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, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended November 30, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2023, 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, 2023, 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 26, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting. Change in Accounting Principle As discussed in Note 8 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 matters communicated below are matters arising from the current-period audit of the financial statements that were 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 matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate. 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 resulting in multiple performance obligations under ASC 606, Revenue from Contracts with Customer . The identification of distinct performance obligations, 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 arrangement consideration to each performance obligation within an arrangement (license, maintenance, and services) 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 and determine the timing and allocation of revenue in arrangements with multiple performance obligations, auditing revenues required a high degree of auditor judgment and an increased extent of effort. 37 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the recognition of revenue from arrangements with multiple performance obligations included the following, among others: • We tested the effectiveness of controls over revenue recognition, including those over the identification of distinct performance obligations and the allocation of arrangement consideration. • 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 distinct performance obligations. • We selected a sample of revenue arrangements and performed the following procedures: – We obtained and read the contracts and related contract documentation. – We evaluated whether management properly identified the contract terms and tested management’s application of the Company’s policies, including the identification of the performance obligations and allocation of the arrangement consideration. – We tested the mathematical accuracy of management's calculations of revenue and the associated timing of revenue recognized in the financial statements. MOVEit Vulnerability – Refer to Note 19 to the Financial Statements Critical Audit Matter Description In May 2023, the Company identified a zero-day vulnerability in its MOVEit Transfer and MOVEit Cloud software product offerings (the MOVEit Vulnerability). A number of customers and others have disclosed that they have been impacted by the MOVEit Vulnerability and certain customers have sent formal letters to the Company, some of which have indicated that they intend to seek indemnification from the Company. Additionally, the Company has received several inquiries from data privacy regulators, state attorneys general, regulatory agencies, and a law enforcement agency seeking various documents and information relating to the MOVEit Vulnerability, which may result in adverse judgments, settlements, fines, penalties and other resolutions if enforcement actions are brought against the Company. These claims and proceedings are subject to inherent uncertainties and unascertainable damages. Further, the outcome of these matters may not be known for prolonged periods of time. Given the uncertainty and inability to develop a reasonable estimate of the potential loss or range of loss incurred related to this matter, the Company has not recognized a loss accrual in respect of the MOVEit Vulnerability. The Company could incur judgments or enter into settlements regarding the outcome of these claims and proceedings, which could have a material effect on the estimated amount of the liability in the period in which the effect becomes probable and reasonably estimable. The Company recognizes a liability for loss contingencies for which it is probable that a liability has been incurred at the date of the consolidated financial statements and the amount is reasonably estimable. There is complexity in applying this accounting framework for the potential losses arising from the MOVEit Vulnerability and in determining whether a loss is probable and estimable. Performing audit procedures to evaluate the appropriateness of the Company’s application of the accounting framework required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the accounting for the potential losses and related disclosures related to the MOVEit Vulnerability, include the following procedures, among others: • We tested the effectiveness of controls over the Company’s accounting for the loss contingencies and related disclosures related to the MOVEit Vulnerability. • With the assistance of professionals in our firm having subject matter expertise in accounting for loss contingencies, we evaluated the Company’s accounting and disclosures related to the MOVEit Vulnerability for compliance with ASC 450, Contingencies. • We inquired of the Company’s internal and external legal counsel to understand the legal merits and the basis for the Company’s conclusions specific to the likelihood of loss and the inability to estimate a potential loss or range of loss. • We requested and received written responses from internal and external legal counsel. • We made inquiries of management and read the letters and pleadings on a sample basis to evaluate and corroborate our understanding obtained through inquiries of internal legal counsel. • We inspected Board of Directors meeting minutes and performed inquiries with executive management and the audit committee regarding the information discussed and presented to the Board of Directors during the relevant committee meetings. • We performed public domain searches using relevant and reliable sources for evidence contrary to management’s analysis. 38 • We evaluated any events subsequent to November 30, 2023 that might impact our evaluation of loss contingencies, including any related accrual or disclosure. • We obtained written representations from executives of the Company. • We read the Company’s related disclosures and evaluated the disclosures for consistency with our testing. /s/ Deloitte & Touche LLP Boston, Massachusetts January 26, 2024 We have served as the Company's auditor since 1990. 39 PROGRESS SOFTWARE CORPORATION Consolidated Balance Sheets (In thousands, except share data) November 30, 2023 November 30, 2022 Assets Current assets: Cash and cash equivalents $ 126,958 $ 256,277 Accounts receivable (less allowances of $ 851 in 2023 and $ 859 in 2022) 125,825 97,834 Unbilled receivables 29,965 29,158 Other current assets 48,040 42,784 Total current assets 330,788 426,053 Long-term unbilled receivables 28,373 39,936 Property and equipment, net 15,225 14,927 Intangible assets, net 354,278 217,355 Goodwill 832,101 671,037 Right-of-use lease assets 18,711 17,574 Deferred tax assets 15,052 11,765 Other assets 8,255 12,832 Total assets $ 1,602,783 $ 1,411,479 Liabilities and stockholders’ equity Current liabilities: Current portion of long-term debt, net $ 13,109 $ 6,234 Accounts payable 12,371 9,282 Accrued compensation and related taxes 49,559 42,467 Dividends payable to stockholders 8,376 8,115 Short-term operating lease liabilities 10,114 7,471 Other accrued liabilities 22,499 16,765 Short-term deferred revenue, net 236,090 227,670 Total current liabilities 352,118 318,004 Long-term debt, net 356,111 259,220 Convertible senior notes, net 354,772 352,625 Long-term operating lease liabilities 13,000 15,041 Long-term deferred revenue, net 58,946 54,770 Deferred tax liabilities 3,574 4,628 Other noncurrent liabilities 4,547 8,687 Commitments and contingencies (Note 10 and note 19) Stockholders’ equity: Preferred stock, $ 0.01 par value; authorized, 10,000,000 shares; issued, none — — Common stock, $ 0.01 par value; authorized, 200,000,000 shares; issued and outstanding, 43,795,955 shares in 2023 and 43,257,008 shares in 2022 438 433 Additional paid-in capital 370,579 331,650 Retained earnings 120,858 101,656 Accumulated other comprehensive loss ( 32,160 ) ( 35,235 ) Total stockholders’ equity 459,715 398,504 Total liabilities and stockholders’ equity $ 1,602,783 $ 1,411,479 See notes to consolidated financial statements. 40 PROGRESS SOFTWARE CORPORATION Consolidated Statements of Operations Fiscal Year Ended (In thousands, except per share data) November 30, 2023 November 30, 2022 November 30, 2021 Revenue: Software licenses $ 220,789 $ 188,336 $ 156,590 Maintenance and services 473,650 413,677 374,723 Total revenue 694,439 602,013 531,313 Costs of revenue: Cost of software licenses 11,153 10,243 5,271 Cost of maintenance and services 85,255 62,177 58,242 Amortization of acquired intangibles 30,169 22,076 14,936 Total costs of revenue 126,577 94,496 78,449 Gross profit 567,862 507,517 452,864 Operating expenses: Sales and marketing 156,076 140,760 125,890 Product development 132,401 114,568 103,338 General and administrative 83,157 77,876 65,128 Amortization of acquired intangibles 66,430 46,868 31,996 Restructuring expenses 8,407 879 6,308 Acquisition-related expenses 4,704 4,603 4,102 Cyber incident and vulnerability response expenses, net 6,164 602 — Gain on sale of assets held for sale — ( 10,770 ) — Total operating expenses 457,339 375,386 336,762 Income from operations 110,523 132,131 116,102 Other (expense) income: Interest expense ( 30,780 ) ( 15,790 ) ( 20,045 ) Interest income and other, net 2,538 1,414 777 Foreign currency loss, net ( 2,624 ) ( 500 ) ( 1,300 ) Total other expense, net ( 30,866 ) ( 14,876 ) ( 20,568 ) Income before income taxes 79,657 117,255 95,534 Provision for income taxes 9,460 22,186 17,114 Net income $ 70,197 $ 95,069 $ 78,420 Earnings per share: Basic $ 1.62 $ 2.19 $ 1.79 Diluted $ 1.57 $ 2.15 $ 1.76 Weighted average shares outstanding: Basic 43,456 43,475 43,916 Diluted 44,658 44,247 44,620 Cash dividends declared per common share $ 0.70 $ 0.70 $ 0.70 See notes to consolidated financial statements. 41 PROGRESS SOFTWARE CORPORATION Consolidated Statements of Comprehensive Income Fiscal Year Ended (In thousands) November 30, 2023 November 30, 2022 November 30, 2021 Net income $ 70,197 $ 95,069 $ 78,420 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 5,289 ( 8,468 ) ( 2,439 ) Unrealized (loss) gain on hedging activity, net of tax benefit of $ 698 in 2023, and tax provision of $ 1,797 and $ 940 in 2022 and 2021, respectively ( 2,214 ) 5,688 2,837 Unrealized loss on investments, net of tax benefit of $ 4 and $ 20 in 2022 and 2021, respectively — ( 12 ) ( 63 ) Total other comprehensive income (loss), net of tax 3,075 ( 2,792 ) 335 Comprehensive income $ 73,272 $ 92,277 $ 78,755 See notes to consolidated financial statements. 42 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, 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 Issuance of stock under employee stock purchase plan 279 2 10,287 — — 10,289 Exercise of stock options 485 5 15,270 — — 15,275 Vesting of restricted stock units and release of deferred stock units 615 6 ( 6 ) — — — Withholding tax payments related to net issuance of restricted stock units ( 229 ) ( 2 ) ( 12,375 ) — — ( 12,377 ) Stock-based compensation — — 40,529 — — 40,529 Dividends declared — — — ( 31,815 ) — ( 31,815 ) Treasury stock repurchases and retirements ( 611 ) ( 6 ) ( 14,776 ) ( 19,180 ) — ( 33,962 ) Net income — — — 70,197 — 70,197 Other comprehensive income — — — — 3,075 3,075 Balance, November 30, 2023 43,796 $ 438 $ 370,579 $ 120,858 $ ( 32,160 ) $ 459,715 See notes to consolidated financial statements. 43 PROGRESS SOFTWARE CORPORATION Consolidated Statements of Cash Flows Fiscal Year Ended (In thousands) November 30, 2023 November 30, 2022 November 30, 2021 Cash flows from operating activities: Net income $ 70,197 $ 95,069 $ 78,420 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 6,345 5,002 5,477 Amortization of acquired intangibles and other 96,802 69,730 47,507 Amortization of debt discount and issuance costs on Notes 2,147 2,112 8,195 Stock-based compensation 40,529 37,094 29,724 Non-cash lease expense 9,393 7,781 10,946 Loss on disposal of long-lived assets, net — — 7 Gain on sale of assets held for sale — ( 10,770 ) — Deferred income taxes ( 28,641 ) ( 7,602 ) ( 908 ) Credit losses and other sales allowances 488 774 ( 282 ) Changes in operating assets and liabilities: Accounts receivable 12,119 ( 27,254 ) ( 10,998 ) Other assets ( 1,579 ) ( 2,214 ) ( 15,105 ) Inventories 2,489 ( 1,556 ) 245 Accounts payable and accrued liabilities ( 1,242 ) ( 3,583 ) 5,486 Lease liabilities ( 10,472 ) ( 8,571 ) ( 8,406 ) Income taxes payable ( 553 ) ( 120 ) ( 2,251 ) Deferred revenue, net ( 24,102 ) 36,268 30,473 Net cash flows from operating activities 173,920 192,160 178,530 Cash flows (used in) from investing activities: Purchases of investments ( 15,262 ) — — Sales and maturities of investments 15,700 1,950 5,950 Purchases of property and equipment ( 5,570 ) ( 6,090 ) ( 4,654 ) Payments for acquisitions, net of cash acquired ( 355,250 ) — ( 253,961 ) Proceeds from sale of long-lived assets, net — 25,998 — Other investing activities — 134 2,330 Net cash flows (used in) from investing activities ( 360,382 ) 21,992 ( 250,335 ) Cash flows from (used in) financing activities: Proceeds from equity plans 25,956 16,165 15,033 Payments for taxes related to net share settlements of equity awards ( 12,377 ) ( 7,824 ) ( 5,186 ) Repurchases of common stock ( 33,962 ) ( 77,041 ) ( 35,000 ) 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 ( 31,554 ) ( 31,063 ) ( 31,561 ) Proceeds from the issuance of debt 195,000 7,475 — Repayment of revolving line of credit ( 85,000 ) — — Principal payment on term loan ( 6,875 ) ( 6,873 ) ( 117,313 ) Payment of debt issuance costs — ( 2,262 ) ( 904 ) Net cash flows from (used in) financing activities 51,188 ( 101,423 ) 132,113 Effect of exchange rate changes on cash 5,955 ( 11,858 ) ( 2,892 ) Net (decrease) increase in cash and cash equivalents ( 129,319 ) 100,871 57,416 Cash and cash equivalents, beginning of year 256,277 155,406 97,990 Cash and cash equivalents, end of year $ 126,958 $ 256,277 $ 155,406 44 Supplemental disclosure: Cash paid for income taxes, net of refunds of $ 965 in 2023, $ 968 in 2022 and $ 894 in 2021 $ 39,771 $ 28,680 $ 25,915 Cash paid for interest $ 23,867 $ 8,572 $ 8,537 Non-cash investing and financing activities: Dividends declared and unpaid $ 8,376 $ 8,115 $ 7,925 See notes to consolidated financial statements. 45 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") provides enterprise software products for the development, deployment and management of high-impact business 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. 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. 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. 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 Cash equivalents include short-term, highly liquid investments purchased with remaining maturities of three months or less. As of November 30, 2023, all of our cash equivalents were invested in money market funds. 46 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, 2023 November 30, 2022 November 30, 2021 Beginning balance $ 740 $ 552 $ 886 Charge to costs and expenses 435 493 58 Write-offs and other ( 499 ) ( 302 ) ( 408 ) Translation adjustments 2 ( 3 ) 16 Ending balance $ 678 $ 740 $ 552 Concentrations of Credit Risk Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, derivative instruments and trade receivables. We hold our cash and cash equivalents 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 2023, 2022 or 2021. Fair Value Measurements We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are: • Level 1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets. Our Level 1 investments include money market funds. • Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, foreign exchange rates, and forward and spot prices for currencies. Our Level 2 derivative assets and liabilities include certain over-the-counter forward and swap contracts. • Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. We do not have any Level 3 fair value measurements. 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. 47 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 are not designated as hedges. Although these derivatives are not designated as hedges, 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. In fiscal year 2023, we recognized realized and unrealized gains of $ 2.3 million from our forward contracts. Property and Equipment We record property and equipment at 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. 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 operates as 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 impairment may have occurred. 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 7: 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. We did no t recognize any intangible asset impairment charges in the years presented. 48 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 Losses on Investments Unrealized (Losses) Gains on Hedging Activity Total Balance, December 1, 2021 $ ( 30,055 ) $ ( 49 ) $ ( 2,339 ) $ ( 32,443 ) Other comprehensive (loss) income ( 8,468 ) ( 12 ) 5,688 ( 2,792 ) Balance, December 1, 2022 $ ( 38,523 ) $ ( 61 ) $ 3,349 $ ( 35,235 ) Other comprehensive income (loss) 5,289 — ( 2,214 ) 3,075 Balance, November 30, 2023 $ ( 33,234 ) $ ( 61 ) $ 1,135 $ ( 32,160 ) The tax effect on accumulated unrealized (losses) gains on hedging activity and unrealized losses on investments was a tax provision of $ 0.4 million and $ 1.1 million as of November 30, 2023 and November 30, 2022, respectively, and a tax benefit of $ 0.7 million as of November 30, 2021. 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. 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. 49 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, $ 1.1 million, and $ 0.9 million in fiscal years 2023, 2022, and 2021, respectively. Warranty Costs We make periodic provisions for expected warranty costs. Historically, warranty costs have been insignificant. Stock-Based Compensation Stock-based compensation expense reflects the fair value of stock-based awards 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. 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 $ 4.7 million, $ 4.6 million, and $ 4.1 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, 2023, 2022, and 2021, 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 $ 8.4 million, $ 0.9 50 million, and $ 6.3 million of restructuring related costs, which are included in restructuring expenses in our consolidated statement of operations, for the fiscal years ended November 30, 2023, 2022, and 2021, 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. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements Reference Rate Reform In March 2020, the Financial Accounting Standards Board (“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 the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The Company adopted ASU 2020-04 in June 2023, in connection with the amendment of its interest rate swap agreement to implement certain changes in the reference rate from LIBOR to the Secured Overnight Financing Rate ("SOFR"). The application of this expedient preserves the cash flow hedge designation of the interest rate swaps and presentation consistent with past presentation and did not have a material impact on our consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted Segment Reporting In November 2023, the FASB issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. This update is effective beginning with the Company’s 2025 fiscal year annual reporting period, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and disclosures. Note 2: Cash and Cash Equivalents A summary of our cash and cash equivalents at November 30, 2023 is as follows (in thousands): Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value Cash $ 126,958 $ — $ — $ 126,958 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 51 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. In June 2023, the interest rate swap agreement was amended to implement certain changes in the reference rate from LIBOR to SOFR. Under our interest rate swap contract, we receive a floating rate based on the greater of 1-month SOFR 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, 2023 and 2022 , the fair value of the hedge was a gain of $ 1.5 million and $ 4.4 million, respectively, and was included in other assets on our consolidated balance sheets. The net amount of accumulated other comprehensive loss was reclassified to interest expense during fiscal years 2023, 2022, and 2021 and resulted in income of $ 3.6 million, and expense of $ 0.7 million, and $ 2.5 million, respectively. The following table presents our interest rate swap contract where the notional amount is equal to approximately one-half of the corresponding reduction in the balance of our term loan. 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 payment 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, 2023 November 30, 2022 Notional Value Fair Value Notional Value Fair Value Interest rate swap contracts designated as cash flow hedges $ 103,125 $ 1,495 $ 120,000 $ 4,407 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, 2023, $ 2.5 million was recorded in other accrued liabilities on the 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 the consolidated balance sheets. In fiscal year 2023, realized and unrealized gains of $ 2.3 million from our forward contracts were recognized in foreign currency loss, net on the consolidated statements of operations. In fiscal year 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 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, 2023 November 30, 2022 Notional Value Fair Value Notional Value Fair Value Forward contracts to sell U.S. dollars $ 102,229 $ ( 2,526 ) $ 74,578 $ ( 2,995 ) Forward contracts to purchase U.S. dollars 844 ( 4 ) 544 ( 5 ) Total $ 103,073 $ ( 2,530 ) $ 75,122 $ ( 3,000 ) 52 Note 4: Fair Value Measurements 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 November 30, 2023 (in thousands): Fair Value Measurements Using Total Fair Value Level 1 Level 2 Level 3 Assets Interest rate swap $ 1,495 $ — $ 1,495 $ — Liabilities Foreign exchange derivatives $ ( 2,530 ) $ — $ ( 2,530 ) $ — 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 ) $ — Assets and Liabilities Not Carried at Fair Value Fair Value of the Convertible Senior Notes The fair value of our Convertible Senior Notes, with a carrying value of $ 354.8 million and $ 352.6 million, was $ 377.1 million and $ 376.0 million as of November 30, 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. Fair Value of Other Financial Assets and Liabilities 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. 53 Note 5: Property and Equipment Property and equipment consists of the following (in thousands): November 30, 2023 November 30, 2022 Computer equipment and software $ 46,405 $ 42,672 Buildings and leasehold improvements 9,874 8,771 Furniture and fixtures 3,828 3,582 Capitalized software development costs 276 276 Property and equipment, gross 60,383 55,301 Less accumulated depreciation and amortization ( 45,158 ) ( 40,374 ) Property and equipment, net $ 15,225 $ 14,927 Depreciation and amortization expense related to property and equipment was $ 6.3 million, $ 5.0 million, and $ 5.5 million for the years ended November 30, 2023, 2022, and 2021, respectively. Note 6: Intangible Assets and Goodwill Intangible Assets Intangible assets are comprised of the following significant classes (in thousands): November 30, 2023 November 30, 2022 Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value Purchased technology $ 280,000 $ ( 181,045 ) $ 98,955 $ 212,700 $ ( 150,877 ) $ 61,823 Customer-related 458,608 ( 221,362 ) 237,246 306,308 ( 162,341 ) 143,967 Trademarks and trade names 50,111 ( 32,034 ) 18,077 37,611 ( 26,046 ) 11,565 Non-compete agreement — — — 2,000 ( 2,000 ) — Total $ 788,719 $ ( 434,441 ) $ 354,278 $ 558,619 $ ( 341,264 ) $ 217,355 We amortize intangible assets assuming no expected residual value. Amortization expense related to these intangible assets was $ 96.6 million, $ 68.9 million, and $ 46.9 million in fiscal years 2023, 2022, and 2021, respectively. Future amortization expense for intangible assets as of November 30, 2023 is as follows (in thousands): 2024 $ 89,077 2025 78,567 2026 70,054 2027 44,740 2028 33,157 Thereafter 38,683 Total $ 354,278 54 Goodwill Changes in the carrying amount of goodwill for fiscal years 2023 and 2022 are as follows (in thousands): November 30, 2023 November 30, 2022 Balance, beginning of year $ 671,037 $ 671,152 Additions (1) 161,070 — Measurement period adjustments (2) — ( 88 ) Translation adjustments ( 6 ) ( 27 ) Balance, end of year $ 832,101 $ 671,037 (1) The addition to goodwill during fiscal year 2023 is related to the acquisition of MarkLogic. Refer to Note 7: Business Combinations for further information. (2) Represents final measurement period adjustments related to Kemp during fiscal year 2022. Refer to Note 7: Business Combinations for further information. During fiscal year 2023, we performed a quantitative assessment as of October 31, 2023 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 the years presented. Note 7: Business Combinations MarkLogic Acquisition On February 7, 2023, we completed the acquisition of the parent company of MarkLogic Corporation ("MarkLogic"), pursuant to the Stock Purchase Agreement (the "Purchase Agreement"), dated as of January 3, 2023. The acquisition was completed for a base purchase price of $ 355.0 million (subject to certain customary adjustments) in cash. We funded the acquisition through a combination of existing cash resources and by drawing down $ 195.0 million from our then-existing revolving credit facility. Refer to Note 8: Debt for further information. The acquisition consideration for MarkLogic has been preliminarily allocated to MarkLogic’s assets and assumed liabilities based on estimated fair values. The preliminary fair value estimates of the net assets acquired are based upon preliminary calculations and valuations, and those estimates and assumptions are subject to change as we obtain additional information for those estimates during the measurement period (up to one year from the acquisition date). The allocation of the purchase price is as follows (in thousands): Preliminary Purchase Price Allocation Life Net working capital $ 47,900 Property, plant and equipment 723 Purchased technology 67,300 7 years Trade name 12,500 7 years Customer relationships 152,300 7 years Other assets, including long-term unbilled receivables 4,789 Deferred taxes ( 24,958 ) Deferred revenue ( 33,116 ) Goodwill 161,070 Net assets acquired $ 388,508 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. 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 $ 161.1 million of goodwill, which is not deductible for tax purposes. 55 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, 2023, we incurred approximately $ 4.3 million 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 fiscal year ended November 30, 2023, was approximately $ 72.5 million. 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. Pro Forma Information The following pro forma financial information presents the combined results of operations of Progress and MarkLogic as if the acquisition had occurred on December 1, 2021, after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the MarkLogic acquisition and factually supportable. These pro forma adjustments include: (i) a net increase in amortization expense to record amortization expense relating to the $ 232.1 million of acquired identifiable intangible assets, (ii) an increase in interest expense to record interest for the period presented as a result of drawing down our revolving line of credit in connection with the acquisition, and (iii) 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, 2021. (In thousands, except per share data) Pro Forma Fiscal Year Ended November 30, 2023 Pro Forma Fiscal Year Ended November 30, 2022 Revenue $ 733,289 $ 712,170 Net income $ 79,411 $ 77,058 Net income per basic share $ 1.83 $ 1.77 Net income per diluted share $ 1.78 $ 1.74 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. 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 based on our valuation and purchase price allocation procedures. The measurement period adjustments were completed during the fourth quarter of fiscal year 2022. 56 The allocation of the purchase price is as follows (in thousands): Final Purchase Price Allocation Life Net working capital $ 26,650 Property, plant and equipment 795 Purchased technology 39,400 5 years Trade name 7,200 5 years Customer relationships 75,500 5 years Other assets 197 Other noncurrent liabilities ( 1,404 ) Deferred taxes ( 22,027 ) Deferred revenue ( 29,997 ) Goodwill 179,433 Net assets acquired $ 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. 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. Pro Forma Information The following pro forma financial information presents the combined results of operations of Progress and Kemp as if the acquisition had occurred on December 1, 2019, after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the Kemp acquisition and factually supportable. These pro forma adjustments include: (i) an increase in revenue from Kemp as a result of the application of Topic 606 to recognize and measure contract assets and contract liabilities in the business combination, (ii) a net increase in amortization expense to record amortization expense relating to the $ 122.1 million of acquired identifiable intangible assets, (iii) a decrease in interest expense to remove the interest expense associated with Kemp’s debt obligations, and (iv) the income tax effect of the adjustments made at the statutory tax rate of the U.S. (approximately 24.5%). The pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on December 1, 2019. These results are prepared in accordance with ASC 606. (In thousands, except per share data) Pro Forma Fiscal Year Ended November 30, 2021 Revenue $ 590,133 Net income $ 75,612 Net income per basic share $ 1.72 Net income per diluted share $ 1.69 57 Note 8: Debt As of November 30, 2023, future maturities of the Company's long-term debt were as follows: (In thousands) 2026 Notes Revolving Line of Credit Term Loan Total 2024 $ — $ — $ 13,750 $ 13,750 2025 — — 20,625 20,625 2026 360,000 — 20,625 380,625 2027 — 110,000 206,250 316,250 Total face value of long-term debt 360,000 110,000 261,250 731,250 Unamortized discount and issuance costs ( 5,228 ) — ( 2,030 ) ( 7,258 ) Less current portion of long-term debt, net — — ( 13,109 ) ( 13,109 ) Long-term debt $ 354,772 $ 110,000 $ 246,111 $ 710,883 During February 2023, we partially funded our acquisition of MarkLogic by drawing down $ 195.0 million under the revolving line of credit. As of November 30, 2023, there was $ 110.0 million outstanding under the revolving line of credit. 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 $ 360 million, due April 15, 2026, unless earlier repurchased, redeemed or converted. There are no required principal payments prior to the maturity of the Notes. The Notes bear interest at an annual rate of 1 %, payable semi-annually in arrears on April 15 and October 15 of each year. The Company incurred approximately $ 10.8 million in issuance costs for the issuance of the Convertible Notes. Conversion Rights Before January 15, 2026, Noteholders may convert their Notes in the following circumstances: • During any fiscal quarter (and only during such fiscal quarter) commencing after the fiscal quarter ending on May 31, 2021, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for each of at least twenty trading days (whether or not consecutive) during the thirty consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter; • During the five consecutive business days immediately after any ten consecutive trading day period (the “Measurement Period”), if the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price per share of Company’s common stock on such trading day and the conversion rate on such trading day; 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. 58 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 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. 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 amount initially recognized for the equity component totaled $ 64.8 million. 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. 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. Upon adoption of ASU 2020-06 on December 1, 2021, using the modified retrospective method, 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. 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. 59 As a result of the adoption of ASU 2020-06, non-cash interest expense decreased by approximately $ 11.5 million in 2022 and 2023 as well as in future periods due to the de-recognition of the debt discount associated with the previously bifurcated equity components of the Notes. Further, the standard requires the use of the if converted method to calculate diluted earnings per share. Refer to Note 17: Earnings Per Share for further discussion about the impact of the adoption of ASU 2020-06 on diluted earnings per share upon adoption and as of the fiscal year ended November 30, 2023. Fiscal Year Ended (In thousands) November 30, 2023 November 30, 2022 November 30, 2021 Contractual interest expense ( 1 % coupon) $ 3,600 $ 3,600 $ 2,280 Amortization of debt discount and issuance costs (1) 2,147 2,112 8,195 $ 5,747 $ 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 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. 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, 2023 was 6.68 %, and the interest rate as of November 30, 2023 was 7.20 %. 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 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 before maturity in whole or in part at our option without penalty or premium. 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, 2023. 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, 2023, 2022 and 2021 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, 2023, there was $ 110.0 million outstanding amounts under the revolving line of credit and $ 2.5 million of letters of credit. 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. 60 Note 9: Leases The Company has operating leases for 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. 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. We sublease certain facilities to third parties, which have remaining lease terms of up to three years . The components of net operating lease cost for the years ended November 30, 2023, 2022 and 2021 were as follows (in thousands): Fiscal Year Ended November 30, 2023 November 30, 2022 November 30, 2021 Lease costs under long-term operating leases $ 8,935 $ 7,079 $ 7,867 Lease costs under short-term operating leases 170 71 32 Variable lease cost under short-term and long-term operating leases (1) 354 282 434 Operating lease right-of-use asset impairment 115 — 3,057 Sublease income ( 468 ) — — Total net operating lease cost $ 9,106 $ 7,432 $ 11,390 (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, 2023, 2022 and 2021 (in thousands): Fiscal Year Ended November 30, 2023 November 30, 2022 November 30, 2021 Cash paid for leases $ 10,472 $ 8,571 $ 8,406 Right-of-use assets recognized for new leases and amendments (non-cash) $ 3,444 $ 451 $ 3,222 Weighted average remaining lease term in years and weighted average discount rate are as follows: November 30, 2023 November 30, 2022 Weighted average remaining lease term in years 2.74 3.33 Weighted average discount rate 4.6 % 2.6 % Future payments under non-cancellable leases at November 30, 2023 are as follows (in thousands): 2024 $ 11,063 2025 7,422 2026 3,990 2027 2,047 2028 233 Thereafter 14 Total lease payments 24,769 Less imputed interest ( 1,655 ) Present value of lease liabilities $ 23,114 61 Note 10: 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. Legal Proceedings Please see Note 19: Cyber Related Matters for a discussion of legal proceedings related to the MOVEit Vulnerability. We also are subject to various other 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 11: 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, 2023, 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 43,795,955 were issued and outstanding at November 30, 2023. There were 324,470 deferred stock units ("DSUs") outstanding at November 30, 2023. 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 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. In fiscal years 2023, 2022, and 2021, we repurchased and retired 0.6 million, 1.7 million and 0.8 million shares of our common stock for $ 34.0 million, $ 77.0 million and $ 35.0 million, respectively. As of November 30, 2023, there was $ 194.0 million remaining under the current authorization. Note 12: 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. A total of 2,985,048 shares were available for issuance as of November 30, 2023. 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 62 of 93,064 shares were available for issuance under the 2002 Plan as of November 30, 2023. 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, 2023. 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. A summary of stock option activity under all the plans is as follows: Shares Weighted Average Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in thousands) Exercise Price (in years) (in thousands) Options outstanding, December 1, 2022 2,480 $ 41.73 Granted 243 51.41 Exercised ( 485 ) 37.49 Canceled ( 186 ) 43.28 Options outstanding, November 30, 2023 2,052 $ 44.09 4.1 $ 19,187 Exercisable, November 30, 2023 1,123 $ 42.87 3.4 $ 11,870 Vested or expected to vest, November 30, 2023 2,052 $ 44.09 4.1 $ 19,187 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, 2022 1,051 $ 44.80 Granted 859 52.10 Issued ( 548 ) 45.98 Canceled ( 55 ) 47.99 Restricted stock units outstanding, November 30, 2023 1,307 $ 49.27 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 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. Restricted stock units have forfeitable dividend equivalent rights equal to the dividend paid on our common stock. During the first quarter of fiscal years 2021, 2022, and 2023, 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 . For the 2021, 2022 and 2023 plans, the vesting terms were based on 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. 63 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 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 279,000 shares, 301,000 shares, and 277,000 shares with weighted average purchase prices of $ 36.88 , $ 30.59 , and $ 28.20 per share, respectively, in fiscal years 2023, 2022, and 2021, respectively. At November 30, 2023, approximately 107,000 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 2023, 2022, and 2021 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, 2023 November 30, 2022 November 30, 2021 Stock options: Expected volatility 30.6 % 31.0 % 30.0 % Risk-free interest rate 3.5 % 1.9 % 0.5 % Expected life (in years) 4.8 4.8 4.8 Expected dividend yield 1.4 % 1.6 % 1.6 % Employee stock purchase plan: Expected volatility 26.9 % 31.8 % 33.1 % Risk-free interest rate 4.9 % 2.4 % 0.1 % Expected life (in years) 1.2 1.2 1.3 Expected dividend yield 1.3 % 1.5 % 1.5 % Long-term incentive plan: Expected volatility 31.4 % 35.1 % 36.3 % Risk-free interest rate 3.8 % 1.3 % 0.2 % Expected life (in years) 2.9 2.9 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 . Based on the above assumptions, the weighted average estimated fair value of stock options granted in fiscal years 2023, 2022, and 2021 was $ 14.40 , $ 10.95 , and $ 9.46 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 2023, 2022, and 2021 was $ 13.56 , $ 11.01 , and $ 11.59 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 $ 57.6 million at November 30, 2023. 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, 2023 November 30, 2022 November 30, 2021 Total intrinsic value of stock options on date exercised $ 12,171 $ 1,717 $ 2,523 Total fair value of deferred stock units on date vested 2,260 2,029 2,084 Total fair value of restricted stock units on date vested 33,402 25,597 16,018 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, 2023 November 30, 2022 November 30, 2021 Cost of maintenance and services $ 2,976 $ 1,969 $ 1,561 Sales and marketing 6,797 4,884 6,055 Product development 12,214 10,326 8,104 General and administrative 18,542 19,915 14,004 Total stock-based compensation $ 40,529 $ 37,094 $ 29,724 Income tax benefit included in the provision for income taxes $ 9,355 $ 6,344 $ 5,281 Note 13: 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 $ 3.8 million, $ 3.3 million and $ 4.0 million for fiscal years 2023, 2022 and 2021, respectively. Note 14: 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, 2023 November 30, 2022 November 30, 2021 Performance obligations transferred at a point in time: Software licenses $ 220,789 $ 188,336 $ 156,590 Performance obligations transferred over time: Maintenance 401,501 362,335 325,863 Services 72,149 51,342 48,860 Total revenue $ 694,439 $ 602,013 $ 531,313 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, 2023 November 30, 2022 November 30, 2021 United States $ 380,672 $ 310,917 $ 294,947 Canada 30,998 30,237 22,867 EMEA 222,862 207,707 169,335 Latin America 21,112 18,053 17,036 Asia Pacific 38,795 35,099 27,128 Total revenue $ 694,439 $ 602,013 $ 531,313 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, 2023, billing of our long-term unbilled receivables is expected to occur as follows (in thousands): 2025 $ 16,646 2026 10,165 2027 1,562 Total $ 28,373 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, 2023 or November 30, 2022. 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. 66 As of November 30, 2023, 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 Billings and other 673,919 Acquired from business combinations 33,116 Revenue recognized ( 694,439 ) Balance, November 30, 2023 $ 295,036 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, 2023, transaction price allocated to remaining performance obligations was $ 296.0 million. We expect to recognize approximately 80 % 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 $ 7.6 million, $ 8.8 million, and $ 7.9 million as of November 30, 2023, 2022, and 2021, 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 15: 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, 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 Costs incurred 1,117 7,290 8,407 Cash disbursements ( 1,690 ) ( 5,413 ) ( 7,103 ) Translation adjustments and other — ( 17 ) ( 17 ) Balance, November 30, 2023 $ 3,297 $ 1,890 $ 5,187 67 2023 Restructurings During the fourth quarter of fiscal year 2023, we restructured our operations to realign our business and strategic priorities. In connection with this restructuring, we reduced our global workforce by 2 %. These workforce reductions occurred within all functions and across most geographies in which we operate. Restructuring expenses are related to employee costs, including severance, health benefits and outplacement services (but excluding stock-based compensation). For the fiscal year ended November 30, 2023, we incurred expenses of $ 1.7 million, which are recorded as restructuring expenses in the consolidated statements of operations. Cash disbursements for expenses incurred to date under this restructuring are expected to be made through the fourth quarter of fiscal year 2024. The restructuring reserve is included in other accrued liabilities on the consolidated balance sheets as of November 30, 2023. We do not expect to incur additional material expenses in connection with this restructuring. 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, 2022 $ — $ — $ — Costs incurred — 1,732 1,732 Cash disbursements — ( 102 ) ( 102 ) Translation adjustments and other — 13 13 Balance, November 30, 2023 $ — $ 1,643 $ 1,643 During the first quarter of fiscal year 2023, we restructured our operations in connection with the acquisition of MarkLogic. Refer to Note 7: Business Combinations for further discussion. This restructuring resulted in a reduction in redundant positions, primarily within administrative functions of MarkLogic. For the fiscal year ended November 30, 2023, we incurred expenses of $ 5.7 million, which are recorded as restructuring expenses in the consolidated statements of operations. Cash disbursements for expenses incurred to date under this restructuring are expected to be made through fiscal year 2024. The restructuring reserve is included in other accrued liabilities on the consolidated balance sheets as of November 30, 2023. We expect to incur additional expenses as part of this action related to facility closures as we consolidate offices during fiscal year 2024. 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, 2022 $ — $ — $ — Costs incurred 186 5,542 5,728 Cash disbursements ( 81 ) ( 5,265 ) ( 5,346 ) Translation adjustments and other — ( 29 ) ( 29 ) Balance, November 30, 2023 $ 105 $ 248 $ 353 2020 Restructurings During the fourth quarter of fiscal year 2020, we restructured our operations in connection with the acquisition of Chef. This restructuring resulted in a reduction in redundant positions, primarily within the administrative functions of Chef . For the fiscal years ended November 30, 2023, 2022 and 2021, we incurred expenses of $ 0.9 million, $ 0.4 million and $ 4.1 million, respectively, which are recorded as restructuring expenses in the consolidated statements of operations. 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 is included in short-term and long-term operating lease liabilities on the consolidated balance sheets at November 30, 2023. 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 2024, but we do not expect these costs to be material. 68 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, 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 Costs incurred 897 — 897 Cash disbursements ( 1,575 ) — ( 1,575 ) Balance, November 30, 2023 $ 3,192 $ — $ 3,192 Note 16: Income Taxes The components of income before income taxes are as follows (in thousands): Fiscal Year Ended November 30, 2023 November 30, 2022 November 30, 2021 U.S. $ 70,659 $ 103,917 $ 80,508 Foreign 8,998 13,338 15,026 Total $ 79,657 $ 117,255 $ 95,534 The provision for income taxes is comprised of the following (in thousands): Fiscal Year Ended November 30, 2023 November 30, 2022 November 30, 2021 Current: Federal $ 28,905 $ 20,118 $ 11,964 State 4,373 5,039 2,602 Foreign 4,823 4,631 3,456 Total current 38,101 29,788 18,022 Deferred Federal ( 22,763 ) ( 4,683 ) 366 State ( 1,592 ) ( 1,537 ) ( 1,110 ) Foreign ( 4,286 ) ( 1,382 ) ( 164 ) Total deferred ( 28,641 ) ( 7,602 ) ( 908 ) Total $ 9,460 $ 22,186 $ 17,114 69 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, 2023 November 30, 2022 November 30, 2021 Tax at U.S. Federal statutory rate $ 16,728 $ 24,624 $ 20,062 Foreign rate differences ( 644 ) 475 193 Effects of foreign operations included in U.S. Federal provision 447 401 ( 112 ) State income taxes, net 1,814 2,424 1,215 Research credits ( 894 ) ( 1,268 ) ( 410 ) Nondeductible stock-based compensation 2,498 2,725 1,548 Meals and entertainment 162 185 61 Compensation subject to 162(m) 928 878 346 Uncertain tax positions and tax settlements ( 1,056 ) ( 163 ) 89 Net excess tax benefit from stock-based compensation plans ( 2,058 ) ( 266 ) ( 11 ) Global intangible low tax inclusion 244 17 606 Foreign derived intangible deduction ( 8,297 ) ( 7,769 ) ( 6,386 ) Other ( 412 ) ( 77 ) ( 87 ) Total $ 9,460 $ 22,186 $ 17,114 The components of deferred tax assets and liabilities are as follows (in thousands): November 30, 2023 November 30, 2022 Deferred tax assets: Accounts receivable $ 174 $ 191 Accrued compensation 5,101 3,884 Accrued liabilities and other 2,511 1,352 Deferred revenue 20,204 12,461 Stock-based compensation 9,459 8,030 Original issue discount 5,135 7,169 Tax credit and loss carryforwards 34,948 27,809 Operating lease liabilities 3,208 4,082 Capitalized research and development 20,814 — Gross deferred tax assets 101,554 64,978 Valuation allowance ( 2,381 ) ( 6,275 ) Total deferred tax assets 99,173 58,703 Deferred tax liabilities: Goodwill ( 25,454 ) ( 23,745 ) Right-of-use lease assets ( 2,196 ) ( 2,938 ) Depreciation and amortization ( 55,962 ) ( 20,875 ) Prepaid expenses ( 4,083 ) ( 4,008 ) Total deferred tax liabilities ( 87,695 ) ( 51,566 ) Total $ 11,478 $ 7,137 Under provisions of the Tax Cuts and Jobs Act pursuant to Internal Revenue Code Section 174, beginning in fiscal year 2023 specific research and experimental (“R&E”) expenditures are now required to be capitalized and amortized over five years for U.S. R&E and fifteen years for foreign R&E. 70 The valuation allowance primarily applies to net operating loss carryforwards in foreign jurisdictions under conditions where realization is not more likely than not. The $ 4 million decrease in the valuation allowance during fiscal year 2023 primarily relates to losses in a foreign subsidiary that have expired prior to utilization. At November 30, 2023, we have federal and foreign net operating loss carryforwards of $ 92.0 million expiring on various dates through 2097 and $ 27.0 million that do not expire. In addition, we have state net operating loss carryforwards of $ 69.0 million expiring on various dates through 2043 and a minimal amount that does not expire. At November 30, 2023, we have state tax credit carryforwards of approximately $ 2.3 million expiring on various dates through 2038 and $ 2.9 million that may be carried forward indefinitely. In addition, we have federal tax credit carryforwards of approximately $ 7.1 million expiring on various dates through 2039. It is our intention to indefinitely reinvest the earnings of our non-U.S. subsidiaries. Provisions have not been made for non-U.S. withholding taxes or other applicable taxes on $ 105.6 million of undistributed earnings as of November 30, 2023, 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, 2023, the total amount of unrecognized tax benefits was $ 5.2 million, of which $ 0.8 million was recorded in other noncurrent liabilities on the consolidated balance sheet and $ 4.4 million as a reduction of deferred tax assets, principally related to U.S net operating loss carry-forwards and federal and state research and development tax credits. A reconciliation of the balance of our unrecognized tax benefits is as follows (in thousands): Fiscal Year Ended November 30, 2023 November 30, 2022 November 30, 2021 Balance, beginning of year $ 5,276 $ 5,471 $ 6,219 Tax positions related to current period — — 71 Tax positions related to a prior period 19 — ( 820 ) Tax positions acquired 423 — 439 Settlements with tax authorities ( 367 ) ( 45 ) ( 168 ) Lapses due to expiration of the statute of limitations ( 179 ) ( 150 ) ( 270 ) Balance, end of year $ 5,172 $ 5,276 $ 5,471 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 2023 a net benefit of $ 0.8 million was recorded to the provision for income taxes related to interest and penalties. 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. We have accrued $ 0.5 million and $ 1.3 million of estimated interest and penalties at November 30, 2023 and 2022, 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 2020. Our state income tax returns have been examined or are closed by statute for all years prior to fiscal year 2019, and we are no longer subject to audit for those periods. Tax authorities for certain non-U.S. jurisdictions are also examining tax returns for various years dating back to 2016 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 2018. 71 Note 17: 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, 2023 November 30, 2022 November 30, 2021 Net income $ 70,197 $ 95,069 $ 78,420 Weighted average shares outstanding 43,456 43,475 43,916 Basic earnings per common share $ 1.62 $ 2.19 $ 1.79 Diluted earnings per common share: Net income $ 70,197 $ 95,069 $ 78,420 Weighted average shares outstanding 43,456 43,475 43,916 Effect of dilution from common stock equivalents 1,158 772 704 Effect of dilution from if-converted Convertible Senior Notes 44 — — Diluted weighted average shares outstanding 44,658 44,247 44,620 Diluted earnings per share $ 1.57 $ 2.15 $ 1.76 We excluded stock awards representing approximately 297,000 shares, 1,751,000 shares, and 1,232,000 shares of common stock from the calculation of diluted earnings per share in the fiscal years ended November 30, 2023, 2022 and 2021, respectively, because these awards were anti-dilutive. As a result of our adoption of ASU 2020-06 on December 1, 2021, the dilutive impact of the Notes on our calculation of diluted 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, 2023, we included the Notes in our diluted earnings per share calculation. 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 18: 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, comprised of our property and equipment, totaled $ 8.2 million, $ 7.6 million and $ 22.1 million in the U.S. and $ 7.0 million, $ 7.3 million and $ 7.5 million outside of the U.S. at the end of fiscal years 2023, 2022, and 2021, respectively. During the fiscal year ended November 30, 2023, India accounted for more than 10% of our consolidated long-lived assets. During the fiscal year ended November 30, 2022, India and Bulgaria accounted for more than 10% of our consolidated long-lived assets. No individual country outside of the U.S. accounted for more than 10% of our consolidated long-lived assets in 2021. Note 19: Cyber Related Matters November 2022 Cyber Incident 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 incident. Costs for this incident were primarily related to the engagement of external cybersecurity experts and other incident response professionals. For 72 the fiscal year ended November 30, 2023, we incurred $ 4.7 million of costs related to this incident. Costs are provided net of insurance recoveries of $ 2.5 million. We do not expect to incur additional costs related to this incident as the investigation is closed. 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 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 fiscal year ended November 30, 2023. Litigation and Governmental Investigations As of the date of the filing of this report on Form 10-K, (i) we have received formal letters from 31 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), which has resulted in the filing of a lawsuit in the District of Massachusetts, and (iii) we are party to approximately 118 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, which the Judicial Panel on Multidistrict Litigation transferred to the District of Massachusetts for coordinated and consolidated proceedings. 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: (i) a U.S. 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), (ii) the SEC (as further described hereafter), and (iii) the Office of the Attorney General for the District of Columbia (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. On December 21, 2023, Progress received a preservation notice from the Federal Trade Commission (the "FTC"), but has not otherwise received a request for information nor is Progress aware of any formal FTC investigation. On January 18, 2024, Progress received a subpoena from the Office of the Attorney General for the District of Columbia seeking various documents and information relating to the MOVEit Vulnerability. At this stage, the investigation is a fact-finding inquiry, and the investigation does not mean that Progress or anyone else has violated applicable laws. Progress intends to cooperate fully with the Office of the Attorney General for the District of Columbia in its investigation. Expenses Incurred and Future Costs For the fiscal year ended November 30, 2023, we incurred $ 1.5 million of costs related to the MOVEit Vulnerability. The costs recognized are net of received and expected insurance recoveries of approximately $ 3.7 million. 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 insurance recoveries. While a loss from these matters is reasonably 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. 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 November 30, 2023. 73 Insurance Coverage 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 November 30, 2023, we have recorded approximately $ 6.2 million in insurance recoveries, of which $ 2.5 million was related to the November 2022 Cyber Incident and $ 3.7 million was related to the May 2023 MOVEit Vulnerability, providing us with $ 8.8 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. 74 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.