PROGRESS SOFTWARE CORP /MA

Previous wording

This Form 10-Q may contain information that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended; Section 21E of the Securities Exchange Act of 1934, as amended; and the Private Securities Litigation Reform Act of 1995. Whenever we use words such as "believe," "may," "could," "would," "might," "should," "expect," "intend," "plan," "estimate," "target," "anticipate" and negatives and derivatives of these or similar expressions, or when we make statements concerning future financial results, product offerings or other events that have not yet occurred, we are making forward-looking statements. Actual future results may differ materially from those contained in or implied by our forward-looking statements due to various factors which are more fully described in Part I, Item 1A. Risk Factors in our 2023 Annual Report as well as the risk factors described in Part II, Item 1A of this Report on Form 10-Q. Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what

Current wording

This Quarterly Report on Form 10-Q may contain information that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended; Section 21E of the Securities Exchange Act of 1934, as amended; and the Private Securities Litigation Reform Act of 1995. Whenever we use words such as "believe," "may," "could," "would," "might," "should," "expect," "intend," "plan," "estimate," "target," "anticipate" and negatives and derivatives of these or similar expressions, or when we make statements concerning future financial results, product offerings or other events that have not yet occurred, we are making forward-looking statements. Actual future results may differ materially from those contained in or implied by our forward-looking statements due to various factors which are more fully described in Part I, Item 1A. Risk Factors in our 2024 Annual Report as well as any risk factors described in Part II, Item 1A of this Quarterly Report on Form 10-Q. Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what

Previous wording

Total revenue slightly increased across multiple product offerings in the third quarter of fiscal year 2024 as compared to the same period last year. Compared to prior year, total revenue increased in the first nine months of fiscal year 2024 due to MarkLogic as the current period includes activity for the full nine months to date, whereas the prior period only included revenue from the acquisition in February 2023, or approximately seven months. These increases were slightly offset by a decrease in our DataDirect product offering as a result of the timing of renewals on multiyear subscription contracts.

Current wording

Total revenue increased as compared to the same period last year primarily due to our acquisition of ShareFile in the fourth quarter of fiscal year 2024. ShareFile revenue in the first quarter of fiscal year 2025 was $63.6 million. These increases were partially offset by a decrease in our DataDirect product offering as a result of the timing of renewals on multiyear subscription contracts.

Previous wording

Maintenance and services revenue slightly decreased across multiple products in the third quarter of fiscal year 2024 as compared to the same period last year. Maintenance and services revenue increased in the first nine months of fiscal year 2024 as compared to the same period last year due to our acquisition of MarkLogic.

Current wording

Maintenance revenue slightly decreased as compared to the same period last year primarily due to the negative impact of foreign exchange. SaaS revenue increased as compared to the same period last year due to our acquisition of ShareFile. Professional services revenue decreased as compared to the same period last year primarily due to a decrease in MarkLogic professional services revenue.

Previous wording

Cost of software licenses consists primarily of costs of inventories, royalties, electronic software distribution, duplication, and packaging. Cost of software licenses as a percentage of software license revenue varies from period to period depending upon the relative product mix.

Current wording

Cost of software licenses consists primarily of royalties, electronic software distribution, duplication, and packaging. Cost of software licenses as a percentage of software license revenue varies from period to period depending upon the relative product mix.

Previous wording

Cost of maintenance and services consists primarily of costs of providing customer support, consulting, and education. The decrease in the third quarter of fiscal year 2024 was primarily due to decreased personnel related costs and contractor and outside services costs. The increase in first nine months of fiscal year 2024 is due to increased personnel related costs resulting from our acquisition of MarkLogic.

Current wording

Cost of maintenance, SaaS, and professional services consists primarily of hosting costs, and personnel related costs attributable to customer support, cloud operations, consulting, and education. The increase year-over-year was primarily due to increased hosting and headcount related costs resulting from our acquisition of ShareFile.

Previous wording

Amortization of intangibles included in costs of revenue primarily represents the amortization of the value assigned to technology-related intangible assets obtained in business combinations. The decrease in the third quarter of fiscal year 2024 is due to certain intangible assets becoming fully amortized in the second quarter of fiscal year 2024. The year over year decrease in the first nine months of fiscal year 2024 is due certain intangible assets becoming fully amortized in the period, offset by the acquisition of MarkLogic.

Current wording

Amortization of intangibles included in costs of revenue primarily represents the amortization of the value assigned to technology-related intangible assets obtained in business combinations. The year-over-year increase is due to the acquisition of ShareFile.

Previous wording

Sales and marketing expenses decreased in the third quarter of fiscal year 2024 primarily due to decreased personnel related costs as a result of lower headcount. Sales and marketing expenses increased in the first nine months of fiscal year 2024 primarily due to increased personnel related costs associated with our acquisition of MarkLogic, as well as increases in marketing and sales events costs, partially offset by decreases in contractors and outside services costs.

Current wording

Sales and marketing expenses increased primarily due to increased personnel related costs, increased marketing and sales events costs, and increased contractors and outside services costs, each associated with our acquisition of ShareFile.

Previous wording

General and administrative expenses include the costs of our finance, human resources, legal, information systems and administrative departments. General and administrative expenses remained relatively flat during the third quarter of fiscal year 2024 compared to the same period in the prior year. General and administrative expenses increased in the first nine months of fiscal year 2024 primarily due to higher personnel costs and other general and administrative costs. These increases were offset by decreases in contractors and outside services costs.

Current wording

General and administrative expenses include the costs of our finance, human resources, legal, information systems and administrative departments. The increases in personnel related costs, contractors and outside services, and other general and administrative costs were primarily related to our acquisition of ShareFile.

Previous wording

Amortization of intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology. The decrease in the third quarter of fiscal year 2024 is due to certain intangible assets becoming fully amortized in the second quarter of fiscal year 2024. Amortization of intangibles decreased in the first nine months of fiscal year 2024 due to certain intangible assets becoming fully amortized in the period, offset by the addition of MarkLogic intangible assets, as discussed above.

Current wording

Amortization of intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology. Amortization of intangibles increased due to the addition of ShareFile intangible assets, as discussed above.

Previous wording

Cyber Incident and Vulnerability Response Expenses, Net

Current wording

Cyber Vulnerability Response Expenses, Net

Previous wording

As previously disclosed, following (i) the detection of irregular activity on certain portions of our corporate network that was disclosed on December 19, 2022, and (ii) the discovery of the MOVEit Vulnerability that was disclosed on June 5, 2023, in each instance, we engaged outside cybersecurity experts and other incident response professionals to conduct a forensic investigation and assess the extent and scope of these matters. Cyber incident and MOVEit Vulnerability costs relate to the engagement of external cybersecurity experts and other incident response professionals and are net of received and expected insurance recoveries. We did not incur costs related to the November 2022 cyber incident during fiscal year 2024 and do not expect to incur additional costs as the investigation is closed. Please refer to Note 15: Cyber Related Matters for additional details and updates regarding the MOVEit Vulnerability.

Current wording

As previously disclosed, following the discovery of the MOVEit Vulnerability that was disclosed on June 5, 2023, we engaged outside cybersecurity experts and other incident response professionals to conduct a forensic investigation and assess the extent and scope of this matter. Cyber vulnerability response costs relate to the engagement of external cybersecurity experts and other incident response professionals and are net of received and expected insurance recoveries. Please refer to Note 12: Cyber Related Matters for additional details and updates regarding the MOVEit Vulnerability.

Previous wording

Restructuring expenses recorded in the first nine months of fiscal year 2024 primarily relate to a facility closure in connection with the restructuring action related to the MarkLogic acquisition. Restructuring expenses recorded in the first nine months of fiscal year 2023 relate to headcount reduction from the same action.

Current wording

Restructuring expenses recorded in the first quarter of fiscal year 2025 primarily relate to headcount reductions and a facility closure in connection with the restructuring action related to the ShareFile acquisition in November 2024. See Note 9: Restructuring for additional details, including types of expenses incurred and the timing of future expenses and cash payments.

Previous wording

Acquisition-related costs are expensed as incurred and include those costs incurred as a result of a business combination. These costs consist of professional service fees, including third-party legal and valuation-related fees. Acquisition-related expenses in the third quarter of fiscal year 2024 were primarily related to our pursuit of ShareFile. Acquisition-related expenses in the first nine months of fiscal year 2024 were primarily related to our pursuit of ShareFile and other acquisition opportunities. Acquisition-related expenses in the same periods of fiscal year 2023 were primarily related to our acquisition of MarkLogic.

Current wording

Acquisition-related costs are expensed as incurred and include those costs incurred as a result of a business combination. These costs consist of professional service fees, including third-party legal and valuation-related fees. Acquisition-related expenses in the first quarter of fiscal year 2025 were primarily related to our acquisition of ShareFile. Acquisition-related expenses in the same periods of fiscal year 2024 were primarily related to our pursuit of other acquisition opportunities.

Previous wording

Income from operations increased in the third quarter of fiscal year 2024 due to increased revenue and decreases in costs of revenue and operating expenses, as shown above. Income from operations increased in the first nine months of fiscal year 2024 due to an increase in revenue, partially offset by fluctuations in costs of revenue and operating expenses, as shown above.

Current wording

Income from operations decreased year-over-year due to an increase in costs of revenue and operating expenses, offset by an increase in revenue, as shown above.

Previous wording

Other expense, net, decreased in the third quarter of fiscal year 2024 due to lower interest rates as a result of our debt refinancing in the second quarter of fiscal year 2024, in which we issued the 2030 Notes and entered into an amended and restated credit facility. Please refer to Note 7: Debt for further discussion. Interest income and other, net, was higher in fiscal year 2024, resulting from higher interest rates on our invested cash balance. Foreign currency loss increased year over year due to rate volatility and timing of intercompany and hedge settlement activities.

Current wording

Total other expense, net, increased in the first quarter of fiscal year 2025 as compared to the same period last year primarily due to an increase in interest expense resulting from costs associated with drawing on our revolving line of credit to acquire ShareFile. Refer to Note 5: Debt, for further discussion. Foreign currency loss increased year-over-year due to rate volatility and timing of intercompany and hedge settlement activities.

Previous wording

Management evaluates our financial performance using a number of financial and operating metrics. These metrics are periodically reviewed and revised to reflect changes in our business.

Current wording

We evaluate our financial performance using a number of financial and operating metrics. These metrics are periodically reviewed and revised to reflect changes in our business.

Previous wording

We disclose ARR as a performance metric to help investors better understand and assess the performance of our business because our mix of revenue generated from recurring sources currently represents the substantial majority of our revenues and is expected to continue in the future. We define ARR as the annualized revenue of all active and contractually binding term-based contracts from all customers at a point in time. ARR includes revenue from maintenance, software upgrade rights, public cloud, and on-premises subscription-based transactions and managed services. ARR mitigates fluctuations in revenue due to seasonality, contract term and the sales mix of subscriptions for term-based licenses and SaaS. Management uses ARR to understand customer trends and the overall health of the Company’s business, helping it to formulate strategic business decisions.

Current wording

We disclose ARR as a performance metric to help investors better understand and assess the performance of our business because our mix of revenue generated from recurring sources currently represents the substantial majority of our revenues and is expected to continue in the future. We define ARR as the annualized revenue of all active and contractually binding term-based contracts from all customers at a point in time. ARR includes revenue from maintenance, software upgrade rights, public cloud, and on-premises subscription-based transactions and managed services. ARR mitigates fluctuations in revenue due to seasonality, contract term and the sales mix of subscriptions for term-based licenses and SaaS. We use ARR to understand customer trends and the overall health of our business, helping us to formulate strategic business decisions.

Previous wording

We calculate the annualized value of annual and multi-year contracts, and contracts with terms less than one year, by dividing the total contract value of each contract by the number of months in the term and then multiplying by 12. Annualizing contracts with terms less than one-year results in amounts being included in our ARR that are in excess of the total contract value for those contracts at the end of the reporting period. We generally do not sell contracts with a term of less than one year unless a customer is purchasing additional licenses under an existing annual or multi-year contract. The expectation is that at the time of renewal, contracts with a term less than one year will renew with the same term as the existing contracts being renewed, such that both contracts are co-termed. Historically contracts with a term of less than one year renew at rates equal to or better than annual or multi-year contracts.

Current wording

We calculate the annualized value of annual and multi-year contracts, and contracts with terms less than one year, by dividing the total contract value of each contract by the number of months in the term and then multiplying by 12. Annualizing contracts with terms less than one-year results in amounts being included in our ARR that are in excess of the total contract value for those contracts at the end of the reporting period. We generally do not sell non-SaaS-based contracts with a term of less than one year unless a customer is purchasing additional licenses under an existing annual or multi-year contract. The expectation is that at the time of renewal, such contracts with a term less than one year will renew with the same term as the existing contracts being renewed, such that both contracts are co-termed. Historically, such contracts with a term of less than one year renew at rates equal to or better than annual or multi-year contracts.

Previous wording

Our ARR was $582.0 million and $581.0 million as of August 31, 2024 and August 31, 2023, respectively, which is relatively flat year-over-year.

Current wording

Our ARR was $836 million and $566 million as of February 28, 2025 and February 29, 2024, respectively, which is an increase of 48% year-over-year. The growth in ARR was primarily driven by the acquisition of ShareFile.

Previous wording

We calculate net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end ("Prior Period ARR"). We then calculate the ARR from these same customers as of the current period end ("Current Period ARR"). Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the net retention rate. Net retention rate is not defined in accordance with GAAP.

Current wording

We calculate net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end ("Prior Period ARR"). We then calculate the ARR from these same customers as of the current period end ("Current Period ARR"). Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the net retention rate. Net retention rate is not calculated in accordance with GAAP and is not derived from a GAAP measure.

Previous wording

Our net retention rates have generally ranged between 99% and 101% for all periods presented. Our high net retention rates illustrate our predictable and durable top line performance.

Current wording

Our net retention rates have generally ranged between 100% and 102% for all periods presented. We believe net retention rates can be a helpful indicator of the durability of top line performance.

Previous wording

The increase in cash and cash equivalents of $105.8 million from the end of fiscal year 2023 was due to proceeds from the issuance of convertible senior notes of $396.5 million (net of purchases of capped calls in connection with the convertible notes offering of $42.2 million and issuance costs of $11.2 million), cash inflows from operations of $191.8 million, $6.8 million in cash received from the issuance of common stock, and the effect of exchange rates on cash of $1.5 million. We refinanced our debt by issuing the convertible senior notes and used the proceeds to pay off the outstanding balance of the term loan and revolving line of credit under our previous credit agreement. As such, the cash inflows described above were offset by cash outflows of $261.3 million to pay off the balance of the term loan, $110.0 million to pay off the revolving line of credit, repurchases of common stock of $86.8 million, dividend payments of $23.8 million, payment of debt issuance costs of $6.8 million, and purchases of property and equipment of $2.3 million. Except as described below, there are no limitations on our ability to access our cash and cash equivalents.

Current wording

The increase in cash and cash equivalents of $6.1 million from the end of fiscal year 2024 was due to cash inflows from operations of $68.7 million, and $1.6 million in cash received from the issuance of common stock. The cash inflows described above were offset by cash outflows of $30.0 million to pay down the revolving line of credit, repurchases of common stock of $30.1 million, the effect of exchange rates on cash of $1.5 million, purchases of property and equipment of $1.3 million, and a $1.2 million payment related to the acquisition of ShareFile. Except as described below, there are no limitations on our ability to access our cash and cash equivalents.

Previous wording

In the first nine months of fiscal year 2024, operating cash flows increased due to higher billings and collections, and lower interest rates as a result of our debt refinancing in the second quarter of fiscal year 2024. Our gross accounts receivable as of August 31, 2024, decreased by $38.2 million from the end of fiscal year 2023. Our days sales outstanding (DSO) in accounts receivable decreased to 45 days in the third fiscal quarter of 2024 from 49 days in the third fiscal quarter of 2023 due to the timing of billings and collections.

Current wording

Our gross accounts receivable as of February 28, 2025, decreased by $36.0 million from the end of fiscal year 2024. Our days sales outstanding (DSO) in accounts receivable decreased to 48 days the first quarter of fiscal year 2025 from 50 days in the first fiscal quarter of 2024 due to the timing of billings and collections.

Previous wording

Net cash outflows and inflows of our net investment activity are generally a result of the timing of our purchases and maturities of securities, which are classified as cash equivalents or short-term securities. In the first nine months of fiscal year 2024, we purchased $2.3 million of property and equipment. In the first nine months of fiscal year 2023 we also had payments for acquisitions net of cash acquired of $355.3 million, and $3.2 million of purchases of property and equipment.

Current wording

Net cash outflows and inflows of our net investment activity are generally a result of the timing of our purchases and maturities of securities, which are classified as cash equivalents, as well as the timing of acquisitions and divestitures. In the first three months of fiscal year 2025, we purchased $1.3 million of property and equipment, and had payments for acquisitions of $1.2 million. In the first quarter of fiscal year 2024 we had $0.3 million of purchases of property and equipment.

Previous wording

Cash Flows (Used in) From Financing Activities

Current wording

Cash Flows Used in Financing Activities

Previous wording

In January 2023, our Board of Directors increased our share repurchase authorization by $150 million, to an aggregate authorization of $228.0 million. In the three months ended August 31, 2024, we repurchased and retired 0.3 million shares for $14.3 million. In the three months ended August 31, 2023, we did not repurchase any shares of our common stock. In the nine months ended August 31, 2024 and August 31, 2023, we repurchased and retired 1.6 million shares for $86.8 million and 0.5 million shares for $30.0 million, respectively. The shares were repurchased in both periods as part of our Board of Directors authorized share repurchase program. As of August 31, 2024, there was $107.2 million remaining under the current authorization.

Current wording

In January 2023, our Board of Directors increased our share repurchase authorization by $150 million, to an aggregate authorization of $228.0 million. In the three months ended February 28, 2025 and February 29, 2024, we repurchased and retired 0.5 million shares for $30.0 million and 0.4 million shares for $22.5 million, respectively. The shares were repurchased in both periods as part of the share repurchase program as authorized by our Board of Directors. As of February 28, 2025, there was $77.2 million remaining under the current authorization.

Previous wording

As announced on September 9, 2024, Progress’ Board of Directors approved the suspension of Progress’ quarterly dividend in connection with the ShareFile acquisition and plans to redirect such capital toward the repayment of debt to increase liquidity for future M&A and for share repurchases, both of which are prioritized in our capital allocation policy.

Current wording

As announced on September 9, 2024, our Board of Directors approved the suspension of our quarterly dividend in connection with the ShareFile acquisition and plans to redirect such capital toward the repayment of debt to increase liquidity for future M&A and for share repurchases, both of which are prioritized in our capital allocation policy.

Previous wording

Cash from operations in fiscal year 2024 could be affected by various risks and uncertainties, including, but not limited to, the effects of various risks detailed in Part I, Item 1A. Risk Factors in our 2023 Annual Report, including increased disruption and volatility in capital markets and credit markets that could adversely affect our liquidity and capital resources in the future. However, based on our current business plan, we believe that existing cash balances, together with funds generated from operations and amounts available under our revolving credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next twelve months, including funding our proposed acquisition of ShareFile with a combination of existing cash on hand and borrowings under our existing revolving credit facility. We do not contemplate a need for any foreign repatriation of the earnings which are deemed invested indefinitely outside of the U.S. Our foreseeable cash needs include capital expenditures, acquisitions, debt repayments, share repurchases, lease commitments, restructuring obligations and other long-term obligations.

Current wording

Cash from operations in fiscal year 2025 could be affected by various risks and uncertainties, including, but not limited to, the effects of various risks detailed in Part I, Item 1A. Risk Factors in our 2024 Annual Report, including increased disruption and volatility in capital markets and credit markets that could adversely affect our liquidity and capital resources in the future. However, based on our current business plan, we believe that existing cash balances, together with funds generated from operations and amounts available under our revolving credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next twelve months. Our foreseeable cash needs include capital expenditures, acquisitions, debt repayments, share repurchases, lease commitments, restructuring obligations and other long-term obligations.

Previous wording

We are subject to litigation and governmental investigations related to the MOVEit Vulnerability, for which we have incurred expenses and will incur future costs. We expect our exposure to such expenses and liabilities to be reduced by insurance.

Current wording

We are subject to litigation and governmental investigations related to the MOVEit Vulnerability, for which we have incurred expenses and will incur future costs. We expect our exposure to such expenses and liabilities to be reduced by insurance. Please refer to Note 12: Cyber Related Matters to the condensed consolidated financial statements for additional details and updates regarding the MOVEit Vulnerability.

Previous wording

Refer to Note 1: Basis of Presentation (Part I, Item 1 of this Form 10-Q) for further discussion.

Current wording

Refer to Note 1: Basis of Presentation to the condensed consolidated financial statements for further discussion.