What changed in this filing

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Item 1. Financial Statements

2021-04-05 compared with 2020-10-08 · 147 added, 265 removed, 494 unchanged (45% of the section changed)

1 unchanged sentence

Condensed Consolidated Balance Sheets

(In thousands, except share data) August 31, 2020 November 30, 2019

(In thousands, except share data) February 28, 2021 November 30, 2020

Current assets:

12 unchanged sentences

Deferred tax assets 13,613 14,490

Operating lease right-of-use assets 24,011 —

Right-of-use lease assets 31,265 30,635

Other assets 4,650 6,299

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Condensed Consolidated Statements of Operations

Three Months Ended Nine Months Ended

(In thousands, except per share data) August 31, 2020 August 31, 2019 August 31, 2020 August 31, 2019

Three Months Ended

(In thousands, except per share data) February 28, 2021 February 29, 2020

Software licenses $ 33,317 $ 30,629

22 unchanged sentences

Income before income taxes 24,764 27,315

Provision (benefit) for income taxes 6,254 ( 1,315 ) 17,947 6,932

Provision for income taxes 5,803 6,199

Net income $ 18,961 $ 21,116

8 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended Nine Months Ended

(In thousands) August 31, 2020 August 31, 2019 August 31, 2020 August 31, 2019

Three Months Ended

(In thousands) February 28, 2021 February 29, 2020

Net income $ 18,961 $ 21,116

1 unchanged sentence

Foreign currency translation adjustments 1,225 ( 1,208 )

Unrealized gain (loss) on hedging activity, net of tax provision of $ 166 and tax benefit of $ 1,302 for the third quarter and first nine months of 2020, respectively, and of tax provision of $ 820 for the third quarter and first nine months of 2019

58 ( 2,528 ) ( 4,106 ) ( 2,528 )

Unrealized gain on investments, net of tax benefit of $ 42 and tax provision of $ 3 for the third quarter and first nine months of 2020, respectively, and $ 6 and $ 54 for the third quarter and first nine months of 2019, respectively

Unrealized gain (loss) on hedging activity, net of tax provision of $ 271 and tax benefit of $ 708 for the first quarter of 2021 and 2020, respectively

837 ( 2,106 )

Unrealized gain on investments, net of tax benefit of $ 42 and tax provision of $ 4 for the first quarter of 2021 and 2020, respectively

Total other comprehensive income (loss), net of tax 2,076 ( 3,243 )

2 unchanged sentences

Condensed Consolidated Statements of Shareholders’ Equity

Nine Months Ended August 31, 2020

Three Months Ended February 28, 2021

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity

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Other comprehensive loss — — — — 2,076 2,076

Balance, August 31, 2020 45,101 $ 451 $ 310,891 $ 90,425 $ ( 33,601 ) $ 368,166

Three Months Ended August 31, 2020

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity

(in thousands) Number of Shares Amount

Balance, June 1, 2020 45,033 $ 450 $ 303,832 $ 73,923 $ ( 38,244 ) $ 339,961

Issuance of stock under employee stock purchase plan 54 1 1,472 — — 1,473

Exercise of stock options 2 — 79 — — 79

Vesting of restricted stock units and release of deferred stock units 12 — — — — —

Withholding tax payments related to net issuance of restricted stock units — — ( 177 ) — — ( 177 )

Stock-based compensation — — 5,685 — — 5,685

Dividends declared — — — ( 7,475 ) — ( 7,475 )

Net income — — — 23,977 — 23,977

Other comprehensive income — — — — 4,643 4,643

Balance, August 31, 2020 45,101 $ 451 $ 310,891 $ 90,425 $ ( 33,601 ) $ 368,166

Condensed Consolidated Statements of Shareholders’ Equity (cont.)

Nine Months Ended August 31, 2019

Balance, February 28, 2021 44,000 $ 440 $ 311,697 $ 71,118 $ ( 30,702 ) $ 352,553

Three Months Ended February 29, 2020

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity

6 unchanged sentences

Stock-based compensation — — 6,051 — — 6,051

Issuance of shares related to non-compete agreement (Note 6) 44 — 2,000 — — 2,000

Adjustment due to adoption of ASU 2016-16 — — — 4,781 — 4,781

Dividends declared — — — ( 7,435 ) — ( 7,435 )

2 unchanged sentences

Other comprehensive loss — — — — ( 3,243 ) ( 3,243 )

Balance, August 31, 2019 44,786 $ 448 $ 289,040 $ 76,486 $ ( 33,022 ) $ 332,952

Three Months Ended August 31, 2019

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity

(in thousands) Number of Shares Amount

Balance, June 1, 2019 44,723 $ 448 $ 281,745 $ 61,744 $ ( 28,590 ) $ 315,347

Issuance of stock under employee stock purchase plan 42 — 1,242 — — 1,242

Exercise of stock options 20 — 563 — — 563

Vesting of restricted stock units and release of deferred stock units 1 — — — — —

Stock-based compensation — — 5,490 — — 5,490

Out-of-period correction to adoption of ASU 2016-16 — — — 8,178 — 8,178

Dividends declared — — — ( 6,993 ) — ( 6,993 )

Net income — — — 13,557 — 13,557

Other comprehensive loss — — — — ( 4,432 ) ( 4,432 )

Balance, August 31, 2019 44,786 $ 448 $ 289,040 $ 76,486 $ ( 33,022 ) $ 332,952

Balance, February 29, 2020 44,769 $ 448 $ 296,251 $ 64,475 $ ( 33,217 ) $ 327,957

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

(In thousands) August 31, 2020 August 31, 2019

Three Months Ended

(In thousands) February 28, 2021 February 29, 2020

Cash flows from operating activities:

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Purchases of property and equipment ( 1,166 ) ( 1,148 )

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

Proceeds from sale of property, plant and equipment, net — 6,146

Net cash flows from (used in) investing activities 6,473 ( 208,102 )

Cash flows (used in) from financing activities:

Decrease in escrow receivable 2,130 —

Net cash flows from investing activities 2,264 2,360

Cash flows from (used in) financing activities:

Proceeds from stock-based compensation plans 3,485 4,245

2 unchanged sentences

Dividend payments to shareholders ( 7,854 ) ( 7,468 )

Proceeds from the issuance of debt — 184,984

Payment of principle on long-term debt ( 7,525 ) ( 3,427 )

Payment of issuance costs for long-term debt — ( 1,611 )

Net cash flows (used in) from financing activities ( 44,928 ) 138,837

Payment of principal on long-term debt ( 18,763 ) ( 1,882 )

Net cash flows used in financing activities ( 39,024 ) ( 27,054 )

Effect of exchange rate changes on cash 1,780 ( 1,487 )

3 unchanged sentences

Condensed Consolidated Statements of Cash Flows, continued

Nine Months Ended

August 31, 2020 August 31, 2019

Three Months Ended

February 28, 2021 February 29, 2020

Supplemental disclosure:

8 unchanged sentences

Basis of Presentation

Company Overview - 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.

Company Overview - 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 stack is 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 3 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.

Application partners are ISVs that 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.

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

OEMs are companies that embed our products into their own software products or devices.

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Basis of Presentation and Significant Accounting Policies - We prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting.

Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements and these unaudited financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2019 ("2019 10-K").

We made no material changes in the application of our significant accounting policies that were disclosed in our 2020 10-K.

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fair values of investments in marketable securities;

assets held for sale;

intangible assets and goodwill valuations;

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Recently Adopted Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12").

ASU 2017-12 intends to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.

The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.

We adopted this standard at the beginning of the first quarter of fiscal year 2020;

however, our existing accounting aligned with the guidance of ASU 2017-12 and therefore there was no impact to our financial statements from adoption.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) ("ASC 842").

ASC 842 supersedes the requirements in Topic 840, Leases , and requires lessees to recognize right-of-use ("ROU") assets and liabilities for leases with lease terms of more than twelve months.

ASC 842 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018.

We adopted ASC 842 effective December 1, 2019 using the modified retrospective transition method of applying the new standard at the adoption date.

Results for reporting periods beginning on or after December 1, 2019 are presented under the new guidance, while prior period amounts have not been adjusted and continue to be reported in accordance with previous guidance.

Disclosures required under the new standard will not be provided for dates and periods before December 1, 2019.

The new standard provided a number of optional practical expedients in transition.

We elected the transition package of practical expedients available in the standard, which allowed the carry forward of historical assessments of whether a contract contains a lease, lease classification and initial direct costs.

We also elected the practical expedient provided in ASC 842 to not separate lease components from non-lease components for each material underlying asset class:

office leases, vehicle leases and equipment leases.

For each lease, the non-lease components and related lease components are accounted for as a single lease component.

Items or activities that do not transfer goods or services to the lessee, such as administrative tasks to set up the contract and reimbursement or payment of lessor costs, are not components of the contract and therefore no contract consideration is allocated to such items or activities.

We did not elect the hindsight practical expedient to determine the lease term for existing leases.

The adoption of the new standard also resulted in significant additional disclosures regarding our leasing activities.

Refer to Note 8 for further details.

Recently Issued Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued Accounting Standards Update No.

2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment ("ASU 2017-04").

ASU 2017-04 amends Topic 350 to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.

This update requires the performance of an annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value.

However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

The guidance in ASU 2017-04 is required for annual reporting periods beginning after December 15, 2019, with early adoption permitted.

Upon adoption, we do not expect this update to have a material effect on our consolidated financial position and results of operations.

Financial Instruments - Credit Losses

In June 2016, the FASB issued Accounting Standards Update No.

2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU 2016-13").

ASU 2016-13 changes the impairment model for most financial assets and certain other instruments.

Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, contract assets, held-to-maturity debt securities, loans, and other instruments.

ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019.

Early adoption is permitted.

We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model.

Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the amortized cost of the asset, removing the concept of "other-than-temporary" impairments.

The Company adopted this standard effective December 1, 2020.

The adoption of this standard did not have a material effect on the Company’s condensed consolidated financial statements.

Cash, Cash Equivalents and Investments

A summary of our cash, cash equivalents and available-for-sale investments at August 31, 2020 is as follows (in thousands):

A summary of our cash, cash equivalents and available-for-sale investments at February 28, 2021 is as follows (in thousands):

Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value

8 unchanged sentences

Money market funds 18,964 — — 18,964

State and municipal bond obligations 7,036 1 — 7,037

treasury bonds 4,993 58 — 5,051

2 unchanged sentences

Such amounts are classified on our condensed consolidated balance sheets as follows (in thousands):

August 31, 2020 November 30, 2019

February 28, 2021 November 30, 2020

Cash and Equivalents Short-Term Investments Cash and Equivalents Short-Term Investments

1 unchanged sentence

Money market funds 20,295 — 18,964 —

State and municipal bond obligations — — — 7,037

treasury bonds — 4,535 — 5,051

2 unchanged sentences

The fair value of debt securities by contractual maturity is as follows (in thousands):

August 31, 2020 November 30, 2019

February 28, 2021 November 30, 2020

Due in one year or less $ 4,676 $ 5,998

3 unchanged sentences

treasury bonds and corporate bonds, which are securities representing investments available for current operations and are classified as current on the condensed consolidated balance sheets.

We did not hold any investments with continuous unrealized losses as of August 31, 2020 or November 30, 2019.

We did not hold any investments with continuous unrealized losses as of February 28, 2021 or November 30, 2020.

Derivative Instruments

6 unchanged sentences

Although we have determined at the onset of the hedge that the interest rate swap will be a highly effective hedge throughout the term of the contract, any portion of the fair value swap subsequently determined to be ineffective will be recognized in earnings.

As of August 31, 2020 and November 30, 2019, the fair value of the hedge was a loss of $ 7.5 million and $ 2.1 million, respectively, which was included in other noncurrent liabilities on our condensed consolidated balance sheets.

As of February 28, 2021 , the fair value of the hedge was a loss of $ 5.7 million, which was included in other noncurrent liabilities on our condensed consolidated balance sheets.

The following table presents our interest rate swap contract where the notional amount reflects the quarterly amortization of the interest rate swap, which is equal to approximately one-half of the corresponding reduction in the balance of our term loan as we make scheduled principal payments.

The fair value of the derivative represents the discounted value of the expected future discounted cash flows for the interest rate swap, based on the amortization schedule and the current forward curve for the remaining term of the contract, as of the date of each reporting period (in thousands):

August 31, 2020 November 30, 2019

February 28, 2021 November 30, 2020

Notional Value Fair Value Notional Value Fair Value

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All forward contracts are recorded at fair value on the consolidated balance sheets at the end of each reporting period and expire between 30 days and two years from the date the contract was entered.

At August 31, 2020, $ 1.4 million and $ 0.5 million was recorded in other assets and other current assets, respectively, on our condensed consolidated balance sheets.

At November 30, 2019, $ 0.1 million was recorded in other noncurrent liabilities on our condensed consolidated balance sheets.

In the three and nine months ended August 31, 2020, realized and unrealized gains of $ 4.5 million and $ 2.1 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations.

In the three and nine months ended August 31, 2019, realized and unrealized losses of $ 1.6 million and $ 2.9 million, respectively, from our forward contracts were recognized in foreign currency loss, net on our condensed consolidated statements of operations.

At February 28, 2021, $ 2.3 million was recorded in other current assets on our condensed consolidated balance sheets.

At November 30, 2020, $ 1.4 million was recorded in other assets on our condensed consolidated balance sheets.

In the three months ended February 28, 2021 and February 29, 2020, realized and unrealized gains of $ 1.7 million and losses of $ 0.6 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations.

These gains and losses were substantially offset by realized and unrealized losses and gains on the offsetting positions.

The table below details outstanding foreign currency forward contracts where the notional amount is determined using contract exchange rates (in thousands):

August 31, 2020 November 30, 2019

February 28, 2021 November 30, 2020

Notional Value Fair Value Notional Value Fair Value

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Recurring Fair Value Measurements

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at August 31, 2020 (in thousands):

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at February 28, 2021 (in thousands):

Fair Value Measurements Using

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Money market funds $ 18,964 $ 18,964 $ — $ —

State and municipal bond obligations 7,037 — 7,037 —

treasury bonds 5,051 — 5,051 —

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In certain cases where market rate assumptions are not available, we are required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument.

We did not have any nonrecurring fair value measurements as of August 31, 2020.

We did not have any nonrecurring fair value measurements as of February 28, 2021.

Intangible Assets and Goodwill

1 unchanged sentence

Intangible assets are comprised of the following significant classes (in thousands):

August 31, 2020 November 30, 2019

February 28, 2021 November 30, 2020

Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value

4 unchanged sentences

Total $ 437,268 $ ( 234,921 ) $ 202,347 $ 437,268 $ ( 224,521 ) $ 212,747

In the three and nine months ended August 31, 2020, amortization expense related to intangible assets was $ 5.8 million and $ 17.5 million, respectively.

In the three and nine months ended August 31, 2019, amortization expense related to intangible assets was $ 14.5 million and $ 33.8 million, respectively.

Future amortization expense for intangible assets as of August 31, 2020, is as follows (in thousands):

In the first quarter of fiscal years 2021 and 2020, amortization expense related to intangible assets was $ 10.4 million and $ 5.8 million, respectively.

Future amortization expense for intangible assets as of February 28, 2021, is as follows (in thousands):

Remainder of 2021 $ 34,491

Thereafter 25,484

Total $ 202,347

Changes in the carrying amount of goodwill in the nine months ended August 31, 2020 are as follows (in thousands):

Changes in the carrying amount of goodwill in the three months ended February 28, 2021 are as follows (in thousands):

Balance, November 30, 2020 $ 491,726

Measurement period adjustments (1)

Translation adjustments ( 25 )

Balance, August 31, 2020 $ 431,864

(1) Represents final measurement period adjustments related to our Ipswitch acquisition (Note 6)

Changes in the goodwill balances by reportable segment in the nine months ended August 31, 2020 are as follows (in thousands):

November 30, 2019 Measurement Period Adjustments Translation adjustments August 31, 2020

Balance, February 28, 2021 $ 491,701

Changes in the goodwill balances by reportable segment in the three months ended February 28, 2021 are as follows (in thousands):

November 30, 2020 Translation adjustments February 28, 2021

OpenEdge $ 365,863 $ ( 25 ) $ 365,838

2 unchanged sentences

Total goodwill $ 491,726 $ ( 25 ) $ 491,701

During the quarter ending August 31, 2020, no triggering events occurred that would indicate that it is more likely than not that the carrying values of any of our reporting units exceeded their fair values.

During the quarter ending February 28, 2021, no triggering events occurred that would indicate that it is more likely than not that the carrying values of any of our reporting units exceeded their fair values.

Business Combinations

Ipswitch Acquisition

On April 30, 2019, we completed the acquisition of all of the outstanding equity interests of Ipswitch, Inc.

(“Ipswitch”) from Roger Greene (the “Seller”) pursuant to the Stock Purchase Agreement, dated as of March 28, 2019, by and among Progress, Ipswitch and the Seller.

The acquisition was completed for an aggregate purchase price of $ 225.0 million, subject to certain customary adjustments as further described in the Stock Purchase Agreement, which was paid in cash.

Pursuant to the Stock Purchase Agreement, $ 22.5 million of the purchase price was deposited into an escrow account to secure certain indemnification and other potential obligations of the Seller to Progress.

This escrow was released in full in May 2020 upon expiration of the twelve-month escrow period.

The Seller also received an award of approximately $ 2.0 million in Progress restricted stock as consideration for the Seller entering into a non-competition agreement for three years as set forth in the Stock Purchase Agreement.

Ipswitch enables approximately 24,000 small and medium-sized businesses and enterprises to provide secure data sharing and ensure high-performance infrastructure availability.

Through this acquisition, we bolstered our core offerings to small and medium-sized businesses and enterprises, enabling those businesses to respond faster to business demands and to improve productivity.

We funded the acquisition through a combination of existing cash resources and a $ 185.0 million term loan, which is part of our $ 401.0 million term loan and revolving line of credit (Note 7).

The purchase price has been allocated to Ipswitch’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values.

Chef Acquisition

On October 5, 2020, we completed the acquisition of Chef Software Inc.

(“Chef”) pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 4, 2020.

The acquisition was completed for a base purchase price of $ 220.0 million, subject to certain customary adjustments as further described in the Merger Agreement (the “Aggregate Consideration”), which was paid in cash.

Pursuant to the Merger Agreement, $ 12.0 million of the Aggregate Consideration was deposited into an escrow account to secure certain indemnification and other potential obligations of the former Chef equity holders.

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

Chef has enhanced our position as a trusted provider of the best products to develop, deploy and manage high-impact business applications by providing industry-leading compliance and application automation products for multi-cloud and on-prem infrastructure.

The acquisition bolstered our core offerings, enabling customers to respond faster to business demands and improve efficiency.

We funded the acquisition through a combination of existing cash resources and by drawing down $ 98.5 million from our existing revolving credit facility (Note 7).

The Aggregate Consideration has been allocated to Chef’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values.

The preliminary fair value estimates of the net assets acquired are based upon preliminary calculations and valuations, and those estimates and assumptions are subject to change as we obtain additional information for those estimates during the measurement period (up to one year from the acquisition date).

The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill.

We recorded measurement period adjustments in accordance with FASB’s guidance regarding business combinations in the fourth quarter of fiscal year 2019 and the second quarter of fiscal year 2020 based on our valuation and purchase price allocation procedures.

The measurement period adjustments, which were completed during the second quarter of fiscal year 2020, resulted in a decrease to goodwill of $ 0.6 million, primarily due to a decrease to the sales tax reserve, partially offset by increased accrued expenses.

The following table discloses the net assets acquired in the business combination (in thousands):

Initial Purchase Price Allocation Measurement Period Adjustments Final Purchase Price Allocation Life

The allocation of the purchase price is as follows (in thousands):

Net working capital $ 52,330

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Other assets 122

Other noncurrent liabilities ( 841 )

Lease liabilities, net ( 1,810 )

Deferred taxes ( 7,817 )

Deferred revenue ( 12,525 )

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Net assets acquired $ 231,115

The fair value of the intangible assets has been estimated using the income approach in which the after-tax cash flows are discounted to present value.

The fair value of the intangible assets was estimated using the income approach in which the after-tax cash flows are discounted to present value.

The cash flows are based on estimates used to value the acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital.

The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence, and revenue growth projections.

Based on the valuation, the acquired intangible assets are comprised of customer relationships of approximately $ 66.6 million, existing technology of approximately $ 33.1 million, and trade names of approximately $ 9.6 million.

The valuation assumptions take into consideration our estimates of customer attrition, technology obsolescence, and revenue growth projections.

Tangible assets acquired and assumed liabilities were recorded at fair value.

The valuation of the assumed deferred revenue was based on our contractual commitment to provide post-contract customer support to Ipswitch customers and future contractual performance obligations under existing hosting arrangements.

The valuation of the assumed deferred revenue was based on our contractual commitment to provide post-contract customer support to Chef customers and future contractual performance obligations under existing hosting arrangements.

The fair value of this assumed liability was based on the estimated cost plus a reasonable margin to fulfill these service obligations.

A significant portion of the deferred revenue was recognized in the 12 months following the acquisition.

A significant portion of the deferred revenue is expected to be recognized in the 12 months following the acquisition.

We recorded the excess of the purchase price over the identified tangible and intangible assets as goodwill.

We believe that the investment value of the future enhancement of our product offerings created as a result of this acquisition has principally contributed to a purchase price that resulted in the recognition of $ 117.0 million of goodwill, which is deductible for tax purposes.

An election was made under Section 338(h)(10) of the Internal Revenue Code for Ipswitch to treat the transaction as a sale all of its assets on the acquisition date and subsequent liquidation.

As a result, the identifiable intangible assets and goodwill are deductible for tax purposes.

As previously noted, the Seller received a restricted stock award of approximately $ 2.0 million, subject to continued compliance with the three-year non-compete agreement.

We concluded that the restricted stock award is not a compensation arrangement and we recorded the fair value of the award as an intangible asset separate from goodwill.

We will recognize intangible asset amortization expense over the term of the agreement, which is 3 years.

We recorded $ 0.5 million of amortization expense related to this restricted stock award for the nine months ended August 31, 2020 in operating expenses on our condensed consolidated statement of operations.

We believe that the investment value of the future enhancement of our product and solution offerings created as a result of this acquisition has

principally contributed to a purchase price that resulted in the recognition of $ 59.9 million of goodwill, which is not deductible for tax purposes.

Acquisition-related transaction costs (e.g., legal, due diligence, valuation, and other professional fees) and certain acquisition restructuring and related charges are not included as a component of consideration transferred but are required to be expensed as incurred.

During the three and nine months ended August 31, 2020, we incurred approximately $ 0.1 million and $ 0.4 million of acquisition-related costs, respectively, which are included in acquisition-related expenses on our condensed consolidated statement of operations.

The operations of Ipswitch are included in our operating results as part of the OpenEdge segment from the date of acquisition.

The amount of revenue of Ipswitch included in our unaudited condensed consolidated statement of operations during each of the three and nine months ended August 31, 2020 was approximately $ 17.6 million and $ 50.1 million, respectively.

The amount of revenue of Ipswitch included in our unaudited condensed consolidated statement of operations during the three and nine months ended August 31, 2019 was approximately $ 10.7 million and $ 14.0 million, respectively.

We determined that disclosing the amount of Ipswitch related earnings included in the consolidated statements of operations is impracticable, as certain operations of Ipswitch were integrated into the operations of the Company from the date of acquisition.

During the three months ended February 28, 2021, we incurred approximately $ 0.4 million of acquisition-related costs, which are included in acquisition-related expenses on our consolidated statement of operations.

The operations of Chef are included in our operating results as part of the Application Development and Deployment business segment from the date of acquisition.

The amount of revenue of Chef included in our consolidated statement of operations during the three months ended February 28, 2021 was approximately $ 12.0 million.

We determined that disclosing the amount of Chef related earnings included in the consolidated statements of operations is impracticable, as certain operations of Chef were integrated into the operations of the Company from the date of acquisition.

Pro Forma Information

The following pro forma financial information presents the combined results of operations of Progress and Ipswitch as if the acquisition had occurred on December 1, 2017 after giving effect to certain pro forma adjustments.

The pro forma adjustments reflected below include only those adjustments that are directly attributable to the Ipswitch acquisition and factually supportable.

These pro forma adjustments include (i) a decrease in revenue from Ipswitch due to the beginning balance of deferred revenue being adjusted to reflect the fair value of the acquired balance, (ii) a net increase in amortization expense to record amortization expense for the $ 111.3 million of acquired identifiable intangible assets and to eliminate historical amortization of Ipswitch intangible assets, (iii) an increase in interest expense to record interest for the period presented as a result of the new credit facility entered into by Progress in connection with the acquisition, and (iv) the income tax effect of the adjustments made at the statutory tax rate of the U.S.

The following pro forma financial information presents the combined results of operations of Progress and Chef as if the acquisition had occurred on December 1, 2018, after giving effect to certain pro forma adjustments.

The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the Chef acquisition and factually supportable.

These pro forma adjustments include (i) a decrease in revenue from Chef due to the beginning balance of deferred revenue being adjusted to reflect the fair value of the acquired balance, (ii) a net increase in amortization expense to record amortization expense for the $ 141.3 million of acquired identifiable intangible assets, (iii) an increase in interest expense to record interest for the period presented as a result of drawing down our revolving credit facility in connection with the acquisition, and (iv) the income tax effect of the adjustments made at the statutory tax rate of the U.S.

(approximately 24.5 %).

In addition, prior to the acquisition Ipswitch did not pay entity level corporate tax, with the exception of some states, because it was registered as an S-Corporation.

Therefore, we applied the statutory tax rate of the U.S.

(approximately 24.5 %) to the income before tax of Ipswitch as if the acquisition had occurred on December 1, 2017.

The pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on December 1, 2018.

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(In thousands, except per share data) Pro Forma

Nine Months Ended August 31, 2019

Three Months Ended February 29, 2020

Revenue $ 123,690

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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 (Note 6) and we expect to use the revolving line of credit for general corporate purposes, which may include acquisitions of other businesses, and may also use it for working capital.

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 6).

Interest rates for the term loan and revolving line of credit are based upon our leverage ratio and determined based on an index selected at our option.

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A quarterly commitment fee on the undrawn portion of the revolving line of credit is required and ranges from 0.25 % to 0.35 % per annum based on our leverage ratio.

The interest rate as of August 31, 2020 was 1.81 %.

The interest rate as of February 28, 2021 was 1.75 %.

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

The revolving line of credit does not require amortization of principal.

The outstanding balance of the term loan as of August 31, 2020 was $ 289.7 million, with $ 16.9 million due in the next 12 months.

The outstanding balance of the term loan as of February 28, 2021 was $ 282.2 million, with $ 20.7 million due in the next 12 months.

The term loan requires repayment of principal at the end of each fiscal quarter, beginning with the fiscal quarter ended August 31, 2019.

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The term loan may be prepaid before maturity in whole or in part at our option without penalty or premium.

As of August 31, 2020, the carrying value of the term loan approximates the fair value, based on Level 2 inputs (observable market prices in less than active markets), as the interest rate is variable over the selected interest period and is similar to current rates at which we can borrow funds.

Costs incurred to obtain our long-term debt of $ 1.6 million, along with $ 1.2 million of unamortized debt issuance costs related to the previous credit agreement, are recorded as debt issuance costs as a direct deduction from the carrying value of the debt liability on our condensed consolidated balance sheets as of August 31, 2020.

As of February 28, 2021, the carrying value of the term loan approximates the fair value, based on Level 2 inputs (observable market prices in less than active markets), as the interest rate is variable over the selected interest period and is similar to current rates at which we can borrow funds.

These costs are being amortized over the term of the debt agreement using the effective interest rate method.

Amortization expense related to the debt issuance costs was $ 0.1 million for each of the three months ended August 31, 2020 and August 31, 2019.

Amortization expense related to the debt issuance costs was $ 0.4 million and $ 0.3 million for the nine months ended August 31, 2020 and August 31, 2019, respectively.

These amounts are recorded in interest expense on our condensed consolidated statements of operations.

Amortization expense related to the debt issuance costs was $ 0.1 million for each of the three months ended February 28, 2021 and February 29, 2020 is recorded in interest expense on our condensed consolidated statements of operations.

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

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We may prepay the loans or terminate or reduce the commitments in whole or in part at any time, without premium or penalty, subject to certain conditions and reimbursement of certain costs in the case of Eurocurrency rate loans.

As of August 31, 2020, there were no amounts outstanding under the revolving line of credit and $ 1.9 million of letters of credit outstanding.

On October 5, 2020, we completed the acquisition of Chef Software and funded the purchase price, in part, by drawing down $ 98.5 million under the revolving line of credit (Note 17).

During October 2020, we partially funded our acquisition of Chef by drawing down $ 98.5 million under the revolving line of credit (Note 6).

During the first fiscal quarter of 2021, we paid down $ 15.0 million on the revolving line of credit.

As of February 28, 2021, there was $ 83.5 million outstanding under the revolving line of credit and $ 2.1 million of letters of credit outstanding.

We are the sole borrower under the credit facility.

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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.

As of August 31, 2020, aggregate principal payments of long-term debt for the next five years are (in thousands):

As of February 28, 2021, aggregate future maturities of long-term debt were as follows (in thousands):

Remainder of 2021 $ 15,050

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The adoption of ASC 842 had no impact on liquidity or the Company’s debt-covenant compliance under its current debt agreements.

The Company determines if an arrangement is a lease at inception.

ROU assets represent the Company’s right to use an underlying asset for the duration of the lease term.

Lease liabilities represent the Company’s contractual obligation to make lease payments over the lease term.

ROU assets are recorded and recognized at commencement for the lease liability amount, plus initial direct costs incurred less lease incentives received.

Lease liabilities are recorded at the present value of future lease payments over the lease term at commencement.

Operating leases liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term.

The interest rate implicit in the lease contracts is not readily determinable.

As such, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment.

Lease expenses relating to operating leases are recognized on a straight-line basis over the lease term.

The Company has operating leases for administrative, product development, and sales and marketing facilities, vehicles, and equipment under various non-cancelable lease agreements.

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The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of operating lease cost for the three and nine months ended August 31, 2020 were as follows (in thousands):

Three Months Ended Nine Months Ended

August 31, 2020 August 31, 2020

The components of operating lease cost for the three months ended February 28, 2021 and February 29, 2020 were as follows (in thousands):

Three Months Ended Three Months Ended

February 28, 2021 February 29, 2020

Lease costs under long-term operating leases $ 2,135 $ 1,958

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(1) Lease costs that are not fixed at lease commencement.

The table below presents supplemental cash flow information related to leases during the nine months ended August 31, 2020 (in thousands):

Nine Months Ended

August 31, 2020

The table below presents supplemental cash flow information related to leases during the three months ended February 28, 2021 and February 29, 2020 (in thousands):

Three Months Ended Three Months Ended

February 28, 2021 February 29, 2020

Cash paid for leases $ 2,258 $ 2,356

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Weighted average remaining lease term in years and weighted average discount rate are as follows:

August 31, 2020

February 28, 2021 November 30, 2020

Weighted average remaining lease term in years 4.87 5.02

Weighted average discount rate 2.7 % 2.3 %

Future payments under non-cancellable leases at August 31, 2020 are as follows (in thousands):

Future payments under non-cancellable leases are as follows (in thousands):

February 28, 2021

Remainder of 2021 $ 6,069

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(1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated as a result of a lease reassessment event.

As previously disclosed in the Company’s 2019 10-K, the following table summarizes the future non-cancelable minimum lease commitments (including office space, copiers, and automobiles) at November 30, 2019 under the previous lease accounting standard, ASC 840, Leases (in thousands):

Thereafter 2,904

Total $ 31,164

Common Stock Repurchases

In January 2020, our Board of Directors increased the total share repurchase authorization from $ 75 million to $ 250 million.

In the three months ended August 31, 2020 and August 31, 2019, we did no t repurchase and retire any shares of our common stock.

In the nine months ended August 31, 2020 and August 31, 2019, we repurchased and retired 0.4 million shares for $ 20 million and 0.7 million shares for $ 25 million, respectively.

In the three months ended February 28, 2021 and February 29, 2020, we repurchased and retired 0.4 million shares for $ 15.0 million and 0.4 million shares for $ 20.0 million, respectively.

The shares were repurchased in both periods as part of our Board of Directors authorized share repurchase program.

As of August 31, 2020, there was $ 230 million remaining under the current authorization.

As of February 28, 2021, there was $ 175.0 million remaining under the current authorization.

Stock-Based Compensation

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We estimate the fair value of each stock-based award on the measurement date using the current market price of the stock, the Black-Scholes option valuation model, or the Monte Carlo Simulation valuation model.

During the first nine months of fiscal years 2018, 2019 and 2020, we granted performance-based restricted stock units that include two performance metrics under our Long-Term Incentive Plan ("LTIP") where the performance measurement period is three years .

Vesting of the LTIP awards is as follows:

In 2019, 2020 and 2021, we granted performance-based restricted stock units that include two performance metrics under our Long-Term Incentive Plan ("LTIP") where the performance measurement period is three years .

Vesting of the LTIP awards on the 2019 and 2020 plan is based on the following:

(i) 50 % is based on our level of attainment of specified total stockholder return ("TSR") targets relative to the percentage appreciation of a specified index of companies for the respective three-year periods, and (ii) 50 % is based on achievement of a three-year cumulative performance condition (operating income).

In order to estimate the fair value of such awards, we used a Monte Carlo Simulation valuation model for the market condition portion of the award, and used the closing price of our common stock on the date of grant, less the present value of expected dividends when applicable, for the portion related to the performance condition.

For the 2021 plan, the vesting terms were changed to the following:

(i) 25 % is based on our level of attainment of specified total stockholder return ("TSR") targets relative to the percentage appreciation of a specified index of companies for the respective three-year periods, and (ii) 75 % is based on achievement of a three-year cumulative performance condition (operating income).

In order to estimate the fair value of such awards, we used a Monte Carlo Simulation valuation model for the market condition portion of the award, and used the closing price of our common stock on the date of grant for the portion related to the performance condition.

The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield.

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The following table provides the classification of stock-based compensation as reflected on our condensed consolidated statements of operations (in thousands):

Three Months Ended Nine Months Ended

August 31, 2020 August 31, 2019 August 31, 2020 August 31, 2019

Three Months Ended

February 28, 2021 February 29, 2020

Cost of maintenance and services $ 392 $ 319

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Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated balances of other comprehensive loss during the nine months ended August 31, 2020 (in thousands):

Foreign Currency Translation Adjustment Unrealized (Losses) Gains on Investments Unrealized Losses on Hedging Activity Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated balances of other comprehensive loss during the three months ended February 28, 2021 (in thousands):

Foreign Currency Translation Adjustment Unrealized Gains on Investments Unrealized Losses on Hedging Activity Accumulated Other Comprehensive Loss

Balance, December 1, 2020 $ ( 27,616 ) $ 14 $ ( 5,176 ) $ ( 32,778 )

Other comprehensive income (loss) before reclassifications, net of tax 374 105 ( 4,106 ) ( 3,627 )

Balance, August 31, 2020 $ ( 28,019 ) $ 75 $ ( 5,657 ) $ ( 33,601 )

The tax effect on accumulated unrealized losses on hedging activity and unrealized (losses) gains on investments was $ 1.7 million and $ 0.4 million as of August 31, 2020 and November 30, 2019, respectively.

Other comprehensive income before reclassifications, net of tax 1,225 14 837 2,076

Balance, February 28, 2021 $ ( 26,391 ) $ 28 $ ( 4,339 ) $ ( 30,702 )

The tax effect on accumulated unrealized losses on hedging activity and unrealized gains on investments was $ 1.4 million and $ 1.6 million as of February 28, 2021 and November 30, 2020, respectively.

Revenue Recognition

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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.

As of August 31, 2020, invoicing of our long-term unbilled receivables is expected to occur as follows (in thousands):

As of February 28, 2021, invoicing of our long-term unbilled receivables is expected to occur as follows (in thousands):

Total $ 11,425

Contract assets, which 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, were $ 1.2 million as of August 31, 2020 and $ 4.0 million as of November 30, 2019.

Contract assets, which 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, were $ 7.9 million as of February 28, 2021 and $ 11.3 million as of November 30, 2020.

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

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Our deferred revenue balance is primarily made up of deferred maintenance from our OpenEdge and Application Development and Deployment segments.

As of August 31, 2020, the changes in deferred revenue were as follows (in thousands):

As of February 28, 2021, the changes in deferred revenue were as follows (in thousands):

Balance, December 1, 2020 $ 193,295

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Revenue recognized ( 121,280 )

Balance, August 31, 2020 $ 171,356

Balance, February 28, 2021 $ 208,978

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods.

As of August 31, 2020, transaction price allocated to remaining performance obligations was $ 175 million.

As of February 28, 2021, transaction price allocated to remaining performance obligations was $ 223.3 million.

We expect to recognize approximately 85 % of the revenue within the next year and the remainder thereafter.

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We determined that a three to five year product life represents the period of benefit that we receive from these incremental costs based on both qualitative and quantitative factors, which include customer contracts, industry norms, and product upgrades.

Total deferred contract costs were $ 2.1 million and $ 1.7 million as of August 31, 2020 and November 30, 2019, respectively, and are included in other current assets and other assets on our condensed consolidated balance sheets.

Total deferred contract costs were $ 3.3 million and $ 2.5 million as of February 28, 2021 and November 30, 2020, respectively, and are included in other current assets and other assets on our condensed consolidated balance sheets.

Amortization of deferred contract costs is included in sales and marketing expense on our condensed consolidated statement of operations and was minimal in all periods presented.

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Translation adjustments and other 1 11 12

Balance, August 31, 2020 $ 710 $ 172 $ 882

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

This restructuring resulted in a reduction in positions primarily within the product development function.

In connection with this restructuring action, during the fourth quarter of fiscal year 2019, 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.

Restructuring expenses are related to employee costs, including severance, health benefits and outplacement services (but excluding stock-based compensation).

We did no t incur any expenses related to this restructuring in the three months ended August 31, 2020.

For the nine months ended August 31, 2020, we incurred expenses of $ 0.1 million related to this restructuring.

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

A summary of activity for this restructuring action is as follows (in thousands):

Excess Facilities and Other Costs Employee Severance and Related Benefits Total

Balance, December 1, 2019 $ — $ 1,460 $ 1,460

Costs incurred — 109 109

Cash disbursements — ( 1,404 ) ( 1,404 )

Balance, August 31, 2020 $ — $ 165 $ 165

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

Accordingly, the balance of the restructuring reserve of $ 0.2 million is included in other accrued liabilities on the condensed

consolidated balance sheet at August 31, 2020.

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

During the second quarter of fiscal year 2019, we restructured our operations in connection with the acquisition of Ipswitch (Note 6).

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 these costs to be material.

Costs incurred related to this restructuring event were minimal during the three months ended August 31, 2020.

For the nine months ended August 31, 2020, we incurred expenses of $ 1.4 million related to this restructuring.

The expenses are recorded in restructuring expense on the condensed consolidated statements of operations and include charges for the impairment of operating lease right-of-use assets of $ 1.2 million for the nine months ended August 31, 2020 (Note 8).

Balance, February 28, 2021 $ 205 $ 1,944 $ 2,149

During the fourth quarter of fiscal year 2020, we restructured our operations in connection with the acquisition of Chef (Note 6).

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

For the three months ended February 28, 2021, we incurred expenses of $ 0.9 million related to this restructuring.

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

A summary of activity for this restructuring action is as follows (in thousands):

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Translation adjustments and other — 11 11

Balance, August 31, 2020 $ 652 $ 7 $ 659

Balance, February 28, 2021 $ — $ 1,944 $ 1,944

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 $ 0.7 million is included in short-term operating lease liabilities on the condensed consolidated balance sheet at August 31, 2020.

Our income tax provision for the third quarter of fiscal years 2020 and 2019 reflects our estimate of the effective tax rates expected to be applicable for the full fiscal years, adjusted for any discrete events, which are recorded in the period in which they occur.

Accordingly, the balance of the restructuring reserve of $ 1.9 million is included in other accrued liabilities on the consolidated balance sheet at February 28, 2021.

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.

Our income tax provision for the first quarter of fiscal years 2021 and 2020 reflects our estimate of the effective tax rates expected to be applicable for the full fiscal years, adjusted for any discrete events, which are recorded in the period in which they occur.

The estimates are reevaluated each quarter based on our estimated tax expense for the full fiscal year.

Our effective tax rate was 21 % in the third fiscal quarter of 2020 compared to ( 11 )% in the third fiscal quarter of 2019.

Our effective tax rate was 22 % in the nine month period ended August 31, 2020 compared to 18 % in the same period of 2019.The primary reason for the increase in the effective rate is that during the preparation of our financial statements for the three months ended August 31, 2019, we identified an error in our income tax provisions for the first and second quarters of fiscal year 2019 related to the tax treatment of an intercompany sale of intellectual property that occurred in fiscal year 2018.

As a result of the error, income tax expense was overstated by $ 1.1 million and $ 2.5 million during the first and second quarters of fiscal year 2019, respectively.

We determined that the error was not material to the first and second quarters of fiscal year 2019 and corrected the error by recording an out of period $ 3.6 million tax benefit in our financial statements for the period ended August 31, 2019.

If the error had not occurred, the effective tax rate in the third quarter of fiscal year 2019 would have been 18 %.

Our effective tax rate was 23 % in both the first fiscal quarter of 2021 and in the first fiscal quarter of 2020.

There were no significant discrete tax items in either the first fiscal quarter of 2021 or the first fiscal quarter of 2020.

Our federal income tax returns have been examined or are closed by statute for all years prior to fiscal year 2017.

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The following table sets forth the calculation of basic and diluted earnings per share on an interim basis (in thousands, except per share data):

Three Months Ended Nine Months Ended

August 31, 2020 August 31, 2019 August 31, 2020 August 31, 2019

Three Months Ended

February 28, 2021 February 29, 2020

Net income $ 18,961 $ 21,116

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Diluted earnings per share $ 0.42 $ 0.46

We excluded stock awards representing approximately 1,450,000 shares and 1,216,000 shares of common stock from the calculation of diluted earnings per share in the three and nine months ended August 31, 2020, respectively, because these awards were anti-dilutive.

In the three and nine months ended August 31, 2019, we excluded stock awards representing 1,236,000 shares and 898,000 shares of common stock, respectively, from the calculation of diluted earnings per share as they were anti-dilutive.

We excluded stock awards representing approximately 1,078,000 and 661,000 shares of common stock from the calculation of diluted earnings per share in the three months ended February 28, 2021 and February 29, 2020, respectively, as these awards were anti-dilutive.

Business Segments and International Operations

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The following table provides revenue and contribution margin from our reportable segments and reconciles to our consolidated income from continuing operations before income taxes:

Three Months Ended Nine Months Ended

(In thousands) August 31, 2020 August 31, 2019 August 31, 2020 August 31, 2019

Three Months Ended

(In thousands) February 28, 2021 February 29, 2020

Segment revenue:

22 unchanged sentences

Information relating to revenue from external customers by revenue type is as follows (in thousands):

Three Months Ended Nine Months Ended

(In thousands) August 31, 2020 August 31, 2019 August 31, 2020 August 31, 2019

Three Months Ended

(In thousands) February 28, 2021 February 29, 2020

Performance obligations transferred at a point in time:

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Information relating to revenue from external customers from different geographical areas is as follows (in thousands):

Three Months Ended Nine Months Ended

(In thousands) August 31, 2020 August 31, 2019 August 31, 2020 August 31, 2019

Three Months Ended

(In thousands) February 28, 2021 February 29, 2020

North America $ 71,505 $ 65,413

4 unchanged sentences

No single customer, partner, or country outside of the U.S.

has accounted for more than 10% of our total revenue for the three or nine months ended August 31, 2020 and August 31, 2019.

As of August 31, 2020 and November 30, 2019, no individual customer accounted for 10% or more of our net accounts receivable balance.

As of August 31, 2020 and November 30, 2019, no individual foreign country accounted for 10% or more of total consolidated assets.

Subsequent Events

On October 5, 2020, we completed the acquisition of Chef Software for $ 220 million in cash, subject to customary adjustments.

The acquisition was funded with existing cash on hand and borrowings under our existing credit facility.

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

Results of operations for Chef will be included in our consolidated financial statements as part of the Application Development and Deployment business segment from the date of acquisition.

has accounted for more than 10% of our total revenue for the three months ended February 28, 2021 and February 29, 2020.

As of February 28, 2021 and November 30, 2020, no individual customer accounted for 10% or more of our net accounts receivable balance.

As of February 28, 2021 and November 30, 2020, no individual foreign country accounted for 10% or more of total consolidated assets.

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-Q

Item 1. Financial Statements