What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-01-27 compared with 2020-01-27 · 310 added, 383 removed, 412 unchanged (63% of the section changed)

12 unchanged sentences

These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP.

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, 100,000 enterprise customers, and two million developers rely on Progress to power their applications.

Impact of COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to impact the U.S.

and the world.

COVID-19 has disrupted the business of our customers and partners, and negatively impacted our business and consolidated results of operations, and could impact our financial condition in the future.

We are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our customers and partners and other factors identified in Part I, Item 1A “Risk Factors” in this Form 10-K.

We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.

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.

We operate as three distinct segments:

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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 .

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.

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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.

In April 2019, we acquired Ipswitch, Inc.

and, as described below, in October 2020, we acquired Chef Software.

Both acquisitions are expected to 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.

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 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.

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

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, 2019 , there was $75.0 million remaining under the 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.

On January 8, 2020, our Board of Directors declared a quarterly dividend of $0.165 per share of common stock that will be paid on March 16, 2020 to stockholders of record as of the close of business on March 2, 2020.

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.

In furtherance of our acquisition strategy, on April 30, 2019, 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.

We expect to continue to evaluate possible acquisitions and other strategic transactions designed to expand our business.

As a result, our expected uses of cash could change, our cash position could be reduced and we may incur additional debt

obligations to the extent we complete additional acquisitions.

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

As a result, our expected uses of cash could change, our cash position could be reduced, and we may incur additional debt obligations to the extent we complete additional acquisitions.

However, we believe that existing cash balances, together with funds generated from operations and amounts available under our credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements, including quarterly cash dividends and stock repurchases to Progress stockholders, as applicable, through at least the next twelve months.

We also believe that our financial resources have allowed, and will continue to allow us to manage the impact of COVID-19 on our business operations for the foreseeable future.

The challenges posed by COVID-19 on our business continue to evolve.

Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.

We derive a significant portion of our revenue from international operations, which are primarily conducted in foreign currencies.

The impact of foreign exchange rates had a material impact on revenue in fiscal year 2019.

Since approximately one-third of our revenue is denominated in foreign currency, future fluctuations in foreign currency rates may also significantly impact our results.

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 a part of the reduction in the 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.

As a result, changes in the value of these foreign currencies relative to the U.S.

dollar have significantly impacted our results of operations and may impact our future results of operations.

Since approximately one-third of our revenue is denominated in foreign currency, and given the volatility in the global economy created by COVID-19, our revenue results in fiscal year 2020 were impacted by fluctuations in foreign currency exchange rates.

Results of Operations

Adoption of New Accounting Standard

We adopted the new accounting standard related to revenue recognition ("ASC 606") effective December 1, 2018, using the full retrospective method, which required us to restate prior comparable periods.

Nature of Business and Summary of Significant Accounting Policies for further information.

Management’s Discussion and Analysis of Financial Condition and Results of Operations has also been adjusted to reflect the full retrospective adoption of ASC 606.

Fiscal Year 2020 Compared to Fiscal Year 2019

Fiscal Year Ended

Percentage Change

(In thousands)

November 30, 2019

November 30, 2018

Total revenue increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to the acquisition of Ipswitch during the second quarter of fiscal year 2019, and an increase in license sales in our Data Connectivity and Integration segment.

Ipswitch contributed $28.2 million in revenue in fiscal year 2019.

The increase in total revenue was partially offset by an unfavorable impact from currency exchange rates in fiscal year 2019 as compared to last year.

Fiscal Year Ended Percentage Change

(In thousands) November 30, 2020 November 30, 2019 As Reported Constant

Revenue $ 442,150 $ 413,298 7 % 7 %

Total revenue increased in fiscal year 2020 primarily due to the acquisitions of Ipswitch, during the second quarter of fiscal year 2019, and of Chef, during the fourth quarter of fiscal year 2020.

These increases were offset by a decrease in license sales in our Data Connectivity and Integration segment.

Ipswitch and Chef contributed $67.5 million and $3.8 million in revenue in fiscal year 2020, respectively.

Changes in prices from fiscal year 2019 to 2020 did not have a significant impact on our revenue.

License Revenue

Fiscal Year Ended

Percentage Change

(In thousands)

November 30, 2019

November 30, 2018

Software License Revenue

Fiscal Year Ended Percentage Change

(In thousands) November 30, 2020 November 30, 2019 As Reported Constant

License $ 115,249 $ 122,552 (6) % (6) %

As a percentage of total revenue 26 % 30 %

Software license revenue increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to the acquisition of Ipswitch and an increase in license sales in our Data Connectivity and Integration segment.

The increase in license revenue was partially offset by an unfavorable impact from currency exchange rates in fiscal year 2019 as compared to last year.

Software license revenue decreased in fiscal year 2020 primarily due to a decrease in license sales in our Data Connectivity and Integration segment, partially offset by an increase in Ipswitch license sales, which are included in our OpenEdge segment.

Refer to the Revenue by Segment section below for further discussion.

Maintenance and Services Revenue

Fiscal Year Ended

Percentage Change

(In thousands)

November 30, 2019

November 30, 2018

Fiscal Year Ended Percentage Change

(In thousands) November 30, 2020 November 30, 2019 As Reported Constant

Maintenance $ 288,887 $ 259,006 12 % 12 %

As a percentage of total revenue 65 % 63 %

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As a percentage of total revenue 74 % 70 %

Maintenance revenue increased in fiscal year 2019 as compared fiscal year 2018 due to the acquisition of Ipswitch and a slight increase in maintenance revenue in our Application Development and Deployment segment.

This increase was offset by an unfavorable impact from currency exchange rates on our OpenEdge segment maintenance revenue in fiscal year 2019 compared to fiscal year 2018.

Professional services revenue increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to an increase in OpenEdge professional services revenue, partially offset by lower professional services revenue generated by our Application Development and Deployment segment.

Maintenance revenue increased in fiscal year 2020 primarily due to the acquisitions of Ipswitch and Chef.

This increase was offset by an unfavorable impact from currency exchange rates on our OpenEdge segment maintenance revenue in fiscal year 2020.

Professional services revenue increased primarily due to an increase in Application Development and Deployment professional services revenue.

Revenue by Region

Fiscal Year Ended

Percentage Change

(In thousands)

November 30, 2019

November 30, 2018

Fiscal Year Ended Percentage Change

(In thousands) November 30, 2020 November 30, 2019 As Reported Constant

North America $ 260,998 $ 233,911 12 % 12 %

As a percentage of total revenue 59 % 57 %

EMEA $ 143,754 $ 137,301 5 % 4 %

As a percentage of total revenue 33 % 33 %

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As a percentage of total revenue 3 % 5 %

Asia Pacific $ 22,824 $ 22,421 2 % 2 %

As a percentage of total revenue 5 % 5 %

Total revenue generated in North America increased $29.7 million, and total revenue generated outside North America increased $4.7 million, in fiscal year 2019 as compared to fiscal year 2018.

The increase in North America was primarily due to the acquisition of Ipswitch and higher license revenue generated by our Data Connectivity and Integration segment.

The increase in revenue generated in EMEA in fiscal year 2019 as compared to fiscal year 2018 was also due to the acquisition of Ipswitch and higher license revenue generated by our Data Connectivity and Integration segment, partially offset by the unfavorable effect of foreign exchange rates.

Revenue generated in Latin America increased in fiscal year 2019 as compared to fiscal year 2018 due to an increase in license sales in our OpenEdge segment.

The revenue generated in Asia Pacific increased slightly in fiscal year 2019 as compared to fiscal year 2018 primarily due to the acquisition of Ipswitch.

Total revenue generated in North America increased $27.1 million, and total revenue generated outside North America increased $1.8 million, in fiscal year 2020.

The increase in North America was primarily due to the acquisitions of Ipswitch and Chef, offset by decreased license sales in our Data Connectivity and Integration segment.

The increase in revenue generated in EMEA was also due to the acquisitions of Ipswitch and Chef.

Revenue generated in Latin America decreased due to a decrease in license sales in our OpenEdge segment.

The revenue generated in Asia Pacific increased slightly primarily due to the acquisition of Ipswitch.

Total revenue generated in markets outside North America represented 41% of total revenue in fiscal year 2020 compared to 43% of total revenue in the same period last year.

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Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

Percentage Change

(In thousands) November 30, 2020 November 30, 2019 Percentage Change

OpenEdge segment $ 326,444 $ 296,929 10 %

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Total revenue $ 442,150 $ 413,298 7 %

Revenue in the OpenEdge segment increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to the acquisition of Ipswitch, partially offset by an unfavorable impact from currency exchange rates in fiscal year 2019 as compared to last year.

Data Connectivity and Integration segment revenue increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to the timing of certain renewals by OEMs.

Application Development and Deployment segment revenue decreased in fiscal year 2019 as compared to fiscal year 2018, primarily due to lower license and professional services revenue, partially offset by an increase in maintenance revenue.

Revenue in the OpenEdge segment increased year-over-year primarily due to the acquisition of Ipswitch, partially offset by an unfavorable impact from currency exchange rates in fiscal year 2020.

Data Connectivity and Integration segment revenue decreased due to the timing of term license renewals by certain of our OEM partners .

Application Development and Deployment segment revenue increased primarily due to the acquisition of Chef and an increase in professional services revenue.

Cost of Software Licenses

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019

Cost of software licenses $ 4,473 $ 4,894 $ (421) (9) %

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Cost of software licenses consists primarily of costs of royalties, electronic software distribution, duplication, and packaging.

The decrease in cost of software licenses was the result of lower payments of royalties to third parties as compared to the prior fiscal year.

Cost of software licenses as a percentage of software license revenue varies from period to period depending upon the relative product mix.

During the periods presented above, cost of software licenses remained relatively flat as a percentage of revenue.

Cost of Maintenance and Services

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Change

Cost of maintenance and services $ 49,744 $ 44,463 $ 5,281 12 %

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As a percentage of total revenue 11 % 11 %

Components of cost of maintenance and services:

Personnel Related Costs $ 35,156 $ 31,935 $ 3,221 10 %

Contractors and Outside Services 11,317 9,329 1,988 21 %

Hosting and Other 3,271 3,199 72 2 %

Total cost of maintenance and services $ 49,744 $ 44,463 $ 5,281 12 %

Cost of maintenance and services consists primarily of costs of providing customer support, consulting, and education.

Cost of maintenance and services increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to higher compensation-related costs resulting from an increase in headcount as a result of the acquisition of Ipswitch.

Cost of maintenance and services increased primarily due to higher personnel and contractor related costs resulting from the acquisitions of Ipswitch and Chef.

Amortization of Acquired Intangibles

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Percentage

Amortization of acquired intangibles $ 7,897 $ 25,884 (69) %

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Amortization of acquired intangibles included in costs of revenue primarily represents the amortization of the value assigned to technology-related intangible assets obtained in business combinations.

Amortization of acquired intangibles increased in fiscal year 2019 as compared to fiscal year 2018, primarily due to the addition of intangible assets associated with the technologies obtained in connection with the acquisition of Ipswitch.

The year over year decrease was due to certain intangible assets being fully amortized and the impairment of intangible assets recorded in the fourth fiscal quarter of 2019 associated with the technology of our Kinvey and DataRPM acquisitions, offset by the addition of Ipswitch and Chef acquired intangibles.

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Percentage

Gross profit $ 380,036 $ 338,057 12 %

As a percentage of total revenue 86 % 82 %

Our gross profit increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to the increases of license and maintenance revenue, offset slightly by the increase of cost of maintenance and services and the amortization of acquired intangibles, each as described above.

Our gross profit increased primarily due to the increase in maintenance revenue and the decrease in the amortization of intangibles, offset slightly by the decrease of license revenue and increase of cost of maintenance and services, each as described above .

Sales and Marketing

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Change

Sales and marketing $ 100,113 $ 101,701 $ (1,588) (2) %

As a percentage of total revenue 23 % 25 %

Sales and marketing expenses increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to increased compensation-related expenses as a result of increased headcount from the acquisition of Ipswitch.

Components of sales and marketing:

Personnel related costs $ 85,167 $ 83,957 $ 1,210 1 %

Contractors and outside services 2,122 2,307 (185) (8) %

Marketing programs and other 12,824 15,437 (2,613) (17) %

Total sales and marketing $ 100,113 $ 101,701 $ (1,588) (2) %

Sales and marketing expenses decreased in fiscal year 2020 primarily due to decreased travel and in-person events as a result of the COVID-19 pandemic, as well as cost reductions we implemented within our cognitive application product lines in the fourth quarter of fiscal year 2019.

These decreases were partially offset by increased personnel costs resulting from the acquisitions of Ipswitch and Chef.

Product Development

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Change

Product development $ 88,599 $ 88,572 $ 27 — %

As a percentage of total revenue 20 % 21 %

Product development expenses increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to increased compensation-related expenses as a result of increased headcount from the acquisition of Ipswitch.

Components of product development costs:

Personnel related costs $ 85,624 $ 85,107 $ 517 1 %

Contractors and outside services 2,351 2,586 (235) (9) %

Other product development costs 624 879 (255) (29) %

Total product developments costs $ 88,599 $ 88,572 $ 27 — %

Product development expenses remained flat year-over-year primarily due to increased personnel related expenses due to the acquisitions of Ipswitch and Chef, offset by decreased travel resulting due to the COVID-19 pandemic, and cost reductions we implemented within our cognitive application product lines in the fourth quarter of fiscal year 2019.

General and Administrative

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Change

General and administrative $ 54,004 $ 53,360 $ 644 1 %

As a percentage of total revenue 12 % 13 %

Components of general and administrative:

Personnel Related Costs $ 43,025 $ 42,423 $ 602 1 %

Contractors and Outside Services 8,338 7,375 963 13 %

Other general and administrative costs 2,641 3,562 (921) (26) %

Total cost of general and administrative $ 54,004 $ 53,360 $ 644 1 %

General and administrative expenses include the costs of our finance, human resources, legal, information systems and administrative departments.

General and administrative expenses increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to increased stock-based compensation expense.

General and administrative expenses increased slightly primarily due to higher personnel related costs due to the acquisitions of Ipswitch and Chef, as well as higher contractor and outside services costs, offset by decreases in other various general and administrative costs.

Amortization of Acquired Intangibles

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Percentage

Amortization of acquired intangibles $ 20,049 $ 22,255 (10) %

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Amortization of acquired intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology.

Amortization of acquired intangibles increased in fiscal year 2019 as compared to fiscal year 2018 due to the addition of intangible assets obtained in connection with the acquisition of Ipswitch.

Amortization of acquired intangibles decreased year-over-year due to certain intangible assets being fully amortized and the impairment of certain other intangible assets, offset by the addition of Ipswitch and Chef acquired intangibles.

Impairment of Intangible and Long-Lived Assets

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Percentage

Impairment of intangible and long-lived assets $ — $ 24,096 *

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*Not meaningful

In the fourth quarter of fiscal year 2019 we determined that the intangible assets associated with the technology obtained in connection with the acquisitions of DataRPM and Kinvey were fully impaired, resulting from our decision to reduce our current and ongoing investment levels within our cognitive application product lines.

As a result, we incurred an impairment charge of $22.7 million in the fourth quarter of fiscal year 2019.

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Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Percentage

Restructuring expenses $ 5,906 $ 6,331 (7) %

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Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Percentage

Acquisition-related expenses $ 3,637 $ 1,658 *

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These costs consist of professional services fees, including third-party legal and valuation-related fees, as well as retention fees, and earn-out payments treated as compensation expense.

Acquisition-related expenses in fiscal year 2020 were primarily related to the acquisition of Chef.

Acquisition-related expenses in fiscal year 2019 were related to the acquisition of Ipswitch.

Acquisition-related expenses in fiscal year 2018 were minimal.

Loss on Assets Held for Sale

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

Loss on assets held for sale

As a percentage of total revenue

*Not meaningful

In the fourth quarter of fiscal year 2018, we reclassified certain corporate land and building assets previously reported as property and equipment to assets held for sale on our consolidated balance sheets as we were actively marketing them and expected to sell them within one year.

As a result, we recognized an impairment charge of $5.1 million , which represented the difference between the fair value less cost to sell and the carrying value of the assets.

The impairment charge was recorded to loss on assets held for sale within operating expenses on our fiscal year 2018 consolidated statement of operations.

See Note 5 to our Consolidated Financial Statements in Item 8 of this Form 10-K for additional details.

Fees Related to Shareholder Activist

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

Fees related to shareholder activist

As a percentage of total revenue

In September 2017, Praesidium Investment Management, then one of our largest stockholders, publicly announced its disagreement with our strategy in a Schedule 13D filed with the SEC and stated that it was seeking changes in the composition of our Board of Directors.

In fiscal year 2018, we incurred professional and other fees relating to Praesidium’s actions.

Income from Operations

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Percentage

Income from operations $ 107,728 $ 40,084 169 %

As a percentage of total revenue 24 % 10 %

Income from operations decreased in fiscal year 2019 as compared to fiscal year 2018.

As described above, the decrease was primarily driven by the impairment of intangible and long-lived assets in the fourth quarter of fiscal year 2019, as well as increases in operating expenses, amortization of acquired intangible assets, restructuring expenses and acquisition expenses recorded in fiscal year 2019 as a result of the acquisition of Ipswitch.

This decrease was partially offset by increased revenue in fiscal year 2019 and the loss on assets held for sale recorded in fiscal year 2018, as described above.

Income from operations increased year over year due to an increase in revenue and decreases in costs of revenue and operating expenses as shown above .

Income from Operations by Segment

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

Percentage Change

(In thousands) November 30, 2020 November 30, 2019 Percentage Change

OpenEdge segment $ 250,092 $ 211,720 18 %

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Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Percentage

Interest expense $ (10,170) $ (9,913) (3) %

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As a percentage of total revenue (3) % (3) %

Other expense, net, increased in fiscal year 2019 as compared to fiscal year 2018 primarily due to an increase in interest expense.

The change in interest expense is a result of an increase in the principal balance of our debt, which was used to fund the Ipswitch acquisition.

Other expense, net, decreased in fiscal year 2020 as a result of lower foreign currency loss offset by increased interest expense over the period.

The increase in interest expense is due to an increase in the outstanding principle balance of our debt to fund the Ipswitch and Chef acquisitions, offset by declining rates throughout fiscal year 2020.

Provision for Income Taxes

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Percentage

Provision for income taxes $ 16,913 $ 2,095 *

As a percentage of total revenue 4 % <1%

*Not meaningful

Our effective income tax rate was 18% in fiscal year 2020 and 7% in fiscal year 2019.

The primary reason for the decrease in the effective rate was due to the loss incurred by our US operations in fiscal year 2019 resulting from the amortization and impairment of intangibles.

In addition, the majority of our international profits were earned in a jurisdiction with a statutory tax rate of 10%.

The primary reason for the increase in the effective rate was due to the loss incurred by our US operations in fiscal year 2019 resulting from the amortization and impairment of intangibles described above.

In addition, the majority of our international profits in fiscal year 2019 were earned in a jurisdiction with a statutory tax rate of 10%.

Fiscal Year Ended

(In thousands)

November 30, 2019

November 30, 2018

(In thousands) November 30, 2020 November 30, 2019 Percentage

Net income $ 79,722 $ 26,400 202 %

As a percentage of total revenue 18 % 6 %

Fiscal 2019 Compared to Fiscal 2018

Fiscal Year Ended

Percentage Change

(In thousands)

November 30, 2018

November 30, 2017

Total revenue decreased in fiscal year 2018 as compared to fiscal year 2017 primarily due to a decline in license and professional services revenue, partially offset by an increase in maintenance revenue and a favorable impact from foreign currency exchange rates as further described below.

Adoption of New Accounting Standard

Nature of Business and Summary of Significant Accounting Policies for further information.

Management’s Discussion and Analysis of Financial Condition and Results of Operations has also been adjusted to reflect the full retrospective adoption of ASC 606.

Fiscal Year Ended Percentage Change

(In thousands) November 30, 2019 November 30, 2018 As Reported Constant

Revenue $ 413,298 $ 378,981 9 % 11 %

Total revenue increased in fiscal year 2019 primarily due to the acquisition of Ipswitch during the second quarter of fiscal year 2019, and an increase in license sales in our Data Connectivity and Integration segment.

Ipswitch contributed $28.2 million in revenue in fiscal year 2019.

The increase in total revenue was partially offset by an unfavorable impact from currency exchange rates in fiscal year 2019.

Changes in prices from fiscal year 2018 to 2019 did not have a significant impact on our revenue.

License Revenue

Fiscal Year Ended

Percentage Change

(In thousands)

November 30, 2018

November 30, 2017

Fiscal Year Ended Percentage Change

(In thousands) November 30, 2019 November 30, 2018 As Reported Constant

License $ 122,552 $ 99,800 23 % 25 %

As a percentage of total revenue 30 % 26 %

Software license revenue decreased in fiscal year 2018 as compared to fiscal year 2017 due to a decrease in software license revenue in our Data Connectivity and Integration and OpenEdge segments.

Software license revenue increased in fiscal year 2019 primarily due to the acquisition of Ipswitch and an increase in license sales in our Data Connectivity and Integration segment.

The increase in license revenue was partially offset by an unfavorable impact from currency exchange rates in fiscal year 2019.

Maintenance and Services Revenue

Fiscal Year Ended

Percentage Change

(In thousands)

November 30, 2018

November 30, 2017

Fiscal Year Ended Percentage Change

(In thousands) November 30, 2019 November 30, 2018 As Reported Constant

Maintenance $ 259,006 $ 249,171 4 % 6 %

As a percentage of total revenue 63 % 66 %

3 unchanged sentences

As a percentage of total revenue 70 % 74 %

Maintenance revenue increased in fiscal year 2018 as compared to fiscal year 2017 due to an increase in maintenance revenue in our OpenEdge and Application Development and Deployment segments and a favorable impact from currency exchange rates, partially offset by a decline in our Data Connectivity and Integration segment.

Professional services revenue decreased in fiscal year 2018 as compared to fiscal year 2017 primarily due to lower professional services revenue from our OpenEdge and Application Development and Deployment segments.

Maintenance revenue increased in fiscal year 2019 due to the acquisition of Ipswitch and a slight increase in maintenance revenue in our Application Development and Deployment segment.

This increase was offset by an unfavorable impact from currency exchange rates on our OpenEdge segment maintenance revenue in fiscal year 2019.

Professional services revenue increased in fiscal year 2019 primarily due to an increase in OpenEdge professional services revenue, partially offset by lower professional services revenue generated by our Application Development and Deployment segment.

Revenue by Region

Fiscal Year Ended

Percentage Change

(In thousands)

November 30, 2018

November 30, 2017

Fiscal Year Ended Percentage Change

(In thousands) November 30, 2019 November 30, 2018 As Reported Constant

North America $ 233,911 $ 204,257 15 % 15 %

As a percentage of total revenue 57 % 54 %

EMEA $ 137,301 $ 135,055 2 % 6 %

As a percentage of total revenue 33 % 35 %

1 unchanged sentence

As a percentage of total revenue 5 % 5 %

Asia Pacific $ 22,421 $ 21,623 4 % 7 %

As a percentage of total revenue 5 % 6 %

Total revenue generated in North America decreased $31.6 million, and total revenue generated outside North America increased $21.4 million, in fiscal year 2018 as compared to fiscal year 2017.

The decrease in North America was primarily due to a decrease in license revenue in our Data Connectivity and Integration and OpenEdge segments as well as a decrease in maintenance revenue in our OpenEdge and Application Development and Deployment segments.

The increase in revenue generated in EMEA in fiscal year 2018 as compared to fiscal year 2017 was primarily due to an increase in maintenance revenue in our OpenEdge and Application Development and Deployment segments, as well as a favorable impact from currency exchange rates.

Revenue generated in Latin America and Asia Pacific increased in fiscal year 2018 as compared to fiscal year 2017 due to an increase in maintenance revenue.

Total revenue generated in markets outside North America represented 46% of total revenue in fiscal year 2018 compared to 39% of total revenue in the same period last year.

Total revenue generated in North America increased $29.7 million, and total revenue generated outside North America increased $4.7 million, in fiscal year 2019.

The increase in North America was primarily due to the acquisition of Ipswitch and higher license revenue generated by our Data Connectivity and Integration segment.

The increase in revenue generated in EMEA in fiscal year 2019 was also due to the acquisition of Ipswitch and higher license revenue generated by our Data Connectivity and Integration segment, partially offset by the unfavorable effect of foreign exchange rates.

Revenue generated in Latin America increased in fiscal year 2019 due to an increase in license sales in our OpenEdge segment.

The revenue generated in Asia Pacific increased slightly in fiscal year 2019 primarily due to the acquisition of Ipswitch.

Total revenue generated in markets outside North America represented 43% of total revenue in fiscal year 2019 compared to 46% of total revenue in the prior fiscal year.

If exchange rates had remained constant in fiscal year 2019 as compared to the exchange rates in effect in fiscal year 2018, total revenue generated in markets outside North America would have been 44% of total revenue.

1 unchanged sentence

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

Percentage Change

(In thousands) November 30, 2019 November 30, 2018 Percentage Change

OpenEdge segment $ 296,929 $ 277,806 7 %

2 unchanged sentences

Total revenue $ 413,298 $ 378,981 9 %

Revenue in the OpenEdge segment decreased in fiscal year 2018 as compared to fiscal year 2017, largely due to the decrease in license and professional services revenue.

Data Connectivity and Integration segment revenue decreased in fiscal year 2018 as compared to fiscal year 2017 primarily due to the timing of certain renewals by OEMs.

Application Development and Deployment segment revenue decreased in fiscal year 2018 as compared to fiscal year 2017, primarily due to lower license and professional services revenue, partially offset by an increase in maintenance revenue.

Revenue in the OpenEdge segment increased in fiscal year 2019 primarily due to the acquisition of Ipswitch, partially offset by an unfavorable impact from currency exchange rates in fiscal year 2019.

Data Connectivity and Integration segment revenue increased in fiscal year 2019 primarily due to the timing of certain renewals by OEMs.

Application Development and Deployment segment revenue decreased in fiscal year 2019, primarily due to lower license and professional services revenue, partially offset by an increase in maintenance revenue.

Cost of Software Licenses

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Change

Cost of software licenses $ 4,894 $ 4,769 $ 125 3 %

3 unchanged sentences

Cost of software licenses as a percentage of software license revenue varies from period to period depending upon the relative product mix.

The decrease in cost of software licenses in fiscal year 2018 was a result of lower payments of royalties to third parties as compared to fiscal year 2017.

During the periods presented above, cost of software licenses remained relatively flat as a percentage of revenue.

Cost of Maintenance and Services

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Change

Cost of maintenance and services $ 44,463 $ 39,470 $ 4,993 13 %

1 unchanged sentence

As a percentage of total revenue 11 % 10 %

Components of cost of maintenance and services:

Personnel Related Costs $ 31,935 $ 28,052 $ 3,883 14 %

Contractors and Outside Services 9,329 8,639 690 8 %

Hosting and Other 3,199 2,779 420 15 %

Total cost of maintenance and services $ 44,463 $ 39,470 $ 4,993 13 %

Cost of maintenance and services consists primarily of costs of providing customer support, consulting, and education.

Cost of maintenance and services decreased in fiscal year 2018 as compared to fiscal year 2017 primarily due to lower compensation-related costs resulting from a decrease in headcount, partially offset by higher third-party professional services expense.

Cost of maintenance and services increased in fiscal year 2019 primarily due to higher personnel related costs resulting from the acquisition of Ipswitch.

Amortization of Acquired Intangibles

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Percentage

Amortization of acquired intangibles $ 25,884 $ 22,734 14 %

1 unchanged sentence

Amortization of acquired intangibles increased in fiscal year 2018 as compared to fiscal year 2017.

The increase was primarily due to the addition of intangible assets associated with the technologies obtained in connection with the acquisitions of DataRPM in the second quarter of fiscal year 2017 and Kinvey in the third quarter of fiscal year 2017, partially offset by the completion of amortization of certain intangible assets acquired in prior years.

Amortization of acquired intangibles increased in fiscal year 2019, primarily due to the addition of intangible assets associated with the technologies obtained in connection with the acquisition of Ipswitch.

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Percentage

Gross profit $ 338,057 $ 312,008 8 %

As a percentage of total revenue 82 % 82 %

Our gross profit decreased in fiscal year 2018 as compared to fiscal year 2017 primarily due to the decrease in license and professional services revenue as well as the increase of amortization of acquired intangibles, offset slightly by the decrease in cost of maintenance and services and cost of software licenses as described above.

Our gross profit increased in fiscal year 2019 primarily due to the increases of license and maintenance revenue, offset slightly by the increase of cost of maintenance and services and the amortization of acquired intangibles, each as described above.

Sales and Marketing

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Change

Sales and marketing $ 101,701 $ 93,036 $ 8,665 9 %

As a percentage of total revenue 25 % 25 %

Sales and marketing expenses decreased in fiscal year 2018 as compared to fiscal year 2017 primarily due to lower compensation-related and professional service expenses as a result of the headcount reduction actions which occurred in the first quarter of fiscal year 2017.

The decrease was partially offset by higher marketing programs costs related to the go-to-market efforts for Kinvey and DataRPM.

Components of sales and marketing:

Personnel related costs $ 83,957 $ 75,394 $ 8,563 11 %

Contractors and outside services 2,307 2,046 261 13 %

Marketing programs and other 15,437 15,596 (159) (1) %

Total sales and marketing $ 101,701 $ 93,036 $ 8,665 9 %

Sales and marketing expenses increased in fiscal year 2019 primarily due to increased personnel related expenses as a result of

increased headcount from the acquisition of Ipswitch.

Product Development

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Change

Product development $ 88,572 $ 79,739 $ 8,833 11 %

As a percentage of total revenue 21 % 21 %

Product development expenses increased in fiscal year 2018 as compared to fiscal year 2017 primarily due to higher stock-based compensation expenses, partially offset by lower compensation-related costs.

During the first quarter of fiscal year 2017, there were significant forfeitures due to our restructuring action, which significantly reduced stock-based compensation expense in fiscal year 2017 as compared to fiscal year 2018.

Components of product development costs:

Personnel related costs $ 85,107 $ 76,766 $ 8,341 11 %

Contractors and outside services 2,586 2,263 323 14 %

Other product development costs 879 710 169 24 %

Total product developments costs $ 88,572 $ 79,739 $ 8,833 11 %

Product development expenses increased in fiscal year 2019 primarily due to increased personnel related expenses as a result of the acquisition of Ipswitch.

General and Administrative

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Change

General and administrative $ 53,360 $ 49,050 $ 4,310 9 %

As a percentage of total revenue 13 % 13 %

Components of general and administrative:

Personnel Related Costs $ 42,447 $ 34,749 $ 7,698 22 %

Contractors and Outside Services 7,375 9,447 (2,072) (22) %

Other general and administrative costs 3,538 4,854 (1,316) (27) %

Total cost of general and administrative $ 53,360 $ 49,050 $ 4,310 9 %

General and administrative expenses include the costs of our finance, human resources, legal, information systems and administrative departments.

General and administrative expenses increased in fiscal year 2018 as compared to fiscal year 2017 primarily due to increased stock-based compensation expense, as well as higher professional services expense, partially offset by lower compensation-related expenses.

General and administrative expenses increased in fiscal year 2019 primarily due to increased stock-based compensation expense.

Amortization of Acquired Intangibles

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Percentage

Amortization of acquired intangibles $ 22,255 $ 13,241 68 %

1 unchanged sentence

Amortization of acquired intangibles increased in fiscal year 2018 as compared to fiscal year 2017 due to the addition of intangible assets obtained in connection with the acquisitions of DataRPM and Kinvey, which occurred in the second and third quarters of fiscal year 2017, respectively.

Amortization of acquired intangibles increased in fiscal year 2019 due to the addition of intangible assets obtained in connection with the acquisition of Ipswitch.

Impairment of Intangible and Long-Lived Assets

Fiscal Year Ended

(In thousands) November 30, 2019 November 30, 2018 Percentage

Impairment of intangible and long-lived assets $ 24,096 $ — *

As a percentage of total revenue 6 % — %

*Not meaningful

As a result, we incurred an impairment charge of $22.7 million in the fourth quarter of fiscal year 2019.

See Note 6 to our Consolidated Financial Statements in Item 8 of this Form 10-K for additional details.

In addition, during the fourth quarter of fiscal year 2019, we incurred an additional asset impairment charge of $1.4 million related to the abandonment of certain long-lived assets associated with a sale of corporate land and buildings.

See Note 5 to our Consolidated Financial Statements in Item 8 of this Form 10-K for additional details.

Restructuring Expenses

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Percentage

Restructuring expenses $ 6,331 $ 2,251 181 %

As a percentage of total revenue 2 % 1 %

Restructuring expenses recorded in fiscal year 2018 relate to the restructuring activities that occurred in fiscal year 2017.

Restructuring expenses recorded in fiscal year 2019 related to the restructuring activities that occurred in fiscal years 2019 and 2017.

See Note 15 to our Consolidated Financial Statements in Item 8 of this Form 10-K for additional details, including types of expenses incurred and the timing of future expenses and cash payments.

2 unchanged sentences

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Percentage

Acquisition-related expenses $ 1,658 $ 258 *

As a percentage of total revenue — % — %

*Not meaningful

Acquisition-related costs are expensed as incurred and include those costs incurred as a result of a business combination.

These costs consist of professional services fees, including third-party legal and valuation-related fees, as well as retention fees, and earn-out payments treated as compensation expense.

Acquisition-related expenses in fiscal year 2018 were minimal.

Acquisition-related expenses in fiscal year 2017 resulted primarily from expense related to the acquisitions of DataRPM and Kinvey, which occurred in the second and third quarters of fiscal year 2017, respectively.

Acquisition-related expenses in fiscal year 2019 were related to the acquisition of Ipswitch.

Loss on Assets Held for Sale

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2017 Percentage

Loss on assets held for sale $ — $ 5,147 *

As a percentage of total revenue — % 1 %

In the fourth quarter of fiscal year 2018, we reclassified certain corporate land and building assets previously reported as property and equipment to assets held for sale on our consolidated balance sheets as we are actively marketing them and expect to sell them within one year.

As a result, we recognized an impairment charge of $5.1 million , which represents the difference between the fair value less cost to sell and the carrying value of the assets.

*Not meaningful

As a result, we recognized an impairment charge of $5.1 million, which represented the difference between the fair value less cost to sell and the carrying value of the assets.

The impairment charge was recorded to loss on assets held for sale within operating expenses on our fiscal year 2018 consolidated statement of operations.

2 unchanged sentences

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Percentage

Fees related to shareholder activist $ — $ 1,472 *

As a percentage of total revenue — % — %

*Not meaningful

In fiscal years 2017 and 2018, we incurred professional and other fees relating to Praesidium’s actions.

In fiscal year 2018, we incurred professional and other fees relating to Praesidium’s actions.

Income from Operations

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Percentage

Income from operations $ 40,084 $ 67,814 (41) %

As a percentage of total revenue 10 % 18 %

Income from operations increased in fiscal year 2018 as compared to fiscal year 2017.

As described above, the increase was primarily driven by lower restructuring expenses, sales and marketing expenses, and acquisition expenses.

This increase was partially offset by the loss on assets held for sale recorded in fiscal year 2018, higher general and administrative expenses, higher product development expenses, and lower gross margin, as described above.

Income from operations decreased in fiscal year 2019.

This decrease was partially offset by increased revenue in fiscal year 2019 and the loss on assets held for sale recorded in fiscal year 2018, as described above.

Income from Operations by Segment

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

Percentage Change

(In thousands) November 30, 2019 November 30, 2018 Percentage Change

OpenEdge segment $ 211,720 $ 209,986 1 %

7 unchanged sentences

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Percentage

Interest expense $ (9,913) $ (5,149) 93 %

3 unchanged sentences

As a percentage of total revenue (3) % (2) %

Other (expense) income, net decreased in fiscal year 2018 as compared to fiscal year 2017 primarily due to an increase in foreign currency losses and higher interest expense.

The increase in foreign currency losses is a result of an increase in the cost of forward points relating to our hedging activities, as well as movements in exchange rates and changes in our intercompany receivables and payables denominated in currencies other than local currencies during fiscal year 2018.

Other expense, net, increased in fiscal year 2019 primarily due to an increase in interest expense.

The change in interest expense is a result of an increase in the principal balance of our debt, which was used to fund the Ipswitch acquisition.

Provision for Income Taxes

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Percentage

Provision for income taxes $ 2,095 $ 11,126 (81) %

1 unchanged sentence

Our effective income tax rate was 7% in fiscal year 2019 and 18% in fiscal year 2018.

The primary reason for the decrease in the effective rate was due to enactment of tax reform in the United States that lowered our federal tax rate in fiscal year 2018 to a blended rate of 22.2% as compared to 35.0% in fiscal year 2017.

In addition, during fiscal year 2018 we recorded a $1.7 million income tax benefit for the re-measurement of our U.S.

deferred tax balances.

The primary reason for the decrease in the effective rate was due to the loss incurred by our US operations in fiscal year 2019 resulting from the amortization and impairment of intangibles.

In addition, the majority of our international profits were earned in a jurisdiction with a statutory tax rate of 10%.

Fiscal Year Ended

(In thousands)

November 30, 2018

November 30, 2017

(In thousands) November 30, 2019 November 30, 2018 Percentage

Net income $ 26,400 $ 49,670 (47) %

As a percentage of total revenue 6 % 13 %

1 unchanged sentence

Cash, Cash Equivalents and Short-Term Investments

(In thousands)

(In thousands) November 30,

2020 November 30,

Cash and cash equivalents $ 97,990 $ 154,259

1 unchanged sentence

Total cash, cash equivalents and short-term investments $ 105,995 $ 173,685

The increase in cash, cash equivalents and short-term investments of $34.2 million from the end of fiscal year 2018 was primarily due to proceeds from the issuance of long term debt of $185.0 million, cash inflows from operations of $128.5 million, proceeds from sale of property and equipment of $6.1 million, and $5.0 million in cash received from the issuance of common stock.

These cash inflows were offset by payments for acquisitions, net of cash acquired, of $225.3 million, dividend payments of $27.8 million, repurchases of common stock of $25.0 million, payments of debt obligations in the amount of $6.9 million, the effect of exchange rates on cash of $1.3 million and purchases of property and equipment of $4.0 million.

The decrease in cash, cash equivalents and short-term investments of $67.7 million from the end of fiscal year 2019 was primarily due to payments for acquisitions, net of cash acquired, of $213.1 million, dividend payments of $29.9 million, repurchases of common stock of $60.0 million, payments of debt obligations in the amount of $11.3 million, and purchases of property and equipment of $6.5 million.

These cash outflows were offset by cash inflows from operations of $144.8 million, proceeds from the issuance of long term debt of $98.5 million, $5.8 million in cash received from the issuance of common stock, a positive effect of exchange rates on cash of $3.1 million, and proceeds from sale of intangible assets of $0.9 million.

Except as described below, there are no limitations on our ability to access our cash, cash equivalents and short-term investments.

Cash, cash equivalents and short-term investments held by our foreign subsidiaries was $23.1 million and $35.6 million at November 30, 2019 and 2018 , respectively.

Cash, cash equivalents and short-term investments held by our foreign subsidiaries were $24.7 million and $23.1 million at November 30, 2020 and 2019, respectively.

Foreign cash includes unremitted foreign earnings, which are invested indefinitely outside of the U.S.

3 unchanged sentences

Share Repurchases

In January 2020, our Board of Directors increased the total share repurchase authorization from $75.0 million to $250.0 million.

In fiscal years 2020 and 2019, we repurchased and retired 1.4 million shares of our common stock for $60.0 million and 0.7 million shares of our common stock for $25.0 million, respectively, under this current authorization.

In fiscal year 2018, we repurchased and retired 2.9 million shares of our common stock for $120.0 million.

As of November 30, 2019 , there was $75.0 million remaining under the share repurchase authorization.

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

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

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.

1 unchanged sentence

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.

On September 24, 2020, our Board of Directors approved an additional increase of 6% to our quarterly cash dividend from $0.165 to $0.175 per share of common stock.

We have paid aggregate cash dividends totaling $29.9 million, $27.8 million and $25.8 million for the years ended November 30, 2020, November 30, 2019 and November 30, 2018, respectively.

5 unchanged sentences

These workforce reductions occurred in substantially all functional units and across all geographies in which we then operated.

During the fourth quarter of fiscal year 2017, we incurred additional costs with respect to this restructuring, including the reduction in redundant positions primarily within the product development and sales functions.

We also consolidated offices in various locations.

As part of this fiscal year 2017 restructuring, for the fiscal years ended November 30, 2020 and 2019, we incurred expenses of $0.4 million and $0.7 million, respectively, which are recorded as restructuring expenses on the consolidated statements of operations.

2 unchanged sentences

This restructuring resulted in a reduction in redundant positions, primarily within administrative functions of Ipswitch.

We expect to incur additional expenses as part of this action related to employee costs and facility closures as we consolidate offices in various locations during fiscal year 2020, but we do not expect theses costs to be material.

For the fiscal year ended November 30, 2019 , we incurred expenses of $3.1 million in connection with the restructuring, which are recorded as restructuring expenses in the consolidated statements of operations.

Cash disbursements for expenses incurred to date under this restructuring are expected to be made through fiscal year 2020.

During the fourth quarter of fiscal year 2019, we announced the reduction of our current and ongoing investment level within our cognitive application product lines, which consist primarily of our DataRPM and Kinvey products.

For the fiscal years ended November 30, 2020 and 2019, we incurred expenses of $1.5 million and $3.1 million, respectively, as part of this action related to employee costs and facility closures as we consolidated offices in various locations.

These expenses are recorded as restructuring expenses in the consolidated statements of operations.

We do not expect to incur additional material costs with respect to this restructuring.

This restructuring resulted in a reduction in positions primarily within the sales and product development functions.

For the fiscal year ended November 30, 2019 , we incurred expenses of $2.5 million, in connection with the restructuring, which are recorded as restructuring expenses in the consolidated statements of operations.

Cash disbursements for expenses incurred to date under this restructuring are expected to be made through fiscal year 2020.

For the fiscal years ended November 30, 2020 and 2019, we incurred expenses of $0.1 million and $2.5 million, respectively, in connection with the restructuring, which are recorded as restructuring expenses in the consolidated statements of operations.

We do not expect to incur additional material costs with respect to this restructuring.

1 unchanged sentence

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

During the fourth quarter of fiscal year 2020, we restructured our operations in connection with the acquisition of Chef.

This restructuring resulted in a reduction in redundant positions, primarily within administrative functions of Chef.

For the fiscal year ended November 30, 2020, we incurred expenses of $3.9 million relating to this restructuring.

The expenses are recorded as restructuring expenses in the consolidated statements of operations.

We expect to incur additional expenses as part of this action related to employee costs and facility closures as we consolidate offices in various locations during fiscal year 2021, but we do not expect these costs to be material.

Cash disbursements for expenses incurred to date under this restructuring are expected to be made through fiscal year 2021.

Accordingly, the balance of the restructuring reserve of $3.5 million is included in other accrued liabilities on the consolidated balance sheet at November 30, 2020.

Credit Facility

4 unchanged sentences

We expect to use the revolving credit facility for general corporate purposes, including acquisitions of other businesses, and may also use it for working capital.

The Credit Agreement modified our prior credit facility by extending the maturity date to April 30, 2024 and extending the principal repayments of the term loan.

We borrowed an additional $185.0 million under the term loan as part of this modified credit facility.

The new term loan was used to partially fund our acquisition of Ipswitch in April 2019.

During October 2020, we partially funded our acquisition of Chef by drawing down $98.5 million under the revolving line of credit (Note 7).

The credit facility matures on April 30, 2024, when all amounts outstanding will be due and payable in full.

3 unchanged sentences

The principal repayment amounts are in accordance with the following schedule:

(i) four payments of $1.9 million each, (ii) four payments of $3.8 million each, (iii) four payments of $5.6 million each, (iv) four payments of $7.5 million each, (v) three payments of $9.4 million each, and (vi)

the last payment is of the remaining principal amount.

Any amounts outstanding under the term loan thereafter would be due on the maturity date.

1 unchanged sentence

The average interest rate of the credit facility during the fiscal year ended November 30, 2020 was 2.41% and the interest rate as of November 30, 2020 was 1.81%.

In July 2019, we entered into an interest rate swap contract with an initial notional amount of $150.0 million to manage the variability of cash flows associated with approximately one-half of our variable rate debt.

The contract matures on April 30, 2024 and requires periodic interest rate settlements.

Revolving loans may be borrowed, repaid, and reborrowed until April 30, 2024, at which time all amounts outstanding must be repaid.

As of November 30, 2019 , there were no amounts outstanding under the revolving line and $1.8 million of letters of credit.

The credit facility contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, grant liens, make investments, make acquisitions, incur indebtedness, merge or consolidate, dispose of assets, pay dividends or make distributions, repurchase stock, change the nature of the business, enter into certain transactions with affiliates and enter into burdensome agreements, in each case subject to customary exceptions for a credit facility of this size and type.

As of November 30, 2020, there was $98.5 million outstanding under the revolving line and $2.1 million of letters of credit.

The credit facility contains customary affirmative and negative covenants, in each case subject to customary exceptions for a credit facility of this size and type.

We are also required to maintain compliance with a consolidated fixed charge coverage ratio, a consolidated total leverage ratio and a consolidated senior secured leverage ratio.

2 unchanged sentences

Fiscal Year Ended

(In thousands)

(In thousands) November 30,

2020 November 30,

2019 November 30,

Net income $ 79,722 $ 26,400 $ 49,670

Non-cash reconciling items included in net income 64,534 90,139 68,542

1 unchanged sentence

Net cash flows from operating activities $ 144,847 $ 128,484 $ 121,352

The increase in cash generated from operations in fiscal year 2019 as compared to fiscal year 2018 was primarily due to lower tax payments in fiscal year 2019 compared to fiscal year 2018.

The most significant non-cash reconciling item included in net income in fiscal year 2019 was a $22.7 million intangible asset impairment charge (see Note 4 to the Consolidated Financial Statements in Item 8 of this Form 10-K for further information on the impairment charge).

Cash flows in fiscal year 2019 were particularly strong due to increased collections resulting from the acquisition of Ipswitch, partially offset by increased personnel related expenditures.

Our gross accounts receivable as of November 30, 2019 increased by $13.1 million from the end of fiscal year 2018, which is primarily due to the acquisition of Ipswitch.

Days sales outstanding ("DSO") in accounts receivable increased to 56 days at the end of fiscal year 2019 compared to 47 days at the end of fiscal year 2018, with the increase due to the timing of billings.

The increase in cash generated from operations in fiscal year 2020 as compared to fiscal year 2019 was primarily due to higher operating income.

There were not any significant non-cash reconciling items in fiscal year 2020.

Cash flows in fiscal year 2020 increased significantly due to increased collections resulting from the acquisitions of Ipswitch and Chef, partially offset by increased personnel related expenditures.

Cash flows in fiscal year 2020 also increased due to lower operating expenses primarily as a result of decreased travel and in-person events resulting from the COVID-19 pandemic, as well as cost reductions we implemented within our cognitive application product lines in the fourth quarter of fiscal year 2019.

Our gross accounts receivable as of November 30, 2020 increased by $11.7 million from the end of fiscal year 2019, which is primarily due to the acquisition of Chef, offset by strong collections.

Days sales outstanding ("DSO") in accounts receivable decreased to 54 days at the end of fiscal year 2020 compared to 56 days at the end of fiscal year 2019, with the increase due to the timing of billings.

In addition, our total deferred revenue as of November 30, 2020 increased by $16.0 million from the end of fiscal year 2019.

The significant changes in operating assets and liabilities in fiscal year 2018 as compared to fiscal year 2017 were primarily due to a decrease in personnel related expenditures.

The most significant non-cash reconciling item included in net income in fiscal year 2018 was a $5.1 million loss on assets held for sale (see Note 5 to the Consolidated Financial Statements in Item 8 of this Form 10-K for further information on the impairment charge).

In addition, our gross accounts receivable as of November 30, 2018 decreased by $1.5 million from the end of fiscal year 2017.

DSO in accounts receivable was 47 days at the end of fiscal year 2018 and at the end of fiscal year 2017.

The significant changes in operating assets and liabilities in fiscal year 2019 as compared to fiscal year 2018 were primarily due to an increase in deferred revenue and personnel related expenditures.

In fiscal year 2019 there was a $22.7 million intangible asset impairment charge, which was the most significant non-cash reconciling item included in net income (see Note 4 to the Consolidated Financial Statements in Item 8 of this Form 10-K for further information on the impairment charge).

In fiscal year

2018 there was a non-cash reconciling item included in net income for a $5.1 million loss on assets held for sale (see Note 5 to the Consolidated Financial Statements in Item 8 of this Form 10-K for further information on the impairment charge).

In addition, our gross accounts receivable as of November 30, 2019 increased by $13.1 million from the end of fiscal year 2018, which was primarily due to the acquisition of Ipswitch.

DSO in accounts receivable increased to 56 days at the end of fiscal year 2019 compared to 47 days at the end of fiscal year 2018.

Cash Flows (used in) from Investing Activities

Fiscal Year Ended

(In thousands)

(In thousands) November 30,

2020 November 30,

2019 November 30,

Net investment activity $ 11,392 $ 14,770 $ 14,843

Purchases of property and equipment (6,517) (3,998) (7,250)

Proceeds from sale of property, plant and equipment, net

Proceeds from sale of long-lived assets, net 889 6,146 —

Payments for acquisitions, net of cash acquired (213,057) (225,298) —

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Net cash outflows and inflows of our net investment activity are generally a result of the timing of our purchases and maturities of securities, which are classified as cash equivalents or short-term securities, as well as the timing of acquisitions and divestitures.

Cash used in investing activities increased in fiscal year 2019 as compared to fiscal year 2018.

Most significantly, we acquired Ipswitch for a net cash amount of $225.3 million.

We did not complete any acquisitions during fiscal year 2018, and we acquired DataRPM and Kinvey for a net cash amount of $77.2 million in fiscal year 2017.

Cash used in investing activities was impacted by the acquisition of Chef for a net cash amount of $213.1 million and Ipswitch for a net cash amount of $225.3 million, in fiscal years 2020 and 2019, respectively.

We did not complete any acquisitions during fiscal year 2018.

In addition, we purchased $6.5 million of property and equipment in fiscal year 2020, as compared to $4.0 million in fiscal year 2019 and $7.3 million in fiscal year 2018.

We also sold $6.1 million of certain corporate land and building assets in the second quarter of fiscal year 2019.

We also sold $0.9 million of intangible assets in the fourth quarter of fiscal year 2020 and $6.1 million of certain corporate land and building assets in the second quarter of fiscal year 2019.

Cash Flows from (used in) Financing Activities

Fiscal Year Ended

(In thousands)

(In thousands) November 30,

2020 November 30,

2019 November 30,

Proceeds from stock-based compensation plans $ 11,099 $ 9,265 $ 9,205

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In addition, we made dividend payments of $29.9 million to our stockholders in fiscal year 2020, as compared to dividend payments of $27.8 million and $25.8 million in fiscal years 2019 and 2018, respectively.

Most significantly, we received proceeds from the issuance of debt of $185.0 million in fiscal year 2019 in connection with the acquisition of Ipswitch.

Most significantly, we received proceeds from the issuance of debt of $98.5 million in fiscal year 2020 and $185.0 million in fiscal year 2019 in connection with the acquisitions of Chef and Ipswitch, respectively.

In addition, we repurchased $60.0 million of our common stock under our share repurchase plan in fiscal year 2020, compared to $25.0 million in fiscal year 2019 and $120.0 million in fiscal year 2018.

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Liquidity Outlook

We believe that existing cash balances, together with funds generated from operations and amounts available under our credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next twelve months.

Cash from operations in fiscal year 2021 could be affected by various risks and uncertainties, including, but not limited to, the effects of the pandemic and other risks detailed in Part I, Item 1A titled “Risk Factors.” While the pandemic has not negatively impacted our liquidity and capital resources to date, it has led to increased disruption and volatility in capital markets and credit markets which could adversely affect our liquidity and capital resources in the future.

However, based on our current business plan, we believe that existing cash balances, together with funds generated from operations and amounts available under our credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next twelve months.

We do not contemplate a need for any foreign repatriation of the earnings which are deemed invested indefinitely outside of the U.S.

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Payments Due by Period

Total Less than 1

Years More than 5

Long-term debt:

Principal payments

Interest payments (1)

Long-term debt obligations $ 384,450 $ 18,812 $ 60,201 $ 305,437 $ —

Interest payments on long-term debt (1)

21,984 6,857 12,402 2,725 —

Operating leases 33,981 7,707 14,072 11,327 875

Purchase obligations (2)

8,670 1,664 7,006 — —

Unrecognized tax benefits (3)

Interest on the long-term debt is due and payable monthly and is estimated using the effective interest rate as of November 30, 2019 as the interest rate is variable.

303 303 — — —

Total $ 449,388 $ 35,343 $ 93,681 $ 319,489 $ 875

(1) Interest on our long-term debt is due and payable monthly and is estimated using the effective interest rate as of November 30, 2020 as the interest rate is variable.

See Note 8 to our Consolidated Financial Statements in Item 8 of this Form 10-K for additional information.

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As of November 30, 2020 , we had unrecognized tax benefits of $6.2 million and an additional $0.4 million for interest and penalties classified as noncurrent liabilities.

At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities;

Currently, we are only able to estimate a FY21 payment of $0.3 million related to an audit settlement.

For the remaining balance we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities;

therefore, such amounts are not included in the above contractual obligation table.

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We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities.

We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances.

We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances.

However, actual results may differ from these estimates.

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Revenue Recognition

We derive our revenue primarily from software licenses and maintenance and services.

Our license arrangements generally contain multiple performance obligations, including software maintenance services.

Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

When an arrangement contains multiple performance obligations, we account for individual performance obligations separately if they are distinct.

We recognize revenue through the application of the following steps:

(i) identification of the contract(s) with a customer;

(ii) identification of the performance obligations in the contract;

determination of the transaction price;

(iv) allocation of the transaction price to performance obligations in the contract;

and (v) recognition of revenue when or as we satisfy the performance obligations.

Sales taxes collected from customers and remitted to government authorities are excluded from revenue and we do not license our software with a right of return.

Software Licenses

Software licenses are on-premise and fully functional when made available to the customer.

As the customer can use and benefit from the license on its own, on-premise software licenses represent distinct performance obligations.

Revenue is recognized upfront at the point in time when control is transferred, which is defined as the point in time when the client can use and benefit from the license.

Our contracts with customers typically include promises to license one or more products and services to a customer.

Determining whether products and services are distinct performance obligations that should be accounted for separately requires significant judgment.

Significant judgment is also required to determine the stand-alone selling price ("SSP") of each distinct performance obligation.

Our licenses are sold as perpetual or term licenses, and the arrangements typically contain various combinations of maintenance and services, which are generally accounted for as separate performance obligations.

We use the residual approach to allocate the transaction price to our software license performance obligations because, due to the pricing of our licenses being highly variable, they do not have an observable stand-alone selling price ("SSP").

As required, we evaluate the residual approach estimate compared to all available observable data in order to conclude the estimate is representative of its SSP.

Perpetual licenses are generally invoiced upon execution of the contract and payable within 30 days.

Term licenses are generally invoiced in advance on an annual basis over the term of the arrangement, which is typically one to three years.

Any difference between the revenue recognized and the amount invoiced to the customer is recognized on our consolidated balance sheets as unbilled receivables until the customer is invoiced, at which point the amount is reclassified to accounts receivable.

Maintenance revenue is made up of technical support, bug fixes, and when-and-if available unspecified software upgrades.

As these maintenance services are considered to be a series of distinct services that are substantially the same and have the same duration and measure of progress, we have concluded that they represent one combined performance obligation.

Revenue is recognized ratably over the contract period.

The SSP of maintenance services is a percentage of the net selling price of the related software license, which has remained within a tight range and is consistent with the stand-alone pricing of subsequent maintenance renewals.

Maintenance services are generally invoiced in advance on an annual basis over the term of the arrangement, which is typically one to three years.

Services revenue primarily includes consulting and customer education services.

In general, services are distinct performance obligations.

Services revenue is generally recognized as the services are delivered to the customer.

We apply the practical expedient of recognizing revenue upon invoicing for time and materials-based arrangements as the invoiced amount corresponds to the value of the services provided.

Maintenance revenue is recognized ratably over the contract period.

The SSP of maintenance services is a percentage of the net selling price of the related software license.

Professional services revenue is generally recognized as the services are delivered to the customer.

We apply the practical expedient of recognizing revenue upon invoicing for time and materials-based arrangements.

The SSP of services is based upon observable prices in similar transactions using the hourly rates sold in stand-alone services transactions.

Services are either sold on a time and materials basis or prepaid upfront.

We also offer products via a software-as-a-service ("SaaS") model, which is a subscription-based model.

Our customers can use hosted software over the contract period without taking possession of it and the cloud services are available to them throughout the entire term, even if they do not use the service.

Revenue related to SaaS offerings is recognized ratably over the contract period.

Revenue related to software-as-a-service ("SaaS") offerings is recognized ratably over the contract period.

The SSP of SaaS performance obligations is determined based upon observable prices in stand-alone SaaS transactions.

SaaS arrangements are generally invoiced in advance on a monthly, quarterly, or annual basis over the term of the arrangement, which is typically one to three years.

Arrangements with Multiple Performance Obligations

When an arrangement contains multiple performance obligations, we account for individual performance obligations separately if they are distinct.

We allocate the transaction price to each performance obligation in a contract based on its relative SSP.

Although we do not have a history of offering these elements, prior to allocating the transaction price to each performance obligation, we consider whether the arrangement has any discounts, material rights, or specified future upgrades that may represent additional performance obligations.

Determining whether products and services are distinct performance obligations and the determination of the SSP may require significant judgment.

Contract Balances

Unbilled Receivables and Contract Assets

The timing of revenue recognition may differ from the timing of customer invoicing.

When revenue is recognized prior to invoicing and the right to the amount due from customers is conditioned only on the passage of time, we record an unbilled receivable on our consolidated balance sheets.

Our multi-year term license arrangements, which are typically billed annually, result in revenue recognition in advance of invoicing and the recognition of unbilled receivables.

Contract assets arise when revenue is recognized prior to invoicing and the right to the amount due from customers is conditioned on something other than the passage of time, such as the completion of a related performance obligation.

These amounts are included in unbilled receivables or long-term unbilled receivables on our consolidated balance sheets.

Deferred Revenue

Deferred revenue is recorded when revenue is recognized subsequent to customer invoicing.

Deferred revenue expected to be recognized as revenue more than one year subsequent to the balance sheet date is included in long-term liabilities on the consolidated balance sheets.

We also consider whether an arrangement has any discounts, material rights, or specified future upgrades that may represent additional performance obligations, although we do not have a history of offering these elements.

Goodwill and Intangible Asset Impairment

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We consider whether a reporting unit exists within a reportable segment based on the availability of discrete financial information that is regularly reviewed by segment management.

Our three reporting units were OpenEdge, Data Connectivity and Integration, and Application Development and Deployment as of November 30, 2019 .

As of November 30, 2020, our three reporting units were OpenEdge, Data Connectivity and Integration, and Application Development and Deployment

During fiscal year 2020, we tested goodwill for impairment for each of our reporting units as of October 31, 2020.

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Income Tax Accounting

We have a net deferred tax asset of $18.6 million at November 30, 2019 .

We had a net deferred tax asset of $14.5 million at November 30, 2020.

We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized.

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Stock-Based Compensation

We recognize stock-based compensation based on the fair value of stock-based awards, less the present value of expected dividends, measured at the date of grant.

We recognize stock-based compensation expense based on the fair value of stock-based awards, less the present value of expected dividends when applicable, measured at the date of grant.

Stock-based compensation is recognized over the requisite service period, which is generally the vesting period of the award, and is adjusted each period for actual forfeitures.

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The expected dividend yield is based on our historical behavior and future expectations of dividend declarations.

Restructuring Charges

We periodically record restructuring charges resulting from restructuring our operations (including consolidations and/or relocations of operations), changes to our strategic plan, or managerial responses to declines in demand, increasing costs, or other market factors.

The determination of restructuring charges requires management judgment and may include costs related to employee benefits, such as costs of severance and termination benefits, and estimates of costs for future lease commitments on excess facilities, net of estimated future sublease income.

In determining the amount of the facilities charge, we are required to estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates.

These estimates are reviewed quarterly based on known real estate market conditions and the credit-worthiness of subtenants, and may result in revisions to established facility reserves.

Business Combinations

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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 7. Management’s Discussion and Analysis