0		%
% Professional Service and Other Revenues by Geography:
Americas	47.0		%				47.5		%	47.7		%				45.8		%
EMEA	43.1		%				42.3		%	42.2		%				43.7		%
Asia Pacific	9.9		%				10.2		%	10.1		%				10.5		%

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Professional service and other revenues increased by $0.2 million or 0.3% during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year; up 1.5% after factoring in the impact of $0.8 million of foreign exchange rate changes. Geographically, the overall change was attributable to an increase in EMEA of $0.7 million, partially offset by a decrease in Americas of $0.3 million and a decrease in Asia Pacific of $0.2 million.

Cost of Professional service and other revenues decreased by $0.1 million during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year. This was due to a decrease in labour-related costs of approximately $0.4 million, partially offset by an increase in other miscellaneous costs of $0.3 million.

Overall, the gross margin percentage on Professional service and other revenues increased to approximately 21% from approximately 20%. We continue to be selective about the professional service engagements we accept to strategically optimize margins.

Nine Months Ended March 31, 2020 Compared to Nine Months Ended March 31, 2019

Professional service and other revenues decreased by $4.2 million or 2.0% during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year; down 0.4% after factoring in the impact of $3.4 million of foreign exchange rate changes. Geographically, the overall change was attributable to a decrease in EMEA of $4.9 million and a decrease in Asia Pacific of $1.5 million, partially offset by an increase in Americas of $2.1 million.

Cost of Professional service and other revenues decreased by $5.0 million during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year. This was due to a decrease in labour-related costs of approximately $5.7 million resulting primarily from a reduction in the use of external labour resources, partially offset by an increase in other miscellaneous costs of $0.7 million.

    55

Overall, the gross margin percentage on Professional service and other revenues increased to approximately 22% from approximately 21%.

Amortization of Acquired Technology-based Intangible Assets

	Three Months Ended March 31,						Nine Months Ended March 31,
(In thousands)	2020		Change increase (decrease)		2019		2020		Change increase (decrease)		2019
Amortization of acquired technology-based intangible assets	$	63,401	$	18,805	$	44,596	$	145,998	$	5,559	$	140,439

Amortization of acquired technology-based intangible assets increased during the three months ended March 31, 2020 by $18.8 million as compared to the same period in the prior fiscal year due to an increase of $23.5 million relating to amortization of newly acquired technology-based intangible assets from recent acquisitions, partially offset by a reduction of $4.7 million relating to intangible assets from certain previous acquisitions becoming fully amortized.

Amortization of acquired technology-based intangible assets increased during the nine months ended March 31, 2020 by $5.6 million as compared to the same period in the prior fiscal year due to an increase of $37.8 million relating to amortization of newly acquired technology-based intangible assets from recent acquisitions, partially offset by a reduction of $32.2 million relating to intangible assets from certain previous acquisitions becoming fully amortized.

Operating Expenses

	Three Months Ended March 31,									Nine Months Ended March 31,
(In thousands)	2020			Change increase (decrease)			2019			2020			Change increase (decrease)			2019
Research and development	$	108,184		$	23,279		$	84,905		$	269,645		$	31,517		$	238,128
Sales and marketing	166,234			33,990			132,244			432,162			53,543			378,619
General and administrative	68,828			16,995			51,833			174,958			20,003			154,955
Depreciation	24,820			(208		)	25,028			65,809			(6,907		)	72,716
Amortization of acquired customer-based intangible assets	59,943			11,111			48,832			160,561			19,934			140,627
Special charges (recoveries)	9,406			8,610			796			24,579			(8,908		)	33,487
Total operating expenses	$	437,415		$	93,777		$	343,638		$	1,127,714		$	109,182		$	1,018,532
% of Total Revenues:
Research and development	13.3		%				11.8		%	11.8		%				11.2		%
Sales and marketing	20.4		%				18.4		%	18.9		%				17.8		%
General and administrative	8.4		%				7.2		%	7.7		%				7.3		%
Depreciation	3.0		%				3.5		%	2.9		%				3.4		%
Amortization of acquired customer-based intangible assets	7.4		%				6.8		%	7.0		%				6.6		%
Special charges (recoveries)	1.2		%				0.1		%	1.1		%				1.6		%

Research and development expenses consist primarily of payroll and payroll-related benefits expenses, contracted research and development expenses, and facility costs. Research and development assists with organic growth and improves product stability and functionality, and accordingly, we dedicate extensive efforts to update and upgrade our product offerings. The primary driver is typically budgeted software upgrades and software development.

    56

	Change between Three Months Ended March 31, 2020 and 2019			Change between Nine Months Ended March 31, 2020 and 2019
(In thousands)	increase (decrease)			increase (decrease)
Payroll and payroll-related benefits	$	15,284		$	23,406
Contract labour and consulting	1,534			2,074
Share-based compensation	(72		)	(231		)
Travel and communication	426			391
Facilities	6,133			5,578
Other miscellaneous	(26		)	299
Total change in research and development expenses	$	23,279		$	31,517

Research and development expenses increased by $23.3 million during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year, primarily as a result of recent acquisitions. Payroll and payroll-related benefits increased by $15.3 million, facility related expenses increased by $6.1 million and contract labour and consulting expense increased by $1.5 million. Overall, our research and development expenses, as a percentage of total revenues, increased to approximately 13% from approximately 12% in the same period in the prior fiscal year.

Research and development expenses increased by $31.5 million during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year, partially as a result of recent acquisitions. Payroll and payroll-related benefits increased $23.4 million, facility related expenses increased by $5.6 million and contract labour and consulting expense increased by $2.1 million. Overall, our research and development expenses, as a percentage of total revenues, increased to approximately 12% from approximately 11% in the same period in the prior fiscal year.

Our research and development labour resources increased by 553 employees, from 3,643 employees at March 31, 2019 to 4,196 employees at March 31, 2020.

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, 2020 and 2019			Change between Nine Months Ended March 31, 2020 and 2019
(In thousands)	increase (decrease)			increase (decrease)
Payroll and payroll-related benefits	$	16,009		$	28,074
Commissions	(278		)	7,022
Contract labour and consulting	776			(23		)
Share-based compensation	(197		)	287
Travel and communication	991			2,478
Marketing expenses	8,325			10,947
Facilities	6,164			7,712
Bad debt expense	(66		)	(4,652		)
Other miscellaneous	2,266			1,698
Total change in sales and marketing expenses	$	33,990		$	53,543

Sales and marketing expenses increased by $34.0 million during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year, primarily as a result of recent acquisitions. Payroll and payroll-related benefits increased by $16.0 million, marketing expenses increased by $8.3 million and facilities related expenses increased by $6.2 million. Overall, our sales and marketing expenses, as a percentage of total revenues, increased to approximately 20% from approximately 18% in the same period in the prior fiscal year.

Sales and marketing expenses increased by $53.5 million during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year, partially as result of recent acquisitions. Payroll and payroll-related benefits increased by $28.1 million, marketing expenses increased by $10.9 million, and facility related expenses increased by $7.7 million. Additionally, commission expense increased by $7.0 million. These were partially offset by a decrease in bad debt expense of $4.7 million. Overall, our sales and marketing expenses, as a percentage of total revenues, increased to approximately 19% from approximately 18% in the same period in the prior fiscal year.

Our sales and marketing labour resources increased by 508 employees, from 2,057 employees at March 31, 2019 to 2,565 employees at March 31, 2020.

    57

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, 2020 and 2019		Change between Nine Months Ended March 31, 2020 and 2019
(In thousands)	increase (decrease)		increase (decrease)
Payroll and payroll-related benefits	$	7,373	$	12,796
Contract labour and consulting	1,014		(23		)
Share-based compensation	452		1,525
Travel and communication	370		431
Facilities	393		(1,354		)
Other miscellaneous	7,393		6,628
Total change in general and administrative expenses	$	16,995	$	20,003

General and administrative expenses increased by $17.0 million during the three months ended March 31, 2020 as compared to the prior fiscal year. Payroll and payroll-related benefits increased by $7.4 million, primarily as a result of increased headcount from recent acquisitions. Additionally, other miscellaneous expenses increased by $7.4 million, primarily due to higher professional fees such as legal, audit and tax related expenses from our recent acquisitions. The remainder of the change was attributable to other activities associated with normal growth in our business operations. Overall, general and administrative expenses, as a percentage of total revenues, increased to approximately 8% from approximately 7% in the same period in the prior fiscal year.

General and administrative expenses increased by $20.0 million during the nine months ended March 31, 2020 as compared to the prior fiscal year. This was primarily due to an increase in payroll and payroll-related benefits of $12.8 million. Additionally, other miscellaneous expenses, which includes professional fees such as legal, audit and tax related expenses, increased by $6.6 million, primarily as a result of recent acquisitions. These were partially offset by a decrease in facility related expenses of $1.4 million. The remainder of the change was attributable to other activities associated with normal growth in our business operations. Overall, general and administrative expenses, as a percentage of total revenues, increased to approximately 8% from approximately 7% in the same period in the prior fiscal year.

Our general and administrative labour resources increased by 408 employees, from 1,589 employees at March 31, 2019 to 1,997 employees at March 31, 2020.

Depreciation expenses:

	Three Months Ended March 31,							Nine Months Ended March 31,
(In thousands)	2020		Change increase (decrease)			2019		2020		Change increase (decrease)			2019
Depreciation	$	24,820	$	(208	)	$	25,028	$	65,809	$	(6,907	)	$	72,716

Depreciation expenses decreased during the three and nine months ended March 31, 2020 by $0.2 million and $6.9 million, respectively, as compared to the same periods in the prior fiscal year. Depreciation expenses, as a percentage of total revenue, remained at approximately 3% for each such period.

Amortization of acquired customer-based intangible assets:

	Three Months Ended March 31,						Nine Months Ended March 31,
(In thousands)	2020		Change increase (decrease)		2019		2020		Change increase (decrease)		2019
Amortization of acquired customer-based intangible assets	$	59,943	$	11,111	$	48,832	$	160,561	$	19,934	$	140,627

Amortization of acquired customer-based intangible assets increased during the three months ended March 31, 2020 by $11.1 million as compared to the same period in the prior fiscal year due to an increase of $26.4 million relating to amortization of newly acquired customer-based intangible assets from recent acquisitions, partially offset by a reduction of $15.3 million relating to intangible assets from certain previous acquisitions becoming fully amortized.

Amortization of acquired customer-based intangible assets increased during the nine months ended March 31, 2020 by $19.9 million as compared to the same period in the prior fiscal year due to an increase of $35.8 million relating to amortization

    58

of newly acquired customer-based intangible assets from recent acquisitions, partially offset by a reduction of $15.9 million relating to intangible assets from certain previous acquisitions becoming fully amortized.

Special charges (recoveries):

Special charges 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. 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.

	Three Months Ended March 31,						Nine Months Ended March 31,
(In thousands)	2020		Change increase (decrease)		2019		2020		Change increase (decrease)			2019
Special charges (recoveries)	$	9,406	$	8,610	$	796	$	24,579	$	(8,908	)	$	33,487

Special charges increased by $8.6 million during the three months ended March 31, 2020 as compared to the same period in the prior fiscal year. This was due to (i) an increase of $5.3 million in restructuring activities, (ii) an increase of $1.5 million relating to the impact of certain pre-acquisition sales and use tax liabilities becoming statute barred during Fiscal 2019, (iii) an increase of $1.0 million in acquisition related costs, and (iv) an increase of $0.8 million relating to other miscellaneous charges.

Special charges decreased by $8.9 million during the nine months ended March 31, 2020 as compared to the same period in the prior fiscal year. This was due to (i) a decrease in restructuring activities of $20.4 million and (ii) a decrease of $1.1 million relating to one-time system implementation costs, partially offset by (i) an increase in acquisition related costs of $7.8 million, (ii) an increase of $1.5 million relating to the impact of certain pre-acquisition sales and use tax liabilities becoming statute barred during Fiscal 2019, and (iii) an increase in other miscellaneous charges of $3.3 million.

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

Other Income (Expense), Net

Other income (expense), net relates to certain non-operational charges primarily consisting of debt extinguishment costs, income or losses in our share of investments accounted for under the equity method and of transactional foreign exchange gains (losses). The income (expense) from foreign exchange is dependent upon the change in foreign currency exchange rates vis-à-vis the functional currency of the legal entity.

	Three Months Ended March 31,								Nine Months Ended March 31,
(In thousands)	2020			Change increase (decrease)			2019		2020			Change increase (decrease)			2019
Foreign exchange gains (losses)	$	(5,766	)	$	(7,799	)	$	2,033	$	(9,073	)	$	(4,949	)	$	(4,124	)
OpenText share in net income (loss) of equity investees (note 9)	4,527			1,738			2,789		6,475			(4,177		)	10,652
Loss debt extinguishment (1)	(17,854		)	(17,854		)	—		(17,854		)	(17,854		)	—
Other miscellaneous income (expense)	170			(73		)	243		716			279			437
Total other income (expense), net	$	(18,923	)	$	(23,988	)	$	5,065	$	(19,736	)	$	(26,701	)	$	6,965

⁽¹⁾ On March 5, 2020 we redeemed Senior Notes 2023 in full, which resulted in a loss on extinguishment of debt of approximately $17.9 million. Of this, approximately $6.7 million relates to unamortized debt issuance costs and the remaining $11.2 million relates to the early termination call premium. See note 11 "Long-Term Debt" to our Condensed Consolidated Financial Statements.

    59

Interest and Other Related Expense, Net

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

	Three Months Ended March 31,									Nine Months Ended March 31,
(In thousands)	2020			Change increase (decrease)			2019			2020			Change increase (decrease)			2019
Interest expense related to total outstanding debt (1)	$	41,668		$	7,043		$	34,625		$	109,612		$	6,765		$	102,847
Interest income	(2,743		)	(1,756		)	(987		)	(10,166		)	(5,820		)	(4,346		)
Other miscellaneous expense	2,338			369			1,969			6,403			1,153			5,250
Total interest and other related expense, net	$	41,263		$	5,656		$	35,607		$	105,849		$	2,098		$	103,751

⁽¹⁾ For more details see note 11 "Long-Term Debt" to our Condensed Consolidated Financial Statements.

Provision for (Recovery of) Income Taxes

We operate in several tax jurisdictions and are exposed to various foreign tax rates. We also note that we are subject to tax rate discrepancies between our domestic tax rate and foreign tax rates that are significant and these discrepancies are primarily related to earnings in the United States.

Please also see Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for Fiscal 2019.

	Three Months Ended March 31,							Nine Months Ended March 31,
(In thousands)	2020		Change increase (decrease)			2019		2020		Change increase (decrease)			2019
Provision for (recovery of) income taxes	$	8,891	$	(23,651	)	$	32,542	$	78,800	$	(19,828	)	$	98,628

The effective tax rate decreased to a provision of 25.5% for the three months ended March 31, 2020, compared to a provision of 30.9% for the three months ended March 31, 2019. The decrease in tax expense of $23.7 million was primarily due to (i) a decrease of $20.0 million relating to the decrease in net income including the impact of foreign rates, (ii) a decrease of $9.0 million from tax rate differential in tax years applicable to United States loss carryforwards that became eligible for carryback under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act enacted in the third quarter of Fiscal 2020, and (iii) a decrease of $7.9 million related to tax costs of internal reorganizations that did not recur in Fiscal 2020. These were partially offset by (i) an increase of $4.8 million related to the US Base Erosion Anti-avoidance Tax (US BEAT), (ii) an increase in tax filings in excess of estimates of $3.0 million, (iii) a decrease in tax credits for research and development of $2.9 million resulting from filings in excess of estimates in Fiscal 2019 that did not recur in Fiscal 2020 and (iv) an increase in accruals for repatriations from foreign subsidiaries of $1.7 million. The remainder of the difference was due to normal course movements and non-material items.

The effective tax rate decreased to a provision of 27.5% for the nine months ended March 31, 2020, compared to a provision of 31.6% for the nine months ended March 31, 2019. Tax expense decreased by $19.8 million primarily due to (i) a decrease of $21.5 million in reserves for unrecognized tax benefits resulting from clarifications provided by tax regulations and taxation years becoming statute barred, (ii) a decrease of $15.8 million relating to the tax impact of internal reorganizations of subsidiaries that did not recur in Fiscal 2020, (iii) a decrease of $9.0 million from tax rate differential in tax years applicable to United States loss carryforwards that became eligible for carryback under the CARES Act enacted in the third quarter of Fiscal 2020, (iv) the decrease in net income taxed at foreign rates of $8.3 million, and (v) an increase in tax credits for research and development of $2.9 million. These were partially offset by (i) an increase of $16.6 million relating to a one-time reversal of accruals for repatriations from subsidiaries in the United States in Fiscal 2019 that did not recur in Fiscal 2020, (ii) an increase in tax filings in excess of estimates of $10.4 million, and (iii) the impact of US BEAT of $9.9 million. The remainder of the difference was due to normal course movements and non-material items.

For information with regards to certain potential tax contingencies, see note 14 "Guarantees and Contingencies" to our Condensed Consolidated Financial Statements.

    60

Use of Non-GAAP Financial Measures

In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures that are not in accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company's definition may be different from similar Non-GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus it may be more difficult to compare the Company's financial performance to that of other companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its Condensed Consolidated Financial Statements, all of which should be considered when evaluating the Company's results.

The Company uses these Non-GAAP financial measures to supplement the information provided in its Condensed Consolidated Financial Statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures are not meant to be a substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain Non-GAAP measures defined below.

Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, is consistently calculated as GAAP-based net income or earnings per share, attributable to OpenText, on a diluted basis, excluding the effects of the amortization of acquired intangible assets, other income (expense), share-based compensation, and Special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as GAAP-based income from operations, excluding the amortization of acquired intangible assets, Special charges (recoveries), and share-based compensation expense.

Adjusted earnings (loss) before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText excluding interest income (expense), provision for income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and Special charges (recoveries).

The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management. These items are excluded based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports and are not excluded in the sense that they may be used under U.S. GAAP.

The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company’s operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company’s “Special Charges (recoveries)” caption on the Condensed Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company's operating results and underlying operational trends.

In summary, the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results.

The following charts provide unaudited reconciliations of U.S. GAAP-based financial measures to Non-GAAP-based financial measures for the following periods presented.

    61

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

for the three months ended March 31, 2020

(in thousands except for per share data)

	Three Months Ended March 31, 2020
	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	$	127,565			$	(398	)	(1)	$	127,167
Customer support	32,151				(284		)	(1)	31,867
Professional service and other	56,526				(328		)	(1)	56,198
Amortization of acquired technology-based intangible assets	63,401				(63,401		)	(2)	—
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)	532,492			65.4%	64,411			(3)	596,903		73.3%
Operating expenses
Research and development	108,184				(1,243		)	(1)	106,941
Sales and marketing	166,234				(2,261		)	(1)	163,973
General and administrative	68,828				(2,342		)	(1)	66,486
Amortization of acquired customer-based intangible assets	59,943				(59,943		)	(2)	—
Special charges (recoveries)	9,406				(9,406		)	(4)	—
GAAP-based income from operations / Non-GAAP-based income from operations	95,077				139,606			(5)	234,683
Other income (expense), net	(18,923		)		18,923			(6)	—
Provision for (recovery of) income taxes	8,891				18,188			(7)	27,079
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText	25,965				140,341			(8)	166,306
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText	$	0.10			$	0.51		(8)	$	0.61

(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 25% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

    62

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

	Three Months Ended March 31, 2020
				Per share diluted
GAAP-based net income, attributable to OpenText	$	25,965		$	0.10
Add:
Amortization	123,344			0.45
Share-based compensation	6,856			0.03
Special charges (recoveries)	9,406			0.03
Other (income) expense, net	18,923			0.07
GAAP-based provision for (recovery of) income taxes	8,891			0.03
Non-GAAP-based provision for income taxes	(27,079		)	(0.10		)
Non-GAAP-based net income, attributable to OpenText	$	166,306		$	0.61

Reconciliation of Adjusted EBITDA

	Three Months Ended March 31, 2020
GAAP-based net income, attributable to OpenText	$	25,965
Add:
Provision for (recovery of) income taxes	8,891
Interest and other related expense, net	41,263
Amortization of acquired technology-based intangible assets	63,401
Amortization of acquired customer-based intangible assets	59,943
Depreciation	24,820
Share-based compensation	6,856
Special charges (recoveries)	9,406
Other (income) expense, net	18,923
Adjusted EBITDA	$	259,468

    63

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

for the three months ended March 31, 2019

(in thousands except for per share data)

	Three Months Ended March 31, 2019
	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	$	103,873		$	(291	)	(1)	$	103,582
Customer support	31,844			(310		)	(1)	31,534
Professional service and other	56,626			(448		)	(1)	56,178
Amortization of acquired technology-based intangible assets	44,596			(44,596		)	(2)	—
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)	479,515		66.7%	45,645			(3)	525,160		73.0%
Operating expenses
Research and development	84,905			(1,315		)	(1)	83,590
Sales and marketing	132,244			(2,458		)	(1)	129,786
General and administrative	51,833			(1,890		)	(1)	49,943
Amortization of acquired customer-based intangible assets	48,832			(48,832		)	(2)	—
Special charges (recoveries)	796			(796		)	(4)	—
GAAP-based income from operations / Non-GAAP-based income from operations	135,877			100,936			(5)	236,813
Other income (expense), net	5,065			(5,065		)	(6)	—
Provision for (recovery of) income taxes	32,542			(4,373		)	(7)	28,169
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText	72,762			100,244			(8)	173,006
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText	$	0.27		$	0.37		(8)	$	0.64

(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 31% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

    64

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

	Three Months Ended March 31, 2019
				Per share diluted
GAAP-based net income, attributable to OpenText	$	72,762		$	0.27
Add:
Amortization	93,428			0.35
Share-based compensation	6,712			0.02
Special charges (recoveries)	796			—
Other (income) expense, net	(5,065		)	(0.02		)
GAAP-based provision for (recovery of) income taxes	32,542			0.12
Non-GAAP-based provision for income taxes	(28,169		)	(0.10		)
Non-GAAP-based net income, attributable to OpenText	$	173,006		$	0.64

Reconciliation of Adjusted EBITDA

	Three Months Ended March 31, 2019
GAAP-based net income, attributable to OpenText	$	72,762
Add:
Provision for (recovery of) income taxes	32,542
Interest and other related expense, net	35,607
Amortization of acquired technology-based intangible assets	44,596
Amortization of acquired customer-based intangible assets	48,832
Depreciation	25,028
Share-based compensation	6,712
Special charges (recoveries)	796
Other (income) expense, net	(5,065		)
Adjusted EBITDA	$	261,810

    65

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

for the nine months ended March 31, 2020

(in thousands except for per share data)

	Nine Months Ended March 31, 2020
	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	$	333,371			$	(1,152	)	(1)	$	332,219
Customer support	91,326				(897		)	(1)	90,429
Professional service and other	164,468				(917		)	(1)	163,551
Amortization of acquired technology-based intangible assets	145,998				(145,998		)	(2)	—
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)	1,540,044			67.5%	148,964			(3)	1,689,008		74.0%
Operating expenses
Research and development	269,645				(3,719		)	(1)	265,926
Sales and marketing	432,162				(6,760		)	(1)	425,402
General and administrative	174,958				(8,085		)	(1)	166,873
Amortization of acquired customer-based intangible assets	160,561				(160,561		)	(2)	—
Special charges (recoveries)	24,579				(24,579		)	(4)	—
GAAP-based income from operations / Non-GAAP-based income from operations	412,330				352,668			(5)	764,998
Other income (expense), net	(19,736		)		19,736			(6)	—
Provision for (recovery of) income taxes	78,800				13,481			(7)	92,281
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText	207,833				358,923			(8)	566,756
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText	$	0.77			$	1.32		(8)	$	2.09

(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. 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.

    66

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

	Nine Months Ended March 31, 2020
				Per share diluted
GAAP-based net income, attributable to OpenText	$	207,833		$	0.77
Add:
Amortization	306,559			1.13
Share-based compensation	21,530			0.08
Special charges (recoveries)	24,579			0.09
Other (income) expense, net	19,736			0.07
GAAP-based provision for (recovery of) income taxes	78,800			0.29
Non-GAAP-based provision for income taxes	(92,281		)	(0.34		)
Non-GAAP-based net income, attributable to OpenText	$	566,756		$	2.09

Reconciliation of Adjusted EBITDA

	Nine Months Ended March 31, 2020
GAAP-based net income, attributable to OpenText	$	207,833
Add:
Provision for (recovery of) income taxes	78,800
Interest and other related expense, net	105,849
Amortization of acquired technology-based intangible assets	145,998
Amortization of acquired customer-based intangible assets	160,561
Depreciation	65,809
Share-based compensation	21,530
Special charges (recoveries)	24,579
Other (income) expense, net	19,736
Adjusted EBITDA	$	830,695

    67

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

for the nine months ended March 31, 2019

(in thousands except for per share data)

	Nine Months Ended March 31, 2019
	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	$	280,274		$	(873	)	(1)	$	279,401
Customer support	93,582			(881		)	(1)	92,701
Professional service and other	169,452			(1,330		)	(1)	168,122
Amortization of acquired technology-based intangible assets	140,439			(140,439		)	(2)	—
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)	1,427,568		67.3%	143,523			(3)	1,571,091		74.1%
Operating expenses
Research and development	238,128			(3,668		)	(1)	234,460
Sales and marketing	378,619			(5,874		)	(1)	372,745
General and administrative	154,955			(7,526		)	(1)	147,429
Amortization of acquired customer-based intangible assets	140,627			(140,627		)	(2)	—
Special charges (recoveries)	33,487			(33,487		)	(4)	—
GAAP-based income from operations / Non-GAAP-based income from operations	409,036			334,705			(5)	743,741
Other income (expense), net	6,965			(6,965		)	(6)	—
Provision for (recovery of) income taxes	98,628			(9,029		)	(7)	89,599
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText	213,518			336,769			(8)	550,287
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText	$	0.79		$	1.25		(8)	$	2.04

(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 32% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

    68

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

	Nine Months Ended March 31, 2019
				Per share diluted
GAAP-based net income, attributable to OpenText	$	213,518		$	0.79
Add:
Amortization	281,066			1.04
Share-based compensation	20,152			0.07
Special charges (recoveries)	33,487			0.12
Other (income) expense, net	(6,965		)	(0.03		)
GAAP-based provision for (recovery of) income taxes	98,628			0.37
Non-GAAP-based provision for income taxes	(89,599		)	(0.32		)
Non-GAAP-based net income, attributable to OpenText	$	550,287		$	2.04

Reconciliation of Adjusted EBITDA

	Nine Months Ended March 31, 2019
GAAP-based net income, attributable to OpenText	$	213,518
Add:
Provision for (recovery of) income taxes	98,628
Interest and other related expense, net	103,751
Amortization of acquired technology-based intangible assets	140,439
Amortization of acquired customer-based intangible assets	140,627
Depreciation	72,716
Share-based compensation	20,152
Special charges (recoveries)	33,487
Other (income) expense, net	(6,965		)
Adjusted EBITDA	$	816,353

    69

LIQUIDITY AND CAPITAL RESOURCES

The following tables set forth changes in cash flows from operating, investing and financing activities for the periods indicated:

(In thousands)	As of March 31, 2020		Change increase (decrease)		As of June 30, 2019
Cash and cash equivalents	$	1,452,570	$	511,561	$	941,009
Restricted cash included in other assets	5,026		2,492		2,534
Total cash, cash equivalents and restricted cash	$	1,457,596	$	514,053	$	943,543

	Nine Months Ended March 31,
(In thousands)	2020			Change			2019
Cash provided by operating activities	$	674,286		$	27,785		$	646,501
Cash used in investing activities	$	(1,448,930	)	$	(1,006,571	)	$	(442,359	)
Cash (used in) provided by financing activities	$	1,308,757		$	1,423,465		$	(114,708	)

Cash and cash equivalents

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

We continue to anticipate that our cash and cash equivalents, as well as available credit facilities, will be sufficient to fund our anticipated cash requirements for working capital, contractual commitments, capital expenditures, dividends and operating needs 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. Proceeds from our $600 million draw down on the Revolver (defined below), (for which notice to the lenders was provided on March 5, 2020) have resulted in total cash and cash equivalents of approximately $1.5 billion as of March 31, 2020.

As of March 31, 2020, we recognized a provision of $21.7 million (June 30, 2019—$17.4 million) in respect of both additional foreign taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries, and planned periodic repatriations from certain United States and German subsidiaries, that will be subject to withholding taxes upon distribution.

Cash flows provided by operating activities

Cash flows from operating activities increased by $27.8 million due to an increase in net income before the impact of non-cash items of $53.5 million, partially offset by a decrease in changes from working capital of $25.7 million. The change in operating cash flow from changes in working capital was primarily due to the net impact of the following decreases: (i) $55.6 million relating to changes in income taxes payable, net of receivables, (ii) $11.6 million relating to a decrease in accounts payable and accrued liabilities, (iii) $6.8 million relating to an increase in prepaid expenses and other current assets, and (iv) $4.5 million relating to changes in net operating lease assets and liabilities. These decreases were partially offset by the following increases: (i) $33.4 million relating to a lower accounts receivable balance, (ii) $14.1 million relating to deferred revenues, (iii) $3.1 million relating to changes in other assets and (iv) $2.2 million relating to higher contract assets.

During the third quarter of Fiscal 2020 our days sales outstanding (DSO) was 51 days, compared to a DSO of 60 days during the third quarter of Fiscal 2019. The per day impact of our DSO in the third quarter of Fiscal 2020 and Fiscal 2019 on our cash flows was $9.1 million and $8.0 million, respectively. In arriving at DSO, we exclude contract assets as these assets do not provide an unconditional right to the related consideration from the customer.

Cash flows used in investing activities

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

Cash flows used in investing activities increased by approximately $1.0 billion, primarily due to an increase in consideration paid for acquisitions during the first nine months of Fiscal 2020 as compared to the same period in Fiscal 2019. During Fiscal 2020 we acquired Carbonite for approximately $1.4 billion, net of cash acquired, and XMedius for approximately $73.3 million.

    70

Cash flows provided by financing activities

Our cash flows from financing activities generally consist of long-term debt financing and amounts received from stock options exercised by our employees. 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 the repurchases of our Common Shares.

Cash flows provided by financing activities increased by approximately $1.4 billion. This was primarily due to proceeds from the issuance of Senior Notes 2028 and Seniors Notes 2030 (both defined below) of approximately $1.8 billion. A portion of these proceeds were used to redeem $800 million of our Senior Notes 2023 (defined below) and repay $750 million that was drawn on the Revolver in the second quarter of Fiscal 2020. Additionally, in February 2020, all Notes due 2022, inherited through our acquisition of Carbonite, were surrendered and converted at a rate of $1,068.7341 in cash for each $1,000 principal amount, and in March 2020, we drew $600 million from the Revolver as a preemptive measure in light of current uncertainty in the global markets.

Cash Dividends

During the three and nine months ended March 31, 2020, we declared and paid cash dividends of $0.1746 and $0.5238 per Common Share, respectively, in the aggregated amount of $47.3 million and $141.4 million, respectively. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of the Board. See Item 5 "Dividend Policy" in our Annual Report on Form 10-K for Fiscal 2019 for more information.

Long-term Debt and Credit Facilities

Senior Unsecured Fixed Rate Notes

Senior Notes 2030

On February 18, 2020 Open Text Holdings, Inc. (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 us (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 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.

We 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. We 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. We 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, we 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) create, assume, incur or guarantee additional indebtedness of the Company, OTHI or certain of the Company's subsidiaries 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 existing senior credit facilities. Senior Notes 2030 and the guarantees rank equally in right of payment with all of the Company, OTHI and the

    71

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.

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 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; (ii) create, assume, incur or guarantee additional indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2028; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2028 Indenture. The 2028 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2028 to be due and payable immediately.

Senior Notes 2028 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our existing 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 the our and our guarantors’ future subordinated debt. Senior Notes 2028 and the guarantees will be effectively subordinated to all of our and our guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt.

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

Senior Notes 2026

On May 31, 2016 we issued $600 million in aggregate principal amount of 5.875% Senior Notes due 2026 (Senior Notes 2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 bear interest at a rate of 5.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior Notes 2026 will mature on June 1, 2026, unless earlier redeemed, in accordance with their terms, or repurchased.

On December 20, 2016, we issued an additional $250 million in aggregate principal amount by reopening our Senior Notes 2026 at an issue price of 102.75%. The additional notes have identical terms, are fungible with and are a part of a single series with the previously issued $600 million aggregate principal amount of Senior Notes 2026. The outstanding aggregate principal amount of Senior Notes 2026, after taking into consideration the additional issuance, is $850 million.

    72

We may redeem all or a portion of the Senior Notes 2026 at any time prior to June 1, 2021 at a redemption price equal to 100% of the principal amount of Senior Notes 2026 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. We may also, on one or more occasions, redeem Senior Notes 2026, in whole or in part, at any time on and after June 1, 2021 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2026, dated as of May 31, 2016, 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 2026 Indenture), plus accrued and unpaid interest, if any, to the redemption date.

If we experience one of the kinds of changes of control triggering events specified in the 2026 Indenture, we will be required to make an offer to repurchase Senior Notes 2026 at a price equal to 101% of the principal amount of Senior Notes 2026, plus accrued and unpaid interest, if any, to the date of purchase.

The 2026 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) create, assume, incur or guarantee additional indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of the notes; 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 2026 Indenture. The 2026 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 notes to be due and payable immediately.

Senior Notes 2026 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our existing senior credit facilities. Senior Notes 2026 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 the our and our guarantors’ future subordinated debt. Senior Notes 2026 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 2026 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2026 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on May 31, 2016.

Senior Notes 2023

On January 15, 2015, we issued $800 million in aggregate principal amount of our 5.625% Senior Notes due 2023 (Senior Notes 2023) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2023 bore interest at a rate of 5.625% per annum, payable semi-annually in arrears on January 15 and July 15, commencing on July 15, 2015. Senior Notes 2023 were to mature on January 15, 2023, unless earlier redeemed in accordance with their terms, or repurchased.

On March 5, 2020, we redeemed Senior Notes 2023 in full at a price equal to 101.406% of the principal amount plus accrued and unpaid interest up to but excluding the redemption date. A portion of the net proceeds from the offerings of Senior Notes 2028 and Senior Notes 2030 was used to redeem Senior Notes 2023. Upon redemption, Senior Notes 2023 were cancelled and any obligation thereunder was extinguished. The resulting loss of $17.9 million has been recorded as a component of other income (expense), net in our Condensed Consolidated Statements of Income. See note 21 "Other income (Expense), net" to our Condensed Consolidated Financial Statements.

Notes due 2022

Following our acquisition of Carbonite, our consolidated debt reflected $143.8 million of principal debt convertible notes (Notes due 2022). Notes due 2022 were originally issued by Carbonite, on April 4, 2017, in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Notes due 2022 were issued under an Indenture (the 2022 Notes Indenture) between Carbonite and U.S. Bank National Association, as trustee (the 2022 Notes Trustee). The Notes due 2022 accrued interest at 2.5% per year, which was payable semiannually in arrears on April 1 and October 1 of each year. The Notes due 2022 will mature on April 1, 2022, unless earlier repurchased, redeemed or converted. Carbonite, now a subsidiary of OpenText, was the sole obligor on the Notes due 2022.

In connection with our acquisition of Carbonite, and as required by the 2022 Notes Indenture, Carbonite and the 2022 Notes Trustee entered into a first supplemental indenture, dated as of December 24, 2019 (the 2022 Notes Supplemental Indenture). The 2022 Notes Supplemental Indenture provides that, at and after the effective time of our acquisition of Carbonite, the right to convert each $1,000 principal amount of the Notes due 2022 was changed into the right to convert such principal amount of the Notes due 2022 solely into cash in an amount equal to the Conversion Rate (as defined in the 2022

    73

Notes Indenture) in effect on the Conversion Date (as defined in the 2022 Notes Indenture) multiplied by $23.00, which was the price per share we paid in connection with our acquisition of Carbonite.

As a result of our acquisition of Carbonite, the Conversion Rate for the Notes due 2022 was temporarily increased by 7.7633 per $1,000 principal amount of Notes due 2022 to yield a Conversion Rate of 46.4667 per $1,000 principal amount of Notes due 2022.  The increased Conversion Rate was in effect until the close of business (5:00 P.M. New York City time) on February 27, 2020.  As of February 27, 2020, all Notes due 2022 had been surrendered and converted at a rate of $1,068.7341 in cash for each $1,000 principal amount. As of March 31, 2020, all Notes due 2022 have been fully settled in cash and there are no remaining Notes due 2022 outstanding.

Term Loan B

On May 30, 2018, we entered into a credit facility, which provides for a $1 billion term loan facility with certain lenders named therein, Barclays Bank PLC (Barclays), as sole administrative agent and collateral agent, and as lead arranger and joint bookrunner (Term Loan B) and borrowed the full amount on May 30, 2018 to, among other things, repay in full the loans under our prior $800 million term loan credit facility originally entered into on January 16, 2014. Repayments made under Term Loan B are equal to 0.25% of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity.

Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver. Term Loan B has a seven year term, maturing in May 2025.

Borrowings under Term Loan B bear interest at a rate per annum equal to an applicable margin plus, at the borrower’s option, either (1) the eurodollar rate for the interest period relevant to such borrowing or (2) an ABR rate. The applicable margin for borrowings under Term Loan B is 1.75%, with respect to LIBOR advances and 0.75%, with respect to ABR advances. The interest on the current outstanding balance for Term Loan B is equal to 1.75% plus LIBOR (subject to a 0.00% floor). As of March 31, 2020, the outstanding balance on the Term Loan B bears an interest rate of approximately 3.35%.

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 4:1 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. As of March 31, 2020, our consolidated net leverage ratio was 2.3:1.

Revolver

On October 31, 2019, we amended our committed revolving credit facility (the Revolver) to increase the total commitments under the Revolver from $450 million to $750 million as well as to extend the maturity from May 5, 2022 to October 31, 2024. Borrowings under the Revolver are secured by a first charge over substantially all of our assets, on a pari passu basis with Term Loan B. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%. As of March 31, 2020, the outstanding balance on the Revolver bears an interest rate of approximately 2.50%.

During the second quarter of Fiscal 2020, we drew down $750 million from the Revolver to partially fund the acquisition of Carbonite. In February 2020, we repaid $750 million drawn under the Revolver with a portion of the proceeds from the Senior Notes 2030 and Senior Notes 2028. In March 2020, we drew down $600 million from the Revolver as a preemptive measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak. The proceeds from the $600 million draw down are presented within cash and cash equivalents and within the current portion of long-term debt in our Condensed Consolidated Balance Sheet as of March 31, 2020.

Under the Revolver, we must maintain a “consolidated net leverage” ratio of no more than 4:1 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. As of March 31, 2020, our consolidated net leverage ratio was 2.3:1.

    74

As of March 31, 2020, we have $600 million outstanding balance on the Revolver (June 30, 2019—nil) and $150 million remains available to be drawn under the Revolver.

As of March 31, 2019, we had no outstanding balance on the Revolver. There was no activity during three and nine months ended March 31, 2019.

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

Shelf Registration Statement

On November 29, 2019, we filed a universal shelf registration statement on Form S-3 with the SEC, which became effective automatically (the Shelf Registration Statement). The Shelf Registration Statement allows for primary and secondary offerings from time to time of equity, debt and other securities, including Common Shares, Preference Shares, debt securities, depositary shares, warrants, purchase contracts, units and subscription receipts. A base shelf short-form prospectus qualifying the distribution of such securities was concurrently filed with Canadian securities regulators on November 29, 2019. The type of securities and the specific terms thereof will be determined at the time of any offering and will be described in the applicable prospectus supplement to be filed separately with the SEC and Canadian securities regulators.

Pensions

As of March 31, 2020, our total unfunded pension plan obligations were $69.9 million, of which $2.5 million is payable within the next twelve months. We expect to be able to make the long-term and short-term payments related to these obligations in the normal course of operations.

Our anticipated payments under our most significant plans, Open Text Document Technologies GmbH (CDT), GXS GmbH (GXS GER), GXS Philippines, Inc. (GXS PHP), for the fiscal years indicated below are as follows:

	Fiscal years ending June 30,
	CDT		GXS GER		GXS PHP
2020 (three months ended June 30)	$	161	$	240	$	10
2021	719		959		264
2022	789		990		341
2023	885		990		244
2024	987		995		304
2025 to 2029	5,695		5,034		3,068
Total	$	9,236	$	9,208	$	4,231

For a detailed discussion on pensions, see note 12 "Pension Plans and Other Post Retirement Benefits" to our Condensed Consolidated Financial Statements.

Commitments and Contractual Obligations

As of March 31, 2020, we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:

	Payments due between
	Total		April 1, 2020— June 30, 2020		July 1, 2020— June 30, 2022		July 1, 2022— June 30, 2024		July 1, 2024 and beyond
Long-term debt obligations (1)	$	4,772,778	$	35,776	$	329,750	$	328,478	$	4,078,774
Purchase obligations for contracts not accounted for as lease obligations (2)	52,938		14,975		32,963		5,000		—
	$	4,825,716	$	50,751	$	362,713	$	333,478	$	4,078,774

⁽¹⁾ Includes interest up to maturity and principal payments. Excludes $600 million currently drawn on the Revolver, which we expect to repay within one year. Please see note 11 "Long-Term Debt" to our Condensed Consolidated Financial Statements for more details.

⁽²⁾ For contractual obligations relating to leases and purchase obligations accounted for under Topic 842, please see note 6 "Leases" to our Condensed Consolidated Financial Statements.

    75

Guarantees and Indemnifications

We have entered into customer agreements which may include provisions to indemnify our customers against third party claims that our software products or services infringe certain third party intellectual property rights and for liabilities related to a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification provisions and have not accrued any liabilities related to these indemnification provisions in our Condensed Consolidated Financial Statements.

Occasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including, among others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such agreements have not had a material effect on our results of operations, financial position or cash flows.

Litigation

We are currently involved in various claims and legal proceedings.

Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 "Loss Contingencies" (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim 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 more fully described below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters.

Contingencies

IRS Matter

As we have previously disclosed, the United States Internal Revenue Service (IRS) is examining certain of our tax returns for our fiscal year ended June 30, 2010 (Fiscal 2010) through our fiscal year ended June 30, 2012 (Fiscal 2012), and in connection with those examinations is reviewing our internal reorganization in Fiscal 2010 to consolidate certain intellectual property ownership in Luxembourg and Canada and our integration of certain acquisitions into the resulting structure. We also previously disclosed that the examinations may lead to proposed adjustments to our taxes that may be material, individually or in the aggregate, and that we have not recorded any material accruals for any such potential adjustments in our Condensed Consolidated Financial Statements.

We previously disclosed that, as part of these examinations, on July 17, 2015 we received from the IRS an initial Notice of Proposed Adjustment (NOPA) in draft form, that, as revised by the IRS on July 11, 2018 proposes a one-time approximately $335 million increase to our U.S. federal taxes arising from the reorganization in Fiscal 2010 (the 2010 NOPA), plus penalties equal to 20% of the additional proposed taxes for Fiscal 2010, and interest at the applicable statutory rate published by the IRS.

On July 11, 2018, we also received, consistent with previously disclosed expectations, a draft NOPA proposing a one time approximately $80 million increase to our U.S. federal taxes for Fiscal 2012 (the 2012 NOPA) arising from the integration of Global 360 Holding Corp. into the structure that resulted from the internal reorganization in Fiscal 2010, plus penalties equal to 40% of the additional proposed taxes for Fiscal 2012, and interest.

On January 7, 2019, we received from the IRS official notification of proposed adjustments to our taxable income for Fiscal 2010 and Fiscal 2012, together with the 2010 NOPA and 2012 NOPA in final form. In each case, such documentation was as expected and on substantially the same terms as provided for in the previously disclosed respective draft NOPAs, with the exception of an additional proposed penalty as part of the 2012 NOPA.

A NOPA is an IRS position and does not impose an obligation to pay tax. We continue to strongly disagree with the IRS’ positions within the NOPAs and we are vigorously contesting the proposed adjustments to our taxable income, along with any proposed penalties and interest.

As of our receipt of the final 2010 NOPA and 2012 NOPA, our estimated potential aggregate liability, as proposed by the IRS, including additional state income taxes plus penalties and interest that may be due, was approximately $770 million, comprised of approximately $455 million in U.S. federal and state taxes, approximately $130 million of penalties, and

    76

approximately $185 million of interest. Interest will continue to accrue at the applicable statutory rates until the matter is resolved and may be substantial.

As previously disclosed and noted above, we strongly disagree with the IRS’ positions and we are vigorously contesting the proposed adjustments to our taxable income, along with the proposed penalties and interest. We are examining various alternatives available to taxpayers to contest the proposed adjustments, including through IRS Appeals and U.S. Federal court. Any such alternatives could involve a lengthy process and result in the incurrence of significant expenses. As of the date of this Quarterly Report on Form 10-Q, we have not recorded any material accruals in respect of these examinations in our Condensed Consolidated Financial Statements. An adverse outcome of these tax examinations could have a material adverse effect on our financial position and results of operations.

For additional information regarding the history of this IRS matter, please see Note 13 "Guarantees and Contingencies" in our Annual Report on Form 10-K for Fiscal 2018.

CRA Matter

As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of March 31, 2020, in connection with the CRA's reassessments for Fiscal 2012, Fiscal 2013 and Fiscal 2014 to be limited to penalties and interest that may be due of approximately $25 million.

The notices of reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014 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.

We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013 and Fiscal 2014 (including any penalties) are without merit. We have filed notices of objection for Fiscal 2012, Fiscal 2013 and Fiscal 2014, and we are currently seeking competent authority consideration under applicable international treaties in respect of these reassessments.

Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013 and Fiscal 2014, or potential reassessments that may be proposed for subsequent years currently under audit, 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.

We will continue to vigorously contest the proposed adjustments to our taxable income and any penalty and interest assessments. As of the date of this Quarterly Report on Form 10-Q, we have not recorded any accruals in respect of these reassessments in our Condensed Consolidated Financial Statements. 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 in respect of our international transactions, including the transfer pricing methodology applied to them. The CRA is currently auditing Fiscal 2015, Fiscal 2016 and Fiscal 2017 and have proposed to reassess Fiscal 2015 in a manner consistent with Fiscal 2012, Fiscal 2013 and Fiscal 2014. We are engaged in ongoing discussions with the CRA and continue to vigorously contest the CRA's audit positions.

GXS India Matter

Our Indian subsidiary, GXS India Technology Centre Private Limited (GXS India), is subject to potential assessments by Indian tax authorities in the city of Bangalore. GXS India has received assessment orders from the Indian tax authorities alleging that the transfer price applied to intercompany transactions was not appropriate. Based on advice from our tax advisors, we believe that the facts that the Indian tax authorities are using to support their assessment are incorrect. We have filed appeals and anticipate an eventual settlement with the Indian tax authorities. We have accrued $1.2 million to cover our anticipated financial exposure in this matter.

Carbonite Class Action Complaint

On August 1, 2019, prior to our acquisition of Carbonite, a purported stockholder of Carbonite filed a putative class action complaint against Carbonite, its former Chief Executive Officer, Mohamad S. Ali, and its former Chief Financial Officer, Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A. Luna, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19-cv-11662-LTS). The complaint alleges violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint generally alleges that the defendants made materially false and misleading statements in connection with Carbonite’s Server Backup VM Edition, and seeks, among other

    77

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 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. The lead counsel's opposition is currently due May 4, 2020. In light of, among other things, the early stage of the litigation, we are unable to predict the outcome of this action and are unable to reasonably estimate the amount or range of loss, if any, that could result from this proceeding.

Carbonite vs Realtime Data

On February 27, 2017, prior to 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 "Realtime Data LLC v. Carbonite, Inc. et al (No 6:17-cv-00121-RWS-JDL)", alleging 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 asserted patents against other companies around the country. In one of those suits, filed in the U.S. District Court for the District of Delaware, the Delaware Court on July 29, 2019 dismissed the lawsuit after declaring invalid three of the four patents asserted by Realtime Data against Carbonite. By way of Order dated August 19, 2019, the U.S. District Court for the District of Massachusetts stayed the action against Carbonite pending appeal of the dismissal in the Delaware lawsuit. As to the fourth patent, the U.S. Patent & Trademark Office Patent Trial and Appeal Board on September 24, 2019 invalidated certain claims of that patent. No trial date has been set in the action against Carbonite. The Company is defending Carbonite vigorously. We have not accrued a loss contingency related to this matter because litigation related to a non-practicing entity is inherently unpredictable. Although a loss is reasonably possible, an unfavorable outcome is not considered by management to be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss associated with this litigation.

Please also see Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for Fiscal 2019.

Off-Balance Sheet Arrangements

We do not enter into off-balance sheet financing as a matter of practice, except for guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

We are primarily exposed to market risks associated with fluctuations in interest rates on our term loans, revolving loans and foreign currency exchange rates.

Interest rate risk

Our exposure to interest rate fluctuations relate primarily to our Term Loan B and the Revolver.

As of March 31, 2020, we had an outstanding balance of $980.0 million on Term Loan B. Term Loan B bears a floating interest rate of 1.75% plus LIBOR. As of March 31, 2020, an adverse change of one percent on the interest rate would have the effect of increasing our annual interest payment on Term Loan B by approximately $9.8 million, assuming that the loan balance as of March 31, 2020 is outstanding for the entire period (June 30, 2019—$9.9 million).

As of March 31, 2020, we had an outstanding balance of $600.0 million on the Revolver. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed rate that is dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%. As of March 31, 2020, an adverse change of one percent on the interest rate would have the effect of increasing our annual interest payment on the Revolver by approximately $6.0 million, assuming that the full balance as of March 31, 2020 is outstanding for the entire period (June 30, 2019—nil).

    78

Foreign currency risk

Foreign currency transaction risk

We transact business in various foreign currencies. Our foreign currency exposures typically arise from intercompany fees, intercompany loans and other intercompany transactions that are expected to be cash settled in the near term. We expect that we will continue to realize gains or losses with respect to our foreign currency exposures. Our ultimate realized gain or loss with respect to foreign currency exposures will generally depend on the size and type of cross-currency transactions that we enter into, the currency exchange rates associated with these exposures and changes in those rates. Additionally, we have hedged certain of our Canadian dollar foreign currency exposures relating to our payroll expenses in Canada.

Based on the foreign exchange forward contracts outstanding as of March 31, 2020, a one cent change in the Canadian dollar to U.S. dollar exchange rate would have caused a change of approximately $0.6 million in the mark to market on our existing foreign exchange forward contracts (June 30, 2019—$0.6 million).

Foreign currency translation risk

Our reporting currency is the U.S. dollar. Fluctuations in foreign currencies impact the amount of total assets and liabilities that we report for our foreign subsidiaries upon the translation of these amounts into U.S. dollars. In particular, the amount of cash and cash equivalents that we report in U.S. dollars for a significant portion of the cash held by these subsidiaries is subject to translation variance caused by changes in foreign currency exchange rates as of the end of each respective reporting period (the offset to which is recorded to accumulated other comprehensive income on our Condensed Consolidated Balance Sheets).

The following table shows our cash and cash equivalents denominated in certain major foreign currencies as of March 31, 2020 (equivalent in U.S. dollar):

(In thousands)	U.S. Dollar Equivalent at March 31, 2020		U.S. Dollar Equivalent at June 30, 2019
Euro	$	217,645	$	120,417
British Pound	17,708		33,703
Canadian Dollar	16,663		12,635
Swiss Franc	34,559		56,776
Other foreign currencies	101,577		105,273
Total cash and cash equivalents denominated in foreign currencies	388,152		328,804
U.S. dollar	1,064,418		612,205
Total cash and cash equivalents	$	1,452,570	$	941,009

If overall foreign currency exchange rates in comparison to the U.S. dollar uniformly weakened by 10%, the amount of cash and cash equivalents we would report in equivalent U.S. dollars would decrease by approximately $38.8 million (June 30, 2019—$32.9 million), assuming we have not entered into any derivatives discussed above under "Foreign Currency Transaction Risk".

    79

Item 4.    Controls and Procedures

(A) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2020, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that information required to be disclosed by us in the reports we file under the Exchange Act (according to Rule 13(a)-15(e)) is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(B) Changes in Internal Control over Financial Reporting (ICFR)

Based on the evaluation completed by our management, in which our Chief Executive Officer and Chief Financial Officer participated, our management has concluded that there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

    80

Part II - Other Information

Item 1A. Risk Factors

You should carefully consider the risk factors discussed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for our fiscal year ended June 30, 2019 in addition to the risk factors set forth below. These are not the only risks and uncertainties facing us. Additional risks not currently known to us or that we currently believe are immaterial may also impair our operating results, financial condition and liquidity. Our business is also subject to general risks and uncertainties that affect many other companies.

The outbreak of COVID-19 is expected to negatively affect our business, operations and financial performance

On March 3, 2020, COVID-19 was characterized as a pandemic by the World Health Organization. Since December 2019, COVID-19 has spread rapidly, with at least 180 countries and territories worldwide with confirmed cases of COVID-19, and a high concentration of cases in certain countries in which we sell our products and services and conduct our business operations, including the United States, Canada, Europe and Asia.

The spread of COVID-19 and resulting tight government controls and travel bans implemented around the world , such as declarations of states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial and/or other similar restrictions and limitations, have caused disruption to global supply chains and economic activity, and the market has entered a period of significantly increased volatility. The spread of COVID-19 is currently having an adverse impact on the global economy, the severity and duration of which is difficult to predict, and is expected to adversely affect our financial performance, as well as our ability to successfully execute our business strategies and initiatives, including by negatively impacting the demand for our products and services, restricting our sales operations and marketing efforts, disrupting the supply chain of hardware needed to operate our SaaS offerings or run our business and disrupting our ability to conduct product development and other important business activities. While the restrictions and limitations noted above may be relaxed or rolled back if and when COVID-19 abates, the actions may be reinstated as the pandemic continues to evolve. The scope and timing of any such reinstatements is difficult to predict and may materially affect our operations in the future. We are continuing to focus on the safety and protection of our workforce and our customers by conducting business with substantial modifications to employee travel, employee work locations and virtualization or cancellations of all sales and marketing events, among other modifications. In March 2020, we also drew down $600 million from the Revolver as a preemptive measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak. To mitigate anticipated negative financial and operational impacts of COVID-19, we have approved cost cutting measures effective through June 30, 2021, subject to review and modification as the situation warrants, and approved our COVID-19 restructuring plan which includes a move towards a significant work from home (WFH) model. For more information, please see note 24 "Subsequent Events" to our Condensed Consolidated Financial Statements and "Outlook for remainder of Fiscal 2020" in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by governments, or that we determine are in the best interest of our employees, customers, partners, suppliers and shareholders. The extent of the adverse impact of the pandemic on the global economy and markets will depend, in part, on the length and severity of the measures taken to limit the spread of the virus and, in part, on the size and effectiveness of the compensating measures taken by governments. To the extent the COVID-19 pandemic continues to adversely affect the global economy, and/or adversely affects our business, operations or financial performance, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in “Risk Factors” included within Part 1, Item 1A of our Annual Report on Form 10-K for Fiscal 2019, including those risks related to market, credit, geopolitical and business operations, or risks described in our other filings with the SEC. In addition, the COVID-19 pandemic may also affect our business, operations or financial performance in a manner that is not presently known to us. We are closely monitoring the potential adverse effects and impact on our operations, businesses and financial performance, including liquidity and capital usage, though the extent of the impact is difficult to fully predict at this time due to the rapid evolution of this uncertain situation.

We may fail to realize all of the anticipated benefits of the acquisition of Carbonite or those benefits may take longer to realize than expected.

We may be required to devote significant management attention and resources to integrating the business practices and operations of OpenText and Carbonite. As we continue to integrate, we may experience disruptions to our business and, if implemented ineffectively, it could restrict the realization of the full expected benefits. The failure to meet the challenges

    81

involved in the integration process and to realize the anticipated benefits of the acquisition of Carbonite could cause an interruption of, or loss of momentum in, our operations and could adversely affect our business, financial condition and results of operations.

Furthermore, as we continue the integration of Carbonite, it may result in material unanticipated problems, expenses, charges, liabilities, competitive responses, loss of customers and other business relationships, and diversion of management’s attention. Additional integration challenges may include:

• Difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition;

• Difficulties in the integration of operations and systems, including pricing and marketing strategies, which may hurt the sale of hybrid backup solutions which are sensitive to price; and

• Difficulties in conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures.

Many of these factors will be outside of our control and any one of them could result in increased costs, including restructuring charges, decreases in the amount of expected revenues and diversion of management’s time and energy, which could adversely affect our business, financial condition and results of operations.

We may be unable to maintain or expand our base of SMB and professional consumer customers, which could adversely affect our anticipated future growth and operating results.

With the acquisition of Carbonite, we have expanded our presence in the SMB market as well as the consumer market. To expand in this market may require substantial resources and increased marketing efforts, different to what we are accustomed to. If we are unable to market and sell our solutions to the SMB market and consumers with competitive pricing and in a cost-effective manner, it may harm our ability to grow our revenues and adversely affect our results of operation. In addition, SMBs frequently have limited budgets and are more likely to be significantly affected by economic downturns than larger, more established companies. As such, SMBs may choose to spend funds on items other than our solutions, particularly during difficult economic times, which may hurt our projected revenues, business financial condition and results of operations.

    82

Item 5. Other Matters

COVID-19 Restructuring Plan

On March 3, 2020, COVID-19 was characterized as a pandemic by the World Health Organization. The spread of COVID-19 has significantly impacted the global economy and is expected to adversely impact our operational and financial performance. The extent of the adverse impact of the pandemic on the global economy and markets will depend, in part, on the length and severity of the measures taken to limit the spread of the virus and, in part, on the size and effectiveness of the compensating measures taken by governments. We are closely monitoring the potential effects and impact on our operations, businesses and financial performance, including liquidity and capital usage, though the extent of the impact is difficult to fully predict at this time due to the rapid evolution of this uncertain situation.

On April 29, 2020, our Board approved a restructuring plan that will impact our global workforce and execute a significant reduction in our real estate footprint around the world. We expect to incur total charges in the range of $80 million to $100 million to be recorded in our quarter ending June 30, 2020, substantially all of which will ultimately result in cash expenditures, with the plan expected to be implemented over the next six to twelve months.

The Company has made a strategic decision to move towards a significant work from home (WFH) model. As a result of COVID-19, more than 95% of our employees are currently WFH, and we are now making plans for the future return to office strategy for our nearly 15,000 employees. We currently have approximately 120 offices around the world, and our intent, over time, is to make a significant reduction in the number of offices, anticipated to be over 50% of our global offices impacting approximately 15% of our employees. Based upon our plan, we estimate that this transition can be executed over the next six to twelve months. Management has estimated cost of this restructuring to be in the range of $65 million to $80 million, including the write-off of ROU asset relating to leases, the write-off of leases and fixed assets and other related costs.

We have also approved and begun executing an employee rationalization program across various departments in order to further reduce our cost base in light of the anticipated adverse effects and impact of COVID-19. We estimate severance costs to be in the range of $15 million to $20 million.

    83

Item 6.    Exhibits

The following documents are filed as a part of this report:

Exhibit Number	Description of Exhibit
2.1	Agreement and Plan of Merger (1)
4.1	Amended and Restated Shareholder Rights Plan Agreement between Open Text Corporation and Computershare Investor Services, Inc. dated September 4, 2019 (2)
4.2	Indenture (including form of Note), dated as of April 4, 2017, by and between Carbonite, Inc. and U.S. Bank National Association, as trustee (3)
4.3	First Supplemental Indenture, dated as of December 24, 2019, by and between Carbonite, Inc. and U.S. Bank National Association, as trustee (3)
4.4	Indenture, dated as of February 18, 2020, between Open Text Corporation and the Bank of NY Mellon, as US Trustee, and BNY Trust Company of Canada, as Canadian trustee (4)
4.5	Indenture, dated as of February 18, 2020, between OTHI and the Bank of NY Mellon, as US Trustee, and BNY Trust Company of Canada, as Canadian trustee (4)
10.1	Fourth Amended and Restated Credit Agreement (5)
31.1	Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL instance document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL taxonomy extension schema.
101.CAL	Inline XBRL taxonomy extension calculation linkbase.
101.DEF	Inline XBRL taxonomy extension definition linkbase.
101.LAB	Inline XBRL taxonomy extension label linkbase.
101.PRE	Inline XBRL taxonomy extension presentation.

(1) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on November 12, 2019 and incorporated herein by reference.

(2) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on September 4, 2019 and incorporated herein by reference.

(3) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q, as filed with the SEC on January 30, 2020 and incorporated herein by reference.

(4) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on February 18, 2020 and incorporated herein by reference.

(5) Filed as an Exhibit to Company's Current Report on Form 8-K, as filed with the SEC on November 5, 2019 and incorporated herein by reference.

    84

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

OPEN TEXT CORPORATION

Date: April 30, 2020

By:	/s/ MARK J. BARRENECHEA
	Mark J. Barrenechea Vice Chair, Chief Executive Officer and Chief Technology Officer (Principal Executive Officer)
	/s/ MADHU RANGANATHAN
	Madhu Ranganathan Executive Vice President and Chief Financial Officer (Principal Financial Officer)
	/s/ HOWARD ROSEN
	Howard Rosen Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

    85