What changed in this filing

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Item 1. Business

2021-01-27 compared with 2020-01-27 · 120 added, 67 removed, 139 unchanged (57% of the section changed)

Progress Software Corporation ("Progress," the "Company," "we," "us," or "our") offers the leading platform for developing and deploying strategic business applications.

We enable customers and partners to deliver modern, high-impact digital experiences with a fraction of the effort, time and cost.

Progress offers powerful tools for easily building adaptive user experiences across any type of device or touchpoint, the flexibility of a cloud-native app dev platform to deliver modern apps, leading data connectivity technology, web content management, business rules, secure file transfer and network monitoring.

Over 1,700 independent software vendors ("ISVs"), 100,000 enterprise customers, and two million developers rely on Progress to power their applications.

We operate as three distinct segments:

OpenEdge, Data Connectivity and Integration, and Application Development and Deployment.

Progress Software Corporation ("Progress," the "Company," "we," "us," or "our") provides the best products to develop, deploy and manage high-impact business applications.

Our comprehensive product solutions are designed to make technology teams more productive and we have a deep commitment to the developer community, both open source and commercial alike.

With Progress, organizations can accelerate the creation and delivery of strategic business applications, automate the process by which apps are configured, deployed and scaled, and make critical data and content more accessible and secure—leading to competitive differentiation and business success.

Over 1,700 independent software vendors ("ISVs"), 100,000 enterprise customers, and three million developers rely on Progress to power their applications.

Our products are generally sold as perpetual licenses, but certain products also use term licensing models and our cloud-based offerings use a subscription-based model.

More than half of our worldwide license revenue is realized through relationships with indirect channel partners, principally application partners, original equipment manufacturers ("OEMs"), distributors and value-added resellers.

These partners develop and market applications using our technology and resell our products in conjunction with sales of their own products that incorporate our technology.

More than half of our worldwide license revenue is realized through relationships with indirect channel partners, principally ISVs, original equipment manufacturers ("OEMs"), distributors and value-added resellers.

We operate in North America and Latin America (the "Americas");

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and the Asia Pacific region, through local subsidiaries as well as independent distributors.

Strategic Plan and Operating Model

The key tenets of our strategic plan and operating model are as follows:

Align Resources to Drive Profitability .

Our organizational philosophy and operating principles focus primarily on customer and partner retention and success for our core products and a streamlined operating approach in order to more efficiently drive financial results.

Protect and Strengthen Our Core Business .

A key element of our strategy is centered on providing the products and tools enterprises need to build modern, strategic business applications.

Trusted Provider of the Best Products to Develop, Deploy and Manage High Impact Business Applications .

A key element of our strategy is centered on providing the platform and tools enterprises need to build modern, strategic business applications.

We offer these products and tools to both new customers and partners as well as our existing partner and customer ecosystems.

This strategy builds on our inherent DNA and our vast experience in application development that we've acquired over the past 40 years.

Our offerings enable developers to build the most modern applications quickly and easily, and include:

our OpenEdge software, which provides a unified development environment consisting of development tools, application servers, application management tools, an embedded relational database management system and the capability to connect and integrate with other applications and data sources;

our leading UI development tools, which enable organizations to easily build engaging user interfaces for any device or front end;

our data connectivity and integration capabilities;

our business logic and rules capabilities;

our secure file transfer solutions, which provide secure collaboration and automated file transfers of sensitive data and advanced workflow automation capabilities;

our network management capabilities, which enable small and medium-sized businesses to monitor and manage their IT infrastructure and applications;

web content management for delivering personalized and engaging digital experiences.

Acquire Accretive Businesses.

We are pursuing acquisitions of businesses within the software infrastructure space, with products that appeal to both IT organizations and individual developers.

These acquisitions must meet strict financial criteria, which will enable us to drive significant stockholder returns by providing scale and increased cash flows.

As described below, in April 2019, we acquired Ipswitch in a transaction that met these strict financial criteria.

Focus on Customer and Partner Retention to Drive Recurring Revenue and Profitability .

Our organizational philosophy and operating principles focus primarily on customer and partner retention and success, and a streamlined operating approach in order to more efficiently drive, predictable and stable recurring revenue.

Total Growth Strategy Driven by Accretive M&A.

We are pursuing a total growth strategy driven by accretive acquisitions of businesses within the software infrastructure space, with products that appeal to both IT organizations and individual developers.

These acquisitions must meet strict financial and other criteria, which should enable us to drive significant stockholder returns by providing scale and increased cash flows.

As described below, in October 2020, we acquired Chef Software Inc.

("Chef") in a transaction that we expect will meet these strict financial criteria.

Chef is a global leader in providing complete infrastructure automation to build, deploy, manage and secure applications in modern multi-cloud and hybrid environments, as well as on-premises.

The purchase price for Chef was $220 million and we

funded the purchase price with a combination of existing cash balances and drawings under our revolving credit facility.

Chef is the developer of Chef Enterprise Automation Stack, automating infrastructure, compliance and application delivery for many of the Fortune 500.

We expect to continue to pursue acquisitions meeting our financial criteria and designed to expand our business and drive significant stockholder returns.

Holistic Capital Allocation Approach .

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Pursuant to our capital allocation strategy that we initially announced in September 2017, we have targeted to return approximately 25% of our annual cash flows from operations to stockholders in the form of dividends.

We also intend to repurchase our shares sufficient to offset dilution from our equity plans.

We also intend to repurchase our shares in sufficient quantities to offset dilution from our equity plans.

In fiscal year 2020, we repurchased and retired 1.4 million shares of our common stock for $60.0 million.

In connection with the acquisition of Ipswitch, Inc.

(“Ipswitch”) in April 2019, we suspended our stock repurchase program for the remainder of fiscal 2019.

We expect to resume share repurchases in fiscal 2020, at a level consistent with our publicly stated capital allocation policy.

The timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors, and the Board of Directors may choose to suspend, expand or discontinue the repurchase program at any time.

As of November 30, 2020, there was $190.0 million remaining under share repurchase authorization.

In January 2020, our Board of Directors increased the total share repurchase authorization to $250.0 million.

We began paying quarterly cash dividends of $0.125 per share of common stock to Progress stockholders in December 2016 and increased the quarterly cash dividend to $0.14 per share in September 2017.

In September 2018, the quarterly cash dividend was increased to $0.155 per share of common stock.

On September 24, 2019, our Board of Directors approved an additional increase to our quarterly cash dividend from $0.155 to $0.165 per share of common stock.

We have declared aggregate per share quarterly cash dividends totaling $0.630 , $0.575 and $0.515 for the years ended November 30, 2019 , November 30, 2018 and November 30, 2017 , respectively.

We paid aggregate cash dividends totaling $27.8 million , $25.8 million and $24.1 million for the years ended November 30, 2019 , November 30, 2018 and November 30, 2017 , respectively.

We began paying quarterly cash dividends of $0.125 per share of common stock to Progress stockholders in December 2016 and increased the quarterly cash dividend annually in fiscal years 2017, 2018 and 2019.

On September 22, 2020, our Board of Directors approved an additional increase of 6% to our quarterly cash dividend from $0.165 to $0.175 and declared a quarterly dividend of $0.175 per share of common stock.

We expect to continue paying quarterly cash dividends in subsequent quarters consistent with our capital allocation strategy.

On April 30, 2019, in furtherance of our acquisition strategy, we acquired all of the outstanding equity interests of Ipswitch, a provider of award-winning and easy-to-use secure data file transfer and network management software, for an aggregate purchase price of approximately $225.0 million.

On September 26, 2019, we announced that we are reducing our current and ongoing investment levels within our cognitive application product lines, which consist primarily of our DataRPM and Kinvey products.

Accordingly, our fiscal fourth quarter results include a restructuring charge of $2.5 million.

This restructuring charge relates to employee costs, including severance, health benefits and outplacement services (but excluding stock-based compensation) incurred as part of the reduction in investment.

In connection with this restructuring action, during the fiscal fourth quarter, we evaluated the ongoing value of the intangible assets primarily associated with the technologies and trade names obtained in the acquisitions of DataRPM and Kinvey.

As a result of this evaluation, we wrote down these assets to fair value, which resulted in a $22.7 million asset impairment charge.

Our Business Segments

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Corticon helps both business and IT users to quickly create or reuse business rules as well as create, improve, collaborate on, and maintain decision logic.

MOVEit provides secure collaboration and automated file transfers of critical business information between users, locations and partners in compliance with data security regulations such as the Health Insurance Portability and Accountability Act (HIPAA), the Payment Card Industry Data Security Standard and the European Union's General Data Protection Regulation, and advanced workflow automation capabilities without the need for scripting.

WhatsUp Gold is an award-winning network monitoring solution, which enables small and medium-sized businesses and enterprises to continuously monitor and manage their IT infrastructure and applications, assuring high levels of performance and availability.

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Progress DataDirect Hybrid Data Pipeline

Progress DataDirect Hybrid Data Pipeline is a data access service that provides simple, secure access to organizations' cloud and on-premises data sources for hybrid cloud applications, such as CRM, data management platforms or hosted analytics.

Progress DataDirect Hybrid Data Pipeline is a data access service that provides simple, secure access to organizations' cloud and on-premises data sources for hybrid cloud applications, such as customer resource management, data management platforms or hosted analytics.

It enables developers to integrate applications and data quickly, no matter whether that data lives-on-site, in the cloud or both.

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Sitefinity combines superior end user experience with a high level of customization capabilities for developers.

Chef is a complete infrastructure automation platform to build, deploy, manage and secure applications in modern multi-cloud and hybrid environments, as well as on-premises.

Chef Enterprise Automation Stack is the full suite of enterprise infrastructure, application and DevSecOps automation technologies delivering change quickly, repeatedly and securely.

For more than ten years, Chef has led the industry in DevOps innovation, uniting teams at organizations of all sizes and optimizing processes and outcomes to accelerate its customers’ business growth.

The Chef offerings incorporate software components licensed to the general public under open source licenses.

We obtain many components from software developed and released by contributors to independent open source components of our offerings.

Under the open source licensing model, a software developer distributes the software under an open source license that provides relatively broad rights for recipients of the software to use, copy, modify and redistribute the software.

These rights afford significant latitude for recipients to inspect, suggest changes to, customize or enhance the software.

The primary solutions within the Chef Enterprise Automation Stack are Chef Infra, Chef InSpec, Chef Habitat, Chef Compliance, Chef Automate and Chef Desktop.

Chef Infra automates infrastructure configuration, ensuring every system is configured correctly and consistently.

Chef InSpec provides a language for describing security and compliance rules that can be shared between software engineers, operations and security engineers.

Chef Habitat provides automation capabilities for defining, packaging and delivering applications to almost any environment, regardless of operating system or deployment platform.

Chef Automate is an enterprise dashboard and analytics tool enabling cross-team collaboration with actionable insights for configuration and compliance and an auditable history of changes to environments.

Chef Compliance helps enterprises maintain compliance and prevent security incidents across heterogeneous estates.

Chef Desktop allows IT teams to automate the deployment, management and ongoing compliance of IT resources.

Product Development

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However, we have invested, and expect to continue to invest in new product development and enhancements of our current products to maintain our competitive position.

As of November 30, 2019 , we have five development offices in North America, two primary development offices in India and two primary development offices in EMEA.

Our primary development offices are located in Bedford, Massachusetts;

Morrisville, North Carolina;

Alpharetta, Georgia;

Madison, Wisconsin;

Seattle, Washington;

Sofia, Bulgaria;

and Bangalore and Hyderabad, India.

We market our products globally through several channels:

directly to end users and indirectly to application partners (or ISVs), OEMs, and system integrators.

directly to end users and indirectly to independent software vendors, OEMs, and system integrators.

Sales of our solutions and products through our direct sales force have historically been to business managers or IT managers in corporations and governmental agencies.

We also target developers who create business applications, from individuals to teams, within enterprises of all sizes.

We also market our products through indirect channels, primarily application partners.

We also market our products through indirect channels, primarily ISVs.

OEMs, and value-added resellers, who embed or add features to our products as part of an integrated solution.

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More than half of our license revenues are derived from these indirect channels.

Application Partners

Our application partners cover a broad range of markets, offer an extensive library of business applications and are a source of recurring revenue.

We have kept entry costs, consisting primarily of the initial purchase of development licenses, low to encourage a wide variety of application partners to build applications.

If an application partner succeeds in marketing its applications, we obtain recurring revenue as the application partner licenses our deployment products to allow its application to be installed and used by customers.

In recent years, a significantly increasing amount of our revenue from application partners has been generated from application partners who have chosen to enable their business applications under a software-as-a-service ("SaaS") platform.

Independent Software Vendors

Our ISVs cover a broad range of markets, offer an extensive library of business applications and are a source of recurring revenue.

We have kept entry costs, consisting primarily of the initial purchase of development licenses, low to encourage a wide variety of ISVs to build applications.

If an ISV succeeds in marketing its applications, we obtain recurring revenue as the ISV licenses our deployment products to allow its application to be installed and used by customers.

In recent years, a significantly increasing amount of our revenue from ISVs has been generated from ISVs who have chosen to enable their business applications under a software-as-a-service ("SaaS") platform.

Original Equipment Manufacturers

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OEMs typically license the right to embed our products into their solutions and distribute those solutions for initial terms ranging from one to three years.

Historically, most of our OEMs have renewed their agreements upon the

expiration of the initial term.

Historically, most of our OEMs have renewed their agreements upon the expiration of the initial term.

However, there is no assurance that they will continue to renew in the future.

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Our international operations provide focused local sales, support and marketing efforts and are able to respond directly to changes in local conditions.

In addition to our direct sales efforts, we distribute our products through systems integrators, resellers, distributors, and OEM partners in the United States and internationally.

In addition to our direct sales efforts, we distribute our products through ISVs, systems integrators, resellers, distributors, and OEM partners in the United States and internationally.

Systems integrators typically have expertise in vertical or functional markets.

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Sales personnel are responsible for developing new direct end user accounts, recruiting new indirect channel partners and new independent distributors, managing existing channel partner relationships and servicing existing customers.

We actively seek to avoid conflict between the sales efforts of our application partners and our own direct sales efforts.

We actively seek to avoid conflict between the sales efforts of our ISVs and our own direct sales efforts.

We use our inside sales teams to enhance our direct sales efforts and to generate new business and follow-on business from existing customers.

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We also hold and participate in global events, as well as regional user events in various locations throughout the world.

Our sales and marketing efforts with respect to certain of our products, including DevTools, differ from our traditional sales and marketing efforts because the target markets are different.

Our sales and marketing efforts with respect to certain of our products differ from our traditional sales and marketing efforts because the target markets are different.

For these products, we have designed our marketing and sales model to be efficient for high volumes of lower-price transactions.

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Our customer support staff provides telephone and Web-based support to end users, application developers and OEMs.

Customers may purchase maintenance services entitling them to software updates, technical support and technical bulletins.

Customers purchase maintenance services entitling them to software updates, technical support and technical bulletins.

Maintenance is generally not required with our products and is purchased at the customer's option.

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Madison, Wisconsin;

Seattle, Washington;

Galway, Ireland;

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application modernization;

infrastructure automation;

development operations;

data management, managed database services;

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We experience significant competition from a variety of sources with respect to all of our products.

Factors affecting competition in the markets we serve include product performance in complex applications, breadth of application solutions, vendor experience, ease of integration, price, training and support.

We compete in various markets with a number of entities, such as salesforce.com, Inc., Amazon.com, Inc., Software AG, Pivotal Software, Inc., IBM Corporation, Microsoft Corporation, Oracle Corporation and other smaller firms.

We believe that certain competitive factors affect the market for our software products and services, which may include:

(i) vendor and product reputation;

(ii) product quality, performance and price;

(iii) the availability of software products on multiple platforms;

(iv) product scalability;

(v) product integration with other enterprise applications;

(vi) software functionality and features;

(vii) software ease of use;

(viii) the quality of professional services, customer support services and training;

and (ix) the ability to address specific customer business problems.

We believe the relative importance of each of these factors depends upon the concerns and needs of each specific customer.

We compete with multiple companies, some that have single or narrow solutions, and some that have a range of enterprise infrastructure solutions such as Salesforce.com, Inc., Amazon.com, Inc.

and Microsoft Corporation.

Many of these vendors offer platform-as-a-service, application development, data integration and other tools in conjunction with their CRM, web services, operating systems, and relational database management systems.

We believe that IBM Corporation, Microsoft Corporation and Oracle Corporation currently dominate the relational database market.

We do not believe that there is a dominant vendor in the other infrastructure software markets, including application development.

Some of our competitors have greater financial, marketing or technical resources than we have and/or may have experience in, or be able to adapt more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their products than we can.

We compete with software vendors that offer their products under a typical proprietary software license model, and various other vendors that offer their solutions in an open source licensing or freely available distribution model.

We do not believe that there is a dominant vendor in the infrastructure software markets in which we compete.

However, some of our competitors have greater financial, marketing or technical resources than we have and/or may have experience in, or be able to adapt more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their products than we can.

Increased competition could make it more difficult for us to maintain our revenue and market presence.

Copyrights, Trademarks, Patents and Licenses

Intellectual Property

We rely on a combination of contractual provisions and copyright, patent, trademark and trade secret laws to protect our proprietary rights in our products.

We generally distribute our products under software license agreements that grant customers a perpetual nonexclusive license to use our products and contain terms and conditions prohibiting the unauthorized reproduction or transfer of our products.

We also distribute our products through various channel partners, including application partners, OEMs and system integrators.

Except as described below with respect to our Chef products, we generally distribute our products under software license agreements that grant customers a perpetual nonexclusive license to use our products and contain terms and conditions prohibiting the unauthorized reproduction or transfer of our products.

We also distribute our products through various channel partners, including ISVs, OEMs and system integrators.

We also license our products under term or subscription arrangements.

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Where possible, we seek to obtain protection of our product names and service offerings through trademark registration and other similar procedures throughout the world.

Our Chef offerings incorporate software components licensed to the general public under open source licenses.

We obtain many components from software developed and released by contributors to independent open source components of our offerings.

Open source licenses grant licensees broad permissions to use, copy, modify and redistribute our platform.

As a result, open source development and licensing practices can limit the value of our software copyright assets.

We believe that due to the rapid pace of innovation within our industry, factors such as the technological and creative skills of our personnel are as important in establishing and maintaining a leadership position within the industry as are the various legal protections of our technology.

In addition, we believe that the nature of our customers, the importance of our products to them and their need for continuing product support may reduce the risk of unauthorized reproduction, although no assurances can be made in this regard.

In addition, we believe that the nature of our customers, the importance of our products to them

and their need for continuing product support may reduce the risk of unauthorized reproduction, although no assurances can be made in this regard.

Business Segment and Geographical Information

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For additional information on our business segments as well as our geographical financial information, see Note 18 to our Consolidated Financial Statements in Item 8 of this Form 10-K.

Human Capital

As of November 30, 2020, we had 1,796 employees worldwide, including 600 in sales and marketing, 292 in customer support and services, 711 in product development and 193 in administration.

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We have experienced no work stoppages and believe our relations with employees are good.

We believe that our future success largely depends upon our continued ability to attract and retain highly skilled employees.

We provide our employees with competitive compensation and benefits, opportunities for equity ownership, and development programs that enable continued learning and growth.

Employee Engagement, Development and Training

We invest significant resources to develop our in-house talent and deepen our employees’ skill sets, both to strengthen our company and help further our employees’ personal career goals.

We empower our employees to drive their career aspirations and set personal development objectives in partnership with their managers.

To strengthen these conversations, we train managers across the globe to partner with employees through career conversations, as well provide career development training for all employees so that they can successfully leverage the many tools in place to support them.

To match the location and learning specifics of our people, we combine various channels for personal and technical development:

on-demand videos, webinars, classroom trainings, text-based resources, coaching, and more.

We also believe strongly in fostering our employees’ personal growth and offer programs like tuition reimbursement.

Our efforts to recruit and retain a diverse and passionate workforce include providing competitive compensation and benefit packages worldwide and ensuring we listen to our employees.

To that end, we regularly survey our employees to obtain their views and assess employee satisfaction.

We use the views expressed in the surveys to influence our people strategy and policies.

We also use employee survey information to gain insights into how and where we work.

COVID-19 Response

In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees as well as the communities in which we operate.

This includes having the vast majority of our employees work from home, while implementing additional safety measures for employees continuing critical on-site work.

We also provide flexible work hours.

We have also provided a work-from-home reimbursement policy to assist employees in that transition and added several company-wide paid days off and caregiving support to help employees balance their work and life responsibilities.

Inclusion and Diversity

As a multicultural company serving a global community, we encourage a wide range of views and celebrate our diverse backgrounds.

We are committed to creating a culture of innovation and inspiration, where employees feel a strong sense of community and pride in the company and the successes they have helped to achieve.

We have launched an inclusion and diversity (I&D) undertaking focused on fostering an inclusive environment and diverse workforce by strengthening the following core areas of our organization:

culture and belonging;

talent acquisition;

leveraging talent;

management and leadership;

and career development.

To ensure success of our I&D efforts, we formed an Inclusion and Diversity Advisory Committee, made up of a diverse group of Progress employees from around the globe with varying backgrounds, skill sets and viewpoints.

This committee has been tasked with supporting the formation and implementation of enterprise-wide I&D initiatives and ensuring a clear I&D vision is established and articulated in a way that is authentic for

everyone at Progress.

Among its many accomplishments, the committee helped to establish a governance framework for Progress Employee Resource Groups (ERGs), supported the formation of our first four ERGs, Progress for Her, Blacks at Progress, Plus (LGTBQ+) and veterans@progress, and contributed to the strengthening of our career and hiring processes.

Available Information

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The information posted on our website is not incorporated into this Annual Report.

Our Code of Conduct is also available on our website.

Our Code of Conduct and Business Ethics is also available on our website.

Additional information about this code and amendments and waivers thereto can be found below in Part III, Item 10 of this Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business