What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-07 compared with 2021-07-07 · 129 added, 139 removed, 286 unchanged (48% of the section changed)

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This Form 10-Q, and other information provided by us or statements made by our directors, officers or employees from time to time, may contain “forward-looking” statements and information, which involve risks and uncertainties.

future results may differ materially.

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.

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(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.

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.

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(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;

(8) We have made acquisitions, and may make acquisitions in the future, including the pending acquisition of Kemp, 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 complete the Kemp acquisition, or delay or failure to realize the expected synergies and benefits of the Kemp 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.

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Our fiscal 2020 results of operations, as well as the financial results of our customers and partners, were negatively impacted by COVID-19.

During the second fiscal quarter of 2021, we saw greater demand for our products and solutions across almost all of our product lines.

Although the rate and pace of recovery from COVID-19 has differed and continues to differ by geography and industry, we expect demand for our products and solutions to continue to be strong during the remainder of fiscal 2021.

In addition, we are gradually returning to our offices on a limited basis, where permissible, and beginning to travel as needed, while prioritizing the well-being of our employees.

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.

The COVID-19 pandemic continues to have widespread and unpredictable impacts on people, businesses, and organizations around the world.

During the second and third fiscal quarters of 2021, we saw greater demand for our products and solutions across almost all of our product lines.

Although the impacts of COVID-19 continue to evolve, and the rate and pace of recovery from COVID-19 differs by geography and industry, we expect demand for our products and solutions to continue to be strong during the remainder of fiscal 2021.

We are continuing our return to our offices on a limited basis, where permissible, with limited business travel as needed, while the well-being of our employees remains our priority.

We are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the duration and nature 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 scope and extent of the impact to our business, consolidated results of operations, and financial condition.

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

Our comprehensive product 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.

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.

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software products to develop, deploy, and manage high-impact business applications.

Progress previously reported results based on three segments.

Progress previously reported results based on three segments but began operating as one business segment in the second fiscal quarter of 2021.

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.

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

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

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We are pursuing a total growth strategy driven by accretive acquisitions of businesses within the infrastructure software 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 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.

We will continue to evaluate possible acquisitions designed to expand our business and drive significant stockholder returns.

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

In April 2019, we acquired Ipswitch, Inc., in October 2020, we acquired Chef Software, Inc., and as described below, in September 2021, we entered into a definitive agreement to acquire Kemp.

The Ipswitch and Chef acquisitions met, and the acquisition of Kemp is expected to meet, our strict financial criteria.

Kemp powers the always-on application experience that enterprises and service providers need to succeed.

The purchase price for Kemp will be approximately $258 million and we will fund the purchase price with existing cash balances.

With the Kemp acquisition, we will extend our portfolio of market-leading products in DevOps, Application Development, Data Connectivity and Digital Experience, adding Application Experience Management (AX).

We will continue to evaluate other possible acquisitions designed to expand our business and drive significant stockholder returns.

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 have adopted a shareholder friendly capital allocation policy that utilizes dividends and share repurchases to return capital to stockholders.

Pursuant to our capital allocation strategy that we implemented in September 2017, we have returned approximately 20% 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 0.8 million shares of our common stock for $35.0 million in the six months ended May 31, 2021.

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

As of May 31, 2021, there was $155.0 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 June 22, 2021, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock that will be paid on September 15, 2021 to shareholders of record as of the close of business on September 1, 2021.We expect to continue paying quarterly cash dividends in subsequent quarters consistent with our capital allocation strategy.

Our existing cash balances, together with funds generated from operations and amounts available under our credit facility, are expected to 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 the foreseeable future.

Our cash position could be reduced, and we may incur additional debt obligations, to the extent we complete additional acquisitions.

In the three months ended August 31, 2021, we did not repurchase any shares of our common stock.

As of August 31, 2021, there was $155.0 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 have paid quarterly dividends since that time.

On September 21, 2021, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock that will be paid on December 15, 2021 to shareholders of record as of the close of business on December 1, 2021.We expect to continue paying quarterly cash dividends in subsequent quarters consistent with our capital allocation strategy.

Our cash position will be reduced by the acquisition of Kemp as well as by any additional acquisitions we complete in the future and we may incur additional debt obligations in connection with those future acquisitions.

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.

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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.

During the second quarter, Progress began operating as one distinct segment to align with the way management analyzes our overall business.

We previously reported results based on three segments.

We will derive additional revenues denominated in foreign currency from Kemp's international operations, which could further impact our revenue results in fiscal year 2021, if the Kemp acquisition Closing occurs in fiscal year 2021.

Select Performance Metrics:

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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 $437 million and $355 million as of May 31, 2021 and 2020, respectively, which is an increase of 22.9% year-over-year.

Our ARR was $444.0 million and $356.0 million as of August 31, 2021 and 2020, respectively, which is an increase of 25% year-over-year.

The growth in our ARR is primarily driven by the acquisition of Chef.

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Three Months Ended % Change

(In thousands) May 31, 2021 May 31, 2020 As

(In thousands) August 31, 2021 August 31, 2020 As

Reported Constant

Revenue $ 147,417 $ 109,699 34 % 33 %

Six Months Ended % Change

(In thousands) May 31, 2021 May 31, 2020 As

Nine Months Ended % Change

(In thousands) August 31, 2021 August 31, 2020 As

Reported Constant

Revenue $ 391,185 $ 319,765 22 % 20 %

Total revenue increased in both the second fiscal quarter and six month period ended May 31, 2021 as compared to the same periods 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 offerings.

These increases were partially offset by lower license revenue in our DataDirect product offerings.

Chef revenue was $12.4 million and $24.3 million for the second fiscal quarter and first six months of fiscal year 2021, respectively.

Total revenue increased in both the third fiscal quarter and nine month period ended August 31, 2021 as compared to the same periods last year primarily due to our acquisition of Chef in the fourth quarter of fiscal year 2020, as well as increases in our DataDirect, OpenEdge, and Ipswitch product offerings.

Software License Revenue

Three Months Ended % Change

(In thousands) May 31, 2021 May 31, 2020 As

(In thousands) August 31, 2021 August 31, 2020 As

Reported Constant

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As a percentage of total revenue 35 % 25 %

Six Months Ended % Change

(In thousands) May 31, 2021 May 31, 2020 As

Nine Months Ended % Change

(In thousands) August 31, 2021 August 31, 2020 As

Reported Constant

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As a percentage of total revenue 29 % 24 %

Software license revenue increased in both the second fiscal quarter and first six months of fiscal year 2021 as compared to the same periods last year primarily due to our acquisition of Chef and increases in license sales in our OpenEdge and Ipswitch product offerings.

In the first six months of fiscal year 2021 these increases were partially offset by a decrease in license sales in our DataDirect product offerings.

Software license revenue increased in both the third fiscal quarter and first nine months of fiscal year 2021 as compared to the same periods last year primarily due to our acquisition of Chef and increases in license sales in our DataDirect, OpenEdge, and Ipswitch product offerings.

Maintenance and Services Revenue

Three Months Ended % Change

(In thousands) May 31, 2021 May 31, 2020 As

(In thousands) August 31, 2021 August 31, 2020 As

Reported Constant

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As a percentage of total revenue 65 % 75 %

Six Months Ended % Change

(In thousands) May 31, 2021 May 31, 2020 As

Nine Months Ended % Change

(In thousands) August 31, 2021 August 31, 2020 As

Reported Constant

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As a percentage of total revenue 71 % 76 %

Maintenance and services revenue both increased in the second fiscal quarter and first six months of fiscal year 2021 as compared to the same periods last year primarily due to our acquisition of Chef and increased maintenance revenue from our OpenEdge product line.

Maintenance and services revenue both increased in the third fiscal quarter and first nine months of fiscal year 2021 as compared to the same periods last year primarily due to our acquisition of Chef and increased maintenance revenue from our OpenEdge and Ipswitch product lines.

Revenue by Region

Three Months Ended % Change

(In thousands) May 31, 2021 May 31, 2020 As

(In thousands) August 31, 2021 August 31, 2020 As

Reported Constant

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As a percentage of total revenue 5 % 6 %

Six Months Ended % Change

(In thousands) May 31, 2021 May 31, 2020 As

Nine Months Ended % Change

(In thousands) August 31, 2021 August 31, 2020 As

Reported Constant

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As a percentage of total revenue 6 % 5 %

Total revenue generated in North America increased $14.5 million and $20.6 million in the second fiscal quarter and first six months of fiscal year 2021, respectively.

The increases were primarily due to our acquisition of Chef, increased OpenEdge license revenue, and increased Ipswitch maintenance revenue.

In the first six months of fiscal year 2021 these increases were partially offset by a decrease in license sales in our DataDirect product offerings.

Total revenue generated in North America increased $31.0 million and $51.6 million in the third fiscal quarter and first nine months of fiscal year 2021, respectively.

The increases were primarily due to our acquisition of Chef, increased OpenEdge and DataDirect license revenue, and increased Ipswitch license and maintenance revenue.

The increase in revenue generated in both EMEA and Asia Pacific was due to our acquisition of Chef, as well as increased OpenEdge and Sitefinity revenue in EMEA.

Revenue in Latin America increased in the second fiscal quarter due to higher license and maintenance revenue in our OpenEdge product line.

In the first six months of fiscal year 2021 revenue in Latin America decreased due to lower maintenance revenue in our OpenEdge product line.

In the first six months of fiscal years 2021 and 2020, revenue generated in markets outside North America represented 42% of total revenue compared to 40% of total revenue on a constant currency basis.

Revenue in Latin America increased in the third fiscal quarter and first nine months of 2021 due to higher license and maintenance revenue in our OpenEdge product line.

In the first nine months of fiscal year 2021 revenue generated in markets outside North America represented 40% of total revenue compared to 39% of total revenue on a constant currency basis.

In the first nine months of fiscal year 2020 revenue generated in markets outside North America represented 42% of total revenue compared to 42% of total revenue on a constant currency basis.

Cost of Software Licenses

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 Change May 31, 2021 May 31, 2020 Change

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 Change August 31, 2021 August 31, 2020 Change

Cost of software licenses $ 1,574 $ 1,103 $ 471 43 % $ 3,763 $ 3,302 $ 461 14 %

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

The increase in the second fiscal quarter of fiscal year 2021 was the result of higher payments of royalties to third parties as compared to the prior period.

Year over year costs remained the same.

The increases in all periods were the result of higher 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 Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 Change May 31, 2021 May 31, 2020 Change

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 Change August 31, 2021 August 31, 2020 Change

Cost of maintenance and services $ 14,895 $ 11,971 $ 2,924 24 % $ 42,887 $ 35,607 $ 7,280 20 %

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

The increases in all periods were primarily due to increased headcount and hosting costs resulting from our acquisition of Chef.

The increases in all periods were primarily due to increased headcount, hosting, and outside services costs resulting from our acquisition of Chef.

Amortization of Intangibles

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 % Change May 31, 2021 May 31, 2020 %

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 % Change August 31, 2021 August 31, 2020 %

Amortization of intangibles $ 3,599 $ 1,664 116 % $ 10,719 $ 4,974 116 %

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The increases in both periods shown were primarily due to the acquisition of Chef.

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 % Change May 31, 2021 May 31, 2020 %

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 % Change August 31, 2021 August 31, 2020 %

Gross profit $ 127,349 $ 94,961 34 % $ 333,816 $ 275,882 21 %

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Sales and Marketing

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020

Change May 31, 2021 May 31, 2020

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020

Change August 31, 2021 August 31, 2020

Sales and marketing $ 29,737 $ 22,186 $ 7,551 34 % $ 88,468 $ 68,100 $ 20,368 30 %

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Product Development

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020

Change May 31, 2021 May 31, 2020 Change

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020

Change August 31, 2021 August 31, 2020 Change

Product development costs $ 25,616 $ 20,676 $ 4,940 24 % $ 76,579 $ 64,117 $ 12,462 19 %

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Total product development costs $ 25,616 $ 20,676 $ 4,940 24 % $ 76,579 $ 64,117 $ 12,462 19 %

Product development expenses increased in both periods shown primarily due to increased personnel related costs associated with our acquisition of Chef.

Product development expenses increased in both periods shown, primarily due to increased personnel related costs associated with our acquisition of Chef, as well as an increase in contractors and outside services and other product development costs.

General and Administrative

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020

Change May 31, 2021 May 31, 2020 Change

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020

Change August 31, 2021 August 31, 2020 Change

General and administrative $ 16,451 $ 13,514 $ 2,937 22 % $ 46,335 $ 38,702 $ 7,633 20 %

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

General and administrative expenses increased in both periods shown primarily due to higher personnel costs associated with our acquisition of Chef.

General and administrative expenses increased in both periods shown, primarily due to higher personnel costs associated with our acquisition of Chef, as well as an increase in contractors and outside services and other general and administrative costs.

Amortization of Intangibles

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 % Change May 31, 2021 May 31, 2020 % Change

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 % Change August 31, 2021 August 31, 2020 % Change

Amortization of intangibles $ 7,978 $ 4,176 91 % $ 22,836 $ 12,484 83 %

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Restructuring Expenses

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 % Change May 31, 2021 May 31, 2020 % Change

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 % Change August 31, 2021 August 31, 2020 % Change

Restructuring expenses $ 40 $ 91 (56) % $ 1,133 $ 1,826 (38) %

As a percentage of total revenue — % — % — % 1 %

Restructuring expenses recorded in the second quarter and first six months of fiscal year 2021 primarily relate to the restructuring activities that occurred in the fourth quarter of fiscal year 2020 resulting from the acquisition of Chef.

Restructuring expenses recorded in the second quarter and first six months of fiscal year 2020 are comprised mostly of costs related to the Ipswitch and Cognitive restructuring actions of 2019.

Restructuring expenses recorded in the third quarter and first nine months of fiscal year 2021 primarily relate to the restructuring activities that occurred in the fourth quarter of fiscal year 2020 resulting from the acquisition of Chef.

Restructuring expenses recorded in the third quarter and first nine 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 Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 % Change May 31, 2021 May 31, 2020 % Change

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 % Change August 31, 2021 August 31, 2020 % Change

Acquisition-related expenses $ 1,481 $ 1,125 32 % $ 2,721 $ 1,439 89 %

As a percentage of total revenue 1 % 1 % 1 % — %

*Not meaningful

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

These costs consist of professional service fees, including third-party legal and valuation-related fees.

Acquisition-related expenses increased in the second quarter and first six months of fiscal year 2021 due to the acquisition of Chef, as well as our pursuit of other acquisition opportunities.

Acquisition-related expenses increased in the third quarter and first nine months of fiscal year 2021 due to the acquisition of Chef, as well as our pursuit of other acquisition opportunities.

Acquisition-related expenses in the same period of fiscal year 2020 were related to the acquisition of Ipswitch.

Income from Operations

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 % Change May 31, 2021 May 31, 2020 % Change

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 % Change August 31, 2021 August 31, 2020 % Change

Income from operations $ 46,046 $ 33,193 39 % $ 95,744 $ 89,214 7 %

As a percentage of total revenue 31 % 30 % 24 % 28 %

Income from operations decreased in both periods shown due to an increase in costs of revenue and operating expenses, offset by increases in revenue as shown above.

Income from operations increased in both periods shown due to increases of revenue, offset by an increase in costs of revenue and operating expenses as shown above.

Other (Expense) Income, Net

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 % Change May 31, 2021 May 31, 2020 % Change

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 % Change August 31, 2021 August 31, 2020 % Change

Interest expense $ (6,510) $ (2,302) (183) % $ (13,625) $ (7,692) (77) %

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As a percentage of total revenue (4) % (3) % (4) % (3) %

Other expense, net, increased in both the second fiscal quarter and the six month period ended May 31, 2021 as compared to the same periods in the prior year.

Other expense, net, increased in both the third fiscal quarter and the nine month period ended August 31, 2021 as compared to the same periods in the prior year.

This is a result of increased interest expense associated with our convertible senior notes, which we issued in April 2021.

In the six month period ended May 31, 2021, the increase in interest expense is offset by lower foreign currency loss due to lower costs of forward points on our outstanding forward contracts.

In both periods shown, the increases in interest expense were offset by lower foreign currency loss due to lower costs of forward points on our outstanding forward contracts.

Provision for Income Taxes

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 % Change May 31, 2021 May 31, 2020 % Change

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 % Change August 31, 2021 August 31, 2020 % Change

Provision for income taxes $ 8,531 $ 6,254 36 % $ 17,841 $ 17,947 (1) %

As a percentage of total revenue 6 % 6 % 5 % 6 %

Our effective tax rate was 21% in the second fiscal quarter of 2021 compared to 25% in the second fiscal quarter of 2020.

The decrease is due primarily to the estimated fiscal year 2021 impact of the international tax provisions of the Tax Cuts and Jobs Act as compared to fiscal year 2020.

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

Three Months Ended Six Months Ended

(In thousands) May 31, 2021 May 31, 2020 % Change May 31, 2021 May 31, 2020 % Change

Our effective tax rate was 22% in the third fiscal quarter of 2021 compared to 21% in the third fiscal quarter of 2020.

The increase is due primarily to discrete tax benefits in the third fiscal quarter of 2020.

There were no significant discrete tax items in the third fiscal quarter of 2021.

Three Months Ended Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020 % Change August 31, 2021 August 31, 2020 % Change

Net income $ 30,976 $ 23,977 29 % $ 63,494 $ 62,061 2 %

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Cash, Cash Equivalents and Short-Term Investments

(In thousands) May 31, 2021 November 30, 2020

(In thousands) August 31, 2021 November 30, 2020

Cash and cash equivalents $ 379,895 $ 97,990

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Total cash, cash equivalents and short-term investments $ 383,677 $ 105,995

The increase in cash, cash equivalents and short-term investments of $256.7 million from the end of fiscal year 2020 was due to cash inflow from the issuance of the convertible senior notes of $349.2 million, cash inflows from operations of $99.4 million, $3.9 million in cash received from the issuance of common stock, the effect of exchange rates on cash of $3.9 million, and a decrease in escrow receivable of $2.1 million.

The increase in cash, cash equivalents and short-term investments of $277.7 million from the end of fiscal year 2020 was due to cash inflow from the issuance of the convertible senior notes of $349.2 million, cash inflows from operations of $134.6 million, $6.8 million in cash received from the issuance of common stock, a decrease in escrow receivable of $2.1 million, and the effect of exchange rates on cash of $0.6 million.

These cash inflows were offset by payments of debt obligations of $111.7 million, cash paid for the purchase of capped calls of $43.1 million in connection with the convertible note offering, repurchases of common stock of $35.0 million, dividend payments of $23.4 million, and purchases of property and equipment of $2.7 million.

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

As of May 31, 2021, $37.1 million of our cash, cash equivalents and short-term investments was held by our foreign subsidiaries.

As of August 31, 2021, $30.7 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.

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

In the three months ended May 31, 2021, we repurchased and retired 0.4 million shares for $20.0 million.

In the three months ended May 31, 2020, we did not repurchase and retire any shares of our common stock.

In the six months ended May 31, 2021 and May 31, 2020, we repurchased and retired 0.8 million shares for $35.0 million and 0.4 million shares for $20.0 million, respectively.

In each of the three months ended August 31, 2021 and August 31, 2020, we did not repurchase any shares of our common stock.

In the nine months ended August 31, 2021 and August 31, 2020, we repurchased and retired 0.8 million shares for $35.0 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 May 31, 2021, there was $155.0 million remaining under the current authorization.

As of August 31, 2021, there was $155.0 million remaining under the current authorization.

We began paying quarterly cash dividends to Progress stockholders in December 2016, with annual increases in the quarterly cash dividend since such time.

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, and on March 23, 2021, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock that was paid on June 15, 2021.

On June 22, 2021, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock that was paid on September 15, 2021.

Restructuring Activities

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

For the three and six months ended May 31, 2021, we incurred expenses of $0.9 million relating to this restructuring.

For the three months ended August 31, 2021, we incurred minimal expenses relating to this restructuring.

For the nine months ended August 31, 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 $0.4 million is included in other accrued liabilities on the condensed consolidated balance sheet at May 31, 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.

Accordingly, the balance of the restructuring reserve, which is not material, is included in other accrued liabilities on the condensed consolidated balance sheet at August 31, 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.

In September 2021, we closed a facility as part of this restructuring and expect to incur restructuring charges of approximately $2.9 million during the fourth quarter of fiscal year 2021.

Credit Facility

Our credit facility 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 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 sublimits 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.

The revolving line of credit 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 sublimits 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.

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

The outstanding balance of the term loan as of May 31, 2021 was $278.4 million, with $22.6 million due in the next 12 months.

The outstanding balance of the term loan as of August 31, 2021 was $272.8 million, with $24.5 million due in the next 12 months.

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 May 31, 2021 was 1.75%.

As of May 31, 2021, there were no amounts outstanding under the revolving line of credit and $2.5 million of letters of credit outstanding (Note 7).

The interest rate as of August 31, 2021 was 2.13%.

As of August 31, 2021, there were no amounts outstanding under the revolving line of credit and $2.4 million of letters of credit outstanding (Note 7).

Convertible Senior Notes

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Cash Flows From Operating Activities

Six Months Ended

(In thousands) May 31, 2021 May 31, 2020

Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020

Net income $ 63,494 $ 62,061

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Net cash flows from operating activities $ 134,602 $ 102,085

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 May 31, 2021 decreased by $20.6 million from the end of fiscal year 2020 and our days sales outstanding (DSO) in accounts receivable improved to 44 days from 47 days in the fiscal second quarter of 2020 due to the timing of billings and collections.

The year over year increase in cash generated from operations was primarily due to the addition of Chef for a full year, as well as particularly strong collections of our receivables, partially offset by increased expenses.

Our gross accounts receivable as of August 31, 2021 decreased by $7.7 million from the end of fiscal year 2020 and our days sales outstanding (DSO) in accounts receivable increased to 54 days from 49 days in the fiscal third quarter of 2020 due to the timing of billings and collections.

Cash Flows From (Used in) Investing Activities

Six Months Ended

(In thousands) May 31, 2021 May 31, 2020

Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020

Net investment activity $ 4,150 $ 9,892

Purchases of property and equipment (2,741) (3,419)

Decrease in escrow receivable 2,130 —

Decrease in escrow receivable and other 2,330 —

Net cash flows from investing activities $ 3,739 $ 6,473

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 $2.1 million of property and equipment in the first six months of fiscal year 2021, as compared to $1.8 million in the first six months of fiscal year 2020.

We also purchased $2.7 million of property and equipment in the first nine months of fiscal year 2021, as compared to $3.4 million in the first nine months of fiscal year 2020.

Cash Flows From (Used in) Financing Activities

Six Months Ended

(In thousands) May 31, 2021 May 31, 2020

Nine Months Ended

(In thousands) August 31, 2021 August 31, 2020

Proceeds from stock-based compensation plans $ 9,247 $ 9,027

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Net cash flows from (used in) financing activities $ 142,948 $ (44,928)

During the first six months of fiscal year 2021, we received $349.2 million in net proceeds from the issuance of convertible senior notes and paid $43.1 million to purchase capped calls in connection with the convertible note offering.

We also received $6.3 million from the exercise of stock options and the issuance of shares under our employee stock purchase plan as compared to $7.3 million in the first six months of fiscal year 2020.

During the first nine months of fiscal year 2021, we received $349.2 million in net proceeds from the issuance of convertible senior notes and paid $43.1 million to purchase capped calls in connection with the convertible note offering.

We also received $9.2 million from the exercise of stock options and the issuance of shares under our employee stock purchase plan as compared to $9.0 million in the first nine months of fiscal year 2020.

Further, we repurchased $35.0 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 $106.0 million (including a $98.5 million repayment on the revolving line of credit) in the first six months of fiscal year 2021 compared to $3.8 million in the same period of the prior year.

Finally, we made dividend payments of $15.6 million to our shareholders during the first six months of fiscal year 2021, as compared to $14.9 million in the first six months of fiscal year 2020.

We also made payments on our long-term debt of $111.7 million (including a $98.5 million repayment on the revolving line of credit) in the first nine months of fiscal year 2021 compared to $7.5 million in the same period of the prior year.

Finally, we made dividend payments of $23.4 million to our shareholders during the first nine months of fiscal year 2021, as compared to $22.4 million in the first nine months of fiscal year 2020.

Indemnification Obligations

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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.

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.

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.

Legal and Other Regulatory Matters

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis