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prgs-20220531

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, 2022


☐			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.)

15 Wayside Road, Suite 400

Burlington, Massachusetts 01803

(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 June 28, 2022, there were 43,462,098 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, 2022

TABLE OF CONTENTS



PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of May 31 , 2022 and November 30, 2021	3
	Condensed Consolidated Statements of Operations for the three and six months ended May 31 , 2022 and 2021	4
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended May 31 , 2022 and 2021	5
	Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended May 31 , 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the six months ended May 31 , 2022 and 2021	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6.	Exhibits	45

	Signatures	46

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets


(In thousands, except share data)	May 31, 2022		November 30, 2021
Assets
Current assets:
Cash and cash equivalents	$	224,863	$	155,406
Short-term investments	1,050		1,967
Total cash, cash equivalents and short-term investments	225,913		157,373
Accounts receivable (less allowances of $869 and $634, respectively)	64,733		99,815
Unbilled receivables and contract assets	32,735		25,816
Other current assets	32,488		39,549
Assets held for sale	—		15,255
Total current assets	355,869		337,808
Long-term unbilled receivables and contract assets	24,253		17,464
Property and equipment, net	13,649		14,345
Intangible assets, net	252,360		287,185
Goodwill	673,066		671,152
Right-of-use lease assets	21,364		25,253
Deferred tax assets	4,180		1,415
Other assets	9,841		8,915
Total assets	$	1,354,582	$	1,363,537
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt, net	$	6,234	$	25,767
Accounts payable	9,917		9,683
Accrued compensation and related taxes	29,341		47,116
Dividends payable to stockholders	8,094		7,925
Short-term operating lease liabilities	7,843		7,926
Other accrued liabilities	15,469		19,491
Short-term deferred revenue	207,331		205,021
Total current liabilities	284,229		322,929
Long-term debt, net	262,337		239,992
Convertible senior notes, net	351,567		294,535
Long-term operating lease liabilities	18,965		23,130
Long-term deferred revenue	51,249		47,359
Deferred tax liabilities	6,098		14,163
Other noncurrent liabilities	7,991		8,940
Commitments and contingencies
Stockholders’ 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, 43,454,288 shares in 2022 and 44,146,193 shares in 2021	435		441
Additional paid-in capital	309,913		354,235
Retained earnings	93,885		90,256
Accumulated other comprehensive loss	(32,087)		(32,443)
Total stockholders’ equity	372,146		412,489
Total liabilities and stockholders’ equity	$	1,354,582	$	1,363,537

See notes to unaudited condensed consolidated financial statements.

Condensed Consolidated Statements of Operations


	Three Months Ended				Six Months Ended
(In thousands, except per share data)	May 31, 2022		May 31, 2021		May 31, 2022		May 31, 2021
Revenue:
Software licenses	$	44,814	$	30,107	$	87,564	$	63,424
Maintenance and services	103,933		92,381		206,105		180,344
Total revenue	148,747		122,488		293,669		243,768
Costs of revenue:
Cost of software licenses	2,583		1,038		5,192		2,189
Cost of maintenance and services	15,801		14,673		30,946		27,992
Amortization of acquired intangibles	5,573		3,599		11,031		7,120
Total costs of revenue	23,957		19,310		47,169		37,301
Gross profit	124,790		103,178		246,500		206,467
Operating expenses:
Sales and marketing	32,704		29,262		66,173		58,731
Product development	28,643		26,415		57,316		50,963
General and administrative	19,207		16,460		36,198		29,884
Amortization of acquired intangibles	11,892		7,979		23,614		14,858
Restructuring expenses	143		(64)		654		1,093
Acquisition-related expenses	2,736		844		3,648		1,240
Gain on sale of assets held for sale	(10,770)		—		(10,770)		—
Total operating expenses	84,555		80,896		176,833		156,769
Income from operations	40,235		22,282		69,667		49,698
Other (expense) income:
Interest expense	(3,656)		(4,601)		(7,359)		(7,115)
Interest income and other, net	155		4		744		123
Foreign currency gain (loss), net	111		(621)		(255)		(878)
Total other expense, net	(3,390)		(5,218)		(6,870)		(7,870)
Income before income taxes	36,845		17,064		62,797		41,828
Provision for income taxes	7,735		3,507		13,233		9,310
Net income	$	29,110	$	13,557	$	49,564	$	32,518
Earnings per share:
Basic	$	0.67	$	0.31	$	1.13	$	0.74
Diluted	$	0.66	$	0.30	$	1.11	$	0.73
Weighted average shares outstanding:
Basic	43,575		43,818		43,778		43,963
Diluted	44,253		44,472		44,480		44,562

Cash dividends declared per common share	$	0.175	$	0.175	$	0.350	$	0.350

See notes to unaudited condensed consolidated financial statements.

Condensed Consolidated Statements of Comprehensive Income


	Three Months Ended				Six Months Ended
(In thousands)	May 31, 2022		May 31, 2021		May 31, 2022		May 31, 2021
Net income	$	29,110	$	13,557	$	49,564	$	32,518
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(5,104)		1,876		(3,323)		3,101
Unrealized gain on hedging activity, net of tax provision of $643 and $1,165 for the second quarter and first six months of 2022, respectively and net of tax provision of $76 and $347 for the second quarter and first six months of 2021, respectively	2,038		235		3,691		1,072
Unrealized loss on investments, net of tax benefit of $1 and $4 for the second quarter and first six months of 2022 and net of tax provision of $30 and a tax benefit of $12 for the second quarter and first six months of 2021, respectively	(5)		(53)		(12)		(39)
Total other comprehensive income, net of tax	(3,071)		2,058		356		4,134
Comprehensive income	$	26,039	$	15,615	$	49,920	$	36,652

See notes to unaudited condensed consolidated financial statements.

Condensed Consolidated Statements of Stockholders’ Equity


	Six Months Ended May 31, 2022
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
(in thousands)	Number of Shares	Amount
Balance, December 1, 2021	44,146	$	441	$	354,235	$	90,256	$	(32,443)	$	412,489
Cumulative effect of adoption of ASU 2020-06	—	—		(47,456)		4,893		—		(42,563)
Issuance of stock under employee stock purchase plan	178	2		5,211		—		—		5,213
Exercise of stock options	60	1		2,235		—		—		2,236
Vesting of restricted stock units and release of deferred stock units	188	2		(2)		—		—		—
Withholding tax payments related to net issuance of RSUs	—	—		(5,405)		—		—		(5,405)
Stock-based compensation	—	—		17,471		—		—		17,471
Dividends declared	—	—		—		(15,742)		—		(15,742)
Treasury stock repurchases and retirements	(1,118)	(11)		(16,376)		(35,086)		—		(51,473)
Net income	—	—		—		49,564		—		49,564
Other comprehensive income	—	—		—		—		356		356
Balance, May 31, 2022	43,454	$	435	$	309,913	$	93,885	$	(32,087)	$	372,146


	Three Months Ended May 31, 2022
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
(in thousands)	Number of Shares	Amount
Balance, March 1, 2022	43,766	$	438	$	303,240	$	93,661	$	(29,016)	$	368,323
Issuance of stock under employee stock purchase plan	115	1		3,385		—		—		3,386
Exercise of stock options	41	1		1,600		—		—		1,601
Vesting of restricted stock units and release of deferred stock units	98	1		(1)		—		—		—
Withholding tax payments related to net issuance of RSUs	—	—		(2,266)		—		—		(2,266)
Stock-based compensation	—	—		9,357		—		—		9,357
Dividends declared	—	—		—		(7,821)		—		(7,821)
Treasury stock repurchases and retirements	(566)	(6)		(5,402)		(21,065)		—		(26,473)
Net income	—	—		—		29,110		—		29,110
Other comprehensive income	—	—		—		—		(3,071)		(3,071)
Balance, May 31, 2022	43,454	$	435	$	309,913	$	93,885	$	(32,087)	$	372,146


	Six Months Ended May 31, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' 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	145	1		4,039		—		—		4,040
Exercise of stock options	56	1		1,831		—		—		1,832
Vesting of restricted stock units and release of deferred stock units	100	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 loss	—	—		—		—		4,134		4,134
Balance, May 31, 2021	43,745	$	437	$	333,627	$	60,301	$	(28,644)	$	365,721


	Three Months Ended May 31, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
(in thousands)	Number of Shares	Amount
Balance, March 1, 2021	44,000	$	440	$	311,697	$	71,118	$	(30,702)	$	352,553
Issuance of stock under employee stock purchase plan	89	—		2,495		—		—		2,495
Exercise of stock options	28	1		914		—		—		915
Vesting of restricted stock units and release of deferred stock units	72	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 loss	—	—		—		—		2,058		2,058
Balance, May 31, 2021	43,745	$	437	$	333,627	$	60,301	$	(28,644)	$	365,721

Condensed Consolidated Statements of Cash Flows


	Six Months Ended
(In thousands)	May 31, 2022		May 31, 2021
Cash flows from operating activities:
Net income	$	49,564	$	32,518
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	2,432		2,741
Amortization of acquired intangibles and other	35,111		22,267
Amortization of debt discount and issuance costs on Notes	1,054		1,683
Stock-based compensation	17,471		15,146
Non-cash lease expense	4,033		4,183
Loss on disposal of property and equipment	8		3
Gain on sale of assets held for sale	(10,770)
Deferred income taxes	1,735		(705)
Allowances for bad debt and sales credits	339		(358)
Changes in operating assets and liabilities:
Accounts receivable	19,894		29,105
Other assets	6,833		1,722
Inventories	738		—
Accounts payable and accrued liabilities	(20,330)		(11,554)
Lease liabilities	(4,337)		(4,467)
Income taxes payable	(200)		(1,059)
Deferred revenue	8,778		8,153
Net cash flows from operating activities	112,353		99,378
Cash flows from investing activities:
Sales and maturities of investments	900		2,650
Purchases of property and equipment	(1,979)		(2,116)
Proceeds from sale of long-lived assets, net	25,998		—
Decrease in escrow receivable and other	—		2,130
Net cash flows from investing activities	24,919		2,664
Cash flows (used in) from financing activities:
Proceeds from stock-based compensation plans	7,771		6,300
Payments for taxes related to net share settlements of equity awards	(5,405)		(2,373)
Repurchases of common stock	(51,473)		(35,000)
Proceeds from issuance of senior convertible notes, net of issuance costs of $9.9 million	—		350,100
Purchase of capped calls	—		(43,056)
Dividend payments to stockholders	(15,573)		(15,617)
Proceeds from the issuance of debt	7,474		—
Payment of principal on long-term debt	(3,435)		(106,025)
Payment of debt issuance costs	(1,957)		(904)
Net cash flows (used in) from financing activities	(62,598)		153,425
Effect of exchange rate changes on cash	(5,217)		3,903
Net increase in cash and cash equivalents	69,457		259,370
Cash and cash equivalents, beginning of period	155,406		97,990
Cash and cash equivalents, end of period	$	224,863	$	357,360

Condensed Consolidated Statements of Cash Flows, continued


	Six Months Ended
	May 31, 2022		May 31, 2021
Supplemental disclosure:
Cash paid for income taxes, net of refunds of $364 in 2022 and $488 in 2021	$	4,982	$	6,677
Cash paid for interest	$	3,291	$	4,480
Non-cash investing and financing activities:
Total fair value of restricted stock awards, restricted stock units and deferred stock units on date vested	$	18,204	$	8,698
Dividends declared	$	8,094	$	7,921

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") is dedicated to propelling business forward in a technology-driven world. Progress helps businesses drive faster cycles of innovation, fuel momentum and accelerate their path to success. As the trusted provider of the leading products to develop, deploy and manage high-impact applications, Progress enables customers to develop the applications and experiences the need, deploy where and how they want and manage it all safely and securely. Hundreds of thousands of enterprises, including 1,700 software companies and 3.5 million developers depend on Progress to achieve their goals—with confidence.

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 independent software vendors), original equipment manufacturers ("OEMs"), distributors and value-added resellers. Independent software vendors 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 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, 2021, as filed with the SEC on January 27, 2022, as amended by a Form 10-K/A filed on March 30, 2022 (together, the "2021 10-K").

We made no material changes in the application of our significant accounting policies that were disclosed in our 2021 10-K. We have prepared the accompanying unaudited condensed consolidated financial statements on the same basis as the audited financial statements included in our 2021 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

Income Taxes

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 updates specific areas of ASC 740, Income Taxes, to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. The Company adopted this standard effective December 1, 2021. The adoption of this standard did not have a material effect on the Company's condensed consolidated financial position and results of operations.

Convertible Debt

On December 1, 2021, we early adopted Accounting Standards Update No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06") on a modified retrospective basis. Under ASU 2020-06, we no longer separate the convertible senior notes into liability and equity components. We recognized the cumulative effect of initially applying this new standard as of December 1, 2021 as an adjustment to the December 1, 2021 opening balance of retained earnings. The conversion option that was previously accounted for in equity under the cash conversion model was recombined into the convertible debt outstanding, and as a result, additional paid in capital and the related unamortized debt discount on the convertible senior notes were reduced. The removal of the remaining debt discount recorded for this previous separation has the effect of increasing our net debt balance. We recorded a $47.5 million decrease to additional paid-in capital, a $56.0 million decrease to debt discount, a $4.9 million increase to retained earnings, and a $13.4 million decrease to long-term deferred tax liabilities. There was no impact to the Company’s statements of cash flows as the result of the adoption of ASU 2020-06. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. See "Note 8: Debt" for additional information regarding the terms of the Convertible Senior Notes (the "Notes").

The new standard requires the use of the "if-converted" method to calculate the diluted earnings per common share. Refer to Note 16: Earnings Per Share for effect of the convertible notes on diluted earnings per common share.

Note 2: Cash, Cash Equivalents and Investments

A summary of our cash, cash equivalents and available-for-sale investments at May 31, 2022 is as follows (in thousands):


	Amortized Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Cash	$	198,897	$	—	$	—	$	198,897
Money market funds	25,966		—		—		25,966
U.S. treasury bonds	750		—		—		750
Corporate bonds	300		—		—		300
Total	$	225,913	$	—	$	—	$	225,913

A summary of our cash, cash equivalents and available-for-sale investments at November 30, 2021 is as follows (in thousands):


	Amortized Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Cash	$	130,371	$	—	$	—	$	130,371
Money market funds	25,035		—		—		25,035
U.S. treasury bonds	748		9		—		757
Corporate bonds	1,203		7		—		1,210
Total	$	157,357	$	16	$	—	$	157,373

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


	May 31, 2022				November 30, 2021
	Cash and Equivalents		Short-Term Investments		Cash and Equivalents		Short-Term Investments
Cash	$	198,897	$	—	$	130,371	$	—
Money market funds	25,966		—		25,035		—
U.S. treasury bonds	—		750		—		757
Corporate bonds	—		300		—		1,210
Total	$	224,863	$	1,050	$	155,406	$	1,967

The fair value of debt securities by contractual maturity due in one year or less was $1.1 million and $2.0 million as of May 31, 2022 and November 30, 2021, respectively. There were no debt securities by contractual maturity due after one year as of May 31, 2022 or November 30, 2021.

We did not hold any investments with continuous unrealized losses as of May 31, 2022 or November 30, 2021.

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. On January 25, 2022, we amended our prior credit facility (see Note 8: Debt). We reassessed the hedge in connection with the debt amendment and determined that it is still highly effective. As of May 31, 2022, the fair value of the hedge was a gain of $1.8 million, which was included in other assets 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, 2022				November 30, 2021
	Notional Value		Fair Value		Notional Value		Fair Value
Interest rate swap contracts designated as cash flow hedges	$	127,500	$	1,778	$	133,125	$	(3,078)

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 3 years from the date the contract was entered. At May 31, 2022, $1.6 million and $0.4 million was recorded in other noncurrent liabilities and other current assets on our condensed consolidated balance sheets. At November 30, 2021, $0.3 million and $0.1 million were recorded in other noncurrent liabilities and other accrued liabilities, respectively, on our condensed consolidated balance sheets.

In the three and six months ended May 31, 2022, realized and unrealized losses of $3.9 million and $3.6 million, respectively, from our forward contracts were recognized in foreign currency gain (loss), net, on our condensed consolidated statements of operations. In the three and six month 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 gain (loss), net, on our condensed consolidated statements of operations. These gains and losses were substantially offset by realized and unrealized gains and losses in 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, 2022				November 30, 2021
	Notional Value		Fair Value		Notional Value		Fair Value
Forward contracts to sell U.S. dollars	$	84,291	$	(1,206)	$	79,777	$	(371)
Forward contracts to purchase U.S. dollars	737		(8)		119		(1)
Total	$	85,028	$	(1,214)	$	79,896	$	(372)

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, 2022 (in thousands):


			Fair Value Measurements Using
	Total Fair Value		Level 1		Level 2		Level 3
Assets
Money market funds	$	25,966	$	25,966	$	—	$	—
U.S. treasury bonds	750		—		750		—
Corporate bonds	300		—		300		—
Interest rate swap	1,778		—		1,778		—
Liabilities
Foreign exchange derivatives	$	(1,214)	$	—	$	(1,214)	$	—

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2021 (in thousands):


			Fair Value Measurements Using
	Total Fair Value		Level 1		Level 2		Level 3
Assets
Money market funds	$	25,035	$	25,035	$	—	$	—
U.S. treasury bonds	757		—		757		—
Corporate bonds	1,210		—		1,210		—
Liabilities