PROGRESS SOFTWARE CORP /MA 10-Q

Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets (in thousands, except share data) August 31, 2024 November 30, 2023 Assets Current assets: Cash and cash equivalents $ 232,713 $ 126,958 Accounts receivable (less allowances of $ 791 and $ 851 , respectively) 87,680 125,825 Unbilled receivables 35,163 29,965 Other current assets 33,001 48,040 Total current assets 388,557 330,788 Long-term unbilled receivables 34,636 28,373 Property and equipment, net 12,574 15,225 Intangible assets, net 284,706 354,278 Goodwill 832,748 832,101 Right-of-use lease assets 12,853 18,711 Deferred tax assets 41,078 15,052 Other assets 12,732 8,255 Total assets $ 1,619,884 $ 1,602,783 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 10,781 $ 12,371 Short-term deferred revenue, net 218,036 236,090 Current portion of long-term debt, net — 13,109 Accrued compensation and related taxes 43,919 49,559 Dividends payable to stockholders 8,423 8,376 Short-term operating lease liabilities 8,873 10,114 Other accrued liabilities 24,876 22,499 Total current liabilities 314,908 352,118 Long-term deferred revenue, net 67,348 58,946 Convertible senior notes, net 795,282 354,772 Long-term debt, net — 356,111 Long-term operating lease liabilities 8,597 13,000 Deferred tax liabilities 3,765 3,574 Other noncurrent liabilities 4,372 4,547 Commitments and contingencies 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, 42,899,041 shares in 2024 and 43,795,955 shares in 2023 429 438 Additional paid-in capital 338,594 370,579 Retained earnings 119,241 120,858 Accumulated other comprehensive loss ( 32,652 ) ( 32,160 ) Total stockholders’ equity 425,612 459,715 Total liabilities and stockholders’ equity $ 1,619,884 $ 1,602,783 See notes to unaudited condensed consolidated financial statements. 3 Condensed Consolidated Statements of Operations Three Months Ended Nine Months Ended (in thousands, except per share data) August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 Revenue: Software licenses $ 57,850 $ 50,544 $ 175,929 $ 164,519 Maintenance and services 120,836 124,448 362,519 352,950 Total revenue 178,686 174,992 538,448 517,469 Costs of revenue: Cost of software licenses 2,700 2,732 7,928 7,998 Cost of maintenance and services 20,057 22,192 64,452 62,663 Amortization of acquired intangibles 6,307 7,995 21,564 22,253 Total costs of revenue 29,064 32,919 93,944 92,914 Gross profit 149,622 142,073 444,504 424,555 Operating expenses: Sales and marketing 37,141 38,612 114,141 112,513 Product development 34,720 33,138 105,143 98,396 General and administrative 20,503 20,791 63,830 61,046 Amortization of acquired intangibles 13,810 17,668 47,515 48,825 Cyber incident and vulnerability response expenses, net 927 951 4,950 5,126 Restructuring expenses 308 843 3,308 6,230 Acquisition-related expenses 1,864 699 3,114 4,433 Total operating expenses 109,273 112,702 342,001 336,569 Income from operations 40,349 29,371 102,503 87,986 Other (expense) income: Interest expense ( 6,765 ) ( 8,532 ) ( 21,116 ) ( 22,894 ) Interest income and other, net 1,896 788 3,448 1,895 Foreign currency loss, net ( 1,201 ) ( 675 ) ( 2,821 ) ( 1,502 ) Total other expense, net ( 6,070 ) ( 8,419 ) ( 20,489 ) ( 22,501 ) Income before income taxes 34,279 20,952 82,014 65,485 Provision for income taxes 5,815 1,854 14,723 10,623 Net income $ 28,464 $ 19,098 $ 67,291 $ 54,862 Earnings per share: Basic $ 0.66 $ 0.44 $ 1.55 $ 1.27 Diluted $ 0.65 $ 0.42 $ 1.52 $ 1.23 Weighted average shares outstanding: Basic 42,872 43,452 43,296 43,365 Diluted 43,711 44,981 44,167 44,543 Cash dividends declared per common share $ 0.175 $ 0.175 $ 0.525 $ 0.525 See notes to unaudited condensed consolidated financial statements. 4 Condensed Consolidated Statements of Comprehensive Income Three Months Ended Nine Months Ended (in thousands) August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 Net income $ 28,464 $ 19,098 $ 67,291 $ 54,862 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 2,084 1,667 643 5,124 Unrealized loss on hedging activity, net of tax benefit of $ 0 and $ 360 for the three and nine months ended August 31, 2024, respectively, and $ 170 and $ 465 for the three and nine months ended August 31, 2023, respectively — ( 537 ) ( 1,135 ) ( 1,476 ) Total other comprehensive income (loss), net of tax 2,084 1,130 ( 492 ) 3,648 Comprehensive income $ 30,548 $ 20,228 $ 66,799 $ 58,510 See notes to unaudited condensed consolidated financial statements. 5 Condensed Consolidated Statements of Stockholders’ Equity Nine Months Ended August 31, 2024 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity (in thousands) Number of Shares Amount Balance, December 1, 2023 43,796 $ 438 $ 370,579 $ 120,858 $ ( 32,160 ) $ 459,715 Issuance of stock under employee stock purchase plan 260 3 9,889 — — 9,892 Exercise of stock options 179 2 7,538 — — 7,540 Vesting of restricted stock units and release of deferred stock units 498 5 ( 5 ) — — — Withholding tax payments related to net issuance of RSUs ( 192 ) ( 3 ) ( 10,624 ) — — ( 10,627 ) Stock-based compensation — — 35,011 — — 35,011 Purchase of capped calls, net of tax — — ( 32,080 ) — — ( 32,080 ) Dividends declared — — — ( 23,861 ) — ( 23,861 ) Treasury stock repurchases and retirements ( 1,642 ) ( 16 ) ( 41,714 ) ( 45,047 ) — ( 86,777 ) Net income — — — 67,291 — 67,291 Other comprehensive loss — — — — ( 492 ) ( 492 ) Balance, August 31, 2024 42,899 $ 429 $ 338,594 $ 119,241 $ ( 32,652 ) $ 425,612 Three Months Ended August 31, 2024 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity (in thousands) Number of Shares Amount Balance, June 1, 2024 43,063 $ 431 $ 330,382 $ 105,590 $ ( 34,736 ) $ 401,667 Issuance of stock under employee stock purchase plan 78 1 2,971 — — 2,972 Exercise of stock options 45 1 1,993 — — 1,994 Withholding tax payments related to net issuance of RSUs — ( 2 ) ( 33 ) — — ( 35 ) Stock-based compensation — — 10,558 — — 10,558 Dividends declared — — — ( 7,764 ) — ( 7,764 ) Treasury stock repurchases and retirements ( 287 ) ( 2 ) ( 7,277 ) ( 7,049 ) — ( 14,328 ) Net income — — — 28,464 — 28,464 Other comprehensive income — — — — 2,084 2,084 Balance, August 31, 2024 42,899 $ 429 $ 338,594 $ 119,241 $ ( 32,652 ) $ 425,612 6 Nine Months Ended August 31, 2023 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity (in thousands) Number of Shares Amount Balance, December 1, 2022 43,257 $ 433 $ 331,650 $ 101,656 $ ( 35,235 ) $ 398,504 Issuance of stock under employee stock purchase plan 212 3 7,766 — — 7,769 Exercise of stock options 400 4 12,157 — — 12,161 Vesting of restricted stock units and release of deferred stock units 378 4 ( 4 ) — — — Withholding tax payments related to net issuance of RSUs ( 147 ) ( 1 ) ( 8,100 ) — — ( 8,101 ) Stock-based compensation — — 30,111 — — 30,111 Dividends declared — — — ( 23,908 ) — ( 23,908 ) Treasury stock repurchases and retirements ( 535 ) ( 5 ) ( 12,518 ) ( 17,477 ) — ( 30,000 ) Net income — — — 54,862 — 54,862 Other comprehensive income — — — — 3,648 3,648 Balance, August 31, 2023 43,565 $ 438 $ 361,062 $ 115,133 $ ( 31,587 ) $ 445,046 Three Months Ended August 31, 2023 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity (in thousands) Number of Shares Amount Balance, June 1, 2023 43,358 $ 436 $ 347,101 $ 103,995 $ ( 32,717 ) $ 418,815 Issuance of stock under employee stock purchase plan 67 1 2,498 — — 2,499 Exercise of stock options 140 1 1,391 — — 1,392 Stock-based compensation — — 10,072 — — 10,072 Dividends declared — — — ( 7,960 ) — ( 7,960 ) Net income — — — 19,098 — 19,098 Other comprehensive income — — — — 1,130 1,130 Balance, August 31, 2023 43,565 $ 438 $ 361,062 $ 115,133 $ ( 31,587 ) $ 445,046 7 Condensed Consolidated Statements of Cash Flows Nine Months Ended (in thousands) August 31, 2024 August 31, 2023 Cash flows from operating activities: Net income $ 67,291 $ 54,862 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 4,806 4,690 Amortization of acquired intangibles and other 70,835 71,121 Amortization of debt discount and issuance costs on Notes 2,540 1,621 Stock-based compensation 35,011 30,111 Non-cash lease expense 8,898 6,958 Deferred income taxes ( 14,840 ) ( 18,521 ) Credit losses and other sales allowances 329 472 Changes in operating assets and liabilities: Accounts receivable 25,407 31,478 Other assets 15,090 14,294 Inventories — 2,209 Accounts payable and accrued liabilities ( 6,796 ) ( 14,027 ) Lease liabilities ( 8,682 ) ( 7,860 ) Income taxes payable 1,341 2,362 Deferred revenue, net ( 9,387 ) ( 39,011 ) Net cash flows from operating activities 191,843 140,759 Cash flows used in investing activities: Purchases of investments — ( 15,262 ) Sales and maturities of investments — 15,700 Purchases of property and equipment ( 2,328 ) ( 3,181 ) Payments for acquisitions, net of cash acquired — ( 355,250 ) Net cash flows used in investing activities ( 2,328 ) ( 357,993 ) Cash flows (used in) from financing activities: Proceeds from stock-based compensation plans 17,474 20,373 Payments for taxes related to net share settlements of equity awards ( 10,627 ) ( 8,101 ) Repurchases of common stock ( 86,777 ) ( 30,000 ) Proceeds from issuance of senior convertible notes, net of issuance costs of $ 11,200 438,750 — Purchase of capped calls ( 42,210 ) — Dividend payments to stockholders ( 23,814 ) ( 23,669 ) Proceeds from the issuance of debt — 195,000 Repayment of revolving line of credit ( 110,000 ) ( 55,000 ) Principal payment on term loan ( 261,250 ) ( 5,157 ) Payment of credit facility debt issuance costs ( 6,821 ) — Net cash flows (used in) from financing activities ( 85,275 ) 93,446 Effect of exchange rate changes on cash and cash equivalents 1,515 5,510 Net increase (decrease) in cash and cash equivalents 105,755 ( 118,278 ) Cash and cash equivalents, beginning of period 126,958 256,277 Cash and cash equivalents, end of period $ 232,713 $ 137,999 8 Condensed Consolidated Statements of Cash Flows, continued Nine Months Ended (in thousands) August 31, 2024 August 31, 2023 Supplemental disclosure: Cash paid for income taxes, net of refunds of $ 2,242 in 2024 and $ 924 in 2023 $ 15,865 $ 14,640 Cash paid for interest $ 7,961 $ 17,630 Non-cash investing and financing activities: Total fair value of restricted stock awards, restricted stock units and deferred stock units on date vested $ 29,036 $ 23,077 Dividends declared and unpaid $ 8,423 $ 8,354 See notes to unaudited condensed consolidated financial statements. 9 Notes to Condensed Consolidated Financial Statements Note 1: 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 responsible, AI-powered applications and experiences. 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, original equipment manufacturers, distributors and value-added resellers. Independent software vendors develop and market applications using our technology and resell our products in conjunction with sales of their own products that incorporate our technology. Original equipment manufacturers are companies that embed our products into their own software products or devices. Value-added resellers are companies that add features or services to our product, then resell it as an integrated product or complete "turn-key" solution. 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 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"). We made no material changes in the application of our significant accounting policies that were disclosed in our 2023 Annual Report. We have prepared the accompanying unaudited condensed consolidated financial statements on the same basis as the audited financial statements included in our 2023 Annual Report, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full fiscal year. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an on-going basis, management evaluates its estimates and records changes in estimates in the period in which they become known. These estimates are based on historical data and experience, as well as various other assumptions that management believes to be reasonable under the circumstances. The most significant estimates relate to revenue recognition, loss contingencies and the MOVEit Vulnerability, and business combinations. Actual results could differ from those estimates. Recent Accounting Pronouncements 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. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 is intended to improve the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company beginning with the annual period ending November 30, 2026, allowing for adoption on a prospective basis or a retrospective option. Early adoption is permitted. The adoption of this standard only impacts disclosures and is not expected to have a material impact on the Company's consolidated financial statements. 10 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. Note 2: Cash and Cash Equivalents A summary of our cash and cash equivalents at August 31, 2024 is as follows: (in thousands) Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value Cash $ 116,673 $ — $ — $ 116,673 Money market funds 116,040 — — 116,040 Total $ 232,713 $ — $ — $ 232,713 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 August 31, 2024. Note 3: Derivative Instruments Cash Flow Hedge 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 accumulated 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 nine months ended August 31, 2024 and August 31, 2023 was $ 1.5 million and $ 2.6 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: August 31, 2024 November 30, 2023 (in thousands) Notional Value Fair Value Notional Value Fair Value Interest rate swap contracts designated as cash flow hedges $ — $ — $ 103,125 $ 1,495 11 Forward Contracts 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 thirty days and 3 years from the date the contract was entered. At August 31, 2024, $ 0.3 million, $ 0.1 million and $ 0.2 million was recorded in other current assets , other assets and other accrued 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 and nine months ended August 31, 2024, net realized and unrealized gains of $ 1.0 million and $ 0.3 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations. In the three and nine months ended August 31, 2023, net realized and unrealized gains of $ 1.1 million and $ 2.7 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations. The table below details outstanding foreign currency forward contracts where the notional amount is determined using contract exchange rates: August 31, 2024 November 30, 2023 (in thousands) Notional Value Fair Value Notional Value Fair Value Forward contracts to sell U.S. dollars $ 82,340 $ 85 $ 102,229 $ ( 2,526 ) Forward contracts to purchase U.S. dollars 438 1 844 ( 4 ) Total $ 82,778 $ 86 $ 103,073 $ ( 2,530 ) 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 August 31, 2024: Fair Value Measurements Using (in thousands) Total Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 116,040 $ 116,040 $ — $ — Foreign exchange derivatives $ 86 $ — $ 86 $ — 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 (in thousands) 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 ) $ — 12 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. Assets and Liabilities Not Carried at Fair Value Fair Value of the Convertible Senior Notes 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”): August 31, 2024 November 30, 2023 (in thousands) Carrying Value Fair Value Carrying Value Fair Value Convertible senior notes due 2026 (1) $ 356,416 $ 390,268 $ 354,772 $ 377,125 Convertible senior notes due 2030 (2) 438,866 483,188 — — Total $ 795,282 $ 873,456 $ 354,772 $ 377,125 (1) The carrying value of the convertible senior notes due 2026 (the "2026 Notes"), are reflected net of $ 3.6 million and $ 5.2 million of unamortized debt issuance costs as of August 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 $ 11.1 million of unamortized debt issuance costs as of August 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 of the fair value hierarchy. Fair Value of Other Financial Assets and Liabilities 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 due to their immediate or short-term maturities. Note 5: Intangible Assets and Goodwill Intangible Assets Intangible assets are comprised of the following significant classes: August 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 $ ( 202,610 ) $ 77,390 $ 280,000 $ ( 181,045 ) $ 98,955 Customer-related 458,608 ( 265,308 ) 193,300 458,608 ( 221,362 ) 237,246 Trademarks and trade names 50,111 ( 36,095 ) 14,016 50,111 ( 32,034 ) 18,077 Total $ 788,719 $ ( 504,013 ) $ 284,706 $ 788,719 $ ( 434,441 ) $ 354,278 In the three and nine months ended August 31, 2024, amortization expense related to intangible assets was $ 20.1 million and $ 69.1 million, respectively. In the three and nine months ended August 31, 2023, amortization expense related to intangible assets was $ 25.7 million and $ 71.1 million, respectively. 13 Future amortization expense for intangible assets as of August 31, 2024, is as follows: (in thousands) Remainder of 2024 $ 19,947 2025 78,759 2026 69,314 2027 44,740 2028 33,157 Thereafter 38,789 Total $ 284,706 Goodwill Changes in the carrying amount of goodwill in the nine months ended August 31, 2024 are as follows: (in thousands) Balance, December 1, 2023 $ 832,101 Additions (1) 700 Translation adjustments ( 53 ) Balance, August 31, 2024 $ 832,748 (1) The additions to goodwill during fiscal year 2024 represent measurement period adjustments related to the acquisition of MarkLogic Corporation ("MarkLogic") in February 2023. See Note 6: Business Combinations for additional information. Note 6: Business Combinations MarkLogic Acquisition 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. The acquisition consideration for MarkLogic has been allocated to MarkLogic’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values. The excess of total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as 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 Net working capital $ 46,335 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 4,477 Deferred taxes ( 24,478 ) Deferred revenue ( 32,418 ) Goodwill 161,770 Net assets acquired $ 388,509 14 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 balances 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 $ 161.8 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. 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. 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 Nine Months Ended August 31, 2023 Revenue $ 556,319 Net income $ 64,094 Net income per basic share $ 1.48 Net income per diluted share $ 1.44 15 Note 7: Debt 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, 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 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; or • 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 distributions on the Company’s common stock, which distribution per share of common stock has a value exceeding 10 % of the last reported sale price per share on the trading day immediately before the date such distribution is announced; or • 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 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 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 twenty trading days (whether or not consecutive) during any thirty 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. 16 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 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 Nine Months Ended (in thousands) August 31, 2024 August 31, 2024 Contractual interest expense ( 3.5 % coupon) $ 3,938 $ 7,875 Amortization of debt discount and issuance costs (1) 450 896 $ 4,388 $ 8,771 (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 ("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. 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 to fund our proposed acquisition of ShareFile and for general corporate purposes. Interest rates for the revolving credit facility are determined by reference to a Term Benchmark Rate or a base rate at our option and would range from 1.50 % to 3.00 % above the Term Benchmark Rate for Term Benchmark-based borrowings or from 0.50 % to 2.00 % above the defined base rate for base rate borrowings, in each case based upon our consolidated total net 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 consolidated total net leverage ratio. A quarterly commitment fee on the undrawn portion of the revolving credit facility is required, ranging from 0.150 % to 0.400 % per annum, based upon our consolidated total net leverage ratio. The credit facility matures on March 7, 2029. The revolving credit facility does not require amortization of principal. Revolving loans may be borrowed, repaid and reborrowed until the maturity date, at which time all amounts outstanding must be repaid. Accrued interest on the loans is payable quarterly in arrears. As of August 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. 17 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. The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, grant liens, make investments, make acquisitions, incur indebtedness, merge or consolidate, dispose of assets, pay dividends or make distributions, repurchase stock, change the nature of the business, enter into certain transactions with affiliates and enter into burdensome agreements, in each case subject to customary exceptions for a credit facility of this size and type. We are also required to maintain compliance with a consolidated interest charge coverage ratio, a consolidated senior secured net leverage ratio and a consolidated total net leverage ratio. Note 8: Common Stock Repurchases In January 2023, our Board of Directors increased the share repurchase authorization by $ 150.0 million to an aggregate authorization of $ 228.0 million. In the three months ended August 31, 2024, we repurchased and retired 0.3 million shares for $ 14.3 million. In the three months ended August 31, 2023, we did no t repurchase any shares of our common stock. In the nine months ended August 31, 2024 and August 31, 2023, we repurchased and retired 1.6 million shares for $ 86.8 million and 0.5 million shares for $ 30.0 million, respectively. As of August 31, 2024, there was $ 107.2 million remaining under the current authorization. Note 9: 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 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 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 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 Nine Months Ended (in thousands) August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 Cost of maintenance and services $ 834 $ 797 $ 2,732 $ 2,146 Sales and marketing 2,169 1,763 6,939 5,027 Product development 3,199 3,065 10,255 9,112 General and administrative 4,356 4,447 15,085 13,826 Total stock-based compensation $ 10,558 $ 10,072 $ 35,011 $ 30,111 18 Note 10: Accumulated Other Comprehensive Loss The following table summarizes the changes in accumulated balances of other comprehensive loss during the nine months ended August 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 gain (loss) before reclassifications, net of tax 643 ( 689 ) ( 46 ) Amount of gain reclassified from accumulated other comprehensive loss into net income, net of tax — ( 446 ) ( 446 ) Balance, August 31, 2024 $ ( 32,652 ) $ — $ ( 32,652 ) The tax effect on accumulated unrealized gains (losses) on our hedging activity was minimal as of August 31, 2024 and was a tax provision of $ 0.4 million as of November 30, 2023. Note 11: 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: Three Months Ended Nine Months Ended (in thousands) August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 Performance obligations transferred at a point in time: Software licenses $ 57,850 $ 50,544 $ 175,929 $ 164,519 Performance obligations transferred over time: Maintenance 103,088 105,164 307,616 299,917 Services 17,748 19,284 54,903 53,033 Total revenue $ 178,686 $ 174,992 $ 538,448 $ 517,469 Geographic Revenue In the following table, revenue attributed to North America includes sales to customers in the U.S. and sales to certain multinational organizations. Revenue from 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: Three Months Ended Nine Months Ended (in thousands) August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 North America $ 104,369 $ 101,923 $ 314,553 $ 306,483 EMEA 57,031 56,779 177,656 166,369 Latin America 5,363 6,318 14,630 15,297 Asia Pacific 11,923 9,972 31,609 29,320 Total revenue $ 178,686 $ 174,992 $ 538,448 $ 517,469 No single customer, partner, or country outside the U.S. accounted for more than 10% of our total revenue for the three and nine months ended August 31, 2024 or August 31, 2023. 19 Contract Balances Unbilled Receivables and Contract Assets As of August 31, 2024, billing of our long-term unbilled receivables is expected to occur as follows: (in thousands) 2025 $ 10,564 2026 20,507 2027 3,565 Total $ 34,636 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 August 31, 2024 or November 30, 2023. Deferred Revenue 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 condensed consolidated balance sheets. Our deferred revenue balance is primarily made up of deferred maintenance. The changes in net deferred revenue for the nine months ended August 31, 2024 were as follows: (in thousands) Balance, December 1, 2023 $ 295,036 Billings and other 528,796 Revenue recognized that was deferred in prior periods ( 235,649 ) Revenue recognized from current period arrangements ( 302,799 ) Balance, August 31, 2024 $ 285,384 As of August 31, 2024, transaction price allocated to remaining performance obligations was $ 346 million. We expect to recognize approximately 73 % of the revenue within the next year and the remainder thereafter. Deferred Contract Costs Certain of our sales incentive programs 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 $ 6.1 million and $ 7.6 million as of August 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. 20 Note 12: 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 Balance, December 1, 2023 $ 3,297 $ 1,890 $ 5,187 Costs incurred 2,904 404 3,308 Cash disbursements ( 2,056 ) ( 2,231 ) ( 4,287 ) Balance, August 31, 2024 $ 4,145 $ 63 $ 4,208 Costs incurred during the three and nine months ended August 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. Note 13: 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 on an interim basis: Three Months Ended Nine Months Ended (in thousands, except per share data) August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 Net income $ 28,464 $ 19,098 $ 67,291 $ 54,862 Weighted average shares outstanding 42,872 43,452 43,296 43,365 Basic earnings per common share $ 0.66 $ 0.44 $ 1.55 $ 1.27 Diluted earnings per common share: Net income $ 28,464 $ 19,098 $ 67,291 $ 54,862 Weighted average shares outstanding 42,872 43,452 43,296 43,365 Effect of dilution from common stock equivalents 839 1,353 871 1,178 Effect of dilution from if-converted 2026 Notes — 176 — — Diluted weighted average shares outstanding 43,711 44,981 44,167 44,543 Diluted earnings per share $ 0.65 $ 0.42 $ 1.52 $ 1.23 We excluded stock awards representing approximately 560,000 and 849,000 shares of common stock from the calculation of diluted earnings per share in the three and nine months ended August 31, 2024, respectively, as these awards were anti-dilutive. We excluded stock awards representing approximately 252,000 and 286,000 shares of common stock from the calculation of diluted earnings per share in the three and nine months ended August 31, 2023, respectively, as these awards were anti-dilutive. The dilutive impact of the Notes on our calculation of diluted earnings per share is considered using the if-converted method. However, because the principal amount of the Notes must be settled in cash, the dilutive impact of applying the if-converted method is limited to the in-the-money portion, if any, of the Notes. During the three and nine months ended August 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. For the three months ended August 31, 2023, the average daily closing price of the Company's common stock was greater than the conversion price for the 2026 Notes outstanding as of August 31, 2023. Therefore, for this period, the Company applied the if-converted method for calculating diluted earnings per common share. During the nine months ended August 31, 2023, the average daily closing price of the Company's common stock was less than the conversion price for the 2026 Notes. Therefore, for this period, the 2026 Notes had no impact on the computation of diluted earnings per common share. 21 Note 14: Segment Information 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. Note 15: 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. 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 did not incur any meaningful costs related to this cyber incident for the three months ended August 31, 2023. We incurred net expenses of $ 4.2 million related to this incident during the nine months ended August 31, 2023. MOVEit Vulnerability As previously reported, on the evening of May 28, 2023, we learned that our MOVEit Transfer (the on-premise version) and MOVEit Cloud (a cloud-hosted version of MOVEit Transfer) products were attacked via a “zero-day vulnerability” that could provide for unauthorized escalated privileges and access to the customer’s underlying environment (the “MOVEit Vulnerability”). 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. We continue to monitor the impact of the MOVEit Vulnerability on our business, operations, and financial results. MOVEit Transfer and MOVEit Cloud represented less than 4 % in aggregate of our revenue for the nine months ended August 31, 2024. Litigation and Governmental Investigations Arising from the MOVEit Vulnerability As previously reported, as a result of the MOVEit Vulnerability, we are party to certain 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"). The MDL also includes the previously disclosed subrogation claim (where an insurer is seeking recovery for expenses incurred on behalf of its insured in connection with the MOVEit Vulnerability). Also as previously disclosed, we have also been cooperating with inquires and investigations from: (i) several domestic and foreign data privacy regulators (a number of which have been closed without regulatory action), (ii) several state attorneys general, and (iii) one formal investigation from a U.S. federal law enforcement agency (as of the date of the filing of the financial statements, this is not an enforcement action or formal governmental investigation of which we have been told that we are a target). As previously disclosed, we received a subpoena from the Securities and Exchange Commission’s Division of Enforcement (the “SEC”) on October 2, 2023, as part of a fact-finding inquiry seeking various documents and information relating to the MOVEit Vulnerability. In a letter dated August 7, 2024, the SEC notified us that the Commission had concluded its investigation and did not intend to recommend an enforcement action against Progress (the “Termination Letter”). The Termination Letter was provided under the guidelines set out in the final paragraph of Securities Act Release No. 5310. Expenses Incurred and Future Costs For the three and nine months ended August 31, 2024, we incurred net costs of $ 0.9 million and $ 5.0 million , respectively, related to the MOVEit Vulnerability. The costs recognized are net of insurance recoveries of $ 0.6 million and $ 2.5 million for the three and nine months ended August 31, 2024, respectively. The timing of recognizing insurance recoveries may differ from the timing of recognizing the associated expenses. 22 We expect to continue 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 August 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. 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 August 31, 2024, we have recorded approximately $ 7.5 million in insurance recoveries, of which $ 2.5 million was related to the November 2022 cyber incident and $ 5.0 million was related to the May 2023 MOVEit Vulnerability, providing us with approximately $ 7.5 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. Note 16: Subsequent Events On September 9, 2024, we entered into a definitive agreement to acquire ShareFile from Cloud Software Group, Inc. for approximately $ 875 million in cash, subject to a $ 25 million working capital credit. The closing of the acquisition (the “Closing”) is expected to occur in the quarter ending November 30, 2024. The acquisition is expected to be funded with a combination of existing cash on hand and borrowings under our existing revolving credit facility. The acquisition will add product and service solutions to our capabilities with ShareFile’s SaaS-native, AI-powered document-centric collaboration and workflows, client portal, secure file sync and share and eSignature abilities. Our Board of Directors has approved the suspension of Progress’ quarterly dividend in connection with the Closing and plans to redirect such capital toward the repayment of debt to increase liquidity for future M&A and for share repurchases.