What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-03-31 compared with 2024-10-08 · 141 added, 192 removed, 160 unchanged (68% of the section changed)

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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;

This Quarterly Report on 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;

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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.

Risk Factors in our 2024 Annual Report as well as any risk factors described in Part II, Item 1A of this Quarterly 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

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

Progress provides enterprise software products for the development, deployment and management of responsible, AI-powered applications and experiences.

Progress provides software products that enable our customers to develop, deploy and manage responsible AI-powered applications and digital experiences.

Critical Accounting Policies

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Results of Operations

Business Development

On October 31, 2024, we acquired ShareFile from Cloud.

As a result of this acquisition, we recorded $96.2 million of deferred revenue and $464.0 million of intangible assets, as further described in Note 4:

Business Combinations.

We expect to recognize additional SaaS revenue, as well as increased amortization expense and interest expense, in future periods as a result of this acquisition.

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

(in thousands) February 28, 2025 February 29, 2024 As Reported Constant Currency

Revenue $ 238,015 $ 184,685 29 % 30 %

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.

Total revenue increased as compared to the same period last year primarily due to our acquisition of ShareFile in the fourth quarter of fiscal year 2024.

ShareFile revenue in the first quarter of fiscal year 2025 was $63.6 million.

These increases were partially offset by a decrease in our DataDirect product offering as a result of the timing of renewals on multiyear subscription contracts.

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

(in thousands) February 28, 2025 February 29, 2024 As Reported Constant Currency

Software licenses $ 58,445 $ 64,100 (9) % (8) %

As a percentage of total revenue 25 % 35 %

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

Software license revenue decreased compared to the same period last year primarily due to the decrease in our DataDirect product offering, as described above.

Maintenance, SaaS, and Professional Services Revenue

Three Months Ended % Change

(in thousands) August 31, 2024 August 31, 2023 As Reported Constant Currency

(in thousands) February 28, 2025 February 29, 2024 As Reported Constant Currency

Maintenance $ 99,535 $ 102,025 (2) % (1) %

As a percentage of total revenue 42 % 55 %

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 %

SaaS 69,410 5,571 1,146 % 1,146 %

As a percentage of total revenue 29 % 3 %

Services 54,903 53,033 4 % 3 %

Professional services 10,625 12,989 (18) % (18) %

As a percentage of total revenue 4 % 7 %

Total maintenance and services revenue $ 362,519 $ 352,950 3 % 3 %

Total maintenance, SaaS, and professional services revenue $ 179,570 $ 120,585 49 % 50 %

As a percentage of total revenue 75 % 65 %

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.

Maintenance revenue slightly decreased as compared to the same period last year primarily due to the negative impact of foreign exchange.

SaaS revenue increased as compared to the same period last year due to our acquisition of ShareFile.

Professional services revenue decreased as compared to the same period last year primarily due to a decrease in MarkLogic professional services revenue.

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

(in thousands) February 28, 2025 February 29, 2024 As Reported Constant Currency

North America $ 154,646 $ 107,282 44 % 44 %

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As a percentage of total revenue 5 % 5 %

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.

Total revenue generated in North America increased $47.4 million, and total revenue generated outside North America increased $6.0 million, as compared to the same period last year.

The increases in each region were primarily due to the acquisition of ShareFile.

Total revenue generated in markets outside North America represented 35% and 42% of total revenue in the first three months of fiscal year 2025 and fiscal year 2024, respectively.

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

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 Change

Cost of software licenses $ 2,925 $ 2,731 $ 194 7 %

As a percentage of software license revenue 5 % 4 %

Co st of software licenses consists primarily of costs of inventories, royalties, electronic software distribution, duplication, and packaging.

Cost of software licenses consists primarily of 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.

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:

Cost of Maintenance, SaaS, and Professional Services

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 Change

Cost of maintenance, SaaS, and professional services $ 32,884 $ 22,219 $ 10,665 48 %

As a percentage of maintenance, SaaS, and professional services revenue 18 % 18 %

Components of cost of maintenance, SaaS, and professional services:

Personnel related costs $ 20,770 $ 17,045 $ 3,725 22 %

Contractors and outside services 2,764 3,650 (886) (24) % 9,675 10,467 (792) (8) %

Hosting and other 8,910 1,766 7,144 405 %

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.

Contractors and outside services 3,204 3,408 (204) (6) %

Total cost of maintenance, SaaS, and professional services $ 32,884 $ 22,219 $ 10,665 48 %

Cost of maintenance, SaaS, and professional services consists primarily of hosting costs, and personnel related costs attributable to customer support, cloud operations, consulting, and education.

The increase year-over-year was primarily due to increased hosting and headcount related costs resulting from our acquisition of ShareFile.

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

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 % Change

Amortization of intangibles $ 10,422 $ 7,859 33 %

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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.

Three Months Ended Nine Months Ended

(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change

The year-over-year increase is due to the acquisition of ShareFile.

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 % Change

Gross profit $ 191,784 $ 151,876 26 %

As a percentage of total revenue 81 % 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.

Our gross profit increased primarily due to the increase in revenue, partially offset by the increases in costs of maintenance, SaaS, and professional services, and amortization of intangibles.

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

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 Change

Sales and marketing $ 51,296 $ 39,111 $ 12,185 31 %

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Personnel related costs $ 43,818 $ 33,093 $ 10,725 32 %

Contractors and outside services 928 785 143 18 % 2,358 2,990 (632) (21) %

Marketing programs and other 6,462 5,425 1,037 19 %

Contractors and outside services 1,016 593 423 71 %

Total sales and marketing $ 51,296 $ 39,111 $ 12,185 31 %

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.

Sales and marketing expenses increased primarily due to increased personnel related costs, increased marketing and sales events costs, and increased contractors and outside services costs, each associated with our acquisition of ShareFile.

Product Development

Three Months Ended Nine Months Ended

(in thousands) August 31, 2024 August 31, 2023 Change August 31, 2024 August 31, 2023 Change

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 Change

Product development costs $ 46,375 $ 34,988 $ 11,387 33 %

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Total product development costs $ 46,375 $ 34,988 $ 11,387 33 %

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.

Product development expenses increased primarily due to increased personnel related costs, as well as increased contractors and outside services costs, each associated with our acquisition of ShareFile.

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

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 Change

General and administrative $ 25,623 $ 21,344 $ 4,279 20 %

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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.

The increases in personnel related costs, contractors and outside services, and other general and administrative costs were primarily related to our acquisition of ShareFile.

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

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 % Change

Amortization of intangibles $ 25,808 $ 17,389 48 %

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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) %

Amortization of intangibles increased due to the addition of ShareFile intangible assets, as discussed above.

Cyber Vulnerability Response Expenses, Net

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 % Change

Cyber vulnerability response expenses, net $ 737 $ 987 (25) %

As a percentage of total revenue — % 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.

As previously disclosed, following the discovery of the MOVEit Vulnerability that was disclosed on June 5, 2023, we engaged outside cybersecurity experts and other incident response professionals to conduct a forensic investigation and assess the extent and scope of this matter.

Cyber vulnerability response costs relate to the engagement of external cybersecurity experts and other

incident response professionals and are net of received and expected insurance recoveries.

Please refer to Note 12:

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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

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 % Change

Restructuring expenses $ 7,029 $ 2,349 199 %

As a percentage of total revenue 3 % 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.

Restructuring expenses recorded in the first quarter of fiscal year 2025 primarily relate to headcount reductions and a facility closure in connection with the restructuring action related to the ShareFile acquisition in November 2024.

Restructuring for additional details, including types of expenses incurred and the timing of future expenses and cash payments.

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

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 % Change

Acquisition-related expenses $ 2,490 $ 702 255 %

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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.

Acquisition-related expenses in the first quarter of fiscal year 2025 were primarily related to our acquisition of ShareFile.

Acquisition-related expenses in the same periods of fiscal year 2024 were primarily related to our pursuit of other acquisition opportunities.

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

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 % Change

Income from operations $ 32,426 $ 35,006 (7) %

As a percentage of total revenue 14 % 19 %

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.

Income from operations decreased year-over-year due to an increase in costs of revenue and operating expenses, offset by an increase in revenue, 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

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 % Change

Interest expense $ (18,429) $ (7,344) 151 %

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As a percentage of total revenue (8) % (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:

Total other expense, net, increased in the first quarter of fiscal year 2025 as compared to the same period last year primarily due to an increase in interest expense resulting from costs associated with drawing on our revolving line of credit to acquire ShareFile.

Refer to Note 5:

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.

Foreign currency loss increased year-over-year due to rate volatility and timing of intercompany and hedge settlement activities.

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

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 % Change

Provision for income taxes $ 2,356 $ 4,968 (53) %

As a percentage of income before income taxes 18 % 18 %

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.

Three Months Ended Nine Months Ended

(in thousands) August 31, 2024 August 31, 2023 % Change August 31, 2024 August 31, 2023 % Change

Our effective income tax rate was 18% in the first fiscal quarter of both 2025 and 2024.

In the first fiscal quarter of 2024, there were discrete tax benefits related to stock-based compensation and the statute of limitations expiring on uncertain tax positions.

While there were no significant discrete tax benefits in the first fiscal quarter of 2025, the overall effective tax rate is lower due to the geographical mix of profit.

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024 % Change

Net income $ 10,946 $ 22,639 (52) %

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Select Performance Metrics:

Management evaluates our financial performance using a number of financial and operating metrics.

We evaluate our financial performance using a number of financial and operating metrics.

These metrics are periodically reviewed and revised to reflect changes in our business.

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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 use ARR to understand customer trends and the overall health of our business, helping us 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.

We generally do not sell non-SaaS-based 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, such 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, such contracts with a term of less than one year renew at rates equal to or better than annual or multi-year contracts.

For SaaS-based contracts, there is a meaningful percentage of monthly auto-renewing contracts for which annualizing the contracts 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.

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.

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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.

Our ARR was $836 million and $566 million as of February 28, 2025 and February 29, 2024, respectively, which is an increase of 48% year-over-year.

The growth in ARR was primarily driven by the acquisition of ShareFile.

Net Retention Rate

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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.

Net retention rate is not calculated in accordance with GAAP and is not derived from a GAAP measure.

Our net retention rates have generally ranged between 100% and 102% for all periods presented.

Our high net retention rates illustrate our predictable and durable top line performance.

We believe net retention rates can be a helpful indicator of the durability of top line performance.

Liquidity and Capital Resources

Cash and Cash Equivalents

(in thousands) August 31, 2024 November 30, 2023

(in thousands) February 28, 2025 November 30, 2024

Cash and cash equivalents $ 124,161 $ 118,077

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.

The increase in cash and cash equivalents of $6.1 million from the end of fiscal year 2024 was due to cash inflows from operations of $68.7 million, and $1.6 million in cash received from the issuance of common stock.

The cash inflows described above were offset by cash outflows of $30.0 million to pay down the revolving line of credit, repurchases of common stock of $30.1 million, the effect of exchange rates on cash of $1.5 million, purchases of property and equipment of $1.3 million, and a $1.2 million payment related to the acquisition of ShareFile.

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.

However, we do not anticipate that this would have a material adverse impact on our liquidity.

As of February 28, 2025, $63.3 million of our cash and cash equivalents was held by our foreign subsidiaries.

As a result of the debt obligations arising from the ShareFile acquisition, in the fourth quarter of fiscal 2024 we determined that a substantial portion of unremitted foreign earnings are no longer indefinitely reinvested.

As a result of this, we plan to utilize worldwide cash based on the needs of the parent entity.

These amounts will be repatriated as needed.

Deferred taxes are recorded for earnings of our foreign operations that we determine are not indefinitely reinvested.

Three Months Ended

(in thousands) February 28, 2025 February 29, 2024

Net cash flows from operating activities $ 68,947 $ 70,504

Net cash flows used in investing activities $ (2,485) $ (309)

Net cash flows used in financing activities $ (58,870) $ (62,415)

Cash Flows From Operating Activities

The decrease in cash generated from operations in the first quarter of fiscal year 2025 as compared to the same period last year was primarily due to increased costs of maintenance, SaaS, and professional services, and operating expenses, as well as increased interest expense resulting from the draw down on our revolving line of credit in the fourth quarter of fiscal year 2024.

This was offset by higher billings and collections.

Our gross accounts receivable as of February 28, 2025, decreased by $36.0 million from the end of fiscal year 2024.

Our days sales outstanding (DSO) in accounts receivable decreased to 48 days the first quarter of fiscal year 2025 from 50 days in the first fiscal quarter of 2024 due to the timing of billings and collections.

Cash Flows Used in Investing Activities

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, as well as the timing of acquisitions and divestitures.

In the first three months of fiscal year 2025, we purchased $1.3 million of property and equipment, and had payments for acquisitions of $1.2 million.

In the first quarter of fiscal year 2024 we had $0.3 million of purchases of property and equipment.

Cash Flows Used in Financing Activities

We received $6.2 million from the exercise of stock options and the issuance of shares under our employee stock purchase plan in the first three months of fiscal year 2025 as compared to $7.6 million in the first three months of fiscal year 2024.

We made withholding tax payments related to net share settlements of equity awards of $4.6 million in the three months of fiscal year 2025 as compared to $5.9 million in the first three months of fiscal year 2024.

We repurchased $30.1 million of our common stock under our share repurchase plan in the first three months of fiscal year 2025 as compared to $22.5 million in the same period of the prior year.

Further, we made payments on our revolving line of credit of $30.0 million in the first quarter of fiscal years 2025 and 2024.

Finally, we made dividend payments of $8.2 million to our stockholders during the first three months of fiscal year 2024.

We also made payments on our pre-existing term loan of $3.4 million in the first quarter of fiscal year 2024.

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.

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.

In the three months ended February 28, 2025 and February 29, 2024, we repurchased and retired 0.5 million shares for $30.0 million and 0.4 million shares for $22.5 million, respectively.

The shares were repurchased in both periods as part of the share repurchase program as authorized by our Board of Directors.

As of February 28, 2025, there was $77.2 million remaining under the current authorization.

As announced on September 9, 2024, our Board of Directors approved the suspension of our 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.

Restructuring Activities

Restructuring Charges to the condensed consolidated financial statements.

Restructuring to the condensed consolidated financial statements.

Long-term Debt and Credit Facility

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)

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.

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

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Risk Factors in our 2024 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.

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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.

As previously disclosed, 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 by a threat actor who compromised and exfiltrated personal data from various customer-controlled MOVEit Transfer environments.

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 have been centralized in the MDL.

The MDL remains in a relatively early litigation stage in which motions to dismiss have been filed but not yet ruled upon.

In the event dismissals are not granted, the MDL is not expected to conclude within this fiscal year.

We have also been cooperating with inquires and investigations from various governmental authorities, none of which have, as of this filing, resulted in any prosecution or enforcement actions.

Please see our 2024 Annual Report and previous SEC filings for additional information, including risk factors, related to the MOVEit Vulnerability.

We are subject to litigation and governmental investigations related to the MOVEit Vulnerability, for which we have incurred expenses and will incur future costs.

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Please refer to Note 12:

Cyber Related Matters to the Consolidated Financial Statements included in Item 1, Financial Statements for additional details and updates regarding the MOVEit Vulnerability.

Cyber Related Matters to the condensed consolidated 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.

Basis of Presentation to the condensed consolidated financial statements for further discussion.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis