PROGRESS SOFTWARE CORP /MA 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with GAAP. 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. However, actual results may differ from these estimates. The most significant estimates relate to: the timing and amounts of revenue recognition, including the determination of the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and the transaction price allocated to performance obligations; the realization of tax assets and estimates of tax liabilities; fair values of investments in marketable securities; intangible assets and goodwill valuations; the recognition and disclosure of contingent liabilities; the collectability of accounts receivable; and assumptions used to determine the fair value of stock-based compensation. This listing is not a comprehensive list of all of our accounting policies. For further information regarding the application of these and other accounting policies, see Note 1 to our Consolidated Financial Statements in Item 8 of our 2020 10-K. Cautionary Note Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 contains certain safe harbor provisions regarding forward-looking statements. This Form 10-Q, and other information provided by us or statements made by our directors, officers or employees 24 from time to time, may contain “forward-looking” statements and information, which involve risks and uncertainties. Actual future results may differ materially. Statements indicating that we “believe,” “may,” “could,” “would,” “might,” “should,” “expect,” “intend,” “plan,” “target,” “anticipate” and “continue,” are forward-looking, as are other statements concerning future financial results, product offerings or other events that have not yet occurred. There are a number of factors that could cause actual results or future events to differ materially from those anticipated by the forward-looking statements, including, without limitation: (1) Economic, geopolitical and market conditions can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price. (2) We may fail to achieve our financial forecasts due to such factors as delays or size reductions in transactions, fewer large transactions in a particular quarter, fluctuations in currency exchange rates, or a decline in our renewal rates for contracts. (3) Our ability to successfully manage transitions to new business models and markets, including an increased emphasis on a cloud and subscription strategy, may not be successful. (4) If we are unable to develop new or sufficiently differentiated products and services, or to enhance and improve our existing products and services in a timely manner to meet market demand, partners and customers may not purchase new software licenses or subscriptions or purchase or renew support contracts. (5) We depend upon our extensive partner channel and we may not be successful in retaining or expanding our relationships with channel partners. (6) Our international sales and operations subject us to additional risks that can adversely affect our operating results, including risks relating to foreign currency gains and losses. (7) If the security measures for our software, services, other offerings or our internal information technology infrastructure are compromised or subject to a successful cyber-attack, or if our software offerings contain significant coding or configuration errors, we may experience reputational harm, legal claims and financial exposure. (8) We have made acquisitions, and may make acquisitions in the future, and those acquisitions may not be successful, may involve unanticipated costs or other integration issues or may disrupt our existing operations. (9) Delay or failure to realize the expected synergies and benefits of the Chef acquisition could negatively impact our future results of operations and financial condition; (10) The continuing impact of the coronavirus disease (COVID-19) outbreak on our employees, customers, partners, and the global financial markets could adversely affect our business, results of operations and financial condition. For further information regarding risks and uncertainties associated with Progress' business, please refer to Part II, Item 1A (Risk Factors) in this Quarterly Report on Form 10-Q, and in Part I, Item 1A (Risk Factors) in our 2020 10-K. Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what extent, any of such risks may be realized. We also cannot assure you that we have identified all possible issues which we might face. We undertake no obligation to update any forward-looking statements that we make. Use of Constant Currency Revenue from our international operations has historically represented a substantial portion of our total revenue. As a result, our revenue results have been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, if the local currencies of our foreign subsidiaries strengthen, our consolidated results stated in U.S. dollars are positively impacted. As exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of revenue growth rates on a constant currency basis enhances the understanding of our revenue results and evaluation of our performance in comparison to prior periods. The constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. 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 II, Item 1A “Risk Factors” in this Form 10-Q. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition. 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 25 competitive differentiation and business success. Over 1,700 independent software vendors, 100,000 enterprise customers, and three million developers rely on Progress to power their applications. We operate as three distinct segments: OpenEdge, Data Connectivity and Integration, and Application Development and Deployment. The key tenets of our strategic plan and operating model are as follows: Trusted Partner 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 needed to build modern, strategic business applications. We offer these products and tools to both new customers and partners as well as our existing partner and customer ecosystems. This strategy builds on our inherent DNA and our vast experience in application development that we've acquired over the past 40 years. 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 have met 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 . We have adopted a shareholder friendly capital allocation policy that utilizes dividends and share repurchases to return capital to shareholders. 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. In January 2020, our Board of Directors increased the total share repurchase authorization from $75.0 million to $250.0 million. We repurchased and retired 0.4 million shares of our common stock for $15.0 million in the three months ended February 28, 2021. The shares were repurchased as part of our Board of Directors authorized share repurchase program. As of February 28, 2021, there was $175.0 million remaining under the current 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 in fiscal years 2017, 2018 and 2019. On September 23, 2020, our Board of Directors approved an additional 6% increase to our quarterly cash dividend from $0.165 to $0.175 per share of common stock. On March 23, 2021, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock that will be paid on June 15, 2021 to shareholders of record as of the close of business on June 1, 2021.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. Additionally, on October 5, 2020, we acquired Chef, 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, for $220 million. We expect to continue to evaluate possible acquisitions 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. 26 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 continues 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. 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 2021 have been impacted by fluctuations in foreign currency exchange rates. We currently report results based on three business segments. We are in the process of updating how we allocate resources and assess performance, which will affect our determination of business segments. Although this process has not been completed, we anticipate that we will begin operating as one distinct segment during the fiscal second quarter ending May 31, 2021 based on expected updates to how our management internally analyzes our business. Once we have completed our update, we will begin reporting any updates to our segments. Select Performance Metrics: Management evaluates our financial performance using a number of financial and operating metrics. These metrics are periodically reviewed and revised to reflect changes in our business. Annual Recurring Revenue (ARR) Beginning this period, we are providing an ARR performance metric to help investors better understand and assess the performance of our business because our mix of revenue generated from recurring sources has increased in recent years. ARR represents the annualized contract value for all active and contractually binding term-based contracts at the end of a period. ARR includes maintenance, software upgrade rights, public cloud and on-premises subscription-based transactions and managed services. ARR mitigates fluctuations due to seasonality, contract term and the sales mix of subscriptions for term-based licenses and SaaS. ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers. We define ARR as the annual recurring revenue of term-based contracts from all customers at a point in time. We calculate ARR by taking monthly recurring revenue, or MRR, and multiplying it by 12. MRR for each month is calculated by aggregating, for all customers during that month, monthly revenue from committed contractual amounts, additional usage and monthly subscriptions. Our ARR was $432 million and $355 million as of February 28, 2021 and 2020, respectively, which is an increase of 21.7% year-over-year. The growth in our ARR is primarily driven by the acquisition of Chef. Net Dollar Retention Rate We calculate net dollar retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end (“Prior Period ARR”). We then calculate the ARR from these same customers as of the current period end (“Current Period ARR”). Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the net dollar retention rate. Our net dollar retention rates were 98.8% and 99.1% for the trailing twelve months ended February 28, 2021 and 2020, respectively. Our high net dollar retention rates illustrate our predictable and durable top line performance. 27 Results of Operations Revenue Three Months Ended % Change (In thousands) February 28, 2021 February 29, 2020 As Reported Constant Currency Revenue $ 121,280 $ 109,683 11 % 9 % Total revenue increased compared to the same quarter last year primarily due to our acquisition of Chef in the fourth quarter of fiscal year 2020, as well as increases in our OpenEdge and Ipswitch product lines. Chef revenue was $12.0 million in our first fiscal quarter of 2021. These increases were offset by lower license revenue in our Data Connectivity and Integration segment. Software License Revenue Three Months Ended % Change (In thousands) February 28, 2021 February 29, 2020 As Reported Constant Currency Software Licenses $ 33,317 $ 30,629 9 % 7 % As a percentage of total revenue 27 % 28 % Software license revenue increased compared to the same period last year primarily due to our acquisition of Chef and increases in license sales in our OpenEdge segment, partially offset by a decrease in license sales in our Data Connectivity and Integration segment. Refer to the Revenue by Segment section below for further discussion. Maintenance and Services Revenue Three Months Ended % Change (In thousands) February 28, 2021 February 29, 2020 As Reported Constant Currency Maintenance $ 76,977 $ 70,056 10 % 8 % As a percentage of total revenue 63 % 64 % Services 10,986 8,998 22 % 20 % As a percentage of total revenue 10 % 8 % Total maintenance and services revenue $ 87,963 $ 79,054 11 % 10 % As a percentage of total revenue 73 % 72 % Maintenance and services revenue both increased compared to the same quarter last year primarily due to our acquisition of Chef and increased maintenance revenue from our OpenEdge segment. Revenue by Region Three Months Ended % Change (In thousands) February 28, 2021 February 29, 2020 As Reported Constant Currency North America $ 71,505 $ 65,413 9 % 9 % As a percentage of total revenue 59 % 59 % Europe, the Middle East and Africa ("EMEA") $ 40,240 $ 34,988 15 % 9 % As a percentage of total revenue 33 % 32 % Latin America $ 3,493 $ 4,000 (13) % — % As a percentage of total revenue 3 % 4 % Asia Pacific $ 6,042 $ 5,282 14 % 10 % As a percentage of total revenue 5 % 5 % 28 Total revenue generated in North America increased $6.1 million, primarily due to our acquisition of Chef and increased OpenEdge segment maintenance revenue, partially offset by decreased license sales in our Data Connectivity and Integration segment. The increase in revenue generated in both EMEA and Asia Pacific was primarily due to increases in our OpenEdge segment as well as our acquisition of Chef. The increase in EMEA was also partially offset by decreased license sales in our Data Connectivity and Integration segment. Revenue in Latin America decreased due to lower maintenance revenue in our OpenEdge segment. In the first three months of fiscal years 2021 and 2020, revenue generated in markets outside North America represented 41% of total revenue compared to 40% of total revenue on a constant currency basis. Revenue by Segment Three Months Ended % Change (In thousands) February 28, 2021 February 29, 2020 As Reported Constant Currency OpenEdge segment $ 84,603 $ 77,079 10 % 7 % Data Connectivity and Integration segment 5,528 13,685 (60) % (60) % Application Development and Deployment segment 31,149 18,919 65 % 65 % Total revenue $ 121,280 $ 109,683 11 % 9 % Revenue in our OpenEdge segment increased primarily due to higher OpenEdge license sales as well as increased Ipswitch product line revenue. Data Connectivity and Integration revenue decreased due to the timing of term license renewals by certain of our OEM partners. Application Development and Deployment revenue increased due to our acquisition of Chef. Cost of Software Licenses Three Months Ended (In thousands) February 28, 2021 February 29, 2020 Change Cost of software licenses $ 1,151 $ 1,389 $ (238) (17) % As a percentage of software license revenue 3 % 5 % As a percentage of total revenue 1 % 1 % Cost of software licenses consists primarily of costs of royalties, electronic software distribution, duplication, and packaging. The year over year decrease was the result of lower payments of royalties to third parties as compared to the prior period. Cost of software licenses as a percentage of software license revenue varies from period to period depending upon the relative product mix. Cost of Maintenance and Services Three Months Ended (In thousands) February 28, 2021 February 29, 2020 Change Cost of maintenance and services $ 13,319 $ 11,851 $ 1,468 12 % As a percentage of maintenance and services revenue 15 % 15 % As a percentage of total revenue 11 % 11 % Components of cost of maintenance and services: Personnel related costs $ 9,539 $ 8,518 $ 1,021 12 % Contractors and outside services 2,579 2,631 (52) (2) % Hosting and other 1,201 702 499 71 % Total cost of maintenance and services $ 13,319 $ 11,851 $ 1,468 12 % Cost of maintenance and services consists primarily of costs of providing customer support, consulting, and education. The year over year increase was primarily due to increased headcount resulting from our acquisition of Chef and increased hosting costs. 29 Amortization of Intangibles Three Months Ended (In thousands) February 28, 2021 February 29, 2020 % Change Amortization of intangibles $ 3,521 $ 1,646 114 % As a percentage of total revenue 3 % 2 % Amortization of intangibles included in costs of revenue primarily represents the amortization of the value assigned to technology-related intangible assets obtained in business combinations. The year over year increase was primarily due to the acquisition of Chef in the fourth quarter of 2020. Gross Profit Three Months Ended (In thousands) February 28, 2021 February 29, 2020 % Change Gross profit $ 103,289 $ 94,797 9 % As a percentage of total revenue 85 % 86 % Our gross profit increased primarily due to the increase in revenue, offset by the increase of costs of maintenance and services and the amortization of intangibles, each as described above. Sales and Marketing Three Months Ended (In thousands) February 28, 2021 February 29, 2020 Change Sales and marketing $ 29,469 $ 24,198 $ 5,271 22 % As a percentage of total revenue 24 % 22 % Components of sales and marketing: Personnel related costs $ 25,891 $ 20,624 $ 5,267 26 % Contractors and outside services 388 542 (154) (28) % Marketing programs and other 3,190 3,032 158 5 % Total sales and marketing $ 29,469 $ 24,198 $ 5,271 22 % Sales and marketing expenses increased year over year primarily due to increased personnel related costs associated with our acquisition of Chef. Product Development Three Months Ended (In thousands) February 28, 2021 February 29, 2020 Change Product development costs $ 24,548 $ 21,654 $ 2,894 13 % As a percentage of total revenue 20 % 20 % Components of product development costs: Personnel related costs $ 23,604 $ 20,885 $ 2,719 13 % Contractors and outside services 725 674 51 8 % Other product development costs 219 95 124 131 % Total product development costs $ 24,548 $ 21,654 $ 2,894 13 % Product development expenses increased as compared to the same period last year primarily due to increased personnel related costs associated with our acquisition of Chef. 30 General and Administrative Three Months Ended (In thousands) February 28, 2021 February 29, 2020 Change General and administrative $ 13,424 $ 12,748 $ 676 5 % As a percentage of total revenue 11 % 12 % Components of general and administrative: Personnel related costs $ 11,887 $ 10,291 $ 1,596 16 % Contractors and outside services 1,460 1,640 (180) (11) % Other general and administrative costs 77 817 (740) (91) % Total cost of general and administrative $ 13,424 $ 12,748 $ 676 5 % General and administrative expenses include the costs of our finance, human resources, legal, information systems and administrative departments. General and administrative expenses increased as compared to the same quarter last year primarily due to higher personnel costs associated with our acquisition of Chef, partially offset by decreased other general and administrative costs. Amortization of Intangibles Three Months Ended (In thousands) February 28, 2021 February 29, 2020 % Change Amortization of intangibles $ 6,879 $ 4,131 67 % As a percentage of total revenue 6 % 4 % Amortization of 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 intangibles increased compared to the corresponding period in 2020 due to the addition of Chef intangible assets in the fourth quarter of 2020, as discussed above. Restructuring Expenses Three Months Ended (In thousands) February 28, 2021 February 29, 2020 % Change Restructuring expenses $ 1,157 $ 1,040 11 % As a percentage of total revenue 1 % 1 % Restructuring expenses recorded in the first three months of fiscal year 2021 relate primarily to the restructuring activities that occurred in the fourth quarter of fiscal year 2020 relating to the acquisition of Chef. Restructuring expenses recorded in the first three months of fiscal year 2020 are comprised mostly of costs related to the Ipswitch and Cognitive restructuring actions of 2019. See the Liquidity and Capital Resources section of this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Acquisition-Related Expenses Three Months Ended (In thousands) February 28, 2021 February 29, 2020 % Change Acquisition-related expenses $ 396 $ 314 26 % As a percentage of total revenue — % — % Acquisition-related costs are expensed as incurred and include those costs incurred as a result of a business combination. These costs consist of professional service fees, including third-party legal and valuation-related fees. Acquisition-related expenses in increased slightly compared to the same period in 2020 and were related to the acquisition of Chef, which was completed in the 31 fourth quarter of 2020. Acquisition-related expenses in the same period of fiscal year 2020 were related to the acquisition of Ipswitch. Income from Operations Three Months Ended (In thousands) February 28, 2021 February 29, 2020 % Change Income from operations $ 27,416 $ 30,712 (11) % As a percentage of total revenue 23 % 28 % Income from operations decreased year over year due to an increase in costs of revenue and operating expenses, offset by increases in revenue as shown above. Income from Operations by Segment Three Months Ended (In thousands) February 28, 2021 February 29, 2020 % Change OpenEdge segment $ 65,687 $ 57,329 15 % Data Connectivity and Integration segment 4,358 11,005 (60) % Application Development and Deployment segment 15,739 11,631 35 % Other unallocated expenses (1) (58,368) (49,253) (19) % Income from operations $ 27,416 $ 30,712 (11) % (1) Note that the following expenses are not allocated to our segments as we manage and report our business in these functional areas on a consolidated basis only: certain product development and corporate sales and marketing expenses, customer support, administration, amortization of acquired intangibles, stock-based compensation, fees related to shareholder activist, restructuring, and acquisition-related expenses. Other (Expense) Income, Net Three Months Ended (In thousands) February 28, 2021 February 29, 2020 % Change Interest expense $ (2,514) $ (2,792) 10 % Interest income and other, net 119 211 (44) % Foreign currency loss, net (257) (816) 69 % Total other expense, net $ (2,652) $ (3,397) 22 % As a percentage of total revenue (2) % (3) % Other expense, net, decreased in the three month period ended February 28, 2021 as compared to the same period in the prior year. This is a result of a lower foreign currency loss due to lower costs of forward points on our outstanding forward contracts and lower interest expense due to declining interest rates. Provision (Benefit) for Income Taxes Three Months Ended (In thousands) February 28, 2021 February 29, 2020 % Change Provision for income taxes $ 5,803 $ 6,199 (6) % As a percentage of total revenue 5 % 6 % 32 Our effective tax rate was 23% in both the first fiscal quarter of 2021 and 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. Net Income Three Months Ended (In thousands) February 28, 2021 February 29, 2020 % Change Net income $ 18,961 $ 21,116 (10) % As a percentage of total revenue 16 % 19 % Liquidity and Capital Resources Cash, Cash Equivalents and Short-Term Investments (In thousands) February 28, 2021 November 30, 2020 Cash and cash equivalents $ 107,698 $ 97,990 Short-term investments 6,673 8,005 Total cash, cash equivalents and short-term investments $ 114,371 $ 105,995 The increase in cash, cash equivalents and short-term investments of $8.4 million from the end of fiscal year 2020 was due to cash inflows from operations of $44.7 million, $2.6 million in cash received from the issuance of common stock, a decrease in other noncurrent assets of $2.1 million, and the effect of exchange rates on cash of $1.8 million. These cash inflows were offset by payments of debt obligations in the amount of $18.8 million, repurchases of common stock of $15.0 million, dividend payments of $7.9 million, and purchases of property and equipment of $1.2 million. Except as described below, there are no limitations on our ability to access our cash, cash equivalents and short-term investments. As of February 28, 2021, $30.6 million of our cash, cash equivalents and short-term investments was held by our foreign subsidiaries. Foreign cash includes unremitted foreign earnings, which are invested indefinitely outside of the U.S. As such, it is not available to fund our domestic operations. If we were to repatriate these earnings, we may be subject to income tax withholding in certain tax jurisdictions and a portion of the repatriated earnings may be subject to U.S. income tax. However, we do not anticipate that this would have a material adverse impact on our liquidity. Share Repurchase Program In January 2020, our Board of Directors increased the total share repurchase authorization from $75.0 million to $250.0 million. We repurchased and retired 0.4 million shares of our common stock for $15.0 million in the three months ended February 28, 2021 and 0.4 million shares for $20.0 million in the three months ended February 29, 2020. The shares were repurchased in both periods as part of our Board of Directors authorized share repurchase program. As of February 28, 2021, there was $175.0 million remaining under the current authorization. Dividends 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 September 23, 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. On January 12, 2021, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock that was paid on March 15, 2021 to stockholders of record as of the close of business on March 1, 2021. On March 23, 2021, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock that will be paid on June 15, 2021 to shareholders of record as of the close of business on June 1, 2021. 33 Restructuring Activities 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 relating to this restructuring. 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 $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. Credit Facility Our credit agreement provides for a $301.0 million secured term loan and a $100.0 million secured revolving line of credit. The revolving line of credit may be made available in U.S. Dollars and certain other currencies and may be increased by up to an additional $125.0 million if the existing or additional lenders are willing to make such increased commitments. The revolving line of credit has sub-limits for swing line loans up to $25.0 million and for the issuance of standby letters of credit in a face amount up to $25.0 million. We expect to use the revolving line of credit for general corporate purposes, including acquisitions of other businesses, and may also use it for working capital. 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 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. 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. The term loan may be prepaid before maturity in whole or in part at our option without penalty or premium. The interest rate as of February 28, 2021 was 1.75%. Revolving loans may be borrowed, repaid, and reborrowed until April 30, 2024, at which time all amounts outstanding must be repaid. 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. 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. 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. We are in compliance with these financial covenants as of February 28, 2021. Cash Flows from Operating Activities Three Months Ended (In thousands) February 28, 2021 February 29, 2020 Net income $ 18,961 $ 21,116 Non-cash reconciling items included in net income 21,061 19,067 Changes in operating assets and liabilities 4,666 (7,167) Net cash flows from operating activities $ 44,688 $ 33,016 The year over year increase in cash generated from operations was primarily due to particularly strong collections of our receivables, partially offset by increased expenses. Our gross accounts receivable as of February 28, 2021 decreased by $7.0 34 million from the end of fiscal year 2020 and our days sales outstanding (DSO) in accounts receivable increased to 53 days from 49 days in the fiscal first quarter of 2020 due to the timing of billings and collections. Cash Flows from (used in) Investing Activities Three Months Ended (In thousands) February 28, 2021 February 29, 2020 Net investment activity $ 1,300 $ 3,508 Purchases of property and equipment (1,166) (1,148) Decrease in escrow receivable 2,130 — Net cash flows from investing activities $ 2,264 $ 2,360 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. We also purchased $1.2 million of property and equipment in the first three months of fiscal year 2021, as compared to $1.1 million in the first three months of fiscal year 2020. Cash Flows (used in) from Financing Activities Three Months Ended (In thousands) February 28, 2021 February 29, 2020 Proceeds from stock-based compensation plans $ 3,485 $ 4,245 Repurchases of common stock (15,000) (20,000) Payment of principal on long-term debt (18,763) (1,882) Dividend payments to shareholders (7,854) (7,468) Other financing activities (892) (1,949) Net cash flows used in financing activities $ (39,024) $ (27,054) During the first three months of fiscal year 2021, we received $3.5 million from the exercise of stock options and the issuance of shares under our employee stock purchase plan as compared to $4.2 million in the first three months of fiscal year 2020. Further, we repurchased $15.0 million of our common stock under our share repurchase plan compared to $20.0 million in the same period of the prior year. We also made payments on our long-term debt of $18.8 million (including a $15.0 million repayment on the revolving line of credit) in the first three months of fiscal year 2021 compared to $1.9 million in the same period of the prior year. Finally, we made dividend payments of $7.9 million to our shareholders during the first three months of fiscal 2021, as compared to $7.5 million in the first three months of fiscal 2020. Indemnification Obligations We include standard intellectual property indemnification provisions in our licensing agreements in the ordinary course of business. Pursuant to our product license agreements, we will indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally business partners or customers, in connection with certain patent, copyright or other intellectual property infringement claims by third parties with respect to our products. Other agreements with our customers provide indemnification for claims relating to property damage or personal injury resulting from the performance of services by us or our subcontractors. Historically, our costs to defend lawsuits or settle claims relating to such indemnity agreements have been insignificant. Accordingly, the estimated fair value of these indemnification provisions is immaterial. 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. We do not contemplate a need for any foreign repatriation of the earnings which are deemed invested indefinitely outside of the U.S. Our foreseeable cash needs include our planned capital expenditures, debt repayments, quarterly cash dividends, share repurchases, acquisitions, lease commitments, restructuring obligations and other long-term obligations. 35 We also believe that our financial resources will allow us to manage the on-going impact of COVID-19 on our business operations for the foreseeable future, which has included, and could include further, reductions in revenue and delays in payments from customers and partners. Legal and Other Regulatory Matters See discussion regarding legal and other regulatory matters in Part II, Item 1. Legal Proceedings. Off-Balance Sheet Arrangements We have no “off-balance sheet arrangements” within the meaning of Item 303(a)(4) of Regulation S-K. Contractual Obligations There have been no material changes to our contractual obligations disclosed in tabular format in our 2020 10-K. Recent Accounting Pronouncements Refer to Note 1 - Nature of Business and Basis of Presentation (Part I, Item 1 of this Form 10-Q) for further discussion.