Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This Form 10-Q may contain information that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended; Section 21E of the Securities Exchange Act of 1934, as amended; and the Private Securities Litigation Reform Act of 1995. Whenever we use words such as "believe," "may," "could," "would," "might," "should," "expect," "intend," "plan," "estimate," "target," "anticipate" and negatives and derivatives of these or similar expressions, or when we make statements concerning future financial results, product offerings or other events that have not yet occurred, we are making forward-looking statements. Actual future results may differ materially from those contained in or implied by our forward-looking statements due to various factors which are more fully described in Part I, Item 1A. Risk Factors in our 2023 Annual Report as well as the risk factors described in Part II, Item 1A of this Report on Form 10-Q. Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what
extent, any of such risks may be realized. We also cannot assure you that we have identified all possible issues that we might face. We undertake no obligation to update any forward-looking statements that we make.
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Overview
Progress provides enterprise software products for the development, deployment and management of responsible, AI-powered applications and experiences.
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. However, actual results may differ from these estimates. The most significant estimates relate to revenue recognition, loss contingencies and the MOVEit Vulnerability, and business combinations. For further information regarding the application of these and other accounting policies, see Note 1: Basis of Presentation to our Consolidated Financial Statements in Item 8 of our 2023 Annual Report. There have been no significant changes to our critical accounting policies and estimates since our 2023 Annual Report.
Use of Constant Currency
Revenue from our international operations has historically represented a substantial portion of our total revenue. As a result, our revenue results have been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, if the local currencies of our foreign subsidiaries strengthen, our consolidated results stated in U.S. dollars are positively impacted.
As exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of revenue growth rates on a constant currency basis enhances the understanding of our revenue results and evaluation of our performance in comparison to prior periods. The constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP.
Results of Operations
Revenue
Three Months Ended % Change
(in thousands) August 31, 2024 August 31, 2023 As Reported Constant Currency
Revenue $ 178,686 $ 174,992 2 % 2 %
Nine Months Ended % Change
(in thousands) August 31, 2024 August 31, 2023 As Reported Constant Currency
Revenue $ 538,448 $ 517,469 4 % 4 %
Total revenue slightly increased across multiple product offerings in the third quarter of fiscal year 2024 as compared to the same period last year. Compared to prior year, total revenue increased in the first nine months of fiscal year 2024 due to MarkLogic as the current period includes activity for the full nine months to date, whereas the prior period only included revenue from the acquisition in February 2023, or approximately seven months. These increases were slightly offset by a decrease in our DataDirect product offering as a result of the timing of renewals on multiyear subscription contracts.
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Software License Revenue
Three Months Ended % Change
(in thousands) August 31, 2024 August 31, 2023 As Reported Constant Currency
Software licenses $ 57,850 $ 50,544 14 % 15 %
As a percentage of total revenue 32 % 29 %
Nine Months Ended % Change
(in thousands) August 31, 2024 August 31, 2023 As Reported Constant Currency
Software licenses $ 175,929 $ 164,519 7 % 7 %
As a percentage of total revenue 33 % 32 %
Software license revenue increased in the third quarter and first nine months of fiscal year 2024 as compared to the same periods last year. The increase in the third quarter was due to modest growth across multiple products. MarkLogic revenue is reflected in our results for the first nine months of fiscal year 2024, whereas the prior period only includes revenue from the date of acquisition.
Maintenance and Services Revenue
Three Months Ended % Change
(in thousands) August 31, 2024 August 31, 2023 As Reported Constant Currency
Maintenance $ 103,088 $ 105,164 (2) % (2) %
As a percentage of total revenue 58 % 60 %
Services 17,748 19,284 (8) % (8) %
As a percentage of total revenue 10 % 11 %
Total maintenance and services revenue $ 120,836 $ 124,448 (3) % (3) %
As a percentage of total revenue 68 % 71 %
Nine Months Ended % Change
(in thousands) August 31, 2024 August 31, 2023 As Reported Constant Currency
Maintenance $ 307,616 $ 299,917 3 % 3 %
As a percentage of total revenue 57 % 58 %
Services 54,903 53,033 4 % 3 %
As a percentage of total revenue 10 % 10 %
Total maintenance and services revenue $ 362,519 $ 352,950 3 % 3 %
As a percentage of total revenue 67 % 68 %
Maintenance and services revenue slightly decreased across multiple products in the third quarter of fiscal year 2024 as compared to the same period last year. Maintenance and services revenue increased in the first nine months of fiscal year 2024 as compared to the same period last year due to our acquisition of MarkLogic.
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Revenue by Region
Three Months Ended % Change
(in thousands) August 31, 2024 August 31, 2023 As Reported Constant Currency
North America $ 104,369 $ 101,923 2 % 2 %
As a percentage of total revenue 58 % 58 %
Europe, the Middle East and Africa ("EMEA") $ 57,031 $ 56,779 — % 1 %
As a percentage of total revenue 32 % 32 %
Latin America $ 5,363 $ 6,318 (15) % (8) %
As a percentage of total revenue 3 % 4 %
Asia Pacific $ 11,923 $ 9,972 20 % 20 %
As a percentage of total revenue 7 % 6 %
Nine Months Ended % Change
(in thousands) August 31, 2024 August 31, 2023 As Reported Constant Currency
North America $ 314,553 $ 306,483 3 % 3 %
As a percentage of total revenue 58 % 59 %
Europe, the Middle East and Africa ("EMEA") $ 177,656 $ 166,369 7 % 6 %
As a percentage of total revenue 33 % 32 %
Latin America $ 14,630 $ 15,297 (4) % (3) %
As a percentage of total revenue 3 % 3 %
Asia Pacific $ 31,609 $ 29,320 8 % 9 %
As a percentage of total revenue 6 % 6 %
Total revenue generated in North America increased $2.4 million and increased $8.1 million in the third quarter and first nine months of fiscal year 2024, respectively. The increase in the first nine months of fiscal year 2024 in North America was primarily due to the timing of our acquisition of MarkLogic, as described above. Total revenue generated in EMEA remained relatively flat in the third quarter. Total revenue in EMEA increased by $11.3 million in the nine month period of fiscal year 2024 due to a slight increase across multiple product offerings. Total revenue in Latin America and Asia Pacific remained relatively flat in all periods presented.
In the first nine months of fiscal year 2024 revenue generated in markets outside North America represented 42% of total revenue and on an actual and constant currency basis. In the first nine months of fiscal year 2023 revenue generated in markets outside North America represented 41% of total revenue on an actual and a constant currency basis.
Cost of Software Licenses
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 Change August 31, 2024 August 31, 2023 Change
Cost of software licenses $ 2,700 $ 2,732 $ (32) (1) % $ 7,928 $ 7,998 $ (70) (1) %
As a percentage of software license revenue 5 % 5 % 5 % 5 %
Co st of software licenses consists primarily of costs of inventories, royalties, electronic software distribution, duplication, and packaging. Cost of software licenses as a percentage of software license revenue varies from period to period depending upon the relative product mix.
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Cost of Maintenance and Services
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 Change August 31, 2024 August 31, 2023 Change
Cost of maintenance and services $ 20,057 $ 22,192 $ (2,135) (10) % $ 64,452 $ 62,663 $ 1,789 3 %
As a percentage of maintenance and services revenue 17 % 18 % 18 % 18 %
Components of cost of maintenance and services:
Personnel related costs $ 15,503 $ 16,578 $ (1,075) (6) % $ 49,317 $ 46,367 $ 2,950 6 %
Contractors and outside services 2,764 3,650 (886) (24) % 9,675 10,467 (792) (8) %
Hosting and other 1,790 1,964 (174) (9) % 5,460 5,829 (369) (6) %
Total cost of maintenance and services $ 20,057 $ 22,192 $ (2,135) (10) % $ 64,452 $ 62,663 $ 1,789 3 %
Cost of maintenance and services consists primarily of costs of providing customer support, consulting, and education. The decrease in the third quarter of fiscal year 2024 was primarily due to decreased personnel related costs and contractor and outside services costs. The increase in first nine months of fiscal year 2024 is due to increased personnel related costs resulting from our acquisition of MarkLogic.
Amortization of Intangibles
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change
Amortization of intangibles $ 6,307 $ 7,995 (21) % $ 21,564 $ 22,253 (3) %
As a percentage of total revenue 4 % 5 % 4 % 4 %
Amortization of intangibles included in costs of revenue primarily represents the amortization of the value assigned to technology-related intangible assets obtained in business combinations. The decrease in the third quarter of fiscal year 2024 is due to certain intangible assets becoming fully amortized in the second quarter of fiscal year 2024. The year over year decrease in the first nine months of fiscal year 2024 is due certain intangible assets becoming fully amortized in the period, offset by the acquisition of MarkLogic.
Gross Profit
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change
Gross profit $ 149,622 $ 142,073 5 % $ 444,504 $ 424,555 5 %
As a percentage of total revenue 84 % 81 % 83 % 82 %
Our gross profit increased slightly in the third quarter of fiscal year 2024 as compared to the same period last year due to the increases in revenue and the decreases in costs of software licenses, costs of maintenance and services, and the amortization of intangibles, each as described above. Our gross profit increased in the first nine months of fiscal year 2024 as compared to the same period last year due to the increase in revenue and the decrease in amortization of intangibles, offset by the increases in costs of maintenance and services, each as described above.
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Sales and Marketing
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 Change August 31, 2024 August 31, 2023 Change
Sales and marketing $ 37,141 $ 38,612 $ (1,471) (4) % $ 114,141 $ 112,513 $ 1,628 1 %
As a percentage of total revenue 21 % 22 % 21 % 22 %
Components of sales and marketing:
Personnel related costs $ 32,774 $ 33,919 $ (1,145) (3) % $ 99,108 $ 98,243 $ 865 1 %
Contractors and outside services 928 785 143 18 % 2,358 2,990 (632) (21) %
Marketing programs and other 3,439 3,908 (469) (12) % 12,675 11,280 1,395 12 %
Total sales and marketing $ 37,141 $ 38,612 $ (1,471) (4) % $ 114,141 $ 112,513 $ 1,628 1 %
Sales and marketing expenses decreased in the third quarter of fiscal year 2024 primarily due to decreased personnel related costs as a result of lower headcount. Sales and marketing expenses increased in the first nine months of fiscal year 2024 primarily due to increased personnel related costs associated with our acquisition of MarkLogic, as well as increases in marketing and sales events costs, partially offset by decreases in contractors and outside services costs.
Product Development
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 Change August 31, 2024 August 31, 2023 Change
Product development costs $ 34,720 $ 33,138 $ 1,582 5 % $ 105,143 $ 98,396 $ 6,747 7 %
As a percentage of total revenue 19 % 19 % 20 % 19 %
Components of product development costs:
Personnel related costs $ 32,952 $ 31,528 $ 1,424 5 % $ 100,700 $ 94,647 $ 6,053 6 %
Contractors and outside services 1,503 1,376 127 9 % 3,746 3,166 580 18 %
Other product development costs 265 234 31 13 % 697 583 114 20 %
Total product development costs $ 34,720 $ 33,138 $ 1,582 5 % $ 105,143 $ 98,396 $ 6,747 7 %
Product development expenses increased in the third quarter of fiscal year 2024 as compared to the same period in the prior year primarily due to increased personnel related costs. Product development expenses increased in the first nine months of fiscal year 2024 primarily due to increased personnel related costs associated with our acquisition of MarkLogic, as well as an increase in contractors and outside services costs.
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General and Administrative
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 Change August 31, 2024 August 31, 2023 Change
General and administrative $ 20,503 $ 20,791 $ (288) (1) % $ 63,830 $ 61,046 $ 2,784 5 %
As a percentage of total revenue 11 % 12 % 12 % 12 %
Components of general and administrative:
Personnel related costs $ 16,925 $ 15,871 $ 1,054 7 % $ 52,852 $ 49,146 $ 3,706 8 %
Contractors and outside services 2,772 3,592 (820) (23) % 7,949 9,271 (1,322) (14) %
Other general and administrative costs 806 1,328 (522) (39) % 3,029 2,629 400 15 %
Total cost of general and administrative $ 20,503 $ 20,791 $ (288) (1) % $ 63,830 $ 61,046 $ 2,784 5 %
General and administrative expenses include the costs of our finance, human resources, legal, information systems and administrative departments. General and administrative expenses remained relatively flat during the third quarter of fiscal year 2024 compared to the same period in the prior year. General and administrative expenses increased in the first nine months of fiscal year 2024 primarily due to higher personnel costs and other general and administrative costs. These increases were offset by decreases in contractors and outside services costs.
Amortization of Intangibles
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change
Amortization of intangibles $ 13,810 $ 17,668 (22) % $ 47,515 $ 48,825 (3) %
As a percentage of total revenue 8 % 10 % 9 % 9 %
Amortization of intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology. The decrease in the third quarter of fiscal year 2024 is due to certain intangible assets becoming fully amortized in the second quarter of fiscal year 2024. Amortization of intangibles decreased in the first nine months of fiscal year 2024 due to certain intangible assets becoming fully amortized in the period, offset by the addition of MarkLogic intangible assets, as discussed above.
Cyber Incident and Vulnerability Response Expenses, Net
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change
Cyber incident and vulnerability response expenses, net $ 927 $ 951 (3) % $ 4,950 $ 5,126 (3) %
As a percentage of total revenue 1 % 1 % 1 % 1 %
As previously disclosed, following (i) the detection of irregular activity on certain portions of our corporate network that was disclosed on December 19, 2022, and (ii) the discovery of the MOVEit Vulnerability that was disclosed on June 5, 2023, in each instance, we engaged outside cybersecurity experts and other incident response professionals to conduct a forensic investigation and assess the extent and scope of these matters. Cyber incident and MOVEit Vulnerability costs relate to the engagement of external cybersecurity experts and other incident response professionals and are net of received and expected insurance recoveries. We did not incur costs related to the November 2022 cyber incident during fiscal year 2024 and do not expect to incur additional costs as the investigation is closed. Please refer to Note 15: Cyber Related Matters for additional details and updates regarding the MOVEit Vulnerability.
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Restructuring Expenses
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change
Restructuring expenses $ 308 $ 843 (63) % $ 3,308 $ 6,230 (47) %
As a percentage of total revenue — % — % 1 % 1 %
Restructuring expenses recorded in the first nine months of fiscal year 2024 primarily relate to a facility closure in connection with the restructuring action related to the MarkLogic acquisition. Restructuring expenses recorded in the first nine months of fiscal year 2023 relate to headcount reduction from the same action.
Acquisition-Related Expenses
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change
Acquisition-related expenses $ 1,864 $ 699 167 % $ 3,114 $ 4,433 (30) %
As a percentage of total revenue 1 % — % 1 % 1 %
Acquisition-related costs are expensed as incurred and include those costs incurred as a result of a business combination. These costs consist of professional service fees, including third-party legal and valuation-related fees. Acquisition-related expenses in the third quarter of fiscal year 2024 were primarily related to our pursuit of ShareFile. Acquisition-related expenses in the first nine months of fiscal year 2024 were primarily related to our pursuit of ShareFile and other acquisition opportunities. Acquisition-related expenses in the same periods of fiscal year 2023 were primarily related to our acquisition of MarkLogic.
Income from Operations
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change
Income from operations $ 40,349 $ 29,371 37 % $ 102,503 $ 87,986 16 %
As a percentage of total revenue 23 % 17 % 19 % 17 %
Income from operations increased in the third quarter of fiscal year 2024 due to increased revenue and decreases in costs of revenue and operating expenses, as shown above. Income from operations increased in the first nine months of fiscal year 2024 due to an increase in revenue, partially offset by fluctuations in costs of revenue and operating expenses, as shown above.
Other (Expense) Income
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change
Interest expense $ (6,765) $ (8,532) (21) % $ (21,116) $ (22,894) (8) %
Interest income and other, net 1,896 788 141 % 3,448 1,895 82 %
Foreign currency loss, net (1,201) (675) 78 % (2,821) (1,502) 88 %
Total other expense, net $ (6,070) $ (8,419) (28) % $ (20,489) $ (22,501) (9) %
As a percentage of total revenue (3) % (5) % (4) % (4) %
Other expense, net, decreased in the third quarter of fiscal year 2024 due to lower interest rates as a result of our debt refinancing in the second quarter of fiscal year 2024, in which we issued the 2030 Notes and entered into an amended and restated credit facility. Please refer to Note 7: Debt for further discussion. Interest income and other, net, was higher in fiscal year 2024, resulting from higher interest rates on our invested cash balance. Foreign currency loss increased year over year due to rate volatility and timing of intercompany and hedge settlement activitie s.
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Provision for Income Taxes
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change
Provision for income taxes $ 5,815 $ 1,854 214 % $ 14,723 $ 10,623 39 %
As a percentage of income before income taxes 17 % 9 % 18 % 16 %
Our effective tax rate was 17% and 9% in the third fiscal quarter of 2024 and 2023, respectively. The primary reason for the increase in the effective rate was due to discrete tax benefits in the third fiscal quarter of 2023 related to stock-based compensation and the impacts of Notice 2023-55, which was issued by the Internal Revenue Service during July 2023 and provided temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit under Sections 901 and 903 of the Internal Revenue Code. There were no significant discrete tax items in the third fiscal quarter of 2024.
Net Income
Three Months Ended Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change
Net income $ 28,464 $ 19,098 49 % $ 67,291 $ 54,862 23 %
As a percentage of total revenue 16 % 11 % 12 % 11 %
Select Performance Metrics:
Management evaluates our financial performance using a number of financial and operating metrics. These metrics are periodically reviewed and revised to reflect changes in our business.
Annualized Recurring Revenue ("ARR")
We disclose ARR as a performance metric to help investors better understand and assess the performance of our business because our mix of revenue generated from recurring sources currently represents the substantial majority of our revenues and is expected to continue in the future. We define ARR as the annualized revenue of all active and contractually binding term-based contracts from all customers at a point in time. ARR includes revenue from maintenance, software upgrade rights, public cloud, and on-premises subscription-based transactions and managed services. ARR mitigates fluctuations in revenue due to seasonality, contract term and the sales mix of subscriptions for term-based licenses and SaaS. Management uses ARR to understand customer trends and the overall health of the Company’s business, helping it to formulate strategic business decisions.
We calculate the annualized value of annual and multi-year contracts, and contracts with terms less than one year, by dividing the total contract value of each contract by the number of months in the term and then multiplying by 12. Annualizing contracts with terms less than one-year results in amounts being included in our ARR that are in excess of the total contract value for those contracts at the end of the reporting period. We generally do not sell contracts with a term of less than one year unless a customer is purchasing additional licenses under an existing annual or multi-year contract. The expectation is that at the time of renewal, contracts with a term less than one year will renew with the same term as the existing contracts being renewed, such that both contracts are co-termed. Historically contracts with a term of less than one year renew at rates equal to or better than annual or multi-year contracts.
Revenue from term-based license and on-premises subscription arrangements include a portion of the arrangement consideration that is allocated to the software license that is recognized up-front at the point in time control is transferred under ASC 606 revenue recognition principles. ARR for these arrangements is calculated as described above. The expectation is that the total contract value, inclusive of revenue recognized as software license, will be renewed at the end of the contract term.
The calculation is done at constant currency using the current year budgeted exchange rates for all periods presented.
ARR is not defined in GAAP and is not derived from a GAAP measure. Rather, ARR generally aligns to billings (as opposed to GAAP revenue which aligns to the transfer of control of each performance obligation). ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those
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items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.
Our ARR was $582.0 million and $581.0 million as of August 31, 2024 and August 31, 2023, respectively, which is relatively flat year-over-year.
Net Retention Rate
We calculate net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end ("Prior Period ARR"). We then calculate the ARR from these same customers as of the current period end ("Current Period ARR"). Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the net retention rate. Net retention rate is not defined in accordance with GAAP.
Our net retention rates have generally ranged between 99% and 101% for all periods presented. Our high net retention rates illustrate our predictable and durable top line performance.
Liquidity and Capital Resources
Cash and Cash Equivalents
(in thousands) August 31, 2024 November 30, 2023
Cash and cash equivalents $ 232,713 $ 126,958
The increase in cash and cash equivalents of $105.8 million from the end of fiscal year 2023 was due to proceeds from the issuance of convertible senior notes of $396.5 million (net of purchases of capped calls in connection with the convertible notes offering of $42.2 million and issuance costs of $11.2 million), cash inflows from operations of $191.8 million, $6.8 million in cash received from the issuance of common stock, and the effect of exchange rates on cash of $1.5 million. We refinanced our debt by issuing the convertible senior 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. As such, the cash inflows described above were offset by cash outflows of $261.3 million to pay off the balance of the term loan, $110.0 million to pay off the revolving line of credit, repurchases of common stock of $86.8 million, dividend payments of $23.8 million, payment of debt issuance costs of $6.8 million, and purchases of property and equipment of $2.3 million. Except as described below, there are no limitations on our ability to access our cash and cash equivalents.
As of August 31, 2024, $77.2 million of our cash and cash equivalents was held by our foreign subsidiaries. Foreign cash includes unremitted foreign earnings, which are invested indefinitely outside of the U.S. As such, the foreign cash is not available to fund our domestic operations. If we were to repatriate these earnings, we may be subject to income tax withholding in certain tax jurisdictions and a portion of the repatriated earnings may be subject to U.S. income tax. However, we do not anticipate that this would have a material adverse impact on our liquidity.
Share Repurchase Program
In January 2023, our Board of Directors increased our share repurchase authorization by $150 million, to an aggregate authorization of $228.0 million. In the 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 not 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. The shares were repurchased in both periods as part of our Board of Directors authorized share repurchase program. As of August 31, 2024, there was $107.2 million remaining under the current authorization.
Dividends
As announced on September 9, 2024, Progress’ Board of Directors approved the suspension of Progress’ quarterly dividend in connection with the ShareFile acquisition and plans to redirect such capital toward the repayment of debt to increase liquidity for future M&A and for share repurchases, both of which are prioritized in our capital allocation policy.
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Restructuring Activities
See Note 12: Restructuring Charges to the condensed consolidated financial statements.
Long-term Debt and Credit Facility
See Note 7: Debt to the condensed consolidated financial statements.
Cash Flows From Operating Activities
Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023
Net income $ 67,291 $ 54,862
Non-cash reconciling items included in net income 107,579 96,452
Changes in operating assets and liabilities 16,973 (10,555)
Net cash flows from operating activities $ 191,843 $ 140,759
In the first nine months of fiscal year 2024, operating cash flows increased due to higher billings and collections, and lower interest rates as a result of our debt refinancing in the second quarter of fiscal year 2024. Our gross accounts receivable as of August 31, 2024, decreased by $38.2 million from the end of fiscal year 2023. Our days sales outstanding (DSO) in accounts receivable decreased to 45 days in the third fiscal quarter of 2024 from 49 days in the third fiscal quarter of 2023 due to the timing of billings and collections.
Cash Flows Used in Investing Activities
Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023
Net investment activity $ — $ 438
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)
Net cash outflows and inflows of our net investment activity are generally a result of the timing of our purchases and maturities of securities, which are classified as cash equivalents or short-term securities. In the first nine months of fiscal year 2024, we purchased $2.3 million of property and equipment. In the first nine months of fiscal year 2023 we also had payments for acquisitions net of cash acquired of $355.3 million, and $3.2 million of purchases of property and equipment.
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Cash Flows (Used in) From Financing Activities
Nine Months Ended
(in thousands) August 31, 2024 August 31, 2023
Proceeds from stock-based compensation plans $ 17,474 $ 20,373
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) —
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)
Dividend payments to stockholders (23,814) (23,669)
Other financing activities (10,627) (8,101)
Payment of credit facility debt issuance costs (6,821) —
Net cash flows (used in) from financing activities $ (85,275) $ 93,446
Our financing activities are significantly impacted by non-recurring financing transactions, including those detailed above and as explained in Note 7 to the condensed consolidated financial statements. Further, we repurchased $86.8 million of our common stock under our share repurchase plan compared to $30.0 million in the same period of the prior year. Finally, we made dividend payments of $23.8 million to our stockholders during the first nine months of fiscal year 2024 and $23.7 million in the first nine months of fiscal year 2023. As noted above, the Board of Directors has announced a suspension of future dividends.
Liquidity Outlook
Cash from operations in fiscal year 2024 could be affected by various risks and uncertainties, including, but not limited to, the effects of various risks detailed in Part I, Item 1A. Risk Factors in our 2023 Annual Report, including increased disruption and volatility in capital markets and credit markets that could adversely affect our liquidity and capital resources in the future. However, based on our current business plan, we believe that existing cash balances, together with funds generated from operations and amounts available under our revolving credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next twelve months, including funding our proposed acquisition of ShareFile with a combination of existing cash on hand and borrowings under our existing revolving credit facility. We do not contemplate a need for any foreign repatriation of the earnings which are deemed invested indefinitely outside of the U.S. Our foreseeable cash needs include capital expenditures, acquisitions, debt repayments, share repurchases, lease commitments, restructuring obligations and other long-term obligations.
Legal and Other Regulatory Matters
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.
We are subject to litigation and governmental investigations related to the MOVEit Vulnerability, for which we have incurred expenses and will incur future costs. We expect our exposure to such expenses and liabilities to be reduced by insurance.
Please refer to Note 15: Cyber Related Matters to the Consolidated Financial Statements included in Item 1, Financial Statements for additional details and updates regarding the MOVEit Vulnerability.
Recent Accounting Pronouncements
Refer to Note 1: Basis of Presentation (Part I, Item 1 of this Form 10-Q) for further discussion.
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