What changed in this filing

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Item 1. Financial Statements

2023-10-10 compared with 2023-07-07 · 111 added, 109 removed, 441 unchanged (33% of the section changed)

1 unchanged sentence

Condensed Consolidated Balance Sheets

(In thousands, except share data) May 31, 2023 November 30, 2022

(In thousands, except share data) August 31, 2023 November 30, 2022

Current assets:

43 unchanged sentences

Condensed Consolidated Statements of Operations

Three Months Ended Six Months Ended

(In thousands, except per share data) May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Three Months Ended Nine Months Ended

(In thousands, except per share data) August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Software licenses $ 50,544 $ 47,618 $ 164,519 $ 135,182

35 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended Six Months Ended

(In thousands) May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Three Months Ended Nine Months Ended

(In thousands) August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Net income $ 19,098 $ 21,797 $ 54,862 $ 71,361

Other comprehensive income, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 1,667 ( 7,632 ) 5,124 ( 10,955 )

Unrealized gain on hedging activity, net of tax benefit of $ 250 and $ 295 for the second quarter and first six months of 2023, respectively and net of tax provision of $ 643 and $ 1,165 for the second quarter and first six months of 2022, respectively

Unrealized (loss) gain on hedging activity, net of tax benefit of $ 170 and $ 465 for the three and nine month periods ended August 31, 2023, respectively and net of tax provision of $ 377 and $ 1,542 for the three and nine month periods ended August 31, 2022, respectively

( 537 ) 1,191 ( 1,476 ) 4,882

Unrealized loss on investments, net of tax benefit of $ 4 and $ 0 for the second quarter and first six months of 2023, respectively and net of a tax benefit of $ 1 and $ 4 for the second quarter and first six months of 2022, respectively

Unrealized loss on investments, net of tax benefit of $ 0 for both the three and nine month periods ended August 31, 2023, respectively and net of tax of $ 0 and a tax benefit of $ 4 for the three and nine month periods ended August 31, 2022, respectively

— ( 1 ) — ( 13 )

Total other comprehensive income, net of tax 929 ( 3,071 ) 2,518 356

Total other comprehensive income (loss), net of tax 1,130 ( 6,442 ) 3,648 ( 6,086 )

Comprehensive income $ 20,228 $ 15,355 $ 58,510 $ 65,275

1 unchanged sentence

Condensed Consolidated Statements of Stockholders’ Equity

Six Months Ended May 31, 2023

Nine Months Ended August 31, 2023

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

10 unchanged sentences

Other comprehensive income — — — — 3,648 3,648

Balance, May 31, 2023 43,358 $ 436 $ 347,101 $ 103,995 $ ( 32,717 ) $ 418,815

Three Months Ended May 31, 2023

Balance, August 31, 2023 43,565 $ 438 $ 361,062 $ 115,133 $ ( 31,587 ) $ 445,046

Three Months Ended August 31, 2023

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

(in thousands) Number of Shares Amount

Balance, March 1, 2023 43,307 $ 433 $ 338,370 $ 108,286 $ ( 33,646 ) $ 413,443

Balance, June 1, 2023 43,358 $ 436 $ 347,101 $ 103,995 $ ( 32,717 ) $ 418,815

Issuance of stock under employee stock purchase plan 67 1 2,498 — — 2,499

Exercise of stock options 140 1 1,391 — — 1,392

Vesting of restricted stock units and release of deferred stock units 163 2 ( 2 ) — — —

Withholding tax payments related to net issuance of RSUs ( 57 ) — ( 3,284 ) — — ( 3,284 )

Stock-based compensation — — 10,072 — — 10,072

Dividends declared — — — ( 7,960 ) — ( 7,960 )

Treasury stock repurchases and retirements ( 269 ) ( 2 ) ( 6,516 ) ( 8,482 ) — ( 15,000 )

Net income — — — 19,098 — 19,098

Other comprehensive income — — — — 929 929

Balance, May 31, 2023 43,358 $ 436 $ 347,101 $ 103,995 $ ( 32,717 ) $ 418,815

Six Months Ended May 31, 2022

Other comprehensive loss — — — — 1,130 1,130

Balance, August 31, 2023 43,565 $ 438 $ 361,062 $ 115,133 $ ( 31,587 ) $ 445,046

Nine Months Ended August 31, 2022

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

11 unchanged sentences

Other comprehensive income — — — — ( 6,086 ) ( 6,086 )

Balance, May 31, 2022 43,454 $ 435 $ 309,913 $ 93,885 $ ( 32,087 ) $ 372,146

Three Months Ended May 31, 2022

Balance, August 31, 2022 42,998 $ 430 $ 318,559 $ 86,513 $ ( 38,529 ) $ 366,973

Three Months Ended August 31, 2022

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

(in thousands) Number of Shares Amount

Balance, March 1, 2022 43,766 $ 438 $ 303,240 $ 93,661 $ ( 29,016 ) $ 368,323

Balance, June 1, 2022 43,454 $ 435 $ 309,913 $ 93,885 $ ( 32,087 ) $ 372,146

Issuance of stock under employee stock purchase plan 68 — 2,024 — — 2,024

Exercise of stock options 18 — 643 — — 643

Vesting of restricted stock units and release of deferred stock units 98 1 ( 1 ) — — —

Withholding tax payments related to net issuance of RSUs — — ( 2,266 ) — — ( 2,266 )

Stock-based compensation — — 8,639 — — 8,639

3 unchanged sentences

Other comprehensive loss — — — — ( 6,442 ) ( 6,442 )

Balance, May 31, 2022 43,454 $ 435 $ 309,913 $ 93,885 $ ( 32,087 ) $ 372,146

Balance, August 31, 2022 42,998 $ 430 $ 318,559 $ 86,513 $ ( 38,529 ) $ 366,973

Condensed Consolidated Statements of Cash Flows

Six Months Ended

(In thousands) May 31, 2023 May 31, 2022

Nine Months Ended

(In thousands) August 31, 2023 August 31, 2022

Cash flows from operating activities:

6 unchanged sentences

Non-cash lease expense 6,958 5,919

Loss on disposal of long-lived assets, net — 8

Gain on sale of assets held for sale — ( 10,770 )

Deferred income taxes ( 18,521 ) ( 286 )

Allowances for bad debt and sales credits 173 339

Credit losses and other sales allowances 472 710

Changes in operating assets and liabilities:

13 unchanged sentences

Proceeds from sale of long-lived assets, net — 25,998

Other investing activities — 134

Net cash flows (used in) from investing activities ( 357,993 ) 24,246

14 unchanged sentences

Condensed Consolidated Statements of Cash Flows, continued

Six Months Ended

May 31, 2023 May 31, 2022

Nine Months Ended

August 31, 2023 August 31, 2022

Supplemental disclosure:

8 unchanged sentences

Basis of Presentation

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

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

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

Company Overview - Progress Software Corporation ("Progress," the "Company," "we," "us," or "our") provides enterprise software products for the development, deployment and management of high-impact applications.

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.

More than half of our worldwide license revenue is realized through relationships with indirect channel partners, principally independent software vendors, original equipment manufacturers, distributors and value-added resellers.

Independent software vendors develop and market applications using our technology and resell our products in conjunction with sales of their own products that incorporate our technology.

Original equipment manufacturers 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.

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Cash and Cash Equivalents

A summary of our cash and cash equivalents at May 31, 2023 is as follows (in thousands):

A summary of our cash and cash equivalents at August 31, 2023 is as follows (in thousands):

Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value

7 unchanged sentences

Total $ 256,277 $ — $ — $ 256,277

There were no debt securities by contractual maturity due after one year as of May 31, 2023.

There were no debt securities by contractual maturity due after one year as of August 31, 2023.

Derivative Instruments

7 unchanged sentences

Although we have determined at the onset of the hedge that the interest rate swap will be a highly effective hedge throughout the term of the contract, any portion of the fair value swap subsequently determined to be ineffective will be recognized in earnings.

As of May 31, 2023, the fair value of the hedge was a gain of $ 3.2 million, which was included in other current assets on our condensed consolidated balance sheets.

The net amount of accumulated other comprehensive loss reclassified to interest expense during the six months ended May 31, 2023 and May 31, 2022 was a decrease of $ 1.6 million and an increase of $ 1.0 million, respectively.

As of August 31, 2023, the fair value of the hedge was a gain of $ 2.5 million, which was included in other current assets on our condensed consolidated balance sheets.

The net amount of accumulated other comprehensive loss reclassified to interest expense during the nine months ended August 31, 2023 and August 31, 2022 was a decrease of $ 2.6 million and an increase of $ 1.1 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 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):

May 31, 2023 November 30, 2022

August 31, 2023 November 30, 2022

Notional Value Fair Value Notional Value Fair Value

4 unchanged sentences

All forward contracts are recorded at fair value on the consolidated balance sheets at the end of each reporting period and generally expire between 30 days and 2 years from the date the contract was entered.

At May 31, 2023, $ 2.9 million was recorded in other accrued liabilities on our condensed consolidated balance sheets.

At August 31, 2023, $ 2.4 million and $ 0.2 million was recorded in other accrued liabilities and other current assets, respectively, on our condensed consolidated balance sheets.

At November 30, 2022, $ 3.1 million and $ 0.1 million were recorded in other noncurrent liabilities and other current assets, respectively, on our condensed consolidated balance sheets.

In the three and six months ended May 31, 2023, realized and unrealized gains of $ 1.1 million and $ 1.6 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations.

In the three and six months ended May 31, 2022, realized and unrealized losses of $ 3.9 million and $ 3.6 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations.

In the three and nine months ended August 31, 2023, realized and unrealized gains of $ 1.1 million and $ 2.7 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations.

In the three and nine months ended August 31, 2022, realized and unrealized losses of $ 5.4 million and $ 9.0 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations.

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

The table below details outstanding foreign currency forward contracts where the notional amount is determined using contract exchange rates (in thousands):

May 31, 2023 November 30, 2022

August 31, 2023 November 30, 2022

Notional Value Fair Value Notional Value Fair Value

6 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at May 31, 2023 (in thousands):

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at August 31, 2023 (in thousands):

Fair Value Measurements Using

15 unchanged sentences

Fair Value of the Convertible Senior Notes

The fair value of our Convertible Senior Notes, with a carrying value of $ 353.7 million and $ 352.6 million, was $ 404.1 million and $ 376.0 million as of May 31, 2023 and November 30, 2022, respectively.

The fair value of our Convertible Senior Notes, with a carrying value of $ 354.2 million and $ 352.6 million, was $ 411.8 million and $ 376.0 million as of August 31, 2023 and November 30, 2022, respectively.

The fair value was determined based on the 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.

2 unchanged sentences

Fair Value of Other Financial Assets and Liabilities

The carrying amounts of other financial assets and liabilities including cash, accounts receivable, accounts payable, and accrued liabilities approximate their respective fair values because of the relatively short period of time between their origination and their expected realization or settlement.

The carrying amounts of other financial assets and liabilities including cash, accounts receivable, unbilled accounts receivable, accounts payable, and accrued liabilities approximate their respective fair values because of the relatively short period of time between their origination and their expected realization or settlement.

Intangible Assets and Goodwill

1 unchanged sentence

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

May 31, 2023 November 30, 2022

August 31, 2023 November 30, 2022

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

4 unchanged sentences

Total $ 787,719 $ ( 408,895 ) $ 378,824 $ 558,619 $ ( 341,264 ) $ 217,355

In the three and six months ended May 31, 2023, amortization expense related to intangible assets was $ 25.5 million and $ 45.4 million, respectively.

In the three and six months ended May 31, 2022, amortization expense related to intangible assets was $ 17.5 million and $ 34.6 million, respectively.

Future amortization expense for intangible assets as of May 31, 2023, is as follows (in thousands):

In the three and nine months ended August 31, 2023, amortization expense related to intangible assets was $ 25.7 million and $ 71.1 million, respectively.

In the three and nine months ended August 31, 2022, amortization expense related to intangible assets was $ 17.3 million and $ 51.9 million, respectively.

Future amortization expense for intangible assets as of August 31, 2023, is as follows (in thousands):

Remainder of 2023 $ 25,391

1 unchanged sentence

Total $ 378,824

Changes in the carrying amount of goodwill in the six months ended May 31, 2023 are as follows (in thousands):

Balance, November 30, 2022 $ 671,037

Changes in the carrying amount of goodwill in the nine months ended August 31, 2023 are as follows (in thousands):

Balance, December 1, 2022 $ 671,037

Additions (1)

Translation adjustments ( 3 )

Balance, May 31, 2023 $ 825,944

Balance, August 31, 2023 $ 826,048

(1) The additions to goodwill during fiscal year 2023 are related to the acquisition of MarkLogic in February 2023.

26 unchanged sentences

Acquisition-related transaction costs (e.g., legal, due diligence, valuation, and other professional fees) and certain acquisition restructuring and related charges are not included as a component of consideration transferred but are required to be expensed as incurred.

During the three and six months ended May 31, 2023, we incurred approximately $ 2.1 million and $ 3.5 million, respectively, of acquisition-related costs, which are included in acquisition-related expenses on our consolidated statement of operations.

The amount of revenue of MarkLogic included in our consolidated statement of operations during the three and six months ended May 31, 2023, was approximately $ 25.3 million and $ 30.3 million, respectively.

During the three and nine months ended August 31, 2023, we incurred approximately $ 0.6 million and $ 4.1 million, respectively, of acquisition-related costs, which are included in acquisition-related expenses on our consolidated statement of operations.

The amount of revenue of MarkLogic included in our consolidated statement of operations during the three and nine months ended August 31, 2023, was approximately $ 20.4 million and $ 50.7 million, respectively.

We determined that disclosing the amount of MarkLogic related earnings included in the consolidated statement of operations is impracticable, as certain operations of MarkLogic were integrated into the operations of the Company from the date of acquisition.

6 unchanged sentences

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, 2021.

(in thousands, except per share data) Pro Forma Three Months Ended May 31, 2022

(in thousands, except per share data) Pro Forma Three Months Ended August 31, 2022

Revenue $ 174,676

2 unchanged sentences

Net income per diluted share $ 0.37

(in thousands, except per share data) Pro Forma Six Months Ended May 31, 2023 Pro Forma Six Months Ended May 31, 2022

(in thousands, except per share data) Pro Forma Nine Months Ended August 31, 2023 Pro Forma Nine Months Ended August 31, 2022

Revenue $ 556,319 $ 511,609

2 unchanged sentences

Net income per diluted share $ 1.44 $ 1.10

As of May 31, 2023, future maturities of the Company's long-term debt were as follows:

As of August 31, 2023, future maturities of the Company's long-term debt were as follows:

(In thousands) 2026 Notes Revolving Line of Credit Term Loan Total

9 unchanged sentences

The revolving line of credit has a term that ends on January 25, 2027, at which time all amounts outstanding must be repaid.

During February 2023, we partially funded our acquisition of MarkLogic by drawing down $ 195.0 million under the revolving line of credit.

As of May 31, 2023, there was $ 170.0 million outstanding under the revolving line of credit.

Common Stock Repurchases

In January 2023, our Board of Directors increased the share repurchase authorization by $ 150.0 million, to an aggregate authorization of $ 228.0 million.

In the three months ended May 31, 2023 and May 31, 2022, we repurchased and retired 0.3 million shares for $ 15.0 million and 0.6 million shares for $ 26.5 million, respectively.

In the six months ended May 31, 2023 and May 31, 2022, we repurchased and retired 0.5 million shares for $ 30.0 million and 1.1 million shares for $ 51.5 million, respectively.

In the three months ended August 31, 2023, we did no t repurchase and retire any shares of our common stock.

In the three months ended August 31, 2022, we repurchased and retired 0.5 million shares for $ 24.1 million.

In the nine months ended August 31, 2023 and August 31, 2022, we repurchased and retired 0.5 million shares for $ 30.0 million and 1.7 million shares for $ 75.5 million, respectively.

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

As of May 31, 2023, there was $ 198.0 million remaining under the current authorization.

As of August 31, 2023, there was $ 198.0 million remaining under the current authorization.

Stock-Based Compensation

9 unchanged sentences

The following table provides the classification of stock-based compensation as reflected on our condensed consolidated statements of operations (in thousands):

Three Months Ended Six Months Ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Three Months Ended Nine Months Ended

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Cost of maintenance and services $ 797 $ 527 $ 2,146 $ 1,410

4 unchanged sentences

Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated balances of other comprehensive loss during the six months ended May 31, 2023 (in thousands):

The following table summarizes the changes in accumulated balances of other comprehensive loss during the nine months ended August 31, 2023 (in thousands):

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

1 unchanged sentence

Other comprehensive income (loss) before reclassifications, net of tax 5,124 — ( 1,476 ) 3,648

Balance, May 31, 2023 $ ( 35,066 ) $ ( 61 ) $ 2,410 $ ( 32,717 )

The tax effect on accumulated unrealized gains (losses) on hedging activity and unrealized losses on investments was a tax provision of $ 0.8 million and $ 1.1 million as of May 31, 2023 and November 30, 2022, respectively.

Balance, August 31, 2023 $ ( 33,399 ) $ ( 61 ) $ 1,873 $ ( 31,587 )

The tax effect on accumulated unrealized gains (losses) on hedging activity and unrealized losses on investments was a tax provision of $ 0.7 million and $ 1.1 million as of August 31, 2023 and November 30, 2022, respectively.

Revenue Recognition

2 unchanged sentences

Information relating to revenue from external customers by revenue type is as follows (in thousands):

Three Months Ended Six Months Ended

(In thousands) May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Three Months Ended Nine Months Ended

(In thousands) August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Performance obligations transferred at a point in time:

10 unchanged sentences

Information relating to revenue from external customers from different geographical areas is as follows (in thousands):

Three Months Ended Six Months Ended

(In thousands) May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Three Months Ended Nine Months Ended

(In thousands) August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

North America $ 101,923 $ 84,826 $ 306,483 $ 248,313

4 unchanged sentences

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

has accounted for more than 10% of our total revenue for the three and six months ended May 31, 2023 and May 31, 2022.

has accounted for more than 10% of our total revenue for the three and nine months ended August 31, 2023 and August 31, 2022.

Contract Balances

Unbilled Receivables and Contract Assets

As of May 31, 2023, billing of our long-term unbilled receivables is expected to occur as follows (in thousands):

2024 $ 12,880

As of August 31, 2023, billing of our long-term unbilled receivables is expected to occur as follows (in thousands):

Total $ 33,121

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 May 31, 2023 or November 30, 2022.

We did not have any net contract assets as of August 31, 2023 or November 30, 2022.

Deferred Revenue

1 unchanged sentence

Our deferred revenue balance is primarily made up of deferred maintenance.

As of May 31, 2023, the changes in net deferred revenue were as follows (in thousands):

As of August 31, 2023, the changes in net deferred revenue were as follows (in thousands):

Balance, December 1, 2022 $ 282,440

1 unchanged sentence

Revenue recognized ( 517,469 )

Balance, May 31, 2023 $ 283,637

As of May 31, 2023, transaction price allocated to remaining performance obligations was $ 288 million.

Balance, August 31, 2023 $ 279,768

As of August 31, 2023, transaction price allocated to remaining performance obligations was $ 288 million.

We expect to recognize approximately 77 % of the revenue within the next year and the remainder thereafter.

4 unchanged sentences

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 $ 7.7 million and $ 8.8 million as of May 31, 2023 and November 30, 2022, respectively, and are included in other current assets and other assets on our condensed consolidated balance sheets.

Total deferred contract costs were $ 8.0 million and $ 8.8 million as of August 31, 2023 and November 30, 2022, respectively, and are included in other current assets and other assets on our condensed consolidated balance sheets.

Amortization of deferred contract costs is included in sales and marketing expense on our condensed consolidated statement of operations and was minimal in all periods presented.

5 unchanged sentences

Cash disbursements ( 1,146 ) ( 3,836 ) ( 4,982 )

Translation adjustments and other — ( 11 ) ( 11 )

Balance, May 31, 2023 $ 3,537 $ 3,577 $ 7,114

During fiscal year 2023, we restructured our operations in connection with the acquisition of MarkLogic, which resulted in a reduction in redundant positions, primarily within administrative functions.

Translation and other adjustments — 19 19

Balance, August 31, 2023 $ 3,368 $ 1,799 $ 5,167

During fiscal year 2023, we restructured our operations in connection with the acquisition and subsequent integration of MarkLogic, which resulted in a reduction in redundant positions, primarily within administrative functions.

Cash disbursements for expenses incurred to date under this restructuring are expected to be made through fiscal year 2023.

4 unchanged sentences

The following table sets forth the calculation of basic and diluted earnings per share on an interim basis (in thousands, except per share data):

Three Months Ended Six Months Ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Three Months Ended Nine Months Ended

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Net income $ 19,098 $ 21,797 $ 54,862 $ 71,361

5 unchanged sentences

Effect of dilution from common stock equivalents 1,353 724 1,178 710

Effect of dilution from if-converted Convertible Senior Notes 176 — — —

Diluted weighted average shares outstanding 44,981 43,935 44,543 44,299

Diluted earnings per share $ 0.42 $ 0.50 $ 1.23 $ 1.61

We excluded stock awards representing approximately 268,000 and 304,000 shares of common stock from the calculation of diluted earnings per share in the three and six months ended May 31, 2023, respectively, as these awards were anti-dilutive.

We excluded stock awards representing approximately 1,904,000 and 1,720,000 shares of common stock from the calculation of diluted earnings per share in the three and six months ended May 31, 2022, respectively, as these awards were anti-dilutive.

We excluded stock awards representing approximately 252,000 and 286,000 shares of common stock from the calculation of diluted earnings per share in the three and nine months ended August 31, 2023, respectively, as these awards were anti-dilutive.

We excluded stock awards representing approximately 1,777,000 and 1,739,000 shares of common stock from the calculation

of diluted earnings per share in the three and nine months ended August 31, 2022, respectively, as these awards were anti-dilutive.

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 three and six months ended May 31, 2023, 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 the three months ended August 31, 2023, the average daily closing price of the Company's common stock was greater than the conversion price for the Notes outstanding as of August 31, 2023.

Therefore, for this period, the Company applied the if-converted method for calculating diluted earnings per common share.

During the nine months ended August 31, 2023, the average daily closing price of the Company's common stock was less than the conversion price for the Notes.

Therefore, for this period, the Notes had no impact on the computation of diluted earnings per common share.

Segment Information

8 unchanged sentences

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 $ 1.5 million and $ 4.2 million of cyber incident costs for the three and six month periods ended May 31, 2023, respectively.

Costs for this cyber incident were primarily related to the engagement of external cybersecurity experts and other incident response professionals.

We did not incur any meaningful costs related to this cyber incident for the three months ended August 31, 2023.

For the nine months ended August 31, 2023, we incurred $ 4.2 million of costs related to this cyber incident.

Costs are provided net of received and expected insurance recoveries of approximately $ 3.0 million, which was recognized during the first quarter of fiscal year 2023.

1 unchanged sentence

MOVEit Vulnerability

On the evening of May 28, 2023, our MOVEit technical support team received an initial customer support call indicating unusual activity within their MOVEit Transfer instance.

An investigative team was mobilized and, on May 30, 2023, the

investigative team discovered a zero-day vulnerability in MOVEit Transfer (including our cloud-hosted version of MOVEit Transfer known as MOVEit Cloud).

The investigative team determined the zero-day vulnerability (the “MOVEit Vulnerability”) could provide for unauthorized escalated privileges and access to the customer’s underlying environment in both MOVEit Transfer (the on-premise version) and MOVEit Cloud (a cloud-hosted version of MOVEit Transfer that we deploy in both (i) a public cloud format, as well as (ii) for a small group of customers, in a customer-dedicated cloud instance which is managed separately from the public-cloud).

The Company has engaged outside cybersecurity experts and other incident response professionals to conduct a forensic investigation and assess the extent and scope of the MOVEit Vulnerability.

As the investigation remains ongoing, the Company will continue to assess the potential impact on its business, operations and financial results.

MOVEit Transfer and MOVEit Cloud represented approximately 4 % in aggregate of the Company’s revenue for the six months ended May 31, 2023.

As previously reported, on the evening of May 28, 2023, our MOVEit technical support team received an initial customer support call indicating unusual activity within their MOVEit Transfer instance.

An investigative team was mobilized and, on May 30, 2023, the investigative team discovered a zero-day vulnerability in MOVEit Transfer (including our cloud-hosted version of MOVEit Transfer known as MOVEit Cloud).

The investigative team determined the zero-day vulnerability (the “MOVEit Vulnerability”) could provide for unauthorized escalated privileges and access to the customer’s underlying environment in both MOVEit Transfer (the on-premise version) and MOVEit Cloud (a cloud-hosted version of MOVEit Transfer that we deploy in both (i) a public cloud format, as well as (ii) for a small group of customers, in customer-dedicated cloud instances that are hosted, separate and apart from the public instances of our MOVEit Cloud platform).

We will continue to assess the potential impact of the MOVEit Vulnerability on our business, operations, and financial results.

MOVEit Transfer and MOVEit Cloud represented less than 4 % in aggregate of our revenue for the nine months ended August 31, 2023.

Litigation and Governmental Investigations

As of the date of the filing of this report on Form 10-Q, (i) four customers that claim to have been impacted by the MOVEit Vulnerability have indicated that they intend to seek indemnification from the Company related to the MOVEit Vulnerability, and (ii) there have been eleven class action lawsuits filed by individuals who claim to have been impacted by exfiltration of data from the environments of our MOVEit Transfer customers.

The Company has also been cooperating with several inquiries and one formal investigation from domestic and foreign law enforcement agencies and data privacy regulators.

As of the date of the issuance of the financial statements, (i) we have received formal letters from 23 customers and others that claim to have been impacted by the MOVEit Vulnerability, some of which have indicated that they intend to seek indemnification from us related to the MOVEit Vulnerability, (ii) we have received a letter from an insurer providing for notice of a subrogation claim (where the insurer is seeking recovery for all expenses incurred in connection with the MOVEit Vulnerability), and (iii) we are party to 58 class action lawsuits filed by individuals who claim to have been impacted by the exfiltration of data from the environments of our MOVEit Transfer customers (on October 4, 2023, the Judicial Panel on Multidistrict Litigation issued an order consolidating litigation relating to the MOVEit Vulnerability where we are a party in the United States District Court, District of Massachusetts).

We have also been cooperating with several inquiries from domestic and foreign data privacy regulators, inquiries from several state attorneys general, as well as formal investigations from:

federal law enforcement agency (as of the date of the filing of this report, the law enforcement investigation that we are cooperating with is not an enforcement action or formal

governmental investigation of which we have been told that we are a target), and (ii) the SEC (as further described hereafter).

On October 2, 2023, Progress received a subpoena from the SEC seeking various documents and information relating to the MOVEit Vulnerability.

As described in the cover letter accompanying the subpoena, at this stage, the SEC investigation is a fact-finding inquiry, the investigation does not mean that Progress or anyone else has violated federal securities laws, and the investigation does not mean that the SEC has a negative opinion of any person, entity, or security.

Progress intends to cooperate fully with the SEC in its investigation.

Expenses Incurred and Future Costs

Given that the MOVEit Vulnerability occurred near the end of the current quarter, we incurred minimal costs during the second quarter of fiscal year 2023.

For the three and nine months ended August 31, 2023, we incurred $ 1.0 million of costs related to the MOVEit Vulnerability.

The costs recognized are net of received and expected insurance recoveries of approximately $ 1.9 million, which was recognized during the third quarter of fiscal year 2023.

The timing of recognizing insurance recoveries may differ from the timing of recognizing the associated expenses.

We expect to incur investigation, legal and professional services expenses associated with the MOVEit Vulnerability in future periods.

We will recognize these expenses as services are received, net of received and expected insurance recoveries.

While a loss from these matters is possible, we cannot reasonably estimate a range of possible losses at this time and our investigation into the matter is ongoing.

While a loss from these matters is possible, we cannot reasonably estimate a range of possible losses at this time, particularly while the foregoing matters remain ongoing.

Furthermore, with respect to the litigation, the proceedings remain in the early stages, alleged damages have not been specified, there is uncertainty as to the likelihood of a class or classes being certified or the ultimate size of any class if certified, and there are significant factual and legal issues to be resolved.

Therefore, we have not recorded a loss contingency liability for the MOVEit Vulnerability as of May 31, 2023.

Also, each of the governmental inquiries and investigations mentioned above could result in adverse judgements, settlements, fines, penalties, or other resolutions, the amount, scope and timing of which could be material, but which we are currently unable to predict.

Therefore, we have not recorded a loss contingency liability for the MOVEit Vulnerability as of August 31, 2023.

Insurance Coverage

We maintain cybersecurity insurance and other types of insurance coverage for up to $ 15.0 million in losses, which are expected to reduce our exposure to liabilities arising from the November 2022 cyber incident and the MOVEit Vulnerability.

We will pursue recoveries to the maximum extent available under the policies.

As of May 31, 2023, we have recorded approximately $ 3.0 million in insurance recoveries, all of which was related to the November 2022 cyber incident, providing us with $ 12.0 million of additional coverage (which is subject to a $ 0.5 million per claim deductible).

During the period when the November 2022 cyber incident and the MOVEit Vulnerability occurred, we maintained $ 15.0 million of cybersecurity insurance coverage, which is expected to reduce our exposure to expenses and liabilities arising from these events.

As of August 31, 2023, we have recorded approximately $ 4.9 million in insurance recoveries, of which $ 3.0 million was related to the November 2022 cyber incident and $ 1.9 million was related to the May 2023 MOVEit Vulnerability, providing us with $ 10.1 million of additional cybersecurity insurance coverage (which is subject to a $ 0.5 million retention per claim).

We will pursue recoveries to the maximum extent available under our insurance policies.

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

What changed 10-Q

Item 1. Financial Statements