What changed in this filing

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Item 1. Financial Statements

2024-07-08 compared with 2024-04-08 · 214 added, 152 removed, 404 unchanged (48% of the section changed)

1 unchanged sentence

Condensed Consolidated Balance Sheets

(In thousands, except share data) February 29, 2024 November 30, 2023

(in thousands, except share data) May 31, 2024 November 30, 2023

Current assets:

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Current liabilities:

Current portion of long-term debt, net $ — $ 13,109

Accounts payable $ 8,583 $ 12,371

Short-term deferred revenue, net 226,579 236,090

Current portion of long-term debt, net — 13,109

Accrued compensation and related taxes 34,817 49,559

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Other accrued liabilities 19,444 22,499

Short-term deferred revenue, net 232,566 236,090

Total current liabilities 307,221 352,118

Long-term debt, net 335,943 356,111

Long-term deferred revenue, net 64,995 58,946

Convertible senior notes, net 794,277 354,772

Long-term debt, net — 356,111

Long-term operating lease liabilities 9,970 13,000

Long-term deferred revenue, net 63,567 58,946

Deferred tax liabilities 3,710 3,574

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Condensed Consolidated Statements of Operations

Three Months Ended

(In thousands, except per share data) February 29, 2024 February 28, 2023

Three Months Ended Six Months Ended

(in thousands, except per share data) May 31, 2024 May 31, 2023 May 31, 2024 May 31, 2023

Software licenses $ 53,979 $ 56,407 $ 118,079 $ 113,975

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Condensed Consolidated Statements of Comprehensive Income

Three Months Ended

(In thousands) February 29, 2024 February 28, 2023

Three Months Ended Six Months Ended

(in thousands) May 31, 2024 May 31, 2023 May 31, 2024 May 31, 2023

Net income $ 16,188 $ 12,090 $ 38,827 $ 35,764

1 unchanged sentence

Foreign currency translation adjustments 105 1,720 ( 1,441 ) 3,457

Unrealized loss on hedging activity, net of tax benefit of $ 218 and $ 45 for the first quarter of 2024 and 2023, respectively

Unrealized loss on hedging activity, net of tax benefit of $ 142 and $ 360 for the three and six months ended May 31, 2024, respectively, and $ 250 and $ 295 for the three and six months ended May 31, 2023, respectively

( 445 ) ( 812 ) ( 1,135 ) ( 939 )

Unrealized loss on investments, net of tax provision of $ 4 for the first quarter of 2023

Unrealized loss on investments, net of tax benefit of $ 4 and $ 0 for the three and six months ended May 31, 2023, respectively

Total other comprehensive (loss) income, net of tax ( 340 ) 929 ( 2,576 ) 2,518

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Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended February 29, 2024

Six Months Ended May 31, 2024

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

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Stock-based compensation — — 24,453 — — 24,453

Purchase of capped calls, net of tax — — ( 32,080 ) — — ( 32,080 )

Dividends declared — — — ( 16,097 ) — ( 16,097 )

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Other comprehensive loss — — — — ( 2,576 ) ( 2,576 )

Balance, February 29, 2024 43,689 $ 437 $ 372,273 $ 123,429 $ ( 34,396 ) $ 461,743

Three Months Ended February 28, 2023

Balance, May 31, 2024 43,063 $ 431 $ 330,382 $ 105,590 $ ( 34,736 ) $ 401,667

Three Months Ended May 31, 2024

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

(in thousands) Number of Shares Amount

Balance, March 1, 2024 43,689 $ 437 $ 372,273 $ 123,429 $ ( 34,396 ) $ 461,743

Issuance of stock under employee stock purchase plan 116 1 4,388 — — 4,389

Exercise of stock options 54 — 2,296 — — 2,296

Vesting of restricted stock units and release of deferred stock units 254 3 ( 3 ) — — —

Withholding tax payments related to net issuance of RSUs ( 89 ) — ( 4,702 ) — — ( 4,702 )

Stock-based compensation — — 11,989 — — 11,989

Purchase of capped calls, net of tax — — ( 32,080 ) — — ( 32,080 )

Dividends declared — — — ( 7,867 ) — ( 7,867 )

Treasury stock repurchases and retirements ( 961 ) ( 10 ) ( 23,779 ) ( 26,160 ) — ( 49,949 )

Net income — — — 16,188 — 16,188

Other comprehensive loss — — — — ( 340 ) ( 340 )

Balance, May 31, 2024 43,063 $ 431 $ 330,382 $ 105,590 $ ( 34,736 ) $ 401,667

Six Months Ended May 31, 2023

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

(in thousands) Number of Shares Amount

Balance, December 1, 2022 43,257 $ 433 $ 331,650 $ 101,656 $ ( 35,235 ) $ 398,504

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Other comprehensive income — — — — 2,518 2,518

Balance, February 28, 2023 43,307 $ 433 $ 338,370 $ 108,286 $ ( 33,646 ) $ 413,443

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

Three Months Ended May 31, 2023

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

(in thousands) Number of Shares Amount

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

Issuance of stock under employee stock purchase plan 95 1 3,482 — — 3,483

Exercise of stock options 119 2 4,764 — — 4,766

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

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

Stock-based compensation — — 10,287 — — 10,287

Dividends declared — — — ( 7,899 ) — ( 7,899 )

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

Net income — — — 12,090 — 12,090

Other comprehensive income — — — — 929 929

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

Condensed Consolidated Statements of Cash Flows

Three Months Ended

(In thousands) February 29, 2024 February 28, 2023

Six Months Ended

(in thousands) May 31, 2024 May 31, 2023

Cash flows from operating activities:

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Repurchases of common stock ( 72,449 ) ( 30,000 )

Proceeds from issuance of senior convertible notes, net of issuance costs of $ 11,200

Purchase of capped calls ( 42,210 ) —

Dividend payments to stockholders ( 16,122 ) ( 15,871 )

2 unchanged sentences

Principal payment on term loan ( 261,250 ) ( 3,437 )

Payment of credit facility debt issuance costs ( 6,821 ) —

Net cash flows (used in) from financing activities ( 67,798 ) 128,956

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Condensed Consolidated Statements of Cash Flows, continued

Three Months Ended

February 29, 2024 February 28, 2023

Six Months Ended

(in thousands) May 31, 2024 May 31, 2023

Supplemental disclosure:

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Non-cash investing and financing activities:

Total fair value of restricted stock awards, restricted stock units and deferred stock units on date vested $ 28,987 $ 23,077

Dividends declared and unpaid $ 8,351 $ 8,192

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Basis of Presentation

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

Our products are generally sold as perpetual licenses, but certain products also use term licensing models and our cloud-based offerings use a subscription-based model.

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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.

Basis of Presentation and Significant Accounting Policies - We prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting.

Basis of Presentation and Significant Accounting Policies - We prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission ("SEC") regarding interim financial reporting.

Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements and these unaudited financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2023, as filed with the SEC on January 26, 2024 (our "2023 Annual Report").

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These estimates are based on historical data and experience, as well as various other assumptions that management believes to be reasonable under the circumstances.

The most significant estimates relate to revenue recognition and business combinations.

The most significant estimates relate to revenue recognition, loss contingencies and the MOVEit Vulnerability, and business combinations.

Actual results could differ from those estimates.

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Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (the "FASB") issued ASU 2023-07, Segment Reporting (Topic 280) .

The amendments in this update expand segment disclosure requirements, including new segment disclosure requirements for entities with a single reportable segment among other disclosure requirements.

This update is effective for the Company in the consolidated financial statements for the year ending November 30, 2025, and interim periods beginning after December 1, 2025.

The adoption of this standard only impacts disclosures and is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued Accounting Standards Update No.

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The adoption of this standard only impacts disclosures and is not expected to have a material impact on the Company's consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) .

The amendments in this update expand segment disclosure requirements, including new segment disclosure requirements for entities with a single reportable segment among other disclosure requirements.

This update is effective for the Company in the consolidated financial statements for the year ending November 30, 2025, and interim periods beginning after December 1, 2025.

The adoption of this standard only impacts disclosures and is not expected to have a material impact on the Company’s consolidated financial statements .

In March 2024, the SEC adopted the final rule under SEC Release No.

33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors.

This rule will require registrants to disclose certain climate-related information in registration statements and annual reports.

The disclosure requirements will apply to the Company's fiscal year beginning December 1, 2025.

The Company is currently evaluating the final rule to determine its impact on the Company's disclosures.

Cash and Cash Equivalents

A summary of our cash and cash equivalents at February 29, 2024 is as follows (in thousands):

Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value

A summary of our cash and cash equivalents at May 31, 2024 is as follows:

(in thousands) Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value

Cash $ 119,254 $ — $ — $ 119,254

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Total $ 190,420 $ — $ — $ 190,420

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

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

There were no debt securities by contractual maturity due after one year as of February 29, 2024.

There were no debt securities by contractual maturity due after one year as of May 31, 2024.

Derivative Instruments

Cash Flow Hedge

On July 9, 2019, we entered into an interest rate swap contract with an initial notional amount of $ 150.0 million to manage the variability of cash flows associated with approximately one-half of our variable rate debt.

The contract matures on April 30, 2024 and requires periodic interest rate settlements.

Under 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 assess 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 condensed 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 February 29, 2024, the fair value of the hedge was a gain of $ 0.6 million, which was included in other current assets on our condensed consolidated balance sheets.

The net amount of accumulated other comprehensive loss reclassified to interest expense during the three months ended February 29, 2024 and February 28, 2023 was a decrease of $ 0.9 million and $ 0.7 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):

February 29, 2024 November 30, 2023

Our interest rate swap contract with an initial notional amount of $ 150.0 million matured on April 30, 2024.

We entered into the contract to manage the variability of cash flows associated with approximately one-half of our variable rate debt.

The contract required periodic interest rate settlements, and we received a floating rate based on the greater of 1-month SOFR or 0.00 % and paid a fixed rate of 1.855 % on the outstanding notional amount.

The interest rate swap was designated as a cash flow hedge and the effectiveness of the hedge was assessed both at the onset of the hedge and at regular intervals throughout the life of the derivative.

As the interest rate swap was highly effective in offsetting the variability of the hedged cash flows, changes in the fair value of the derivative were included as a component of other comprehensive loss on our condensed consolidated balance sheets through the first quarter of fiscal year 2024.

On March 1, 2024, we repaid our variable rate debt in full and reclassified an unrealized gain of $ 0.6 million from accumulated other comprehensive loss to interest expense in our condensed consolidated statements of operations.

The net amount of accumulated other comprehensive loss reclassified to interest expense during the six months ended May 31, 2024 and May 31, 2023 was a decrease of $ 1.5 million and $ 1.6 million, respectively.

The following table presents our interest rate swap contract where the notional amount was equal to approximately one-half of the corresponding reduction in the balance of our term loan.

The fair value of the derivative represented 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:

May 31, 2024 November 30, 2023

(in thousands)

Notional Value Fair Value Notional Value Fair Value

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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 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 in other current assets, other assets, other accrued liabilities, or other noncurrent liabilities on the condensed consolidated balance sheets at the end of each reporting period and generally expire between 30 days and 2 years from the date the contract was entered.

At February 29, 2024 $ 2.8 million was recorded in other accrued liabilities on our condensed consolidated balance sheets.

All forward contracts are recorded at fair value in other current assets, other assets, other accrued liabilities, or other noncurrent liabilities on the condensed consolidated balance sheets at the end of each reporting period and generally expire between thirty days and 3 years from the date the contract was entered.

At May 31, 2024, $ 0.2 million and $ 0.3 million was recorded in other accrued liabilities and other noncurrent liabilities, respectively, on our condensed consolidated balance sheets.

At November 30, 2023, $ 2.5 million was recorded in other accrued liabilities on our condensed consolidated balance sheets.

In the three months ended February 29, 2024, realized and unrealized losses of $ 0.6 million from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations.

In the three months ended February 28, 2023, realized and unrealized gains of $ 0.5 million from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations.

In the three and six months ended May 31, 2024, realized and unrealized losses of $ 0.1 million and $ 0.7 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations.

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

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

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

February 29, 2024 November 30, 2023

Notional Value Fair Value Notional Value Fair Value

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

May 31, 2024 November 30, 2023

(in thousands) Notional Value Fair Value Notional Value Fair Value

Forward contracts to sell U.S.

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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 February 29, 2024 (in thousands):

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at May 31, 2024:

Fair Value Measurements Using

Total Fair Value Level 1 Level 2 Level 3

(in thousands) Total Fair Value Level 1 Level 2 Level 3

Money market funds $ 71,166 $ 71,166 $ — $ —

Interest rate swap 587 — 587 —

Foreign exchange derivatives $ ( 476 ) $ — $ ( 476 ) $ —

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):

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2023:

Fair Value Measurements Using

Total Fair Value Level 1 Level 2 Level 3

(in thousands) Total Fair Value Level 1 Level 2 Level 3

Interest rate swap $ 1,495 $ — $ 1,495 $ —

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Fair Value of the Convertible Senior Notes

The fair value of our Convertible Senior Notes, with a carrying value of $ 355.3 million and $ 354.8 million, was $ 378.0 million and $ 377.1 million as of February 29, 2024 and November 30, 2023, 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 2 in the fair value hierarchy.

The following table details the fair value and carrying value of our Convertible Senior Notes due 2026 and 2030 (together referred to as “the Notes”):

May 31, 2024 November 30, 2023

(in thousands) Carrying Value Fair Value Carrying Value Fair Value

Convertible senior notes due 2026 (1)

$ 355,861 $ 361,113 $ 354,772 $ 377,125

Convertible senior notes due 2030 (2)

438,416 438,128 — —

Total $ 794,277 $ 799,241 $ 354,772 $ 377,125

(1) The carrying value of the convertible senior notes due 2026 (the "2026 Notes"), are reflected net of $ 4.1 million and $ 5.2 million of unamortized debt issuance costs as of May 31, 2024 and November 30, 2023, respectively.

(2) The carrying value of the convertible senior notes due 2030 (the "2030 Notes"), are reflected net of $ 11.6 million of unamortized debt issuance costs as of May 31, 2024.

The fair value of the Notes is based on quoted prices in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 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.

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

Intangible Assets and Goodwill

Intangible Assets

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

February 29, 2024 November 30, 2023

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

Intangible assets are comprised of the following significant classes:

May 31, 2024 November 30, 2023

(in thousands) Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value

Purchased technology $ 280,000 $ ( 196,302 ) $ 83,698 $ 280,000 $ ( 181,045 ) $ 98,955

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Total $ 788,719 $ ( 484,075 ) $ 304,644 $ 788,719 $ ( 434,441 ) $ 354,278

In the first quarter of fiscal years 2024 and 2023, amortization expense related to intangible assets was $ 25.2 million and $ 19.9 million, respectively.

Future amortization expense for intangible assets as of February 29, 2024, is as follows (in thousands):

In the three and six months ended May 31, 2024, amortization expense related to intangible assets was $ 23.7 million and $ 49.0 million, respectively.

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

Future amortization expense for intangible assets as of May 31, 2024, is as follows:

(in thousands)

Remainder of 2024 $ 40,113

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Total $ 304,644

Changes in the carrying amount of goodwill in the three months ended February 29, 2024 are as follows (in thousands):

Changes in the carrying amount of goodwill in the six months ended May 31, 2024 are as follows:

(in thousands)

Balance, December 1, 2023 $ 832,101

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Translation adjustments ( 18 )

Balance, February 29, 2024

(1) The additions to goodwill during fiscal year 2024 are related to the acquisition of MarkLogic in February 2023.

Balance, May 31, 2024

(1) The additions to goodwill during fiscal year 2024 represent measurement period adjustments related to the acquisition of MarkLogic Corporation ("MarkLogic") in February 2023.

Business Combinations for additional information.

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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.

On February 7, 2023, we completed the acquisition of the parent company of MarkLogic, pursuant to the Stock 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.

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The excess of total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill.

During the quarter ended February 29, 2024, the measurement period adjustments were completed, which resulted in a $ 0.7 million increase in goodwill.

During the first fiscal quarter of 2024, the measurement period adjustments were completed, which resulted in a $ 0.7 million increase in goodwill.

The purchase price allocation is now complete.

The allocation of the purchase price is as follows (in thousands):

Purchase Price Allocation Life

The allocation of the purchase price is as follows:

(in thousands) Purchase Price Allocation Life

Net working capital $ 46,335

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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.

The amount of revenue of MarkLogic included in our condensed consolidated statement of operations during the three months ended February 29, 2024 was approximately $ 31.7 million.

The amount of revenue of MarkLogic included in our condensed consolidated statement of operations during the three months ended February 28, 2023 was not material.

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

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The pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on December 1, 2021.

(in thousands, except per share data) Pro Forma Three Months Ended February 28, 2023

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

Revenue $ 381,327

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Net income per diluted share $ 1.01

In March of 2024, the Company refinanced its debt by issuing 2030 Convertible Senior Notes (described below) and used the proceeds to pay off the outstanding balance of the term loan and revolving line of credit under our previous credit agreement.

We also entered into an amended and restated credit facility.

Accordingly, we classified the balance of the term loan on the balance sheet as long-term as of February 29, 2024.

In March of 2024, the Company refinanced its debt by issuing the 2030 Notes and used the proceeds to pay off the outstanding balance of the term loan and revolving line of credit under our previous credit agreement.

We also entered into an amended and restated credit facility as described below.

Notes Payable

2030 Convertible Senior Notes

On March 1, 2024, the Company issued, in a private placement, Convertible Senior Notes with an aggregate principal amount of $ 450 million, due March 1, 2030 (the “2030 Convertible Notes”), unless earlier repurchased, redeemed or converted.

The proceeds from the 2030 Convertible Notes were used in part to enter into the 2024 Capped Call Transactions (described below), working capital, and other general corporate purposes, including paying off the existing term loan and revolving line of credit.

There are no required principal payments prior to the maturity of the 2030 Convertible Notes.

The 2030 Convertible Notes bear interest at an annual rate of 3.5 %, payable semi-annually in arrears on September 1 and March 1 of each year, beginning on September 1, 2024.

The Company incurred approximately $ 12.2 million in issuance costs for the issuance of the 2030 Convertible Notes.

On March 1, 2024, the Company issued, in a private placement, convertible senior notes with an aggregate principal amount of $ 450 million, due March 1, 2030, unless earlier repurchased, redeemed or converted.

The proceeds from the 2030 Notes were used in part to enter into the 2024 Capped Call Transactions, described below, for working capital, and for other general corporate purposes, including paying off the existing term loan and revolving line of credit.

There are no required principal payments prior to the maturity of the 2030 Notes.

The 2030 Notes bear interest at an annual rate of 3.5 %, payable semi-annually in arrears on September 1 and March 1 of each year, beginning on September 1, 2024.

The Company incurred approximately $ 12.0 million in issuance costs for the issuance of the 2030 Notes.

Conversion Rights

Before November 1, 2029, Noteholders may convert their 2030 Convertible Notes in the following circumstances:

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;

Before November 1, 2029, Noteholders may convert their 2030 Notes in the following circumstances:

• During any fiscal quarter commencing after the fiscal quarter ending on May 31, 2024, 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;

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• Upon the occurrence of certain corporate events or if the Company calls such Notes for redemption, then the Noteholder of any Note may convert such Note.

From and after November 1, 2029, Noteholders may convert their 2030 Convertible 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 2030 Convertible 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 14.7622 shares of common stock per $1,000 principal amount of the 2030 Convertible Notes, representing an initial conversion price of approximately $ 67.74 per share of common stock.

From and after November 1, 2029, Noteholders may convert their 2030 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 2030 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 14.7622 shares of common stock per $1,000 principal amount of the 2030 Notes, representing an initial conversion price of approximately $ 67.74 per share of common stock.

The conversion rate will be adjusted upon the occurrence of certain events, including spin-offs, tender offers, exchange offers, make-whole fundamental change and certain stockholder distributions.

Repurchase Rights

On or after March 5, 2027, and on or before the 60th scheduled trading day immediately before the maturity date, the Company may redeem for cash all or part of the 2030 Convertible Notes, subject to partial redemption limitation, at a repurchase price equal to 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 2030 Convertible Notes unless at least $ 100.0 million aggregate principal amount of 2030 Convertible Notes are outstanding and not subject to redemption as of the time it sends the related redemption notice.

If certain corporate events that constitute a “fundamental change” (as described below) occur at any time, holders may, subject to certain exceptions, require the Company to purchase their 2030 Convertible Notes in whole or in part for cash at a price equal to the principal amount of the 2030 Convertible Notes to be repurchased, plus accrued and unpaid interest, to, but excluding, the fundamental change repurchase date.

A fundamental change relates to events such as business combination transactions involving the Company, shareholder approval of liquidation or dissolution of the Company, and certain de-listing events with respect to the Company’s common stock.

On or after March 5, 2027, and on or before the 60th scheduled trading day immediately before the maturity date, the Company may redeem for cash all or part of the 2030 Notes, subject to partial redemption limitation, at a repurchase price equal to 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 2030 Notes unless at least $ 100.0 million aggregate principal amount of 2030 Notes are outstanding and not subject to redemption as of the time it sends the related redemption notice.

If certain corporate events that constitute a fundamental change (e.g., events such as business combination transactions involving the Company, shareholder approval of liquidation or dissolution of the Company, and certain de-listing events with respect to the Company’s common stock) occur at any time, holders may, subject to certain exceptions, require the Company to purchase their 2030 Notes in whole or in part for cash at a price equal to the principal amount of the 2030 Notes to be repurchased, plus accrued and unpaid interest, to, but excluding, the fundamental change repurchase date.

2024 Capped Call Transactions

On February 27, 2024, in connection with the pricing of the 2030 Convertible Notes, the Company entered into privately negotiated capped call transactions (“2024 Capped Call Transactions”).

The 2024 Capped Call Transactions cover approximately 6.6 million shares (representing the number of shares of common stock initially underlying the Notes) of the Company’s common stock.

The 2024 Capped Call Transactions are generally expected to reduce potential dilution to our common stock upon any conversion of 2030 Convertible 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.

On February 27, 2024, in connection with the pricing of the 2030 Notes, the Company entered into privately negotiated capped call transactions (“2024 Capped Call Transactions”).

The 2024 Capped Call Transactions cover approximately 6.6 million shares of the Company’s common stock, which represent the number of shares of common stock initially underlying the 2030 Notes.

The 2024 Capped Call Transactions are generally expected to reduce potential dilution to our common stock upon any conversion of the 2030 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 2024 Capped Call Transactions will initially be $ 92.98 per share of common stock, which represents a premium of 75 % over the last reported sale price of the common stock of $ 53.13 per share on February 27, 2024, and is subject to certain adjustments under the terms of the 2024 Capped Call Transactions.

The cost of the purchased capped calls of $ 42.2 million was recorded as a reduction to additional paid-in-capital upon settlement in March 2024.

Accounting for the 2030 Notes

The 2030 Notes are classified as a non-current liability on our condensed consolidated balance sheets and the conversion option does not require bifurcation as an embedded derivative.

Issuance costs of $ 12.0 million were recorded as a reduction to the principal balance of the 2030 Notes and will be amortized as interest expense using the effective interest method over the contractual term.

Three Months Ended

(in thousands) May 31, 2024

Contractual interest expense ( 3.5 % coupon)

Amortization of debt discount and issuance costs (1)

(1) Amortization based upon an effective interest rate of 4.0 %.

Credit Facility

On March 7, 2024, the Company entered into an amended and restated credit agreement (the "Credit Agreement") with certain lenders, which provides a $ 900.0 million secured revolving credit facility.

On March 7, 2024, the Company entered into an amended and restated credit agreement (the "Credit Agreement") with certain lenders, which provides a $ 900.0 million secured revolving credit facility ("revolving credit facility").

The revolving credit facility may be made available in U.S.

Dollars and certain other currencies and may be increased, and new term loan commitments may be entered into, by up to an additional $ 260.0 million if the existing or additional lenders are willing to make such increased commitments.

revolving credit facility 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.

The revolving credit facility 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.

We expect to use the revolving credit facility for general corporate purposes.

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Accrued interest on the loans is payable quarterly in arrears.

Costs incurred to obtain our long-term debt of $ 6.0 million, along with $ 0.9 million of unamortized debt issuance costs related to the previous credit agreement, will be recorded as debt issuance costs and amortized over the term of the debt agreement using the effective interest method.

Further, unamortized debt issuance costs related to the repaid term loan will be expensed in accordance with the accounting for a debt extinguishment.

As of May 31, 2024, the revolving credit facility was undrawn.

Costs incurred to obtain our long-term debt of $ 6.0 million, along with $ 1.0 million of unamortized debt issuance costs related to the previous credit agreement, were recorded as debt issuance costs and will be amortized over the term of the debt agreement using the effective interest method.

Unamortized debt issuance costs related to the repaid term loan were expensed.

We are the sole borrower under the credit facility and 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 each of our material domestic subsidiaries.

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

In the three months ended February 29, 2024 and February 28, 2023, we repurchased and retired 0.4 million shares for $ 22.5 million and 0.3 million shares for $ 15.0 million, respectively.

As of February 29, 2024, there was $ 171.5 million remaining under the current authorization.

On March 1, 2024, the Company repurchased and retired 0.4 million shares for $ 25.0 million.

In the three months ended May 31, 2024 and May 31, 2023, we repurchased and retired 1.0 million shares for $ 49.9 million and 0.3 million shares for $ 15.0 million, respectively.

In the six months ended May 31, 2024 and May 31, 2023, we repurchased and retired 1.4 million shares for $ 72.4 million and 0.5 million shares for $ 30.0 million, respectively.

As of May 31, 2024, there was $ 121.5 million remaining under the current authorization.

Stock-Based Compensation

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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 options and restricted stock units on a straight-line basis over the service period of the award, which is generally four or five years for options and three or four 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.

In 2022, 2023, and 2024, we granted performance-based restricted stock units that include two performance metrics under our Long-Term Incentive Plan ("LTIP") where the performance measurement period is three years .

Vesting of the LTIP awards on the 2022, 2023 and 2024 plans are based on the following:

Vesting of the LTIP awards in the 2022, 2023, and 2024 plans are 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.

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

Three Months Ended

February 29, 2024 February 28, 2023

In order to estimate the fair value of such awards, we use a Monte Carlo Simulation valuation model for the market condition portion of the award, which uses the closing price of our common stock on the date of grant, less the present value of expected dividends when applicable, for the portion related to the performance condition.

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

Three Months Ended Six Months Ended

(in thousands) May 31, 2024 May 31, 2023 May 31, 2024 May 31, 2023

Cost of maintenance and services $ 912 $ 729 $ 1,898 $ 1,349

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Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated balances of other comprehensive loss during the three months ended February 29, 2024 (in thousands):

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

The following table summarizes the changes in accumulated balances of other comprehensive loss during the six months ended May 31, 2024:

(in thousands) Foreign Currency Translation Adjustment Unrealized Gains (Losses) on Hedging Activity Accumulated Other Comprehensive Loss

Balance, December 1, 2023 $ ( 33,295 ) $ 1,135 $ ( 32,160 )

Other comprehensive loss before reclassifications, net of tax ( 1,441 ) ( 689 ) ( 2,130 )

Balance, February 29, 2024 $ ( 34,780 ) $ ( 61 ) $ 445 $ ( 34,396 )

The tax effect on accumulated unrealized gains (losses) on hedging activity and unrealized losses on investments was a tax provision of $ 0.2 million and $ 0.4 million as of February 29, 2024 and November 30, 2023, respectively.

Amount of gain reclassified from accumulated other comprehensive loss into net income, net of tax — ( 446 ) ( 446 )

Balance, May 31, 2024 $ ( 34,736 ) $ — $ ( 34,736 )

The tax effect on accumulated unrealized gains (losses) on our hedging activity and unrealized losses on investments was a tax provision of $ 0.1 million and $ 0.4 million as of May 31, 2024 and November 30, 2023, respectively.

Revenue Recognition

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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 (in thousands):

Three Months Ended

(In thousands) February 29, 2024 February 28, 2023

Information relating to revenue from external customers by revenue type is as follows:

Three Months Ended Six Months Ended

(in thousands) May 31, 2024 May 31, 2023 May 31, 2024 May 31, 2023

Performance obligations transferred at a point in time:

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to distributors in these regions.

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

Three Months Ended

(In thousands) February 29, 2024 February 28, 2023

Information relating to revenue from external customers from different geographical areas is as follows:

Three Months Ended Six Months Ended

(in thousands) May 31, 2024 May 31, 2023 May 31, 2024 May 31, 2023

North America $ 102,902 $ 105,732 $ 210,184 $ 204,560

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

has accounted for more than 10% of our total revenue for the three months ended February 29, 2024 and February 28, 2023.

accounted for more than 10% of our total revenue for the three and six months ended May 31, 2024 or May 31, 2023.

Contract Balances

Unbilled Receivables and Contract Assets

As of February 29, 2024, billing of our long-term unbilled receivables is expected to occur as follows (in thousands):

As of May 31, 2024, billing of our long-term unbilled receivables is expected to occur as follows:

(in thousands)

2025 $ 14,251

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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 February 29, 2024 or November 30, 2023.

We did not have any net contract assets as of May 31, 2024 or November 30, 2023.

Deferred Revenue

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

As of February 29, 2024, the changes in net deferred revenue were as follows (in thousands):

The changes in net deferred revenue for the six months ended May 31, 2024 were as follows:

(in thousands)

Balance, December 1, 2023 $ 295,036

Billings and other 356,300

Revenue recognized ( 184,685 )

Balance, February 29, 2024 $ 296,133

As of February 29, 2024, transaction price allocated to remaining performance obligations was $ 348 million.

Revenue recognized that was deferred in prior periods ( 180,966 )

Revenue recognized from current period arrangements ( 178,796 )

Balance, May 31, 2024 $ 291,574

As of May 31, 2024, transaction price allocated to remaining performance obligations was $ 344 million.

We expect to recognize approximately 75 % of the revenue within the next year and the remainder thereafter.

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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 $ 7.0 million and $ 7.6 million as of February 29, 2024 and November 30, 2023, respectively, and are included in other current assets and other assets on our condensed consolidated balance sheets.

Total deferred contract costs were $ 6.6 million and $ 7.6 million as of May 31, 2024 and November 30, 2023, respectively, and are included in other current assets and other assets on our condensed consolidated balance sheets.

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

Restructuring Charges

The following table provides a summary of activity for our restructuring actions (in thousands):

Excess Facilities and Other Costs Employee Severance and Related Benefits Total

The following table provides a summary of activity for our restructuring actions:

(in thousands) Excess Facilities and Other Costs Employee Severance and Related Benefits Total

Balance, December 1, 2023 $ 3,297 $ 1,890 $ 5,187

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Translation and other adjustments 2 ( 5 ) ( 3 )

Balance, February 29, 2024 $ 4,855 $ 668 $ 5,523

In the three months ended February 29, 2024, costs incurred primarily related to a facility closure in connection with the restructuring action from the first fiscal quarter of 2023.

Balance, May 31, 2024 $ 4,504 $ 324 $ 4,828

Costs incurred during the three and six months ended May 31, 2024 are primarily related to a facility closure in connection with the restructuring action from the first fiscal quarter of 2023.

We do not expect to incur additional material expenses as part of this action.

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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 on an interim basis (in thousands, except per share data):

Three Months Ended

February 29, 2024 February 28, 2023

The following table sets forth the calculation of basic and diluted earnings per share on an interim basis:

Three Months Ended Six Months Ended

(in thousands, except per share data) May 31, 2024 May 31, 2023 May 31, 2024 May 31, 2023

Net income $ 16,188 $ 12,090 $ 38,827 $ 35,764

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Diluted earnings per share $ 0.37 $ 0.27 $ 0.87 $ 0.81

We excluded stock awards representing approximately 714,000 and 340,000 shares of common stock from the calculation of diluted earnings per share in the three months ended February 29, 2024 and February 28, 2023, respectively, as these awards were anti-dilutive.

We excluded stock awards representing approximately 1,273,000 and 993,000 shares of common stock from the calculation of diluted earnings per share in the three and six months ended May 31, 2024, respectively, as these awards were anti-dilutive.

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

The dilutive impact of the Notes on our calculation of diluted earnings per share is considered using the if-converted method.

However, because the principal amount of the Notes must be settled in cash, the dilutive impact of applying the if-converted method is limited to the in-the-money portion, if any, of the Notes.

During the three months ended February 29, 2024, 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.

During the three and six months ended May 31, 2024, 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.

Segment Information

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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.

We do not expect to incur additional costs related to this incident as the investigation is closed.

We incurred expenses of $ 2.7 million related this incident during the three months ended February 28, 2023.

We did not incur costs related to this incident during fiscal year 2024 and do not expect to incur additional costs as the investigation is closed.

We incurred net expenses of $ 1.5 million and $ 4.2 million related to this incident during the three and six months ended May 31, 2023.

MOVEit Vulnerability

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

A "zero-day vulnerability" is a vulnerability that has been publicly disclosed (e.g., by an independent researcher or threat actor) before the software vendor has an opportunity to patch it.

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 three months ended February 29, 2024.

A "zero-day vulnerability" is a vulnerability that has been publicly disclosed and/or exploited (e.g., by an independent researcher or threat actor) before the software vendor has an opportunity to patch it.

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

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

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

We 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 six months ended May 31, 2024.

Litigation and Governmental Investigations

As of the date of the issuance of the financial statements, (i) we have received formal letters from 35 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 127 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;

(i) several inquiries from domestic and foreign data privacy regulators (as further described hereafter);

(ii) several inquiries and two formal investigations from state attorneys general (as further described hereafter);

As of the date of the issuance of the financial statements, (i) we have received formal letters from 38 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 resulted in the filing of a lawsuit in the District of Massachusetts that has since been joined with the MDL (defined below), and (iii) we are party to approximately 144 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 (the "MDL").

We have also been cooperating with the following inquires and investigations (some of which are further described hereafter):

(i) several inquiries from domestic and foreign data privacy regulators;

(ii) several inquiries and two formal investigations from state attorneys general;

(iii) a formal investigation from 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);

and (iv) a formal investigation from the SEC (as further described hereafter).

and (iv) a formal investigation from the SEC.

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

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Progress is cooperating fully with the SEC in its investigation.

On November 3, 2023, the United Kingdom’s Information Commissioner’s Office informed Progress that based upon the information provided, the Commissioner’s Office determined that regulatory action against Progress was not required in relation to the MOVEit Vulnerability.

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.

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Progress is cooperating fully with the Office of the Attorney General for the State of New Jersey in its investigation.

Additionally, on March 14, 2024, the Office of the Australian Information Commissioner’s Office informed Progress that it has closed its file investigating the MOVEit Vulnerability.

On March 14, 2024, the Office of the Australian Information Commissioner’s Office informed Progress that based upon the information provided, the Commissioner’s Office determined that regulatory action against Progress was not required in relation to the MOVEit Vulnerability.

On May 29, 2024, the Agencia Española de Protección de Datos (the Spanish data protection authority also known as the AEPD) informed Progress that based upon the information provided, the AEPD determined that regulatory action against Progress was not required in relation to the MOVEit Vulnerability.

Expenses Incurred and Future Costs

For the three months ended February 29, 2024, we incurred $ 1.0 million of costs related to the MOVEit Vulnerability.

The costs recognized are net of received and expected insurance recoveries of approximately $ 0.8 million.

For the three and six months ended May 31, 2024, we incurred costs of $ 3.0 million and $ 4.0 million, respectively, related to the MOVEit Vulnerability.

The costs recognized are net of insurance recoveries of $ 1.9 million.

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

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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 February 29, 2024.

Therefore, we have not recorded a loss contingency liability for the MOVEit Vulnerability as of May 31, 2024.

In addition, we may accelerate or make additional investments in our information technology systems, infrastructure, software products or networks following the MOVEit Vulnerability, however, we currently do not expect such amounts to be material to any fiscal period.

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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 February 29, 2024, we have recorded approximately $ 7.0 million in insurance recoveries, of which $ 2.5 million was related to the November 2022 cyber incident and $ 4.5 million was related to the May 2023 MOVEit Vulnerability, providing us with $ 8.0 million of additional cybersecurity insurance coverage (which is subject to a $ 0.5 million retention per claim).

As of May 31, 2024, we have recorded approximately $ 7.0 million in insurance recoveries, of which $ 2.5 million was related to the November 2022 cyber incident and $ 4.5 million was related to the May 2023 MOVEit Vulnerability, providing us with approximately $ 8.0 million of additional cybersecurity insurance coverage under the applicable policy (which is subject to a $ 0.5 million retention per claim).

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

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

What changed 10-Q

Item 1. Financial Statements