What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-10-10 compared with 2023-07-07 · 135 added, 138 removed, 279 unchanged (49% of the section changed)

11 unchanged sentences

We undertake no obligation to update any forward-looking statements that we make.

Progress is the trusted provider of the best products to develop, deploy and manage high-impact applications.

We enable our customers to develop the applications and experiences they need, deploy where and how they want, and manage it all safely and securely.

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

Progress provides enterprise software products for the development, deployment and management of high-impact business applications.

The key tenets of our strategic plan and operating model are as follows:

12 unchanged sentences

These acquisitions met our strict financial criteria.

In recent years, our total growth strategy, described above, has resulted in the rapid expansion of our product portfolio.

As our portfolio evolves, we continuously evaluate our organization for additional synergies and efficiencies.

In connection therewith, we are working to realign our go-to-market, product, and operational teams and to increase centralization of shared services and functions across our company.

We believe that these changes will improve collaboration among the teams that develop, sell, and support our products;

enhance our ability to integrate acquired businesses;

and lead to greater system uniformity and increased operating efficiency.

Employ a Multi-Faceted Capital Allocation Strategy .

18 unchanged sentences

dollars are positively impacted.

As exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of revenue growth rates on a constant currency basis enhances the understanding of our revenue results and evaluation of our

performance in comparison to prior periods.

The constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates.

2 unchanged sentences

Three Months Ended % Change

(In thousands) May 31, 2023 May 31, 2022 As Reported Constant Currency

(In thousands) August 31, 2023 August 31, 2022 As Reported Constant Currency

Revenue $ 174,992 $ 151,217 16 % 14 %

Six Months Ended % Change

(In thousands) May 31, 2023 May 31, 2022 As Reported Constant Currency

Nine Months Ended % Change

(In thousands) August 31, 2023 August 31, 2022 As Reported Constant Currency

Revenue $ 517,469 $ 444,886 16 % 16 %

Total revenue increased as compared to the same periods last year primarily due to our acquisition of MarkLogic in February 2023, as well as increases in our OpenEdge, Chef, and Kemp product offerings.

In the second fiscal quarter, these increases were partially offset by a decrease in our DataDirect product offering.

In the first six months of fiscal year 2023, there was also an increase in our DataDirect product offering, offset by the negative impact of foreign exchange on license and maintenance revenue in our EMEA region.

Total revenue increased as compared to the same periods last year primarily due to our acquisition of MarkLogic in February 2023, as well as increases in our OpenEdge and Kemp product offerings.

In the third fiscal quarter, these increases were partially offset by a decrease in our DataDirect and Chef product offerings.

In the first nine months of fiscal year 2023, there was also an increase in our DataDirect, Sitefinity, DevTools, and Chef product offerings.

Software License Revenue

Three Months Ended % Change

(In thousands) May 31, 2023 May 31, 2022 As Reported Constant Currency

(In thousands) August 31, 2023 August 31, 2022 As Reported Constant Currency

Software licenses $ 50,544 $ 47,618 6 % 4 %

As a percentage of total revenue 29 % 31 %

Six Months Ended % Change

(In thousands) May 31, 2023 May 31, 2022 As Reported Constant Currency

Nine Months Ended % Change

(In thousands) August 31, 2023 August 31, 2022 As Reported Constant Currency

Software licenses $ 164,519 $ 135,182 22 % 22 %

As a percentage of total revenue 32 % 30 %

Software license revenue increased as compared to the same period last year primarily due to our acquisition of MarkLogic in February 2023, as well as increases in our OpenEdge, Chef, and Kemp product offerings.

In the second fiscal quarter, these increases were partially offset by decreases in our DataDirect product offering.

In the first six months of fiscal year 2023, there was also an increase in our DataDirect product offering.

Software license revenue increased as compared to the same periods last year primarily due to our acquisition of MarkLogic in February 2023, as well as increases in our OpenEdge and Kemp product offerings.

In the third fiscal quarter, these increases were partially offset by decreases in our DataDirect and Chef product offerings.

In the first nine months of fiscal year 2023, there was also an increase in our DataDirect product offerings.

Maintenance and Services Revenue

Three Months Ended % Change

(In thousands) May 31, 2023 May 31, 2022 As Reported Constant Currency

(In thousands) August 31, 2023 August 31, 2022 As Reported Constant Currency

Maintenance $ 105,164 $ 91,043 16 % 14 %

4 unchanged sentences

As a percentage of total revenue 71 % 69 %

Six Months Ended % Change

(In thousands) May 31, 2023 May 31, 2022 As Reported Constant Currency

Nine Months Ended % Change

(In thousands) August 31, 2023 August 31, 2022 As Reported Constant Currency

Maintenance $ 299,917 $ 272,337 10 % 10 %

4 unchanged sentences

As a percentage of total revenue 68 % 70 %

Maintenance revenue increased as compared to the same periods last year primarily due to our acquisition of MarkLogic in February 2023, as well as increases in our DevTools and Chef product offerings.

Services revenue increased as compared to the same period last year primarily due to increased services revenue from our acquisition of MarkLogic, as well as increases in our Sitefinity product offerings.

The maintenance increase in the first six months of fiscal year 2023 was partially offset by the negative impact of foreign exchange in our EMEA region.

Maintenance revenue increased as compared to the same periods last year primarily due to our acquisition of MarkLogic in February 2023, as well as increases in our OpenEdge and Chef product offerings.

Services revenue increased as compared to the same periods last year primarily due to increased services revenue from our acquisition of MarkLogic, partially offset by a decrease in our Chef product offerings.

The maintenance increase in the third quarter of fiscal year 2023 was also due to the positive impact of foreign exchange in our EMEA region.

The maintenance increase in the first nine months of fiscal year 2023 was partially offset by a decrease in our Kemp product offerings.

The services increase in the first nine months of fiscal year 2023 was also due to increases in our Sitefinity and DevTools product offerings.

Revenue by Region

Three Months Ended % Change

(In thousands) May 31, 2023 May 31, 2022 As Reported Constant Currency

(In thousands) August 31, 2023 August 31, 2022 As Reported Constant Currency

North America $ 101,923 $ 84,826 20 % 20 %

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As a percentage of total revenue 6 % 6 %

Six Months Ended % Change

(In thousands) May 31, 2023 May 31, 2022 As Reported Constant Currency

Nine Months Ended % Change

(In thousands) August 31, 2023 August 31, 2022 As Reported Constant Currency

North America $ 306,483 $ 248,313 23 % 23 %

6 unchanged sentences

As a percentage of total revenue 6 % 6 %

Total revenue generated in North America increased $20.3 million and $41.1 million in the second quarter and first six months of fiscal year 2023, respectively.

The increase was primarily due to our acquisition of MarkLogic.

The increases in revenue over both periods generated in EMEA was primarily due to our acquisition of MarkLogic and increased revenue from our Chef product offerings.

The increase in the first six months of fiscal year 2023 was partially offset by the negative impact of foreign exchange in our EMEA region.

The increases in both periods in revenue in Latin America was primarily due to increases in our OpenEdge product offerings.

The increases in revenue generated in Asia Pacific in both periods was due to increases in our Chef product offerings.

In the first six months of fiscal year 2023 revenue generated in markets outside North America represented 40% of total revenue compared to 41% of total revenue on a constant currency basis.

In the first six months of fiscal year 2022 revenue generated in markets outside North America represented 44% of total revenue compared to 45% of total revenue on a constant currency basis.

Total revenue generated in North America increased $17.1 million and $58.2 million in the third quarter and first nine months of fiscal year 2023, respectively.

The increase was primarily due to our acquisition of MarkLogic and increased revenue from our OpenEdge product offering.

The increases in revenue over both periods in EMEA was primarily due to our acquisition of MarkLogic and increased revenue from our OpenEdge and Kemp product offerings.

The increases in both periods in revenue in Latin America were primarily due to increases in our OpenEdge product offerings.

The increases in revenue generated in Asia Pacific in both periods were due to increases in our Chef and Kemp product offerings.

In the first nine months of fiscal year 2023 revenue generated in markets outside North America represented 41% of total revenue on an actual and constant currency basis.

In the first nine months of fiscal year 2022 revenue generated in markets outside North America represented 44% of total revenue on an actual and a constant currency basis.

Cost of Software Licenses

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Cost of software licenses $ 2,732 $ 2,477 $ 255 10 % $ 7,998 $ 7,669 $ 329 4 %

4 unchanged sentences

Cost of Maintenance and Services

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Cost of maintenance and services $ 22,192 $ 15,761 $ 6,431 41 % $ 62,663 $ 46,707 $ 15,956 34 %

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Amortization of Intangibles

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Amortization of intangibles $ 7,995 $ 5,558 44 % $ 22,253 $ 16,589 34 %

2 unchanged sentences

The increases in all periods are due to the acquisition of MarkLogic.

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Gross profit $ 142,073 $ 127,421 11 % $ 424,555 $ 373,921 14 %

2 unchanged sentences

Sales and Marketing

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Sales and marketing $ 38,612 $ 34,595 $ 4,017 12 % $ 112,513 $ 100,768 $ 11,745 12 %

5 unchanged sentences

Total sales and marketing $ 38,612 $ 34,595 $ 4,017 12 % $ 112,513 $ 100,768 $ 11,745 12 %

Sales and marketing expenses increased in all periods primarily due to increased personnel related costs associated with our acquisition of MarkLogic, as well as increases in contractors and outside services costs.

These increases were partially offset by decreases in marketing and sales events costs in the first six months of fiscal year 2023.

Product Development

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Product development costs $ 33,138 $ 28,650 $ 4,488 16 % $ 98,396 $ 85,966 $ 12,430 14 %

5 unchanged sentences

Total product development costs $ 33,138 $ 28,650 $ 4,488 16 % $ 98,396 $ 85,966 $ 12,430 14 %

Product development expenses increased in all periods primarily due to increased personnel related costs associated with our acquisition of MarkLogic, as well as an increase in contractors and outside services costs.

General and Administrative

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

General and administrative $ 20,791 $ 20,141 $ 650 3 % $ 61,046 $ 56,339 $ 4,707 8 %

8 unchanged sentences

Amortization of Intangibles

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Amortization of intangibles $ 17,668 $ 11,716 51 % $ 48,825 $ 35,330 38 %

3 unchanged sentences

Cyber Incident and Vulnerability Response Expenses, Net

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Cyber incident and vulnerability response expenses, net $ 951 $ — * $ 5,126 $ — *

1 unchanged sentence

*not meaningful

As previously disclosed on December 19, 2022, 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 and are net of received and expected insurance recoveries.

As previously disclosed, following (i) the detection of irregular activity on certain portions of our corporate network that was disclosed on December 19, 2022, and (ii) the discovery of the MOVEit Vulnerability that was disclosed on June 5, 2023, in each instance, we engaged outside cybersecurity experts and other incident response professionals to conduct a forensic investigation and assess the extent and scope of these matters.

Cyber incident and MOVEit Vulnerability costs relate to the engagement of external cybersecurity experts and other incident response professionals and are net of received and expected insurance recoveries.

Restructuring Expenses

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Restructuring expenses $ 843 $ 130 * $ 6,230 $ 784 *

1 unchanged sentence

*not meaningful

Restructuring expenses recorded in the second fiscal quarter and six month period of fiscal year 2023 relate to the restructuring activities that occurred in the first and fourth quarters of fiscal years 2023 and 2020, respectively, resulting from the acquisitions of MarkLogic and Chef, respectively.

Restructuring expenses recorded in the second quarter of fiscal year 2022 are comprised mostly of costs related to the acquisition of Kemp and the Chef restructuring action of 2020.

Restructuring expenses recorded in the third fiscal quarter and first nine months of fiscal year 2023 relate to the restructuring activities that occurred in the first and fourth quarters of fiscal years 2023 and 2020, respectively, resulting from the acquisitions of MarkLogic and Chef, respectively.

Restructuring expenses recorded in the third quarter of fiscal year 2022 are comprised mostly of costs related to the acquisition of Kemp and the Chef restructuring action of 2020.

See the Liquidity and Capital Resources section of this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Acquisition-Related Expenses

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Acquisition-related expenses $ 699 $ 168 * $ 4,433 $ 3,816 16 %

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

*not meaningful

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

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

Acquisition-related expenses increased due to our acquisition of MarkLogic, as well as our pursuit of other acquisition opportunities.

Acquisition-related expenses increased due to our acquisition of MarkLogic.

Acquisition-related expenses in the same periods of fiscal year 2022 were primarily related to our pursuit of other acquisition opportunities, as well as the acquisition of Kemp.

Gain on Sale of Assets Held for Sale

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

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

As a percentage of total revenue — % — % — % 2 %

*not meaningful

In the second quarter of fiscal year 2022, we sold corporate land and building assets previously reported as assets held for sale on our consolidated balance sheet.

1 unchanged sentence

Income from Operations

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Income from operations $ 29,371 $ 32,021 (8) % $ 87,986 $ 101,688 (13) %

As a percentage of total revenue 17 % 21 % 17 % 23 %

Income from operations decreased in the second quarter of and first six months of fiscal year 2023 due to an increase in costs of revenue and operating expenses, offset by increased revenue, as shown above.

Income from operations decreased in the third quarter and first nine months of fiscal year 2023 due to an increase in costs of revenue and operating expenses, offset by increased revenue, as shown above.

Other (Expense) Income, Net

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Interest expense $ (8,532) $ (4,009) 113 % $ (22,894) $ (11,368) 101 %

4 unchanged sentences

Other expense, net, increased in both periods shown primarily due to increased interest expense on our term loan and our revolving line of credit, which we drew on to fund part of our acquisition of MarkLogic.

Interest income and other, net increased due to the our acquisition of MarkLogic.

Interest income and other, net increased due to our acquisition of MarkLogic.

Foreign currency loss increased in all periods shown.

Provision for Income Taxes

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Provision for income taxes $ 1,854 $ 5,885 (68) % $ 10,623 $ 19,118 (44) %

As a percentage of income before income taxes 9 % 21 % 16 % 21 %

Our effective tax rate was 17% and 21% for the three months ended May 31, 2023 and 2022 respectively.

The primary reason for the decrease in the effective rate was due to discrete tax benefits related to stock-based compensation and an audit settlement in the second fiscal quarter of 2023.

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

Our effective tax rate was 20% and 21% for the six months ended May 31, 2023 and 2022 respectively.

The primary reason for the decrease in the effective rate was due to discrete tax benefits related to stock-based compensation and an audit settlement in the second fiscal quarter of 2023.

There were no significant discrete tax items in the six months ended May 31, 2022.

Three Months Ended Six Months Ended

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

Our effective tax rate was 9% and 16% for the three and nine months ended August 31, 2023, respectively and 21% for both the three and nine months ended August 31, 2022.

The primary reason for the decrease in the effective rate was due to discrete tax benefits related to stock-based compensation and the impacts of Notice 2023-55, which was issued by the Internal Revenue Service during July 2023 and provides temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit under Sections 901 and 903 of the Internal Revenue Code.

There were no significant discrete tax items in the three or nine months ended August 31, 2022.

Three Months Ended Nine Months Ended

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

Net income $ 19,098 $ 21,797 (12) % $ 54,862 $ 71,361 (23) %

16 unchanged sentences

The calculation is done at constant currency using the current year budgeted exchange rates for all periods presented.

Our ARR was $569.0 million and $479.0 million as of May 31, 2023 and 2022, respectively, which is an increase of 19% year-over-year.

Our ARR was $577.0 million and $488.0 million as of August 31, 2023 and 2022, respectively, which is an increase of 18% year-over-year.

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

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Cash and Cash Equivalents

(In thousands) May 31, 2023 November 30, 2022

(In thousands) August 31, 2023 November 30, 2022

Cash and cash equivalents $ 137,999 $ 256,277

The decrease in cash and cash equivalents of $130.7 million from the end of fiscal year 2022 was due to cash outflows of $356.1 million for cash paid for acquisitions, net of cash acquired, repurchases of common stock of $30.0 million, repayment of the revolving line of credit of $25.0 million, dividend payments of $15.9 million, payments of debt obligations of $3.4 million, and purchases of property and equipment of $2.0 million.

These cash outflows were offset by proceeds from the issuance of debt of $195.0 million, cash inflows from operations of $94.7 million, $8.3 million in cash received from the issuance of common stock, and the effect of exchange rates on cash of $3.2 million.

The decrease in cash and cash equivalents of $118.3 million from the end of fiscal year 2022 was due to cash outflows of $355.3 million for cash paid for acquisitions, net of cash acquired, repayment of the revolving line of credit of $55.0 million, repurchases of common stock of $30.0 million, dividend payments of $23.7 million, payments of debt obligations of $5.2 million, and purchases of property and equipment of $3.2 million.

These cash outflows were offset by proceeds from the issuance of debt of $195.0 million to partially fund the acquisition of MarkLogic, cash inflows from operations of $140.8 million, $12.3 million in cash received from the issuance of common stock, and the effect of exchange rates on cash of $5.5 million.

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

As of May 31, 2023, $77.1 million of our cash and cash equivalents was held by our foreign subsidiaries.

As of August 31, 2023, $84.4 million of our cash and cash equivalents was held by our foreign subsidiaries.

Foreign cash includes unremitted foreign earnings, which are invested indefinitely outside of the U.S.

As such, it is not available to fund our domestic operations.

As such, the foreign cash is not available to fund our domestic operations.

If we were to repatriate these earnings, we may be subject to income tax withholding in certain tax jurisdictions and a portion of the repatriated earnings may be subject to U.S.

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In January 2023, our Board of Directors increased our share repurchase authorization by $150 million, to an aggregate authorization of $228.0 million.

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 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.

On June 21, 2023, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock, which will be paid on September 15, 2023 to stockholders of record as of the close of business on September 1, 2023.

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

On September 20, 2023, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock, which will be paid on December 15, 2023 to stockholders of record as of the close of business on December 1, 2023.

Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors.

4 unchanged sentences

Cash Flows From Operating Activities

Six Months Ended

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

Nine Months Ended

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

Net income $ 54,862 $ 71,361

2 unchanged sentences

Net cash flows from operating activities $ 140,759 $ 152,023

In the first six months of fiscal year 2023, operating cash flows decreased as a result of higher operating expenses, due to the acquisition of MarkLogic, as compared to the same period in 2022, partially offset by higher billings and collections.

Our gross accounts receivable as of May 31, 2023, decreased by $10.8 million from the end of fiscal year 2022 and our days sales outstanding (DSO) in accounts receivable increased to 44 days from 39 days in the second fiscal quarter of 2022 due to the timing of billings and collections.

In the first nine months of fiscal year 2023, operating cash flows decreased as a result of higher operating expenses, due to the acquisition of MarkLogic, higher interest expense on debt, and an increase in cash paid for income taxes, as compared to the same period in 2022, partially offset by higher billings and collections.

Our gross accounts receivable as of August 31, 2023, decreased by $2.0 million from the end of fiscal year 2022 and our days sales outstanding (DSO) in accounts receivable increased to 49 days from 48 days in the third fiscal quarter of 2022 due to the timing of billings and collections.

Cash Flows (Used in) From Investing Activities

Six Months Ended

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

Nine Months Ended

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

Net investment activity $ 438 $ 1,200

2 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

Net cash outflows and inflows of our net investment activity are generally a result of the timing of our purchases and maturities of securities, which are classified as cash equivalents or short-term securities.

In the second quarter of fiscal year 2023 had payments for acquisitions net of cash acquired of $356.1 million.

We also purchased $2.0 million of property and equipment in the first six months of fiscal year 2023, as compared to $2.0 million in the first six months of fiscal year 2022.

In the first nine months of fiscal year 2023, we had payments for acquisitions net of cash acquired of $355.3 million.

We also purchased $3.2 million of property and equipment in the first nine months of fiscal year 2023, as compared to $3.1 million in the first nine months of fiscal year 2022.

In the second quarter of fiscal year 2022 we received $26.0 million net proceeds from the sale of long-lived assets.

Cash Flows From (Used in) Financing Activities

Six Months Ended

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

Nine Months Ended

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

Proceeds from stock-based compensation plans $ 20,373 $ 10,384

2 unchanged sentences

Payment of debt issuance costs — (1,957)

Repayment of revolving line of credit (55,000) —

Principal payment on term loan (5,157) (5,154)

2 unchanged sentences

Net cash flows from (used in) financing activities $ 93,446 $ (93,533)

During the first six months of fiscal year 2023, we received $195.0 million in net proceeds from the issuance of debt.

During the first six months of fiscal year 2022, we received $7.5 million in net proceeds from the issuance of debt in connection with our amended term loan.

We received $16.4 million from the exercise of stock options and the issuance of shares under our employee stock purchase plan as compared to $7.8 million in the first six months of fiscal year 2022.

During the first nine months of fiscal year 2023, we received $195.0 million in net proceeds from the issuance of debt to partially fund the acquisition of MarkLogic.

During the first nine months of fiscal year 2022, we received $7.5 million in net proceeds from the issuance of debt in connection with our amended term loan.

We received $20.4 million from the exercise of stock options and the issuance of shares under our employee stock purchase plan as compared to $10.4 million in the first nine months of fiscal year 2022.

Further, we repurchased $30.0 million of our common stock under our share repurchase plan compared to $75.5 million in the same period of the prior year.

We also made payments on our long-term debt of $28.4 million (including a $25.0 million repayment on the revolving line of credit) in the first six months of fiscal year 2023 and $3.4 million in the same period in 2022.

Finally, we made dividend payments of $15.9 million to our stockholders during the first six months of fiscal year 2023 and $15.6 million in the first six months of fiscal year 2022.

We also made payments on our long-term debt of $60.2 million (including a $55.0 million repayment on the revolving line of credit) in the first nine months of fiscal year 2023 and $5.2 million in the same period in 2022.

Finally, we made dividend payments of $23.7 million to our stockholders during the first nine months of fiscal year 2023 and $23.4 million in the first nine months of fiscal year 2022.

Liquidity Outlook

5 unchanged sentences

Legal and Other Regulatory Matters

See discussion below in Part I, Item 2, regarding Recent Developments:

MOVEit Vulnerability, as well as legal and other regulatory matters in Part II, Item 1.

Legal Proceedings.

See discussion below in Recent Developments:

MOVEit Vulnerability for a discussion of the legal proceedings related to the MOVEit Vulnerability.

Recent Accounting Pronouncements

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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 (the 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 that is managed separately from the public-cloud).

We promptly took down

MOVEit Cloud for further investigation and notified all then-known MOVEit Transfer and MOVEit Cloud customers in order to apprise them of the MOVEit Vulnerability and alert them to immediate remedial actions.

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 promptly took down MOVEit Cloud for further investigation and notified all then-known current and former MOVEit Transfer and MOVEit Cloud customers in order to apprise them of the MOVEit Vulnerability and alert them to immediate remedial actions.

In parallel, our team developed a patch for all supported versions of MOVEit Transfer and MOVEit Cloud, which was released on May 31, 2023, and allowed for the restoration of MOVEit Cloud that same day.

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However, certain MOVEit Transfer customers have reported that malicious threat actors have exploited the MOVEit Vulnerability to obtain access to their environments and portions of their sensitive customer data.

Furthermore, while we continue to investigate this vulnerability in MOVEit Cloud, we currently have not seen any evidence that sensitive customer data has been exfiltrated from the public MOVEit Cloud instances.

For a small group of customers, we provide a dedicated MOVEit Cloud instance which is hosted, for each such customer, separate and apart from the public instances of our MOVEit Cloud platform.

Two of our dedicated MOVEit Cloud customers have reported that malicious threat actors have exploited the MOVEit Vulnerability to obtain access to its environment.

As of the date of the filing of this report on Form 10-Q, one such customer has confirmed that no sensitive data was compromised and another has not revealed the nature of the data that may have been accessed.

Furthermore, we currently have not seen any evidence that sensitive customer data has been exfiltrated from the public MOVEit Cloud instances.

For a small group of customers, we provide dedicated MOVEit Cloud instances that are hosted, for each such customer, separate and apart from the public instances of our MOVEit Cloud platform.

Two of our dedicated MOVEit Cloud customers have reported that malicious threat actors have exploited the MOVEit Vulnerability to obtain access to their dedicated MOVEit Cloud environment.

As of the date of the filing of this report on Form 10-Q, one such customer has confirmed that no sensitive data was compromised and the other has reported that certain personally identifiable information was exfiltrated.

Since our disclosures regarding the MOVEit Vulnerability, various third-parties have been actively scrutinizing MOVEit Transfer and MOVEit Cloud, leading to the discovery and our prompt patching of additional vulnerabilities.

We are not aware of any evidence that these additional vulnerabilities were exploited by malicious threat actors prior to creating patches to address them and making those patches available to our MOVEit Transfer customers and applying those patches to the MOVEit Cloud environments – both the public and dedicated cloud instances.

Progress has remained fully operational at all times before and after the discovery of the MOVEit Vulnerability and, as of the time of the filing of this report on Form 10-Q, has not uncovered evidence of unauthorized activity or impact to products beyond MOVEit Transfer and MOVEit Cloud.

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

Progress 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.

While Progress’ investigation remains ongoing, the Company (i) has and is continuing to implement a series of additional security and related measures aimed at addressing the MOVEit Vulnerability and subsequently discovered vulnerabilities and further strengthening the overall security of our MOVEit applications, (ii) has engaged outside legal counsel to conduct a thorough independent investigation of the MOVEit Vulnerability, and (iii) has engaged with federal law enforcement and other federal agencies with respect to the MOVEit Vulnerability.

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

We are currently not aware of any evidence that these additional vulnerabilities were exploited by malicious threat actors prior to creating patches to address them and making those patches available to our MOVEit Transfer customers and applying those patches to the MOVEit Cloud environments – both the public and dedicated cloud instances.

Progress has remained fully operational at all times before and after the discovery of the MOVEit Vulnerability and, as of the time of the filing of this report on Form 10-Q, has not uncovered evidence of unauthorized activity in Progress' corporate environment or impact to products beyond MOVEit Transfer and MOVEit Cloud related to this attack.

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

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

The Company (i) has and is continuing to implement a series of additional security and related measures aimed at addressing the MOVEit Vulnerability and subsequently discovered vulnerabilities and further strengthening the overall security of our MOVEit applications, (ii) has engaged outside legal counsel to conduct a thorough independent investigation of the MOVEit Vulnerability, and (iii) has engaged with federal law enforcement and other federal agencies with respect to the MOVEit Vulnerability.

As our fact-gathering investigation and litigation response continues, we will continue to assess the potential impact of the MOVEit Vulnerability on our business, operations, and financial results.

Expenses Incurred and Amounts Accrued

Given that the MOVEit Vulnerability was only discovered on May 30, 2023, and our second quarter ended on May 31, 2023, we incurred minimal costs and expenses with respect to the MOVEit Vulnerability during the second quarter.

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

Costs are provided 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.

Our financial liability arising from any of the foregoing will depend on many factors, including limitations contained within our customer contracts, the amount of private litigation, and whether governmental entities launch formal investigations into the matter, and it is not possible at this time to estimate the quantitative impact of any such liability with any reasonable degree of certainty.

Our financial liability arising from any of the foregoing will depend on many factors, including limitations contained within our customer contracts, the amount of private litigation, and the number and extent of formal government investigations into the matter, therefore it is not possible at this time to estimate the quantitative impact of any such liability with any reasonable degree of certainty.

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 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 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.

Future Capital Investments

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Through our response speed and transparent communications, we are committed to, and actively engaged in, activities to restore any loss in customer confidence.

We currently cannot predict the length or extent of any ongoing impact to sales.

However, we currently cannot predict the length or extent of any ongoing impact to sales.

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 us 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.

We have 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 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.

As of the date of the filing of this report on Form 10-Q, (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 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 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.

Such claims and investigations may have an adverse effect on how we operate our business and our results of operations, and in the future, we may be subject to additional governmental or regulatory investigations, as well as additional litigation or indemnification claims.

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 are pending and our fact-gathering investigation into the matter is 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.

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.

As such, we have not recorded a loss contingency liability for litigation, claims and governmental investigations in the second quarter.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis