PROGRESS SOFTWARE CORP /MA 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Progress Software Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Progress Software Corporation and subsidiaries (the "Company") as of November 30, 2022 and 2021, the related consolidated statements of operation, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended November 30, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of November 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 27, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 1 to the financial statements, the Company changed its method of accounting for convertible debt effective December 1, 2021 due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, using the modified retrospective adoption method. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion . Critical Audit Matters The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue recognition - Refer to Note 1 to the financial statements Critical Audit Matter Description The Company derives revenue from multiple sources, including software licenses, maintenance and services. Frequently, the customer arrangements provide software licenses combined with maintenance and therefore including multiple performance obligations under ASC 606, Revenue from Contracts with Customer. The identification of performance obligations of the arrangement, particularly for more complex customer arrangements, requires a detailed analysis of the contractual terms and application of more complex accounting guidance. In addition, the allocation of the transaction price to each performance obligations within an arrangement (license, maintenance, and services) and the timing of revenue recognition, requires the application of management judgment. Revenue arrangements with higher contract values frequently require more complex management judgments. Given the accounting complexity and the management judgment necessary to identify performance obligations in the arrangement and determine the timing and allocation of revenue in arrangements with multiple performance obligations, auditing revenue recognition for such arrangements required a high degree of auditor judgment and an increased extent of effort. 35 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the recognition of revenue from multiple-performance-obligation arrangements included the following, among others: • We tested the effectiveness of controls over revenue recognition, including those over the identification of performance obligations included in the transaction, the allocation of transaction price to these performance obligations, the timing of revenue recognition. • We evaluated the Company’s accounting policies in the context of the applicable accounting standards. • We evaluated the appropriateness and consistency of the methods and assumptions used by management to determine the standalone selling price of delivered and undelivered performance obligations of the arrangement. • We selected a sample of revenue arrangements, including those arrangements that we considered individually significant, and performed the following procedures: – We obtained and read the contracts and related contract documentation. – We evaluated whether the management properly identified the contract terms of the arrangements and tested management’s application of the Company’s policies. – We tested management’s identification of the performance obligations. – We tested the measurement of the arrangement consideration expected to be received. – We tested whether the Company appropriately allocated the transaction price to the performance obligations, based on the estimated stand-alone selling prices. – We tested whether the consideration allocated to each performance obligation was recognized in the correct accounting period. /s/ Deloitte & Touche LLP Boston, Massachusetts January 27, 2023 We have served as the Company's auditor since 1990. 36 PROGRESS SOFTWARE CORPORATION Consolidated Balance Sheets (In thousands, except share data) November 30, 2022 November 30, 2021 Assets Current assets: Cash and cash equivalents $ 256,277 $ 155,406 Short-term investments — 1,967 Total cash, cash equivalents and short-term investments 256,277 157,373 Accounts receivable (less allowances of $ 859 in 2022 and $ 634 in 2021) 97,834 99,815 Unbilled receivables and contract assets, net 29,158 25,816 Other current assets 42,784 39,549 Assets held for sale — 15,255 Total current assets 426,053 337,808 Long-term unbilled receivables and contract assets, net 39,936 17,464 Property and equipment, net 14,927 14,345 Intangible assets, net 217,355 287,185 Goodwill 671,037 671,152 Right-of-use lease assets 17,574 25,253 Deferred tax assets 11,765 1,415 Other assets 12,832 8,915 Total assets $ 1,411,479 $ 1,363,537 Liabilities and stockholders’ equity Current liabilities: Current portion of long-term debt, net $ 6,234 $ 25,767 Accounts payable 9,282 9,683 Accrued compensation and related taxes 42,467 47,116 Dividends payable to stockholders 8,115 7,925 Short-term operating lease liabilities 7,471 7,926 Other accrued liabilities 16,765 19,491 Short-term deferred revenue, net 227,670 205,021 Total current liabilities 318,004 322,929 Long-term debt, net 259,220 239,992 Convertible senior notes, net 352,625 294,535 Long-term operating lease liabilities 15,041 23,130 Long-term deferred revenue, net 54,770 47,359 Deferred tax liabilities 4,628 14,163 Other noncurrent liabilities 8,687 8,940 Commitments and contingencies (Note 11) Stockholders’ equity: Preferred stock, $ 0.01 par value; authorized, 10,000,000 shares; issued, none — — Common stock, $ 0.01 par value, and additional paid-in capital; authorized, 200,000,000 shares; issued and outstanding, 43,257,008 shares in 2022 and 44,146,193 shares in 2021 433 441 Additional paid-in capital 331,650 354,235 Retained earnings 101,656 90,256 Accumulated other comprehensive loss ( 35,235 ) ( 32,443 ) Total stockholders’ equity 398,504 412,489 Total liabilities and stockholders’ equity $ 1,411,479 $ 1,363,537 See notes to consolidated financial statements. 37 PROGRESS SOFTWARE CORPORATION Consolidated Statements of Operations Fiscal Year Ended (In thousands, except per share data) November 30, 2022 November 30, 2021 November 30, 2020 Revenue: Software licenses $ 188,336 $ 156,590 $ 115,249 Maintenance and services 413,677 374,723 326,901 Total revenue 602,013 531,313 442,150 Costs of revenue: Cost of software licenses 10,243 5,271 4,473 Cost of maintenance and services 62,177 58,242 49,744 Amortization of acquired intangibles 22,076 14,936 7,897 Total costs of revenue 94,496 78,449 62,114 Gross profit 507,517 452,864 380,036 Operating expenses: Sales and marketing 140,760 125,890 100,113 Product development 114,568 103,338 88,599 General and administrative 77,876 65,128 54,004 Amortization of acquired intangibles 46,868 31,996 20,049 Restructuring expenses 879 6,308 5,906 Acquisition-related expenses 4,603 4,102 3,637 Cyber incident 602 — — Gain on sale of assets held for sale ( 10,770 ) — — Total operating expenses 375,386 336,762 272,308 Income from operations 132,131 116,102 107,728 Other (expense) income: Interest expense ( 15,790 ) ( 20,045 ) ( 10,170 ) Interest income and other, net 1,414 777 1,495 Foreign currency loss, net ( 500 ) ( 1,300 ) ( 2,418 ) Total other expense, net ( 14,876 ) ( 20,568 ) ( 11,093 ) Income before income taxes 117,255 95,534 96,635 Provision for income taxes 22,186 17,114 16,913 Net income $ 95,069 $ 78,420 $ 79,722 Earnings per share: Basic $ 2.19 $ 1.79 $ 1.78 Diluted $ 2.15 $ 1.76 $ 1.76 Weighted average shares outstanding: Basic 43,475 43,916 44,886 Diluted 44,247 44,620 45,321 Cash dividends declared per common share $ 0.70 $ 0.70 $ 0.67 See notes to consolidated financial statements. 38 PROGRESS SOFTWARE CORPORATION Consolidated Statements of Comprehensive Income Fiscal Year Ended (In thousands) November 30, 2022 November 30, 2021 November 30, 2020 Net income $ 95,069 $ 78,420 $ 79,722 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments ( 8,468 ) ( 2,439 ) 777 Unrealized gain (loss) on hedging activity, net of tax provision of $ 1,797 and $ 940 in 2022 and 2021, respectively, and a tax benefit of $ 1,176 in 2020 5,688 2,837 ( 3,625 ) Unrealized (loss) gain on investments, net of tax benefit of $ 4 and $ 20 in 2022 and 2021, respectively, and a tax provision of $ 32 in 2020 ( 12 ) ( 63 ) 44 Total other comprehensive (loss) income, net of tax ( 2,792 ) 335 ( 2,804 ) Comprehensive income $ 92,277 $ 78,755 $ 76,918 See notes to consolidated financial statements. 39 PROGRESS SOFTWARE CORPORATION Consolidated Statements of Stockholders’ Equity Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity (in thousands) Number of Shares Amount Balance, November 30, 2019 45,037 $ 450 $ 295,503 $ 64,303 $ ( 29,974 ) $ 330,282 Issuance of stock under employee stock purchase plan 237 2 6,604 — — 6,606 Exercise of stock options 137 1 4,360 — — 4,361 Vesting of restricted stock units and release of deferred stock units 416 4 ( 4 ) — — — Withholding tax payments related to net issuance of restricted stock units ( 140 ) ( 1 ) ( 5,330 ) — — ( 5,331 ) Stock-based compensation — — 23,482 — — 23,482 Dividends declared — — — ( 30,305 ) — ( 30,305 ) Treasury stock repurchases and retirements ( 1,446 ) ( 14 ) ( 18,813 ) ( 41,173 ) — ( 60,000 ) Net income — — — 79,722 — 79,722 Other comprehensive loss — — — — ( 2,804 ) ( 2,804 ) Balance, November 30, 2020 44,241 $ 442 $ 305,802 $ 72,547 $ ( 32,778 ) $ 346,013 Issuance of stock under employee stock purchase plan 277 3 7,815 — — 7,818 Exercise of stock options 195 2 6,995 — — 6,997 Vesting of restricted stock units and release of deferred stock units 342 3 ( 3 ) — — — Withholding tax payments related to net issuance of restricted stock units ( 112 ) ( 1 ) ( 5,185 ) — — ( 5,186 ) Stock-based compensation — — 29,724 — — 29,724 Equity component 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 — — — ( 31,581 ) — ( 31,581 ) Treasury stock repurchases and retirements ( 797 ) ( 8 ) ( 5,862 ) ( 29,130 ) — ( 35,000 ) Net income — — — 78,420 — 78,420 Other comprehensive income — — — — 335 335 Balance, November 30, 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 301 3 9,201 — — 9,204 Exercise of stock options 174 2 6,783 — — 6,785 Vesting of restricted stock units and release of deferred stock units 448 5 ( 5 ) — — — Withholding tax payments related to net issuance of restricted stock units ( 117 ) ( 1 ) ( 8,487 ) — — ( 8,488 ) Stock-based compensation — — 37,094 — — 37,094 Dividends declared — — — ( 31,253 ) — ( 31,253 ) Treasury stock repurchases and retirements ( 1,695 ) ( 17 ) ( 19,715 ) ( 57,309 ) — ( 77,041 ) Net income — — — 95,069 — 95,069 Other comprehensive loss — — — — ( 2,792 ) ( 2,792 ) Balance, November 30, 2022 43,257 $ 433 $ 331,650 $ 101,656 $ ( 35,235 ) $ 398,504 See notes to consolidated financial statements. 40 PROGRESS SOFTWARE CORPORATION Consolidated Statements of Cash Flows Fiscal Year Ended (In thousands) November 30, 2022 November 30, 2021 November 30, 2020 Cash flows from operating activities: Net income $ 95,069 $ 78,420 $ 79,722 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 5,002 5,477 6,144 Amortization of acquired intangibles and other 69,730 47,507 28,621 Amortization of debt discount and issuance costs on Notes 2,112 8,195 — Stock-based compensation 37,094 29,724 23,482 Non-cash lease expense 7,781 10,946 8,609 Loss on disposal of long-lived assets, net — 7 1,025 Gain on sale of assets held for sale ( 10,770 ) — — Deferred income taxes ( 7,602 ) ( 908 ) ( 2,622 ) Allowances for bad debt and sales credits 774 ( 282 ) 164 Gain on sale of intangible assets — — ( 889 ) Changes in operating assets and liabilities: Accounts receivable and unbilled receivables ( 27,254 ) ( 10,998 ) 10,682 Other assets ( 2,214 ) ( 15,105 ) 1,561 Inventories ( 1,556 ) 245 — Accounts payable and accrued liabilities ( 3,583 ) 5,486 ( 4,974 ) Lease liabilities ( 8,571 ) ( 8,406 ) ( 8,101 ) Income taxes payable ( 120 ) ( 2,251 ) 3 Deferred revenue, net 36,268 30,473 1,420 Net cash flows from operating activities 192,160 178,530 144,847 Cash flows from (used in) investing activities: Purchases of investments — — ( 5,009 ) Sales and maturities of investments 1,950 5,950 16,401 Purchases of property and equipment ( 6,090 ) ( 4,654 ) ( 6,517 ) Payments for acquisitions, net of cash acquired — ( 253,961 ) ( 213,057 ) Proceeds from sale of long-lived assets, net 25,998 — 889 Decrease in escrow receivable and other 134 2,330 — Net cash flows from (used in) investing activities 21,992 ( 250,335 ) ( 207,293 ) Cash flows (used in) from financing activities: Proceeds from stock-based compensation plans 16,165 15,033 11,099 Payments for taxes related to net share settlements of equity awards ( 7,824 ) ( 5,186 ) ( 5,331 ) Repurchases of common stock ( 77,041 ) ( 35,000 ) ( 60,000 ) Proceeds from issuance of senior convertible notes, net of issuance costs of $ 9.9 million — 350,100 — Purchase of capped calls — ( 43,056 ) — Dividend payments to stockholders ( 31,063 ) ( 31,561 ) ( 29,900 ) Proceeds from the issuance of debt 7,475 — 98,500 Payment of principal on long-term debt ( 6,873 ) ( 117,313 ) ( 11,288 ) Payment of issuance costs for long-term debt ( 2,262 ) ( 904 ) — Net cash flows (used in) from financing activities ( 101,423 ) 132,113 3,080 Effect of exchange rate changes on cash ( 11,858 ) ( 2,892 ) 3,097 Net increase in cash and cash equivalents 100,871 57,416 ( 56,269 ) Cash and cash equivalents, beginning of year 155,406 97,990 154,259 Cash and cash equivalents, end of year $ 256,277 $ 155,406 $ 97,990 41 Supplemental disclosure: Cash paid for income taxes, net of refunds of $ 968 in 2022, $ 894 in 2021 and $ 724 in 2020 $ 28,680 $ 25,915 $ 16,107 Cash paid for interest $ 8,572 $ 8,537 $ 9,175 Non-cash investing and financing activities: Total fair value of restricted stock awards, restricted stock units and deferred stock units on date vested $ 27,626 $ 18,102 $ 17,046 Dividends declared $ 8,115 $ 7,925 $ 7,904 See notes to consolidated financial statements. 42 PROGRESS SOFTWARE CORPORATION Notes to Consolidated Financial Statements Note 1: Nature of Business and Summary of Significant Accounting Policies The Company Progress Software Corporation ("Progress," the "Company," "we," "us," or "our") is dedicated to propelling business forward in a technology-driven world. Progress helps customers drive faster cycles of innovation, fuel momentum and accelerate their path to success. As the trusted provider of the best 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. Our products are generally sold as perpetual licenses, but certain products also use term licensing models and our cloud-based offerings use a subscription-based model. More than half of our worldwide license revenue is realized through relationships with indirect channel partners, principally independent software vendors ("ISVs"), original equipment manufacturers ("OEMs"), distributors and value-added resellers. ISVs develop and market applications using our technology and resell our products in conjunction with sales of their own products that incorporate our technology. OEMs are companies that embed our products into their own software products or devices. Value-added resellers are companies that add features or services to our product, then resell it as an integrated product or complete "turn-key" solution. We operate in North America, Latin America, Europe, the Middle East and Africa ("EMEA"), and Asia and Australia ("Asia Pacific"), through local subsidiaries as well as independent distributors. Accounting Principles We prepare our consolidated financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America ("GAAP"). Basis of Consolidation The consolidated financial statements include our accounts and those of our subsidiaries (all of which are wholly owned). We eliminate all intercompany balances and transactions. Use of Estimates The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an on-going basis, management evaluates its estimates and records changes in estimates in the period in which they become known. These estimates are based on historical data and experience, as well as various other assumptions that management believes to be reasonable under the circumstances. The most significant estimates relate to: the timing and amount of revenue recognition, including the determination of the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and the transaction price allocated to performance obligations; the realization of tax assets and estimates of tax liabilities; fair values of investments in marketable securities; assets held for sale; intangible assets and goodwill valuations; the recognition and disclosure of contingent liabilities; the collectability of accounts receivable; and assumptions used to determine the fair value of stock-based compensation. Actual results could differ from those estimates. Foreign Currency Translation The functional currency of most of our foreign subsidiaries is the local currency in which the subsidiary operates. For foreign operations where the local currency is considered to be the functional currency, we translate assets and liabilities into U.S. dollars at the exchange rate on the balance sheet date. We translate income and expense items at average rates of exchange prevailing during each period. We accumulate translation adjustments in accumulated other comprehensive loss, a component of stockholders’ equity. For foreign operations where the U.S. dollar is considered to be the functional currency, we remeasure monetary assets and liabilities into U.S. dollars at the exchange rate on the balance sheet date and non-monetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. We translate income and expense items at average rates of exchange prevailing during each period. We recognize remeasurement adjustments currently as a component of foreign currency loss, net in the statements of operations. 43 Transaction gains or losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in foreign currency loss, net in the statements of operations as incurred. Cash Equivalents and Investments Cash equivalents include short-term, highly liquid investments purchased with remaining maturities of three months or less. As of November 30, 2022, all of our cash equivalents were invested in money market funds. We classify investments, state and municipal bond obligations, U.S. treasury and government agency bonds, and corporate bonds and notes, as investments available-for-sale, which are stated at fair value. We include aggregate unrealized holding gains and losses, net of taxes, on available-for-sale securities as a component of accumulated other comprehensive loss in stockholders’ equity. We include realized gains and losses in interest income and other, net on the consolidated statements of operations. We monitor our investment portfolio for impairment on a periodic basis. Fair value is calculated based on publicly available market information. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other (expense) income, net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments. Allowances for Doubtful Accounts and Sales Credit Memos We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. We establish this allowance using estimates that we make based on factors such as the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, changes to customer creditworthiness and current economic trends. We also record an allowance for estimates of potential sales credit memos. This allowance is determined based on an analysis of historical credit memos issued and current economic trends, and is recorded as a reduction of revenue. A summary of activity in the allowance for doubtful accounts is as follows (in thousands): November 30, 2022 November 30, 2021 November 30, 2020 Beginning balance $ 552 $ 886 $ 667 Charge to costs and expenses 493 58 429 Write-offs and other ( 302 ) ( 408 ) ( 169 ) Translation adjustments ( 3 ) 16 ( 41 ) Ending balance $ 740 $ 552 $ 886 Concentrations of Credit Risk Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments, derivative instruments and trade receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities. We hold our cash and cash equivalents, investments and derivative instrument contracts with high quality financial institutions and we monitor the credit ratings of those institutions. We perform ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by the diversity, both by geography and by industry, of the customer base. No single customer represented more than 10% of consolidated accounts receivable or revenue in fiscal years 2022, 2021 or 2020. Fair Value of Financial Instruments The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable and long-term debt approximates fair value due to the short-term nature or market interest rates of these items. We base the fair value of short-term investments on quoted market prices or other relevant information generated by market transactions involving identical or comparable assets. We measure 44 and record derivative financial instruments at fair value. See Note 4: Fair Value Measurements for further discussion of financial instruments that are carried at fair value on a recurring and nonrecurring basis. Derivative Instruments We record all derivatives on the consolidated balance sheets at fair value. We use derivative instruments to manage exposures to fluctuations in the value of foreign currencies, which exist as part of our ongoing business operations. Cash Flow Hedge We entered into an interest rate swap contract in July 2019 to manage the variability of cash flows associated with approximately one-half of our variable rate debt. We have designated the interes t rate swap as a cash flow hedge and we assessed the hedge's effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative. To the extent that the interest rate swap is highly effective in offsetting the variability of the hedged cash flows, changes in the fair value of the derivative are included as a component of other comprehensive loss on our consolidated balance sheets. Although we 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. Forward Contracts Certain assets and forecasted transactions are exposed to foreign currency risk. Our objective for holding derivatives is to eliminate or reduce the impact of these exposures. We periodically monitor our foreign currency exposures to enhance the overall economic effectiveness of our foreign currency hedge positions. Principal currencies hedged include the euro, British pound, Brazilian real, Indian rupee, and Australian dollar. We do not enter into derivative instruments for speculative purposes, nor do we hold or issue any derivative instruments for trading purposes. We enter into certain derivative instruments that do not qualify for hedge accounting and are not designated as hedges. Although these derivatives do not qualify for hedge accounting, we believe that such instruments are closely correlated with the underlying exposure, thus managing the associated risk. The gains or losses from changes in the fair value of such derivative instruments that are not accounted for as hedges are recognized in earnings in foreign currency loss, net in the consolidated statements of operations. Inventories Inventories consist of hardware and related component parts and are recorded at the lower of cost, as determined by the first-in, first-out method, or net realizable value. The Company reduces inventory to net realizable value based on excess and obsolete inventories determined primarily by historical usage and forecasted demand. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to costs of revenue. At November 30, 2022 and 2021, the Company had no reserve for excess and obsolete inventories. Property and Equipment We record property and equipment at cost. We record property and equipment purchased in business combinations at fair value, which is then treated as the cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the useful lives of the assets. Useful lives by major asset class are as follows: computer equipment and software, 3 to 7 years and furniture and fixtures, 5 to 7 years. Repairs and maintenance costs are expensed as incurred. Property and equipment is classified as held for sale when it meets the held for sale criteria of Accounting Standards Codification Topic 360, Property, Plant, and Equipment and is measured at the lower of the carrying value or the fair value less cost to sell. Losses resulting from this measurement are recognized in the period in which the held for sale criteria are met while gains are not recognized until the date of sale. Once designated as held for sale, we stop recording depreciation expense on the asset. We assess the fair value less cost to sell of long-lived assets held for sale at each reporting period until it no longer meets this classification. Goodwill, Intangible Assets, and Long-Lived Assets Goodwill Goodwill is the amount by which the cost of acquired net assets in a business combination exceeded the fair value of net identifiable assets on the date of purchase. The Company has a single reporting unit. We evaluate goodwill and other intangible assets with indefinite useful lives, if any, for impairment annually or on an interim basis when events and circumstances arise that indicate 45 impairment may have occurred. Factors that could indicate that an impairment may exist include significant underperformance relative to plan or long-term projections, significant changes in business strategy, significant negative industry or economic trends or a significant decline in our stock price for a sustained period of time. The Company performed a quantitative assessment as of October 31, 2022 and 2021 and concluded that there was no impairment since it was not more likely than not that the fair value of its reporting unit was less than its carrying value. We estimated the fair value of our reporting unit based on our market capitalization. We did not recognize any goodwill impairment charges during fiscal years 2022, 2021 or 2020. Intangible Assets and Long-Lived Assets Intangible assets are comprised of purchased technology, customer-related assets, and trademarks and trade names acquired through business combinations. All of our intangible assets are amortized using the straight-line method over their estimated useful life. Refer to Note 8: Business Combinations for further information. We periodically review long-lived assets (primarily property and equipment) and intangible assets with finite lives for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate. We base each impairment test on a comparison of the undiscounted cash flows to the carrying value of the asset or asset group. If impairment is indicated, we write down the asset to its estimated fair value based on a discounted cash flow analysis. We did no t recognize any intangible asset impairment charges during fiscal years 2022, 2021 and 2020. Comprehensive (Loss) Income The components of comprehensive loss include, in addition to net income, foreign currency translation adjustments and unrealized gains and losses on investments and hedging activity. Accumulated other comprehensive loss by components, net of tax (in thousands): Foreign Currency Translation Adjustment Unrealized Gains (Losses) on Investments Unrealized (Losses) Gains on Hedging Activity Total Balance, December 1, 2020 $ ( 27,616 ) $ 14 $ ( 5,176 ) $ ( 32,778 ) Other comprehensive (loss) income ( 2,439 ) ( 63 ) 2,837 335 Balance, December 1, 2021 $ ( 30,055 ) $ ( 49 ) $ ( 2,339 ) $ ( 32,443 ) Other comprehensive (loss) income ( 8,468 ) ( 12 ) 5,688 ( 2,792 ) Balance, November 30, 2022 $ ( 38,523 ) $ ( 61 ) $ 3,349 $ ( 35,235 ) The tax effect on accumulated unrealized (losses) gains on hedging activity and unrealized gains (losses) on investments was a tax provision of $ 1.1 million as of November 30, 2022, and a tax benefit of $ 0.7 million and $ 1.6 million as of November 30, 2021, and November 30, 2020, respectively. Revenue Recognition Revenue Policy We derive our revenue primarily from software licenses and maintenance and services. Our license arrangements generally contain multiple performance obligations, including software maintenance services. Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. When an arrangement contains multiple performance obligations, we account for individual performance obligations separately if they are distinct. We recognize revenue through the application of the following steps: (i) identification of the contract(s) with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to performance obligations in the contract; and (v) recognition of revenue when or as we satisfy the performance obligations. Sales taxes collected from customers and remitted to government authorities are excluded from revenue and we do not license our software with a right of return. 46 Software Licenses Software licenses are on-premise or cloud-based and fully functional when made available to the customer. As the customer can use and benefit from the license on its own, on-premise software licenses represent distinct performance obligations. Revenue is recognized upfront at the point in time when control is transferred, which is defined as the point in time when the client can use and benefit from the license. Our licenses are sold as perpetual or term licenses, and the arrangements typically contain various combinations of maintenance and services, which are generally accounted for as separate performance obligations. We use the residual approach to allocate the transaction price to our software license performance obligations because, due to the pricing of our licenses being highly variable, they do not have an observable stand-alone selling price ("SSP"). As required, we evaluate the residual approach estimate compared to all available observable data in order to conclude the estimate is representative of its SSP. Perpetual licenses are generally invoiced upon execution of the contract and payable within 30 days. Term licenses are generally invoiced in advance on an annual basis over the term of the arrangement, which is typically one to three years . Any difference between the revenue recognized and the amount invoiced to the customer is recognized on our consolidated balance sheets as unbilled receivables until the customer is invoiced, at which point the amount is reclassified to accounts receivable. Maintenance Maintenance revenue is made up of technical support, bug fixes, and when-and-if available unspecified software upgrades. As these maintenance services are considered to be a series of distinct services that are substantially the same and have the same duration and measure of progress, we have concluded that they represent one combined performance obligation. Revenue is recognized ratably over the contract period. The SSP of maintenance services is a percentage of the net selling price of the related software license, which has remained within a tight range and is consistent with the stand-alone pricing of subsequent maintenance renewals. Maintenance services are generally invoiced in advance on an annual basis over the term of the arrangement, which is typically one to three years . Services Services revenue primarily includes consulting and customer education services. In general, services are distinct performance obligations. Services revenue is generally recognized as the services are delivered to the customer. We apply the practical expedient of recognizing revenue upon invoicing for time and materials-based arrangements as the invoiced amount corresponds to the value of the services provided. The SSP of services is based upon observable prices in similar transactions using the hourly rates sold in stand-alone services transactions. Services are either sold on a time and materials basis or prepaid upfront. We also offer products via a software-as-a-service ("SaaS") model, which is a subscription-based model. Our customers can use hosted software over the contract period without taking possession of it and the cloud services are available to them throughout the entire term, even if they do not use the service. Revenue related to SaaS offerings is recognized ratably over the contract period. The SSP of SaaS performance obligations is determined based upon observable prices in stand-alone SaaS transactions. SaaS arrangements are generally invoiced in advance on a monthly, quarterly, or annual basis over the term of the arrangement, which is typically one to three years . Arrangements with Multiple Performance Obligations When an arrangement contains multiple performance obligations, we account for individual performance obligations separately if they are distinct. We allocate the transaction price to each performance obligation in a contract based on its relative SSP. Although we do not have a history of offering these elements, prior to allocating the transaction price to each performance obligation, we consider whether the arrangement has any discounts, material rights, or specified future upgrades that may represent additional performance obligations. Determining whether products and services are distinct performance obligations and the determination of the SSP may require significant judgment. Advertising Costs Advertising costs are expensed as incurred and were $ 1.1 million, $ 0.9 million, and $ 0.5 million in fiscal years 2022, 2021, and 2020, respectively. Warranty Costs We make periodic provisions for expected warranty costs. Historically, warranty costs have been insignificant. 47 Stock-Based Compensation 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. We estimate the fair value of each stock-based award on the measurement date using either the current market price of the stock, the Black-Scholes option valuation model, or the Monte Carlo Simulation valuation model. The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. We recognize stock-based compensation expense related to options and restricted stock units on a straight-line basis over the service period of the award, which is generally 4 or 5 years for options and 3 or 4 years for restricted stock units, and adjust the expense each period for actual forfeitures. We recognize stock-based compensation expense related to performance stock units and our employee stock purchase plan using an accelerated attribution method. Cyber Incident Costs Following the detection of irregular activity on certain portions of our corporate network, we engaged outside cybersecurity experts and other incident response professionals to conduct a forensic investigation and assess the extent and scope of the cyber incident. Cyber incident costs relate to the engagement of external cybersecurity experts and other incident response professionals. We incurred $ 0.6 million of cyber incident costs for the fiscal year ended November 30, 2022. Acquisition-Related Costs Acquisition-related costs are expensed as incurred and include those costs incurred as a result of a business combination. These costs primarily consist of professional services fees, including third-party legal and valuation-related fees, as well as retention fees and earn-out payments treated as compensation expense. We incurred $ 4.6 million, $ 4.1 million, and $ 3.6 million of acquisition-related costs, which are included in acquisition-related expenses in our consolidated statement of operations, for the fiscal years ended November 30, 2022, November 30, 2021, and November 30, 2020, respectively. Restructuring Charges Our restructuring charges are comprised primarily of costs related to property abandonment, including future lease commitments, net of any sublease income, and associated leasehold improvements; and employee termination costs related to headcount reductions. We recognize and measure restructuring liabilities initially at fair value when the liability is incurred. We incurred $ 0.9 million, $ 6.3 million, and $ 5.9 million of restructuring related costs, which are included in restructuring expenses in our consolidated statement of operations, for the fiscal years ended November 30, 2022, November 30, 2021, and November 30, 2020, respectively. Income Taxes We provide for deferred income taxes resulting from temporary differences between financial and taxable income. We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. We recognize and measure uncertain tax positions taken or expected to be taken in a tax return utilizing a two-step approach. We first determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is that we measure the tax benefit as the largest amount that is more likely than not to be realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions in our provision for income taxes on our consolidated statements of operations. 48 Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements Convertible Debt 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. The adoption of ASU 2020-06 reduced non-cash interest expense in the current year and in future periods due to the de-recognition of the debt discount associated with the bifurcated components of our Notes. As a result of the adoption of this guidance, interest expense decreased by $ 11.5 million. For the fiscal year ending November 30, 2022, total interest expense for the Notes was $ 5.7 million. The new standard requires the use of the "if-converted" method to calculate the diluted earnings per common share. Recently Issued Accounting Pronouncements Not Yet Adopted Reference Rate Reform In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), as amended in December 2022 by Accounting Standards Update No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ("ASU 2022-06"). ASU 2020-04 provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2024, as amended by ASU 2022-06. As of November 30, 2022, we have not adopted any expedients and exceptions under ASU 2020-04. We will continue to evaluate the impact of ASU 2020-04 on our consolidated financial statements. Note 2: Cash, Cash Equivalents and Investments A summary of our cash and cash equivalents at November 30, 2022 is as follows (in thousands): Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value Cash $ 229,023 $ — $ — $ 229,023 Money market funds 27,254 — — 27,254 Total $ 256,277 $ — $ — $ 256,277 A summary of our cash, cash equivalents and available-for-sale investments at November 30, 2021 is as follows (in thousands): Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value Cash $ 130,371 $ — $ — $ 130,371 Money market funds 25,035 — — 25,035 U.S. treasury bonds 748 9 — 757 Corporate bonds 1,203 7 — 1,210 Total $ 157,357 $ 16 $ — $ 157,373 49 Such amounts are classified on our consolidated balance sheets as follows (in thousands): November 30, 2022 November 30, 2021 Cash and Equivalents Short-Term Investments Cash and Equivalents Short-Term Investments Cash $ 229,023 $ — $ 130,371 $ — Money market funds 27,254 — 25,035 — U.S. treasury bonds — — — 757 Corporate bonds — — — 1,210 Total $ 256,277 $ — $ 155,406 $ 1,967 There were no debt securities by contractual maturity due after one year as of November 30, 2022. The fair value of debt securities by contractual maturity due in one year or less was $ 2.0 million as of November 30, 2021. We did not hold any investments with continuous unrealized losses as of November 30, 2022 or November 30, 2021. Note 3: Derivative Instruments Cash Flow Hedge On July 9, 2019, we entered into an interest rate swap contract with an initial notional amount of $ 150.0 million to manage the variability of cash flows associated with approximately one-half of our variable rate debt. The contract matures on April 30, 2024 and requires periodic interest rate settlements. Under this interest rate swap contract, we receive a floating rate based on the greater of 1-month LIBOR or 0.00 % and pay a fixed rate of 1.855 % on the outstanding notional amount. We have designated the interes t rate swap as a cash flow hedge and assessed the hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative. To the extent that the interest rate swap is highly effective in offsetting the variability of the hedged cash flows, changes in the fair value of the derivative are included as a component of other comprehensive loss on our consolidated balance sheets. Although we 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 November 30, 2022 and November 30, 2021 , the fair value of the hedge was a gain of $ 4.4 million and a loss of $ 3.1 million, respectively, and was included in other assets and other noncurrent liabilities, respectively, on our consolidated balance sheets. The net amount of accumulated other comprehensive loss reclassified to interest expense during fiscal years 2022 and 2021 was an increase of $ 0.7 million and $ 2.5 million, respectively. 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 our 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): November 30, 2022 November 30, 2021 Notional Value Fair Value Notional Value Fair Value Interest rate swap contracts designated as cash flow hedges $ 120,000 $ 4,407 $ 133,125 $ ( 3,078 ) Forward Contracts We generally use forward contracts that are not designated as hedging instruments to hedge economically the impact of the variability in exchange rates on intercompany accounts receivable and loans receivable denominated in certain foreign currencies. 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 2 years from the date the contract was entered. At November 30, 2022, $ 3.1 million and $ 0.1 million were recorded in other noncurrent liabilities and other current assets, respectively, on the 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 the consolidated balance sheets. 50 In fiscal years 2022 and 2021, realized and unrealized losses of $ 7.7 million and $ 2.1 million, respectively, from our forward contracts were recognized in foreign currency loss, net on the consolidated statement of operations. In fiscal year 2020, realized and unrealized gains of $ 1.7 million from our forward contracts were recognized in foreign currency loss, net on the consolidated statements of operations. These gains and losses were substantially offset by realized and unrealized losses and gains on the offsetting positions. The table below details outstanding foreign currency forward contracts where the notional amount is determined using contract exchange rates (in thousands): November 30, 2022 November 30, 2021 Notional Value Fair Value Notional Value Fair Value Forward contracts to sell U.S. dollars $ 74,578 $ ( 2,995 ) $ 79,777 $ ( 371 ) Forward contracts to purchase U.S. dollars 544 ( 5 ) 119 ( 1 ) Total $ 75,122 $ ( 3,000 ) $ 79,896 $ ( 372 ) Note 4: Fair Value Measurements Recurring Fair Value Measurements The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2022 (in thousands): Fair Value Measurements Using Total Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 27,254 $ 27,254 $ — $ — Interest rate swap 4,407 — 4,407 — Liabilities Foreign exchange derivatives $ ( 3,000 ) $ — $ ( 3,000 ) $ — The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2021 (in thousands): Fair Value Measurements Using Total Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 25,035 $ 25,035 $ — $ — U.S. treasury bonds 757 — 757 — Corporate bonds 1,210 — 1,210 — Liabilities Foreign exchange derivatives ( 372 ) — ( 372 ) — Interest rate swap $ ( 3,078 ) $ — $ ( 3,078 ) $ — When developing fair value estimates, we maximize the use of observable inputs and minimize the use of unobservable inputs. When available, we use quoted market prices to measure fair value. The valuation technique used to measure fair value for our Level 1 and Level 2 assets is a market approach, using prices and other relevant information generated by market transactions involving identical or comparable assets. If market prices are not available, the fair value measurement is based on models that use primarily market-based parameters including yield curves, volatilities, credit ratings and currency rates. In certain cases where market rate assumptions are not available, we are required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. 51 Fair Value of the Convertible Senior Notes The fair value of the Company's Notes, as defined in Note 9: Debt, inclusive of the conversion feature embedded in the Notes, was $ 376.0 million as of November 30, 2022 and $ 372.1 million as of November 30, 2021. 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. See Note 9: Debt for additional information. Note 5: Inventories The components of inventories were as follows (in thousands): November 30, 2022 November 30, 2021 Finished goods $ 2,409 $ 1,631 Purchased parts and fabricated assemblies 2,634 1,920 Total $ 5,043 $ 3,551 At November 30, 2022 and November 30, 2021, the inventories balances of $ 5.0 million and $ 3.6 million, respectively, were recorded in other current assets on the consolidated balance sheets. Note 6: Property and Equipment Property and equipment consists of the following (in thousands): November 30, 2022 November 30, 2021 Computer equipment and software $ 42,672 $ 45,774 Land, buildings and leasehold improvements 8,771 8,023 Furniture and fixtures 3,582 3,539 Capitalized software development costs 276 276 Property and equipment, gross 55,301 57,612 Less accumulated depreciation and amortization ( 40,374 ) ( 43,267 ) Property and equipment, net $ 14,927 $ 14,345 Depreciation and amortization expense related to property and equipment was $ 5.0 million, $ 5.5 million, and $ 6.1 million for the years ended November 30, 2022, 2021, and 2020, respectively. 52 Note 7: Intangible Assets and Goodwill Intangible Assets Intangible assets are comprised of the following significant classes (in thousands): November 30, 2022 November 30, 2021 Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value Purchased technology $ 212,700 $ ( 150,877 ) $ 61,823 $ 212,700 $ ( 128,797 ) $ 83,903 Customer-related 306,308 ( 162,341 ) 143,967 306,308 ( 119,357 ) 186,951 Trademarks and trade names 37,611 ( 26,046 ) 11,565 37,611 ( 21,556 ) 16,055 Non-compete agreement 2,000 ( 2,000 ) — 2,000 ( 1,724 ) 276 Total $ 558,619 $ ( 341,264 ) $ 217,355 $ 558,619 $ ( 271,434 ) $ 287,185 We amortize intangible assets assuming no expected residual value. Amortization expense related to these intangible assets was $ 68.9 million, $ 46.9 million, and $ 27.9 million in fiscal years 2022, 2021, and 2020, respectively. Future amortization expense for intangible assets as of November 30, 2022 is as follows (in thousands): 2023 $ 68,895 2024 56,079 2025 45,569 2026 36,098 2027 10,714 Total $ 217,355 Goodwill Changes in the carrying amount of goodwill for fiscal years 2022 and 2021 are as follows (in thousands): November 30, 2022 November 30, 2021 Balance, beginning of year $ 671,152 $ 491,726 Measurement Period Adjustments (1) ( 88 ) ( 77 ) Additions (2) — 179,521 Translation Adjustments ( 27 ) ( 18 ) Balance, end of year $ 671,037 $ 671,152 (1) Represents final measurement period adjustments related to our Kemp acquisition. Refer to Note 8: Business Combinations for further information. (2) The additions to goodwill during fiscal year 2021 are related to the acquisition of Kemp in November 2021. Refer to Note 8: Business Combinations for further information. We assess the impairment of goodwill on an annual basis and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. During fiscal year 2022, we performed a quantitative assessment as of October 31, 2022 and concluded that there was no impairment since it was not more likely than not that the fair value of our reporting unit was less than its carrying value. We did no t recognize any goodwill impairment charges during fiscal years 2022, 2021, or 2020. Note 8: Business Combinations Kemp Acquisition On November 1, 2021, we completed the acquisition of the parent company of Kemp Technologies, Inc. (“Kemp”). The acquisition was completed for a base purchase price of $ 258.0 million (subject to certain customary adjustments) in cash. 53 The acquisition consideration for Kemp has been allocated to Kemp’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values. The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill. We recorded measurement period adjustments in accordance with FASB’s guidance regarding business combinations in the first and fourth quarters of fiscal year 2022 based on our valuation and purchase price allocation procedures. The measurement period adjustments were completed during the fourth quarter of fiscal year 2022. The allocation of the purchase price is as follows (in thousands): Initial Purchase Price Allocation Measurement Period Adjustments Final Purchase Price Allocation Life Net working capital $ 27,075 $ ( 425 ) $ 26,650 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 ) ( 800 ) ( 1,404 ) Deferred taxes ( 23,187 ) 1,160 ( 22,027 ) Deferred revenue ( 29,997 ) — ( 29,997 ) Goodwill 179,521 ( 88 ) 179,433 Net assets acquired $ 275,881 $ ( 134 ) $ 275,747 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. We determined the acquisition date deferred revenue balance based on our assessment of the individual contracts acquired. A significant portion of the deferred revenue was 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 $ 179.4 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 fiscal year ended November 30, 2022, we incurred approximately $ 0.9 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 %). 54 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 Fiscal Year Ended November 30, 2021 Pro Forma Fiscal Year Ended November 30, 2020 Revenue $ 590,133 $ 490,229 Net income $ 75,612 $ 65,360 Net income per basic share $ 1.72 $ 1.46 Net income per diluted share $ 1.69 $ 1.44 Chef Acquisition On October 5, 2020, we completed the acquisition of Chef Software Inc. (“Chef”). The acquisition was completed for a base purchase price of $ 220.0 million (subject to certain customary adjustments) in cash. We funded the acquisition through a combination of existing cash resources and by drawing down $ 98.5 million from our existing revolving credit facility. Refer to Note 9: Debt for further information. The acquisition consideration for Chef has been allocated to Chef’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values. The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill. We recorded measurement period adjustments in accordance with FASB’s guidance regarding business combinations in the 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 Final Purchase Price Allocation Life Net working capital $ 52,330 $ 147 $ 52,477 Property, plant and equipment 498 — 498 Purchased technology 38,300 — 38,300 5 years Trade name 5,700 — 5,700 5 years Customer relationships 97,300 — 97,300 7 years Other assets 122 — 122 Other noncurrent liabilities ( 841 ) — ( 841 ) Lease liabilities, net ( 1,810 ) — ( 1,810 ) Deferred taxes ( 7,817 ) 126 ( 7,691 ) Deferred revenue ( 12,525 ) — ( 12,525 ) Goodwill 59,858 ( 273 ) 59,585 Net assets acquired $ 231,115 $ — $ 231,115 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. Tangible assets acquired and assumed liabilities were recorded at fair value. The valuation of the assumed deferred revenue was based on our contractual commitment to provide post-contract customer support to Chef customers and future contractual performance obligations under existing hosting arrangements. The fair value of this assumed liability was based on the estimated cost plus a reasonable margin to fulfill these service obligations. A significant portion of the deferred revenue was recognized in the 12 months following the acquisition. 55 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 $ 59.6 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 fiscal year ended November 30, 2022, we incurred approximately $ 0.2 million of acquisition-related costs, which are included in acquisition-related expenses on our consolidated statement of operations. The operations of Chef are included in our operating results from 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 %). The pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on December 1, 2018. These results are prepared in accordance with ASC 606. (In thousands, except per share data) Pro Forma Fiscal Year Ended November 30, 2020 Revenue $ 497,700 Net income $ 61,952 Net income per basic share $ 1.38 Net income per diluted share $ 1.37 56 Note 9: Debt As of November 30, 2022, future maturities of the Company's long-term debt were as follows: (In thousands) 2026 Notes Revolving Credit Facility Total 2023 $ — $ 6,875 $ 6,875 2024 — 13,750 13,750 2025 — 20,625 20,625 2026 360,000 20,625 380,625 2027 — 206,250 206,250 Total face value of long-term debt 360,000 268,125 628,125 Unamortized discount and issuance costs ( 7,375 ) ( 2,671 ) ( 10,046 ) Less current portion of long-term debt, net — ( 6,234 ) ( 6,234 ) Long-term debt $ 352,625 $ 259,220 $ 611,845 Notes Payable Convertible Senior Notes In April 2021, the Company issued, in a private placement, Convertible Senior Notes (the "Notes") with an aggregate principal amount of $ 325 million, due April 15, 2026, unless earlier repurchased, redeemed or converted. There are no required principal payments prior to the maturity of the Notes. 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. The Company incurred approximately $ 10.8 million in issuance costs for the issuance of the Convertible Notes. During the twelve months ended November 30, 2022, the Company did not enter into any new or amended agreements. 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; or • 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. The initial conversion rate is 17.4525 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of approximately $ 57.30 per share of common stock. The conversion rate will be adjusted upon the occurrence of certain events, including spin-offs, tender offers, exchange offers, make-whole fundamental change and certain stockholder distributions. Repurchase Rights On or after April 20, 2024, and on or before the 50th scheduled trading day immediately before the maturity date, the Company may redeem for cash all or part of the Notes, subject to the partial redemption limitation, at a repurchase price equal to 100 % of the 57 principal amount, plus accrued and unpaid interest, if the last reported sale price per share of the Company’s common stock exceeded 130 % of the conversion price on (1) each of at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice and (2) the trading day immediately before the date the Company sends such notice. Pursuant to the partial redemption limitation, the Company may not elect to redeem less than all of the outstanding Notes unless at least $ 100.0 million aggregate principal amount of Notes are outstanding and not subject to redemption as of the time it sends the related redemption notice. If certain corporate events that constitute a “fundamental change” (as described below) occur at any time, holders may, subject to certain exceptions, require the Company to purchase their Notes in whole or in part for cash at a price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. A fundamental change relates to events such as business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock. Capped Call Transactions On April 8, 2021, in connection with the pricing of the Notes, the Company entered into privately negotiated capped call transactions (“Capped Call Transactions”) with one or more of the initial purchasers and/or their respective affiliates and/or other financial institutions. The Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, approximately 6.3 million shares (representing the number of shares of common stock initially underlying the Notes) of the Company’s common stock. The Capped Call Transactions are generally expected to reduce potential dilution to our common stock upon any conversion of Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the Capped Call Transactions will initially be $ 89.88 per share of common stock, which represents a premium of 100 % over the last reported sale price of the common stock of $ 44.94 per share on April 8, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions. The cost of the purchased capped calls of $ 43.1 million was recorded as a reduction to additional paid-in-capital. We elected to integrate the capped call options with the applicable Notes for federal income tax purposes pursuant to applicable U.S. Treasury Regulations. Accordingly, the $ 43.1 million gross cost of the purchased capped calls will be deductible for income tax purposes as original discount interest over the term of the Notes. Accounting for the Notes The Company adopted ASU 2020-06 using the modified retrospective approach on December 1, 2021. Under ASU 2020-06, we no longer separate the Notes into liability and equity components. We recognized the cumulative effect of applying this new standard as of December 1, 2021. In accounting for the transaction, prior to the adoption of ASU 2020-06, the Notes were separated into liability and equity components. • 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, was amortized as interest expense over the Notes’ contractual term. (In thousands) November 30, 2021 Principal $ 360,000 Conversion option allocated to equity ( 64,800 ) Unamortized discount ( 665 ) Net carrying amount of the liability component $ 294,535 • The equity component, which represented the difference between the gross proceeds and the initial liability component, was recorded as an increase to additional paid-in capital and was not remeasured. 58 (In thousands) November 30, 2021 Conversion options (1) $ 62,855 Capped call ( 43,056 ) Net carrying amount of the equity component $ 19,799 (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. Net carrying amount of the Notes: (In thousands) November 30, 2022 Principal $ 360,000 Unamortized discount ( 7,375 ) $ 352,625 Fiscal Year Ended (In thousands) November 30, 2022 November 30, 2021 Contractual interest expense ( 1 % coupon) $ 3,600 $ 2,280 Amortization of debt discount and issuance costs (1) 2,112 8,195 $ 5,712 $ 10,475 (1) After the adoption of ASU 2020-06, the effective interest rate for the Notes was 1.63 %. Prior to adoption of ASU 2020-06, the effective interest rate for the Notes was 5.71 %. Credit Facility On January 25, 2022, the Company entered into 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 line of credit may be increased, and new term loan commitments may be entered into, 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. 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 on our leverage ratio. The average interest rate of the credit facility during the fiscal year ended November 30, 2022 was 2.85 % and the interest rate as of November 30, 2022 was 5.69 %. The credit facility 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 November 30, 2022 was $ 268.1 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) 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 59 before maturity in whole or in part at our option without penalty or premium. As of November 30, 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. 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 consolidated balance sheets as of November 30, 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 $ 0.6 million for the fiscal years ended November 30, 2022, 2021 and 2020 and is recorded in interest expense on our consolidated statements of operations. Revolving loans may be borrowed, repaid, and reborrowed until January 25, 2027, at which time all amounts outstanding must be repaid. As of November 30, 2022, there were no outstanding amounts under the revolving line of credit and $ 2.1 million of letters of credit. We are the sole borrower under the credit facility. Our obligations under the Credit Agreement are guaranteed by each of our material domestic subsidiaries and are secured by substantially all of our assets and such material domestic subsidiaries, as well as 100 % of the capital stock of our domestic subsidiaries and 65 % of the capital stock of our first-tier foreign subsidiaries, in each case, subject to certain exceptions as described in the Credit Agreement. Future material domestic subsidiaries will be required to guaranty our obligations under the Credit Agreement, and to grant security interests in substantially all of their assets to secure such obligations. The Credit Agreement generally prohibits, with certain exceptions, any other liens on our assets and the assets of our subsidiaries, subject to certain exceptions as described in the Credit Agreement. The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict us and our subsidiaries’ ability to, among other things, grant liens, make investments, make acquisitions, incur indebtedness, merge or consolidate, dispose of assets, pay dividends or make distributions, repurchase stock, change the nature of its business, enter into certain transactions with affiliates and enter into burdensome agreements, in each case subject to customary exceptions for a credit facility of this size and type. We are also required to maintain compliance with a consolidated interest charge coverage ratio and a consolidated total net leverage ratio. The Credit Agreement includes customary events of default that include, among other things, non-payment defaults, covenant defaults, inaccuracy of representations and warranties, cross default to material indebtedness, bankruptcy and insolvency defaults, material judgment defaults, ERISA defaults and a change of control default. The occurrence of an event of default could result in the acceleration of the obligations under the amended credit agreement. We are in compliance with these financial covenants as of November 30, 2022. Note 10: Leases The Company has operating leases for administrative, product development, and sales and marketing facilities, vehicles, and equipment under various non-cancelable lease agreements. The Company’s leases have remaining lease terms ranging from 1 year to 7 years. The Company’s lease terms may include options to extend or terminate the lease where it is reasonably certain that the Company will exercise those options. The Company considers several economic factors when making the determination as to whether the Company will exercise options to extend or terminate the lease, including but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty in replacing the asset, underlying contractual obligations, or specific characteristics unique to a particular lease. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Consideration in the contract is comprised of any fixed payments and variable payments that depend on an index or rate. Payments in the Company's operating lease arrangements primarily consist of base office rent. The Company makes variable payments on certain of its leases related to taxes, insurance, common area maintenance, and utilities, among other things. The components of operating lease cost for the years ended November 30, 2022, 2021 and 2020 were as follows (in thousands): 60 Fiscal Year Ended November 30, 2022 November 30, 2021 November 30, 2020 Lease costs under long-term operating leases $ 7,079 $ 7,867 $ 7,605 Lease costs under short-term operating leases 71 32 426 Variable lease cost under short-term and long-term operating leases (1) 282 434 325 Operating lease right-of-use asset impairment — 3,057 1,189 Total operating lease cost $ 7,432 $ 11,390 $ 9,545 (1) Lease costs that are not fixed at lease commencement. The table below presents supplemental cash flow information related to leases during the years ended November 30, 2022, 2021 and 2020 (in thousands): Fiscal Year Ended November 30, 2022 November 30, 2021 November 30, 2020 Cash paid for leases $ 8,571 $ 8,406 $ 8,101 Right-of-use assets recognized for new leases and amendments (non-cash) $ 451 $ 3,222 $ 8,532 Weighted average remaining lease term in years and weighted average discount rate are as follows: November 30, 2022 November 30, 2021 Weighted average remaining lease term in years 3.33 4.15 Weighted average discount rate 2.6 % 2.6 % Future payments under non-cancellable leases at November 30, 2022 are as follows (in thousands): 2023 $ 7,985 2024 7,561 2025 4,931 2026 1,799 2027 1,183 Thereafter 112 Total lease payments 23,571 Less imputed interest (1) ( 1,059 ) Present value of lease liabilities $ 22,512 (1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated as a result of a lease reassessment event. Our operating lease arrangements are subject to customary renewal and base rental fee escalation clauses. Total rent expense, net of sublease income which is insignificant, under operating lease arrangements was approximately $ 8.7 million, $ 9.3 million and $ 9.6 million in fiscal years 2022, 2021 and 2020, respectively. Note 11: Commitments and Contingencies Guarantees and Indemnification Obligations We include standard intellectual property indemnification provisions in our licensing agreements in the ordinary course of business. Pursuant to our product license agreements, we will indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally business partners or customers, in connection with certain patent, copyright or other intellectual property infringement claims by third parties with respect to our products. Other agreements with our customers provide indemnification for claims relating to property damage or personal injury resulting from the performance of services by us or our subcontractors. Historically, our costs to defend lawsuits or settle claims relating to such indemnity agreements have been insignificant. Accordingly, the estimated fair value of these indemnification provisions is immaterial. 61 Legal Proceedings We are subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these other legal matters will have a material effect on our financial position, results of operations or cash flows. Note 12: Stockholders’ Equity Preferred Stock Our Board of Directors is authorized to establish one or more series of preferred stock and to fix and determine the number and conditions of preferred shares, including dividend rates, redemption and/or conversion provisions, if any, preferences and voting rights. As of November 30, 2022, there was no preferred stock issued or outstanding. Common Stock We have 200,000,000 shares of authorized common stock, $ 0.01 par value per share, of which 43,257,008 were issued and outstanding at November 30, 2022. There were 292,991 deferred stock units ("DSUs") outstanding at November 30, 2022. Each DSU represents one share of our common stock and all DSU grants have been made to non-employee members of our Board of Directors. DSUs do not have voting rights and can only be converted into common stock when the recipient ceases to be a member of the Board of Directors or a change in control of the Company occurs. Common Stock Repurchases In fiscal years 2022, 2021, and 2020, we repurchased and retired 1.7 million, 0.8 million and 1.4 million shares of our common stock for $ 77.0 million, $ 35.0 million and $ 60.0 million, respectively, under this current authorization. As of November 30, 2022, there was $ 78.0 million remaining under the current authorization. On January 10, 2023, our Board of Directors increased our share repurchase authorization by $ 150.0 million, to an aggregate authorization of $ 228.0 million. Note 13: Stock-Based Compensation We currently have one stockholder-approved stock plan from which we can issue stock-based awards, which was approved by our stockholders in fiscal year 2008 and most recently amended and approved by stockholders in May 2021 ("2008 Plan"). The 2008 Plan permits the granting of stock awards to officers, members of the Board of Directors, employees and consultants. Awards under the 2008 Plan may include nonqualified stock options, incentive stock options, grants of conditioned or restricted stock, unrestricted grants of stock, grants of stock contingent upon the attainment of performance goals, deferred stock units and stock appreciation rights. In May 2021, stockholders of the Company approved an amendment to the 2008 Plan to add 4,500,000 shares to the plan. A total of 4,719,864 shares were available for issuance as of November 30, 2022. We have previously adopted two stock plans for which the approval of stockholders was not required: the 2002 Nonqualified Stock Plan ("2002 Plan") and the 2004 Inducement Stock Plan ("2004 Plan"). The 2002 Plan permits the granting of stock awards to non-executive officer employees and consultants. Executive officers and members of the Board of Directors are not eligible for awards under the 2002 Plan. Awards under the 2002 Plan may include nonqualified stock options, grants of conditioned or restricted stock, unrestricted grants of stock, grants of stock contingent upon the attainment of performance goals and stock appreciation rights. A total of 56,093 shares were available for issuance under the 2002 Plan as of November 30, 2022. Additional shares cannot be added to the 2002 Plan without stockholder approval. The 2004 Plan is reserved for persons to whom we may issue securities as an inducement to become employed by us pursuant to the rules and regulations of the NASDAQ Stock Market. Awards under the 2004 Plan may include nonqualified stock options, grants of conditioned or restricted stock, unrestricted grants of stock, grants of stock contingent upon the attainment of performance goals and stock appreciation rights. A total of 466,716 shares were available for issuance under the 2004 Plan as of November 30, 2022. Additional shares cannot be added to the 2002 Plan without stockholder approval. Under all of our plans, the awards granted generally begin to vest within one year of the grant. 62 A summary of stock option activity under all the plans is as follows: Shares Weighted Average Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (1) (in thousands) Exercise Price (in years) (in thousands) Options outstanding, December 1, 2021 2,015 $ 40.67 Granted 823 44.30 Exercised ( 174 ) 39.04 Canceled ( 184 ) 44.18 Options outstanding, November 30, 2022 2,480 $ 41.73 4.3 $ 27,609 Exercisable, November 30, 2022 1,244 $ 40.00 3.1 $ 15,986 Vested or expected to vest, November 30, 2022 2,480 $ 41.73 4.3 $ 27,609 (1) The aggregate intrinsic value was calculated based on the difference between the closing price of our stock on November 30, 2022 and the exercise prices for all options outstanding. A summary of restricted stock units' activity is as follows (in thousands, except per share data): Number of Shares Weighted Average Fair Value Restricted stock units outstanding, December 1, 2021 878 $ 43.06 Granted 778 44.24 Issued ( 466 ) 41.04 Canceled ( 139 ) 44.52 Restricted stock units outstanding, November 30, 2022 1,051 $ 44.80 Each restricted stock unit represents one share of common stock. The restricted stock units generally vest semi-annually over a three-year period. Performance-based restricted stock units are subject to multi-year performance criteria aligned with our business plan and are earned only to the extent the performance criteria are achieved. The fair value of outright stock awards, restricted stock units and DSUs is equal to the closing price of our common stock on the date of grant, less the present value of expected dividends when applicable. Beginning in fiscal year 2020, restricted stock units have forfeitable dividend equivalent rights equal to the dividend paid on our common stock. During the first quarter of fiscal years 2020, 2021, and 2022, we granted performance-based restricted stock units that include two performance metrics under a Long-Term Incentive Plan ("LTIP") where the performance measurement period is three years . Vesting of the LTIP awards for the 2020 plan is based on the following: (i) 50 % is based on achievement of a three-year cumulative performance condition (operating income), and (ii) 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. For the 2021 and 2022 plans, the vesting terms were changed to the following: (i) 75 % is based on achievement of a three-year cumulative operating income, and (ii) 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. The vesting of LTIP awards is also subject to continued employment of the grantees through the performance period, except in the event of a qualifying termination. In order to estimate the fair value of such awards, we used a Monte Carlo Simulation valuation model for the market condition portion of the award and used the closing price of our common stock on the date of grant, less the present value of expected dividends when applicable, for the portion related to the performance condition. The 1991 Employee Stock Purchase Plan was most recently amended and approved by stockholders in May 2021 ("ESPP") and permits eligible employees to purchase up to an aggregate of 10,250,000 shares of our common stock through accumulated payroll deductions. The ESPP has a 27 -month offering period comprised of nine three-month purchase periods. The purchase price of the stock is equal to 85 % of the lesser of the market value of such shares at the beginning of a 27 -month offering period or the end of each three-month segment within such offering period. If the market price at any of the nine purchase periods is less than the market price 63 on the first date of the 27 -month offering period, subsequent to the purchase, the offering period is canceled and the employee is entered into a new 27 -month offering period with the then current market price as the new base price. We issued 301,000 shares, 277,000 shares, and 237,000 shares with weighted average purchase prices of $ 30.59 , $ 28.20 , and $ 27.86 per share, respectively, in fiscal years 2022, 2021, and 2020, respectively. At November 30, 2022, approximately 386,000 shares were available and reserved for issuance under the ESPP. We estimated the fair value of stock options and ESPP awards granted in fiscal years 2022, 2021, and 2020 on the measurement dates using the Black-Scholes option valuation model, and LTIP awards using the Monte Carlo Simulation valuation model, with the following weighted average assumptions: Fiscal Year Ended November 30, 2022 November 30, 2021 November 30, 2020 Stock options: Expected volatility 31.0 % 30.0 % 29.0 % Risk-free interest rate 1.9 % 0.5 % 1.1 % Expected life (in years) 4.8 4.8 4.8 Expected dividend yield 1.6 % 1.6 % 1.6 % Employee stock purchase plan: Expected volatility 31.8 % 33.1 % 38.2 % Risk-free interest rate 2.4 % 0.1 % 0.2 % Expected life (in years) 1.2 1.3 1.3 Expected dividend yield 1.5 % 1.5 % 2.0 % Long-term incentive plan: Expected volatility 35.1 % 36.3 % 34.7 % Risk-free interest rate 1.3 % 0.2 % 1.1 % Expected life (in years) 2.9 2.8 2.8 Expected dividend yield — % — % — % For each stock option award, the expected life in years is based on historical exercise patterns and post-vesting termination behavior. Expected volatility is based on historical volatility of our stock, and the risk-free interest rate is based on the U.S. Treasury yield curve for the period that is commensurate with the expected life at the time of grant. The expected annual dividend yield is based on the weighted-average of the dividend yield assumptions used for options granted during the applicable period. For each ESPP award, the expected life in years is based on the period of time between the beginning of the offering period and the date of purchase, plus an additional holding period of three months . Expected volatility is based on historical volatility of our stock, and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at each purchase period. The expected annual dividend yield is based on the weighted-average of the dividend yield assumptions used for options granted during the applicable period. Based on the above assumptions, the weighted average estimated fair value of stock options granted in fiscal years 2022, 2021, and 2020 was $ 10.95 , $ 9.46 , and $ 9.59 per share, respectively. We amortize the estimated fair value of stock options to expense over the vesting period using the straight-line method. The weighted average estimated fair value for shares issued under our ESPP in fiscal years 2022, 2021, and 2020 was $ 11.01 , $ 11.59 , and $ 8.73 per share, respectively. We amortize the estimated fair value of shares issued under the ESPP to expense over the vesting period using a graded vesting model. Total unrecognized stock-based compensation expense, net of expected forfeitures, related to unvested stock options and unvested restricted stock awards amounted to $ 45.8 million at November 30, 2022. These costs are expected to be recognized over a weighted average period of two years . 64 The following additional activity occurred under our plans (in thousands): Fiscal Year Ended November 30, 2022 November 30, 2021 November 30, 2020 Total intrinsic value of stock options on date exercised $ 1,717 $ 2,523 $ 1,340 Total fair value of deferred stock units on date vested 2,029 2,084 1,547 Total fair value of restricted stock units on date vested 25,597 16,018 15,499 The following table provides the classification of stock-based compensation as reflected in our consolidated statements of operations (in thousands): Fiscal Year Ended November 30, 2022 November 30, 2021 November 30, 2020 Cost of maintenance and services $ 1,969 $ 1,561 $ 1,336 Sales and marketing 4,884 6,055 4,462 Product development 10,326 8,104 7,286 General and administrative 19,915 14,004 10,398 Total stock-based compensation $ 37,094 $ 29,724 $ 23,482 Income tax benefit included in the provision for income taxes $ 6,344 $ 5,281 $ 4,541 Note 14: Retirement Plan We maintain a retirement plan covering all U.S. employees under Section 401(k) of the Internal Revenue Code. Company contributions to the plan are at the discretion of the Board of Directors and totaled approximately $ 3.3 million, $ 4.0 million and $ 3.6 million for fiscal years 2022, 2021 and 2020, respectively. Note 15: Revenue Recognition Timing of Revenue Recognition Our revenues are derived from licensing our products, and from related services, which consist of maintenance, hosting services, and consulting and education. Information relating to revenue from external customers by revenue type is as follows: Fiscal Year Ended (In thousands) November 30, 2022 November 30, 2021 November 30, 2020 Performance obligations transferred at a point in time: Software licenses $ 188,336 $ 156,590 $ 115,249 Performance obligations transferred over time: Maintenance 362,335 325,863 288,887 Services 51,342 48,860 38,014 Total revenue $ 602,013 $ 531,313 $ 442,150 65 Geographic Revenue In the following table, revenue attributed to the United States includes sales to customers in the U.S. and sales to certain multinational organizations. Revenue from Canada, EMEA, Latin America and the Asia Pacific region includes sales to customers in each region plus sales from the U.S. to distributors in these regions. Information relating to revenue from external customers from different geographical areas is as follows: Fiscal Year Ended (In thousands) November 30, 2022 November 30, 2021 November 30, 2020 United States $ 310,917 $ 294,947 $ 240,717 Canada 30,237 22,867 20,281 EMEA 207,707 169,335 143,754 Latin America 18,053 17,036 14,574 Asia Pacific 35,099 27,128 22,824 Total revenue $ 602,013 $ 531,313 $ 442,150 No single customer, partner, or country outside of the U.S. has accounted for more than 10% of our consolidated revenue in any year presented. Contract Balances Unbilled Receivables and Contract Assets The timing of revenue recognition may differ from the timing of customer billing. When revenue is recognized prior to billing and the right to the amount due from customers is conditioned only on the passage of time, we record an unbilled receivable on our consolidated balance sheets. Our multi-year term license arrangements, which are typically billed annually, result in revenue recognition in advance of billing and the recognition of unbilled receivables. As of November 30, 2022, billing of our long-term unbilled receivables is expected to occur as follows (in thousands): 2024 $ 17,594 2025 12,860 2026 9,482 Total $ 39,936 Contract assets arise when revenue is recognized in excess of billings 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. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. We did not have any net contract assets as of November 30, 2022 and $ 5.0 million as of November 30, 2021. These amounts are included in unbilled receivables and contract assets, net or long-term unbilled receivables and contract assets, net on our consolidated balance sheets. Deferred Revenue Deferred revenue is recorded when revenue is recognized subsequent to customer invoicing. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. Deferred revenue expected to be recognized as revenue more than one year subsequent to the balance sheet date is included in long-term liabilities on the consolidated balance sheets. Our net deferred revenue balance is primarily made up of deferred maintenance. As of November 30, 2022, the changes in net deferred revenue were as follows (in thousands): Balance, December 1, 2021 $ 252,380 Billings and other 632,073 Revenue recognized 602,013 Balance, November 30, 2022 $ 282,440 66 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 November 30, 2022, transaction price allocated to remaining performance obligations was $ 295.0 million. We expect to recognize approximately 81 % of the revenue within the next year and the remainder thereafter. Deferred Contract Costs Deferred contract costs, which include certain sales incentive programs, are incremental and recoverable costs of obtaining a contract with a customer. Incremental costs of obtaining a contract with a customer are recognized as an asset if the expected benefit of those costs is longer than one year. We have applied the practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include a large majority of our sales incentive programs as we have determined that annual compensation is commensurate with annual sales activities. Certain of our sales incentive programs do meet the requirements to be capitalized. Depending upon the sales incentive program and the related revenue arrangement, such capitalized costs are amortized over the longer of (i) the product life, which is generally three to five years ; or (ii) the term of the related revenue contract. 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 $ 8.8 million, $ 7.9 million, and $ 2.5 million as of November 30, 2022, 2021, and 2020, respectively, and are included in other current assets and other assets on our consolidated balance sheets. Amortization of deferred contract costs is included in sales and marketing expense on our consolidated statement of operations and was minimal in all periods presented. Note 16: Restructuring The following table provides a summary of activity for all of the restructuring actions, with material actions detailed further below (in thousands): Excess Facilities and Other Costs Employee Severance and Related Benefits Total Balance, December 1, 2019 $ 196 $ 2,007 $ 2,203 Costs incurred 1,812 4,094 5,906 Cash disbursements ( 1,569 ) ( 2,554 ) ( 4,123 ) Translation adjustments and other ( 18 ) 5 ( 13 ) Balance, November 30, 2020 $ 421 $ 3,552 $ 3,973 Costs incurred 3,518 2,790 6,308 Cash disbursements ( 1,072 ) ( 4,447 ) ( 5,519 ) Translation adjustments and other 1,616 ( 6 ) 1,610 Balance, November 30, 2021 $ 4,483 $ 1,889 $ 6,372 Costs incurred 414 465 879 Cash disbursements ( 1,027 ) ( 2,321 ) ( 3,348 ) Translation adjustments and other — ( 3 ) ( 3 ) Balance, November 30, 2022 $ 3,870 $ 30 $ 3,900 2021 Restructurings During the fourth quarter of fiscal year 2021, we restructured our operations in connection with the acquisition of Kemp. Refer to Note 8: Business Combinations for further discussion. This restructuring resulted in a reduction in redundant positions, primarily within the administrative functions of Kemp. For the fiscal years ended November 30, 2022 and November 30, 2021, we incurred expenses of $ 0.5 million and $ 2.0 million, respectively, related to this restructuring. The expenses are recorded as restructuring expenses in the consolidated statements of operations. 67 Excess Facilities and Other Costs Employee Severance and Related Benefits Total Balance, December 1, 2020 $ — $ — $ — Costs incurred — 1,965 1,965 Cash disbursements — ( 69 ) ( 69 ) Translation adjustments and other — ( 14 ) ( 14 ) Balance, November 30, 2021 $ — $ 1,882 $ 1,882 Costs incurred — 465 465 Cash disbursements — ( 2,314 ) ( 2,314 ) Translation adjustments and other — ( 3 ) ( 3 ) Balance, November 30, 2022 $ — $ 30 $ 30 Minimal cash disbursements for expenses incurred to date under this restructuring are expected to be made through fiscal year 2023. Accordingly, the minimal balance of the restructuring reserve is included in other accrued liabilities on the consolidated balance sheet at November 30, 2022. We do not expect to incur additional material expenses as part of this action during fiscal year 2023. 2020 Restructurings During the fourth quarter of fiscal year 2020, we restructured our operations in connection with the acquisition of Chef. Refer to Note 8: Business Combinations for further discussion. This restructuring resulted in a reduction in redundant positions, primarily within the administrative functions of Chef. For the fiscal years ended November 30, 2022, 2021 and 2020, we incurred expenses of $ 0.4 million, $ 4.1 million and $ 3.9 million, respectively, 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, 2019 $ — $ — $ — Costs incurred — 3,947 3,947 Cash disbursements — ( 429 ) ( 429 ) Translation adjustments and other — 5 5 Balance, November 30, 2020 $ — $ 3,523 $ 3,523 Costs incurred 3,323 826 4,149 Cash disbursements ( 455 ) ( 4,350 ) ( 4,805 ) Translation adjustments and other 1,615 8 1,623 Balance, November 30, 2021 $ 4,483 $ 7 $ 4,490 Costs incurred 414 — 414 Cash disbursements ( 1,027 ) ( 7 ) ( 1,034 ) Balance, November 30, 2022 $ 3,870 $ — $ 3,870 Cash disbursements for expenses incurred to date under this restructuring are expected to be made through fiscal year 2027. Accordingly, the balance of the restructuring reserve of $ 3.9 million is included in short-term and long-term lease liabilities on the consolidated balance sheet at November 30, 2022. We expect to incur additional expenses as part of this action related to facility closures as we consolidate offices in various locations during fiscal year 2023, but we do not expect these costs to be material. 68 Note 17: Income Taxes The components of income before income taxes are as follows (in thousands): Fiscal Year Ended November 30, 2022 November 30, 2021 November 30, 2020 U.S. $ 103,917 $ 80,508 $ 83,279 Foreign 13,338 15,026 13,356 Total $ 117,255 $ 95,534 $ 96,635 The provision for income taxes is comprised of the following (in thousands): Fiscal Year Ended November 30, 2022 November 30, 2021 November 30, 2020 Current: Federal $ 20,118 $ 11,964 $ 12,294 State 5,039 2,602 3,871 Foreign 4,631 3,456 3,370 Total current 29,788 18,022 19,535 Deferred Federal ( 4,683 ) 366 ( 1,613 ) State ( 1,537 ) ( 1,110 ) ( 969 ) Foreign ( 1,382 ) ( 164 ) ( 40 ) Total deferred ( 7,602 ) ( 908 ) ( 2,622 ) Total $ 22,186 $ 17,114 $ 16,913 A reconciliation of the income taxes incurred at the U.S. Federal statutory rate compared to the effective tax rate is as follows (in thousands): Fiscal Year Ended November 30, 2022 November 30, 2021 November 30, 2020 Tax at U.S. Federal statutory rate $ 24,624 $ 20,062 $ 20,293 Foreign rate differences 475 193 ( 200 ) Effects of foreign operations included in U.S. Federal provision 401 ( 112 ) ( 167 ) State income taxes, net 2,424 1,215 2,087 Research credits ( 1,268 ) ( 410 ) ( 905 ) Tax-exempt interest — — ( 3 ) Nondeductible stock-based compensation 2,725 1,548 422 Meals and entertainment 185 61 162 Compensation subject to 162(m) 878 346 324 Uncertain tax positions and tax settlements ( 163 ) 89 245 Net excess tax benefit or detriment from stock-based compensation plans ( 266 ) ( 11 ) 61 Global intangible low tax inclusion 17 606 ( 307 ) Foreign derived intangible deduction ( 7,769 ) ( 6,386 ) ( 5,297 ) Other ( 77 ) ( 87 ) 198 Total $ 22,186 $ 17,114 $ 16,913 The effective income tax rate is based on the income for the year, the composition of the income in different countries, changes related to valuation allowances and adjustments, if any, for the potential tax consequences or benefits of audits or other tax contingencies. In 69 fiscal year 2022, our aggregate effective income tax rate in foreign jurisdictions is not materially different than our effective income tax rate in the United States. Our effective tax rate differed from the statutory U.S. Federal income tax rate primarily due to the net effects of the foreign derived intangible income (FDII) regime. In fiscal years 2021 and 2020 our aggregate effective income tax rate in foreign jurisdictions was lower than our effective income tax rate in the United States. A significant portion of income before provision for income taxes from foreign operations has been earned by subsidiaries with statutory income tax rates lower than the statutory U.S. Federal income tax rate. The components of deferred tax assets and liabilities are as follows (in thousands): November 30, 2022 November 30, 2021 Deferred tax assets: Accounts receivable $ 191 $ 143 Accrued compensation 3,884 4,407 Accrued liabilities and other 1,352 2,898 Deferred revenue 12,461 8,081 Stock-based compensation 8,030 6,401 Original issue discount 7,169 9,132 Tax credit and loss carryforwards 27,809 35,376 Operating lease liabilities 4,082 5,257 Gross deferred tax assets 64,978 71,695 Valuation allowance ( 6,275 ) ( 7,315 ) Total deferred tax assets 58,703 64,380 Deferred tax liabilities: Goodwill ( 23,745 ) ( 21,867 ) Right-of-use lease assets ( 2,938 ) ( 3,925 ) Deferred revenue — ( 1,483 ) Depreciation and amortization ( 20,875 ) ( 34,532 ) Prepaid expenses ( 4,008 ) ( 1,906 ) Notes payable — ( 13,415 ) Total deferred tax liabilities ( 51,566 ) ( 77,128 ) Total $ 7,137 $ ( 12,748 ) The valuation allowance primarily applies to net operating loss carryforwards and unutilized tax credits in foreign jurisdictions under conditions where realization is not more likely than not. The $ 1 million decrease in the valuation allowance during fiscal year 2022 primarily relates to losses in a foreign subsidiary that have expired prior to utilization. At November 30, 2022, we have federal and foreign net operating loss carryforwards of $ 96.9 million expiring on various dates through 2036 and $ 19.4 million that do not expire. In addition, we have state net operating loss carryforwards of $ 48.9 million expiring on various dates through 2044 and a minimal amount that does not expire. At November 30, 2022, we have state tax credit carryforwards of approximately $ 3.6 million expiring on various dates through 2037 and $ 2.4 million that may be carried forward indefinitely. In addition, we have federal tax credit carryforwards of approximately $ 5.9 million expiring on various dates through 2039. It is our intention to indefinitely reinvest the earnings of our non-U.S. subsidiaries. We have not provided for U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries, which totaled $ 106.6 million as of November 30, 2022, as these earnings have been indefinitely reinvested. It is not practicable to determine the amount of the unrecognized deferred tax liability if the undistributed earnings were to be repatriated due to the complexity of the income tax laws and regulations. These earnings could be subject to non-U.S. withholding taxes and other federal, state and/or foreign taxes if they were remitted to the U.S. As of November 30, 2022, the total amount of unrecognized tax benefits was $ 5.3 million, of which $ 1.3 million was recorded in other noncurrent liabilities on the consolidated balance sheet and $ 4.0 million of deferred tax assets, principally related to U.S net operating loss carry-forwards and federal and state research and development tax credits, have not been recorded. 70 A reconciliation of the balance of our unrecognized tax benefits is as follows (in thousands): Fiscal Year Ended November 30, 2022 November 30, 2021 November 30, 2020 Balance, beginning of year $ 5,471 $ 6,219 $ 4,993 Tax positions related to current period — 71 — Tax positions related to a prior period — ( 820 ) 539 Tax positions acquired — 439 1,596 Settlements with tax authorities ( 45 ) ( 168 ) ( 12 ) Lapses due to expiration of the statute of limitations ( 150 ) ( 270 ) ( 897 ) Balance, end of year $ 5,276 $ 5,471 $ 6,219 If recognized, all amounts of unrecognized tax benefits would affect the effective tax rate. We recognize interest and penalties related to uncertain tax positions as a component of our provision for income taxes. In fiscal year 2022 there was a minimal amount of estimated interest and penalties recorded in the provision for income taxes. In fiscal year 2021 a net expense of $ 0.8 million was recorded to the provision for income taxes related to estimated interest and penalties. In fiscal year 2020 there was a minimal amount of estimated interest and penalties recorded in the provision for income taxes. We have accrued $ 1.3 million and $ 1.2 million of estimated interest and penalties at November 30, 2022 and 2021, respectively. We do not expect any significant changes to the amount of unrecognized tax benefits in the next twelve months. Our federal income tax returns have been examined or are closed by statute for all years prior to fiscal year 2019. Our state income tax returns have been examined or are closed by statute for all years prior to fiscal year 2018, and we are no longer subject to audit for those periods. Tax authorities for certain non-U.S. jurisdictions are also examining tax returns and the Company does not expect the results of these examinations to be material to our consolidated balance sheets, cash flows or statements of income. With some exceptions, we are generally no longer subject to tax examinations in non-U.S. jurisdictions for years prior to fiscal year 2017. Note 18: Earnings Per Share We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding plus the effect of outstanding dilutive stock options, restricted stock units and deferred stock units, using the treasury stock method. The following table sets forth the calculation of basic and diluted earnings per share from continuing operations (in thousands, expect per share data): Fiscal Year Ended November 30, 2022 November 30, 2021 November 30, 2020 Net income $ 95,069 $ 78,420 $ 79,722 Weighted average shares outstanding 43,475 43,916 44,886 Basic earnings per common share $ 2.19 $ 1.79 $ 1.78 Diluted earnings per common share: Net income $ 95,069 $ 78,420 $ 79,722 Weighted average shares outstanding 43,475 43,916 44,886 Effect of dilution from common stock equivalents 772 704 435 Diluted weighted average shares outstanding 44,247 44,620 45,321 Diluted earnings per share $ 2.15 $ 1.76 $ 1.76 We excluded stock awards representing approximately 1,751,000 shares, 1,232,000 shares, and 1,268,000 shares of common stock from the calculation of diluted earnings per share in the fiscal years ended November 30, 2022, 2021 and 2020, respectively, because these awards were anti-dilutive. 71 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 earnings 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 fiscal year ended November 30, 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. Note 19: Business Segments and International Operations Operating segments are components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. Our CODM is our Chief Executive Officer. We operate as one operating segment: software products to develop, deploy, and manage high-impact applications. Our CODM evaluates financial information on a consolidated basis. As we operate as one operating segment, the required financial segment information can be found in the condensed consolidated financial statements. Long-lived assets totaled $ 7.6 million, $ 22.1 million and $ 22.8 million in the U.S. and $ 7.3 million, $ 7.5 million and $ 7.0 million outside of the U.S. at the end of fiscal years 2022, 2021, and 2020, respectively. During the fiscal year ended November 30, 2022, two countries outside of the U.S. accounted for more than 10% of our consolidated long-lived assets, and no individual country outside of the U.S. accounted for more than 10% of our consolidated long-lived assets in 2021 and 2020. Note 20: Subsequent Events On January 3, 2023, we entered into a definitive agreement with Vector Maven Holdings, Inc. and Vector Maven Holdings, L.P., subject to the satisfaction of the terms and conditions set forth in the definitive agreement, to acquire MarkLogic, a leader in managing complex data and metadata. Upon closing of the proposed transaction, MarkLogic is expected to enhance Progress’ commitment to delivering the best products to develop, deploy and manage high-impact applications by providing a unified enterprise-grade semantic data platform that empowers customers to derive value from complex data. The acquisition is currently expected to close in early 2023, subject to obtaining regulatory approvals and satisfaction of other customary closing conditions set forth in the definitive agreement. At closing, we will acquire all of the outstanding equity interests of Vector Maven Holdings, Inc. from Vector Maven Holdings, L.P. for an aggregate purchase price of approximately $ 355 million, subject to certain working capital and customary other adjustments, to be paid in cash. 72 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.