PROGRESS SOFTWARE CORP /MA 10-Q

Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets (in thousands, except share data) February 28, 2026 November 30, 2025 Assets Current assets: Cash and cash equivalents $ 113,171 $ 94,807 Accounts receivable, net 147,612 195,783 Unbilled receivables, current portion 40,759 46,599 Other current assets 68,599 62,776 Total current assets 370,141 399,965 Unbilled receivables, non-current portion 28,477 29,950 Property and equipment, net 14,901 13,694 Intangible assets, net 549,760 584,028 Goodwill 1,309,070 1,309,054 Right-of-use lease assets 30,595 25,842 Deferred tax assets 75,144 77,442 Other assets 16,686 17,683 Total assets $ 2,394,774 $ 2,457,658 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 13,873 $ 15,934 Accrued compensation and related payroll taxes 45,297 71,804 Deferred revenue, current portion 330,766 324,750 Convertible senior notes, current portion, net 359,723 359,163 Operating lease liabilities, current portion 8,811 8,490 Other accrued liabilities 29,651 29,593 Total current liabilities 788,121 809,734 Long-term debt 540,000 600,000 Convertible senior notes, non-current portion, net 441,664 441,186 Operating lease liabilities, non-current portion 25,311 21,077 Deferred revenue, non-current portion 93,845 100,329 Deferred tax liabilities 1,178 1,158 Other non-current liabilities 5,860 5,825 Commitments and contingencies Stockholders' equity: Preferred stock, $ 0.01 par value; authorized, 10,000,000 shares; issued, none — — Common stock, $ 0.01 par value; authorized, 200,000,000 shares; issued and outstanding, 42,074,590 shares in 2026 and 42,335,700 shares in 2025 421 423 Additional paid-in capital 398,033 383,696 Retained earnings 133,008 127,373 Accumulated other comprehensive loss ( 32,667 ) ( 33,143 ) Total stockholders' equity 498,795 478,349 Total liabilities and stockholders' equity $ 2,394,774 $ 2,457,658 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, 2026 February 28, 2025 Revenue: Software licenses $ 67,581 $ 58,445 Maintenance, SaaS, and professional services 180,218 179,570 Total revenue 247,799 238,015 Costs of revenue: Cost of software licenses 3,013 2,925 Cost of maintenance, SaaS, and professional services 32,100 32,884 Amortization of acquired intangibles 8,751 10,422 Total costs of revenue 43,864 46,231 Gross profit 203,935 191,784 Operating expenses: Sales and marketing 51,997 51,296 Product development 50,474 46,375 General and administrative 26,504 25,623 Amortization of acquired intangibles 25,617 25,808 Cyber vulnerability response expenses, net 1,358 737 Restructuring expenses 706 7,029 Acquisition-related expenses 814 2,490 Total operating expenses 157,470 159,358 Income from operations 46,465 32,426 Other (expense) income: Interest expense ( 15,246 ) ( 18,429 ) Interest income and other, net 317 487 Foreign currency loss, net ( 1,244 ) ( 1,182 ) Total other expense, net ( 16,173 ) ( 19,124 ) Income before income taxes 30,292 13,302 Provision for income taxes 7,479 2,356 Net income $ 22,813 $ 10,946 Earnings per share: Basic $ 0.54 $ 0.25 Diluted $ 0.53 $ 0.24 Weighted average shares outstanding: Basic 42,155 43,256 Diluted 42,729 44,887 See notes to unaudited condensed consolidated financial statements. 4 Condensed Consolidated Statements of Comprehensive Income Three Months Ended (in thousands) February 28, 2026 February 28, 2025 Net income $ 22,813 $ 10,946 Other comprehensive income (loss): Foreign currency translation adjustments 476 ( 1,412 ) Comprehensive income $ 23,289 $ 9,534 See notes to unaudited condensed consolidated financial statements. 5 Condensed Consolidated Statements of Stockholders' Equity Three Months Ended February 28, 2026 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity (in thousands) Number of Shares Amount Balance, December 1, 2025 42,336 $ 423 $ 383,696 $ 127,373 $ ( 33,143 ) $ 478,349 Issuance of stock under employee stock purchase plan 63 1 2,301 — — 2,302 Exercise of stock options 14 — 490 — — 490 Vesting of RSUs 218 2 ( 2 ) — — — Withholding tax payments related to net issuance of RSUs ( 90 ) ( 1 ) ( 3,707 ) — — ( 3,708 ) Stock-based compensation — — 18,474 — — 18,474 Common stock repurchases and retirements ( 466 ) ( 4 ) ( 3,219 ) ( 17,178 ) — ( 20,401 ) Net income — — — 22,813 — 22,813 Other comprehensive income — — — — 476 476 Balance, February 28, 2026 42,075 $ 421 $ 398,033 $ 133,008 $ ( 32,667 ) $ 498,795 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 RSUs 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 Common stock repurchases and retirements ( 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 See notes to unaudited condensed consolidated financial statements. 6 Condensed Consolidated Statements of Cash Flows Three Months Ended (in thousands) February 28, 2026 February 28, 2025 Operating activities: Net income $ 22,813 $ 10,946 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization of property and equipment 1,496 1,619 Amortization of acquired intangibles and other 34,368 36,581 Amortization of debt discount and issuance costs 1,596 1,009 Stock-based compensation 18,474 14,683 Non-cash lease expense 2,321 3,443 Deferred income taxes 2,339 ( 1,696 ) Credit losses and other sales allowances 2,588 1,323 Changes in operating assets and liabilities: Accounts receivable 54,735 33,008 Other assets ( 5,216 ) ( 2,168 ) Accounts payable and accrued liabilities ( 31,270 ) ( 22,821 ) Lease liabilities ( 2,531 ) ( 3,080 ) Income taxes payable ( 502 ) ( 260 ) Deferred revenue ( 2,585 ) ( 3,640 ) Net cash flows provided by operating activities 98,626 68,947 Investing activities: Purchases of property and equipment ( 2,705 ) ( 1,290 ) Payments for acquisitions — ( 1,195 ) Net cash flows used in investing activities ( 2,705 ) ( 2,485 ) Financing activities: Proceeds from equity plans 5,436 6,238 Payments for taxes related to net share settlements of equity awards ( 3,708 ) ( 4,641 ) Repurchases of common stock ( 20,401 ) ( 30,108 ) Dividend equivalent payments to stockholders ( 204 ) ( 359 ) Repayment of revolving line of credit ( 60,000 ) ( 30,000 ) Net cash flows used in financing activities ( 78,877 ) ( 58,870 ) Effect of exchange rate changes on cash and cash equivalents 1,320 ( 1,508 ) Net increase in cash and cash equivalents 18,364 6,084 Cash and cash equivalents, beginning of period 94,807 118,077 Cash and cash equivalents, end of period $ 113,171 $ 124,161 7 Condensed Consolidated Statements of Cash Flows, continued Three Months Ended (in thousands) February 28, 2026 February 28, 2025 Supplemental disclosure: Cash paid for income taxes, net of refunds of $ 824 and $ 778 in 2026 and 2025, respectively $ 4,171 $ 3,121 Cash paid for interest $ 8,363 $ 12,121 Non-cash investing and financing activities: Total fair value of restricted stock awards, restricted stock units, and deferred stock units on date vested $ 9,009 $ 10,677 Operating lease liabilities arising from obtaining right-of-use lease assets $ 6,269 $ 555 Contingent consideration payable in Nuclia acquisition $ 1,080 $ — See notes to unaudited condensed consolidated financial statements. 8 Notes to Condensed Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies Basis of Presentation The condensed consolidated financial statements of Progress Software Corporation ("Progress," the "Company," "we," "us," or "our") included herein are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Certain information in the footnote disclosures of the financial statements has been condensed or omitted where it substantially duplicated information provided in the Company’s latest audited consolidated financial statements, in accordance with the rules and regulations of the SEC. In our opinion, the financial statements include all adjustments of a normal recurring nature necessary for fair financial statement presentation. Interim results are not necessarily indicative of the results to be expected for the full year ending November 30, 2026. We have made estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying footnote disclosures. Actual results could differ significantly from these estimates. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnote disclosures included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2025, as filed with the SEC on January 20, 2026 (our "2025 Annual Report"). Recent Accounting Pronouncements Recently Issued Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued ASU 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 us beginning with the annual period ending November 30, 2026, allowing for adoption on a prospective basis or a retrospective option. The adoption of this standard only impacts disclosures and is not expected to have a material impact on our consolidated financial statements. In November 2024, the FASB issued ASU 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 ASU 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. We are currently evaluating the impact that the adoption of these standards will have on our consolidated financial statements and disclosures. In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software ("ASU 2025-06"), which modernizes the accounting for internal-use software. ASU 2025-06 removes all references to software development stages and requires capitalization of software costs when management has committed to the software project and it is probable the software will be completed and perform its intended use. ASU 2025-06 will be effective for us in our first quarter of 2029, and may be adopted on a prospective basis, full retrospective basis, or modified prospective basis with a cumulative-effect adjustment through retained earnings. Early adoption is permitted. We are currently evaluating the timing, method of adoption, and impact of ASU 2025-06 on our consolidated financial statements and disclosures. 9 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, 2026: Fair Value Measurements Using (in thousands) Total Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 779 $ 779 $ — $ — Liabilities Foreign exchange derivatives $ ( 6 ) $ — $ ( 6 ) $ — Contingent consideration $ ( 1,080 ) $ — $ — $ ( 1,080 ) The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2025: Fair Value Measurements Using (in thousands) Total Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 779 $ 779 $ — $ — Liabilities Foreign exchange derivatives $ ( 95 ) $ — $ ( 95 ) $ — Contingent consideration $ ( 1,080 ) $ — $ — $ ( 1,080 ) 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. In certain cases, where market rate assumptions are not available, we are required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. We classify contingent consideration related to the Nuclia acquisition, which occurred in the third fiscal quarter of 2025, within Level 3 of the fair value hierarchy because the fair value is derived using significant unobservable inputs. We utilized the Monte Carlo simulation method to estimate the fair value of the contingent liability as of the acquisition date, and we have updated the fair value using an income approach in subsequent periods. The fair value of the contingent consideration, which is primarily dependent on the revenue of the acquired business in fiscal 2026, is remeasured each reporting period, with adjustments to fair value recorded as acquisition-related expenses in our condensed consolidated statement of operations. See Note 4, Business Combinations for additional details. The following table reflects the activity for our contingent consideration obligation measured at fair value using Level 3 inputs for the three months ended February 28, 2026: (in thousands) Balance, December 1, 2025 $ ( 1,080 ) Changes in fair value of contingent consideration — Balance, February 28, 2026 $ ( 1,080 ) There were no transfers between levels of the fair value measurement hierarchy during the three months ended February 28, 2026 and 2025. 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, 2026 November 30, 2025 (in thousands) Carrying Value Fair Value Carrying Value Fair Value Convertible senior notes due 2026 (1) $ 359,723 $ 358,020 $ 359,163 $ 357,300 Convertible senior notes due 2030 (2) 441,664 452,489 441,186 452,295 Total $ 801,387 $ 810,509 $ 800,349 $ 809,595 (1) The carrying value of the convertible senior notes due 2026 (the "2026 Notes"), is reflected net of $ 0.3 million and $ 0.8 million of unamortized debt issuance costs as of February 28, 2026 and November 30, 2025, respectively. (2) The carrying value of the convertible senior notes due 2030 (the "2030 Notes"), is reflected net of $ 8.3 million and $ 8.8 million of unamortized debt issuance costs as of February 28, 2026 and November 30, 2025, 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. Borrowings under our revolving credit facility are recorded at carrying value, which approximates fair value due to the frequent nature of such borrowings and repayments. The Company considers this a Level 2 input. Note 3: Intangible Assets and Goodwill Intangible Assets Intangible assets are comprised of the following significant classes: February 28, 2026 November 30, 2025 (in thousands) Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value Purchased technology $ 403,375 $ ( 260,241 ) $ 143,134 $ 403,375 $ ( 251,491 ) $ 151,884 Customer-related 777,930 ( 401,135 ) 376,795 777,930 ( 377,368 ) 400,562 Trademarks and trade names 77,111 ( 47,280 ) 29,831 77,111 ( 45,529 ) 31,582 Total $ 1,258,416 $ ( 708,656 ) $ 549,760 $ 1,258,416 $ ( 674,388 ) $ 584,028 In the three months ended February 28, 2026 and 2025, amortization expense related to intangible assets was $ 34.4 million and $ 36.2 million, respectively. 11 Future amortization expense for intangible assets as of February 28, 2026, is as follows: (in thousands) Remainder of 2026 $ 102,997 2027 112,166 2028 100,582 2029 100,582 2030 72,580 Thereafter 60,853 Total $ 549,760 Goodwill Changes in the carrying amount of goodwill in the three months ended February 28, 2026 are as follows: (in thousands) Balance, December 1, 2025 $ 1,309,054 Translation adjustments 16 Balance, February 28, 2026 $ 1,309,070 Note 4: Business Combinations Nuclia Acquisition On June 30, 2025, we completed the acquisition of Nuclia, an innovator in agentic Retrieval-Augmented Generation AI solutions, for a purchase price with an aggregate fair value of $ 21.4 million, which was primarily allocated to purchased technology and goodwill. The purchase consideration consisted of $ 20.3 million of cash paid at closing and contingent consideration with an estimated fair value of $ 1.1 million. We are required to pay contingent earn-out consideration of up to $ 5.0 million to former Nuclia shareholders, based on the achievement of certain revenue targets during fiscal year 2026. The fair value of the earn-out liability was determined to be $ 1.1 million as of the acquisition date. We have not disclosed the amount of revenues and earnings of Nuclia since acquisition, nor pro forma financial information, as those amounts are not significant to our condensed consolidated financial statements. 12 Note 5: Debt As of February 28, 2026 and November 30, 2025, we had the following debt obligations: (in thousands) February 28, 2026 November 30, 2025 Current portion of long-term debt: 1.0 % convertible senior notes due 2026 $ 360,000 $ 360,000 Unamortized discount and issuance costs for the Notes ( 277 ) ( 837 ) Total current portion of long-term debt 359,723 359,163 Long-term debt: 3.5 % convertible senior notes due 2030 450,000 450,000 Revolving credit facility (1) 540,000 600,000 Total face value of long-term debt 990,000 1,050,000 Unamortized discount and issuance costs for the Notes ( 8,336 ) ( 8,814 ) Total long-term debt 981,664 1,041,186 Total debt $ 1,341,387 $ 1,400,349 (1) Unamortized debt issuance costs related to the revolving credit facility of $ 9.9 million and $ 10.4 million are included in other assets on the condensed consolidated balance sheets as of February 28, 2026 and November 30, 2025, respectively. During the first fiscal quarter of 2026, we repaid $ 60.0 million on the revolving credit facility. The interest rate as of February 28, 2026 was 5.42 %. Note 6: Common Stock Repurchases On September 23, 2025, our Board of Directors increased the share repurchase authorization by $ 200.0 million to an aggregate authorization of $ 242.2 million. During the three months ended February 28, 2026 and 2025, we repurchased and retired 0.5 million shares for $ 20.0 million and 0.5 million shares for $ 30.0 million, respectively. As of February 28, 2026, there was $ 182.2 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 2026, 2025, and 2024, we granted performance-based restricted stock units that include two performance metrics under our Long-Term Incentive Plan ("LTIP") where the performance measurement period is three years . For the 2026, 2025, and 2024 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 used a Monte Carlo Simulation valuation model for the market condition portion of the award, and used the closing price of our common stock on the date of grant, less the present value of expected dividends when applicable, for the portion related to the performance condition. 13 The following table provides the classification of stock-based compensation as reflected in our condensed consolidated statements of operations: Three Months Ended (in thousands) February 28, 2026 February 28, 2025 Cost of maintenance, SaaS, and professional services $ 1,618 $ 1,195 Sales and marketing 4,083 3,032 Product development 5,595 4,410 General and administrative 7,178 6,046 Total stock-based compensation $ 18,474 $ 14,683 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 professional services. Information relating to revenue from external customers by revenue type is as follows: Three Months Ended (in thousands) February 28, 2026 February 28, 2025 Performance obligations transferred at a point in time: Software licenses $ 67,581 $ 58,445 Performance obligations transferred over time: Maintenance 100,339 99,535 SaaS 70,461 69,410 Professional services 9,418 10,625 Total revenue $ 247,799 $ 238,015 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, 2026 February 28, 2025 North America $ 152,689 $ 154,646 EMEA 78,380 66,943 Latin America 5,526 5,052 Asia Pacific 11,204 11,374 Total revenue $ 247,799 $ 238,015 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, 2026 or 2025. 14 Contract Balances Unbilled Receivables and Contract Assets As of February 28, 2026, billing of our non-current unbilled receivables is expected to occur as follows: (in thousands) 2027 $ 15,061 2028 8,098 2029 5,318 Total $ 28,477 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, 2026 or November 30, 2025. 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 deferred revenue balance is primarily made up of deferred maintenance and deferred revenue related to our SaaS offerings. As of February 28, 2026, the changes in deferred revenue were as follows: (in thousands) Balance, December 1, 2025 $ 425,079 Billings and other 247,331 Revenue recognized that was deferred in prior periods ( 153,981 ) Revenue recognized from current period arrangements ( 93,818 ) Balance, February 28, 2026 $ 424,611 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, 2026, transaction price allocated to remaining performance obligations was $ 527.5 million. We expect to recognize approximately 75 % of the revenue within the next year and the remainder thereafter. Deferred Contract Costs Certain of our sales incentive programs meet the requirements to be capitalized. Depending upon the sales incentive program and the related revenue arrangement, such capitalized costs are amortized over the longer of (i) the product life, which is generally three to five years ; or (ii) the term of the related revenue contract. We determined that a three to five year product life represents the period of benefit that we receive from these incremental costs based on both qualitative and quantitative factors, which include customer contracts, industry norms, and product upgrades. Total deferred contract costs were $ 6.2 million and $ 6.5 million as of February 28, 2026 and November 30, 2025, 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 statements of operations and was insignificant in all periods presented. 15 Note 9: Restructuring The following table provides a summary of activity for all of our restructuring actions: (in thousands) Excess Facilities and Other Costs Employee Severance and Related Benefits Total Balance, December 1, 2025 $ 2,585 $ 3,254 $ 5,839 Costs incurred 360 346 706 Cash disbursements ( 767 ) ( 2,157 ) ( 2,924 ) Translation and other adjustments — 2 2 Balance, February 28, 2026 $ 2,178 $ 1,445 $ 3,623 Costs incurred during the three months ended February 28, 2026 are primarily related to our restructuring action that commenced in fiscal year 2025 to optimize efficiency and sustainability, while ensuring alignment with the company’s long-term financial objectives. Cash disbursements for expenses incurred to date under this restructuring are expected to be made through the fourth quarter of fiscal year 2026. The restructuring reserve is included in other accrued liabilities on the condensed consolidated balance sheet as of February 28, 2026. We do not expect to incur additional material expenses in connection with this restructuring. 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, 2026 February 28, 2025 Net income $ 22,813 $ 10,946 Weighted average shares outstanding 42,155 43,256 Effect of dilution from common stock equivalents 574 1,163 Effect of dilution from if-converted convertible notes — 468 Diluted weighted average shares outstanding 42,729 44,887 Earnings per share: Basic $ 0.54 $ 0.25 Diluted $ 0.53 $ 0.24 We excluded stock awards representing approximately 3,486,000 and 397,000 shares of common stock, respectively, from the calculation of diluted earnings per share in the three months ended February 28, 2026 and 2025, 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, 2026, we excluded the Notes in our diluted earnings per share calculation because the conversion feature in the Notes was out of the money. 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. 16 Note 11: Segment Information Operating segments are components of an enterprise that engages 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 and reportable segment that is managed on a consolidated basis and derives substantially all of its revenue from the sale and support of one group of similar products and services, comprised of software products for the development, deployment, and management of responsible, AI-powered applications and digital experiences. The accounting policies of the Company's operating segment are the same as those described in Note 1, Nature of Business and Summary of Significant Accounting Policies to our Consolidated Financial Statements in Item 8 of our 2025 Annual Report. Our CODM does not receive profitability information at a lower level than consolidated results, and evaluates net income on a consolidated basis to set financial performance targets, assess performance, and make resource allocation decisions, primarily through comparison of actual results to forecasted results, year-over-year analysis, and review of historical performance trends. The measure of segment assets is reported on the Company's consolidated balance sheets as total consolidated assets. The Company's significant expenses and other segment items are provided in the table below: Three Months Ended (in thousands) February 28, 2026 February 28, 2025 Revenue $ 247,799 $ 238,015 Cost of revenue (1) 33,495 34,614 Sales and marketing (2) 47,914 48,264 Product development (2) 44,879 41,965 General and administrative (2) 19,326 19,577 Stock-based compensation 18,474 14,683 Amortization of intangibles 34,368 36,230 Other segment items, net (3) 26,530 31,736 Net income $ 22,813 $ 10,946 (1) Excludes amortization of intangibles and stock-based compensation. (2) Excludes stock-based compensation. (3) Includes restructuring expenses, acquisition-related expenses, cyber vulnerability response expenses, net, interest expense, interest income and other, net, foreign currency loss, net, and provision for income taxes. 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 has also consolidated an insurance subrogation complaint (where an insurer is seeking recovery for expenses incurred on behalf of its insured in connection with the MOVEit Vulnerability) and, as of the date of this filing, one customer cross-claim. The MDL remains in a relatively early stage and is not expected to conclude within the next twelve months. Motions to dismiss were filed and partially granted in July 2025, then further partially granted in January 2026 in response to our motions for reconsideration. In all, the court has dismissed, in whole or in part, 23 of the 33 claims asserted by the plaintiffs in the MDL. As previously disclosed, we have also cooperated with inquiries and investigations from various governmental authorities, a number of which have been formally closed and, as of the date of this filing, have not resulted in any prosecution or enforcement actions. 17 Expenses Incurred and Future Costs During the three months ended February 28, 2026 and 2025, we incurred net costs of approximately $ 1.4 million and $ 0.7 million, respectively, related to the MOVEit Vulnerability. The costs recognized are net of insurance recoveries of $ 0.9 million and $ 0.7 million for the three months ended February 28, 2026 and 2025, 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. With respect to the governmental inquiries and investigations, we are currently unable to reasonably estimate any possible adverse judgments, settlements, fines, or penalties. Therefore, we have not recorded a loss contingency liability for the MOVEit Vulnerability as of February 28, 2026. 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, 2026, we have approximately $ 3.5 million of remaining cybersecurity insurance coverage under the applicable policy. We will pursue recoveries to the maximum extent available under our insurance policies.