OPEN TEXT CORPORATION This Annual Report on Form 10-K, 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 theU.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of theU.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 toOpen 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, statements regarding: (i) our focus in the fiscal year beginningJuly 1, 2022 and endingJune 30, 2023 (Fiscal 2023) andJuly 1, 2023 and endingJune 30, 2024 (Fiscal 2024) on growth in earnings and cash flows; (ii) creating value through investments in broader Information Management capabilities; (iii) our future business plans and business planning process; (iv) business trends; (v) distribution; (vi) the Company's presence in the cloud and in growth markets; (vii) our expectation to grow MSPs; (viii) product and solution developments, enhancements and releases, the timing thereof and the customers targeted; (ix) the Company's financial condition, results of operations and earnings; (x) the basis for any future growth and for our financial performance; (xi) declaration of quarterly dividends; (xii) future tax rates; (xiii) the changing regulatory environment; (xiv) annual recurring revenues; (xv) research and development and related expenditures; (xvi) our building, development and consolidation of our network infrastructure; (xvii) competition and changes in the competitive landscape; (xviii) our management and protection of intellectual property and other proprietary rights; (xix) existing and foreign sales and exchange rate fluctuations; (xx) cyclical or seasonal aspects of our business; (xxi) capital expenditures; (xxii) potential legal and/or regulatory proceedings; (xxiii) acquisitions and their expected impact, including our ability to successfully integrate the assets we acquire or utilize such assets to their full capacity, including those acquired in connection with the acquisition of Zix Corporation (see Note 19 "Acquisitions" to our Consolidated Financial Statements for more details); (xxiv) tax audits; (xxv) the expected impact of our decision to cease all direct business inRussia andBelarus and with known Russian-owned companies;(xxvi) expected costs of the restructuring plans; (xxvii) targets regarding greenhouse gas emissions, waste diversion, energy consumption and ED&I initiatives; and (xxviii) 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 political, economic and market conditions, including any potential recession; (iv) our ability to manage inflation, including increased labour costs associated with attracting and retaining employees, and rising interest rates; (v) our continued ability to manage certain foreign currency risk through hedging; (vi) equity and debt markets continuing to provide us with access to capital; (vii) our continued ability to identify, source and finance attractive and executable business combination opportunities; (viii) our continued ability to avoid infringing third party intellectual property rights; and (ix) our ability to successfully implement our restructuring plans. Management's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. 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) actual and 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 pandemic and issues relating to the resurgence of COVID-19 and/or new strains of COVID-19, including potential material adverse effects on our business, operations and financial performance; (ii) actions that have been and may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact on our business (or failure to implement additional stimulus programs) and the availability, effectiveness and use of treatments and vaccines (including the effectiveness of boosters); (iii) the actual and potential negative impacts of COVID-19 on the global economy and financial markets; (iv) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (v) the possibility that we may be unable to successfully integrate the assets we acquire or fail to utilize such assets to their full capacity and not realize the benefits we expect from our acquired portfolios and businesses, including the acquisition of Zix Corporation, (vi) 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 44 -------------------------------------------------------------------------------- outstanding debt securities; (vii) 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; (viii) the risks associated with bringing new products and services to market; (ix) fluctuations in currency exchange rates (including as a result of the impact of any policy changes resulting from trade and tariff disputes); (x) delays in the purchasing decisions of the Company's customers; (xi) competition the Company faces in its industry and/or marketplace; (xii) the final determination of litigation, tax audits (including tax examinations inCanada ,the United States or elsewhere) and other legal proceedings; (xiii) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian,United States or international tax regimes; (xiv) the possibility of technical, logistical or planning issues in connection with the deployment of the Company's products or services; (xv) the continuous commitment of the Company's customers; (xvi) demand for the Company's products and services; (xvii) increase in exposure to international business risks (including the impact of geopolitical instability, political unrest, war and other global conflicts) as we continue to increase our international operations; (xviii) adverse macroeconomic conditions, including inflation, disruptions in global supply chains and increased labour costs; (xix) inability to raise capital at all or on not unfavorable terms in the future; (xx) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions); and (xxi) 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 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 GDPR, California Consumer Privacy Act, California Privacy Rights Act, Virginia Consumer Data Protection Act, Colorado Privacy Act, Connecticut Data Privacy Act, Utah Consumer Privacy Act, and Country by Country Reporting (including with respect to transferring personal data outside of the EEA and theUnited Kingdom , as a result of the ruling of theCourt of Justice of theEuropean Union (CJEU) that the EU-US Privacy Shield is an invalid data transfer mechanism and that Standard Contractual Clauses (SCCs) are a valid transfer mechanism unless the country to which personal data is exported restricts the ability to comply with such Clauses (Schrems II), and with respect to the new SCCs published by theEuropean Commission and the IDTA and Addendum published by the UnitedKingdom's Information Commissioner's Office to meet the requirements of GDPR and Schrems II); (vii) the Company's growth and other profitability prospects; (viii) the estimated size and growth prospects of the Information Management market; (ix) the Company's competitive position in the Information Management 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 Information Management marketplace; (xii) the Company's financial condition and capital requirements; (xiii) system or network failures or information security, cybersecurity or other data breaches in connection with the Company's offerings or the information technology systems used by the Company generally, the risk of which may be increased during times of natural disaster or pandemic (including COVID-19) due to remote working arrangements; (xiv) failure to achieve our environmental goals on energy consumption, waste diversion and greenhouse gas emissions or our targets relating to ED&I initiatives; and (xv) failure to attract and retain key personnel to develop and effectively manage the Company's business. Readers should carefully review Part I, Item 1A "Risk Factors" and other documents we file from time to time with theSecurities and Exchange Commission (SEC) and other securities regulators. A number of factors may materially affect our business, financial condition, operating results and prospects. These factors include but are not limited to those set forth in Part I, Item 1A "Risk Factors" and elsewhere in this Annual Report on Form 10-K. Any one of these factors, and other factors that we are unaware of, or currently deem immaterial, may cause our actual results to differ materially from recent results or from our anticipated future results. 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 Consolidated Financial Statements and the accompanying Notes to our Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K. All dollar and percentage comparisons made herein refer to the year endedJune 30, 2022 compared with the year endedJune 30, 2021 , unless otherwise noted. Please refer to Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2021 for a comparative discussion of our Fiscal 2021 financial results as compared to Fiscal 2020.
Where we say "we", "us", "our", "OpenText" or "the Company", we mean
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--------------------------------------------------------------------------------EXECUTIVE OVERVIEW
At OpenText, we believe information and knowledge make business and people better. We are an Information Management company that provides software and services that empower digital businesses of all sizes to become more intelligent, secure and connected. Our innovations maximize the strategic benefits of data and content for our customers, strengthening their productivity, growth and competitive advantage.
Our comprehensive Information Management platform and services provide secure and scalable solutions for global companies, SMBs, governments and consumers around the world. We have a complete and integrated portfolio of Information Management solutions delivered at scale in the OpenText Cloud, helping organizations master modern work, power modern experiences and optimize their digital supply chains. To do this, we bring together our Content Cloud, Business Network Cloud, Experience Cloud, Security Cloud and Developer Cloud. We also accelerate information modernization with intelligent tools and services for moving off paper, automating classification and building clean data lakes for artificial intelligence (AI), analytics and automation. We are fundamentally integrated into the parts of our customers' businesses that matter, so they can securely manage the complexity of information flow end to end. Through automation and AI, we connect, synthesize and deliver information where it is needed to drive new efficiencies, experiences and insights. We make information more valuable by connecting it to digital business processes, enriching it with capture and analytics, protecting and securing it throughout its entire lifecycle, and leveraging it to create engaging digital experiences. Our solutions also connect large digital supply chains in manufacturing, retail and financial services. Our solutions also enable organizations and consumers to secure their information so that they can collaborate with confidence, stay ahead of the regulatory technology curve, identify threats on any endpoint or across their networks, enable privacy, leverage eDiscovery and digital forensics to defensibly investigate and collect evidence, and ensure business continuity in the event of a security incident. Our initial public offering was on the NASDAQ in 1996 and we were subsequently listed on theToronto Stock Exchange (TSX) in 1998. Our ticker symbol on both the NASDAQ and the TSX is "OTEX". As ofJune 30, 2022 , we employed a total of approximately 14,800 individuals, of which 7,150 or 49% are in theAmericas , 2,720 or 18% are in EMEA and 4,930 or 33% are inAsia Pacific . Currently, we have employees in 35 countries enabling strong access to multiple talent pools while ensuring reach and proximity to our customers. Please see "Results of Operations" below for our definitions of geographic regions.
Fiscal 2022 Summary:
•Total revenue was$3,493.8 million , up 3.2% compared to the prior fiscal year; up 4.3% after factoring in the unfavorable impact of$39.5 million of foreign exchange rate changes. •Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and customer support revenue, was$2,866.0 million , up 4.5% compared to the prior fiscal year; up 5.5% after factoring in the unfavorable impact of$26.0 million of foreign exchange rate changes. •Cloud services and subscriptions revenue was$1,535.0 million , up 9.1% compared to the prior fiscal year; up 9.8% after factoring in the unfavorable impact of$9.7 million of foreign exchange rate changes.
•GAAP-based gross margin was 69.6% compared to 69.4% in the prior fiscal year.
•Non-GAAP-based gross margin was 75.6% compared to 76.1% in the prior fiscal year.
•GAAP-based net income attributable to OpenText was
•Non-GAAP-based net income attributable to OpenText was
•GAAP-based earnings per share (EPS), diluted, was
•Non-GAAP-based EPS, diluted, was
•Adjusted EBITDA, a non-GAAP measure, was
•Operating cash flow was
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•Cash and cash equivalents were
•Enterprise cloud bookings was$465.8 million for the year endedJune 30, 2022 . We define Enterprise cloud bookings as the total value from cloud services and subscription contracts entered into in the fiscal year that are new, committed and incremental to our existing contracts, excluding the impact of Carbonite and Zix.
See "Use of Non-GAAP Financial Measures" below for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures. See "Acquisitions" below for the impact of acquisitions on the period-to-period comparability of results.
Acquisitions
As a result of the continually changing marketplace in which we operate, we regularly evaluate acquisition opportunities within our market and at any time may be in various stages of discussions with respect to such opportunities.
Acquisition of Zix Corporation
OnDecember 23, 2021 , we acquired all of the equity interest in Zix Corporation (Zix), a leader in software as a service (SaaS) based email encryption, threat protection and compliance cloud solutions for SMBs. Total consideration for Zix was$894.5 million paid in cash, inclusive of$38.3 million of cash acquired and$18.6 million relating to the cash settlement of pre-acquisition vested share-based compensation. We believe the acquisition increases our position in the data protection, threat management, email security and compliance solutions spaces. The results of operations of Zix have been consolidated with those of OpenText beginningDecember 23, 2021 .
Acquisition of
OnNovember 24, 2021 , we acquired all of the equity interest inBricata Inc. (Bricata) for$17.8 million . We believe the acquisition strengthens our OpenText Security Cloud with Network Detection and Response technologies. The results of operations of Bricata have been consolidated with those of OpenText beginningNovember 24, 2021 . 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 Consolidated Financial Statements for more details.
Impacts of COVID-19
InMarch 2020 , COVID-19 was characterized as a pandemic by theWorld Health Organization . The spread of COVID-19 has significantly impacted the global economy and has adversely impacted and may continue to adversely impact our operational and financial performance. The extent of the adverse impact of the pandemic on the global economy and markets will continue to depend, in part, on the length and severity of the measures taken to limit the spread of the virus, the availability, effectiveness and use of treatments and vaccines and on actual and potential resurgences. 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 due to the evolution of this uncertain situation. We continue to conduct business with modifications to employee travel and work locations and also virtualization of certain events, along with modified interactions with customers and suppliers, among other modifications. In addition, as many local governments and officials have started lifting pandemic restrictions in accordance with the guidance of public health experts, inJuly 2022 , we implemented a Flex-Office program in which a majority of our employees work a portion of their time in the office and a portion remotely. See "We have implemented a Flex-Office program, which will subject us to certain operational challenges and risks" in Part I, Item 1A "Risk Factors" included elsewhere within this Annual Report on Form 10-K. 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, including our Flex-Office program, 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 47 -------------------------------------------------------------------------------- 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. The ongoing and ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control. For more information, please see Part I, Item 1A "Risk Factors" included elsewhere within this Annual Report on Form 10-K.
Impacts of Russia-Ukraine Conflict
In response to theRussia -Ukraine conflict, we have ceased all direct business inRussia andBelarus and with known Russian-owned companies. Sanctions and export controls have also been imposed bythe United States ,Canada and other countries in connection withRussia's military actions inUkraine including restrictions on selling or exporting goods, services or technology to certain regions, and travel bans and asset freezes impacting political, military, business and financial organizations and individuals in or connected withRussia . To support certain of our cloud customers headquartered inthe United States or allied countries that rely on our network to manage their global business (including their business inRussia ), we have nonetheless allowed these customers to continue to use our services to the extent that it can be done in strict compliance with all applicable sanctions and export controls. However, we may adjust our business practices as required by applicable rules and regulations. Our compliance with sanctions and export controls could impact the fulfillment of certain contracts with customers and partners doing business in these affected areas and future revenue streams from impacted parties and certain countries. While we do not expect our decision to cease all direct business inRussia andBelarus and with known Russian-owned companies to have a material adverse effect on our overall business, results of operations or financial condition, it is not possible to predict the broader consequences of this conflict, including adverse effects on the global economy, on our business and operations as well as those of our customers, partners and third party service providers. For more information, please see Part I, Item 1A "Risk Factors" included in this Annual Report on Form 10-K.
Outlook for Fiscal 2023
As an organization, we are committed to "Total Growth", meaning we strive towards delivering value through organic initiatives, innovations and acquisitions, as well as financial performance. With an emphasis on 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 our ability to deepen our account coverage and identify and execute strategic acquisitions. With strategic acquisitions, we are well positioned to expand our product portfolio and improve our ability to innovate and grow organically, which helps us to meet our long-term growth targets. We believe our Total Growth strategy is a durable model, that we believe will create both near and long-term shareholder value through organic and acquired growth, capital efficiency and profitability. We are committed to continuous innovation. Our investments in R&D push product innovation, increasing the value of our offerings to our installed customer base, which includes Global 10,000 companies (G10K), SMB and consumers. The G10K are the world's largest companies, ranked by estimated total revenues, as well as the world's largest governments and organizations. 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. Over the last three fiscal years, we have invested a cumulative total of$1.23 billion in R&D or 12.3% of cumulative revenue for that three-year period. On an annual basis, we target to spend 12% to 14% of revenues for R&D expense. Looking ahead, the destination for innovation is indisputably the cloud. Businesses of all sizes rely on a combination of public and private clouds, managed services and off-cloud solutions. As a result, we are committed to continue to modernize our technology infrastructure and leverage our existing investments in the OpenText Cloud. The combination of OpenText cloud-native applications and managed services, together with the scalability and performance of our partner public cloud providers, offer more secure, reliable and compliant solutions to customers wanting to deploy cloud-based Information Management applications. The OpenText Cloud is designed to build additional flexibility and scalability for our customers: becoming cloud-native, connecting anything, and extending capabilities quickly with multi-tenant SaaS applications and services. We will continue to closely monitor the potential impacts of COVID-19, inflation with respect to wages, services and goods, concerns regarding any potential recession, rising interest rates, financial market volatility, and theRussia -Ukraine conflict on our business. See Part I, Item 1A, "Risk Factors" included within this Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity withU.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the 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 48 -------------------------------------------------------------------------------- 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 the Consolidated Financial Statements included in this Annual Report on Form 10-K.
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. As ofJune 30, 2022 , we have recorded certain estimates in our Consolidated Financial Statements resulting from the pandemic, particularly with respect to the COVID-19 Restructuring Plan, based on management's estimates and assumptions utilizing the most currently available information. Such estimates may be subject to change particularly given the unprecedented nature of the COVID-19 pandemic. Please also see Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K. Revenue recognition 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. 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: cloud services and subscriptions, customer support, license and professional service and other.
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 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
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--------------------------------------------------------------------------------(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. 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, 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, a 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 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 off-cloud subscription arrangements. As customer support is not critical to the customers' ability to derive benefit from their right to use our software, customer support is considered 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.
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 (off-cloud).
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
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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.
Professional service and other revenue
Our professional services, when offered along with software licenses, consist primarily of technical and training services. Technical services may include installation, customization, implementation or consulting services. Training services may include access to online modules, or the delivery of 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 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 distinct within the context of the contract.
Professional service revenue is recognized over time as 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 an alternative use, and we have the enforceable right to payment. If all the above criteria are met, we use an input-based measure of progress for recognizing professional service revenue. For example, we may consider total labour hours incurred compared to total expected labour 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. If a material right exists in one of our contracts, then revenue allocated to the option is deferred and we would recognize that deferred 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 were 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
51
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process whereby management considers multiple factors including, but not limited
to, geographic or region-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. We believe there are significant assumptions, judgments and estimates involved in the accounting for revenue recognition as discussed above and these assumptions, judgments and estimates could impact the timing of when revenue is recognized and could have a material impact on our Consolidated Financial Statements.
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually) and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable. Our operations are analyzed by management and our chief operating decision maker (CODM) as being part of a single industry segment: the design, development, marketing and sales of Information Management software and solutions. Therefore, our goodwill impairment assessment is based on the allocation of goodwill to a single reporting unit. We perform a qualitative assessment to test our reporting unit's goodwill for impairment. Based on our qualitative assessment, if we determine that the fair value of our reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the quantitative assessment of the impairment test is performed. In the quantitative assessment, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired, and we are not required to perform further testing. If the carrying value of the net assets of our reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded.
Our annual impairment analysis of goodwill was performed as of
Acquired intangibles
In accordance with business combinations accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. Such valuations may require management to make significant estimates and assumptions, especially with respect to intangible assets. Acquired intangible assets typically consist of acquired technology and customer relationships. In valuing our acquired intangible assets, we may make assumptions and estimates based in part on information obtained from the management of the acquired company, which may make our assumptions and estimates inherently uncertain. Examples of critical estimates we may make in valuing certain of the intangible assets that we acquire include, but are not limited to:
•future expected cash flows of our individual revenue streams;
•historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;
•the expected use of the acquired assets; and
•discount rates.
52
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As a result of the judgments that need to be made, we obtain the assistance of
independent valuation firms. We complete these assessments as soon as practical
after the closing dates. Any excess of the purchase price over the estimated
fair values of the identifiable net assets acquired is recorded as goodwill.
Although we believe the assumptions and estimates of fair value we have made in
the past have been reasonable and appropriate, they are based in part on
historical experience and information obtained from the management of the
acquired companies and are inherently uncertain and subject to refinement.
Unanticipated events and circumstances may occur that may affect the accuracy or
validity of such assumptions, estimates or actual results. As a result, during
the measurement period, which may be up to one year from the acquisition date,
we record adjustments to the assets acquired and liabilities assumed with the
corresponding offset to goodwill, if the changes are related to conditions that
existed at the time of the acquisition. Upon the conclusion of the measurement
period or final determination of the values of assets acquired or liabilities
assumed, whichever comes first, any subsequent adjustments, based on events that
occurred subsequent to the acquisition date, are recorded in our Consolidated
Statements of Income.
Income taxes
We account for income taxes in accordance with ASC Topic 740, "Income Taxes" (Topic 740).
We account for our uncertain tax provisions by using a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of the available evidence indicates it is more likely than not, based solely on the technical merits, that the position will be sustained on audit, including the resolution of related appeals or litigation processes, if any. The second step is to measure the appropriate amount of the benefit to recognize. The amount of benefit to recognize is measured as the maximum amount which is more likely than not to be realized. The tax position is derecognized when it is no longer more likely than not that the position will be sustained on audit. On subsequent recognition and measurement, the maximum amount which is more likely than not to be recognized at each reporting date will represent the Company's best estimate, given the information available at the reporting date, although the outcome of the tax position is not absolute or final. We recognize both accrued interest and penalties related to liabilities for income taxes within the "Provision for (recovery of) income taxes" line of our Consolidated Statements of Income. Deferred tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the Consolidated Financial Statements that will result in taxable or deductible amounts in future years. These temporary differences are measured using enacted tax rates. A valuation allowance is recorded to reduce deferred tax assets to the extent that we consider it is more likely than not that a deferred tax asset will not be realized. In determining the valuation allowance, we consider factors such as the reversal of deferred income tax liabilities, projected taxable income and the character of income tax assets and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense. The Company's tax positions are subject to audit by local taxing authorities across multiple global subsidiaries and the resolution of such audits may span multiple years. Since tax law is complex and often subject to varied interpretations, it is uncertain whether some of the Company's tax positions will be sustained upon audit. Our assumptions, judgments and estimates relative to the current provision for income taxes considers current tax laws, our interpretations of current tax laws and possible outcomes of current and future audits conducted by domestic and foreign tax authorities. While we believe the assumptions and estimates that we have made are reasonable, such assumptions and estimates could have a material impact to our Consolidated Financial Statements upon ultimate resolution of the tax positions.
For additional details, please see Note 15 "Income Taxes" to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
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.
53
--------------------------------------------------------------------------------Summary of Results of Operations
Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Total Revenues by Product Type:
Cloud services and subscriptions $ 1,535,017 $ 127,572 $ 1,407,445 $ 249,759 $ 1,157,686
Customer support 1,330,965 (3,097) 1,334,062 58,476 1,275,586
License 358,351 (26,360) 384,711 (18,140) 402,851
Professional service and other 269,511 9,614 259,897 (13,716) 273,613
Total revenues 3,493,844 107,729 3,386,115 276,379 3,109,736
Total Cost of Revenues 1,062,201 27,735 1,034,466 30,691 1,003,775
Total GAAP-based Gross Profit 2,431,643 79,994 2,351,649 245,688 2,105,961
Total GAAP-based Gross Margin % 69.6 % 69.4 % 67.7 % Total GAAP-based Operating Expenses 1,786,870 176,124 1,610,746 8,314
1,602,432
Total GAAP-based Income from Operations$ 644,773
% Revenues by Product Type: Cloud services and subscriptions 43.9 % 41.6 % 37.2 % Customer support 38.1 % 39.4 % 41.0 % License 10.3 % 11.3 % 13.0 % Professional service and other 7.7 % 7.7 %
8.8 %
Total Cost of Revenues by Product Type: Cloud services and subscriptions$ 511,713 $ 29,895 $ 481,818 $ 31,878 $ 449,940 Customer support 121,485 (1,268) 122,753 (1,141) 123,894 License 13,501 (415) 13,916 2,595 11,321 Professional service and other 216,895 19,712 197,183 (15,720)
212,903
Amortization of acquired technology-based intangible assets 198,607 (20,189) 218,796 13,079 205,717 Total cost of revenues$ 1,062,201 $ 27,735 $ 1,034,466 $ 30,691 $ 1,003,775 % GAAP-based Gross Margin by Product Type: Cloud services and subscriptions 66.7 % 65.8 % 61.1 % Customer support 90.9 % 90.8 % 90.3 % License 96.2 % 96.4 % 97.2 % Professional service and other 19.5 % 24.1 %
22.2 %
Total Revenues by Geography: (1) Americas (2)$ 2,187,629 $ 118,546 $ 2,069,083 $ 165,433 $ 1,903,650 EMEA (3) 1,026,201 (5,406) 1,031,607 89,326 942,281 Asia Pacific (4) 280,014 (5,411) 285,425 21,620 263,805 Total revenues$ 3,493,844 $ 107,729 $ 3,386,115 $ 276,379 $ 3,109,736 % Revenues by Geography: Americas (2) 62.6 % 61.1 % 61.2 % EMEA (3) 29.4 % 30.5 % 30.3 % Asia Pacific (4) 8.0 % 8.4 % 8.5 % Other Metrics: GAAP-based gross margin 69.6 % 69.4 % 67.7 % Non-GAAP-based gross margin (5) 75.6 % 76.1 % 74.5 % Net income, attributable to OpenText$ 397,090 $ 310,672 $ 234,225 GAAP-based EPS, diluted$ 1.46 $ 1.14 $ 0.86 Non-GAAP-based EPS, diluted (5)$ 3.22 $ 3.39 $ 2.89 Adjusted EBITDA (5)$ 1,264,986 $ 1,315,033 $ 1,148,080
_______________________________
(1)Total revenues by geography are determined based on the location of our direct end customer. (2)Americas consists of countries in North, Central andSouth America . (3)EMEA primarily consists of countries inEurope , theMiddle East andAfrica . (4)Asia Pacific primarily consists ofJapan ,Australia ,China ,Korea ,Philippines ,Singapore ,India andNew 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. 54 --------------------------------------------------------------------------------
Revenues, Cost of Revenues and Gross Margin by Product Type
1) Cloud Services and Subscriptions:
Cloud services and subscriptions revenues are from hosting arrangements where in connection with the licensing of software, the end user does not take possession of the software, as well as from end-to-end fully outsourced B2B integration solutions to our customers (collectively referred to as cloud arrangements). 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 PaaS, SaaS, cloud subscriptions and managed services. For the year endedJune 30, 2022 , our cloud renewal rate, excluding the impact of Carbonite and Zix, was approximately 94% compared to approximately 93% for the year endedJune 30, 2021 . 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. Year Ended June 30, Change Change increase increase (In thousands) 2022 (decrease) 2021 (decrease) 2020 Cloud Services and Subscriptions: Americas$ 1,155,918 $ 107,474 $ 1,048,444 $ 209,001 $ 839,443 EMEA 274,824 18,625 256,199 23,343 232,856 Asia Pacific 104,275 1,473 102,802 17,415 85,387 Total Cloud Services and Subscriptions Revenues 1,535,017 127,572 1,407,445 249,759
1,157,686
Cost of Cloud Services and Subscriptions Revenues 511,713 29,895 481,818 31,878
449,940
GAAP-based Cloud Services and Subscriptions Gross Profit$ 1,023,304 $ 97,677 $ 925,627 $ 217,881 $ 707,746 GAAP-based Cloud Services and Subscriptions Gross Margin % 66.7 % 65.8 % 61.1 % % Cloud Services and Subscriptions Revenues by Geography: Americas 75.3 % 74.5 % 72.5 % EMEA 17.9 % 18.2 % 20.1 % Asia Pacific 6.8 % 7.3 % 7.4 % Cloud services and subscriptions revenues increased by$127.6 million or 9.1% during the year endedJune 30, 2022 as compared to the prior fiscal year; up 9.8% after factoring in the unfavorable impact of$9.7 million of foreign exchange rate changes. The increase was primarily driven by the impact of recent acquisitions, along with organic growth over the comparative period. Geographically, the overall change was attributable to an increase inAmericas of$107.5 million , an increase in EMEA of$18.6 million and an increase inAsia Pacific of$1.5 million .
There were 98 cloud services contracts greater than
Cost of Cloud services and subscriptions revenues increased by$29.9 million during the year endedJune 30, 2022 as compared to the prior fiscal year. This was primarily due to an increase in third party network usage fees of$19.9 million , an increase in labour-related costs of$8.1 million and an increase in payroll taxes of$1.5 million . Overall, the gross margin percentage on Cloud services and subscriptions revenues increased to 67% from 66%.
2) 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 year endedJune 30, 2022 , our Customer support renewal rate was approximately 94%, consistent with the year endedJune 30, 2021 .
Cost of Customer support revenues is comprised primarily of technical support personnel and related costs, as well as third party royalty costs.
55
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Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Customer Support Revenues:
Americas $ 743,474 $ (250) $ 743,724 $ 9,146 $ 734,578
EMEA 475,686 (5,872) 481,558 43,111 438,447
Asia Pacific 111,805 3,025 108,780 6,219 102,561
Total Customer Support Revenues 1,330,965 (3,097) 1,334,062 58,476 1,275,586
Cost of Customer Support Revenues 121,485 (1,268) 122,753 (1,141)
123,894
GAAP-based Customer Support Gross Profit$ 1,209,480 $ (1,829) $ 1,211,309 $ 59,617 $ 1,151,692 GAAP-based Customer Support Gross Margin % 90.9 % 90.8 %
90.3 %
% Customer Support Revenues by Geography: Americas 55.9 % 55.7 % 57.6 % EMEA 35.7 % 36.1 % 34.4 % Asia Pacific 8.4 % 8.2 % 8.0 % Customer support revenues decreased by$3.1 million or 0.2% during the year endedJune 30, 2022 as compared to the prior fiscal year; up 1.0% after factoring in the unfavorable impact of$16.3 million of foreign exchange rate changes. Geographically, the overall change was attributable to a decrease in EMEA of$5.9 million and a decrease inAmericas of$0.2 million , partially offset by an increase inAsia Pacific of$3.0 million . Cost of Customer support revenues decreased by$1.3 million during the year endedJune 30, 2022 as compared to the prior fiscal year. This was primarily due to a decrease in labour-related costs of$1.9 million and a decrease in third party network usage fees of$0.3 million , partially offset by an increase in other miscellaneous costs of$1.0 million . Overall, the gross margin percentage on Customer support revenues remained stable at 91%.
3) License:
Our License revenue can be broadly categorized as perpetual licenses, term
licenses and subscription licenses. 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.
Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
License Revenues:
Americas $ 163,719 $ 4,189 $ 159,530 $ (40,116) $ 199,646
EMEA 161,735 (16,768) 178,503 23,296 155,207
Asia Pacific 32,897 (13,781) 46,678 (1,320) 47,998
Total License Revenues 358,351 (26,360) 384,711 (18,140) 402,851
Cost of License Revenues 13,501 (415) 13,916 2,595 11,321
GAAP-based License Gross Profit $ 344,850
96.2 % 96.4 % 97.2 %
% License Revenues by Geography:
Americas 45.7 % 41.5 % 49.6 %
EMEA 45.1 % 46.4 % 38.5 %
Asia Pacific 9.2 % 12.1 % 11.9 %
License revenues decreased by $26.4 million or 6.9% during the year ended June
30, 2022 as compared to the prior fiscal year; down 4.6% after factoring in the
unfavorable impact of $8.7 million of foreign exchange rate changes.
Geographically, the overall change was attributable to a decrease in EMEA of
$16.8 million and a decrease in Asia Pacific of $13.8 million , partially offset
by an increase in Americas of $4.2 million .
During Fiscal 2022, we closed 122 license contracts greater than $0.5 million ,
of which 46 contracts were greater than $1.0 million , contributing $131.7
million of License revenues. This was compared to 122 license contracts greater
than $0.5 million during Fiscal 2021, of which 45 contracts were greater than
$1.0 million , contributing $131.6 million of License revenues.
56
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Cost of License revenues decreased by $0.4 million during the year ended June
30, 2022 as compared to the prior fiscal year as a result of lower third-party
technology costs. Overall, the gross margin percentage on License revenues
remained stable at 96%.
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 included 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.
Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Professional Service and Other
Revenues:
Americas $ 124,518 $ 7,133 $ 117,385 $ (12,598) $ 129,983
EMEA 113,956 (1,391) 115,347 (424) 115,771
Asia Pacific 31,037 3,872 27,165 (694) 27,859
Total Professional Service and Other
Revenues 269,511 9,614 259,897 (13,716) 273,613
Cost of Professional Service and Other
Revenues 216,895 19,712 197,183 (15,720) 212,903
GAAP-based Professional Service and
Other Gross Profit $ 52,616
19.5 % 24.1 % 22.2 %
% Professional Service and Other
Revenues by Geography:
Americas 46.2 % 45.2 % 47.5 %
EMEA 42.3 % 44.4 % 42.3 %
Asia Pacific 11.5 % 10.4 % 10.2 %
Professional service and other revenues increased by $9.6 million or 3.7% during
the year ended June 30, 2022 as compared to the prior fiscal year; up 5.5% after
factoring in the unfavorable impact of $4.8 million of foreign exchange rate
changes. Geographically, the overall change was attributable to an increase in
Americas of $7.1 million and an increase in Asia Pacific of $3.9 million ,
partially offset by a decrease in EMEA of $1.4 million .
Cost of Professional service and other revenues increased by $19.7 million
during the year ended June 30, 2022 as compared to the prior fiscal year. This
was primarily due to an increase in labour-related costs of $19.4 million and an
increase in other miscellaneous costs of $0.3 million . Overall, the gross margin
percentage on Professional service and other revenues decreased to 20% from 24%.
Amortization of Acquired Technology-based Intangible Assets
Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Amortization of acquired technology-based
intangible assets $ 198,607 Amortization of acquired technology-based intangible assets decreased during the year endedJune 30, 2022 by$20.2 million as compared to the prior fiscal year. This was due to a reduction of$27.9 million relating to intangible assets from previous acquisitions becoming fully amortized, partially offset by an increase of$7.7 million relating to amortization of newly acquired customer-based intangible assets from recent acquisitions. 57 --------------------------------------------------------------------------------
Operating Expenses
Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Research and development $ 440,448 $ 19,001 $ 421,447 $ 51,036 $ 370,411
Sales and marketing 677,118 54,897 622,221 37,177 585,044
General and administrative 317,085 53,564 263,521 25,989 237,532
Depreciation 88,241 2,976 85,265 (4,193) 89,458
Amortization of acquired customer-based
intangible assets 217,105 561 216,544 (3,015) 219,559
Special charges (recoveries) 46,873 45,125 1,748 (98,680) 100,428
Total operating expenses $ 1,786,870 $ 176,124 $ 1,610,746 $ 8,314 $ 1,602,432
% of Total Revenues:
Research and development 12.6 % 12.4 % 11.9 %
Sales and marketing 19.4 % 18.4 % 18.8 %
General and administrative 9.1 % 7.8 % 7.6 %
Depreciation 2.5 % 2.5 % 2.9 %
Amortization of acquired customer-based
intangible assets 6.2 % 6.4 % 7.1 %
Special charges (recoveries) 1.3 % 0.1 % 3.2 %
Research and development expenses consist primarily of payroll and
payroll-related benefits expenses, contracted research and development expenses
and facility costs. Research and development enables organic growth and improves
product stability and functionality, and accordingly, we dedicate extensive
efforts to update and upgrade our product offerings. The primary drivers are
typically software upgrades and development.
Change between Fiscal Years
increase (decrease)
(In thousands) 2022 and 2021 2021 and 2020
Payroll and payroll-related benefits $ 17,070 $ 40,794
Contract labour and consulting 2,576 (838)
Share-based compensation 7,263 4,550
Travel and communication 294 (1,454)
Facilities (9,053) 8,327
Other miscellaneous 851 (343)
Total change in research and development expenses $ 19,001 $ 51,036
Research and development expenses increased by $19 million during the year ended
June 30, 2022 as compared to the prior fiscal year, primarily as a result of
recent acquisitions. Payroll and payroll-related benefits, which is comprised of
salaries, benefits and variable short-term incentives, increased by $17.1
million . Additionally, share-based compensation expense increased by $7.3
million and contract labour and consulting increased by $2.6 million . These
increases were partially offset by reductions in facility-related expenses of
$9.1 million . Overall, our research and development expenses, as a percentage of
total revenues, remained stable compared to the prior fiscal year at 13%.
Our research and development labour resources increased by 150 employees, from
4,176 employees at
58
--------------------------------------------------------------------------------Sales and marketing expenses consist primarily of personnel expenses and costs associated with advertising, marketing events and trade shows.
Change between Fiscal Years
increase (decrease)
(In thousands) 2022 and 2021 2021 and 2020
Payroll and payroll-related benefits $ 38,613 $ 28,343
Commissions 6,993 11,530
Contract labour and consulting 2 135
Share-based compensation 4,316 8,977
Travel and communication 3,806 (14,641)
Marketing expenses 9,579 11,522
Facilities (3,991) (4,151)
Credit loss expense (recovery) (9,045) (4,329)
Other miscellaneous 4,624 (209)
Total change in sales and marketing expenses $ 54,897 $ 37,177
Sales and marketing expenses increased by $54.9 million during the year ended
June 30, 2022 as compared to the prior fiscal year, partially as a result of
recent acquisitions. Payroll and payroll-related benefits, which is comprised of
salaries, benefits and variable short-term incentives, increased by $38.6
million . Additionally, marketing expenses increased by $9.6 million , commissions
increased by $7.0 million , other miscellaneous costs increased by $4.6 million ,
share-based compensation expense increased by $4.3 million and travel and
communication expenses increased by $3.8 million . These increases were partially
offset by reductions in credit loss expense of $9.0 million and reductions in
facility-related expenses of $4.0 million . Overall, our sales and marketing
expenses, as a percentage of total revenues, increased to 19% from 18% the prior
fiscal year.
Our sales and marketing labour resources increased by 256 employees, from 2,454
employees at
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 Fiscal Years
increase (decrease)
(In thousands) 2022 and 2021 2021 and 2020
Payroll and payroll-related benefits 47,831 $ 11,580
Contract labour and consulting 5,294 464
Share-based compensation 2,478 5,159
Travel and communication 5,827 (3,922)
Facilities 322 (3,838)
Other miscellaneous (8,188) 16,546
Total change in general and administrative
expenses $ 53,564 $ 25,989
General and administrative expenses increased by $53.6 million during the year
ended June 30, 2022 as compared to the prior fiscal year, partially as a result
of recent acquisitions. Payroll and payroll-related benefits, which is comprised
of salaries, benefits and variable short-term incentives, increased by $47.8
million . Additionally, travel and communication expenses increased by $5.8
million , contract labour and consulting increased by $5.3 million and
share-based compensation expense increased by $2.5 million . These increases were
partially offset by reductions in other miscellaneous costs, which include
professional fees such as legal, audit and tax related expenses, of $8.2
million . Overall, general and administrative expenses, as a percentage of total
revenues, increased to 9% from 8% in the prior fiscal year.
Our general and administrative labour resources increased by 105 employees, from
1,866 employees at
Depreciation expenses:
Year Ended June 30,
Change Change
(In thousands) 2022 increase (decrease) 2021 increase (decrease) 2020
Depreciation $ 88,241 $ 2,976 $ 85,265 $ (4,193) $ 89,458 Depreciation expenses increased during the year ended
59
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Depreciation expenses as a percentage of total revenue remained stable for the
year ended
Amortization of acquired customer-based intangible assets:
Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Amortization of acquired customer-based
intangible assets $ 217,105 Amortization of acquired customer-based intangible assets increased during the year endedJune 30, 2022 by$0.6 million as compared to the prior fiscal year. This was due to an increase of$9.4 million relating to amortization of newly acquired customer-based intangible assets from recent acquisitions, partially offset by a reduction of$8.8 million relating to intangible assets from previous acquisitions becoming fully amortized.
Special charges (recoveries):
Special charges (recoveries) typically relate to amounts that we expect to pay
in connection with restructuring plans, acquisition-related costs and other
similar charges and recoveries. Generally, we implement such plans in the
context of integrating acquired entities with existing OpenText operations and
most recently in response to our return to office planning. Actions related to
such restructuring plans are typically completed within a period of one year. In
certain limited situations, if the planned activity does not need to be
implemented, or an expense lower than anticipated is paid out, we record a
recovery of the originally recorded expense to Special charges (recoveries).
Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Special charges (recoveries) $ 46,873 $ 45,125 $ 1,748 $ (98,680) $ 100,428
Special charges (recoveries) increased by $45.1 million during the year ended
June 30, 2022 as compared to the prior fiscal year. This was primarily due to an
increase in restructuring activities of $27.2 million related to abandoned
facilities and a decrease in comparative period recoveries for the Fiscal 2022
Restructuring Plan, COVID-19 Restructuring Plan and Fiscal 2020 Restructuring
Plan.
Additionally, acquisition related costs increased by
For more details on Special charges (recoveries), see Note 18 "Special Charges (Recoveries)" to our Consolidated Financial Statements.
Other Income (Expense), Net
The components of other income (expense), net were as follows:
Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Foreign exchange gains (losses) $ (2,670)
58,702 (4,195) 62,897 54,197 8,700
Loss on debt extinguishment (2) (27,413) (27,413) - 17,854 (17,854)
Other miscellaneous income (expense) 499 689 (190) (1,582) 1,392
Total other income (expense), net $ 29,118 __________________________
(1)Represents our share in net income of equity investees, which approximates fair value and subject to volatility based on market trends and business conditions, based on our interest in certain investment funds in which we are a limited partner. Our interests in each of these investees range from 4% to below 20% and these investments are accounted for using the equity method (see Note 9 "Prepaid Expenses and Other Assets" to our Consolidated Financial Statements for more details). (2)OnDecember 9, 2021 , we redeemed Senior Notes 2026 in full, which resulted in a loss on debt extinguishment of$27.4 million . Of this,$25.0 million related to the early termination call premium,$6.2 million related to unamortized debt issuance costs and($3.8) million related to unamortized premium (see Note 11 "Long-Term Debt" to our Consolidated Financial Statements for more details). OnMarch 5, 2020 , we redeemed 60 -------------------------------------------------------------------------------- in full$800 million aggregate principal amount of our 5.625% Senior Notes due 2023 (Senior Notes 2023), which resulted in a loss on debt extinguishment of$17.9 million . Of this,$6.7 million related to unamortized debt issuance costs and the remaining$11.2 million related to the early termination call premium.
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.
Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Interest expense related to total
outstanding debt (1) $ 151,569
(4,637) (781) (3,856) 7,912 (11,768)
Other miscellaneous expense 10,948 1,171 9,777 835 8,942
Total interest and other related
expense, net $ 157,880 __________________________
(1)For more details see Note 11 "Long-Term Debt" to our Consolidated Financial Statements.
Provision for Income Taxes
We operate in several tax jurisdictions and are exposed to various foreign tax
rates.
Year Ended June 30,
Change Change
increase increase
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Provision for income taxes $ 118,752 $ (221,154) $ 339,906 $ 229,069 $ 110,837
The effective tax rate decreased to a provision of 23.0% for the year ended June
30, 2022 , compared to a provision of 52.2% for the year ended June 30, 2021 . Tax
expense decreased from $339.9 million during the year ended June 30, 2021 to
$118.8 million during the year ended June 30, 2022 . This was primarily due to
(i) a decrease of $300.6 million related to Internal Revenue Service (IRS)
settlements in Fiscal 2021, (ii) a decrease of $37.5 million related to lower
net income before taxes, (iii) a decrease of $10.8 million related to passive
income from foreign subsidiaries, (iv) a decrease of $9.6 million related to tax
accruals on unremitted earnings and (v) a decrease of $8.0 million for base
erosion and anti-abuse tax (BEAT). These were partially offset by (i) an
increase of $94.3 million for changes in unrecognized tax benefits, (ii) a net
increase of $46.8 million related to internal reorganizations and (iii) an
increase of $3.5 million for change in valuation allowance. The remainder of the
difference was due to normal course movements and non-material items.
For information on certain potential tax contingencies, including the CRA
matter, see Note 14 "Guarantees and Contingencies" and Note 15 "Income Taxes" to
our Consolidated Financial Statements. Please also see Part I, Item 1A, "Risk
Factors" within this Annual Report on Form 10-K.
61
--------------------------------------------------------------------------------Use of Non-GAAP Financial Measures
In addition to reporting financial results in accordance withU.S. GAAP, the Company provides certain financial measures that are not in accordance withU.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 theU.S. GAAP financial measures and its Consolidated Financial Statements, all of which should be considered when evaluating the Company's results. The Company uses these Non-GAAP financial measures to supplement the information provided in its Consolidated Financial Statements, which are presented in accordance withU.S. GAAP. The presentation of Non-GAAP financial measures is not meant to be a substitute for financial measures presented in accordance withU.S. GAAP, but rather should be evaluated in conjunction with and as a supplement to suchU.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 theU.S. GAAP measures with certain Non-GAAP measures defined below. Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are consistently calculated as GAAP-based net income or earnings per share, attributable to OpenText, on a diluted basis, excluding the effects of the amortization of acquired intangible assets, other income (expense), share-based compensation, and special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as GAAP-based income from operations, excluding the amortization of acquired intangible assets, special charges (recoveries), and share-based compensation expense. Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for 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 underU.S. GAAP. The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of Non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company's operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions and most recently in response to our return to office planning, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company's "Special charges (recoveries)" caption on the Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company's operating results and underlying operational trends. In summary, the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition toU.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
62
--------------------------------------------------------------------------------
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the year ended
Year Ended June 30, 2022
GAAP-based GAAP-based Measures Non-GAAP-based Non-GAAP-based Measures
Measures % of Total Revenue Adjustments Note Measures % of Total Revenue
Cost of revenues Cloud services and subscriptions$ 511,713 $ (5,285) (1)$ 506,428 Customer support 121,485 (2,399) (1) 119,086 Professional service and other 216,895 (3,740) (1) 213,155
Amortization of acquired technology-based intangible assets
198,607 (198,607) (2) -
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%) 2,431,643 69.6% 210,031 (3) 2,641,674 75.6%
Operating expenses
Research and development 440,448 (17,122) (1) 423,326
Sales and marketing 677,118 (22,628) (1) 654,490
General and administrative 317,085 (18,382) (1) 298,703Amortization of acquired customer-based intangible assets
217,105 (217,105) (2) -
Special charges (recoveries) 46,873 (46,873) (4) -
GAAP-based income from operations / Non-GAAP-based
income from operations 644,773 532,141 (5) 1,176,914
Other income (expense), net 29,118 (29,118) (6) -
Provision for income taxes 118,752 23,913 (7) 142,665GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
397,090 479,110 (8) 876,200
GAAP-based EPS / Non-GAAP-based EPS-diluted,
attributable to OpenText $ 1.46 $ 1.76 (8) $ 3.22
_________________________________
(1)Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.
(4)Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note 18 "Special Charges (Recoveries)" to our Consolidated Financial Statements for more details.
(5)GAAP-based and Non-GAAP-based income from operations stated in dollars.
(6)Adjustment relates to the exclusion of other income (expense) from our
Non-GAAP-based operating expenses as other income (expense) generally relates to
the transactional impact of foreign exchange and is generally not indicative or
related to continuing operations and is therefore excluded from our internal
analysis of operating results. Other income (expense) also includes our share of
income (losses) from our holdings in investments as a limited partner. We do not
actively trade equity securities in these privately held companies nor do we
plan our ongoing operations based around any anticipated fundings or
distributions from these investments. We exclude gains and losses on these
investments as we do not believe they are reflective of our ongoing business and
operating results.
(7)Adjustment relates to differences between the GAAP-based tax provision rate
of approximately 23% and a Non-GAAP-based tax rate of approximately 14%; these
rate differences are due to the income tax effects of items that are excluded
for the purpose of calculating Non-GAAP-based net income. Such excluded items
include amortization, share-based compensation, special charges (recoveries) and
other income (expense), net. Also excluded are tax benefits/expense items
unrelated to current period income such as changes in reserves for tax
uncertainties and valuation allowance reserves and "book to return" adjustments
for tax return filings and tax assessments. Included is the amount of net tax
benefits arising from the internal reorganization that occurred in Fiscal 2017
assumed to be allocable to the current period based on the forecasted
utilization period. In arriving at our Non-GAAP-based tax rate of approximately
14%, we analyzed the individual adjusted expenses and took into consideration
the impact of statutory tax rates from local jurisdictions incurring the
expense.
63--------------------------------------------------------------------------------
(8)Reconciliation of GAAP-based net income to Non-GAAP-based net income:
Year
Ended
Per share diluted
GAAP-based net income, attributable to OpenText $ 397,090 $ 1.46
Add:
Amortization 415,712 1.52
Share-based compensation 69,556 0.26
Special charges (recoveries) 46,873 0.17
Other (income) expense, net (29,118) (0.11)
GAAP-based provision for income taxes 118,752 0.44
Non-GAAP-based provision for income taxes (142,665) (0.52)
Non-GAAP-based net income, attributable to OpenText
$ 3.22
Reconciliation of Adjusted EBITDA
Year Ended June 30, 2022
GAAP-based net income, attributable to OpenText $ 397,090
Add:
Provision for income taxes
118,752
Interest and other related expense, net
157,880
Amortization of acquired technology-based intangible assets
198,607
Amortization of acquired customer-based intangible assets 217,105
Depreciation 88,241
Share-based compensation 69,556
Special charges (recoveries) 46,873
Other (income) expense, net (29,118)
Adjusted EBITDA $ 1,264,986
64--------------------------------------------------------------------------------
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the year ended
Year Ended June 30, 2021
GAAP-based GAAP-based Measures Non-GAAP-based Non-GAAP-based Measures
Measures % of Total Revenue Adjustments Note Measures % of Total Revenue
Cost of revenues Cloud services and subscriptions$ 481,818 $ (3,419) (1)$ 478,399 Customer support 122,753 (1,910) (1) 120,843 Professional service and other 197,183 (2,565) (1) 194,618
Amortization of acquired technology-based intangible assets
218,796 (218,796) (2) -
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%) 2,351,649 69.4% 226,690 (3) 2,578,339 76.1%
Operating expenses
Research and development 421,447 (9,859) (1) 411,588
Sales and marketing 622,221 (18,312) (1) 603,909
General and administrative 263,521 (15,904) (1) 247,617Amortization of acquired customer-based intangible assets
216,544 (216,544) (2) -
Special charges (recoveries) 1,748 (1,748) (4) -
GAAP-based income from operations / Non-GAAP-based
income from operations 740,903 489,057 (5) 1,229,960
Other income (expense), net 61,434 (61,434) (6) -
Provision for income taxes 339,906 (188,931) (7) 150,975GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
310,672 616,554 (8) 927,226
GAAP-based EPS / Non-GAAP-based EPS-diluted,
attributable to OpenText $ 1.14 $ 2.25 (8) $ 3.39
_________________________________________
(1)Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.
(4)Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note 18 "Special Charges (Recoveries)" to our Consolidated Financial Statements for more details.
(5)GAAP-based and Non-GAAP-based income from operations stated in dollars.
(6)Adjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. (7)Adjustment relates to differences between the GAAP-based tax provision rate of approximately 52% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and "book to return" adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. The GAAP-based tax provision rate for the year endedJune 30, 2021 includes an income tax provision charge fromIRS settlements partially offset by a tax benefit from the release of unrecognized tax benefits due to the conclusion of relevant tax audits that was recognized during the second quarter of Fiscal 2021. 65 --------------------------------------------------------------------------------
(8)Reconciliation of GAAP-based net income to Non-GAAP-based net income:
Year Ended June 30, 2021
Per share diluted
GAAP-based net income, attributable to OpenText $ 310,672 $ 1.14
Add:
Amortization 435,340 1.59
Share-based compensation 51,969 0.19
Special charges (recoveries) 1,748 0.01
Other (income) expense, net (61,434) (0.22)
GAAP-based provision for income taxes 339,906 1.23
Non-GAAP-based provision for income taxes (150,975) (0.55)
Non-GAAP-based net income, attributable to OpenText
$ 3.39
Reconciliation of Adjusted EBITDA
Year Ended June 30, 2021
GAAP-based net income, attributable to OpenText $ 310,672
Add:
Provision for income taxes
339,906
Interest and other related expense, net
151,567
Amortization of acquired technology-based intangible assets
218,796
Amortization of acquired customer-based intangible assets 216,544
Depreciation 85,265
Share-based compensation 51,969
Special charges (recoveries) 1,748
Other (income) expense, net (61,434)
Adjusted EBITDA $ 1,315,033
66--------------------------------------------------------------------------------
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the year ended
Year Ended June 30, 2020
GAAP-based GAAP-based Measures Non-GAAP-based Non-GAAP-based Measures
Measures % of Total Revenue Adjustments Note Measures % of Total Revenue
Cost of revenues Cloud services and subscriptions$ 449,940 $ (1,642) (1)$ 448,298 Customer support 123,894 (1,207) (1) 122,687 Professional service and other 212,903 (1,294) (1) 211,609
Amortization of acquired technology-based intangible assets
205,717 (205,717) (2) -
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%) 2,105,961 67.7% (209,860) (3) 2,315,821 74.5%
Operating expenses
Research and development 370,411 (5,309) (1) 365,102
Sales and marketing 585,044 (9,335) (1) 575,709
General and administrative 237,532 (10,745) (1) 226,787Amortization of acquired customer-based intangible assets
219,559 (219,559) (2) -
Special charges (recoveries) 100,428 (100,428) (4) -
GAAP-based income from operations / Non-GAAP-based income from operations
503,529 555,236 (5) 1,058,765
Other income (expense), net (11,946) 11,946 (6) -
Provision for (recovery of) income taxes 110,837 16,897 (7) 127,734
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText
234,225 550,285 (8) 784,510
GAAP-based EPS/ Non-GAAP-based EPS-diluted,
attributable to OpenText $ 0.86 $ 2.03 (8) $ 2.89
_________________________________________
(1)Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.
(4)Adjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note 18 "Special Charges (Recoveries)" to our Consolidated Financial Statements for more details.
(5)GAAP-based and Non-GAAP-based income from operations stated in dollars.
(6)Adjustment relates to the exclusion of other income (expense) from our
Non-GAAP-based operating expenses as other income (expense) generally relates to
the transactional impact of foreign exchange and is generally not indicative or
related to continuing operations and is therefore excluded from our internal
analysis of operating results. Other income (expense) also includes our share of
income (losses) from our holdings in investments as a limited partner. We do not
actively trade equity securities in these privately held companies nor do we
plan our ongoing operations based around any anticipated fundings or
distributions from these investments. We exclude gains and losses on these
investments as we do not believe they are reflective of our ongoing business and
operating results.
(7)Adjustment relates to differences between the GAAP-based tax provision rate
of approximately 32% and a Non-GAAP-based tax rate of approximately 14%; these
rate differences are due to the income tax effects of items that are excluded
for the purpose of calculating Non-GAAP-based net income. Such excluded items
include amortization, share-based compensation, special charges (recoveries) and
other income (expense), net. Also excluded are tax benefits/expense items
unrelated to current period income such as changes in reserves for tax
uncertainties and valuation allowance reserves and "book to return" adjustments
for tax return filings and tax assessments. Included is the amount of net tax
benefits arising from the internal reorganization that occurred in Fiscal 2017
assumed to be allocable to the current period based on the forecasted
utilization period. In arriving at our Non-GAAP-based tax rate of approximately
14%, we analyzed the individual adjusted expenses and took into consideration
the impact of statutory tax rates from local jurisdictions incurring the
expense.
67
--------------------------------------------------------------------------------(8)Reconciliation of GAAP-based net income to Non-GAAP-based net income:
Year Ended June 30, 2020
Per share diluted
GAAP-based net income, attributable to OpenText $ 234,225 $ 0.86
Add:
Amortization 425,276 1.56
Share-based compensation 29,532 0.11
Special charges (recoveries) 100,428 0.37
Other (income) expense, net 11,946 0.04
GAAP-based provision for (recovery of) income taxes 110,837 0.41
Non-GAAP-based provision for income taxes (127,734) (0.46)
Non-GAAP-based net income, attributable to OpenText
$ 2.89
Reconciliation of Adjusted EBITDA
Year Ended June 30, 2020
GAAP-based net income, attributable to OpenText $ 234,225
Add:
Provision for (recovery of) income taxes
110,837
Interest and other related expense, net
146,378
Amortization of acquired technology-based intangible assets
205,717
Amortization of acquired customer-based intangible assets 219,559
Depreciation 89,458
Share-based compensation 29,532
Special charges (recoveries) 100,428
Other (income) expense, net 11,946
Adjusted EBITDA $ 1,148,080
68--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The following tables set forth changes in cash flows from operating, investing and financing activities for the periods indicated:
Change Change
As of June 30, increase As of June 30, increase As of June 30,
(In thousands) 2022 (decrease) 2021 (decrease) 2020
Cash and cash equivalents $ 1,693,741 $ 86,435 $ 1,607,306 $ (85,544) $ 1,692,850
Restricted cash (1) 2,170 (324) 2,494 (1,919) 4,413
Total cash, cash equivalents and
restricted cash $ 1,695,911 $ 86,111 $ 1,609,800 $ (87,463) $ 1,697,263
__________________________(1)Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Consolidated Balance Sheets (see Note 9 "Prepaid Expenses and Other Assets" to our Consolidated Financial Statements for more details).
Year Ended June 30,
(In thousands) 2022 Change 2021 Change 2020
Cash provided by operating
activities $ 981,810 $ 105,690 $ 138,456 $ 1,063,003
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. As ofJune 30, 2022 , we have recognized a provision of$19.9 million (June 30 , 2021-$27.5 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 German subsidiaries, that will be subject to withholding taxes upon distribution. We have deferred a total of approximately$99.0 million of tax payments under the CARES Act and other COVID-19 related tax relief programs in EMEA since our fourth quarter of Fiscal 2020. During the year endedJune 30, 2022 , we made repayments of approximately$16.0 million related to amounts previously deferred. As ofJune 30, 2022 , we have remaining deferrals of$23.0 million which will become payable throughout Fiscal 2023.
Cash flows provided by operating activities
Cash flows from operating activities increased by
The increase in operating cash flow from changes in working capital was primarily due to the net impact of the following increases:
(i)
(ii)
(iii)
(iv)
(v)
These increases in operating cash flows were partially offset by the following decreases:
(i)
(ii)
(iii)
During the fourth quarter of Fiscal 2022 our days sales outstanding (DSO) was 43
days compared to a DSO of 44 days during the fourth quarter of Fiscal 2021,
largely a result of improvement in collections efficiency. The per day impact of
our
69
--------------------------------------------------------------------------------
DSO in the fourth quarter of Fiscal 2022 and Fiscal 2021 on our cash flows was
$10.0 million and $9.9 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$902.2 million , primarily due to consideration paid for acquisitions during Fiscal 2022, which includes cash paid for the acquisitions of Zix of$856.2 million and Bricata of$17.8 million .
Cash flows provided by (used in) financing activities
Our cash flows from financing activities generally consist of long-term debt financing and amounts received from stock options exercised by our employees. These inflows are typically offset by scheduled and non-scheduled repayments of our long-term debt financing and, when applicable, the payment of dividends and/or repurchases of our Common Shares.
Cash flows provided by financing activities increased by
(i)$1.5 billion relating to proceeds from the issuance of Senior Notes 2031 and Senior Notes 2029 (both defined below), of which a portion of the net proceeds was used to redeem$850 million of our Senior Notes 2026 (as defined below).
The increases in cash flows provided by financing activities were partially offset by the following decreases:
(i)$250.0 million relating to higher repayments of our long-term debt and Revolver (as defined below), which is inclusive of$850 million redemption of Senior Notes 2026 (as defined below) during our second quarter of Fiscal 2022, partially offset by$600.0 million repaid on amounts previously drawn on our Revolver in the second quarter of Fiscal 2021;
(ii)
(iii)
(iv)
(v)
(vi)$46.8 million relating to cash used in the repurchase of Common Shares on the open market for potential reissuance under our Long-Term Incentive Plans (LTIP) or other stock compensation plans; and
(vii)
Cash Dividends During the year endedJune 30, 2022 , we declared and paid cash dividends of$0.8836 per Common Share in the aggregate amount of$237.7 million (year endedJune 30, 2021 and 2020-$0.7770 and$0.6984 per Common Share, respectively, in the aggregate amount of$210.7 million and$188.7 million , respectively). Future declarations of dividends and the establishment of future record and payment dates are subject to final determination and discretion of the Board. See Item 5 "Dividend Policy" included in this Annual Report on Form 10-K for more information.
Long-term Debt and Credit Facilities
Senior Unsecured Fixed Rate Notes
Senior Notes 2031
OnNovember 24, 2021 ,OpenText Holdings, Inc. (OTHI), a wholly-owned indirect subsidiary of the Company, issued$650 million in aggregate principal amount of 4.125% Senior Notes due 2031 guaranteed by the Company (Senior Notes 2031) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2031 bear interest at a rate 70 -------------------------------------------------------------------------------- of 4.125% per annum, payable semi-annually in arrears onJune 1 andDecember 1 , commencing onJune 1, 2022 . Senior Notes 2031 will mature onDecember 1, 2031 , unless earlier redeemed, in accordance with their terms, or repurchased. OTHI may redeem all or a portion of the Senior Notes 2031 at any time prior toDecember 1, 2026 at a redemption price equal to 100% of the principal amount of the Senior Notes 2031 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. OTHI may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2031, on one or more occasions, prior toDecember 1, 2024 , using the net proceeds from certain qualified equity offerings at a redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. OTHI may, on one or more occasions, redeem the Senior Notes 2031, in whole or in part, at any time on and afterDecember 1, 2026 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2031, dated as ofNovember 24, 2021 , among OTHI, the Company, the subsidiary guarantors party thereto,The Bank of New York Mellon , asU.S. trustee, andBNY Trust Company of Canada , as Canadian trustee (the 2031 Indenture), plus accrued and unpaid interest, if any, to the redemption date.
If we experience one of the kinds of change of control triggering events specified in the 2031 Indenture, OTHI will be required to make an offer to repurchase the Senior Notes 2031 at a price equal to 101% of the principal amount of the Senior Notes 2031, plus accrued and unpaid interest, if any, to the date of purchase.
The 2031 Indenture contains covenants that limit OTHI, the Company and certain of the Company's subsidiaries' ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of OTHI, the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2031; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2031 Indenture. The 2031 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2031 to be due and payable immediately. Senior Notes 2031 are guaranteed on a senior unsecured basis by the Company and the Company's existing and future wholly-owned subsidiaries (other than OTHI) that borrow or guarantee the obligations under our existing senior credit facilities. Senior Notes 2031 and the guarantees rank equally in right of payment with all of the Company's, OTHI's and the guarantors' existing and future senior unsubordinated debt and will rank senior in right of payment to all of the Company's, OTHI's and the guarantors' future subordinated debt. Senior Notes 2031 and the guarantees will be effectively subordinated to all of the Company's, OTHI's and the guarantors' existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt. The foregoing description of the 2031 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2031 Indenture, which is filed as an exhibit to the Company's Current Report on Form 8-K filed with theSEC onNovember 24, 2021 .
Senior Notes 2030
OnFebruary 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 the Company (Senior Notes 2030) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2030 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears onFebruary 15 andAugust 15 , commencing onAugust 15, 2020 . Senior Notes 2030 will mature onFebruary 15, 2030 , unless earlier redeemed, in accordance with their terms, or repurchased. OTHI may redeem all or a portion of the Senior Notes 2030 at any time prior toFebruary 15, 2025 at a redemption price equal to 100% of the principal amount of the Senior Notes 2030 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. OTHI may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2030, on one or more occasions, prior toFebruary 15, 2025 , using the net proceeds from certain qualified equity offerings at a redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. OTHI may, on one or more occasions, redeem the Senior Notes 2030, in whole or in part, at any time on and afterFebruary 15, 2025 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2030, dated as ofFebruary 18, 2020 , among OTHI, the Company, the subsidiary guarantors party thereto,The Bank of New York Mellon , asU.S. trustee, andBNY Trust Company of Canada , as Canadian trustee (the 2030 Indenture), plus accrued and unpaid interest, if any, to the redemption date.
If we experience one of the kinds of change of control triggering events specified in the 2030 Indenture, OTHI will be required to make an offer to repurchase the Senior Notes 2030 at a price equal to 101% of the principal amount of the Senior Notes 2030, plus accrued and unpaid interest, if any, to the date of purchase.
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The 2030 Indenture contains covenants that limit the Company, OTHI and certain
of the Company's subsidiaries' ability to, among other things: (i) create
certain liens and enter into sale and lease-back transactions; (ii) in the case
of our non-guarantor subsidiaries, create, assume, incur or guarantee additional
indebtedness of the Company, OTHI or the guarantors without such subsidiary
becoming a subsidiary guarantor of Senior Notes 2030; and (iii) consolidate,
amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its
property and assets substantially as an entirety to, another person. These
covenants are subject to a number of important limitations and exceptions as set
forth in the 2030 Indenture. The 2030 Indenture also provides for events of
default, which, if any of them occurs, may permit or, in certain circumstances,
require the principal, premium, if any, interest and any other monetary
obligations on all the then-outstanding Senior Notes 2030 to be due and payable
immediately.
Senior Notes 2030 are guaranteed on a senior unsecured basis by the Company and
the Company's existing and future wholly-owned subsidiaries (other than OTHI)
that borrow or guarantee the obligations under our existing senior credit
facilities. Senior Notes 2030 and the guarantees rank equally in right of
payment with all of the Company, OTHI and the guarantors' existing and future
senior unsubordinated debt and will rank senior in right of payment to all of
the Company, OTHI and the guarantors' future subordinated debt. Senior Notes
2030 and the guarantees will be effectively subordinated to all of the Company,
OTHI and the guarantors' existing and future secured debt, including the
obligations under the senior credit facilities, to the extent of the value of
the assets securing such secured debt.
The foregoing description of the 2030 Indenture does not purport to be complete
and is qualified in its entirety by reference to the full text of the 2030
Indenture, which is filed as an exhibit to the Company's Current Report on Form
8-K filed with the SEC on February 18, 2020 .
Senior Notes 2029
OnNovember 24, 2021 , we issued$850 million in aggregate principal amount of 3.875% Senior Notes due 2029 (Senior Notes 2029) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2029 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears onJune 1 andDecember 1 , commencing onJune 1, 2022 . Senior Notes 2029 will mature onDecember 1, 2029 , unless earlier redeemed, in accordance with their terms, or repurchased. We may redeem all or a portion of the Senior Notes 2029 at any time prior toDecember 1, 2024 at a redemption price equal to 100% of the principal amount of the Senior Notes 2029 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. We may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2029, on one or more occasions, prior toDecember 1, 2024 , using the net proceeds from certain qualified equity offerings at a redemption price of 103.875% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. We may, on one or more occasions, redeem the Senior Notes 2029, in whole or in part, at any time on and afterDecember 1, 2024 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2029, dated as ofNovember 24, 2021 , among the Company, the subsidiary guarantors party thereto,The Bank of New York Mellon , asU.S. trustee, andBNY Trust Company of Canada , as Canadian trustee (the 2029 Indenture), plus accrued and unpaid interest, if any, to the redemption date.
If we experience one of the kinds of change of control triggering events specified in the 2029 Indenture, we will be required to make an offer to repurchase the Senior Notes 2029 at a price equal to 101% of the principal amount of the Senior Notes 2029, plus accrued and unpaid interest, if any, to the date of purchase.
The 2029 Indenture contains covenants that limit our and certain of our
subsidiaries' ability to, among other things: (i) create certain liens and enter
into sale and lease-back transactions; (ii) in the case of our non-guarantor
subsidiaries, create, assume, incur or guarantee additional indebtedness of the
Company or the guarantors without such subsidiary becoming a subsidiary
guarantor of Senior Notes 2029; and (iii) consolidate, amalgamate or merge with,
or convey, transfer, lease or otherwise dispose of its property and assets
substantially as an entirety to, another person. These covenants are subject to
a number of important limitations and exceptions as set forth in the 2029
Indenture. The 2029 Indenture also provides for events of default, which, if any
of them occurs, may permit or, in certain circumstances, require the principal,
premium, if any, interest and any other monetary obligations on all the
then-outstanding Senior Notes 2029 to be due and payable immediately.
Senior Notes 2029 are guaranteed on a senior unsecured basis by our existing and
future wholly-owned subsidiaries that borrow or guarantee the obligations under
our existing senior credit facilities. Senior Notes 2029 and the guarantees rank
equally in right of payment with all of our and our guarantors' existing and
future senior unsubordinated debt and will rank senior in right of payment to
all of our and our guarantors' future subordinated debt. Senior Notes 2029 and
the guarantees will be effectively subordinated to all of our and our
guarantors' existing and future secured debt, including the obligations under
the senior credit facilities, to the extent of the value of the assets securing
such secured debt.
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The foregoing description of the 2029 Indenture does not purport to be complete
and is qualified in its entirety by reference to the full text of the 2029
Indenture, which is filed as an exhibit to the Company's Current Report on Form
8-K filed with the SEC on November 24, 2021 .
Senior Notes 2028
OnFebruary 18, 2020 we issued$900 million in aggregate principal amount of 3.875% Senior Notes due 2028 (Senior Notes 2028) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2028 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears onFebruary 15 andAugust 15 , commencing onAugust 15, 2020 . Senior Notes 2028 will mature onFebruary 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 toFebruary 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 toFebruary 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 afterFebruary 15, 2023 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2028, dated as ofFebruary 18, 2020 , among the Company, the subsidiary guarantors party thereto,The Bank of New York Mellon , asU.S. trustee, andBNY 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) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 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 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 theSEC onFebruary 18, 2020 .
Senior Notes 2026
OnMay 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 non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 had interest at a rate of 5.875% per annum, payable semi-annually in arrears onJune 1 andDecember 1 , commencing onDecember 1, 2016 . Senior Notes 2026 would have matured onJune 1, 2026 .
On
OnDecember 9, 2021 , we redeemed Senior Notes 2026 in full at a price equal to 102.9375% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date. A portion of the net proceeds from the offerings of Senior 73 -------------------------------------------------------------------------------- Notes 2029 and Senior Notes 2031 was used to redeem Senior Notes 2026. Upon redemption, Senior Notes 2026 were cancelled, and any obligation thereunder was extinguished. The resulting loss of$27.4 million , consisting of$25.0 million relating to the early termination call premium,$6.2 million relating to unamortized debt issuance costs and($3.8) million relating to unamortized premium, has been recorded as a component of Other income (expense), net in our Consolidated Statements of Income. See Note 23 "Other Income (Expense), Net" to our Consolidated Financial Statements.
Term Loan B
OnMay 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 onMay 30, 2018 to, among other things, repay in full the loans under our prior$800 million term loan credit facility originally entered into onJanuary 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 inMay 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 ofJune 30, 2022 , the outstanding balance on the Term Loan B bears an interest rate of 2.81%. For more information regarding the impact and discontinuance of LIBOR, see "Stress in the global financial system may adversely affect our finances and operations in ways that may be hard to predict or to defend against" included within Part I, Item 1A, "Risk Factors" of this Annual Report on Form 10-K. 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 ofJune 30, 2022 , our consolidated net leverage ratio was 2.0:1.
Revolver
OnOctober 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 fromMay 5, 2022 toOctober 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%. For more information regarding the impact and discontinuance of LIBOR, see "Stress in the global financial system may adversely affect our finances and operations in ways that may be hard to predict or to defend against" included within Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for Fiscal 2021. 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
For further details relating to our debt, please see Note 11 "Long-Term Debt" to our Consolidated Financial Statements.
Shelf Registration Statement
OnDecember 6, 2021 , we filed a universal shelf registration statement on Form S-3 with theSEC , which became effective automatically (the Shelf Registration Statement). The Shelf Registration Statement allows for primary and secondary 74 -------------------------------------------------------------------------------- offerings from time to time of equity, debt and other securities, including Common Shares, Preference Shares, debt securities, depositary shares, warrants, purchase contracts, units and subscription receipts. A short-form base shelf prospectus qualifying the distribution of such securities was concurrently filed with Canadian securities regulators onDecember 6, 2021 . 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 theSEC and Canadian securities regulators.
Share Repurchase Plan / Normal Course Issuer Bid
OnNovember 5, 2020 , the Board authorized the Fiscal 2021 Repurchase Plan, pursuant to which we were authorized to purchase in open market transactions, from time to time over the 12 month period commencingNovember 12, 2020 , up to an aggregate of$350 million of our Common Shares on the NASDAQ Global Select Market, the TSX and/or other exchanges and alternative trading systems inCanada and/orthe United States , if eligible, subject to applicable law and stock exchange rules. The price that we were authorized to pay for Common Shares in open market transactions was the market price at the time of purchase or such other price as was permitted by applicable law or stock exchange rules. The Fiscal 2021 Repurchase Plan was effected in accordance with Rule 10b-18 under the Exchange Act (Rule 10b-18). Purchases made under the Fiscal 2021 Repurchase Plan were subject to a limit of 13,618,774 shares (representing 5% of the Company's issued and outstanding Common Shares as ofNovember 4, 2020 ). All Common Shares purchased by us pursuant to the Fiscal 2021 Repurchase Plan were cancelled. OnNovember 4, 2021 , the Board authorized the Fiscal 2022 Repurchase Plan, pursuant to which we may purchase in open market transactions, from time to time over the 12 month period commencingNovember 12, 2021 , up to an aggregate of$350 million of our Common Shares on the NASDAQ Global Select Market, theToronto Stock Exchange (as part of a Fiscal 2022 NCIB) and/or other exchanges and alternative trading systems inCanada and/orthe United States , if eligible, subject to applicable law and stock exchange rules. The price that we have paid and will pay for Common Shares in open market transactions has been and will be the market price at the time of purchase or such other price as may be permitted by applicable law or stock exchange rules. The Fiscal 2022 Repurchase Plan has been and will be effected in accordance with Rule 10b-18. Purchases made under the Fiscal 2022 Repurchase Plan are subject to a limit of 13,638,008 shares (representing 5% of the Company's issued and outstanding Common Shares as ofOctober 31, 2021 ). All Common Shares purchased by us pursuant to the Fiscal 2022 Repurchase Plan have been and will be cancelled. During the year endedJune 30, 2022 , we repurchased and cancelled 3,809,559 Common Shares for$177.0 million (year endedJune 30, 2021 and 2020- 2,500,000 and nil Common Shares for$119.1 million and nil, respectively). Share repurchases during the year endedJune 30, 2022 were completed under our share repurchase plans authorized on bothNovember 5, 2020 andNovember 4, 2021 .
Normal Course Issuer Bid
The Company established the Fiscal 2021 NCIB in order to provide it with a means to execute purchases over the TSX as part of the overall Fiscal 2021 Repurchase Plan. The TSX approved the Company's notice of intention to commence the Fiscal 2021 NCIB pursuant to which the Company was authorized to purchase Common Shares over the TSX for the period commencingNovember 12, 2020 untilNovember 11, 2021 in accordance with the TSX's normal course issuer bid rules, including that such purchases were to be made at prevailing market prices or as otherwise permitted. Under the rules of the TSX, the maximum number of Common Shares that could be purchased in this period was 13,618,774 (representing 5% of the Company's issued and outstanding Common Shares as ofNovember 4, 2020 ), and the maximum number of Common Shares that could be purchased on a single day was 143,424 Common Shares, which was 25% of 573,699 (the average daily trading volume for the Common Shares on the TSX for the six months endedOctober 31, 2020 ), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18. The Company renewed the Fiscal 2022 NCIB in order to provide it with a means to execute purchases over the TSX as part of the overall Fiscal 2022 Repurchase Plan. The TSX approved the Company's notice of intention to commence the Fiscal 2022 NCIB pursuant to which the Company may purchase Common Shares over the TSX for the period commencingNovember 12, 2021 untilNovember 11, 2022 in accordance with the TSX's normal course issuer bid rules, including that such purchases are to be made at prevailing market prices or as otherwise permitted. Under the rules of the TSX, the maximum number of Common Shares that may be purchased in this period is 13,638,008 (representing 5% of the Company's issued and outstanding Common Shares as ofOctober 31, 2021 ), and the maximum number of Common Shares that may be purchased on a single day is 112,590 Common Shares, which is 25% of 450,361 (the average daily trading volume for the Common Shares on the TSX for the six months endedOctober 31 , 75 --------------------------------------------------------------------------------
2021), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18.
Pensions
As of
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 2023$ 907 $ 915 $ 85 2024 942 937 122 2025 990 926 170 2026 1,030 920 179 2027 1,078 911 544 2028 to 2032 6,464 22,047 2,740 Total$ 11,411 $ 26,656 $ 3,840
For a detailed discussion on pensions, see Note 12 "Pension Plans and Other Post Retirement Benefits" to our Consolidated Financial Statements.
Commitments and Contractual Obligations
As of
Payments due between
July 1, 2022 - July 1, 2023 - July 1, 2025 - July 1, 2027
Total June 30, 2023 June 30, 2025 June 30, 2027 and beyond
Long-term debt obligations (1)
$ 1,262,379 $ 263,500 $ 3,649,250 Operating lease obligations (2) 278,179 62,833 94,212 56,855 64,279 Purchase obligations for contracts not accounted for as lease obligations 124,095 68,143 43,273 12,679 -$ 5,746,322 $ 299,895 $ 1,399,864 $ 333,034 $ 3,713,529 __________________________
(1)Includes interest up to maturity and principal payments. Please see Note 11 "Long-Term Debt" to our Consolidated Financial Statements for more details.
(2)Represents the undiscounted future minimum lease payments under our operating leases liabilities and excludes sublease income expected to be received under our various sublease agreements with third parties. Please see Note 6 "Leases" to our Consolidated Financial Statements for more details.
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 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.
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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 Annual Report on Form 10-K, the aggregate of such accrued liabilities was not material to our consolidated financial position or results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations. As described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters.
Contingencies
CRA Matter
As part of its ongoing audit of our Canadian tax returns, theCanada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as ofJune 30, 2022 , in connection with the CRA's reassessments for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, to be limited to penalties, interest and provincial taxes that may be due of approximately$75 million . As ofJune 30, 2022 , we have provisionally paid approximately$34 million in order to fully preserve our rights to object to the CRA's audit positions, being the minimum payment required under Canadian legislation while the matter is in dispute. This amount is recorded within "Long-term income taxes recoverable" on the Consolidated Balance Sheets as ofJune 30, 2022 . The notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 would, as drafted, increase our taxable income by approximately$90 million to$100 million for each of those years, as well as impose a 10% penalty on the proposed adjustment to income. Audits by the CRA of our tax returns for fiscal years prior to Fiscal 2012 have been completed with no reassessment of our income tax liability. We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 (including any penalties) are without merit, and we are continuing to contest these reassessments. OnJune 30, 2022 , we filed a notice of appeal with theTax Court of Canada seeking to reverse all such reassessments (including any penalties) in full. Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, we have elective deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above. The CRA has also audited Fiscal 2017 on a basis that we strongly disagree with and are contesting. The focus of the CRA audit has been the valuation of certain intellectual property and goodwill when one of our subsidiaries continued intoCanada from Luxembourg inJuly 2016 . In accordance with applicable rules, these assets were recognized for tax purposes at fair market value as of that time, which value was supported by an expert valuation prepared by an independent leading accounting and advisory firm. In conjunction with the Fiscal 2017 audit, the CRA issued a proposal letter datedApril 7, 2021 (Proposal Letter) indicating to us that it proposes to reassess our Fiscal 2017 tax year to reduce the depreciable basis of these assets. We have made extensive submissions in support of our position. CRA's position for Fiscal 2017 relies in significant part on the application of its positions regarding our transfer pricing methodology that are the basis for its reassessment of our fiscal years 2012 to 2016 described above, and that we believe are without merit. Other aspects of CRA's position for Fiscal 2017 conflict with the expert valuation prepared by the independent leading accounting and advisory firm that was used to support our original filing position. OnJanuary 27, 2022 , the CRA issued a notice of reassessment in respect of Fiscal 2017 on the basis of its position set forth in the Proposal Letter. OnApril 19, 2022 , we filed our notice of objection regarding the reassessment in respect of Fiscal 2017. If we are ultimately unsuccessful in defending our position, the estimated impact of the proposed adjustment could result in us recording an income tax expense, with no immediate cash payment, to reduce the stated value of our deferred tax assets of up to approximately$470 million . Any such income tax expense could also have a corresponding 77 -------------------------------------------------------------------------------- cash tax impact that would primarily occur over a period of several future years based upon annual income realization inCanada . We strongly disagree with the CRA's position for Fiscal 2017 and intend to vigorously defend our original filing position, We are not required to provisionally pay any cash amounts to the CRA as a result of the reassessment in respect of Fiscal 2017 due to the utilization of available tax attributes; however, to the extent the CRA reassesses subsequent fiscal years on a similar basis, we expect to make certain minimum payments required under Canadian legislation, which may need to be provisionally made starting in Fiscal 2024 while the matter is in dispute. We will continue to vigorously contest the adjustments to our taxable income and any penalty and interest assessments, as well as any reduction to the basis of our depreciable property. We are confident that our original tax filing positions were appropriate. Accordingly, as of the date of this Annual Report on Form 10-K, we have not recorded any accruals in respect of these reassessments or proposed reassessment in our Consolidated Financial Statements. The CRA is currently in preliminary stages of auditing Fiscal 2018 and Fiscal 2019.
Carbonite Class Action Complaint
OnAugust 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 theUnited States District Court for the District of Massachusetts captionedRuben A. Luna , Individually and on Behalf of All Others Similarly Situated v.Carbonite, Inc. ,Mohamad S. Ali , andAnthony 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. OnAugust 23, 2019 , a nearly identical complaint was filed in the same court captionedWilliam Feng , Individually and on Behalf of All Others Similarly Situated v.Carbonite, Inc. ,Mohamad S. Ali , andAnthony Folger (No. 1:19- cv-11808-LTS) (together with the Luna Complaint, the "Securities Actions"). OnNovember 21, 2019 , the district court consolidated the Securities Actions, appointed a lead plaintiff, and designated a lead counsel. OnJanuary 15, 2020 , the lead plaintiff filed a consolidated amended complaint generally making the same allegations and seeking the same relief as the complaint filed onAugust 1, 2019 . The defendants moved to dismiss the Securities Actions onMarch 10, 2020 . The motion was fully briefed inJune 2020 and a hearing on the motion to dismiss the Securities Actions was held onOctober 15, 2020 . Following the hearing, onOctober 22, 2020 , the district court granted with prejudice the defendants' motion to dismiss the Securities Actions. OnNovember 20, 2020 , the lead plaintiff filed a notice of appeal to theCourt of Appeals for the First Circuit . OnDecember 21, 2021 , the First Circuit issued a decision reversing and remanding the Securities Actions to the district court for further proceedings. The defendants remain confident in their position, believe the Securities Actions are without merit and will continue to vigorously defend the matter.
Carbonite vs Realtime Data
OnFebruary 27, 2017 , before our acquisition of Carbonite, a non-practicing entity namedRealtime Data LLC (Realtime Data) filed a lawsuit against Carbonite in theU.S. District Court for the Eastern District of Texas "Realtime Data LLC v.Carbonite, Inc. et al (No 6:17-cv-00121-RWS-JDL)." Therein, it alleged that certain of Carbonite's cloud storage services infringe upon certain patents held by Realtime Data. Realtime Data's complaint against Carbonite sought damages in an unspecified amount and injunctive relief. OnDecember 19, 2017 , theU.S. District Court for the Eastern District of Texas transferred the case to theU.S. District Court for the District of Massachusetts (No. 1:17-cv-12499). Realtime Data has also filed numerous other patent suits on the same asserted patents against other companies. After a stay pending appeal in one of those suits, onJanuary 21, 2021 , the district court held a hearing to construe the claims of the asserted patents. As to the fourth patent asserted against Carbonite, onSeptember 24, 2019 , theU.S. Patent & Trademark Office Patent Trial and Appeal Board invalidated certain claims of that patent, including certain claims that had been asserted against Carbonite. The parties then jointly stipulated to dismiss that patent from this action. OnAugust 23, 2021 , in one of the suits against other companies, the District ofDelaware (No. 1:17-cv-800), held all of the patents asserted against Carbonite to be invalid. Realtime Data has appealed that decision to theU.S. Court of Appeals for the Federal Circuit . We continue to vigorously defend the matter, and theU.S. District Court for the District of Massachusetts has issued a claim construction order. We anticipate motion practice based upon the result of that order. 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 2022.
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--------------------------------------------------------------------------------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.
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