Company Quick10K Filing
Progress Software
Price40.59 EPS1
Shares45 P/E35
MCap1,838 P/FCF21
Net Debt172 EBIT70
TEV2,011 TEV/EBIT29
TTM 2019-05-31, in MM, except price, ratios
10-Q 2021-02-28 Filed 2021-04-05
10-K 2020-11-30 Filed 2021-01-27
10-Q 2020-08-31 Filed 2020-10-08
10-Q 2020-05-31 Filed 2020-07-08
10-Q 2020-02-29 Filed 2020-04-07
10-K 2019-11-30 Filed 2020-01-27
10-Q 2019-08-31 Filed 2019-10-07
10-Q 2019-05-31 Filed 2019-07-09
10-Q 2019-02-28 Filed 2019-04-05
10-K 2018-11-30 Filed 2019-01-28
10-Q 2018-08-31 Filed 2018-10-05
10-Q 2018-05-31 Filed 2018-07-06
10-Q 2018-02-28 Filed 2018-04-06
10-K 2017-11-30 Filed 2018-01-26
10-Q 2017-08-31 Filed 2017-10-10
10-Q 2017-05-31 Filed 2017-07-07
10-Q 2017-02-28 Filed 2017-04-07
10-K 2016-11-30 Filed 2017-01-30
10-Q 2016-08-31 Filed 2016-10-07
10-Q 2016-05-31 Filed 2016-07-08
10-Q 2016-02-29 Filed 2016-04-08
10-K 2015-11-30 Filed 2016-01-29
10-Q 2015-08-31 Filed 2015-10-07
10-Q 2015-05-31 Filed 2015-07-08
10-Q 2015-02-28 Filed 2015-04-07
10-K 2014-11-30 Filed 2015-01-29
10-Q 2014-08-31 Filed 2014-10-09
10-Q 2014-05-31 Filed 2014-07-08
10-Q 2014-02-28 Filed 2014-04-09
10-K 2013-11-30 Filed 2014-01-29
10-Q 2013-08-31 Filed 2013-10-09
10-Q 2013-02-28 Filed 2013-04-09
10-K 2012-11-30 Filed 2013-01-29
10-Q 2012-08-31 Filed 2012-10-10
10-Q 2012-05-31 Filed 2012-07-10
10-Q 2012-02-29 Filed 2012-04-09
10-K 2011-11-30 Filed 2012-01-30
10-Q 2011-08-31 Filed 2011-10-11
10-Q 2011-05-31 Filed 2011-07-08
10-Q 2011-02-28 Filed 2011-04-11
10-K 2010-11-30 Filed 2011-01-31
10-Q 2010-08-31 Filed 2010-10-12
10-Q 2010-05-31 Filed 2010-07-09
10-Q 2010-02-28 Filed 2010-04-09
10-K 2009-11-30 Filed 2010-01-29
8-K 2020-10-05
8-K 2020-09-29
8-K 2020-09-08
8-K 2020-09-04
8-K 2020-06-25
8-K 2020-05-14
8-K 2020-03-26
8-K 2020-01-16
8-K 2020-01-16
8-K 2019-10-24
8-K 2019-10-04
8-K 2019-09-26
8-K 2019-06-27
8-K 2019-06-21
8-K 2019-05-09
8-K 2019-04-30
8-K 2019-03-28
8-K 2019-03-28
8-K 2019-03-19
8-K 2019-01-17
8-K 2018-09-27
8-K 2018-06-27
8-K 2018-05-17
8-K 2018-04-13
8-K 2018-03-28
8-K 2018-03-06
8-K 2018-02-20
8-K 2018-01-10

PRGS 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1: Basis of Presentation
Note 2: Cash, Cash Equivalents and Investments
Note 3: Derivative Instruments
Note 4: Fair Value Measurements
Note 5: Intangible Assets and Goodwill
Note 6: Business Combinations
Note 7: Term Loan and Line of Credit
Note 8: Leases
Note 9: Common Stock Repurchases
Note 10: Stock - Based Compensation
Note 11: Accumulated Other Comprehensive Loss
Note 12: Revenue Recognition
Note 13: Restructuring Charges
Note 14: Income Taxes
Note 15: Earnings per Share
Note 16: Business Segments and International Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-10.1 exhibit101-q12021.htm
EX-31.1 exhibit311-q12021.htm
EX-31.2 exhibit312-q12021.htm
EX-32.1 exhibit321-q12021.htm

Progress Software Earnings 2021-02-28

Balance SheetIncome StatementCash Flow
0.90.70.50.40.20.02012201420172020
Assets, Equity
0.20.10.10.0-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.1-0.2-0.32012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to _____.
Commission File Number: 0-19417
PROGRESS SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter) 
Delaware 04-2746201
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  
As of March 26, 2021, there were 44,003,055 shares of the registrant’s common stock, $.01 par value per share, outstanding.



PROGRESS SOFTWARE CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2021
TABLE OF CONTENTS
PART I
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets
(In thousands, except share data)February 28, 2021November 30, 2020
Assets
Current assets:
Cash and cash equivalents$107,698 $97,990 
Short-term investments6,673 8,005 
Total cash, cash equivalents and short-term investments114,371 105,995 
Accounts receivable (less allowances of $732 and $1,315, respectively)
77,573 84,040 
Unbilled receivables and contract assets24,099 24,917 
Other current assets23,266 23,983 
Total current assets239,309 238,935 
Long-term unbilled receivables and contract assets14,334 17,133 
Property and equipment, net29,838 29,817 
Intangible assets, net202,347 212,747 
Goodwill491,701 491,726 
Deferred tax assets13,613 14,490 
Right-of-use lease assets31,265 30,635 
Other assets4,650 6,299 
Total assets$1,027,057 $1,041,782 
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt, net$20,124 $18,242 
Accounts payable10,105 9,978 
Accrued compensation and related taxes21,213 36,816 
Dividends payable to shareholders7,901 7,904 
Short-term operating lease liabilities7,154 7,015 
Income taxes payable870 1,899 
Other accrued liabilities14,930 14,302 
Short-term deferred revenue183,443 166,387 
Total current liabilities265,740 262,543 
Long-term debt, net343,758 364,260 
Long-term operating lease liabilities27,342 26,966 
Long-term deferred revenue25,535 26,908 
Other noncurrent liabilities12,129 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, 43,999,982 shares in 2021 and 44,240,635 shares in 2020
312,137 306,244 
Retained earnings71,118 72,547 
Accumulated other comprehensive loss(30,702)(32,778)
Total shareholders’ equity352,553 346,013 
Total liabilities and shareholders’ equity$1,027,057 $1,041,782 
See notes to unaudited condensed consolidated financial statements.
3


Condensed Consolidated Statements of Operations
 
 Three Months Ended
(In thousands, except per share data)February 28, 2021February 29, 2020
Revenue:
Software licenses$33,317 $30,629 
Maintenance and services87,963 79,054 
Total revenue121,280 109,683 
Costs of revenue:
Cost of software licenses1,151 1,389 
Cost of maintenance and services13,319 11,851 
Amortization of acquired intangibles3,521 1,646 
Total costs of revenue17,991 14,886 
Gross profit103,289 94,797 
Operating expenses:
Sales and marketing29,469 24,198 
Product development24,548 21,654 
General and administrative13,424 12,748 
Amortization of acquired intangibles6,879 4,131 
Restructuring expenses1,157 1,040 
Acquisition-related expenses396 314 
Total operating expenses75,873 64,085 
Income from operations27,416 30,712 
Other (expense) income:
Interest expense(2,514)(2,792)
Interest income and other, net119 211 
Foreign currency loss, net(257)(816)
Total other expense, net(2,652)(3,397)
Income before income taxes24,764 27,315 
Provision for income taxes5,803 6,199 
Net income$18,961 $21,116 
Earnings per share:
Basic$0.43 $0.47 
Diluted$0.42 $0.46 
Weighted average shares outstanding:
Basic44,108 44,897 
Diluted44,652 45,515 
Cash dividends declared per common share$0.175 $0.165 
See notes to unaudited condensed consolidated financial statements.
4


Condensed Consolidated Statements of Comprehensive Income
Three Months Ended
(In thousands)February 28, 2021February 29, 2020
Net income$18,961 $21,116 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments1,225 (1,208)
Unrealized gain (loss) on hedging activity, net of tax provision of $271 and tax benefit of $708 for the first quarter of 2021 and 2020, respectively
837 (2,106)
Unrealized gain on investments, net of tax benefit of $42 and tax provision of $4 for the first quarter of 2021 and 2020, respectively
14 71 
Total other comprehensive income (loss), net of tax2,076 (3,243)
Comprehensive income$21,037 $17,873 

See notes to unaudited condensed consolidated financial statements.

5


Condensed Consolidated Statements of Shareholders’ Equity
 
Three Months Ended February 28, 2021
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' Equity
(in thousands)Number of SharesAmount
Balance, December 1, 202044,241 $442 $305,802 $72,547 $(32,778)$346,013 
Issuance of stock under employee stock purchase plan56 1 1,544 — — 1,545 
Exercise of stock options28 — 917 — — 917 
Vesting of restricted stock units and release of deferred stock units28 — — — —  
Withholding tax payments related to net issuance of restricted stock units— — (892)— — (892)
Stock-based compensation— — 6,784 — — 6,784 
Dividends declared— — — (7,851)— (7,851)
Treasury stock repurchases and retirements(353)(3)(2,458)(12,539)— (15,000)
Net income— — — 18,961 — 18,961 
Other comprehensive loss— — — — 2,076 2,076 
Balance, February 28, 202144,000 $440 $311,697 $71,118 $(30,702)$352,553 

Three Months Ended February 29, 2020
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' Equity
(in thousands)Number of SharesAmount
Balance, December 1, 201945,037 $450 $295,503 $64,303 $(29,974)$330,282 
Issuance of stock under employee stock purchase plan39 — 1,194 — — 1,194 
Exercise of stock options62 1 1,940 — — 1,941 
Vesting of restricted stock units and release of deferred stock units57 1 (1)— —  
Withholding tax payments related to net issuance of restricted stock units— — (1,949)— — (1,949)
Stock-based compensation— — 6,051 — — 6,051 
Dividends declared— — — (7,435)— (7,435)
Treasury stock repurchases and retirements(426)(4)(6,487)(13,509)— (20,000)
Net income— — — 21,116 — 21,116 
Other comprehensive loss— — — — (3,243)(3,243)
Balance, February 29, 202044,769 $448 $296,251 $64,475 $(33,217)$327,957 
6


Condensed Consolidated Statements of Cash Flows
 
 Three Months Ended
(In thousands)February 28, 2021February 29, 2020
Cash flows from operating activities:
Net income$18,961 $21,116 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment1,315 1,717 
Amortization of acquired intangibles and other10,547 5,952 
Stock-based compensation6,784 6,051 
Non-cash lease expense2,138 3,087 
Loss on disposal of property and equipment3 57 
Deferred income taxes656 1,967 
Allowances for bad debt and sales credits(382)236 
Changes in operating assets and liabilities:
Accounts receivable10,841 9,810 
Other assets215 2,010 
Accounts payable and accrued liabilities(17,762)(20,893)
Lease liabilities(2,258)(2,356)
Income taxes payable(1,469)373 
Deferred revenue15,099 3,889 
Net cash flows from operating activities44,688 33,016 
Cash flows from (used in) investing activities:
Purchases of investments (4,259)
Sales and maturities of investments1,300 7,767 
Purchases of property and equipment(1,166)(1,148)
Decrease in escrow receivable2,130  
Net cash flows from investing activities2,264 2,360 
Cash flows from (used in) financing activities:
Proceeds from stock-based compensation plans3,485 4,245 
Payments for taxes related to net share settlements of equity awards(892)(1,949)
Repurchases of common stock(15,000)(20,000)
Dividend payments to shareholders(7,854)(7,468)
Payment of principal on long-term debt(18,763)(1,882)
Net cash flows used in financing activities(39,024)(27,054)
Effect of exchange rate changes on cash1,780 (1,487)
Net increase in cash and cash equivalents9,708 6,835 
Cash and cash equivalents, beginning of period97,990 154,259 
Cash and cash equivalents, end of period$107,698 $161,094 
7


Condensed Consolidated Statements of Cash Flows, continued
Three Months Ended
February 28, 2021February 29, 2020
Supplemental disclosure:
Cash paid for income taxes, net of refunds of $434 in 2021 and $196 in 2020
$3,703 $3,364 
Cash paid for interest$2,283 $2,588 
Non-cash investing and financing activities:
Total fair value of restricted stock awards, restricted stock units and deferred stock units on date vested$2,088 $4,652 
Dividends declared$7,901 $7,465 
See notes to unaudited condensed consolidated financial statements.
8


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 apps 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 ("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.

9


Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements
Financial Instruments - Credit Losses

In June 2016, the 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.

Note 2: Cash, Cash Equivalents and Investments

A summary of our cash, cash equivalents and available-for-sale investments at February 28, 2021 is as follows (in thousands):
 
Amortized Cost BasisUnrealized GainsUnrealized LossesFair Value
Cash$87,403 $— $— $87,403 
Money market funds20,295 — — 20,295 
U.S. treasury bonds4,493 42  4,535 
Corporate bonds2,109 29  2,138 
Total$114,300 $71 $ $114,371 

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

Such amounts are classified on our condensed consolidated balance sheets as follows (in thousands):
 
 February 28, 2021November 30, 2020
 Cash and EquivalentsShort-Term InvestmentsCash and EquivalentsShort-Term Investments
Cash$87,403 $— $79,026 $— 
Money market funds20,295 — 18,964 — 
U.S. treasury bonds— 4,535 — 5,051 
Corporate bonds— 2,138 — 2,954 
Total$107,698 $6,673 $97,990 $8,005 

10


The fair value of debt securities by contractual maturity is as follows (in thousands):
 
February 28, 2021November 30, 2020
Due in one year or less$4,676 $5,998 
Due after one year(1)
1,997 2,007 
Total$6,673 $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 February 28, 2021 or November 30, 2020.

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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 February 28, 2021, the fair value of the hedge was a loss of $5.7 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):
 February 28, 2021November 30, 2020
 Notional ValueFair ValueNotional ValueFair Value
Interest rate swap contracts designated as cash flow hedges$140,625 $(5,747)$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 February 28, 2021, $2.3 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 months ended February 28, 2021 and February 29, 2020, realized and unrealized gains of $1.7 million and losses of $0.6 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):
 
 February 28, 2021November 30, 2020
 Notional ValueFair ValueNotional ValueFair Value
Forward contracts to sell U.S. dollars$64,543 $2,350 $69,031 $1,445 
Forward contracts to purchase U.S. dollars  440 (3)
Total$64,543 $2,350 $69,471 $1,442 

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Note 4: Fair Value Measurements

Recurring Fair Value Measurements

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at February 28, 2021 (in thousands):
 
  Fair Value Measurements Using
 Total Fair ValueLevel 1Level 2Level 3
Assets
Money market funds$20,295 $20,295 $ $ 
U.S. treasury bonds4,535  4,535  
Corporate bonds2,138  2,138  
Foreign exchange derivatives2,350  2,350  
Liabilities
Interest rate swap$(5,747)$ $(5,747)$ 

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

When developing fair value estimates, we maximize the use of observable inputs and minimize the use of unobservable inputs. When available, we use quoted market prices to measure fair value. The valuation technique used to measure fair value for our Level 1 and Level 2 assets is a market approach, using prices and other relevant information generated by market transactions involving identical or comparable assets. If market prices are not available, the fair value measurement is based on models that use primarily market-based parameters including yield curves, volatilities, credit ratings and currency rates. In certain cases where market rate assumptions are not available, we are required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument.

We did not have any nonrecurring fair value measurements as of February 28, 2021.

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Note 5: Intangible Assets and Goodwill

Intangible Assets

Intangible assets are comprised of the following significant classes (in thousands):
 
February 28, 2021November 30, 2020
 Gross Carrying AmountAccumulated AmortizationNet Book ValueGross Carrying AmountAccumulated AmortizationNet Book Value
Purchased technology$173,486 $(117,384)$56,102 $173,486 $(113,863)$59,623 
Customer-related231,342 (97,256)134,086 231,342 (91,326)140,016 
Trademarks and trade names30,440 (19,059)11,381 30,440 (18,275)12,165 
Non-compete agreement2,000 (1,222)778 2,000 (1,057)943 
Total$437,268 $(234,921)$202,347 $437,268 $(224,521)$212,747 

In the first quarter of fiscal years 2021 and 2020, amortization expense related to intangible assets was $10.4 million and $5.8 million, respectively.

Future amortization expense for intangible assets as of February 28, 2021, is as follows (in thousands):
 
Remainder of 2021$34,491 
202244,836 
202344,560 
202431,743 
202521,233 
Thereafter25,484 
Total$202,347 

Goodwill

Changes in the carrying amount of goodwill in the three months ended February 28, 2021 are as follows (in thousands):
Balance, November 30, 2020$491,726 
Translation adjustments(25)
Balance, February 28, 2021$491,701 

Changes in the goodwill balances by reportable segment in the three months ended February 28, 2021 are as follows (in thousands):
November 30, 2020Translation adjustmentsFebruary 28, 2021
OpenEdge$365,863 $(25)$365,838 
Data Connectivity and Integration19,040  19,040 
Application Development and Deployment106,823  106,823 
Total goodwill$491,726 $(25)$491,701 

During the quarter ending February 28, 2021, no triggering events occurred that would indicate that it is more likely than not that the carrying values of any of our reporting units exceeded their fair values.

14


Note 6: Business Combinations

Chef Acquisition

On October 5, 2020, we completed the acquisition of Chef Software Inc. (“Chef”) pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 4, 2020. The acquisition was completed for a base purchase price of $220.0 million, subject to certain customary adjustments as further described in the Merger Agreement (the “Aggregate Consideration”), which was paid in cash. Pursuant to the Merger Agreement, $12.0 million of the Aggregate Consideration was deposited into an escrow account to secure certain indemnification and other potential obligations of the former Chef equity holders.

Chef is a global leader in DevOps and DevSecOps, providing complete infrastructure automation to build, deploy, manage and secure applications in modern multi-cloud and hybrid environments, as well as on-premises. Chef has enhanced our position as a trusted provider of the best products to develop, deploy and manage high-impact business applications by providing industry-leading compliance and application automation products for multi-cloud and on-prem infrastructure. The acquisition bolstered our core offerings, enabling customers to respond faster to business demands and improve efficiency. We funded the acquisition through a combination of existing cash resources and by drawing down $98.5 million from our existing revolving credit facility (Note 7).

The Aggregate Consideration has been allocated to Chef’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values. The preliminary fair value estimates of the net assets acquired are based upon preliminary calculations and valuations, and those estimates and assumptions are subject to change as we obtain additional information for those estimates during the measurement period (up to one year from the acquisition date). The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill.

The allocation of the purchase price is as follows (in thousands):
TotalLife
Net working capital$52,330 
Property, plant and equipment498 
Purchased technology38,300 5 years
Trade name5,700 5 years
Customer relationships97,300 7 years
Other assets122 
Other noncurrent liabilities(841)
Lease liabilities, net(1,810)
Deferred taxes(7,817)
Deferred revenue(12,525)
Goodwill59,858 
Net assets acquired$231,115 

The fair value of the intangible assets was estimated using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to value the acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital. The valuation assumptions take into consideration our estimates of customer attrition, technology obsolescence, and revenue growth projections.

Tangible assets acquired and assumed liabilities were recorded at fair value. The valuation of the assumed deferred revenue was based on our contractual commitment to provide post-contract customer support to Chef customers and future contractual performance obligations under existing hosting arrangements. The fair value of this assumed liability was based on the estimated cost plus a reasonable margin to fulfill these service obligations. A significant portion of the deferred revenue is expected to be recognized in the 12 months following the acquisition.

We recorded the excess of the purchase price over the identified tangible and intangible assets as goodwill. We believe that the investment value of the future enhancement of our product and solution offerings created as a result of this acquisition has
15


principally contributed to a purchase price that resulted in the recognition of $59.9 million of goodwill, which is not deductible for tax purposes.

Acquisition-related transaction costs (e.g., legal, due diligence, valuation, and other professional fees) and certain acquisition restructuring and related charges are not included as a component of consideration transferred but are required to be expensed as incurred. During the three months ended February 28, 2021, we incurred approximately $0.4 million of acquisition-related costs, which are included in acquisition-related expenses on our consolidated statement of operations.

The operations of Chef are included in our operating results as part of the Application Development and Deployment business segment from the date of acquisition. The amount of revenue of Chef included in our consolidated statement of operations during the three months ended February 28, 2021 was approximately $12.0 million. We determined that disclosing the amount of Chef related earnings included in the consolidated statements of operations is impracticable, as certain operations of Chef were integrated into the operations of the Company from the date of acquisition.

Pro Forma Information

The following pro forma financial information presents the combined results of operations of Progress and Chef as if the acquisition had occurred on December 1, 2018, after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the Chef acquisition and factually supportable. These pro forma adjustments include (i) a decrease in revenue from Chef due to the beginning balance of deferred revenue being adjusted to reflect the fair value of the acquired balance, (ii) a net increase in amortization expense to record amortization expense for the $141.3 million of acquired identifiable intangible assets, (iii) an increase in interest expense to record interest for the period presented as a result of drawing down our revolving credit facility in connection with the acquisition, and (iv) the income tax effect of the adjustments made at the statutory tax rate of the U.S. (approximately 24.5%).

The pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on December 1, 2018. These results are prepared in accordance with ASC 606.

(In thousands, except per share data)Pro Forma
Three Months Ended February 29, 2020
Revenue$123,690 
Net income$12,933 
Net income per basic share$0.29 
Net income per diluted share$0.28 

Note 7: Term Loan and Line of Credit

On April 30, 2019, we entered into an amended and restated credit agreement (the "Credit Agreement"), which provides for a $301.0 million secured term loan and a $100.0 million secured revolving line of credit. The revolving line of credit may be made available in U.S. Dollars and certain other currencies and may be increased by up to an additional $125.0 million if the existing or additional lenders are willing to make such increased commitments. The revolving line of credit has sublimits for swing line loans up to $25.0 million and for the issuance of standby letters of credit in a face amount up to $25.0 million.

The Credit Agreement modified our prior credit facility by extending the maturity date to April 30, 2024 and extending the principal repayments of the term loan. We borrowed an additional $185.0 million under the term loan as part of this modified credit facility. The new term loan was used to partially fund our acquisition of Ipswitch in April 2019. During October 2020, we partially funded our acquisition of Chef by drawing down $98.5 million under the revolving line of credit (Note 6).

Interest rates for the term loan and revolving line of credit are based upon our leverage ratio and determined based on an index selected at our option. The rates range from 1.50% to 2.00% above the Eurocurrency rate for Eurocurrency-based borrowings or from 0.50% to 1.00% above the defined base rate for base rate borrowings. Additionally, we may borrow certain foreign currencies at rates set in the same respective range above the London interbank offered interest rates for those currencies. A quarterly commitment fee on the undrawn portion of the revolving line of credit is required and ranges from 0.25% to 0.35% per annum based on our leverage ratio. The interest rate as of February 28, 2021 was 1.75%.

16


The credit facility matures on April 30, 2024, when all amounts outstanding will be due and payable in full. The revolving line of credit does not require amortization of principal. The outstanding balance of the term loan as of February 28, 2021 was $282.2 million, with $20.7 million due in the next 12 months. The term loan requires repayment of principal at the end of each fiscal quarter, beginning with the fiscal quarter ended August 31, 2019. The principal repayment amounts are in accordance with the following schedule: (i) four payments of $1.9 million each, (ii) four payments of $3.8 million each, (iii) four payments of $5.6 million each, (iv) four payments of $7.5 million each, (v) three payments of $9.4 million each, and (vi) the last payment is of the remaining principal amount. Any amounts outstanding under the term loan thereafter would be due on the maturity date. The term loan may be prepaid before maturity in whole or in part at our option without penalty or premium. As of February 28, 2021, the carrying value of the term loan approximates the fair value, based on Level 2 inputs (observable market prices in less than active markets), as the interest rate is variable over the selected interest period and is similar to current rates at which we can borrow funds.

Costs incurred to obtain our long-term debt of $1.6 million, along with $1.2 million of unamortized debt issuance costs related to the previous credit agreement, are recorded as debt issuance costs as a direct deduction from the carrying value of the debt liability on our condensed consolidated balance sheets as of February 28, 2021. These costs are being amortized over the term of the debt agreement using the effective interest rate method. Amortization expense related to the debt issuance costs was $0.1 million for each of the three months ended February 28, 2021 and February 29, 2020 is recorded in interest expense on our condensed consolidated statements of operations.

Revolving loans may be borrowed, repaid, and reborrowed until April 30, 2024, at which time all amounts outstanding must be repaid. Accrued interest on the loans is payable quarterly in arrears with respect to base rate loans and at the end of each interest rate period (or at each three-month interval in the case of loans with interest periods greater than three months) with respect to Eurocurrency rate loans. We may prepay the loans or terminate or reduce the commitments in whole or in part at any time, without premium or penalty, subject to certain conditions and reimbursement of certain costs in the case of Eurocurrency rate loans. During October 2020, we partially funded our acquisition of Chef by drawing down $98.5 million under the revolving line of credit (Note 6). During the first fiscal quarter of 2021, we paid down $15.0 million on the revolving line of credit. As of February 28, 2021, there was $83.5 million outstanding under the revolving line of credit and $2.1 million of letters of credit outstanding.

We are the sole borrower under the credit facility. Our obligations under the Credit Agreement are secured by substantially all of our assets and each of our material domestic subsidiaries, as well as 100% of the capital stock of our domestic subsidiaries and 65% of the capital stock of our first-tier foreign subsidiaries, in each case, subject to certain exceptions as described in the Credit Agreement. Future material domestic subsidiaries will be required to guaranty our obligations under the Credit Agreement, and to grant security interests in substantially all of their assets to secure such obligations. The Credit Agreement generally prohibits, with certain exceptions, any other liens on our assets, subject to certain exceptions as described in the Credit Agreement.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, am