PROGRESS SOFTWARE CORP /MA 10-Q

Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets (in thousands, except share data) February 28, 2025 November 30, 2024 Assets Current assets: Cash and cash equivalents $ 124,161 $ 118,077 Accounts receivable, net 126,366 163,575 Unbilled receivables 35,454 34,672 Other current assets 54,694 52,489 Total current assets 340,675 368,813 Long-term unbilled receivables 30,416 28,893 Property and equipment, net 13,233 13,746 Intangible assets, net 686,359 723,571 Goodwill 1,293,822 1,292,177 Right-of-use lease assets 28,308 30,894 Deferred tax assets 57,452 56,179 Other assets 12,153 12,693 Total assets $ 2,462,418 $ 2,526,966 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 14,770 $ 13,910 Short-term deferred revenue, net 328,798 332,142 Accrued compensation and related payroll taxes 43,154 64,672 Short-term operating lease liabilities 8,975 9,202 Other accrued liabilities 32,844 35,219 Total current liabilities 428,541 455,145 Long-term deferred revenue, net 71,508 72,270 Convertible senior notes, net 797,277 796,267 Long-term debt, net 700,000 730,000 Long-term operating lease liabilities 24,260 26,259 Deferred tax liabilities 2,286 2,279 Other noncurrent liabilities 6,699 5,958 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, 43,021,707 shares in 2025 and 43,360,695 shares in 2024 430 434 Additional paid-in capital 353,039 354,158 Retained earnings 115,999 120,405 Accumulated other comprehensive loss ( 37,621 ) ( 36,209 ) Total stockholders’ equity 431,847 438,788 Total liabilities and stockholders’ equity $ 2,462,418 $ 2,526,966 See notes to unaudited condensed consolidated financial statements. 3 Condensed Consolidated Statements of Operations Three Months Ended (in thousands, except per share data) February 28, 2025 February 29, 2024 Revenue: Software licenses $ 58,445 $ 64,100 Maintenance, SaaS, and professional services 179,570 120,585 Total revenue 238,015 184,685 Costs of revenue: Cost of software licenses 2,925 2,731 Cost of maintenance, SaaS, and professional services 32,884 22,219 Amortization of acquired intangibles 10,422 7,859 Total costs of revenue 46,231 32,809 Gross profit 191,784 151,876 Operating expenses: Sales and marketing 51,296 39,111 Product development 46,375 34,988 General and administrative 25,623 21,344 Amortization of acquired intangibles 25,808 17,389 Cyber vulnerability response expenses, net 737 987 Restructuring expenses 7,029 2,349 Acquisition-related expenses 2,490 702 Total operating expenses 159,358 116,870 Income from operations 32,426 35,006 Other (expense) income: Interest expense ( 18,429 ) ( 7,344 ) Interest income and other, net 487 624 Foreign currency loss, net ( 1,182 ) ( 679 ) Total other expense, net ( 19,124 ) ( 7,399 ) Income before income taxes 13,302 27,607 Provision for income taxes 2,356 4,968 Net income $ 10,946 $ 22,639 Earnings per share: Basic $ 0.25 $ 0.52 Diluted $ 0.24 $ 0.51 Weighted average shares outstanding: Basic 43,256 43,802 Diluted 44,887 44,826 Cash dividends declared per common share $ — $ 0.175 See notes to unaudited condensed consolidated financial statements. 4 Condensed Consolidated Statements of Comprehensive Income Three Months Ended (in thousands) February 28, 2025 February 29, 2024 Net income $ 10,946 $ 22,639 Other comprehensive loss, net of tax: Foreign currency translation adjustments ( 1,412 ) ( 1,546 ) Unrealized loss on hedging activity, net of tax benefit of $ 218 for the three months ended February 29, 2024 — ( 690 ) Total other comprehensive loss, net of tax ( 1,412 ) ( 2,236 ) Comprehensive income $ 9,534 $ 20,403 See notes to unaudited condensed consolidated financial statements. 5 Condensed Consolidated Statements of Stockholders’ Equity Three Months Ended February 28, 2025 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity (in thousands) Number of Shares Amount Balance, December 1, 2024 43,361 $ 434 $ 354,158 $ 120,405 $ ( 36,209 ) $ 438,788 Issuance of stock under employee stock purchase plan 57 — 2,196 — — 2,196 Exercise of stock options 37 — 1,470 — — 1,470 Vesting of restricted stock units 187 2 ( 2 ) — — — Withholding tax payments related to net issuance of RSUs ( 81 ) ( 1 ) ( 4,640 ) — — ( 4,641 ) Stock-based compensation — — 14,683 — — 14,683 Treasury stock repurchases and retirements, including excise tax ( 539 ) ( 5 ) ( 14,826 ) ( 15,352 ) — ( 30,183 ) Net income — — — 10,946 — 10,946 Other comprehensive loss — — — — ( 1,412 ) ( 1,412 ) Balance, February 28, 2025 43,022 $ 430 $ 353,039 $ 115,999 $ ( 37,621 ) $ 431,847 Three Months Ended February 29, 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 66 1 2,530 — — 2,531 Exercise of stock options 80 1 3,249 — — 3,250 Vesting of restricted stock units 244 2 ( 2 ) — — — Withholding tax payments related to net issuance of RSUs ( 103 ) ( 1 ) ( 5,889 ) — — ( 5,890 ) Stock-based compensation — — 12,464 — — 12,464 Dividends declared — — — ( 8,230 ) — ( 8,230 ) Treasury stock repurchases and retirements ( 394 ) ( 4 ) ( 10,658 ) ( 11,838 ) — ( 22,500 ) Net income — — — 22,639 — 22,639 Other comprehensive loss — — — — ( 2,236 ) ( 2,236 ) Balance, February 29, 2024 43,689 $ 437 $ 372,273 $ 123,429 $ ( 34,396 ) $ 461,743 6 Condensed Consolidated Statements of Cash Flows Three Months Ended (in thousands) February 28, 2025 February 29, 2024 Cash flows from operating activities: Net income $ 10,946 $ 22,639 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 1,619 1,589 Amortization of acquired intangibles and other 36,581 25,408 Amortization of debt discount and issuance costs 1,009 547 Stock-based compensation 14,683 12,464 Non-cash lease expense 3,443 4,259 Deferred income taxes ( 1,696 ) ( 3,295 ) Credit losses and other sales allowances 1,323 363 Changes in operating assets and liabilities: Accounts receivable 33,008 30,454 Other assets ( 2,168 ) 1,530 Accounts payable and accrued liabilities ( 22,821 ) ( 24,897 ) Lease liabilities ( 3,080 ) ( 2,949 ) Income taxes payable ( 260 ) ( 461 ) Deferred revenue, net ( 3,640 ) 2,853 Net cash flows from operating activities 68,947 70,504 Net cash flows used in investing activities: Purchases of property and equipment ( 1,290 ) ( 309 ) Payments for acquisitions ( 1,195 ) — Net cash flows used in investing activities ( 2,485 ) ( 309 ) Net cash flows used in financing activities: Proceeds from equity plans 6,238 7,583 Payments for taxes related to net share settlements of equity awards ( 4,641 ) ( 5,890 ) Repurchases of common stock, including excise tax ( 30,108 ) ( 22,500 ) Dividend equivalent and dividend payments to stockholders ( 359 ) ( 8,171 ) Repayment of revolving line of credit ( 30,000 ) ( 30,000 ) Principal payment on term loan — ( 3,437 ) Net cash flows used in financing activities ( 58,870 ) ( 62,415 ) Effect of exchange rate changes on cash and cash equivalents ( 1,508 ) ( 1,516 ) Net increase in cash and cash equivalents 6,084 6,264 Cash and cash equivalents, beginning of period 118,077 126,958 Cash and cash equivalents, end of period $ 124,161 $ 133,222 7 Condensed Consolidated Statements of Cash Flows, continued Three Months Ended (in thousands) February 28, 2025 February 29, 2024 Supplemental disclosure: Cash paid for income taxes, net of refunds of $ 778 in 2025 and $ 856 in 2024 $ 3,121 $ 3,179 Cash paid for interest $ 12,121 $ 5,570 Non-cash investing and financing activities: Total fair value of restricted stock awards, restricted stock units and deferred stock units on date vested $ 10,677 $ 13,947 Dividends declared and unpaid $ — $ 8,435 See notes to unaudited condensed consolidated financial statements. 8 Notes to Condensed Consolidated Financial Statements Note 1: Basis of Presentation Company Overview - Progress Software Corporation ("Progress," the "Company," "we," "us," or "our") provides software products that enable our customers to develop, deploy and manage responsible AI-powered applications and digital experiences. Many of our products are sold as perpetual licenses, but certain products use term licensing models and our cloud-based offerings are marketed as software-as-a-service ("SaaS") offerings. More than half of our worldwide license revenue is realized through relationships with indirect channel partners, principally independent software vendors ("ISVs"), original equipment manufacturers ("OEMs"), distributors and value-added resellers. ISVs develop and market applications using our technology and resell our products in conjunction with sales of their own products that incorporate our technology. OEMs are companies that embed our products into their own software products or devices. Value-added resellers are companies that add features or services to our product, then resell it as an integrated product or complete "turn-key" solution. In October 2024, we acquired ShareFile, a SaaS offering. 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, 2024, as filed with the SEC on January 21, 2025 (our "2024 Annual Report"). We made no material changes in the application of our significant accounting policies that were disclosed in our 2024 Annual Report. We have prepared the accompanying unaudited condensed consolidated financial statements on the same basis as the audited financial statements included in our 2024 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 condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an on-going basis, management evaluates its estimates and records changes in estimates in the period in which they become known. These estimates are based on historical data and experience, as well as various other assumptions that management believes to be reasonable under the circumstances. The most significant estimates relate to revenue recognition, loss contingencies and the MOVEit Vulnerability (as defined herein), 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 ("FASB") issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. This update is effective beginning with the Company’s 2025 fiscal year annual reporting period. The Company is currently evaluating the impact that the adoption of this standard and will include the additional disclosures in the financial statements for the fiscal year ended November 30, 2025. 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 9 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. In November 2024, the FASB issued Accounting Standards Update No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"), and in January 2025, the FASB issued Accounting Standards Update No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date ("ASU 2025-01"). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for us for our annual reporting for fiscal 2028 and for interim period reporting beginning in fiscal 2029 on a prospective basis. Both early adoption and retrospective application are permitted. The Company is currently evaluating the impact that the adoption of these standards will have on its consolidated financial statements and disclosures. Note 2: 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 February 28, 2025: Fair Value Measurements Using (in thousands) Total Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 1,962 $ 1,962 $ — $ — Liabilities Foreign exchange derivatives $ ( 1,752 ) $ — $ ( 1,752 ) $ — The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2024: Fair Value Measurements Using (in thousands) Total Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 1,823 $ 1,823 $ — $ — Liabilities Foreign exchange derivatives $ ( 624 ) $ — $ ( 624 ) $ — 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. 10 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"): February 28, 2025 November 30, 2024 (in thousands) Carrying Value Fair Value Carrying Value Fair Value Convertible senior notes due 2026 (1) $ 357,497 $ 391,775 $ 356,946 $ 449,094 Convertible senior notes due 2030 (2) 439,780 485,864 439,321 550,827 Total $ 797,277 $ 877,639 $ 796,267 $ 999,921 (1) The carrying value of the convertible senior notes due 2026 (the "2026 Notes"), is reflected net of $ 2.5 million and $ 3.1 million of unamortized debt issuance costs as of February 28, 2025 and November 30, 2024, respectively. (2) The carrying value of the convertible senior notes due 2030 (the "2030 Notes"), is reflected net of $ 10.2 million and $ 10.7 million of unamortized debt issuance costs as of February 28, 2025 and November 30, 2024, respectively. The fair value of the Notes is based on quoted prices in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy. Fair Value of Other Financial Assets and Liabilities The carrying amounts of other financial assets and liabilities including cash 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 3: Intangible Assets and Goodwill Intangible Assets Intangible assets are comprised of the following significant classes: February 28, 2025 November 30, 2024 (in thousands) Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value Purchased technology $ 399,000 $ ( 220,686 ) $ 178,314 $ 399,000 $ ( 210,264 ) $ 188,736 Customer-related 776,608 ( 306,138 ) 470,470 777,608 ( 282,384 ) 495,224 Trademarks and trade names 77,111 ( 39,536 ) 37,575 77,111 ( 37,500 ) 39,611 Total $ 1,252,719 $ ( 566,360 ) $ 686,359 $ 1,253,719 $ ( 530,148 ) $ 723,571 In the three months ended February 28, 2025 and February 29, 2024, amortization expense related to intangible assets was $ 36.2 million and $ 25.2 million, respectively. Future amortization expense for intangible assets as of February 28, 2025, is as follows: (in thousands) Remainder of 2025 $ 108,406 2026 135,361 2027 111,026 2028 99,443 2029 99,443 Thereafter 132,680 Total $ 686,359 11 Goodwill Changes in the carrying amount of goodwill in the three months ended February 28, 2025 are as follows: (in thousands) Balance, December 1, 2024 $ 1,292,177 Additions (1) 1,632 Translation adjustments 13 Balance, February 28, 2025 $ 1,293,822 (1) The additions to goodwill during fiscal year 2025 represent measurement period adjustments related to the acquisition of ShareFile in October 2024. See Note 4: Business Combinations for additional information. Note 4: Business Combinations ShareFile Acquisition On October 31, 2024, we completed the acquisition of ShareFile from Cloud Software Group, Inc. and its subsidiaries ("Cloud") for an aggregate purchase price of $ 875.0 million in cash, subject to a $ 25.0 million working capital credit and certain customary adjustments. We funded the acquisition through $ 730.0 million in borrowings under our existing $ 900.0 million revolving credit facility and cash on hand. Refer to Note 5: Debt for further information. The acquisition consideration for ShareFile has been preliminarily allocated to ShareFile’s assets and assumed liabilities based on estimated fair values. The preliminary fair value estimates of the net assets acquired are based upon preliminary calculations and valuations, and those estimates and assumptions are subject to change as we obtain additional information for those estimates during the measurement period, which is up to one year from the acquisition date. During the three months ended February 28, 2025, the Company identified measurement period adjustments that resulted in increases in goodwill totaling $ 1.6 million. The preliminary allocation of the purchase price, including the measurement period adjustments, is as follows: (in thousands) Initial Purchase Price Allocation Measurement Period Adjustments Adjusted Purchase Price Allocation Life Net working capital $ 892 $ 940 $ 1,832 Property, plant and equipment 54 — 54 Purchased technology 119,000 — 119,000 7 years Trade name 27,000 — 27,000 7 years Customer relationships 319,000 ( 1,000 ) 318,000 7 years Deferred taxes 23,456 ( 377 ) 23,079 Deferred revenue ( 96,159 ) — ( 96,159 ) Goodwill 459,459 1,632 461,091 Net assets acquired $ 852,702 $ 1,195 $ 853,897 The fair value of the intangible assets was estimated using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to value the acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital. The valuation assumptions take into consideration our estimates of customer attrition, technology obsolescence, and revenue growth projections. We recorded the excess of the purchase price over the identified tangible and intangible assets as goodwill. We believe that the investment value of the future enhancement of our product and solution offerings created as a result of this acquisition has principally contributed to a purchase price that resulted in the recognition of $ 461.1 million of goodwill, of which a portion is deductible for tax purposes. 12 Acquisition-related transaction costs (e.g., legal, due diligence, valuation, and other professional fees) and certain acquisition restructuring and related charges are not included as a component of consideration transferred but are required to be expensed as incurred. During the three months ended February 28, 2025, we incurred approximately $ 2.3 million of acquisition-related costs, which are included in acquisition-related expenses on our condensed consolidated statement of operations. The amount of revenue of ShareFile included in our condensed consolidated statement of operations during the three months ended February 28, 2025, was $ 63.6 million. We determined that disclosing the amount of ShareFile related earnings included in the condensed consolidated statement of operations is impracticable, as certain operations of ShareFile were integrated into the operations of the Company from the date of acquisition. In connection and concurrent with the ShareFile acquisition, we entered into a Transition Services Agreement ("TSA") with Cloud for a period of six months from the date of acquisition, with the option to extend the TSA beyond this period for certain services. Expenses related to the TSA were not significant during the three months ended February 28, 2025 and are not expected to be significant in future periods. Pro Forma Information The following pro forma financial information presents the combined results of operations of Progress and ShareFile as if the acquisition had occurred on December 1, 2022, after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the ShareFile acquisition and factually supportable. These pro forma adjustments include: (i) a net increase in amortization expense to record amortization expense relating to the $ 464.0 million of acquired identifiable intangible assets, (ii) an increase in interest expense to record interest for the periods presented as a result of drawing down our revolving line of credit in connection with the acquisition, (iii) an increase in acquisition-related expenses in connection with the acquisition that were not included in the purchase price, (iv) additional expense related to the TSA entered into between Progress and Cloud, and (v) the income tax effect of the adjustments made at the statutory tax rate of the U.S. (approximately 24.0%). 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, 2022. (in thousands, except per share data) Pro Forma Three Months Ended February 29, 2024 Revenue $ 244,595 Net income $ 12,528 Net income per basic share $ 0.29 Net income per diluted share $ 0.28 Note 5: Debt As of February 28, 2025 and November 30, 2024, we had the following debt obligations: (in thousands) February 28, 2025 November 30, 2024 1.0 % convertible senior notes due 2026 $ 360,000 $ 360,000 3.5 % convertible senior notes due 2030 450,000 450,000 Revolving credit facility 700,000 730,000 Total face value of long-term debt 1,510,000 1,540,000 Unamortized discount and issuance costs for the Notes ( 12,723 ) ( 13,733 ) Long-term debt $ 1,497,277 $ 1,526,267 During the three months ended February 28, 2025, we repaid $ 30.0 million on the revolving credit facility. The average interest rate of the revolving credit facility during the three months ended February 28, 2025 was 6.60 %, and the interest rate as of February 28, 2025 was 6.67 %. 13 Note 6: 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 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. As of February 28, 2025, there was $ 77.2 million remaining under the current authorization. Note 7: 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 2025, 2024, and 2023, 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 . For the 2025, 2024, and 2023 plans, the vesting terms were based on the following: (i) 75 % is based on achievement of a three-year cumulative operating income, and (ii) 25 % is based on our level of attainment of specified TSR targets relative to the percentage appreciation of a specified index of companies for the respective three-year periods. The vesting of LTIP awards is also subject to continued employment of the grantees through the performance period, except in the event of a qualifying termination. In order to estimate the fair value of such awards, we use a Monte Carlo Simulation valuation model for the market condition portion of the award, and used the closing price of our common stock on the date of grant, less the present value of expected dividends when applicable, for the portion related to the performance condition. The following table provides the classification of stock-based compensation as reflected on our condensed consolidated statements of operations: Three Months Ended (in thousands) February 28, 2025 February 29, 2024 Cost of maintenance, SaaS, and professional services $ 1,195 $ 986 Sales and marketing 3,032 2,312 Product development 4,410 3,665 General and administrative 6,046 5,501 Total stock-based compensation $ 14,683 $ 12,464 14 Note 8: Revenue Recognition Timing of Revenue Recognition Our revenues are derived from licensing our products and from related services, which consist of maintenance, SaaS, and consulting and education. Information relating to revenue from external customers by revenue type is as follows: Three Months Ended (in thousands) February 28, 2025 February 29, 2024 Performance obligations transferred at a point in time: Software licenses $ 58,445 $ 64,100 Performance obligations transferred over time: Maintenance 99,535 102,025 SaaS 69,410 5,571 Professional services 10,625 12,989 Total revenue $ 238,015 $ 184,685 Geographic Revenue In the following table, revenue attributed to North America includes sales to customers in the U.S. and Canada 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 (in thousands) February 28, 2025 February 29, 2024 North America $ 154,646 $ 107,282 EMEA 66,943 63,087 Latin America 5,052 4,668 Asia Pacific 11,374 9,648 Total revenue $ 238,015 $ 184,685 No single customer, partner, or country outside the U.S. accounted for more than 10% of our total revenue for the three months ended February 28, 2025 or February 29, 2024. Contract Balances Unbilled Receivables and Contract Assets As of February 28, 2025, billing of our long-term unbilled receivables is expected to occur as follows: (in thousands) 2026 $ 21,713 2027 8,703 Total $ 30,416 Contract assets arise when revenue is recognized in excess of billings and the right to the amount due from customers is conditioned on something other than the passage of time, such as the completion of a related performance obligation. We did not have any net contract assets as of February 28, 2025 or November 30, 2024. 15 Deferred Revenue Deferred revenue is recorded when revenue is recognized subsequent to customer invoicing. 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 net deferred revenue balance is primarily made up of deferred maintenance and deferred revenue related to our SaaS offerings. As of February 28, 2025, the changes in net deferred revenue were as follows: (in thousands) Balance, December 1, 2024 $ 404,412 Billings and other 233,909 Revenue recognized that was deferred in prior periods ( 147,219 ) Revenue recognized from current period arrangements ( 90,796 ) Balance, February 28, 2025 $ 400,306 Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of February 28, 2025, transaction price allocated to remaining performance obligations was $ 478.3 million. We expect to recognize approximately 78 % 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 $ 5.9 million and $ 6.7 million as of February 28, 2025 and November 30, 2024, 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. Note 9: Restructuring 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, 2024 $ 4,339 $ 5,695 $ 10,034 Costs incurred 1,624 5,405 7,029 Cash disbursements ( 908 ) ( 4,646 ) ( 5,554 ) Translation and other adjustments — ( 4 ) ( 4 ) Balance, February 28, 2025 $ 5,055 $ 6,450 $ 11,505 Costs incurred during the three months ended February 28, 2025 are primarily related to our restructuring action in fiscal year 2024, as well as facility closures in connection with previous restructuring actions in fiscal years 2023 and 2020. We do not expect to incur additional material expenses as part of these actions. 16 Note 10: 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 and the effect of our convertible debt using the if-converted method. The following table sets forth the calculation of basic and diluted earnings per share on an interim basis: Three Months Ended (in thousands, except per share data) February 28, 2025 February 29, 2024 Net income $ 10,946 $ 22,639 Weighted average shares outstanding 43,256 43,802 Effect of dilution from common stock equivalents 1,163 1,024 Effect of dilution from if-converted convertible notes 468 — Diluted weighted average shares outstanding 44,887 44,826 Earnings per share: Basic $ 0.25 $ 0.52 Diluted $ 0.24 $ 0.51 We excluded stock awards representing approximately 397,000 and 714,000 shares of common stock from the calculation of diluted earnings per share in the three months ended February 28, 2025 and February 29, 2024, respectively, as these awards were anti-dilutive. The dilutive impact of the Notes on our calculation of diluted earnings per share is measured using the if-converted method. However, because the principal amount of the Notes will be settled in cash, the dilutive impact of applying the if-converted method is limited to the in-the-money portion, if any. During the three months ended February 28, 2025, we included the 2026 Notes in our diluted earnings per share calculation and we excluded the 2030 Notes in our diluted earnings per share calculation because the conversion feature in the 2030 Notes was out of the money. During the three months ended February 29, 2024, we did not include the 2026 Notes in our diluted earnings per share calculation because the conversion feature was out of the money. Note 11: 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 for the development, deployment, and management of responsible, AI-powered applications and digital experiences. Our CODM evaluates financial information on a consolidated basis. Note 12: Cyber Related Matters MOVEit Vulnerability 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 (the "MOVEit Vulnerability"). 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 multi-district litigation in the District of Massachusetts (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. 17 Expenses Incurred and Future Costs For the three months ended February 28, 2025 and February 29, 2024, we incurred net costs of $ 0.7 million and $ 1.0 million , respectively, related to the MOVEit Vulnerability. The costs recognized are net of insurance recoveries of $ 0.7 million and $ 0.8 million for the three months ended February 28, 2025 and February 29, 2024, respectively. The timing of recognizing insurance recoveries may differ from the timing of recognizing the associated expenses. 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 MDL, 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 of which we are currently unable to reasonably estimate. Therefore, we have not recorded a loss contingency liability for the MOVEit Vulnerability as of February 28, 2025. Insurance Coverage During the period when the MOVEit Vulnerability occurred, we maintained $ 15.0 million of cybersecurity insurance coverage, which is expected to reduce our exposure to expenses and liabilities arising from these events. As of February 28, 2025, we have recorded approximately $ 6.5 million of insurance recoveries related to the MOVEit Vulnerability, providing us with approximately $ 6.0 million of remaining cybersecurity insurance coverage under the applicable policy. We will pursue recoveries to the maximum extent available under our insurance policies.