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prgs-20210831

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 August 31, 2021


☐			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)

(781) 280-4000

(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	PRGS	The 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 September 23, 2021, there were 43,842,539 shares of the registrant’s common stock, $.01 par value per share, outstanding.

PROGRESS SOFTWARE CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2021

TABLE OF CONTENTS



PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of August 31, 2021 and November 30, 2020	3
	Condensed Consolidated Statements of Operations for the three and nine months ended August 31, 2021 and 2020	4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended August 31, 2021 and 2020	5
	Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended August 31, 2021 and 2020	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended August 31, 2021 and 2020	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 5.	Other Information	52
Item 6.	Exhibits	53

	Signatures	54

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets


(In thousands, except share data)	August 31, 2021		November 30, 2020
Assets
Current assets:
Cash and cash equivalents	$	379,895	$	97,990
Short-term investments	3,782		8,005
Total cash, cash equivalents and short-term investments	383,677		105,995
Accounts receivable (less allowances of $578 and $1,315, respectively)	77,031		84,040
Unbilled receivables and contract assets	28,479		24,917
Other current assets	19,710		23,983
Total current assets	508,897		238,935
Long-term unbilled receivables and contract assets	22,225		17,133
Property and equipment, net	28,724		29,817
Intangible assets, net	179,190		212,747
Goodwill	491,412		491,726
Deferred tax assets	10,872		14,490
Right-of-use lease assets	28,286		30,635
Other assets	5,881		6,299
Total assets	$	1,275,487	$	1,041,782
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt, net	$	23,886	$	18,242
Accounts payable	6,667		9,978
Accrued compensation and related taxes	34,871		36,816
Dividends payable to shareholders	7,988		7,904
Short-term operating lease liabilities	7,269		7,015
Income taxes payable	5,475		1,899
Other accrued liabilities	15,712		14,302
Short-term deferred revenue	169,740		166,387
Total current liabilities	271,608		262,543
Long-term debt, net	247,375		364,260
Convertible senior notes, net	291,283		—
Long-term operating lease liabilities	24,010		26,966
Long-term deferred revenue	33,280		26,908
Other noncurrent liabilities	11,158		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, 43,842,539 shares in 2021 and 44,240,635 shares in 2020	343,677		306,244
Retained earnings	83,455		72,547
Accumulated other comprehensive loss	(30,359)		(32,778)
Total shareholders’ equity	396,773		346,013
Total liabilities and shareholders’ equity	$	1,275,487	$	1,041,782

See notes to unaudited condensed consolidated financial statements.

Condensed Consolidated Statements of Operations


	Three Months Ended				Nine Months Ended
(In thousands, except per share data)	August 31, 2021		August 31, 2020		August 31, 2021		August 31, 2020
Revenue:
Software licenses	$	51,930	$	27,514	$	115,354	$	77,806
Maintenance and services	95,487		82,185		275,831		241,959
Total revenue	147,417		109,699		391,185		319,765
Costs of revenue:
Cost of software licenses	1,574		1,103		3,763		3,302
Cost of maintenance and services	14,895		11,971		42,887		35,607
Amortization of acquired intangibles	3,599		1,664		10,719		4,974
Total costs of revenue	20,068		14,738		57,369		43,883
Gross profit	127,349		94,961		333,816		275,882
Operating expenses:
Sales and marketing	29,737		22,186		88,468		68,100
Product development	25,616		20,676		76,579		64,117
General and administrative	16,451		13,514		46,335		38,702
Amortization of acquired intangibles	7,978		4,176		22,836		12,484
Restructuring expenses	40		91		1,133		1,826
Acquisition-related expenses	1,481		1,125		2,721		1,439
Total operating expenses	81,303		61,768		238,072		186,668
Income from operations	46,046		33,193		95,744		89,214
Other (expense) income:
Interest expense	(6,510)		(2,302)		(13,625)		(7,692)
Interest income and other, net	99		110		222		443
Foreign currency loss, net	(128)		(770)		(1,006)		(1,957)
Total other expense, net	(6,539)		(2,962)		(14,409)		(9,206)
Income before income taxes	39,507		30,231		81,335		80,008
Provision for income taxes	8,531		6,254		17,841		17,947
Net income	$	30,976	$	23,977	$	63,494	$	62,061
Earnings per share:
Basic	$	0.71	$	0.53	$	1.45	$	1.38
Diluted	$	0.70	$	0.53	$	1.43	$	1.37
Weighted average shares outstanding:
Basic	43,762		45,036		43,896		44,941
Diluted	44,502		45,364		44,542		45,382

Cash dividends declared per common share	$	0.175	$	0.165	$	0.525	$	0.495

See notes to unaudited condensed consolidated financial statements.

Condensed Consolidated Statements of Comprehensive Income


	Three Months Ended				Nine Months Ended
(In thousands)	August 31, 2021		August 31, 2020		August 31, 2021		August 31, 2020
Net income	$	30,976	$	23,977	$	63,494	$	62,061
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(2,179)		4,564		922		374
Unrealized gain (loss) on hedging activity, net of tax provision of $155 and $502 for the third quarter and first nine months of 2021, respectively, and net of tax provision of $166 and tax benefit of $1,302 for the third quarter and first nine months of 2020, respectively	479		58		1,551		(4,106)
Unrealized (loss) gain on investments, net of tax benefit of $4 and $16 for the third quarter and first nine months of 2021, respectively and net of tax benefit of $42 and tax provision of $3 for the third quarter and first nine months of 2020, respectively	(15)		21		(54)		105
Total other comprehensive (loss) income, net of tax	(1,715)		4,643		2,419		(3,627)
Comprehensive income	$	29,261	$	28,620	$	65,913	$	58,434

See notes to unaudited condensed consolidated financial statements.

Condensed Consolidated Statements of Shareholders’ Equity


	Nine Months Ended August 31, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
(in thousands)	Number of Shares	Amount
Balance, December 1, 2020	44,241	$	442	$	305,802	$	72,547	$	(32,778)	$	346,013
Issuance of stock under employee stock purchase plan	212	2		5,924		—		—		5,926
Exercise of stock options	87	1		2,840		—		—		2,841
Vesting of restricted stock units and release of deferred stock units	100	1		(1)		—		—		—
Withholding tax payments related to net issuance of RSUs	—	—		(2,398)		—		—		(2,398)
Stock-based compensation	—	—		21,985		—		—		21,985
Equity components of Notes, net of issuance costs and tax	—	—		47,456		—		—		47,456
Purchase of capped calls, net of tax	—	—		(32,507)		—		—		(32,507)
Dividends declared	—	—		—		(23,456)		—		(23,456)
Treasury stock repurchases and retirements	(797)	(8)		(5,862)		(29,130)		—		(35,000)
Net income	—	—		—		63,494		—		63,494
Other comprehensive income	—	—		—		—		2,419		2,419
Balance, August 31, 2021	43,843	$	438	$	343,239	$	83,455	$	(30,359)	$	396,773


	Three Months Ended August 31, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
(in thousands)	Number of Shares	Amount
Balance, June 1, 2021	43,745	$	437	$	333,627	$	60,301	$	(28,644)	$	365,721
Issuance of stock under employee stock purchase plan	67	1		1,885		—		—		1,886
Exercise of stock options	31	—		1,009		—		—		1,009
Withholding tax payments related to net issuance of RSUs	—	—		(25)		—		—		(25)
Stock-based compensation	—	—		6,839		—		—		6,839
Equity components of Notes, net of issuance costs and tax	—	—		(341)		—		—		(341)
Purchase of capped calls, net of tax	—	—		245		—		—		245
Dividends declared	—	—		—		(7,822)		—		(7,822)
Net income	—	—		—		30,976		—		30,976
Other comprehensive income	—	—		—		—		(1,715)		(1,715)
Balance, August 31, 2021	43,843	$	438	$	343,239	$	83,455	$	(30,359)	$	396,773


	Nine Months Ended August 31, 2020
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
(in thousands)	Number of Shares	Amount
Balance, December 1, 2019	45,037	$	450	$	295,503	$	64,303	$	(29,974)	$	330,282
Issuance of stock under employee stock purchase plan	178	2		4,984		—		—		4,986
Exercise of stock options	115	1		3,606		—		—		3,607
Vesting of restricted stock units and release of deferred stock units	197	2		(2)		—		—		—
Withholding tax payments related to net issuance of RSUs	—	—		(4,072)		—		—		(4,072)
Stock-based compensation	—	—		17,359		—		—		17,359
Dividends declared	—	—		—		(22,430)		—		(22,430)
Treasury stock repurchases and retirements	(426)	(4)		(6,487)		(13,509)		—		(20,000)
Net income	—	—		—		62,061		—		62,061
Other comprehensive loss	—	—		—		—		(3,627)		(3,627)
Balance, August 31, 2020	45,101	$	451	$	310,891	$	90,425	$	(33,601)	$	368,166


	Three Months Ended August 31, 2020
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
(in thousands)	Number of Shares	Amount
Balance, June 1, 2020	45,033	$	450	$	303,832	$	73,923	$	(38,244)	$	339,961
Issuance of stock under employee stock purchase plan	54	1		1,472		—		—		1,473
Exercise of stock options	2	—		79		—		—		79
Vesting of restricted stock units and release of deferred stock units	12	—		—		—		—		—
Withholding tax payments related to net issuance of RSUs	—	—		(177)		—		—		(177)
Stock-based compensation	—	—		5,685		—		—		5,685
Dividends declared	—	—		—		(7,475)		—		(7,475)
Net income	—	—		—		23,977		—		23,977
Other comprehensive loss	—	—		—		—		4,643		4,643
Balance, August 31, 2020	45,101	$	451	$	310,891	$	90,425	$	(33,601)	$	368,166

Condensed Consolidated Statements of Cash Flows


	Nine Months Ended
(In thousands)	August 31, 2021		August 31, 2020
Cash flows from operating activities:
Net income	$	63,494	$	62,061
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	4,144		4,737
Amortization of acquired intangibles and other	33,988		17,984
Amortization of debt discount and issuance costs on Notes	4,942		—
Stock-based compensation	21,985		17,359
Non-cash lease expense	6,095		6,652
Loss on disposal of property and equipment	3		704
Deferred income taxes	(1,596)		539
Allowances for bad debt and sales credits	(370)		416
Changes in operating assets and liabilities:
Accounts receivable	(1,319)		13,622
Other assets	2,590		9,178
Accounts payable and accrued liabilities	(5,994)		(18,044)
Lease liabilities	(6,440)		(5,979)
Income taxes payable	3,079		793
Deferred revenue	10,001		(7,937)
Net cash flows from operating activities	134,602		102,085
Cash flows from (used in) investing activities:
Purchases of investments	—		(5,009)
Sales and maturities of investments	4,150		14,901
Purchases of property and equipment	(2,741)		(3,419)
Decrease in escrow receivable and other	2,330		—
Net cash flows from investing activities	3,739		6,473
Cash flows from (used in) financing activities:
Proceeds from stock-based compensation plans	9,247		9,027
Payments for taxes related to net share settlements of equity awards	(2,398)		(4,072)
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	(23,372)		(22,358)
Payment of principal on long-term debt	(111,669)		(7,525)
Payment of debt issuance costs	(904)		—
Net cash flows from (used in) financing activities	142,948		(44,928)
Effect of exchange rate changes on cash	616		2,686
Net increase in cash and cash equivalents	281,905		66,316
Cash and cash equivalents, beginning of period	97,990		154,259
Cash and cash equivalents, end of period	$	379,895	$	220,575

Condensed Consolidated Statements of Cash Flows, continued


	Nine Months Ended
	August 31, 2021		August 31, 2020
Supplemental disclosure:
Cash paid for income taxes, net of refunds of $807 in 2021 and $557 in 2020	$	9,920	$	7,052
Cash paid for interest	$	6,564	$	6,864
Non-cash investing and financing activities:
Total fair value of restricted stock awards, restricted stock units and deferred stock units on date vested	$	8,779	$	12,786
Dividends declared	$	7,988	$	7,568

See notes to unaudited condensed consolidated financial statements.

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.

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 a decrease 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 an increase 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 August 31, 2021 is as follows (in thousands):


	Amortized Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Cash	$	356,690	$	—	$	—	$	356,690
Money market funds	23,205		—		—		23,205
U.S. treasury bonds	2,248		15		—		2,263
Corporate bonds	1,505		14		—		1,519
Total	$	383,648	$	29	$	—	$	383,677

A summary of our cash, cash equivalents and available-for-sale investments at November 30, 2020 is as follows (in thousands):


	Amortized Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Cash	$	79,026	$	—	$	—	$	79,026
Money market funds	18,964		—		—		18,964
U.S. treasury bonds	4,993		58		—		5,051
Corporate bonds	2,913		41		—		2,954
Total	$	105,896	$	99	$	—	$	105,995

Such amounts are classified on our condensed consolidated balance sheets as follows (in thousands):


	August 31, 2021				November 30, 2020
	Cash and Equivalents		Short-Term Investments		Cash and Equivalents		Short-Term Investments
Cash	$	356,690	$	—	$	79,026	$	—
Money market funds	23,205		—		18,964		—
U.S. treasury bonds	—		2,263		—		5,051
Corporate bonds	—		1,519		—		2,954
Total	$	379,895	$	3,782	$	97,990	$	8,005

The fair value of debt securities by contractual maturity is as follows (in thousands):


	August 31, 2021		November 30, 2020
Due in one year or less	$	3,021	$	5,998
Due after one year(1)	761		2,007
Total	$	3,782	$	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 August 31, 2021 or November 30, 2020.

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 August 31, 2021, the fair value of the hedge was a loss of $4.8 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):


	August 31, 2021				November 30, 2020
	Notional Value		Fair Value		Notional Value		Fair Value
Interest rate swap contracts designated as cash flow hedges	$	135,938	$	(4,802)	$	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 August 31, 2021, $1.7 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 nine months ended August 31, 2021, realized and unrealized losses of $2.3 million and realized and unrealized gains of $0.4 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on our condensed consolidated statements of operations. In the three and nine months ended August 31, 2020, realized and unrealized gains of $4.5 million and $2.1 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):


	August 31, 2021				November 30, 2020
	Notional Value		Fair Value		Notional Value		Fair Value
Forward contracts to sell U.S. dollars	$	66,289	$	1,728	$	69,031	$	1,445
Forward contracts to purchase U.S. dollars	—		—		440		(3)
Total	$	66,289	$	1,728	$	69,471	$	1,442

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 August 31, 2021 (in thousands):


			Fair Value Measurements Using
	Total Fair Value		Level 1		Level 2		Level 3
Assets
Money market funds	$	23,205	$	23,205	$	—	$	—
U.S. treasury bonds	2,263		—		2,263		—
Corporate bonds	1,519		—		1,519		—
Foreign exchange derivatives	1,728		—		1,728		—
Liabilities
Interest rate swap	$	(4,802)	$	—	$	(4,802)	$	—

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 Value		Level 1		Level 2		Level 3
Assets
Money market funds	$	18,964	$	18,964	$	—	$	—
U.S. treasury bonds	5,051		—		5,051		—
Corporate bonds	2,954		—		2,954		—
Foreign exchange derivatives	1,442		—		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 $364.7 million as of August 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.

Note 5: Intangible Assets and Goodwill

Intangible Assets

Intangible assets are comprised of the following significant classes (in thousands):


	August 31, 2021						November 30, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Purchased technology	$	173,486	$	(124,584)	$	48,902	$	173,486	$	(113,863)	$	59,623
Customer-related	231,342		(111,273)		120,069		231,342		(91,326)		140,016
Trademarks and trade names	30,440		(20,663)		9,777		30,440		(18,275)		12,165
Non-compete agreement	2,000		(1,558)		442		2,000		(1,057)		943
Total	$	437,268	$	(258,078)	$	179,190	$	437,268	$	(224,521)	$	212,747

In the three and nine months ended August 31, 2021, amortization expense related to intangible assets was $11.6 million and $