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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to _____.
Commission File Number: 0-19417
PROGRESS SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter) 
Delaware 04-2746201
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

14 Oak Park
Bedford, Massachusetts 01730
(Address of principal executive offices) (Zip code)

(781280-4000
(Registrant’s telephone number, including area code)

Not applicable
(Former name or former address, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per sharePRGSThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer 
Non-accelerated filer 
(Do not check if a smaller reporting company)Smaller reporting company 
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  
As of June 28, 2021, there were 43,754,747 shares of the registrant’s common stock, $.01 par value per share, outstanding.



PROGRESS SOFTWARE CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MAY 31, 2021
TABLE OF CONTENTS
PART I
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 6.
2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets
(In thousands, except share data)May 31, 2021November 30, 2020
Assets
Current assets:
Cash and cash equivalents$357,360 $97,990 
Short-term investments5,300 8,005 
Total cash, cash equivalents and short-term investments362,660 105,995 
Accounts receivable (less allowances of $661 and $1,315, respectively)
64,045 84,040 
Unbilled receivables and contract assets23,157 24,917 
Other current assets21,106 23,983 
Total current assets470,968 238,935 
Long-term unbilled receivables and contract assets10,742 17,133 
Property and equipment, net29,333 29,817 
Intangible assets, net190,768 212,747 
Goodwill491,731 491,726 
Deferred tax assets10,129 14,490 
Right-of-use lease assets30,833 30,635 
Other assets5,490 6,299 
Total assets$1,239,994 $1,041,782 
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt, net$22,005 $18,242 
Accounts payable11,358 9,978 
Accrued compensation and related taxes29,344 36,816 
Dividends payable to shareholders7,921 7,904 
Short-term operating lease liabilities7,361 7,015 
Income taxes payable1,407 1,899 
Other accrued liabilities11,209 14,302 
Short-term deferred revenue175,472 166,387 
Total current liabilities266,077 262,543 
Long-term debt, net254,757 364,260 
Convertible senior notes, net288,023  
Long-term operating lease liabilities26,541 26,966 
Long-term deferred revenue27,158 26,908 
Other noncurrent liabilities11,717 15,092 
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value; authorized, 10,000,000 shares; issued, none
  
Common stock, $0.01 par value, and additional paid-in capital; authorized, 200,000,000 shares; issued and outstanding, 43,745,051 shares in 2021 and 44,240,635 shares in 2020
334,064 306,244 
Retained earnings60,301 72,547 
Accumulated other comprehensive loss(28,644)(32,778)
Total shareholders’ equity365,721 346,013 
Total liabilities and shareholders’ equity$1,239,994 $1,041,782 
See notes to unaudited condensed consolidated financial statements.
3


Condensed Consolidated Statements of Operations
 
 Three Months EndedSix Months Ended
(In thousands, except per share data)May 31, 2021May 31, 2020May 31, 2021May 31, 2020
Revenue:
Software licenses$30,107 $19,663 $63,424 $50,292 
Maintenance and services92,381 80,720 180,344 159,774 
Total revenue122,488 100,383 243,768 210,066 
Costs of revenue:
Cost of software licenses1,038 810 2,189 2,199 
Cost of maintenance and services14,673 11,785 27,992 23,636 
Amortization of acquired intangibles3,599 1,664 7,120 3,310 
Total costs of revenue19,310 14,259 37,301 29,145 
Gross profit103,178 86,124 206,467 180,921 
Operating expenses:
Sales and marketing29,262 21,716 58,731 45,914 
Product development26,415 21,787 50,963 43,441 
General and administrative16,460 12,440 29,884 25,188 
Amortization of acquired intangibles7,979 4,177 14,858 8,308 
Restructuring expenses(64)695 1,093 1,735 
Acquisition-related expenses844  1,240 314 
Total operating expenses80,896 60,815 156,769 124,900 
Income from operations22,282 25,309 49,698 56,021 
Other (expense) income:
Interest expense(4,601)(2,598)(7,115)(5,390)
Interest income and other, net4 122 123 333 
Foreign currency loss, net(621)(371)(878)(1,187)
Total other expense, net(5,218)(2,847)(7,870)(6,244)
Income before income taxes17,064 22,462 41,828 49,777 
Provision for income taxes3,507 5,494 9,310 11,693 
Net income$13,557 $16,968 $32,518 $38,084 
Earnings per share:
Basic$0.31 $0.38 $0.74 $0.85 
Diluted$0.30 $0.37 $0.73 $0.84 
Weighted average shares outstanding:
Basic43,818 44,889 43,963 44,893 
Diluted44,472 45,267 44,562 45,391 
Cash dividends declared per common share$0.175 $0.165 $0.350 $0.330 
See notes to unaudited condensed consolidated financial statements.
4


Condensed Consolidated Statements of Comprehensive Income
Three Months EndedSix Months Ended
(In thousands)May 31, 2021May 31, 2020May 31, 2021May 31, 2020
Net income$13,557 $16,968 $32,518 $38,084 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments1,876 (2,982)3,101 (4,190)
Unrealized gain (loss) on hedging activity, net of tax provision of $76 and $347 for the second quarter and first six months of 2021, respectively and net of tax benefit of $760 and $1,468 for the second quarter and first six months of 2020, respectively
235 (2,058)1,072 (4,164)
Unrealized (loss) gain on investments, net of tax provision of $30 and a tax benefit of $12 for the second quarter and first six months of 2021, respectively and net of tax provision of $41 and $45 for the second quarter and first six months of 2020, respectively
(53)13 (39)84 
Total other comprehensive income (loss), net of tax2,058 (5,027)4,134 (8,270)
Comprehensive income$15,615 $11,941 $36,652 $29,814 

See notes to unaudited condensed consolidated financial statements.

5


Condensed Consolidated Statements of Shareholders’ Equity
 
Six Months Ended May 31, 2021
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' Equity
(in thousands)Number of SharesAmount
Balance, December 1, 202044,241 $442 $305,802 $72,547 $(32,778)$346,013 
Issuance of stock under employee stock purchase plan145 1 4,039 — — 4,040 
Exercise of stock options56 1 1,831 — — 1,832 
Vesting of restricted stock units and release of deferred stock units100 1 (1)— —  
Withholding tax payments related to net issuance of RSUs— — (2,373)— — (2,373)
Stock-based compensation— — 15,146 — — 15,146 
Equity components of Notes, net of issuance costs and tax— — 47,797 — — 47,797 
Purchase of capped calls, net of tax— — (32,752)— — (32,752)
Dividends declared— — — (15,634)— (15,634)
Treasury stock repurchases and retirements(797)(8)(5,862)(29,130)— (35,000)
Net income— — — 32,518 — 32,518 
Other comprehensive income— — — — 4,134 4,134 
Balance, May 31, 202143,745 $437 $333,627 $60,301 $(28,644)$365,721 

Three Months Ended May 31, 2021
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' Equity
(in thousands)Number of SharesAmount
Balance, March 1, 202144,000 $440 $311,697 $71,118 $(30,702)$352,553 
Issuance of stock under employee stock purchase plan89 — 2,495 — — 2,495 
Exercise of stock options28 1 914 — — 915 
Vesting of restricted stock units and release of deferred stock units72 1 (1)— —  
Withholding tax payments related to net issuance of RSUs— — (1,481)— — (1,481)
Stock-based compensation— — 8,362 — — 8,362 
Equity components of Notes, net of issuance costs and tax— — 47,797 — — 47,797 
Purchase of capped calls, net of tax— — (32,752)— — (32,752)
Dividends declared— — — (7,783)— (7,783)
Treasury stock repurchases and retirements(444)(5)(3,404)(16,591)— (20,000)
Net income— — — 13,557 — 13,557 
Other comprehensive income— — — — 2,058 2,058 
Balance, May 31, 202143,745 $437 $333,627 $60,301 $(28,644)$365,721 
6




Six Months Ended May 31, 2020
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' Equity
(in thousands)Number of SharesAmount
Balance, December 1, 201945,037 $450 $295,503 $64,303 $(29,974)$330,282 
Issuance of stock under employee stock purchase plan124 1 3,512 — — 3,513 
Exercise of stock options113 1 3,527 — — 3,528 
Vesting of restricted stock units and release of deferred stock units185 2 (2)— —  
Withholding tax payments related to net issuance of RSUs— — (3,895)— — (3,895)
Stock-based compensation— — 11,674 — — 11,674 
Dividends declared— — — (14,955)— (14,955)
Treasury stock repurchases and retirements(426)(4)(6,487)(13,509)— (20,000)
Net income— — — 38,084 — 38,084 
Other comprehensive loss— — — — (8,270)(8,270)
Balance, May 31, 202045,033 $450 $303,832 $73,923 $(38,244)$339,961 

Three Months Ended May 31, 2020
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' Equity
(in thousands)Number of SharesAmount
Balance, March 1, 202044,769 $448 $296,251 $64,475 $(33,217)$327,957 
Issuance of stock under employee stock purchase plan85 1 2,318 — — 2,319 
Exercise of stock options51 — 1,587 — — 1,587 
Vesting of restricted stock units and release of deferred stock units128 1 (1)— —  
Withholding tax payments related to net issuance of RSUs— — (1,946)— — (1,946)
Stock-based compensation— — 5,623 — — 5,623 
Dividends declared— — — (7,520)— (7,520)
Net income— — — 16,968 — 16,968 
Other comprehensive loss— — — — (5,027)(5,027)
Balance, May 31, 202045,033 $450 $303,832 $73,923 $(38,244)$339,961 
7


Condensed Consolidated Statements of Cash Flows
 
 Six Months Ended
(In thousands)May 31, 2021May 31, 2020
Cash flows from operating activities:
Net income$32,518 $38,084 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment2,741 3,248 
Amortization of acquired intangibles and other22,267 11,993 
Amortization of debt discount and issuance costs on Notes1,683  
Stock-based compensation15,146 11,674 
Non-cash lease expense4,183 4,907 
Loss on disposal of property and equipment3 531 
Deferred income taxes(705)1,944 
Allowances for bad debt and sales credits(358)274 
Changes in operating assets and liabilities:
Accounts receivable29,105 18,369 
Other assets1,722 4,968 
Accounts payable and accrued liabilities(11,554)(18,664)
Lease liabilities(4,467)(4,076)
Income taxes payable(1,059)940 
Deferred revenue8,153 (3,219)
Net cash flows from operating activities99,378 70,973 
Cash flows from (used in) investing activities:
Purchases of investments (5,009)
Sales and maturities of investments2,650 14,051 
Purchases of property and equipment(2,116)(1,757)
Decrease in escrow receivable2,130  
Net cash flows from investing activities2,664 7,285 
Cash flows from (used in) financing activities:
Proceeds from stock-based compensation plans6,300 7,308 
Payments for taxes related to net share settlements of equity awards(2,373)(3,895)
Repurchases of common stock(35,000)(20,000)
Proceeds from issuance of senior convertible notes, net of issuance costs of $9,900
350,100  
Purchase of capped calls(43,056) 
Dividend payments to shareholders(15,617)(14,906)
Payment of principal on long-term debt(106,025)(3,762)
Payment of debt issuance costs(904) 
Net cash flows from (used in) financing activities153,425 (35,255)
Effect of exchange rate changes on cash3,903 (4,040)
Net increase in cash and cash equivalents259,370 38,963 
Cash and cash equivalents, beginning of period97,990 154,259 
Cash and cash equivalents, end of period$357,360 $193,222 
8


Condensed Consolidated Statements of Cash Flows, continued
Six Months Ended
May 31, 2021May 31, 2020
Supplemental disclosure:
Cash paid for income taxes, net of refunds of $488 in 2021 and $239 in 2020
$6,677 $4,587 
Cash paid for interest$4,480 $4,898 
Non-cash investing and financing activities:
Total fair value of restricted stock awards, restricted stock units and deferred stock units on date vested$8,698 $12,090 
Dividends declared$7,921 $7,539 
See notes to unaudited condensed consolidated financial statements.
9


Notes to Condensed Consolidated Financial Statements

Note 1: Basis of Presentation

Company Overview - Progress Software Corporation ("Progress," the "Company," "we," "us," or "our") provides the best products to develop, deploy and manage high-impact business applications. Our comprehensive product stack is designed to make technology teams more productive and we have a deep commitment to the developer community, both open source and commercial alike. With Progress, organizations can accelerate the creation and delivery of strategic business applications, automate the process by which applications are configured, deployed and scaled, and make critical data and content more accessible and secure—leading to competitive differentiation and business success. Over 1,700 independent software vendors ("ISVs"), 100,000 enterprise customers, and 3 million developers rely on Progress to power their applications.

Our products are generally sold as perpetual licenses, but certain products also use term licensing models and our cloud-based offerings use a subscription-based model. More than half of our worldwide license revenue is realized through relationships with indirect channel partners, principally 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.

We operate in North America and Latin America (the "Americas"); Europe, the Middle East and Africa ("EMEA"); and the Asia Pacific region, 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 Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they 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, 2020, as amended by Form 10-K/A filed on March 30, 2021 (together, the "2020 10-K").

We made no material changes in the application of our significant accounting policies that were disclosed in our 2020 10-K. We have prepared the accompanying unaudited condensed consolidated financial statements on the same basis as the audited financial statements included in our 2020 10-K, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full fiscal year.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an on-going basis, management evaluates its estimates and records changes in estimates in the period in which they become known. These estimates are based on historical data and experience, as well as various other assumptions that management believes to be reasonable under the circumstances. The most significant estimates relate to: the timing and amount of revenue recognition, including the determination of the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and the transaction price allocated to performance obligations; the realization of tax assets and estimates of tax liabilities; fair values of investments in marketable securities; intangible assets and goodwill valuations; the recognition and disclosure of contingent liabilities; the collectability of accounts receivable; and assumptions used to determine the fair value of stock-based compensation. Actual results could differ from those estimates.

10


Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements
Financial Instruments - Credit Losses

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the amortized cost of the asset, removing the concept of "other-than-temporary" impairments. The Company adopted this standard effective December 1, 2020. The adoption of this standard did not have a material effect on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

Convertible Debt

In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The standard eliminates the liability and equity separation model for convertible instruments with a cash conversion feature. As a result, after adoption, entities will no longer separately present an embedded conversion feature for such debt in equity. Additionally, the debt discount resulting from the separation of the embedded conversion feature will no longer be amortized into income as interest expense over the instrument’s life. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. The standard also requires applying the if-converted method to calculate the impact of the convertible instrument on diluted earnings per share.

The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020. It can be adopted on either a full retrospective or modified retrospective basis. The Company plans to adopt this standard in accordance with the full retrospective approach in the first quarter of fiscal year 2022. We have substantially completed our assessment of the retrospective application of this new standard to our historical financial statements. On a preliminary basis, we believe that the retrospective impact of the adoption of the standard on fiscal year 2021 results will be an increase of interest expense of approximately $6.9 million, an increase of notes payable of approximately $56.0 million, a decrease of deferred tax liabilities of approximately $13.7 million, a decrease of additional paid-in capital of approximately $49.2 million, and a decrease of retained earnings of approximately $6.9 million. We will finalize our retrospective presentation of our historical financial statements under the new standard in connection with our 10-Q filings during fiscal year 2022 and our 10-K for the fiscal year ending November 30, 2022.

Note 2: Cash, Cash Equivalents and Investments

A summary of our cash, cash equivalents and available-for-sale investments at May 31, 2021 is as follows (in thousands):
 
Amortized Cost BasisUnrealized GainsUnrealized LossesFair Value
Cash$335,668 $— $— $335,668 
Money market funds21,692 — — 21,692 
U.S. treasury bonds3,746 27  3,773 
Corporate bonds1,506 21  1,527 
Total$362,612 $48 $ $362,660 

11


A summary of our cash, cash equivalents and available-for-sale investments at November 30, 2020 is as follows (in thousands):
 
Amortized Cost BasisUnrealized GainsUnrealized LossesFair Value
Cash$79,026 $— $— $79,026 
Money market funds18,964 — — 18,964 
U.S. treasury bonds4,993 58  5,051 
Corporate bonds2,913 41  2,954 
Total$105,896 $99 $ $105,995 

Such amounts are classified on our condensed consolidated balance sheets as follows (in thousands):
 
 May 31, 2021November 30, 2020
 Cash and EquivalentsShort-Term InvestmentsCash and EquivalentsShort-Term Investments
Cash$335,668 $— $79,026 $— 
Money market funds21,692 — 18,964 — 
U.S. treasury bonds— 3,773 — 5,051 
Corporate bonds— 1,527 — 2,954 
Total$357,360 $5,300 $97,990 $8,005 

The fair value of debt securities by contractual maturity is as follows (in thousands):
 
May 31, 2021November 30, 2020
Due in one year or less$4,230 $5,998 
Due after one year(1)
1,070 2,007 
Total$5,300 $8,005 

(1)Includes U.S. treasury bonds and corporate bonds, which are securities representing investments available for current operations and are classified as current on the condensed consolidated balance sheets.

We did not hold any investments with continuous unrealized losses as of May 31, 2021 or November 30, 2020.

12


Note 3: Derivative Instruments

Cash Flow Hedge

On July 9, 2019, we entered into an interest rate swap contract with an initial notional amount of $150.0 million to manage the variability of cash flows associated with approximately one-half of our variable rate debt. The contract matures on April 30, 2024 and requires periodic interest rate settlements. Under this interest rate swap contract, we receive a floating rate based on the greater of 1-month LIBOR or 0.00%, and pay a fixed rate of 1.855% on the outstanding notional amount.

We have designated the interest rate swap as a cash flow hedge and assess the hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative. To the extent that the interest rate swap is highly effective in offsetting the variability of the hedged cash flows, changes in the fair value of the derivative are included as a component of other comprehensive loss on our condensed consolidated balance sheets. Although we have determined at the onset of the hedge that the interest rate swap will be a highly effective hedge throughout the term of the contract, any portion of the fair value swap subsequently determined to be ineffective will be recognized in earnings. As of May 31, 2021, the fair value of the hedge was a loss of $5.4 million, which was included in other noncurrent liabilities on our condensed consolidated balance sheets.

The following table presents our interest rate swap contract where the notional amount reflects the quarterly amortization of the interest rate swap, which is equal to approximately one-half of the corresponding reduction in the balance of our term loan as we make scheduled principal payments. The fair value of the derivative represents the discounted value of the expected future discounted cash flows for the interest rate swap, based on the amortization schedule and the current forward curve for the remaining term of the contract, as of the date of each reporting period (in thousands):
 May 31, 2021November 30, 2020
 Notional ValueFair ValueNotional ValueFair Value
Interest rate swap contracts designated as cash flow hedges$138,750 $(5,436)$142,500 $(6,855)

Forward Contracts

We generally use forward contracts that are not designated as hedging instruments to hedge economically the impact of the variability in exchange rates on intercompany accounts receivable and loans receivable denominated in certain foreign currencies. We generally do not hedge the net assets of our international subsidiaries.

All forward contracts are recorded at fair value on the consolidated balance sheets at the end of each reporting period and expire between 30 days and two years from the date the contract was entered. At May 31, 2021, $3.2 million was recorded in other current assets on our condensed consolidated balance sheets. At November 30, 2020, $1.4 million was recorded in other assets on our condensed consolidated balance sheets.

In the three and six months ended May 31, 2021, realized and unrealized gains of $0.9 million and $2.6 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations. In the three and six months ended May 31, 2020, realized and unrealized losses of $1.8 million and $2.4 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations. These gains and losses were substantially offset by realized and unrealized losses and gains on the offsetting positions.

The table below details outstanding foreign currency forward contracts where the notional amount is determined using contract exchange rates (in thousands):
 
 May 31, 2021November 30, 2020
 Notional ValueFair ValueNotional ValueFair Value
Forward contracts to sell U.S. dollars$66,436 $3,176 $69,031 $1,445 
Forward contracts to purchase U.S. dollars728 2 440 (3)
Total$67,164 $3,178 $69,471 $1,442 

13


Note 4: Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at May 31, 2021 (in thousands):
 
  Fair Value Measurements Using
 Total Fair ValueLevel 1Level 2Level 3
Assets
Money market funds$21,692 $21,692 $ $ 
U.S. treasury bonds3,773  3,773  
Corporate bonds1,527  1,527  
Foreign exchange derivatives3,178  3,178  
Liabilities
Interest rate swap$(5,436)$ $(5,436)$ 

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2020 (in thousands):
 
  Fair Value Measurements Using
 Total Fair ValueLevel 1Level 2Level 3
Assets
Money market funds$18,964 $18,964 $ $ 
U.S. treasury bonds5,051  5,051  
Corporate bonds2,954  2,954  
Foreign exchange derivatives1,442  1,442  
Liabilities
Interest rate swap$(6,855)$ $(6,855)$ 

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.

Fair Value of the Convertible Senior Notes

The liability component of the Company’s Notes (as defined in Note 7: Debt) was recorded at $295.2 million upon issuance, which reflected the fair value of a similar debt instrument that does not have an associated convertible feature. The fair value was determined based on a discounted cash flow model and classified within Level 2 of the fair value hierarchy. The discount rate used reflected both the time value of money and credit risk inherent in the Notes. The carrying value of the liability component of the Notes will be accreted, over the remaining term to maturity, to their principal value of $360.0 million.

The Notes’ fair value, inclusive of the conversion feature embedded in the Notes, was $361.5 million as of May 31, 2021. The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 1 in the fair value hierarchy. See Note 7: Debt for additional information.



14


Note 5: Intangible Assets and Goodwill

Intangible Assets

Intangible assets are comprised of the following significant classes (in thousands):
 
May 31, 2021November 30, 2020
 Gross Carrying AmountAccumulated AmortizationNet Book ValueGross Carrying AmountAccumulated AmortizationNet Book Value
Purchased technology$173,486 $(120,984)$52,502 $173,486 $(113,863)$59,623 
Customer-related231,342 (104,265)127,077 231,342 (91,326)140,016 
Trademarks and trade names30,440 (19,861)10,579 30,440 (18,275)12,165 
Non-compete agreement2,000 (1,390)610 2,000 (1,057)943 
Total$437,268 $(246,500)$190,768 $437,268 $(224,521)$212,747 

In the three and six month ended May 31, 2021, amortization expense related to intangible assets was $11.6 million and $22.0 million, respectively. In the three and six months ended May 31, 2020, amortization expense related to intangible assets was $5.8 million and $11.6 million, respectively.

Future amortization expense for intangible assets as of May 31, 2021, is as follows (in thousands):
 
Remainder of 2021$22,912 
202244,836 
202344,560 
202431,743 
202521,233 
Thereafter25,484 
Total$