What changed in this filing

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Item 1A. Risk Factors

2022-04-07 compared with 2021-10-07 · 49 added, 56 removed, 301 unchanged (26% of the section changed)

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Risks Related to Our Ability to Grow Our Business

*Russia's recent invasion of Ukraine, and the international community's response, have created substantial political and economic disruption, uncertainty, and risk.

In February 2022, Russia's military action in Ukraine resulted in wide-ranging sanctions and international protests, creating significant political and economic uncertainty at a global level.

These and related actions, responses, and consequences may contribute to world-wide economic downturns.

We have no way to predict the progress or outcome of the situation, as the conflict and government reactions are rapidly developing and beyond our control.

Prolonged unrest, military activities, or broad-based sanctions could have a material adverse effect on our operations and business outlook.

Moreover, given our meaningful reliance on revenue generated outside of North America, which constituted 40% of our total revenue in fiscal 2021, and our reliance on revenue generated in EMEA, which constituted 32% of our total revenue in fiscal 2021, if the invasion of Ukraine disrupts commercial activities in these regions, our business could be harmed.

Russia’s invasion of Ukraine may also elevate the risk of cyber-attacks on U.S.

companies, and any such cyber-attack could similarly impact or disrupt our commercial activities.

Although we cannot predict what the impacts may be, our global operations and reliance on interconnected technology increase the risk to our operations resulting from the invasion.

The ongoing COVID-19 pandemic could materially and adversely affect our business, results of operations and financial condition.

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In addition, our third-party service providers may experience financial difficulties or business disruptions that could negatively affect their operations and their ability to supply us with services needed for our products and operations.

Although these events did not have a material adverse impact on our financial results for the first nine months ended August 31, 2021 or the fiscal year ended November 30, 2020, there can be no assurance that these events will not have a material adverse impact on our financial results for the full fiscal year or future periods.

Although these events did not have a material adverse impact on our financial results for the fiscal year ended November 30, 2021, there can be no assurance that these events will not have a material adverse impact on our financial results for the full fiscal year or future periods.

The full extent of the COVID-19 pandemic’s impact on our operations and financial performance depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets, the timing of economic recovery, the spread of the virus to other regions, and the actions taken to contain it, among others.

Any of these impacts could have a material adverse impact on our business, results of operations and financial condition and ability to execute and capitalize on our strategies.

Due to the ongoing uncertainty regarding the severity and duration of the COVID-19 pandemic, we cannot predict whether our response to date or the actions we may take in the future will be effective in mitigating the effects of the COVID-19 pandemic on our business, results of operations or financial condition.

Due to the ongoing uncertainty regarding the severity and duration of the COVID-19 pandemic, we cannot predict whether our response to date or the actions we may take in the future will be effective mitigating the effects of the COVID-19 pandemic on our business, results of operations or financial condition.

Accordingly, we are unable at this time to predict the future impact of the COVID-19 pandemic on our operations, liquidity, and financial results, and, depending on the magnitude and duration of the COVID-19 pandemic, such impact may be material.

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Failure to develop new products and product enhancements that meet market needs in a timely manner could have a material adverse effect on our business, financial condition and operating results.

We are substantially dependent on our Progress OpenEdge products.

We derive a significant portion of our revenue from software license and maintenance revenue attributable to our Progress OpenEdge product set.

We are substantially dependent on our OpenEdge products.

We derive a significant portion of our revenue from software license and maintenance revenue attributable to our OpenEdge product set.

Accordingly, our future results depend on continued market acceptance of OpenEdge.

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We may be required to record a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively affecting our results of operations.

*We face various risks in connection with our proposed acquisition of Kemp.

On September 23, 2021, we entered into an agreement to acquire Kemp.

We face various risks in connection with our proposed acquisition of Kemp, including uncertainties as to the timing of the closing of the acquisition, the possibility that various closing conditions for the transaction may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction, the effects of disruption from the transaction making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities, other business effects, including the effects of industry, economic or political conditions outside of our control, transaction costs, actual or contingent liabilities, diversion of management, uncertainties as to whether anticipated synergies will be realized and uncertainties as to whether Kemp’s business will be successfully integrated with our business.

Any one or more of these factors could have a material adverse effect on the combined business, our results of operations and our financial condition.

Risk Related to the Operation of Our Business

Risks Related to the Operation of Our Business

We recognize a substantial portion of our revenue from sales made through third parties, including our ISVs, distributors/resellers, and OEMs, and adverse developments in the businesses of these third parties or in our relationships with them could harm our revenues and results of operations.

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We rely on our technology infrastructure, and the technology infrastructure of third parties, for many functions, including selling our products, supporting our ISVs and other third-party channels, fulfilling orders and billing, and collecting and making payments.

This technology infrastructure may be vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, terrorist attacks, computer intrusions, vulnerabilities and viruses, software errors, computer denial-of-service attacks

and other events.

This technology infrastructure may be vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, terrorist attacks, the outbreak of wars or other armed conflicts, the escalation of hostilities, geopolitical tensions or trade wars, acts of terrorism or “ acts of God,” particularly involving geographies in which we or third parties on whom we depend have operations, computer intrusions, vulnerabilities and viruses, software errors, computer denial-of-service attacks and other events.

A significant number of the systems making up this infrastructure are not redundant, and our disaster recovery planning may not be sufficient for every eventuality.

This technology infrastructure may fail or be vulnerable to damage or interruption because of actions by third parties or employee error or malfeasance.

We may not carry business interruption insurance sufficient to protect us from all losses that may result from interruptions in our services as a result of technology infrastructure failures or to cover all contingencies.

We may not carry business interruption insurance sufficient to protect us from all losses that may result from interruptions in our services as a result of technology

infrastructure failures or to cover all contingencies.

Any interruption in the availability of our websites and on-line interactions with customers or partners may cause a reduction in customer or partner satisfaction levels, which in turn could cause additional claims, reduced revenue or loss of customers or partners.

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*Our international operations expose us to additional risks, and changes in global economic and political conditions could adversely affect our international operations, our revenue and our net income .

Approximately 41% of our total revenue is generated from sales outside North America.

Political and/or financial instability, oil price shocks and armed conflict in various regions of the world can lead to economic uncertainty and may adversely impact our business.

For example, political instability, such as the Referendum of the United Kingdom’s (the "U.K.") Membership of the European Union ("E.U.") (referred to as "Brexit"), led to significant, continuing volatility in global stock markets and currency exchange rate fluctuations.

Approximately 40% of our total fiscal 2021 revenue, was generated from sales outside North America.

Political and/or financial instability, oil price shocks and armed conflict in various regions of the world, including, but not limited to, Russia's invasion of Ukraine in February 2022, can lead to economic uncertainty and may adversely impact our business.

Political instability may lead to significant, continuing volatility in global stock markets and currency exchange rate fluctuations.

If customers’ buying patterns, decision-making processes, timing of expected deliveries and timing of new projects unfavorably change due to economic or political conditions, there would be a material adverse effect on our business, financial condition and operating results.

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Our customers and partners may delay payment or fail to pay us in accordance with the terms of their agreements, necessitating action by us to compel payment.

If customers and partners delay the payment or fail to pay us under the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our contracts, including litigation.

If customers and partners delay the payment or fail to pay us under the terms of

our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our contracts, including litigation.

Furthermore, some of our customers and partners may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of which could adversely affect our operating results, financial position and cash flow.

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*If our security measures are breached, our products and services may be perceived as not being secure, customers may curtail or stop using our products and services, and we may incur significant legal and financial exposure.

Our products and services involve the storage and transmission of our customers’ proprietary information and may be vulnerable to unauthorized access, computer viruses, cyber-attacks, distributed denial of service attacks and other disruptive problems Due to the actions of outside parties, employee error, malfeasance, or otherwise, an unauthorized party may obtain access to our data or our customers’ data, which could result in its theft, destruction or misappropriation.

Due to the actions of outside parties, employee error, malfeasance, or otherwise, an unauthorized party may obtain access to our data or our customers’ data, which could result in its theft, destruction or misappropriation.

Security risks in recent years have increased significantly given the increased sophistication and activities of hackers, organized crime, including state-sponsored organizations and nation-states, and other outside parties.

Cyber threats are continuously evolving, increasing the difficulty of defending against them.

Increased risks of such attacks and disruptions also exist due to the Russian invasion of Ukraine beginning in February 2022.

While we have implemented security procedures and controls to address these threats, our security measures could be compromised or could fail.

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Additionally, data breaches could compromise technical and proprietary information, harming our competitive position.

We may need to spend significant capital

or allocate significant resources to ensure effective ongoing protection against the threat of security breaches or to address security related concerns.

We may need to spend significant capital or allocate significant resources to ensure effective ongoing protection against the threat of security breaches or to address security related concerns.

If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose customers.

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In addition, we rely on third-party hosted services, and we do not control the operation of third-party data center facilities, which increases our vulnerability.

A disruption, infiltration or failure of these systems or third-party hosted services in the event of a major earthquake, fire, flood, tsunami or other weather event, power loss, telecommunications failure, software or hardware malfunctions, pandemics (including the COVID-19 pandemic), cyber-attack, war, terrorist attack or other catastrophic event that our disaster recovery plans do not adequately address, could cause system interruptions, reputational harm, loss of intellectual property, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data.

A catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected, and the adverse effects of any such catastrophic event would be exacerbated if experienced at the same time as another unexpected and adverse event, such as the COVID-19 pandemic.

Risk Related to Laws and Regulations

A disruption, infiltration or failure of these systems or third-party hosted services in the event of a major earthquake, fire, flood, tsunami or other weather event, power loss, telecommunications failure, software or hardware malfunctions, pandemics (including the COVID-19 pandemic), cyber-attack, war (including the Russian invasion of Ukraine), terrorist attack or other catastrophic event that our disaster recovery plans do not adequately address, could cause system interruptions, reputational harm, loss of intellectual property, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data.

A catastrophic event that results in the destruction or disruption of

any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected, and the adverse effects of any such catastrophic event would be exacerbated if experienced at the same time as another unexpected and adverse event, such as the COVID-19 pandemic and Russian invasion of Ukraine.

Risks Related to Laws and Regulations

*We are subject to risks associated with compliance with laws and regulations globally, which may harm our business.

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Such restrictions have disrupted and may continue to disrupt our business operations and limit our ability to perform critical functions.

In response to the Russian invasion of Ukraine, new sanctions have been imposed by the U.S., Canada, the United Kingdom, the European Union, and other countries and companies and organizations against officials, individuals, regions, and industries in Russia and Ukraine.

Although we have policies and procedures in place designed to ensure compliance with applicable sanctions, our employees, contractors, and agents may take actions in violation of such policies and applicable law and ultimately we could be held responsible.

If we are held responsible for a violation of U.S.

sanctions laws, we may be subject to various penalties, any of which could have a material adverse effect on our business, financial condition or results of operations.

Our business practices with respect to the collection, use and management of personal information could give rise to operational interruption, liabilities or reputational harm as a result of governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection.

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Also, on June 4, 2021, the European Commission approved new standard contractual clauses to permit transfers of personal data from the European Union to other countries, such as the United States.

These new provisions replace the previous version, which was adopted in 2010.

The new clauses align more closely with the General Data Protection Regulation (GDPR) of 2018 by, among other things, increasing documentation responsibilities.

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and foreign governments have enacted or are considering enacting legislation or regulations, or may in the near future interpret existing legislation or regulations, in a manner that could significantly impact our ability and the ability of our customers and data partners to collect, augment, analyze, use, transfer and share personal and other information that is integral to certain services we provide.

For example, in the U.S., the California Consumer Privacy Act ("CCPA") became effective in January 2020, and internationally, Brazil’s data privacy law (Lei Geral de Proteção de Dados Pessoais, or LGPD), which is similar to GDPR, became effective in September 2020.

which is similar to GDPR, became effective in September 2020.

Congress is considering several privacy bills at the federal level, and other state legislatures are considering privacy laws.

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Our income tax returns are routinely subject to audits by tax authorities.

Although we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine our tax

estimates, a final determination of tax audits that is inconsistent with such assessments or tax disputes could have an adverse effect on our financial condition, results of operations and cash flows.

Although we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine our tax estimates, a final determination of tax audits that is inconsistent with such assessments or tax disputes could have an adverse effect on our financial condition, results of operations and cash flows.

We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes in the U.S.

and various foreign jurisdictions.

We are regularly under audit by tax authorities with respect to these non-income taxes and may have exposure to additional non-income tax liabilities, which could have an adverse effect on our results of operations, financial condition and cash flows.

We are regularly under audit by tax authorities with respect to these non-

income taxes and may have exposure to additional non-income tax liabilities, which could have an adverse effect on our results of operations, financial condition and cash flows.

In addition, our future effective tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws or their interpretation.

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Further, deteriorating economic conditions could adversely affect our customers and their ability to pay amounts owed to us.

Due to global supply chain issues, a rise in energy prices and strong consumer demand, inflation is showing signs of acceleration in the United States and globally, which may increase our cost of labor as well as other costs, negatively affect credit and securities markets generally, and further impact customer demand for our products and ability to make payments.

Any of these events would likely harm our business, results of operations, financial condition or cash flows.

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Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations.

As of August 31, 2021, we had approximately $563 million of consolidated indebtedness.

As of February 28, 2022, we had approximately $621 million of consolidated indebtedness.

We may also incur additional indebtedness to meet future financing needs.

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Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our current or future indebtedness, including the Notes, and our cash needs may increase in the future.

In addition, our credit facility contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness.

In addition, our Credit Agreement contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness.

If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

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any failure to comply with those covenants or to make scheduled payments could cause amounts borrowed under the facility to become immediately due and payable or prevent us from borrowing under the facility.

In April 2019, we entered into an amended and restated credit agreement, which consists of a $301.0 million term loan and a $100.0 million revolving loan (which may be increased by an additional $125.0 million if the existing or additional lenders are willing to make such increased commitments).

This facility matures in April 2024, at which time any amounts outstanding will be due and payable in full.

In January 2022, we entered into an amended and restated credit agreement , which provides for a $275.0 million term loan and a $300.0 million revolving loan (which may be increased by an additional $260.0 million if the existing or additional lenders are willing to make such increased commitments).

This agreement matures in January 2027, at which time any amounts outstanding will be due and payable in full.

We may wish to borrow additional amounts under the facility in the future to support our operations, including for strategic acquisitions and share repurchases.

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Our failure to comply with any of these covenants or to meet any payment obligations under the facility could result in an event of default which, if not cured or waived, would result in any amounts outstanding, including any accrued interest and unpaid fees, becoming immediately due and payable.

We might not have sufficient working capital or liquidity to satisfy any repayment obligations in the event of an

acceleration of those obligations.

We might not have sufficient working capital or liquidity to satisfy any repayment obligations in the event of an acceleration of those obligations.

In addition, if we are not in compliance with the financial and operating covenants at the time we wish to borrow funds, we will be unable to borrow funds.

The accounting method for the Notes could adversely affect our reported financial condition and results.

The accounting method for reflecting the Notes on our balance sheet, accruing interest expense for the Notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition.

Under applicable accounting principles, the initial liability carrying amount of the Notes will be the fair value of a similar debt instrument that does not have a conversion feature, valued using our cost of capital for straight, non-convertible debt.

We expect to reflect the difference between the net proceeds from this offering and the initial carrying amount as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the Notes.

As a result of this amortization, the interest expense that we expect to recognize for the Notes for accounting purposes will be greater than the cash interest payments we will pay on the Notes, which will result in lower reported income or higher reported loss.

The lower reported income or higher reported loss resulting from this accounting treatment could depress the trading price of our common stock and the Notes.

However, in August 2020, the Financial Accounting Standards Board published an Accounting Standards Update, which we refer to as ASU 2020-06, eliminating the separate accounting for the debt and equity components as described above.

ASU 2020-06 will be effective for SEC-reporting entities for fiscal years beginning after December 15, 2021 (or, in the case of smaller reporting companies, December 15, 2023), including interim periods within those fiscal years.

However, early adoption is permitted in certain circumstances for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

We are not eligible for early adoption of the revised standard due to the fact that we are not a calendar year end reporter.

When effective, we expect the elimination of the separate accounting described above to reduce the interest expense that we expect to recognize for the Notes for accounting purposes.

In addition, we expect to be eligible to use the treasury stock method to reflect the shares underlying the Notes in our diluted earnings per share.

Under this method, if the conversion value of the Notes exceeds their principal amount for a reporting period, then diluted earnings per share is calculated assuming that all the Notes were converted and that shares of our common stock were issued to settle the excess.

However, if reflecting the Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Notes does not exceed their principal amount for a reporting period, then the shares underlying the Notes will not be reflected in diluted earnings per share.

However, if we are not permitted to use the treasury stock method, or if accounting standards change in the future to preclude the use of the treasury stock method, then our diluted earnings per share may decline.

For example, ASU 2020-06 amends these accounting standards, effective as of the dates referred to above, to eliminate the treasury stock method for convertible instruments that can be settled in whole or in part with equity and instead require application of the “if-converted” method.

Under that method, diluted earnings per share would generally be calculated assuming that all the Notes were converted at the beginning of the reporting period, unless the result would be anti-dilutive.

Because we are required, upon conversion of any Notes, to settle the conversion value in cash up to at least the principal amount being converted, we currently expect that the application of the “if-converted” method to the Notes under ASU 2020-06 will be substantially similar to the treasury stock method described above.

However, we are still assessing the impact of ASU 2020-06 on our financial statements.

In addition, further amendments to these accounting standards may require us to reflect the Notes in a manner that adversely affects our reported diluted earnings per share.

Furthermore, if any of the conditions to the convertibility of the Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the Notes as a current, rather than a long-term, liability.

This reclassification could be required even if no noteholders convert their Notes and could materially reduce our reported working capital.

*We may be required to repay the Credit Agreement prior to the stated maturity date, if the springing maturity feature is triggered.

The Credit Agreement has a stated maturity date of January 25, 2027, but includes a springing maturity feature that will cause the stated maturity date to spring ahead to the date that is 181 days prior to the maturity date of our Notes subject to certain conditions as set forth in the amended 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.

If such springing maturity feature is triggered, we will be required to pay all amounts outstanding under the credit facility sooner than they would otherwise be due, we may not have sufficient funds available to pay such amounts at that time, and we may not be able to raise additional funds to pay such amounts on a timely basis, on terms we find acceptable, or at all.

The capped call transactions may affect the value of our common stock.

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We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Notes or pay the cash amounts due upon conversion.

applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion.

In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion.

Our failure to repurchase Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture governing the terms of the Notes.

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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 1A. Risk Factors