prgs-20220831
PROGRESS SOFTWARE CORP /MA0000876167FALSE2022Q3November 30http://fasb.org/us-gaap/2022#AccountingStandardsUpdate202006CumulativeEffectPeriodOfAdoptionMember0.0174525P3YP3Y100008761672021-12-012022-08-3100008761672022-09-27xbrli:shares00008761672022-08-31iso4217:USD00008761672021-11-30iso4217:USDxbrli:shares0000876167prgs:SoftwareLicensesMember2022-06-012022-08-310000876167prgs:SoftwareLicensesMember2021-06-012021-08-310000876167prgs:SoftwareLicensesMember2021-12-012022-08-310000876167prgs:SoftwareLicensesMember2020-12-012021-08-310000876167prgs:MaintenanceandServicesMember2022-06-012022-08-310000876167prgs:MaintenanceandServicesMember2021-06-012021-08-310000876167prgs:MaintenanceandServicesMember2021-12-012022-08-310000876167prgs:MaintenanceandServicesMember2020-12-012021-08-3100008761672022-06-012022-08-3100008761672021-06-012021-08-3100008761672020-12-012021-08-310000876167us-gaap:CommonStockMember2021-11-300000876167us-gaap:AdditionalPaidInCapitalMember2021-11-300000876167us-gaap:RetainedEarningsMember2021-11-300000876167us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-11-3000008761672020-12-012021-11-300000876167us-gaap:AdditionalPaidInCapitalMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2021-11-300000876167srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2021-11-300000876167srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2021-11-300000876167us-gaap:CommonStockMember2021-12-012022-08-310000876167us-gaap:AdditionalPaidInCapitalMember2021-12-012022-08-310000876167us-gaap:RetainedEarningsMember2021-12-012022-08-310000876167us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-012022-08-310000876167us-gaap:CommonStockMember2022-08-310000876167us-gaap:AdditionalPaidInCapitalMember2022-08-310000876167us-gaap:RetainedEarningsMember2022-08-310000876167us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-08-310000876167us-gaap:CommonStockMember2022-05-310000876167us-gaap:AdditionalPaidInCapitalMember2022-05-310000876167us-gaap:RetainedEarningsMember2022-05-310000876167us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-05-3100008761672022-05-310000876167us-gaap:CommonStockMember2022-06-012022-08-310000876167us-gaap:AdditionalPaidInCapitalMember2022-06-012022-08-310000876167us-gaap:RetainedEarningsMember2022-06-012022-08-310000876167us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-012022-08-310000876167us-gaap:CommonStockMember2020-11-300000876167us-gaap:AdditionalPaidInCapitalMember2020-11-300000876167us-gaap:RetainedEarningsMember2020-11-300000876167us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-11-3000008761672020-11-300000876167us-gaap:CommonStockMember2020-12-012021-08-310000876167us-gaap:AdditionalPaidInCapitalMember2020-12-012021-08-310000876167us-gaap:RetainedEarningsMember2020-12-012021-08-310000876167us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-012021-08-310000876167us-gaap:CommonStockMember2021-08-310000876167us-gaap:AdditionalPaidInCapitalMember2021-08-310000876167us-gaap:RetainedEarningsMember2021-08-310000876167us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-08-3100008761672021-08-310000876167us-gaap:CommonStockMember2021-05-310000876167us-gaap:AdditionalPaidInCapitalMember2021-05-310000876167us-gaap:RetainedEarningsMember2021-05-310000876167us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-05-3100008761672021-05-310000876167us-gaap:CommonStockMember2021-06-012021-08-310000876167us-gaap:AdditionalPaidInCapitalMember2021-06-012021-08-310000876167us-gaap:RetainedEarningsMember2021-06-012021-08-310000876167us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-012021-08-31prgs:software_vendorprgs:developer0000876167srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate202006Member2021-11-300000876167us-gaap:CashMember2022-08-310000876167us-gaap:MoneyMarketFundsMember2022-08-310000876167us-gaap:USTreasurySecuritiesMember2022-08-310000876167us-gaap:CashMember2021-11-300000876167us-gaap:MoneyMarketFundsMember2021-11-300000876167us-gaap:USTreasurySecuritiesMember2021-11-300000876167us-gaap:CorporateDebtSecuritiesMember2021-11-300000876167us-gaap:CorporateDebtSecuritiesMember2022-08-310000876167us-gaap:InterestRateSwapMember2019-07-090000876167us-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:InterestRateSwapMember2019-07-09xbrli:pure0000876167us-gaap:OtherNoncurrentLiabilitiesMember2022-08-310000876167us-gaap:InterestRateSwapMember2022-08-310000876167us-gaap:InterestRateSwapMember2021-11-300000876167us-gaap:ForwardContractsMember2021-12-012022-08-310000876167us-gaap:ForwardContractsMemberus-gaap:OtherNoncurrentLiabilitiesMember2022-08-310000876167us-gaap:ForwardContractsMemberus-gaap:OtherCurrentLiabilitiesMember2022-08-310000876167us-gaap:ForwardContractsMemberus-gaap:OtherNoncurrentLiabilitiesMember2021-11-300000876167us-gaap:ForwardContractsMemberus-gaap:AccruedLiabilitiesMember2021-11-300000876167us-gaap:ForwardContractsMember2022-06-012022-08-310000876167us-gaap:ForwardContractsMember2021-06-012021-08-310000876167us-gaap:ForwardContractsMember2020-12-012021-08-310000876167prgs:ForeignCurrencyForwardContractsToSellUSDollarsMember2022-08-310000876167prgs:ForeignCurrencyForwardContractsToSellUSDollarsMember2021-11-300000876167prgs:ForeignCurrencyForwardContractsToPurchaseUSDollarsMember2022-08-310000876167prgs:ForeignCurrencyForwardContractsToPurchaseUSDollarsMember2021-11-300000876167us-gaap:MoneyMarketFundsMember2022-08-310000876167us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Member2022-08-310000876167us-gaap:FairValueInputsLevel2Memberus-gaap:MoneyMarketFundsMember2022-08-310000876167us-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2022-08-310000876167us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Member2022-08-310000876167us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2022-08-310000876167us-gaap:FairValueInputsLevel3Memberus-gaap:USTreasurySecuritiesMember2022-08-310000876167us-gaap:InterestRateSwapMember2022-08-310000876167us-gaap:FairValueInputsLevel1Memberus-gaap:InterestRateSwapMember2022-08-310000876167us-gaap:FairValueInputsLevel2Memberus-gaap:InterestRateSwapMember2022-08-310000876167us-gaap:FairValueInputsLevel3Memberus-gaap:InterestRateSwapMember2022-08-310000876167us-gaap:ForeignExchangeContractMember2022-08-310000876167us-gaap:ForeignExchangeContractMemberus-gaap:FairValueInputsLevel1Member2022-08-310000876167us-gaap:ForeignExchangeContractMemberus-gaap:FairValueInputsLevel2Member2022-08-310000876167us-gaap:ForeignExchangeContractMemberus-gaap:FairValueInputsLevel3Member2022-08-310000876167us-gaap:MoneyMarketFundsMember2021-11-300000876167us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Member2021-11-300000876167us-gaap:FairValueInputsLevel2Memberus-gaap:MoneyMarketFundsMember2021-11-300000876167us-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2021-11-300000876167us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Member2021-11-300000876167us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2021-11-300000876167us-gaap:FairValueInputsLevel3Memberus-gaap:USTreasurySecuritiesMember2021-11-300000876167us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Member2021-11-300000876167us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2021-11-300000876167us-gaap:FairValueInputsLevel3Memberus-gaap:CorporateDebtSecuritiesMember2021-11-300000876167us-gaap:ForeignExchangeContractMember2021-11-300000876167us-gaap:ForeignExchangeContractMemberus-gaap:FairValueInputsLevel1Member2021-11-300000876167us-gaap:ForeignExchangeContractMemberus-gaap:FairValueInputsLevel2Member2021-11-300000876167us-gaap:ForeignExchangeContractMemberus-gaap:FairValueInputsLevel3Member2021-11-300000876167us-gaap:InterestRateSwapMember2021-11-300000876167us-gaap:FairValueInputsLevel1Memberus-gaap:InterestRateSwapMember2021-11-300000876167us-gaap:FairValueInputsLevel2Memberus-gaap:InterestRateSwapMember2021-11-300000876167us-gaap:FairValueInputsLevel3Memberus-gaap:InterestRateSwapMember2021-11-300000876167us-gaap:ConvertibleDebtMember2022-08-310000876167us-gaap:OtherCurrentAssetsMember2022-08-310000876167us-gaap:OtherCurrentAssetsMember2021-11-300000876167us-gaap:ComputerSoftwareIntangibleAssetMember2022-08-310000876167us-gaap:ComputerSoftwareIntangibleAssetMember2021-11-300000876167us-gaap:CustomerRelationshipsMember2022-08-310000876167us-gaap:CustomerRelationshipsMember2021-11-300000876167us-gaap:TrademarksAndTradeNamesMember2022-08-310000876167us-gaap:TrademarksAndTradeNamesMember2021-11-300000876167us-gaap:NoncompeteAgreementsMember2022-08-310000876167us-gaap:NoncompeteAgreementsMember2021-11-300000876167prgs:KempAcquisitionMember2021-11-012021-11-010000876167prgs:KempAcquisitionMember2021-11-010000876167prgs:KempAcquisitionMember2021-11-012022-08-310000876167prgs:KempAcquisitionMember2022-08-310000876167us-gaap:ComputerSoftwareIntangibleAssetMemberprgs:KempAcquisitionMember2021-11-010000876167us-gaap:ComputerSoftwareIntangibleAssetMemberprgs:KempAcquisitionMember2022-08-310000876167us-gaap:ComputerSoftwareIntangibleAssetMemberprgs:KempAcquisitionMember2021-11-012022-08-310000876167us-gaap:TradeNamesMemberprgs:KempAcquisitionMember2021-11-010000876167us-gaap:TradeNamesMemberprgs:KempAcquisitionMember2022-08-310000876167us-gaap:TradeNamesMemberprgs:KempAcquisitionMember2021-11-012022-08-310000876167us-gaap:CustomerRelationshipsMemberprgs:KempAcquisitionMember2021-11-010000876167us-gaap:CustomerRelationshipsMemberprgs:KempAcquisitionMember2022-08-310000876167us-gaap:CustomerRelationshipsMemberprgs:KempAcquisitionMember2021-11-012022-08-310000876167prgs:KempAcquisitionMember2022-06-012022-08-310000876167prgs:KempAcquisitionMember2021-12-012022-08-310000876167prgs:KempAcquisitionMember2021-06-012021-08-310000876167prgs:KempAcquisitionMember2020-12-012021-08-310000876167prgs:ChefAcquisitionMember2020-10-052020-10-050000876167prgs:CreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-10-052020-10-050000876167prgs:ChefAcquisitionMember2020-10-050000876167prgs:ChefAcquisitionMember2020-10-052022-08-310000876167prgs:ChefAcquisitionMember2022-08-310000876167prgs:ChefAcquisitionMemberus-gaap:ComputerSoftwareIntangibleAssetMember2020-10-050000876167prgs:ChefAcquisitionMemberus-gaap:ComputerSoftwareIntangibleAssetMember2022-08-310000876167prgs:ChefAcquisitionMemberus-gaap:ComputerSoftwareIntangibleAssetMember2020-10-052022-08-310000876167prgs:ChefAcquisitionMemberus-gaap:TradeNamesMember2020-10-050000876167prgs:ChefAcquisitionMemberus-gaap:TradeNamesMember2022-08-310000876167prgs:ChefAcquisitionMemberus-gaap:TradeNamesMember2020-10-052022-08-310000876167prgs:ChefAcquisitionMemberus-gaap:CustomerRelationshipsMember2020-10-050000876167prgs:ChefAcquisitionMemberus-gaap:CustomerRelationshipsMember2022-08-310000876167prgs:ChefAcquisitionMemberus-gaap:CustomerRelationshipsMember2020-10-052022-08-310000876167prgs:ChefAcquisitionMember2022-06-012022-08-310000876167prgs:ChefAcquisitionMember2021-12-012022-08-310000876167us-gaap:LineOfCreditMember2022-08-310000876167prgs:ConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2021-04-300000876167prgs:ConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2021-04-012021-04-300000876167prgs:ConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2022-08-310000876167prgs:ConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2021-12-012022-08-31prgs:day00008761672021-04-0800008761672021-04-082021-04-080000876167prgs:ConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2021-04-080000876167prgs:ConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2021-11-300000876167us-gaap:ConvertibleDebtMember2021-11-300000876167us-gaap:LineOfCreditMemberprgs:AmendedCreditAgreementMemberus-gaap:SecuredDebtMember2022-01-250000876167us-gaap:LineOfCreditMemberprgs:AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2022-01-250000876167us-gaap:BridgeLoanMemberus-gaap:LineOfCreditMemberprgs:AmendedCreditAgreementMember2022-01-250000876167us-gaap:LineOfCreditMemberprgs:AmendedCreditAgreementMemberus-gaap:LetterOfCreditMember2022-01-250000876167us-gaap:LineOfCreditMemberus-gaap:EurodollarMemberprgs:AmendedCreditAgreementMembersrt:MinimumMember2022-08-310000876167srt:MaximumMemberus-gaap:LineOfCreditMemberus-gaap:EurodollarMemberprgs:AmendedCreditAgreementMember2022-08-310000876167us-gaap:BaseRateMemberus-gaap:LineOfCreditMemberprgs:AmendedCreditAgreementMembersrt:MinimumMember2022-08-310000876167srt:MaximumMemberus-gaap:BaseRateMemberus-gaap:LineOfCreditMemberprgs:AmendedCreditAgreementMember2022-08-310000876167us-gaap:LineOfCreditMemberprgs:AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMembersrt:MinimumMember2021-12-012022-08-310000876167srt:MaximumMemberus-gaap:LineOfCreditMemberprgs:AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2021-12-012022-08-310000876167prgs:AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2022-08-310000876167prgs:AmendedCreditAgreementMember2022-08-310000876167prgs:CreditAgreementMember2022-08-310000876167prgs:CreditAgreementMember2022-06-012022-08-310000876167prgs:CreditAgreementMember2021-06-012021-08-310000876167prgs:CreditAgreementMember2021-12-012022-08-310000876167prgs:CreditAgreementMember2020-12-012021-08-310000876167prgs:AmendedCreditAgreementMemberus-gaap:LetterOfCreditMember2022-08-310000876167srt:MinimumMember2022-08-310000876167srt:MaximumMember2022-08-3100008761672019-11-3000008761672020-01-310000876167prgs:LongTermIncentivePlanLTIPMember2021-12-012022-08-31prgs:metric0000876167prgs:LongTermIncentivePlanLTIPMember2020-12-012021-11-300000876167prgs:LongTermIncentivePlanLTIPMember2019-12-012020-11-300000876167prgs:LongTermIncentivePlanLTIPMemberprgs:TwentyTwentyPlanMember2019-12-012020-11-300000876167prgs:LongTermIncentivePlanLTIPMemberprgs:TwentyTwentyTwoPlanMember2021-12-012022-08-310000876167prgs:LongTermIncentivePlanLTIPMemberprgs:TwentyTwentyOnePlanMember2020-12-012021-11-300000876167prgs:LongTermIncentivePlanLTIPMemberprgs:TwentyTwentyTwoPlanMember2020-12-012021-11-300000876167prgs:LongTermIncentivePlanLTIPMemberprgs:TwentyTwentyOnePlanMember2021-12-012022-08-310000876167us-gaap:EmployeeStockOptionMember2021-12-012022-08-310000876167us-gaap:RestrictedStockUnitsRSUMember2021-12-012022-08-310000876167prgs:CostOfMaintenanceAndServicesMember2022-06-012022-08-310000876167prgs:CostOfMaintenanceAndServicesMember2021-06-012021-08-310000876167prgs:CostOfMaintenanceAndServicesMember2021-12-012022-08-310000876167prgs:CostOfMaintenanceAndServicesMember2020-12-012021-08-310000876167us-gaap:SellingAndMarketingExpenseMember2022-06-012022-08-310000876167us-gaap:SellingAndMarketingExpenseMember2021-06-012021-08-310000876167us-gaap:SellingAndMarketingExpenseMember2021-12-012022-08-310000876167us-gaap:SellingAndMarketingExpenseMember2020-12-012021-08-310000876167prgs:ProductDevelopmentMember2022-06-012022-08-310000876167prgs:ProductDevelopmentMember2021-06-012021-08-310000876167prgs:ProductDevelopmentMember2021-12-012022-08-310000876167prgs:ProductDevelopmentMember2020-12-012021-08-310000876167us-gaap:GeneralAndAdministrativeExpenseMember2022-06-012022-08-310000876167us-gaap:GeneralAndAdministrativeExpenseMember2021-06-012021-08-310000876167us-gaap:GeneralAndAdministrativeExpenseMember2021-12-012022-08-310000876167us-gaap:GeneralAndAdministrativeExpenseMember2020-12-012021-08-310000876167us-gaap:AccumulatedTranslationAdjustmentMember2021-11-300000876167us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2021-11-300000876167us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-11-300000876167us-gaap:AccumulatedTranslationAdjustmentMember2021-12-012022-08-310000876167us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2021-12-012022-08-310000876167us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-12-012022-08-310000876167us-gaap:AccumulatedTranslationAdjustmentMember2022-08-310000876167us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2022-08-310000876167us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-08-310000876167us-gaap:TransferredAtPointInTimeMemberprgs:SoftwareLicensesMember2022-06-012022-08-310000876167us-gaap:TransferredAtPointInTimeMemberprgs:SoftwareLicensesMember2021-06-012021-08-310000876167us-gaap:TransferredAtPointInTimeMemberprgs:SoftwareLicensesMember2021-12-012022-08-310000876167us-gaap:TransferredAtPointInTimeMemberprgs:SoftwareLicensesMember2020-12-012021-08-310000876167us-gaap:MaintenanceMemberus-gaap:TransferredOverTimeMember2022-06-012022-08-310000876167us-gaap:MaintenanceMemberus-gaap:TransferredOverTimeMember2021-06-012021-08-310000876167us-gaap:MaintenanceMemberus-gaap:TransferredOverTimeMember2021-12-012022-08-310000876167us-gaap:MaintenanceMemberus-gaap:TransferredOverTimeMember2020-12-012021-08-310000876167us-gaap:TransferredOverTimeMemberus-gaap:ServiceMember2022-06-012022-08-310000876167us-gaap:TransferredOverTimeMemberus-gaap:ServiceMember2021-06-012021-08-310000876167us-gaap:TransferredOverTimeMemberus-gaap:ServiceMember2021-12-012022-08-310000876167us-gaap:TransferredOverTimeMemberus-gaap:ServiceMember2020-12-012021-08-310000876167srt:NorthAmericaMember2022-06-012022-08-310000876167srt:NorthAmericaMember2021-06-012021-08-310000876167srt:NorthAmericaMember2021-12-012022-08-310000876167srt:NorthAmericaMember2020-12-012021-08-310000876167us-gaap:EMEAMember2022-06-012022-08-310000876167us-gaap:EMEAMember2021-06-012021-08-310000876167us-gaap:EMEAMember2021-12-012022-08-310000876167us-gaap:EMEAMember2020-12-012021-08-310000876167srt:LatinAmericaMember2022-06-012022-08-310000876167srt:LatinAmericaMember2021-06-012021-08-310000876167srt:LatinAmericaMember2021-12-012022-08-310000876167srt:LatinAmericaMember2020-12-012021-08-310000876167srt:AsiaPacificMember2022-06-012022-08-310000876167srt:AsiaPacificMember2021-06-012021-08-310000876167srt:AsiaPacificMember2021-12-012022-08-310000876167srt:AsiaPacificMember2020-12-012021-08-3100008761672022-09-012022-08-310000876167us-gaap:FacilityClosingMember2021-11-300000876167us-gaap:EmployeeSeveranceMember2021-11-300000876167us-gaap:FacilityClosingMember2021-12-012022-08-310000876167us-gaap:EmployeeSeveranceMember2021-12-012022-08-310000876167us-gaap:FacilityClosingMember2022-08-310000876167us-gaap:EmployeeSeveranceMember2022-08-310000876167prgs:TwoThousandAndTwentyOneRestructuringActivitiesMember2022-06-012022-08-310000876167prgs:TwoThousandAndTwentyOneRestructuringActivitiesMember2021-12-012022-08-310000876167us-gaap:FacilityClosingMemberprgs:TwoThousandAndTwentyOneRestructuringActivitiesMember2021-11-300000876167prgs:TwoThousandAndTwentyOneRestructuringActivitiesMemberus-gaap:EmployeeSeveranceMember2021-11-300000876167prgs:TwoThousandAndTwentyOneRestructuringActivitiesMember2021-11-300000876167us-gaap:FacilityClosingMemberprgs:TwoThousandAndTwentyOneRestructuringActivitiesMember2021-12-012022-08-310000876167prgs:TwoThousandAndTwentyOneRestructuringActivitiesMemberus-gaap:EmployeeSeveranceMember2021-12-012022-08-310000876167us-gaap:FacilityClosingMemberprgs:TwoThousandAndTwentyOneRestructuringActivitiesMember2022-08-310000876167prgs:TwoThousandAndTwentyOneRestructuringActivitiesMemberus-gaap:EmployeeSeveranceMember2022-08-310000876167prgs:TwoThousandAndTwentyOneRestructuringActivitiesMember2022-08-310000876167prgs:TwoThousandAndTwentyOneRestructuringActivitiesMember2022-08-312022-08-310000876167prgs:TwoThousandAndTwentyRestructuringActivitiesMember2022-06-012022-08-310000876167prgs:TwoThousandAndTwentyRestructuringActivitiesMember2021-12-012022-08-310000876167us-gaap:FacilityClosingMemberprgs:TwoThousandAndTwentyRestructuringActivitiesMember2021-11-300000876167prgs:TwoThousandAndTwentyRestructuringActivitiesMemberus-gaap:EmployeeSeveranceMember2021-11-300000876167prgs:TwoThousandAndTwentyRestructuringActivitiesMember2021-11-300000876167us-gaap:FacilityClosingMemberprgs:TwoThousandAndTwentyRestructuringActivitiesMember2021-12-012022-08-310000876167prgs:TwoThousandAndTwentyRestructuringActivitiesMemberus-gaap:EmployeeSeveranceMember2021-12-012022-08-310000876167us-gaap:FacilityClosingMemberprgs:TwoThousandAndTwentyRestructuringActivitiesMember2022-08-310000876167prgs:TwoThousandAndTwentyRestructuringActivitiesMemberus-gaap:EmployeeSeveranceMember2022-08-310000876167prgs:TwoThousandAndTwentyRestructuringActivitiesMember2022-08-310000876167prgs:TwoThousandAndTwentyRestructuringActivitiesMemberprgs:OperatingLeaseLiabilityCurrentMember2022-08-312022-08-310000876167prgs:TwoThousandAndTwentyRestructuringActivitiesMemberprgs:OperatingLeaseLiabilityNoncurrentMember2022-08-312022-08-310000876167prgs:TwoThousandAndTwentyRestructuringActivitiesMember2022-08-312022-08-3100008761672021-03-012021-05-31prgs:segment
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, 2022
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.) |
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 September 27, 2022, there were 42,998,323 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, 2022
TABLE OF CONTENTS
| | | | | | | | |
| | |
PART I | | |
| | |
Item 1. | | |
| | |
| | |
| | |
| | |
| | |
| | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| | |
PART II | | |
| | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 6. | | |
| | |
| | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
| | | | | | | | | | | |
(In thousands, except share data) | August 31, 2022 | | November 30, 2021 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 224,115 | | | $ | 155,406 | |
Short-term investments | 749 | | | 1,967 | |
Total cash, cash equivalents and short-term investments | 224,864 | | | 157,373 | |
Accounts receivable (less allowances of $1,150 and $634, respectively) | 82,258 | | | 99,815 | |
Unbilled receivables and contract assets | 27,847 | | | 25,816 | |
Other current assets | 29,465 | | | 39,549 | |
Assets held for sale | — | | | 15,255 | |
Total current assets | 364,434 | | | 337,808 | |
Long-term unbilled receivables and contract assets | 25,972 | | | 17,464 | |
Property and equipment, net | 13,409 | | | 14,345 | |
Intangible assets, net | 233,436 | | | 287,185 | |
Goodwill | 672,901 | | | 671,152 | |
Right-of-use lease assets | 18,950 | | | 25,253 | |
Deferred tax assets | 5,735 | | | 1,415 | |
Other assets | 11,455 | | | 8,915 | |
Total assets | $ | 1,346,292 | | | $ | 1,363,537 | |
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Current portion of long-term debt, net | $ | 6,234 | | | $ | 25,767 | |
Accounts payable | 7,717 | | | 9,683 | |
Accrued compensation and related taxes | 35,887 | | | 47,116 | |
Dividends payable to stockholders | 8,099 | | | 7,925 | |
Short-term operating lease liabilities | 7,443 | | | 7,926 | |
Other accrued liabilities | 16,878 | | | 19,491 | |
Short-term deferred revenue | 197,425 | | | 205,021 | |
Total current liabilities | 279,683 | | | 322,929 | |
Long-term debt, net | 260,779 | | | 239,992 | |
Convertible senior notes, net | 352,108 | | | 294,535 | |
Long-term operating lease liabilities | 16,662 | | | 23,130 | |
Long-term deferred revenue | 53,696 | | | 47,359 | |
Deferred tax liabilities | 5,712 | | | 14,163 | |
Other noncurrent liabilities | 10,679 | | | 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, 42,998,323 shares in 2022 and 44,146,193 shares in 2021 | 430 | | | 441 | |
Additional paid-in capital | 318,559 | | | 354,235 | |
Retained earnings | 86,513 | | | 90,256 | |
Accumulated other comprehensive loss | (38,529) | | | (32,443) | |
Total stockholders’ equity | 366,973 | | | 412,489 | |
Total liabilities and stockholders’ equity | $ | 1,346,292 | | | $ | 1,363,537 | |
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, 2022 | | August 31, 2021 | | August 31, 2022 | | August 31, 2021 |
Revenue: | | | | | | | |
Software licenses | $ | 47,618 | | | $ | 51,930 | | | $ | 135,182 | | | $ | 115,354 | |
Maintenance and services | 103,599 | | | 95,487 | | | 309,704 | | | 275,831 | |
Total revenue | 151,217 | | | 147,417 | | | 444,886 | | | 391,185 | |
Costs of revenue: | | | | | | | |
Cost of software licenses | 2,477 | | | 1,574 | | | 7,669 | | | 3,763 | |
Cost of maintenance and services | 15,761 | | | 14,895 | | | 46,707 | | | 42,887 | |
Amortization of acquired intangibles | 5,558 | | | 3,599 | | | 16,589 | | | 10,719 | |
Total costs of revenue | 23,796 | | | 20,068 | | | 70,965 | | | 57,369 | |
Gross profit | 127,421 | | | 127,349 | | | 373,921 | | | 333,816 | |
Operating expenses: | | | | | | | |
Sales and marketing | 34,595 | | | 29,737 | | | 100,768 | | | 88,468 | |
Product development | 28,650 | | | 25,616 | | | 85,966 | | | 76,579 | |
General and administrative | 20,141 | | | 16,451 | | | 56,339 | | | 46,335 | |
Amortization of acquired intangibles | 11,716 | | | 7,978 | | | 35,330 | | | 22,836 | |
Restructuring expenses | 130 | | | 40 | | | 784 | | | 1,133 | |
Acquisition-related expenses | 168 | | | 1,481 | | | 3,816 | | | 2,721 | |
Gain on sale of assets held for sale | — | | | — | | | (10,770) | | | — | |
Total operating expenses | 95,400 | | | 81,303 | | | 272,233 | | | 238,072 | |
Income from operations | 32,021 | | | 46,046 | | | 101,688 | | | 95,744 | |
Other (expense) income: | | | | | | | |
Interest expense | (4,009) | | | (6,510) | | | (11,368) | | | (13,625) | |
Interest income and other, net | 247 | | | 99 | | | 991 | | | 222 | |
Foreign currency gain (loss), net | (577) | | | (128) | | | (832) | | | (1,006) | |
Total other expense, net | (4,339) | | | (6,539) | | | (11,209) | | | (14,409) | |
Income before income taxes | 27,682 | | | 39,507 | | | 90,479 | | | 81,335 | |
Provision for income taxes | 5,885 | | | 8,531 | | | 19,118 | | | 17,841 | |
Net income | $ | 21,797 | | | $ | 30,976 | | | $ | 71,361 | | | $ | 63,494 | |
Earnings per share: | | | | | | | |
Basic | $ | 0.50 | | | $ | 0.71 | | | $ | 1.64 | | | $ | 1.45 | |
Diluted | $ | 0.50 | | | $ | 0.70 | | | $ | 1.61 | | | $ | 1.43 | |
Weighted average shares outstanding: | | | | | | | |
Basic | 43,211 | | | 43,762 | | | 43,589 | | | 43,896 | |
Diluted | 43,935 | | | 44,502 | | | 44,299 | | | 44,542 | |
| | | | | | | |
Cash dividends declared per common share | $ | 0.175 | | | $ | 0.175 | | | $ | 0.525 | | | $ | 0.525 | |
See notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | August 31, 2022 | | August 31, 2021 | | August 31, 2022 | | August 31, 2021 |
Net income | $ | 21,797 | | | $ | 30,976 | | | $ | 71,361 | | | $ | 63,494 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments | (7,632) | | | (2,179) | | | (10,955) | | | 922 | |
Unrealized gain on hedging activity, net of tax provision of $377 and $1,542 for the third quarter and first nine months of 2022, respectively and net of tax provision of $155 and $502 for the third quarter and first nine months of 2021, respectively | 1,191 | | | 479 | | | 4,882 | | | 1,551 | |
Unrealized loss on investments, net of tax of $0 and a tax benefit of $4 for the third quarter and first nine months of 2022 and net of tax benefit of $4 and $16 for the third quarter and first nine months of 2021, respectively | (1) | | | (15) | | | (13) | | | (54) | |
Total other comprehensive (loss) income, net of tax | (6,442) | | | (1,715) | | | (6,086) | | | 2,419 | |
Comprehensive income | $ | 15,355 | | | $ | 29,261 | | | $ | 65,275 | | | $ | 65,913 | |
See notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended August 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 | 246 | | | 2 | | | 7,235 | | | — | | | — | | | 7,237 | |
Exercise of stock options | 78 | | | 1 | | | 2,878 | | | — | | | — | | | 2,879 | |
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 | — | | | — | | | 26,110 | | | — | | | — | | | 26,110 | |
Dividends declared | — | | | — | | | — | | | (23,525) | | | — | | | (23,525) | |
Treasury stock repurchases and retirements | (1,660) | | | (16) | | | (19,036) | | | (56,472) | | | — | | | (75,524) | |
Net income | — | | | — | | | — | | | 71,361 | | | — | | | 71,361 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (6,086) | | | (6,086) | |
Balance, August 31, 2022 | 42,998 | | | $ | 430 | | | $ | 318,559 | | | $ | 86,513 | | | $ | (38,529) | | | $ | 366,973 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended August 31, 2022 |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
(in thousands) | Number of Shares | | Amount | | | | |
Balance, June 1, 2022 | 43,454 | | | $ | 435 | | | $ | 309,913 | | | $ | 93,885 | | | $ | (32,087) | | | $ | 372,146 | |
Issuance of stock under employee stock purchase plan | 68 | | | — | | | 2,024 | | | — | | | — | | | 2,024 | |
Exercise of stock options | 18 | | | — | | | 643 | | | — | | | — | | | 643 | |
Stock-based compensation | — | | | — | | | 8,639 | | | — | | | — | | | 8,639 | |
Dividends declared | — | | | — | | | — | | | (7,783) | | | — | | | (7,783) | |
Treasury stock repurchases and retirements | (542) | | | (5) | | | (2,660) | | | (21,386) | | | — | | | (24,051) | |
Net income | — | | | — | | | — | | | 21,797 | | | — | | | 21,797 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (6,442) | | | (6,442) | |
Balance, August 31, 2022 | 42,998 | | | $ | 430 | | | $ | 318,559 | | | $ | 86,513 | | | $ | (38,529) | | | $ | 366,973 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended August 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 | 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 Stockholders' 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 loss | — | | | — | | | — | | | — | | | (1,715) | | | (1,715) | |
Balance, August 31, 2021 | 43,843 | | | $ | 438 | | | $ | 343,239 | | | $ | 83,455 | | | $ | (30,359) | | | $ | 396,773 | |
Condensed Consolidated Statements of Cash Flows
| | | | | | | | | | | |
| Nine Months Ended |
(In thousands) | August 31, 2022 | | August 31, 2021 |
Cash flows from operating activities: | | | |
Net income | $ | 71,361 | | | $ | 63,494 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization of property and equipment | 3,682 | | | 4,147 | |
Amortization of acquired intangibles and other | 52,545 | | | 33,988 | |
Amortization of debt discount and issuance costs on Notes | 1,595 | | | 4,942 | |
Stock-based compensation | 26,110 | | | 21,985 | |
Non-cash lease expense | 5,919 | | | 6,095 | |
Gain on sale of assets held for sale | (10,770) | | | — | |
Deferred income taxes | (286) | | | (1,596) | |
Allowances for bad debt and sales credits | 710 | | | (370) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 2,858 | | | (1,319) | |
Other assets | 11,174 | | | 2,590 | |
Inventories | (1,264) | | | — | |
Accounts payable and accrued liabilities | (10,055) | | | (5,994) | |
Lease liabilities | (6,481) | | | (6,440) | |
Income taxes payable | (748) | | | 3,079 | |
Deferred revenue | 5,673 | | | 10,001 | |
Net cash flows from operating activities | 152,023 | | | 134,602 | |
Cash flows from investing activities: | | | |
Sales and maturities of investments | 1,200 | | | 4,150 | |
Purchases of property and equipment | (3,086) | | | (2,741) | |
Proceeds from sale of long-lived assets, net | 25,998 | | | — | |
Decrease in escrow receivable and other | 134 | | | 2,330 | |
Net cash flows from investing activities | 24,246 | | | 3,739 | |
Cash flows (used in) from financing activities: | | | |
Proceeds from stock-based compensation plans | 10,384 | | | 9,247 | |
Payments for taxes related to net share settlements of equity awards | (5,405) | | | (2,398) | |
Repurchases of common stock | (75,524) | | | (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 | (23,351) | | | (23,372) | |
Proceeds from the issuance of debt | 7,474 | | | — | |
Payment of principal on long-term debt | (5,154) | | | (111,669) | |
Payment of debt issuance costs | (1,957) | | | (904) | |
Net cash flows (used in) from financing activities | (93,533) | | | 142,948 | |
Effect of exchange rate changes on cash | (14,027) | | | 616 | |
Net increase in cash and cash equivalents | 68,709 | | | 281,905 | |
Cash and cash equivalents, beginning of period | 155,406 | | | 97,990 | |
Cash and cash equivalents, end of period | $ | 224,115 | | | $ | 379,895 | |
Condensed Consolidated Statements of Cash Flows, continued
| | | | | | | | | | | |
| Nine Months Ended |
| August 31, 2022 | | August 31, 2021 |
Supplemental disclosure: | | | |
Cash paid for income taxes, net of refunds of $920 in 2022 and $807 in 2021 | $ | 8,954 | | | $ | 9,920 | |
Cash paid for interest | $ | 5,470 | | | $ | 6,564 | |
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 | | | $ | 8,779 | |
Dividends declared | $ | 8,099 | | | $ | 7,988 | |
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 best 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 August 31, 2022 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Cash | $ | 197,777 | | | $ | — | | | $ | — | | | $ | 197,777 | |
Money market funds | 26,338 | | | — | | | — | | | 26,338 | |
U.S. treasury bonds | 750 | | | — | | | (1) | | | 749 | |
Total | $ | 224,865 | | | $ | — | | | $ | (1) | | | $ | 224,864 | |
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):
| | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2022 | | November 30, 2021 |
| Cash and Equivalents | | Short-Term Investments | | Cash and Equivalents | | Short-Term Investments |
Cash | $ | 197,777 | | | $ | — | | | $ | 130,371 | | | $ | — | |
Money market funds | 26,338 | | | — | | | 25,035 | | | — | |
U.S. treasury bonds | — | | | 749 | | | — | | | 757 | |
Corporate bonds | — | | | — | | | — | | | 1,210 | |
Total | $ | 224,115 | | | $ | 749 | | | $ | 155,406 | | | $ | 1,967 | |
The fair value of debt securities by contractual maturity due in one year or less was $0.7 million and $2.0 million as of August 31, 2022 and November 30, 2021, respectively. There were no debt securities by contractual maturity due after one year as of August 31, 2022 or November 30, 2021.
We did not hold any investments with continuous unrealized losses as of August 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 August 31, 2022, the fair value of the hedge was a gain of $3.3 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):
| | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2022 | | November 30, 2021 |
| Notional Value | | Fair Value | | Notional Value | | Fair Value |
Interest rate swap contracts designated as cash flow hedges | $ | 123,750 | | | $ | 3,346 | | | $ | 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 generally expire between 30 days and 2 years from the date the contract was entered. At August 31, 2022, $4.3 million and $0.1 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 nine months ended August 31, 2022, realized and unrealized losses of $5.4 million and $9.0 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 nine month 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 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):
| | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2022 | | November 30, 2021 |
| Notional Value | | Fair Value | | Notional Value | | Fair Value |
Forward contracts to sell U.S. dollars | $ | 81,089 | | | $ | (4,211) | | | $ | 79,777 | | | $ | (371) | |
Forward contracts to purchase U.S. dollars | 618 | | | 4 | | | 119 | | | (1) | |
Total | $ | 81,707 | | | $ | (4,207) | | | $ | 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 August 31, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Money market funds | $ | 26,338 | | | $ | 26,338 | | | $ | — | | | $ | — | |
U.S. treasury bonds | 749 | | | — | | | 749 | | | — | |
Interest rate swap | 3,346 | | | — | | | 3,346 | | | — | |
Liabilities | | | | | | | |
Foreign exchange derivatives | $ | (4,207) | | | $ | — | | | $ | (4,207) | | | $ | — | |
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 | | | | | | | |
Foreign exchange derivatives | (372) | | | — | | | (372) | | | — | |
Interest rate swap | $ | (3,078) | | | $ | — | | | $ | (3,078) | | | $ | — | |
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 Notes’ fair value, inclusive of the conversion feature embedded in the Notes, was $364.1 million as of August 31, 2022. 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 8: Debt for additional information.
Note 5: Inventories
The components of inventories were as follows (in thousands):
| | | | | | | | | | | |
| August 31, 2022 | | November 30, 2021 |
Finished goods | $ | 1,773 | | | $ | 1,631 | |
Purchased parts and fabricated assemblies | 2,867 | | | 1,920 | |
Total | $ | 4,640 | | | $ | 3,551 | |
At August 31, 2022 and November 30, 2021, the inventories balances of $4.6 million and $3.6 million were recorded in other current assets on the condensed consolidated balance sheets.
Note 6: Intangible Assets and Goodwill
Intangible Assets
Intangible assets are comprised of the following significant classes (in thousands):