OPEN TEXT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(In U.S. dollars)
On May 1, 2024 Open Text Corporation (the “Company” or “OpenText”) completed the previously announced divestiture of its Application Modernization and Connectivity business (the “Transaction”) to Rocket Software, Inc. and Rocket Software UK Limited (collectively, “Rocket”) for an all-cash purchase price of $2.275 billion, before taxes, fees and other adjustments. The Transaction includes the Application Modernization and Connectivity products (“AMC”), historically a product group of Micro Focus International Limited, formerly known as Micro Focus International PLC (“Micro Focus”), which was acquired by OpenText on January 31, 2023, and, beginning on February 1, 2023, the OpenText Connectivity business (“OT Connectivity”), a product group of OpenText (together, “AMC Group”). As of December 31, 2023, OpenText reported the net assets of AMC and OT Connectivity as assets and liabilities held for sale in accordance with Financial Accounting Standards Board Accounting Standards Codification 360, Property, Plant and Equipment (“ASC 360”). The Company intends to use the net proceeds from the Transaction to prepay outstanding principal balances on the Company’s Term Loan B and the Acquisition Term Loan (each as defined in the Company’s Annual Report on Form 10-K for the year ended June 30, 2023).
The accompanying unaudited pro forma condensed consolidated financial information gives effect to the Transaction as if it had occurred on (i) December 31, 2023 for purposes of the unaudited pro forma condensed consolidated balance sheet, and (ii) July 1, 2022 for the purposes of the unaudited pro forma condensed consolidated statements of income for the year ended June 30, 2023, and the six months ended December 31, 2023. For the year ended June 30, 2023, the unaudited pro forma condensed consolidated statement of income, including financial information related to the disposition of the AMC Group, reflects five months of the operating results of AMC and twelve months of the operating results of OT Connectivity. All adjustments shown on the unaudited pro forma condensed consolidated financial information are transaction accounting adjustments.
The unaudited pro forma condensed consolidated financial information has been derived from the Company’s historical consolidated financial statements and reflects certain assumptions and adjustments that management believes are reasonable under the circumstances and given the information available at this time. This unaudited pro forma condensed consolidated financial information reflects adjustments that, in the opinion of management, are necessary to state fairly the pro forma financial position and results of operations as of and for the periods indicated. The unaudited pro forma condensed consolidated financial information presented herein does not include any adjustments for allocations of shared costs identified by management.
The unaudited pro forma condensed consolidated financial information has been prepared to give effect to the following:
•Adjustments to reflect the estimated gain on sale related to the Transaction.
•Adjustments to reflect the use of proceeds from the Transaction for the prepayment of outstanding principal balances on the Company’s Term Loan B and the Acquisition Term Loan as noted above.
•Adjustments to reflect transaction costs, such as costs expected to be incurred for financial and corporate banking advice, legal, public relations and other professional services, advice and other costs and expenses that would have been incurred to complete the Transaction.
•Adjustments to reflect the expected accounting impacts related to the Transition Services Agreement between the Company and Rocket.
The unaudited pro forma condensed consolidated financial information is provided for illustrative and informational purposes only and is not intended to represent or be indicative of what the Company’s financial condition or results of operations would have been had the Company operated historically as an independent organization from the AMC Group if the Transaction had occurred on the dates indicated. The unaudited pro forma condensed consolidated financial information also should not be considered representative of the Company’s future consolidated financial position or consolidated results of operations. The unaudited pro forma condensed consolidated financial information does not reflect all actions that may be taken by the Company after the consummation of the Transaction. The unaudited pro forma condensed consolidated financial information should be read in conjunction with the Company’s historical consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended June 30, 2023, and its Quarterly Report on Form 10-Q for the period ended December 31, 2023.
The unaudited pro forma condensed consolidated financial information has been prepared in accordance with Regulation S-X Article 11, Pro Forma Financial Information. The unaudited pro forma condensed consolidated financial information is prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) on a carve-out basis using the Company’s historical consolidated financial statements and reflects certain assumptions and adjustments that management believes are reasonable under the circumstances and given the information available at this time.
OPEN TEXT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2023
(In thousands of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Historical
Note 3 (a) | | Disposition of AMC Group Note 3 (b) | | Transaction Accounting Adjustments | | Note 3 | | Pro Forma |
| ASSETS | | | | | | | | | |
| Cash and cash equivalents | $ | 1,003,134 | | | — | | | 232,631 | | | (c) (d) | | $ | 1,235,765 | |
| Accounts receivable trade, net of allowance for credit losses | 735,346 | | | — | | | — | | | | | 735,346 | |
| Contract assets | 70,656 | | | — | | | — | | | | | 70,656 | |
| Income taxes recoverable | 8,342 | | | — | | | — | | | | | 8,342 | |
| Prepaid expenses and other current assets | 215,396 | | | — | | | — | | | | | 215,396 | |
| Assets held for sale | 2,051,116 | | | (2,046,763) | | | — | | | | | 4,353 | |
| Total current assets | 4,083,990 | | | (2,046,763) | | | 232,631 | | | | | 2,269,858 | |
| Property and equipment | 352,570 | | | (119) | | | — | | | | | 352,451 | |
| Operating lease right of use assets | 245,118 | | | (2,380) | | | — | | | | | 242,738 | |
| Long-term contract assets | 45,427 | | | — | | | — | | | | | 45,427 | |
| Goodwill | 7,604,409 | | | — | | | — | | | | | 7,604,409 | |
| Acquired intangible assets | 2,773,220 | | | — | | | — | | | | | 2,773,220 | |
| Deferred tax assets | 925,282 | | | — | | | 100,057 | | | (j) | | 1,025,339 | |
| Other assets | 318,783 | | | (1,502) | | | — | | | | | 317,281 | |
| Long-term income taxes recoverable | 94,465 | | | — | | | — | | | | | 94,465 | |
| | | | | | | | | |
| Total assets | $ | 16,443,264 | | | $ | (2,050,764) | | | $ | 332,688 | | | | | $ | 14,725,188 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | |
| Current liabilities: | | | | | | | | | |
| Accounts payable and accrued liabilities | $ | 948,921 | | | $ | — | | | $ | 33,665 | | | (e) | | $ | 982,586 | |
| Current portion of long-term debt | 45,850 | | | — | | | (7,500) | | | (d) | | 38,350 | |
| Operating lease liabilities | 86,868 | | | (1,472) | | | — | | | | | 85,396 | |
| Deferred revenue | 1,535,322 | | | — | | | — | | | | | 1,535,322 | |
| Income taxes payable | 119,400 | | | — | | | 272,761 | | | (j) | | 392,161 | |
| Liabilities held for sale | 222,814 | | | (222,814) | | | — | | | | | — | |
| Total current liabilities | 2,959,175 | | | (224,286) | | | 298,926 | | | | | 3,033,815 | |
| Long-term liabilities: | | | | | | | | | |
| Accrued liabilities | 52,632 | | | (604) | | | — | | | | | 52,028 | |
| Pension liability, net | 129,238 | | | — | | | — | | | | | 129,238 | |
| Long-term debt | 8,474,599 | | | — | | | (1,945,325) | | | (d) | | 6,529,274 | |
| Long-term operating lease liabilities | 236,481 | | | (1,248) | | | — | | | | | 235,233 | |
| Long-term deferred revenues | 170,273 | | | — | | | — | | | | | 170,273 | |
| Long-term income taxes payable | 152,046 | | | — | | | — | | | | | 152,046 | |
| Deferred tax liabilities | 238,473 | | | — | | | (113,269) | | | (j) | | 125,204 | |
| Total long-term liabilities | 9,453,742 | | | (1,852) | | | (2,058,594) | | | | | 7,393,296 | |
| Shareholders’ equity: | | | | | | | | | |
| | | | | | | | | |
| Share capital and additional paid-in capital | 2,261,856 | | | — | | | — | | | | | 2,261,856 | |
| Accumulated other comprehensive income (loss) | (83,499) | | | — | | | — | | | | | (83,499) | |
| Retained earnings | 2,029,643 | | | (1,824,626) | | | 2,092,356 | | | (c) (d) (e) (j) | | 2,297,373 | |
| Treasury stock, at cost | (179,089) | | | — | | | — | | | | | (179,089) | |
| Total OpenText shareholders' equity | 4,028,911 | | | (1,824,626) | | | 2,092,356 | | | | | 4,296,641 | |
| Non-controlling interests | 1,436 | | | — | | | — | | | | | 1,436 | |
| Total shareholders’ equity | 4,030,347 | | | (1,824,626) | | | 2,092,356 | | | | | 4,298,077 | |
| Total liabilities and shareholders’ equity | $ | 16,443,264 | | | $ | (2,050,764) | | | $ | 332,688 | | | | | $ | 14,725,188 | |
OPEN TEXT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended June 30, 2023
(In thousands of U.S. dollars, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Historical
Note 3 (a) | | Disposition of AMC Group Note 3 (b) | | Transaction Accounting Adjustments | | Note 3 | | Pro Forma |
| Revenues: | | | | | | | | | |
| Cloud services and subscriptions | $ | 1,700,433 | | | $ | — | | | $ | — | | | | | $ | 1,700,433 | |
| Customer support | 1,915,020 | | | (154,898) | | | — | | | | | 1,760,122 | |
| License | 539,026 | | | (62,060) | | | — | | | | | 476,966 | |
| Professional service and other | 330,501 | | | (8,031) | | | — | | | | | 322,470 | |
| Total revenues | 4,484,980 | | | (224,989) | | | — | | | | | 4,259,991 | |
| Cost of revenues: | | | | | | | | | |
| Cloud services and subscriptions | 590,165 | | | — | | | — | | | | | 590,165 | |
| Customer support | 209,705 | | | (6,277) | | | — | | | | | 203,428 | |
| License | 16,645 | | | (343) | | | — | | | | | 16,302 | |
| Professional service and other | 276,888 | | | (5,522) | | | — | | | | | 271,366 | |
| Amortization of acquired technology-based intangible assets | 223,184 | | | (24,330) | | | — | | | | | 198,854 | |
| Total cost of revenues | 1,316,587 | | | (36,472) | | | — | | | | | 1,280,115 | |
| Gross profit | 3,168,393 | | | (188,517) | | | — | | | | | 2,979,876 | |
| Operating expenses: | | | | | | | | | |
| Research and development | 680,587 | | | (20,438) | | | — | | | | | 660,149 | |
| Sales and marketing | 948,598 | | | (23,944) | | | — | | | | | 924,654 | |
| General and administrative | 419,590 | | | (4,632) | | | (64,380) | | | (f) | | 350,578 | |
| Depreciation | 107,761 | | | (393) | | | — | | | | | 107,368 | |
| Amortization of acquired customer-based intangible assets | 326,406 | | | (31,480) | | | — | | | | | 294,926 | |
| Special charges (recoveries) | 169,159 | | | — | | | 33,665 | | | (e) | | 202,824 | |
| Total operating expenses | 2,652,101 | | | (80,887) | | | (30,715) | | | | | 2,540,499 | |
| Income from operations | 516,292 | | | (107,630) | | | 30,715 | | | | | 439,377 | |
| Other income (expense), net | 34,469 | | | — | | | 474,099 | | | (g) (h) | | 508,568 | |
| Interest and other related expense, net | (329,428) | | | — | | | 95,080 | | | (i) | | (234,348) | |
| Income before income taxes | 221,333 | | | (107,630) | | | 599,894 | | | | | 713,597 | |
| Provision for income taxes | 70,767 | | | (24,244) | | | 190,413 | | | (j) | | 236,936 | |
| Net income | $ | 150,566 | | | $ | (83,386) | | | $ | 409,481 | | | | | $ | 476,661 | |
| Net (income) attributable to non-controlling interests | (187) | | | — | | | — | | | | | (187) | |
| Net income attributable to OpenText | $ | 150,379 | | | $ | (83,386) | | | $ | 409,481 | | | | | $ | 476,474 | |
| Earnings per share—basic attributable to OpenText | $ | 0.56 | | | | | | | | | $ | 1.76 | |
| Earnings per share—diluted attributable to OpenText | $ | 0.56 | | | | | | | | | $ | 1.76 | |
| Weighted average number of Common Shares outstanding—basic (in ‘000’s) | 270,299 | | | | | | | | | 270,299 | |
| Weighted average number of Common Shares outstanding—diluted (in ‘000’s) | 270,451 | | | | | | | | | 270,451 | |
OPEN TEXT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended December 31, 2023
(In thousands of U.S. dollars, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Historical
Note 3 (a) | | Disposition of AMC Group Note 3 (b) | | Transaction Accounting Adjustments | | Note 3 | | Pro Forma |
| Revenues: | | | | | | | | | |
| Cloud services and subscriptions | $ | 901,105 | | | $ | — | | | $ | — | | | | | $ | 901,105 | |
| Customer support | 1,393,475 | | | (168,215) | | | — | | | | | 1,225,260 | |
| License | 462,264 | | | (85,890) | | | — | | | | | 376,374 | |
| Professional service and other | 203,453 | | | (9,896) | | | — | | | | | 193,557 | |
| Total revenues | 2,960,297 | | | (264,001) | | | — | | | | | 2,696,296 | |
| Cost of revenues: | | | | | | | | | |
| Cloud services and subscriptions | 351,560 | | | — | | | — | | | | | 351,560 | |
| Customer support | 148,388 | | | (5,823) | | | — | | | | | 142,565 | |
| License | 9,822 | | | (481) | | | — | | | | | 9,341 | |
| Professional service and other | 155,381 | | | (7,570) | | | — | | | | | 147,811 | |
| Amortization of acquired technology-based intangible assets | 147,608 | | | (24,330) | | | — | | | | | 123,278 | |
| Total cost of revenues | 812,759 | | | (38,204) | | | — | | | | | 774,555 | |
| Gross profit | 2,147,538 | | | (225,797) | | | — | | | | | 1,921,741 | |
| Operating expenses: | | | | | | | | | |
| Research and development | 454,657 | | | (19,934) | | | — | | | | | 434,723 | |
| Sales and marketing | 552,064 | | | (19,055) | | | — | | | | | 533,009 | |
| General and administrative | 304,475 | | | (5,604) | | | (32,190) | | | (f) | | 266,681 | |
| Depreciation | 67,506 | | | (352) | | | — | | | | | 67,154 | |
| Amortization of acquired customer-based intangible assets | 234,117 | | | (31,480) | | | — | | | | | 202,637 | |
| Special charges (recoveries) | 67,960 | | | — | | | — | | | | | 67,960 | |
| Total operating expenses | 1,680,779 | | | (76,425) | | | (32,190) | | | | | 1,572,164 | |
| Income from operations | 466,759 | | | (149,372) | | | 32,190 | | | | | 349,577 | |
| Other income (expense), net | (48,614) | | | — | | | — | | | | | (48,614) | |
| Interest and other related expense, net | (281,056) | | | — | | | 81,862 | | | (i) | | (199,194) | |
| Income before income taxes | 137,089 | | | (149,372) | | | 114,052 | | | | | 101,769 | |
| Provision for income taxes | 18,406 | | | (37,343) | | | 28,513 | | | (j) | | 9,576 | |
| Net income | $ | 118,683 | | | $ | (112,029) | | | $ | 85,539 | | | | | $ | 92,193 | |
| Net (income) attributable to non-controlling interests | (107) | | | — | | | — | | | | | (107) | |
| Net income attributable to OpenText | $ | 118,576 | | | $ | (112,029) | | | $ | 85,539 | | | | | $ | 92,086 | |
| Earnings per share—basic attributable to OpenText | $ | 0.44 | | | | | | | | | $ | 0.34 | |
| Earnings per share—diluted attributable to OpenText | $ | 0.44 | | | | | | | | | $ | 0.34 | |
| Weighted average number of Common Shares outstanding—basic (in ‘000’s) | 271,373 | | | | | | | | | 271,373 | |
| Weighted average number of Common Shares outstanding—diluted (in ‘000’s) | 272,019 | | | | | | | | | 272,019 | |
OPEN TEXT CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Note 1 — Basis of Presentation
The unaudited pro forma condensed consolidated financial information has been derived from the Company’s historical consolidated financial statements and reflects certain assumptions and adjustments that management believes are reasonable under the circumstances and given the information available at this time. This unaudited pro forma condensed consolidated financial information reflects adjustments that, in the opinion of management, are necessary to state fairly the pro forma financial position and results of operations as of and for the periods indicated. AMC results of operations were consolidated with those of the Company’s beginning on February 1, 2023. As such, the Company’s historical results of operations for the year ended June 30, 2023 included five months of AMC results. The unaudited pro forma condensed consolidated financial information presented herein does not include any adjustments for allocations of shared costs identified by management.
Note 2 — Significant Accounting Policies
The accounting policies under U.S. GAAP that were used in the preparation of the unaudited pro forma condensed consolidated financial information are those set forth in OpenText’s financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2023 and in its Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2023.
Note 3 — Transaction Adjustments to the Unaudited Pro Forma Condensed Consolidated Financial Information
The unaudited pro forma condensed consolidated financial information has been prepared to give effect to the following:
(a)Represents the Company’s historical condensed consolidated statements of income for the six months ended December 31, 2023 and for the year ended June 30, 2023 and historical condensed consolidated balance sheet as of December 31, 2023, prior to any pro forma adjustments described below.
(b)Represents the results of operations of AMC Group for the six months ended December 31, 2023 and for the year ended June 30, 2023 and historical assets and liabilities as of December 31, 2023.
(c)Adjustment reflects the increase in cash and cash equivalents of $232.6 million resulting from the cash consideration received based upon the $2.275 billion purchase price, before taxes, fees and other adjustments and the utilization of proceeds to prepay long-term debt by the Company. See footnote 3 (d). The remaining cash proceeds of $232.6 million will be primarily utilized to settle income tax liabilities and transaction related expenses resulting from the divestiture. See footnote 3 (j).
(d)Adjustment reflects the estimated prepayment of the outstanding principal balances of the Company’s Term Loan B and the Acquisition Term Loan of $2.0 billion, net of unamortized deferred financing costs of $47.2 million, which are charged to Other income (expense), net upon repayment. See footnote 3 (h).
(e)Subsequent to December 31, 2023 and through the date of the Transaction, the Company has incurred additional non-recurring costs of approximately $33.7 million to complete the Transaction. These costs primarily relate to accounting, legal and other advisory fees associated with separation activities.
(f)In connection with the Transaction, OpenText and Rocket entered into a Transition Services Agreement whereby OpenText will provide certain post-closing services on a transitional basis. As management expects that the transition service costs and offsetting reimbursements will be primarily recorded in general and administrative expense, a pro forma adjustment reducing general and administrative expense by up to $32.2 million and $64.4 million for the six months ended December 31, 2023 and for the year ended June 30, 2023, respectively, is reflected for this contractual arrangement based on management’s reasonable estimate of the services and duration of service periods to be provided under the Transition Services Agreement. Actual reimbursement amounts and financial statement line item impacts of the above reimbursements may differ from the general and administrative expense adjustment presentation in the unaudited pro forma condensed consolidated financial information.
(g)Adjustment reflects the gain on disposition of $521.3 million before taxes, fees and other adjustments, based on the net asset value of the AMC Group as of December 31, 2023. The final purchase price will be determined subsequent to the closing of the Transaction to reflect adjustments in accordance with the purchase agreement, including customary net working capital adjustments and final gain on disposition will be calculated based on the net asset value as of the closing date. The actual gain on disposition may be different from the gain recorded herein.
(h)Reflects the debt extinguishment loss of $47.2 million related to the repayment of debt as described in 3 (d) above for the year ended June 30, 2023.
(i)Reflects the reduction in interest expense of $81.9 million and $95.1 million to give effect to the estimated repayment of debt described in 3 (d) above for the six months ended December 31, 2023 and for the year ended June 30, 2023, respectively.
(j)The pro forma adjustments to the historical condensed consolidated balance sheet reflect the tax effects expected related to the Transaction and the removal of certain deferred income tax liabilities in connection with the gain on disposition. The pro forma adjustments to the historical condensed consolidated statements of income reflect the tax effects of the transaction accounting pro forma adjustments at the expected applicable statutory tax rates and the expected tax effects on the gain on disposition. Income tax adjustments are anticipated to be settled within twelve months of the close of the Transaction, using the remaining cash consideration received. Actual cash tax payable may differ as a result of the utilization of tax attributes available to OpenText. See footnote 3 (c).
