What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-04-07 compared with 2021-10-07 · 252 added, 282 removed, 483 unchanged (53% of the section changed)

1 unchanged sentence

Condensed Consolidated Balance Sheets

(In thousands, except share data) August 31, 2021 November 30, 2020

(In thousands, except share data) February 28, 2022 November 30, 2021

Current assets:

6 unchanged sentences

Other current assets 40,401 39,549

Assets held for sale 15,255 15,255

Total current assets 342,622 337,808

3 unchanged sentences

Goodwill 673,036 671,152

Deferred tax assets 10,872 14,490

Right-of-use lease assets 23,604 25,253

Deferred tax assets 3,795 1,415

Other assets 8,603 8,915

Total assets $ 1,353,116 $ 1,363,537

Liabilities and shareholders’ equity

Liabilities and stockholders’ equity

Current liabilities:

2 unchanged sentences

Accrued compensation and related taxes 24,889 47,116

Dividends payable to shareholders 7,988 7,904

Dividends payable to stockholders 8,062 7,925

Short-term operating lease liabilities 8,075 7,926

Income taxes payable 5,475 1,899

Other accrued liabilities 18,658 19,491

5 unchanged sentences

Long-term deferred revenue 51,771 47,359

Deferred tax liabilities 5,931 14,163

Other noncurrent liabilities 7,197 8,940

Commitments and contingencies

Shareholders’ equity:

Stockholders’ equity:

Preferred stock, $ 0.01 par value;

3 unchanged sentences

issued and outstanding, 43,766,260 shares in 2022 and 44,146,193 shares in 2021

343,677 306,244

Additional paid-in capital 303,240 354,235

Retained earnings 93,661 90,256

Accumulated other comprehensive loss ( 29,016 ) ( 32,443 )

Total shareholders’ equity 396,773 346,013

Total liabilities and shareholders’ equity $ 1,275,487 $ 1,041,782

Total stockholders’ equity 368,323 412,489

Total liabilities and stockholders’ equity $ 1,353,116 $ 1,363,537

See notes to unaudited condensed consolidated financial statements.

Condensed Consolidated Statements of Operations

Three Months Ended Nine Months Ended

(In thousands, except per share data) August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Three Months Ended

(In thousands, except per share data) February 28, 2022 February 28, 2021

Software licenses $ 42,750 $ 33,317

33 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended Nine Months Ended

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

Three Months Ended

(In thousands) February 28, 2022 February 28, 2021

Net income $ 20,454 $ 18,961

Other comprehensive (loss) income, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 1,781 1,225

Unrealized gain (loss) on hedging activity, net of tax provision of $ 155 and $ 502 for the third quarter and first nine months of 2021, respectively, and net of tax provision of $ 166 and tax benefit of $ 1,302 for the third quarter and first nine months of 2020, respectively

479 58 1,551 ( 4,106 )

Unrealized (loss) gain on investments, net of tax benefit of $ 4 and $ 16 for the third quarter and first nine months of 2021, respectively and net of tax benefit of $ 42 and tax provision of $ 3 for the third quarter and first nine months of 2020, respectively

( 15 ) 21 ( 54 ) 105

Total other comprehensive (loss) income, net of tax ( 1,715 ) 4,643 2,419 ( 3,627 )

Unrealized gain on hedging activity, net of tax provision of $ 522 and $ 271 for the first quarter of 2022 and 2021, respectively

Unrealized (loss) gain on investments, net of tax benefit of $ 3 and $ 42 for the first quarter of 2022 and 2021, respectively

Total other comprehensive income, net of tax 3,427 2,076

Comprehensive income $ 23,881 $ 21,037

See notes to unaudited condensed consolidated financial statements.

Condensed Consolidated Statements of Shareholders’ Equity

Nine Months Ended August 31, 2021

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

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended February 28, 2022

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

(in thousands) Number of Shares Amount

Balance, December 1, 2021 44,146 $ 441 $ 354,235 $ 90,256 $ ( 32,443 ) $ 412,489

Cumulative effect of adoption of ASU 2020-06 — — ( 47,456 ) 4,893 — ( 42,563 )

Issuance of stock under employee stock purchase plan 63 1 1,826 — — 1,827

3 unchanged sentences

Stock-based compensation — — 8,114 — — 8,114

Equity components of Notes, net of issuance costs and tax — — 47,456 — — 47,456

Purchase of capped calls, net of tax — — ( 32,507 ) — — ( 32,507 )

Dividends declared — — — ( 7,921 ) — ( 7,921 )

2 unchanged sentences

Other comprehensive income — — — — 3,427 3,427

Balance, August 31, 2021 43,843 $ 438 $ 343,239 $ 83,455 $ ( 30,359 ) $ 396,773

Three Months Ended August 31, 2021

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

(in thousands) Number of Shares Amount

Balance, June 1, 2021 43,745 $ 437 $ 333,627 $ 60,301 $ ( 28,644 ) $ 365,721

Issuance of stock under employee stock purchase plan 67 1 1,885 — — 1,886

Exercise of stock options 31 — 1,009 — — 1,009

Withholding tax payments related to net issuance of RSUs — — ( 25 ) — — ( 25 )

Stock-based compensation — — 6,839 — — 6,839

Equity components of Notes, net of issuance costs and tax — — ( 341 ) — — ( 341 )

Purchase of capped calls, net of tax — — 245 — — 245

Dividends declared — — — ( 7,822 ) — ( 7,822 )

Net income — — — 30,976 — 30,976

Other comprehensive income — — — — ( 1,715 ) ( 1,715 )

Balance, August 31, 2021 43,843 $ 438 $ 343,239 $ 83,455 $ ( 30,359 ) $ 396,773

Nine Months Ended August 31, 2020

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

Balance, February 28, 2022 43,766 $ 438 $ 303,240 $ 93,661 $ ( 29,016 ) $ 368,323

Three Months Ended February 28, 2021

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

(in thousands) Number of Shares Amount

8 unchanged sentences

Net income — — — 18,961 — 18,961

Other comprehensive loss — — — — ( 3,627 ) ( 3,627 )

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 RSUs — — ( 177 ) — — ( 177 )

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

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

Net income — — — 23,977 — 23,977

Other comprehensive loss — — — — 4,643 4,643

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

Other comprehensive income — — — — 2,076 2,076

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

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

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

Three Months Ended

(In thousands) February 28, 2022 February 28, 2021

Cash flows from operating activities:

12 unchanged sentences

Other assets ( 1,081 ) 215

Inventories 418 —

Accounts payable and accrued liabilities ( 27,448 ) ( 17,762 )

4 unchanged sentences

Cash flows from (used in) investing activities:

Purchases of investments — ( 5,009 )

Sales and maturities of investments 300 1,300

1 unchanged sentence

Decrease in escrow receivable and other — 2,130

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

Net cash flows (used in) from investing activities ( 531 ) 2,264

Cash flows from (used in) financing activities:

2 unchanged sentences

Repurchases of common stock ( 25,000 ) ( 15,000 )

Proceeds from issuance of senior convertible notes, net of issuance costs of $ 9,900

Purchase of capped calls ( 43,056 ) —

Dividend payments to shareholders ( 23,372 ) ( 22,358 )

Dividend payments to stockholders ( 7,784 ) ( 7,854 )

Proceeds from the issuance of debt 7,474 —

Payment of principal on long-term debt ( 1,719 ) ( 18,763 )

Payment of debt issuance costs ( 1,957 ) —

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

Net cash flows used in financing activities ( 28,031 ) ( 39,024 )

Effect of exchange rate changes on cash 729 1,780

3 unchanged sentences

Condensed Consolidated Statements of Cash Flows, continued

Nine Months Ended

August 31, 2021 August 31, 2020

Three Months Ended

February 28, 2022 February 28, 2021

Supplemental disclosure:

8 unchanged sentences

Basis of Presentation

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 applications 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.

Company Overview - Progress Software Corporation ("Progress," the "Company," "we," "us," or "our") is dedicated to propelling business forward in a technology-driven world.

Progress helps businesses drive faster cycles of innovation, fuel momentum and accelerate their path to success.

As the trusted provider of the leading products to develop, deploy and manage high-impact applications, Progress enables customers to develop the applications and experiences the need, deploy where and how they want and manage it all safely and securely.

Hundreds of thousands of enterprises, including 1,700 software companies and 3.5 million developers depend on Progress to achieve their goals—with confidence.

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.

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Recently Adopted Accounting Pronouncements

Financial Instruments - Credit Losses

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

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.

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ("ASU 2019-12").

ASU 2019-12 updates specific areas of ASC 740, Income Taxes, to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements.

The Company adopted this standard effective December 1, 2021.

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

Recently Issued Accounting Pronouncements

The adoption of this standard did not have a material effect on the Company's condensed consolidated financial position and results of operations.

Convertible Debt

In August 2020, the FASB issued Accounting Standards Update No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

The standard eliminates the liability and equity separation model for convertible instruments with a cash conversion feature.

As a result, after adoption, entities will no longer separately present an embedded conversion feature for such debt in equity.

Additionally, the debt discount resulting from the separation of the embedded conversion feature will no longer be amortized into income as interest expense over the instrument’s life.

Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging , or (2) a convertible debt instrument was issued at a substantial premium.

The standard also requires applying the if-converted method to calculate the impact of the convertible instrument on diluted earnings per share.

The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020.

It can be adopted on either a full retrospective or modified retrospective basis.

The Company plans to adopt this standard in accordance with the full retrospective approach in the first quarter of fiscal year 2022.

We have substantially completed our assessment of the retrospective application of this new standard to our historical financial statements.

On a preliminary basis, we believe that the retrospective impact of the adoption of the standard on fiscal year 2021 results will be a decrease of interest expense of approximately $ 6.9 million, an increase of notes payable of approximately $ 56.0 million, a decrease of deferred tax liabilities of approximately $ 13.7 million, a decrease of additional paid-in capital of approximately $ 49.2 million, and an increase of retained earnings of approximately $ 6.9 million.

We will finalize our retrospective presentation of our historical financial statements under the new standard in connection with our 10-Q filings during fiscal year 2022 and our 10-K for the fiscal year ending November 30, 2022.

On December 1, 2021, we early adopted Accounting Standards Update No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06") on a modified retrospective basis.

Under ASU 2020-06, we no longer separate the convertible senior notes into liability and equity components.

We recognized the cumulative effect of initially applying this new standard as of December 1, 2021 as an adjustment to the December 1, 2021 opening balance of retained earnings.

The conversion option that was previously accounted for in equity under the cash conversion model was recombined into the convertible debt outstanding, and as a result, additional paid in capital and the related unamortized debt discount on the convertible senior notes were reduced.

The removal of the remaining debt discount recorded for this previous separation has the effect of increasing our net debt balance.

We recorded a $ 47.5 million decrease to additional paid-in capital, a $ 56.0 million decrease to debt discount, a $ 4.9 million increase to retained earnings, and a $ 13.4 million decrease to long-term deferred tax liabilities.

There was no impact to the Company’s statements of cash flows as the result of the adoption of ASU 2020-06.

The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

Debt" for additional information regarding the terms of the Convertible Senior Notes (the "Notes").

The new standard requires the use of the "if-converted" method to calculate the diluted earnings per common share.

Refer to Note 16:

Earnings Per Share for effect of the convertible notes on diluted earnings per common share.

Cash, Cash Equivalents and Investments

A summary of our cash, cash equivalents and available-for-sale investments at August 31, 2021 is as follows (in thousands):

A summary of our cash, cash equivalents and available-for-sale investments at February 28, 2022 is as follows (in thousands):

Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value

12 unchanged sentences

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

August 31, 2021 November 30, 2020

February 28, 2022 November 30, 2021

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

4 unchanged sentences

Total $ 171,666 $ 1,656 $ 155,406 $ 1,967

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

August 31, 2021 November 30, 2020

Due in one year or less $ 3,021 $ 5,998

Due after one year (1)

Total $ 3,782 $ 8,005

(1) Includes U.S.

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, 2021 or November 30, 2020.

The fair value of debt securities by contractual maturity due in one year or less was $ 1.7 million and $ 2.0 million as of February 28, 2022 and November 30, 2021, respectively.

There were no debt securities by contractual maturity due after one year as of February 28, 2022 or November 30, 2021.

We did not hold any investments with continuous unrealized losses as of February 28, 2022 or November 30, 2021.

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, 2021 , the fair value of the hedge was a loss of $ 4.8 million, which was included in other noncurrent liabilities on our condensed consolidated balance sheets.

On January 25, 2022, we amended our prior credit facility (see Note 8:

We reassessed the hedge in connection with the debt amendment and determined that it is still highly effective.

As of February 28, 2022 , the fair value of the hedge was a loss of $ 0.9 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, 2021 November 30, 2020

February 28, 2022 November 30, 2021

Notional Value Fair Value Notional Value Fair Value

3 unchanged sentences

We generally do not hedge the net assets of our international subsidiaries.

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, 2021, $ 1.7 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 and nine months ended August 31, 2021, realized and unrealized losses of $ 2.3 million and realized and unrealized gains of $ 0.4 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, 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.

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

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 3 years from the date the contract was entered.

At February 28, 2022, $ 0.1 million and $ 0.4 million was recorded in noncurrent assets and current liabilities on our condensed consolidated balance sheets.

At November 30, 2021, $ 0.3 million and $ 0.1 million were recorded in other noncurrent liabilities and other accrued liabilities, respectively, on our condensed consolidated balance sheets.

In the three months ended February 28, 2022 and February 28, 2021, realized and unrealized gains of $ 0.3 million and $ 1.7 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations.

These gains were substantially offset by realized and unrealized losses in 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, 2021 November 30, 2020

February 28, 2022 November 30, 2021

Notional Value Fair Value Notional Value Fair Value

6 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at August 31, 2021 (in thousands):

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at February 28, 2022 (in thousands):

Fair Value Measurements Using

19 unchanged sentences

Fair Value of the Convertible Senior Notes

The liability component of the Company’s Notes (as defined in Note 7:

Debt ) was recorded at $ 295.2 million upon issuance, which reflected the fair value of a similar debt instrument that does not have an associated convertible feature.

The fair value was determined based on a discounted cash flow model and classified within Level 2 of the fair value hierarchy.

The discount rate used reflected both the time value of money and credit risk inherent in the Notes.

The carrying value of the liability component of the Notes will be accreted, over the remaining term to maturity, to their principal value of $ 360.0 million.

The Notes’ fair value, inclusive of the conversion feature embedded in the Notes, was $ 364.7 million as of August 31, 2021.

The Notes’ fair value, inclusive of the conversion feature embedded in the Notes, was $ 356.0 million as of February 28, 2022.

The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 1 in the fair value hierarchy.

Debt for additional information.

The components of inventories were as follows (in thousands):

February 28, 2022 November 30, 2021

Raw materials $ 1,192 $ 1,920

Work in process — —

Finished goods 1,979 1,631

Total $ 3,171 $ 3,551

At February 28, 2022 and November 30, 2021, the inventories balances of $ 3.2 million and $ 3.6 million were recorded in other current assets on the condensed consolidated balance sheets.

Intangible Assets and Goodwill

1 unchanged sentence

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

August 31, 2021 November 30, 2020

February 28, 2022 November 30, 2021

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

4 unchanged sentences

Total $ 558,619 $ ( 287,329 ) $ 271,290 $ 558,619 $ ( 271,434 ) $ 287,185

In the three and nine months ended August 31, 2021, amortization expense related to intangible assets was $ 11.6 million and $ 33.6 million, respectively.

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.

Future amortization expense for intangible assets as of August 31, 2021, is as follows (in thousands):

In the first quarter of fiscal years 2022 and 2021, amortization expense related to intangible assets was $ 17.2 million and $ 10.4 million, respectively.

Future amortization expense for intangible assets as of February 28, 2022, is as follows (in thousands):

Remainder of 2022 $ 52,019

1 unchanged sentence

Total $ 271,290

Changes in the carrying amount of goodwill in the nine months ended August 31, 2021 are as follows (in thousands):

Changes in the carrying amount of goodwill in the three months ended February 28, 2022 are as follows (in thousands):

Balance, November 30, 2021 $ 671,152

1 unchanged sentence

Translation adjustments ( 2 )

Balance, August 31, 2021 $ 491,412

Balance, February 28, 2022 $ 673,036

Business Combinations

Kemp Acquisition

On November 1, 2021, we completed the acquisition of the parent company of Kemp Technologies, Inc.

(“Kemp”) pursuant to the Stock Purchase Agreement (the “Purchase Agreement”), dated as of September 23, 2021.

The acquisition was completed for a base purchase price of $ 258.0 million, subject to certain customary adjustments as further described in the Purchase Agreement (the “Aggregate Consideration”), which was paid in cash from existing cash balances.

Pursuant to the Purchase Agreement, $ 2.0 million of the Aggregate Consideration was deposited into an escrow account to secure certain potential obligations of the former Kemp equity holders.

Kemp is an application experience company that helps enterprises deliver, optimize and secure applications and networks across any cloud or hybrid environment.

With this acquisition, we extended our portfolio of industry-leading products in DevOps/DevSecOps, Application Development, Data Connectivity and Digital Experience, adding Application Experience Management (AX).

Kemp Loadmaster and Flowmon Network Visibility products monitor application performance, and distribute and balance traffic and workloads across servers, in the cloud or on premise, ensuring high performance and availability.

The Aggregate Consideration has been preliminarily allocated to Kemp’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 based on our ongoing valuation and purchase price allocation procedures.

We are still finalizing the valuation and purchase price allocation as it relates to the net working capital amount in the table below.

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

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

Net working capital $ 27,075 $ ( 772 ) $ 26,303

Property, plant and equipment 803 ( 8 ) 795

Purchased technology 39,400 — 39,400 5 years

Trade name 7,200 — 7,200 5 years

Customer relationships 75,500 — 75,500 5 years

Other assets 170 27 197

Other noncurrent liabilities ( 604 ) ( 1,133 ) ( 1,737 )

Deferred taxes ( 23,187 ) — ( 23,187 )

Deferred revenue ( 29,997 ) — ( 29,997 )

Goodwill 179,521 1,886 181,407

Net assets acquired $ 275,881 $ — $ 275,881

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 our estimates of customer attrition, technology obsolescence, and revenue growth projections.

Based on the preliminary valuation, the acquired intangible assets are comprised of customer relationships of approximately $ 75.5 million, existing technology of approximately $ 39.4 million, and trade names of approximately $ 7.2 million.

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

As described in Note 1:

Nature of Business and Summary of Significant Accounting Policies, we adopted ASU 2021-08, which amended ASC 805 to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

We determined the acquisition date deferred revenue balance based on our assessment of the individual contracts acquired and our application

of Topic 606.

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 and solution offerings created as a result of this acquisition has principally contributed to a purchase price that resulted in the recognition of $ 181.4 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 months ended February 28, 2022, we incurred approximately $ 0.4 million of acquisition-related costs, which are included in acquisition-related expenses on our consolidated statement of operations.

We determined that disclosing the amount of Kemp related earnings included in the consolidated statements of operations is impracticable, as certain operations of Kemp 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 Kemp as if the acquisition had occurred on December 1, 2019, after giving effect to certain pro forma adjustments.

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

These pro forma adjustments include:

(i) an increase in revenue from Kemp as a result of the application of Topic 606 to recognize and measure contract assets and contract liabilities in the business combination, (ii) a net increase in amortization expense to record amortization expense relating to the $ 122.1 million of acquired identifiable intangible assets, (iii) a decrease in interest expense to remove the interest expense associated with Kemp’s debt obligations, and (iv) the income tax effect of the adjustments made at the statutory tax rate of the U.S.

(approximately 24.5 %).

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, 2019.

These results are prepared in accordance with ASC 606.

(in thousands, except per share data) Pro Forma Three Months Ended February 28, 2021

Revenue $ 135,522

Net income $ 17,178

Net income per basic share $ 0.39

Net income per diluted share $ 0.38

Chef Acquisition

4 unchanged sentences

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.

Chef has enhanced our position as a trusted provider of the leading 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).

We funded the acquisition through a combination of existing cash resources and by drawing down $ 98.5 million from our then-existing revolving credit facility (Note 8).

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 were 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 based on our ongoing valuation and purchase price allocation procedures.

We are still finalizing the valuation and purchase price allocation as it relates to the net working capital amount in the table below.

We recorded measurement period adjustments in accordance with FASB’s guidance regarding business combinations in the third and fourth quarters of fiscal year 2021 based on our valuation and purchase price allocation procedures.

The measurement period adjustments were completed during the fourth quarter of fiscal year 2021.

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

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

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

Net working capital $ 52,330 $ 147 $ 52,477

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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 is expected to be recognized in the 12 months following the acquisition.

A significant portion of the deferred revenue was 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.

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During the three and nine months ended August 31, 2021, we incurred approximately $ 0.1 million and $ 0.7 million of acquisition-related costs, respectively, which are included in acquisition-related expenses on our consolidated statement of operations.

During the three months ended February 28, 2022, we incurred minimal acquisition-related costs, which are included in acquisition-related expenses on our consolidated statement of operations.

The operations of Chef were included in our operating results beginning on the date of acquisition.

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 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 %).

These results are prepared in accordance with ASC 606.

(In thousands, except per share data) Pro Forma

Three Months Ended August 31, 2020

Revenue $ 128,782

Net income $ 22,830

Net income per basic share $ 0.51

Net income per diluted share $ 0.50

(In thousands, except per share data) Pro Forma

Nine Months Ended August 31, 2020

Revenue $ 369,814

Net income $ 47,444

Net income per basic share $ 1.06

Net income per diluted share $ 1.05

As of August 31, 2021, future maturities of the Company's long-term debt were as follows:

(In thousands) 2026 Notes Credit Facility Maturing in 2024 Total

The Company adopted ASU 2020-06 on December 1, 2021.

See Note 1 for further discussion of this recently adopted accounting policy.

As of February 28, 2022, future maturities of the Company's long-term debt were as follows:

(In thousands) 2026 Notes Revolving Credit Facility Total

Remainder of 2022 $ — $ 5,156 $ 5,156

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2026 — 20,625 20,625

2027 360,000 206,250 566,250

Total face value of long-term debt 360,000 273,281 633,281

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Convertible Senior Notes and Capped Calls

In April 2021, the Company issued, in a private placement to certain initial purchasers in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act in transactions not involving any public offering, for resale by the initial purchasers to persons whom the initial purchasers believe are qualified institutional buyers pursuant to Rule144A under the Securities Act, Convertible Senior Notes (the "Notes") with an aggregate principal amount of $ 325 million, due April 15, 2026, unless earlier repurchased, redeemed or converted.

In April 2021, the Company issued, in a private placement to certain initial purchasers in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act in transactions not involving any public offering, for resale by the initial purchasers to persons whom the initial purchasers believe are qualified institutional buyers pursuant to Rule144A under the Securities Act, the Notes with an aggregate principal amount of $ 325 million, due April 15, 2026, unless earlier repurchased, redeemed or converted.

The proceeds from the Notes were used or are anticipated to be used for the Capped Call Transactions (described below), working capital, and other general corporate purposes, including acquisitions.

There are no required principal payments prior to the maturity of the Notes.

There are no required principal payments prior to maturity.

In addition, the Company also granted the initial purchasers of the Notes an option to purchase up to an additional $ 50.0 million aggregate principal amount of the Notes, for settlement within a 13 -day period beginning on, and including, April 13, 2021, of which $ 35 million of additional Notes were purchased for total proceeds of $ 360 million.

The Notes bear interest at an annual rate of 1 %, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2021.

Proceeds from the Notes:

(In thousands)

Principal $ 360,000

issuance costs ( 10,804 )

The Company incurred approximately $ 10.8 million in issuance cost for the issuance of the Notes.

During the three months ended February 28, 2022, the Company did not enter into any new or amended Notes.

Conversion Rights

Before January 15, 2026, Noteholders may convert their Notes in the following circumstances:

• During any fiscal quarter (and only during such fiscal quarter) commencing after the fiscal quarter ending on May 31, 2021, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for each of at least twenty trading days (whether or not consecutive) during the thirty consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter;

• During the five consecutive business days immediately after any ten consecutive trading day period (the “Measurement Period”), if the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price per share of Company’s common stock on such trading day and the conversion rate on such trading day;

• Upon the occurrence of certain corporate events or distributions on the Company’s common stock, or if the Company calls such Notes for redemption, then the Noteholder of any Note may convert such Note at any time before the close of business on the business day immediately before the related redemption date.

From and after January 15, 2026, Noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.

The Company will satisfy its conversion obligations by paying cash up to the aggregate principal amount of Notes to be converted, by issuing shares of its common stock or a combination of cash and shares of its common stock, at its election.

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Accounting for the Notes

In accounting for the transaction, the Notes have been separated into liability and equity components.

In accounting for the transaction, prior to the adoption of ASU 2020-06, the Notes were separated into liability and equity components.

• The conversion option of the Notes does not require bifurcation as an embedded derivative.

• The initial carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated conversion feature.

The excess of the Notes’ principal amount over the initial carrying amount of the liability component, referred to as the debt discount, is amortized as interest expense over the Notes’ contractual term.

• The equity component, which represents the difference between the gross proceeds and the initial liability component, was recorded as an increase to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.

The Company incurred issuance costs of $ 10.8 million related to the Notes, allocated between the Notes’ liability and equity components proportionate to the initial carrying amount of the liability and equity components.

• Issuance costs attributable to the liability component of $ 8.9 million are recorded as an offset to the Notes’ principal balance.

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• Issuance costs attributable to the equity component of $ 1.9 million are recorded as an offset to the equity component in additional paid-in capital and are not amortized.

Net carrying amount of the liability component:

(In thousands) August 31, 2021

Principal $ 360,000

Conversion option allocated to equity

Unamortized discount ( 3,917 )

Net carrying amount of the equity component, included in additional paid-in capital:

(In thousands) August 31, 2021

Conversion options (1)

Capped call ( 43,056 )

(1) Net of issuance costs

Upon adoption of ASU 2020-06 on December 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the Notes wholly as debt.

The Company also reversed the amortization of the debt discount that was due to the equity component, with a cumulative adjustment to retained earnings on the adoption date.

Further, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense over the remaining term at an effective interest rate of 1.63 % with a cumulative adjustment to retained earnings on the adoption date.

Refer to Note 1, Basis of Presentation for further details on the impact of adoption.

Interest expense related to the Notes:

Three Months Ended

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

Contractual interest expense ( 1 % coupon)

Amortization of debt discount (1)

Amortization of issuance costs (1)

(1) Amortized based upon an effective interest rate of 5.7 %.

Nine Months Ended

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

(In thousands) February 28, 2022 February 28, 2021

Contractual interest expense ( 1 % coupon)

Amortization of debt discount (1)

Amortization of issuance costs (1)

(1) Amortized based upon an effective interest rate of 5.7 %.

Amortization of debt discount and issuance costs 525 —

Prior to adoption of ASU 2020-06, the effective interest rate for the Notes was 5.71 %.

After the adoption of ASU 2020-06, the effective interest rates for the Notes is 1.63 %.

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 is 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.

On January 25, 2022, the Company entered into an amended and restated credit agreement (the "Credit Agreement"), which provides for a $ 275.0 million secured term loan and a $ 300.0 million secured revolving line of credit.

The revolving credit facility may be increased, and new term loan commitments may be entered into, by up to an additional amount up to the sum of (A) the greater of (x) $ 260.0 million and (y) 100 % of Consolidated EBITDA (as defined in the Credit Agreement) and (B) an unlimited additional amount subject to pro forma compliance with a Consolidated Senior Secured Net Leverage Ratio of no greater than 3.75 to 1.00 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.

This new credit facility replaces our prior secured credit facility dated April 30, 2019.

The amount of the term loan outstanding under our prior secured credit facility was incorporated into the amended and restated credit facility.

Interest rates for the Credit Agreement are determined by reference to a term benchmark rate or a base rate at our option and would range from 1.00 % to 2.00 % above the term benchmark rate or would range from 0.00 % to 1.00 % above the defined base rate for base rate borrowings, in each case based upon our leverage ratio.

Additionally, we may borrow certain foreign currencies at rates set in the same range above the respective term benchmark rates for those currencies, based on our leverage ratio.

We will incur a quarterly commitment fee on the undrawn portion of the revolving credit facility, ranging from 0.125 % to 0.275 % per annum, based upon our leverage ratio.

At closing of the revolving credit facility, the applicable interest rate and commitment fee are at the third lowest rate in each range.

The Credit Agreement matures on the earlier of (i) January 25, 2027, and (ii) the date that is 181 days prior to the maturity date of our Notes subject to certain conditions as set forth in the Credit Agreement, including the repayment of the Notes, the refinancing of the Notes including a maturity date that is at least 181 days after January 25, 2027 and compliance with a liquidity test 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, 2021 was $ 272.8 million, with $ 24.5 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 outstanding balance of the term loan as of February 28, 2022 was $ 273.3 million, with $ 6.9 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 February 28, 2022.

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.

(i) eight payments of $ 1.7 million each, (ii) four payments of $ 3.4 million each, (iii) eight payments of $ 5.2 million each, and (iv) 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.

As of August 31, 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.

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

Costs incurred to obtain our long-term debt of $ 2.9 million 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, 2021.

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, 2021 and August 31, 2020.

Amortization expense related to the debt issuance costs was $ 0.4 million and for each of the nine months ended August 31, 2021 and August 31, 2020.

As of February 28, 2022, 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.

The interest rate as of February 28, 2022 was 1.79 %.

Costs incurred to obtain our long-term debt of $ 3.2 million, including $ 1.1 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 long-term debt liability on our condensed consolidated balance sheets as of February 28, 2022.

These costs are being amortized over the term of the Credit Agreement using the effective interest rate method.

Amortization expense related to the debt issuance costs was $ 0.3 million and $ 0.1 million, for the three months ended February 28, 2022 and February 28, 2021, respectively.

These amounts are 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.

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.

In February 2016, the FASB issued ASC 842 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

The Company adopted ASC 842 on December 1, 2019 using the modified retrospective method and as a result did not adjust comparative periods or modify disclosures in those comparative periods.

The new guidance provides a number of optional practical expedients in transition.

The revolving line of credit may be borrowed, repaid, and reborrowed until January 25, 2027, at which time all amounts outstanding must be repaid.

As of February 28, 2022, there were no amounts outstanding under the revolving line of credit and $ 2.2 million of letters of credit outstanding.

Upon adoption of ASC 842, there were a number of optional practical expedients to apply in transition.

The Company elected the package of practical expedients, which does not require the reassessment of prior conclusions about lease identification, lease classification and initial direct costs.

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The Company makes variable payments on certain of its leases related to taxes, insurance, common area maintenance, and utilities, among other things.

The adoption of ASC 842 on December 1, 2019 resulted in the recognition of operating lease ROU assets of approximately $ 28.9 million and operating lease liabilities of approximately $ 29.9 million.

The difference between the value of the ROU assets and lease liabilities is due to the reclassification of existing deferred rent, prepaid rent, and unamortized lease incentives as of December 1, 2019.

Operating leases are included in ROU assets and lease liabilities on the Company’s balance sheets.

ROU assets and lease liabilities are to be presented separately for operating and finance leases;

however, the Company currently has no material finance leases.

The adoption of ASC 842 did not have a material impact on the Company’s condensed consolidated statement of operations, consolidated statement of stockholders' equity, consolidated statement of comprehensive income (loss) or consolidated statement of cash flows.

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

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, 2021 were as follows (in thousands):

Three Months Ended Nine Months Ended

August 31, 2021 August 31, 2021

Lease costs under long-term operating leases $ 1,991 $ 6,135

Lease costs under short-term operating leases 3 22

Variable lease cost under short-term and long-term operating leases (1)

Operating lease right-of-use asset impairment — 36

Total operating lease cost $ 2,124 $ 6,473

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

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, 2022 and February 28, 2021 were as follows (in thousands):

Three Months Ended Three Months Ended

February 28, 2022 February 28, 2021

Lease costs under long-term operating leases $ 1,764 $ 2,135

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Variable lease cost under short-term and long-term operating leases (1)

Operating lease right-of-use asset impairment — 1,189

Total operating lease cost $ 1,899 $ 2,265

(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, 2021 and August 31, 2020 (in thousands):

Nine Months Ended

August 31, 2021 August 31, 2020

The table below presents supplemental cash flow information related to leases during the three months ended February 28, 2022 and February 28, 2021 (in thousands):

Three Months Ended

February 28, 2022 February 28, 2021

Cash paid for leases $ 2,146 $ 2,258

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

August 31, 2021 November 30, 2020

February 28, 2022 November 30, 2021

Weighted average remaining lease term in years 3.93 4.15

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

August 31, 2021

February 28, 2022

Remainder of 2022 $ 6,635

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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 August 31, 2021 and August 31, 2020, we did no t 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.

In the three months ended February 28, 2022 and February 28, 2021, we repurchased and retired 0.6 million shares for $ 25.0 million and 0.4 million shares for $ 15.0 million, respectively.

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

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

As of February 28, 2022, there was $ 130.0 million remaining under the current authorization.

Stock-Based Compensation

We issue restricted stock units, performance-based restricted stock units and stock options under our equity plans.

We also issue common stock under our employee stock purchase plan that permits employees to purchase shares through accumulated payroll deductions.

Stock-based compensation expense reflects the fair value of stock-based awards, less the present value of expected dividends when applicable, measured at the grant date and recognized over the relevant service period.

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In 2020, 2021 and 2022, 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:

Vesting of the LTIP awards on the 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).

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

For the 2021 and 2022 plan, the vesting terms were changed to the following:

(i) 25 % is based on our level of attainment of specified 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 operating income.

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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, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Three Months Ended

February 28, 2022 February 28, 2021

Cost of maintenance and services $ 411 $ 392

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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, 2021 (in thousands):

Foreign Currency Translation Adjustment Unrealized 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, 2022 (in thousands):

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

Balance, December 1, 2021 $ ( 30,055 ) $ ( 49 ) $ ( 2,339 ) $ ( 32,443 )

Other comprehensive income before reclassifications, net of tax 1,781 ( 7 ) 1,653 3,427

Balance, August 31, 2021 $ ( 26,694 ) $ ( 40 ) $ ( 3,625 ) $ ( 30,359 )

The tax effect on accumulated unrealized losses on hedging activity and unrealized gains on investments was $ 1.1 million and $ 1.6 million as of August 31, 2021 and November 30, 2020, respectively.

Balance, February 28, 2022 $ ( 28,274 ) $ ( 56 ) $ ( 686 ) $ ( 29,016 )

The tax effect on accumulated unrealized (losses) gains on hedging activity and unrealized (losses) on investments was $ 0.2 million and $ 0.7 million as of February 28, 2022 and November 30, 2021, respectively.

Revenue Recognition

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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, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Three Months Ended

(In thousands) February 28, 2022 February 28, 2021

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, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Three Months Ended

(In thousands) February 28, 2022 February 28, 2021

North America $ 78,093 $ 71,505

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

has accounted for more than 10% of our total revenue for the three and nine months ended August 31, 2021 and August 31, 2020.

has accounted for more than 10% of our total revenue for the three months ended February 28, 2022 and February 28, 2021.

Contract Balances

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

As of February 28, 2022, invoicing of our long-term unbilled receivables is expected to occur as follows (in thousands):

Total $ 13,436

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 $ 6.9 million as of August 31, 2021 and $ 11.3 million as of November 30, 2020.

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 $ 3.3 million as of February 28, 2022 and $ 5.0 million as of November 30, 2021.

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.

As of August 31, 2021, the changes in deferred revenue were as follows (in thousands):

As of February 28, 2022, the changes in deferred revenue were as follows (in thousands):

Balance, December 1, 2021 $ 252,380

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Revenue recognized ( 144,922 )

Balance, August 31, 2021 $ 203,020

Balance, February 28, 2022 $ 261,542

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, 2021, transaction price allocated to remaining performance obligations was $ 213.7 million.

As of February 28, 2022, transaction price allocated to remaining performance obligations was $ 276 million.

We expect to recognize approximately 78 % 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 $ 5.3 million and $ 2.5 million as of August 31, 2021 and November 30, 2020, respectively, and are included in other current assets and other assets on our condensed consolidated balance sheets.

Total deferred contract costs were $ 7.8 million and $ 7.9 million as of February 28, 2022 and November 30, 2021, 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 — 6 6

Balance, August 31, 2021 $ — $ 31 $ 31

Balance, February 28, 2022 $ 4,334 $ 1,136 $ 5,470

During the fourth quarter of fiscal year 2021, we restructured our operations in connection with the acquisition of Kemp (Note 7).

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

For the three months ended February 28, 2022, we incurred expenses of $ 0.4 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):

Excess Facilities and Other Costs Employee Severance and Related Benefits Total

Balance, December 1, 2021 $ — $ 1,882 $ 1,882

Costs incurred — 403 403

Cash disbursements — ( 1,155 ) ( 1,155 )

Translation adjustments and other — 6 6

Balance, February 28, 2022 $ — $ 1,136 $ 1,136

Cash disbursements for expenses incurred to date under this restructuring are expected to be made through fiscal year 2022.

Accordingly, the balance of the restructuring reserve of $ 1.1 million is included in other accrued liabilities on the consolidated balance sheet at February 28, 2022.

We expect to incur additional expenses as part of this action related to employee costs during fiscal year 2022, but we do not expect these costs to be material.

During the fourth quarter of fiscal year 2020, we restructured our operations in connection with the acquisition of Chef (Note 7).

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

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

For the nine months ended August 31, 2021, we incurred expenses of $ 0.9 million related to this restructuring.

For the three months ended February 28, 2022, we incurred expenses of $ 0.1 million, related to this restructuring.

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

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Cash disbursements ( 257 ) ( 7 ) ( 264 )

Translation adjustments and other — 11 11

Balance, August 31, 2021 $ — $ 31 $ 31

Balance, February 28, 2022 $ 4,334 $ — $ 4,334

Cash disbursements for expenses incurred to date under this restructuring are expected to be made through fiscal year 2022.

Accordingly, the balance of the restructuring reserve, which is not material, is included in other accrued liabilities on the 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 action and expect to incur restructuring charges of approximately $ 2.9 million during the fourth quarter of fiscal year 2021.

Our income tax provision for the third 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.

Accordingly, the balance of the restructuring reserve of $ 4.3 million is included in other accrued liabilities, and short-term and long-term lease liabilities on the consolidated balance sheet at February 28, 2022.

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 2022, but we do not expect these costs to be material.

Our income tax provision for the first quarter of fiscal years 2022 and 2021 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 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.

Our effective tax rate was 21 % in the first fiscal quarter of 2022, compared to 23 % in the first fiscal quarter of 2021.

The decrease is due primarily to discrete tax expense related to the vesting of our Long-Term Incentive Plan ("LTIP") in the first fiscal quarter of 2021.

There were no significant discrete tax items in the first fiscal quarter of 2022.

Our federal income tax returns have been examined or are closed by statute for all years prior to fiscal year 2018.

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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, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Three Months Ended

February 28, 2022 February 28, 2021

Net income $ 20,454 $ 18,961

Weighted average shares outstanding 43,981 44,108

Dilutive impact from common stock equivalents 740 328 646 441

Basic earnings per common share 0.47 0.43

Diluted earnings per common share:

Net income 20,454 18,961

Weighted average shares outstanding 43,981 44,108

Effect of dilution from common stock equivalents 727 544

Diluted weighted average shares outstanding 44,708 44,652

Basic earnings per share $ 0.71 $ 0.53 $ 1.45 $ 1.38

Diluted earnings per share $ 0.46 $ 0.42

We excluded stock awards representing approximately 1,250,000 and 1,241,000 shares of common stock from the calculation of diluted earnings per share in the three and nine months ended August 31, 2021, respectively, because these awards were anti-dilutive.

In the three and nine months ended August 31, 2020, we excluded stock awards representing 1,450,000 shares and 1,216,000 shares of common stock, respectively, from the calculation of diluted earnings per share as they were anti-dilutive.

In connection with the issuance of the Notes, we entered into Capped Calls (Note 7), which were not included for the purpose of calculating the number of diluted shares outstanding, as their effect would have been antidilutive.

We excluded stock awards representing approximately 1,536,000 and 1,078,000 shares of common stock from the calculation of diluted earnings per share in the three months ended February 28, 2022 and February 28, 2021, respectively, as these awards were anti-dilutive.

As a result of our adoption of ASU 2020-06 on December 1, 2021, the dilutive impact of the Notes on our calculation of diluted net income per share is considered using the if-converted method.

However, because the principal amount of the Notes must be settled in cash, the dilutive impact of applying the if-converted method is limited to the in-the-money portion, if any, of the Notes.

During the three months ended February 28, 2022, we did not include the Notes in our diluted earnings per share calculation because the conversion feature in the Notes was out of the money.

For periods prior to our December 1, 2021 adoption of ASU 2020-06, we applied the treasury stock method to account for the dilutive impact of the Notes for diluted earnings per share purposes.

Segment Information

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As we operate as one operating segment, the required financial segment information can be found in the condensed consolidated financial statements.

Subsequent Events

On September 23, 2021, we entered into a definitive agreement to acquire MPC Kappa Holdings, Inc.

(“MPC”), the ultimate beneficial owner of Kemp Technologies, Inc.

and Flowmon Networks a.s.

and their subsidiaries (collectively, “Kemp”), for approximately $ 258 million in cash (the “Purchase Price”), subject to customary adjustments.

The closing of the acquisition (the “Closing”) is expected to occur during the fourth quarter of our fiscal year 2021.

The acquisition will be funded with existing cash on hand at the Closing.

Kemp is the always-on application experience company that helps enterprises deliver, optimize and secure applications and networks across any cloud or hybrid environment.

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

Results of operations for Kemp will be included in our consolidated financial statements from the date of the Closing.

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