SEC Form 10-Q filed by Progress Software Corporation
$PRGS
Computer Software: Prepackaged Software
Technology
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, 2025
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)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip code) | |||||||
Registrant’s telephone number, including area code: (781 ) 280-4000
Not applicable
(Former name or former address and formal fiscal year, 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 | ||||||
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.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | 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 27, 2025, there were 43,025,995 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, 2025
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, 2025 | November 30, 2024 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Unbilled receivables | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Long-term unbilled receivables | |||||||||||
| Property and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Right-of-use lease assets | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Short-term deferred revenue, net | |||||||||||
| Accrued compensation and related payroll taxes | |||||||||||
| Short-term operating lease liabilities | |||||||||||
| Other accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term deferred revenue, net | |||||||||||
| Convertible senior notes, net | |||||||||||
| Long-term debt, net | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
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, 2025 | February 29, 2024 | |||||||||
| Revenue: | |||||||||||
| Software licenses | $ | $ | |||||||||
| Maintenance, SaaS, and professional services | |||||||||||
| Total revenue | |||||||||||
| Costs of revenue: | |||||||||||
| Cost of software licenses | |||||||||||
| Cost of maintenance, SaaS, and professional services | |||||||||||
| Amortization of acquired intangibles | |||||||||||
| Total costs of revenue | |||||||||||
| Gross profit | |||||||||||
| Operating expenses: | |||||||||||
| Sales and marketing | |||||||||||
| Product development | |||||||||||
| General and administrative | |||||||||||
| Amortization of acquired intangibles | |||||||||||
| Cyber vulnerability response expenses, net | |||||||||||
| Restructuring expenses | |||||||||||
| Acquisition-related expenses | |||||||||||
| Total operating expenses | |||||||||||
| Income from operations | |||||||||||
| Other (expense) income: | |||||||||||
| Interest expense | ( | ( | |||||||||
| Interest income and other, net | |||||||||||
| Foreign currency loss, net | ( | ( | |||||||||
| Total other expense, net | ( | ( | |||||||||
| Income before income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | $ | $ | |||||||||
| Earnings per share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
| Cash dividends declared per common share | $ | $ | |||||||||
See notes to unaudited condensed consolidated financial statements.
4
Condensed Consolidated Statements of Comprehensive Income
| Three Months Ended | |||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | |||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive loss, net of tax: | |||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||
Unrealized loss on hedging activity, net of tax benefit of $ | ( | ||||||||||
| Total other comprehensive loss, net of tax | ( | ( | |||||||||
| Comprehensive income | $ | $ | |||||||||
See notes to unaudited condensed consolidated financial statements.
5
Condensed Consolidated Statements of Stockholders’ Equity
| Three Months Ended February 28, 2025 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||||||||||||||
| (in thousands) | Number of Shares | Amount | |||||||||||||||||||||||||||||||||
| Balance, December 1, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Issuance of stock under employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | ( | — | — | ||||||||||||||||||||||||||||||||
| Withholding tax payments related to net issuance of RSUs | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Treasury stock repurchases and retirements, including excise tax | ( | ( | ( | ( | — | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, February 28, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Three Months Ended February 29, 2024 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||||||||||||||
| (in thousands) | Number of Shares | Amount | |||||||||||||||||||||||||||||||||
| Balance, December 1, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Issuance of stock under employee stock purchase plan | — | — | |||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | |||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | ( | — | — | ||||||||||||||||||||||||||||||||
| Withholding tax payments related to net issuance of RSUs | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Treasury stock repurchases and retirements | ( | ( | ( | ( | — | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, February 29, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
6
Condensed Consolidated Statements of Cash Flows
| Three Months Ended | |||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization of property and equipment | |||||||||||
| Amortization of acquired intangibles and other | |||||||||||
| Amortization of debt discount and issuance costs | |||||||||||
| Stock-based compensation | |||||||||||
| Non-cash lease expense | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Credit losses and other sales allowances | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Other assets | ( | ||||||||||
| Accounts payable and accrued liabilities | ( | ( | |||||||||
| Lease liabilities | ( | ( | |||||||||
| Income taxes payable | ( | ( | |||||||||
| Deferred revenue, net | ( | ||||||||||
| Net cash flows from operating activities | |||||||||||
| Net cash flows used in investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Payments for acquisitions | ( | ||||||||||
| Net cash flows used in investing activities | ( | ( | |||||||||
| Net cash flows used in financing activities: | |||||||||||
| Proceeds from equity plans | |||||||||||
| Payments for taxes related to net share settlements of equity awards | ( | ( | |||||||||
| Repurchases of common stock, including excise tax | ( | ( | |||||||||
| Dividend equivalent and dividend payments to stockholders | ( | ( | |||||||||
| Repayment of revolving line of credit | ( | ( | |||||||||
| Principal payment on term loan | ( | ||||||||||
| Net cash flows used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | |||||||||
| Net increase in cash and cash equivalents | |||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
7
Condensed Consolidated Statements of Cash Flows, continued
| Three Months Ended | |||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | |||||||||
| Supplemental disclosure: | |||||||||||
Cash paid for income taxes, net of refunds of $ | $ | $ | |||||||||
| Cash paid for interest | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Total fair value of restricted stock awards, restricted stock units and deferred stock units on date vested | $ | $ | |||||||||
| Dividends declared and unpaid | $ | $ | |||||||||
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 software products that enable our customers to develop, deploy and manage responsible AI-powered applications and digital experiences.
Many of our products are sold as perpetual licenses, but certain products use term licensing models and our cloud-based offerings are marketed as software-as-a-service ("SaaS") offerings. More than half of our worldwide license revenue is realized through relationships with indirect channel partners, principally independent software vendors ("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. In October 2024, we acquired ShareFile, a SaaS offering.
We operate in North America, Latin America, Europe, the Middle East and Africa ("EMEA"), and Asia and Australia ("Asia Pacific"), 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 U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, the financial statements 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, 2024, as filed with the SEC on January 21, 2025 (our "2024 Annual Report").
We made no material changes in the application of our significant accounting policies that were disclosed in our 2024 Annual Report. We have prepared the accompanying unaudited condensed consolidated financial statements on the same basis as the audited financial statements included in our 2024 Annual Report, 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
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. This update is effective beginning with the Company’s 2025 fiscal year annual reporting period. The Company is currently evaluating the impact that the adoption of this standard and will include the additional disclosures in the financial statements for the fiscal year ended November 30, 2025.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 is intended to improve the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company beginning with the annual period ending November 30, 2026, allowing for adoption on a prospective basis or
9
a retrospective option. Early adoption is permitted. The adoption of this standard only impacts disclosures and is not expected to have a material impact on the Company's consolidated financial statements.
In November 2024, the FASB issued Accounting Standards Update No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"), and in January 2025, the FASB issued Accounting Standards Update No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date ("ASU 2025-01"). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for us for our annual reporting for fiscal 2028 and for interim period reporting beginning in fiscal 2029 on a prospective basis. Both early adoption and retrospective application are permitted. The Company is currently evaluating the impact that the adoption of these standards will have on its consolidated financial statements and disclosures.
Note 2: 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 February 28, 2025:
| Fair Value Measurements Using | |||||||||||||||||||||||
| (in thousands) | Total Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Foreign exchange derivatives | $ | ( | $ | $ | ( | $ | |||||||||||||||||
The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2024:
| Fair Value Measurements Using | |||||||||||||||||||||||
| (in thousands) | Total Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Foreign exchange derivatives | $ | ( | $ | $ | ( | $ | |||||||||||||||||
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.
10
Assets and Liabilities Not Carried at Fair Value
Fair Value of the Convertible Senior Notes
The following table details the fair value and carrying value of our Convertible Senior Notes due 2026 and 2030 (together referred to as "the Notes"):
| February 28, 2025 | November 30, 2024 | ||||||||||||||||||||||
| (in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||
Convertible senior notes due 2026(1) | $ | $ | $ | $ | |||||||||||||||||||
Convertible senior notes due 2030(2) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1) The carrying value of the convertible senior notes due 2026 (the "2026 Notes"), is reflected net of $2.5 million and $3.1 million of unamortized debt issuance costs as of February 28, 2025 and November 30, 2024, respectively.
(2) The carrying value of the convertible senior notes due 2030 (the "2030 Notes"), is reflected net of $10.2 million and $10.7 million of unamortized debt issuance costs as of February 28, 2025 and November 30, 2024, respectively.
The fair value of the Notes is based on quoted prices in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy.
Fair Value of Other Financial Assets and Liabilities
The carrying amounts of other financial assets and liabilities including cash and cash equivalents, accounts receivable, unbilled accounts receivable, accounts payable, and accrued liabilities approximate their respective fair values due to their immediate or short-term maturities.
Note 3: Intangible Assets and Goodwill
Intangible Assets
Intangible assets are comprised of the following significant classes:
| February 28, 2025 | November 30, 2024 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | |||||||||||||||||||||||||||||
| Purchased technology | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Customer-related | ( | ( | |||||||||||||||||||||||||||||||||
| Trademarks and trade names | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
In the three months ended February 28, 2025 and February 29, 2024, amortization expense related to intangible assets was $36.2 million and $25.2 million, respectively.
Future amortization expense for intangible assets as of February 28, 2025, is as follows:
| (in thousands) | |||||
| Remainder of 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| Thereafter | |||||
| Total | $ | ||||
11
Goodwill
Changes in the carrying amount of goodwill in the three months ended February 28, 2025 are as follows:
| (in thousands) | |||||
| Balance, December 1, 2024 | $ | ||||
Additions(1) | |||||
| Translation adjustments | |||||
Balance, February 28, 2025 | $ | ||||
(1) The additions to goodwill during fiscal year 2025 represent measurement period adjustments related to the acquisition of ShareFile in October 2024. See Note 4: Business Combinations for additional information.
Note 4: Business Combinations
ShareFile Acquisition
On October 31, 2024, we completed the acquisition of ShareFile from Cloud Software Group, Inc. and its subsidiaries ("Cloud") for an aggregate purchase price of $875.0 million in cash, subject to a $25.0 million working capital credit and certain customary adjustments. We funded the acquisition through $730.0 million in borrowings under our existing $900.0 million revolving credit facility and cash on hand. Refer to Note 5: Debt for further information.
The acquisition consideration for ShareFile has been preliminarily allocated to ShareFile’s assets and assumed liabilities based on 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, which is up to one year from the acquisition date. During the three months ended February 28, 2025, the Company identified measurement period adjustments that resulted in increases in goodwill totaling $1.6 million.
The preliminary allocation of the purchase price, including the measurement period adjustments, is as follows:
| (in thousands) | Initial Purchase Price Allocation | Measurement Period Adjustments | Adjusted Purchase Price Allocation | Life | |||||||||||||||||||
| Net working capital | $ | $ | $ | ||||||||||||||||||||
| Property, plant and equipment | — | ||||||||||||||||||||||
| Purchased technology | — | ||||||||||||||||||||||
| Trade name | — | ||||||||||||||||||||||
| Customer relationships | ( | ||||||||||||||||||||||
| Deferred taxes | ( | ||||||||||||||||||||||
| Deferred revenue | ( | — | ( | ||||||||||||||||||||
| Goodwill | |||||||||||||||||||||||
| Net assets acquired | $ | $ | $ | ||||||||||||||||||||
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.
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 principally contributed to a purchase price that resulted in the recognition of $461.1 million of goodwill, of which a portion is deductible for tax purposes.
12
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, 2025, we incurred approximately $2.3 million of acquisition-related costs, which are included in acquisition-related expenses on our condensed consolidated statement of operations.
The amount of revenue of ShareFile included in our condensed consolidated statement of operations during the three months ended February 28, 2025, was $63.6 million. We determined that disclosing the amount of ShareFile related earnings included in the condensed consolidated statement of operations is impracticable, as certain operations of ShareFile were integrated into the operations of the Company from the date of acquisition.
In connection and concurrent with the ShareFile acquisition, we entered into a Transition Services Agreement ("TSA") with Cloud for a period of six months from the date of acquisition, with the option to extend the TSA beyond this period for certain services. Expenses related to the TSA were not significant during the three months ended February 28, 2025 and are not expected to be significant in future periods.
Pro Forma Information
The following pro forma financial information presents the combined results of operations of Progress and ShareFile as if the acquisition had occurred on December 1, 2022, after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the ShareFile acquisition and factually supportable. These pro forma adjustments include: (i) a net increase in amortization expense to record amortization expense relating to the $464.0 million of acquired identifiable intangible assets, (ii) an increase in interest expense to record interest for the periods presented as a result of drawing down our revolving line of credit in connection with the acquisition, (iii) an increase in acquisition-related expenses in connection with the acquisition that were not included in the purchase price, (iv) additional expense related to the TSA entered into between Progress and Cloud, and (v) the income tax effect of the adjustments made at the statutory tax rate of the U.S. (approximately 24.0%).
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, 2022.
| (in thousands, except per share data) | Pro Forma Three Months Ended February 29, 2024 | ||||||||||
| Revenue | $ | ||||||||||
| Net income | $ | ||||||||||
| Net income per basic share | $ | ||||||||||
| Net income per diluted share | $ | ||||||||||
Note 5: Debt
As of February 28, 2025 and November 30, 2024, we had the following debt obligations:
| (in thousands) | February 28, 2025 | November 30, 2024 | |||||||||
| $ | $ | ||||||||||
| Revolving credit facility | |||||||||||
| Total face value of long-term debt | |||||||||||
| Unamortized discount and issuance costs for the Notes | ( | ( | |||||||||
| Long-term debt | $ | $ | |||||||||
During the three months ended February 28, 2025, we repaid $30.0 million on the revolving credit facility. The average interest rate of the revolving credit facility during the three months ended February 28, 2025 was 6.60 %, and the interest rate as of February 28, 2025 was 6.67 %.
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Note 6: Common Stock Repurchases
In January 2023, our Board of Directors increased the share repurchase authorization by $150.0 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. As of February 28, 2025, there was $77.2 million remaining under the current authorization.
Note 7: Stock-Based Compensation
Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant service period. We estimate the fair value of each stock-based award on the measurement date using either the current market price of the stock, the Black-Scholes option valuation model, or the Monte Carlo Simulation valuation model. The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate, and dividend yield. We recognize stock-based compensation expense related to options and restricted stock units on a straight-line basis over the service period of the award, which is generally or five years for options and or four years for restricted stock units, and adjust the expense each period for actual forfeitures. We recognize stock-based compensation expense related to performance stock units and our employee stock purchase plan using an accelerated attribution.
In 2025, 2024, and 2023, we granted performance-based restricted stock units that include two three years 75 three-year 25 three-year
The following table provides the classification of stock-based compensation as reflected on our condensed consolidated statements of operations:
| Three Months Ended | |||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | |||||||||
| Cost of maintenance, SaaS, and professional services | $ | $ | |||||||||
| Sales and marketing | |||||||||||
| Product development | |||||||||||
| General and administrative | |||||||||||
| Total stock-based compensation | $ | $ | |||||||||
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Note 8: Revenue Recognition
Timing of Revenue Recognition
Our revenues are derived from licensing our products and from related services, which consist of maintenance, SaaS, and consulting and education. Information relating to revenue from external customers by revenue type is as follows:
| Three Months Ended | |||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | |||||||||
| Performance obligations transferred at a point in time: | |||||||||||
| Software licenses | $ | $ | |||||||||
| Performance obligations transferred over time: | |||||||||||
| Maintenance | |||||||||||
| SaaS | |||||||||||
| Professional services | |||||||||||
| Total revenue | $ | $ | |||||||||
Geographic Revenue
In the following table, revenue attributed to North America includes sales to customers in the U.S. and Canada and sales to certain multinational organizations. Revenue from EMEA, Latin America and the Asia Pacific region includes sales to customers in each region plus sales from the U.S. to distributors in these regions. Information relating to revenue from external customers from different geographical areas is as follows:
| Three Months Ended | |||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | |||||||||
| North America | $ | $ | |||||||||
| EMEA | |||||||||||
| Latin America | |||||||||||
| Asia Pacific | |||||||||||
| Total revenue | $ | $ | |||||||||
No single customer, partner, or country outside the U.S. accounted for more than 10% of our total revenue for the three months ended February 28, 2025 or February 29, 2024.
Contract Balances
Unbilled Receivables and Contract Assets
As of February 28, 2025, billing of our long-term unbilled receivables is expected to occur as follows:
| (in thousands) | |||||
| 2026 | $ | ||||
| 2027 | |||||
| Total | $ | ||||
Contract assets arise when revenue is recognized in excess of billings and the right to the amount due from customers is conditioned on something other than the passage of time, such as the completion of a related performance obligation. We did not
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Deferred Revenue
Deferred revenue is recorded when revenue is recognized subsequent to customer invoicing. Deferred revenue expected to be recognized as revenue more than one year subsequent to the balance sheet date is included in long-term liabilities on the condensed consolidated balance sheets. Our net deferred revenue balance is primarily made up of deferred maintenance and deferred revenue related to our SaaS offerings.
As of February 28, 2025, the changes in net deferred revenue were as follows:
| (in thousands) | |||||
| Balance, December 1, 2024 | $ | ||||
| Billings and other | |||||
| Revenue recognized that was deferred in prior periods | ( | ||||
| Revenue recognized from current period arrangements | ( | ||||
| Balance, February 28, 2025 | $ | ||||
Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of February 28, 2025, transaction price allocated to remaining performance obligations was $478.3 million. We expect to recognize approximately 78 % of the revenue within the next year and the remainder thereafter.
Deferred Contract Costs
Certain of our sales incentive programs meet the requirements to be capitalized. Depending upon the sales incentive program and the related revenue arrangement, such capitalized costs are amortized over the longer of (i) the product life, which is generally to five years ; or (ii) the term of the related revenue contract. We determined that a to five year product life represents the period of benefit that we receive from these incremental costs based on both qualitative and quantitative factors, which include customer contracts, industry norms, and product upgrades. Total deferred contract costs were $5.9 million and $6.7 million as of February 28, 2025 and November 30, 2024, respectively, and are included in other current assets and other assets on our condensed consolidated balance sheets. Amortization of deferred contract costs is included in sales and marketing expense on our condensed consolidated statement of operations and was minimal in all periods presented.
Note 9: Restructuring
The following table provides a summary of activity for our restructuring actions:
| (in thousands) | Excess Facilities and Other Costs | Employee Severance and Related Benefits | Total | ||||||||||||||
| Balance, December 1, 2024 | $ | $ | $ | ||||||||||||||
| Costs incurred | |||||||||||||||||
| Cash disbursements | ( | ( | ( | ||||||||||||||
| Translation and other adjustments | ( | ( | |||||||||||||||
| Balance, February 28, 2025 | $ | $ | $ | ||||||||||||||
Costs incurred during the three months ended February 28, 2025 are primarily related to our restructuring action in fiscal year 2024, as well as facility closures in connection with previous restructuring actions in fiscal years 2023 and 2020. We do not expect to incur additional material expenses as part of these actions.
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Note 10: Earnings Per Share
We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding plus the effect of outstanding dilutive stock options, restricted stock units, and deferred stock units, using the treasury stock method and the effect of our convertible debt using the if-converted method. The following table sets forth the calculation of basic and diluted earnings per share on an interim basis:
| Three Months Ended | |||||||||||
| (in thousands, except per share data) | February 28, 2025 | February 29, 2024 | |||||||||
| Net income | $ | $ | |||||||||
| Weighted average shares outstanding | |||||||||||
| Effect of dilution from common stock equivalents | |||||||||||
| Effect of dilution from if-converted convertible notes | |||||||||||
| Diluted weighted average shares outstanding | |||||||||||
| Earnings per share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
We excluded stock awards representing approximately 397,000 and 714,000 shares of common stock from the calculation of diluted earnings per share in the three months ended February 28, 2025 and February 29, 2024, respectively, as these awards were anti-dilutive.
Note 11: Segment Information
Operating segments are components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. Our CODM is our Chief Executive Officer.
We operate as one operating segment: software products for the development, deployment, and management of responsible, AI-powered applications and digital experiences. Our CODM evaluates financial information on a consolidated basis.
Note 12: Cyber Related Matters
MOVEit Vulnerability
As previously disclosed, on the evening of May 28, 2023, we learned that our MOVEit Transfer (the on-premise version) and MOVEit Cloud (a cloud-hosted version of MOVEit Transfer) products were attacked by a threat actor who compromised and exfiltrated personal data from various customer-controlled MOVEit Transfer environments (the "MOVEit Vulnerability"). As a result of the MOVEit Vulnerability, we are party to certain class action lawsuits filed by individuals who claim to have been impacted by the exfiltration of data from the environments of our MOVEit Transfer customers, which have been centralized in multi-district litigation in the District of Massachusetts (the "MDL"). The MDL remains in a relatively early litigation stage in which motions to dismiss have been filed but not yet ruled upon. In the event dismissals are not granted, the MDL is not expected to conclude within this fiscal year. We have also been cooperating with inquires and investigations from various governmental authorities, none of which have, as of this filing, resulted in any prosecution or enforcement actions.
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Expenses Incurred and Future Costs
For the three months ended February 28, 2025 and February 29, 2024, we incurred net costs of $0.7 million and $1.0 million, respectively, related to the MOVEit Vulnerability. The costs recognized are net of insurance recoveries of $0.7 million and $0.8 million for the three months ended February 28, 2025 and February 29, 2024, respectively. The timing of recognizing insurance recoveries may differ from the timing of recognizing the associated expenses.
We expect to continue to incur investigation, legal and professional services expenses associated with the MOVEit Vulnerability in future periods. We will recognize these expenses as services are received, net of insurance recoveries. While a loss from these matters is reasonably possible, we cannot reasonably estimate a range of possible losses at this time, particularly while the foregoing matters remain ongoing. Furthermore, with respect to the MDL, the proceedings remain in the early stages, alleged damages have not been specified, there is uncertainty as to the likelihood of a class or classes being certified or the ultimate size of any class if certified, and there are significant factual and legal issues to be resolved. Also, each of the governmental inquiries and investigations mentioned above could result in adverse judgements, settlements, fines, penalties, or other resolutions, the amount, scope and timing of which could be material, but of which we are currently unable to reasonably estimate. Therefore, we have not recorded a loss contingency liability for the MOVEit Vulnerability as of February 28, 2025.
Insurance Coverage
During the period when the MOVEit Vulnerability occurred, we maintained $15.0 million of cybersecurity insurance coverage, which is expected to reduce our exposure to expenses and liabilities arising from these events. As of February 28, 2025, we have recorded approximately $6.5 million of insurance recoveries related to the MOVEit Vulnerability, providing us with approximately $6.0 million of remaining cybersecurity insurance coverage under the applicable policy. We will pursue recoveries to the maximum extent available under our insurance policies.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
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
extent, any of such risks may be realized. We also cannot assure you that we have identified all possible issues that we might face. We undertake no obligation to update any forward-looking statements that we make.
Overview
Progress provides software products that enable our customers to develop, deploy and manage responsible AI-powered applications and digital experiences.
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. However, actual results may differ from these estimates. The most significant estimates relate to revenue recognition, loss contingencies and the MOVEit Vulnerability, and business combinations. For further information regarding the application of these and other accounting policies, see Note 1: Basis of Presentation to our Consolidated Financial Statements in Item 8 of our 2024 Annual Report. There have been no significant changes to our critical accounting policies and estimates since our 2024 Annual Report.
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Use of Constant Currency
Revenue from our international operations has historically represented a substantial portion of our total revenue. As a result, our revenue results have been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, if the local currencies of our foreign subsidiaries strengthen, our consolidated results stated in U.S. dollars are positively impacted.
As exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of revenue growth rates on a constant currency basis enhances the understanding of our revenue results and evaluation of our performance in comparison to prior periods. The constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP.
Results of Operations
Business Development
On October 31, 2024, we acquired ShareFile from Cloud. As a result of this acquisition, we recorded $96.2 million of deferred revenue and $464.0 million of intangible assets, as further described in Note 4: Business Combinations. We expect to recognize additional SaaS revenue, as well as increased amortization expense and interest expense, in future periods as a result of this acquisition.
Revenue
| Three Months Ended | % Change | ||||||||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | As Reported | Constant Currency | |||||||||||||||||||
| Revenue | $ | 238,015 | $ | 184,685 | 29 | % | 30 | % | |||||||||||||||
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.
Software License Revenue
| Three Months Ended | % Change | ||||||||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | As Reported | Constant Currency | |||||||||||||||||||
| Software licenses | $ | 58,445 | $ | 64,100 | (9) | % | (8) | % | |||||||||||||||
| As a percentage of total revenue | 25 | % | 35 | % | |||||||||||||||||||
Software license revenue decreased compared to the same period last year primarily due to the decrease in our DataDirect product offering, as described above.
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Maintenance, SaaS, and Professional Services Revenue
| Three Months Ended | % Change | ||||||||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | As Reported | Constant Currency | |||||||||||||||||||
| Maintenance | $ | 99,535 | $ | 102,025 | (2) | % | (1) | % | |||||||||||||||
| As a percentage of total revenue | 42 | % | 55 | % | |||||||||||||||||||
| SaaS | 69,410 | 5,571 | 1,146 | % | 1,146 | % | |||||||||||||||||
| As a percentage of total revenue | 29 | % | 3 | % | |||||||||||||||||||
| Professional services | 10,625 | 12,989 | (18) | % | (18) | % | |||||||||||||||||
| As a percentage of total revenue | 4 | % | 7 | % | |||||||||||||||||||
| Total maintenance, SaaS, and professional services revenue | $ | 179,570 | $ | 120,585 | 49 | % | 50 | % | |||||||||||||||
| As a percentage of total revenue | 75 | % | 65 | % | |||||||||||||||||||
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.
Revenue by Region
| Three Months Ended | % Change | ||||||||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | As Reported | Constant Currency | |||||||||||||||||||
| North America | $ | 154,646 | $ | 107,282 | 44 | % | 44 | % | |||||||||||||||
| As a percentage of total revenue | 65 | % | 58 | % | |||||||||||||||||||
| Europe, the Middle East and Africa ("EMEA") | $ | 66,943 | $ | 63,087 | 6 | % | 8 | % | |||||||||||||||
| As a percentage of total revenue | 28 | % | 34 | % | |||||||||||||||||||
| Latin America | $ | 5,052 | $ | 4,668 | 8 | % | 20 | % | |||||||||||||||
| As a percentage of total revenue | 2 | % | 3 | % | |||||||||||||||||||
| Asia Pacific | $ | 11,374 | $ | 9,648 | 18 | % | 20 | % | |||||||||||||||
| As a percentage of total revenue | 5 | % | 5 | % | |||||||||||||||||||
Total revenue generated in North America increased $47.4 million, and total revenue generated outside North America increased $6.0 million, as compared to the same period last year. The increases in each region were primarily due to the acquisition of ShareFile.
Total revenue generated in markets outside North America represented 35% and 42% of total revenue in the first three months of fiscal year 2025 and fiscal year 2024, respectively.
Cost of Software Licenses
| Three Months Ended | |||||||||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | Change | ||||||||||||||||||||
| Cost of software licenses | $ | 2,925 | $ | 2,731 | $ | 194 | 7 | % | |||||||||||||||
| As a percentage of software license revenue | 5 | % | 4 | % | |||||||||||||||||||
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.
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Cost of Maintenance, SaaS, and Professional Services
| Three Months Ended | |||||||||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | Change | ||||||||||||||||||||
| Cost of maintenance, SaaS, and professional services | $ | 32,884 | $ | 22,219 | $ | 10,665 | 48 | % | |||||||||||||||
| As a percentage of maintenance, SaaS, and professional services revenue | 18 | % | 18 | % | |||||||||||||||||||
| Components of cost of maintenance, SaaS, and professional services: | |||||||||||||||||||||||
| Personnel related costs | $ | 20,770 | $ | 17,045 | $ | 3,725 | 22 | % | |||||||||||||||
| Hosting and other | 8,910 | 1,766 | 7,144 | 405 | % | ||||||||||||||||||
| Contractors and outside services | 3,204 | 3,408 | (204) | (6) | % | ||||||||||||||||||
| Total cost of maintenance, SaaS, and professional services | $ | 32,884 | $ | 22,219 | $ | 10,665 | 48 | % | |||||||||||||||
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.
Amortization of Intangibles
| Three Months Ended | |||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | % Change | ||||||||||||||
| Amortization of intangibles | $ | 10,422 | $ | 7,859 | 33 | % | |||||||||||
| As a percentage of total revenue | 4 | % | 4 | % | |||||||||||||
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.
Gross Profit
| Three Months Ended | |||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | % Change | ||||||||||||||
| Gross profit | $ | 191,784 | $ | 151,876 | 26 | % | |||||||||||
| As a percentage of total revenue | 81 | % | 82 | % | |||||||||||||
Our gross profit increased primarily due to the increase in revenue, partially offset by the increases in costs of maintenance, SaaS, and professional services, and amortization of intangibles.
Sales and Marketing
| Three Months Ended | |||||||||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | Change | ||||||||||||||||||||
| Sales and marketing | $ | 51,296 | $ | 39,111 | $ | 12,185 | 31 | % | |||||||||||||||
| As a percentage of total revenue | 22 | % | 21 | % | |||||||||||||||||||
| Components of sales and marketing: | |||||||||||||||||||||||
| Personnel related costs | $ | 43,818 | $ | 33,093 | $ | 10,725 | 32 | % | |||||||||||||||
| Marketing programs and other | 6,462 | 5,425 | 1,037 | 19 | % | ||||||||||||||||||
| Contractors and outside services | 1,016 | 593 | 423 | 71 | % | ||||||||||||||||||
| Total sales and marketing | $ | 51,296 | $ | 39,111 | $ | 12,185 | 31 | % | |||||||||||||||
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.
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Product Development
| Three Months Ended | |||||||||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | Change | ||||||||||||||||||||
| Product development costs | $ | 46,375 | $ | 34,988 | $ | 11,387 | 33 | % | |||||||||||||||
| As a percentage of total revenue | 19 | % | 19 | % | |||||||||||||||||||
| Components of product development costs: | |||||||||||||||||||||||
| Personnel related costs | $ | 44,537 | $ | 33,596 | $ | 10,941 | 33 | % | |||||||||||||||
| Contractors and outside services | 1,511 | 1,082 | 429 | 40 | % | ||||||||||||||||||
| Other product development costs | 327 | 310 | 17 | 5 | % | ||||||||||||||||||
| Total product development costs | $ | 46,375 | $ | 34,988 | $ | 11,387 | 33 | % | |||||||||||||||
Product development expenses increased primarily due to increased personnel related costs, as well as increased contractors and outside services costs, each associated with our acquisition of ShareFile.
General and Administrative
| Three Months Ended | |||||||||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | Change | ||||||||||||||||||||
| General and administrative | $ | 25,623 | $ | 21,344 | $ | 4,279 | 20 | % | |||||||||||||||
| As a percentage of total revenue | 11 | % | 12 | % | |||||||||||||||||||
| Components of general and administrative: | |||||||||||||||||||||||
| Personnel related costs | $ | 18,840 | $ | 17,963 | $ | 877 | 5 | % | |||||||||||||||
| Contractors and outside services | 4,064 | 2,575 | 1,489 | 58 | % | ||||||||||||||||||
| Other general and administrative costs | 2,719 | 806 | 1,913 | 237 | % | ||||||||||||||||||
| Total cost of general and administrative | $ | 25,623 | $ | 21,344 | $ | 4,279 | 20 | % | |||||||||||||||
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.
Amortization of Intangibles
| Three Months Ended | |||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | % Change | ||||||||||||||
| Amortization of intangibles | $ | 25,808 | $ | 17,389 | 48 | % | |||||||||||
| As a percentage of total revenue | 11 | % | 9 | % | |||||||||||||
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.
Cyber Vulnerability Response Expenses, Net
| Three Months Ended | |||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | % Change | ||||||||||||||
| Cyber vulnerability response expenses, net | $ | 737 | $ | 987 | (25) | % | |||||||||||
| As a percentage of total revenue | — | % | 1 | % | |||||||||||||
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
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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.
Restructuring Expenses
| Three Months Ended | |||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | % Change | ||||||||||||||
| Restructuring expenses | $ | 7,029 | $ | 2,349 | 199 | % | |||||||||||
| As a percentage of total revenue | 3 | % | 1 | % | |||||||||||||
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.
Acquisition-Related Expenses
| Three Months Ended | |||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | % Change | ||||||||||||||
| Acquisition-related expenses | $ | 2,490 | $ | 702 | 255 | % | |||||||||||
| As a percentage of total revenue | 1 | % | — | % | |||||||||||||
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.
Income from Operations
| Three Months Ended | |||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | % Change | ||||||||||||||
| Income from operations | $ | 32,426 | $ | 35,006 | (7) | % | |||||||||||
| As a percentage of total revenue | 14 | % | 19 | % | |||||||||||||
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.
Other (Expense) Income
| Three Months Ended | |||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | % Change | ||||||||||||||
| Interest expense | $ | (18,429) | $ | (7,344) | 151 | % | |||||||||||
| Interest income and other, net | 487 | 624 | (22) | % | |||||||||||||
| Foreign currency loss, net | (1,182) | (679) | 74 | % | |||||||||||||
| Total other expense, net | $ | (19,124) | $ | (7,399) | 158 | % | |||||||||||
| As a percentage of total revenue | (8) | % | (4) | % | |||||||||||||
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.
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Provision for Income Taxes
| Three Months Ended | |||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | % Change | ||||||||||||||
| Provision for income taxes | $ | 2,356 | $ | 4,968 | (53) | % | |||||||||||
| As a percentage of income before income taxes | 18 | % | 18 | % | |||||||||||||
Our effective income tax rate was 18% in the first fiscal quarter of both 2025 and 2024. In the first fiscal quarter of 2024, there were discrete tax benefits related to stock-based compensation and the statute of limitations expiring on uncertain tax positions. While there were no significant discrete tax benefits in the first fiscal quarter of 2025, the overall effective tax rate is lower due to the geographical mix of profit.
Net Income
| Three Months Ended | |||||||||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | % Change | ||||||||||||||
| Net income | $ | 10,946 | $ | 22,639 | (52) | % | |||||||||||
| As a percentage of total revenue | 5 | % | 12 | % | |||||||||||||
Select Performance Metrics:
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.
Annualized Recurring Revenue ("ARR")
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.
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.
For SaaS-based contracts, there is a meaningful percentage of monthly auto-renewing contracts for which annualizing the contracts 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.
Revenue from term-based license and on-premises subscription arrangements include a portion of the arrangement consideration that is allocated to the software license that is recognized up-front at the point in time control is transferred under ASC 606 revenue recognition principles. ARR for these arrangements is calculated as described above. The expectation is that the total contract value, inclusive of revenue recognized as software license, will be renewed at the end of the contract term.
The calculation is done at constant currency using the current year budgeted exchange rates for all periods presented.
ARR is not defined in GAAP and is not derived from a GAAP measure. Rather, ARR generally aligns to billings (as opposed to GAAP revenue which aligns to the transfer of control of each performance obligation). ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those
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items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.
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.
Net Retention Rate
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.
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.
Liquidity and Capital Resources
Cash and Cash Equivalents
| (in thousands) | February 28, 2025 | November 30, 2024 | |||||||||
| Cash and cash equivalents | $ | 124,161 | $ | 118,077 | |||||||
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.
As of February 28, 2025, $63.3 million of our cash and cash equivalents was held by our foreign subsidiaries. As a result of the debt obligations arising from the ShareFile acquisition, in the fourth quarter of fiscal 2024 we determined that a substantial portion of unremitted foreign earnings are no longer indefinitely reinvested. As a result of this, we plan to utilize worldwide cash based on the needs of the parent entity. These amounts will be repatriated as needed. Deferred taxes are recorded for earnings of our foreign operations that we determine are not indefinitely reinvested.
| Three Months Ended | |||||||||||
| (in thousands) | February 28, 2025 | February 29, 2024 | |||||||||
| Net cash flows from operating activities | $ | 68,947 | $ | 70,504 | |||||||
| Net cash flows used in investing activities | $ | (2,485) | $ | (309) | |||||||
| Net cash flows used in financing activities | $ | (58,870) | $ | (62,415) | |||||||
Cash Flows From Operating Activities
The decrease in cash generated from operations in the first quarter of fiscal year 2025 as compared to the same period last year was primarily due to increased costs of maintenance, SaaS, and professional services, and operating expenses, as well as increased interest expense resulting from the draw down on our revolving line of credit in the fourth quarter of fiscal year 2024. This was offset by higher billings and collections.
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.
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Cash Flows Used in Investing Activities
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.
Cash Flows Used in Financing Activities
We received $6.2 million from the exercise of stock options and the issuance of shares under our employee stock purchase plan in the first three months of fiscal year 2025 as compared to $7.6 million in the first three months of fiscal year 2024. We made withholding tax payments related to net share settlements of equity awards of $4.6 million in the three months of fiscal year 2025 as compared to $5.9 million in the first three months of fiscal year 2024. We repurchased $30.1 million of our common stock under our share repurchase plan in the first three months of fiscal year 2025 as compared to $22.5 million in the same period of the prior year. Further, we made payments on our revolving line of credit of $30.0 million in the first quarter of fiscal years 2025 and 2024. Finally, we made dividend payments of $8.2 million to our stockholders during the first three months of fiscal year 2024. We also made payments on our pre-existing term loan of $3.4 million in the first quarter of fiscal year 2024.
Share Repurchase Program
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.
Dividends
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.
Restructuring Activities
See Note 9: Restructuring to the condensed consolidated financial statements.
Long-term Debt and Credit Facility
See Note 5: Debt to the condensed consolidated financial statements.
Liquidity Outlook
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.
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Legal and Other Regulatory Matters
MOVEit Vulnerability
As previously disclosed, on the evening of May 28, 2023, we learned that our MOVEit Transfer (the on-premise version) and MOVEit Cloud (a cloud-hosted version of MOVEit Transfer) products were attacked by a threat actor who compromised and exfiltrated personal data from various customer-controlled MOVEit Transfer environments. As a result of the MOVEit Vulnerability, we are party to certain class action lawsuits filed by individuals who claim to have been impacted by the exfiltration of data from the environments of our MOVEit Transfer customers, which have been centralized in the MDL. The MDL remains in a relatively early litigation stage in which motions to dismiss have been filed but not yet ruled upon. In the event dismissals are not granted, the MDL is not expected to conclude within this fiscal year. We have also been cooperating with inquires and investigations from various governmental authorities, none of which have, as of this filing, resulted in any prosecution or enforcement actions. Please see our 2024 Annual Report and previous SEC filings for additional information, including risk factors, related to the MOVEit Vulnerability.
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.
Recent Accounting Pronouncements
Refer to Note 1: Basis of Presentation to the condensed consolidated financial statements for further discussion.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
During the first three months of fiscal year 2025, with the exception of repayments on our revolving credit facility, there were no significant changes to our quantitative and qualitative disclosures about market risk. Please refer to Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in our 2024 Annual Report, for a more complete discussion of the market risks we encounter.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Our management maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act") that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), as appropriate, to allow for timely decisions regarding required disclosure.
Our management, including our principal executive and principal financial officers, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. The Company acquired ShareFile on October 31, 2024. Management excluded ShareFile from its assessment of the effectiveness of the Company’s disclosure controls as of February 28, 2025. ShareFile represented, in aggregate, approximately 2% of the Company’s total consolidated assets (excluding goodwill and intangibles, which are included in the scope of the assessment) and approximately 27% of total consolidated revenues, as of and for the three months ended February 28, 2025. Based on this evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of February 28, 2025.
(b) Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended February 28, 2025 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Please refer to Note 12: Cyber Related Matters to the condensed consolidated financial statements for a discussion of legal proceedings related to the MOVEit Vulnerability. Our 2024 Annual Report and previous SEC filings also contain additional information, including risk factors, related to the MOVEit Vulnerability.
We are also subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material effect on our financial position, results of operations, or cash flows.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves certain risks and uncertainties, some of which are beyond our control. In addition to the information provided in this report, please refer to Part I, Item 1A. Risk Factors in our 2024 Annual Report for a more complete discussion regarding certain factors that could materially affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Stock Repurchases
Information related to the repurchases of our common stock by month in the first quarter of fiscal year 2025 is as follows:
| (in thousands, except per share and share data) | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(1) | ||||||||||||||||||||||
| Period | ||||||||||||||||||||||||||
| December 2024 | — | $ | — | — | $ | 107,220 | ||||||||||||||||||||
| January 2025 | 538,847 | 55.65 | 538,847 | 77,220 | ||||||||||||||||||||||
| February 2025 | — | — | — | 77,220 | ||||||||||||||||||||||
| Total | 538,847 | $ | 55.65 | 538,847 | $ | 77,220 | ||||||||||||||||||||
(1)On January 10, 2023, our Board of Directors increased the share repurchase authorization by 150.0 million, to an aggregate authorization of $228.0 million. As of February 28, 2025, there was $77.2 million remaining under this authorization.
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Item 5. Other Information
(c) Insider Adoption or Termination of Trading Arrangements
During the first quarter of fiscal year 2025, none of our directors or officers informed us of the adoption or termination
| Name and Title | Character of Trading Arrangement1 | Date Adopted | Duration2 | Aggregate Number of Shares of Common Stock to be Sold Pursuant to Trading Arrangement | ||||||||||||||||||||||
Trading Arrangement | Up to | |||||||||||||||||||||||||
Trading Arrangement | Up to | |||||||||||||||||||||||||
1. Except as indicated by footnote, each trading arrangement marked as a "Rule 10b5-1 Trading Arrangement" is intended to satisfy the affirmative defense of Rule 10b5-1(c), as amended (the "Rule").
2. Except as indicated by footnote, each trading arrangement permits transactions through and including the earlier to occur of (a) the completion of all sales or (b) the date listed in the table. Each trading arrangement marked as a "Rule 10b5-1 Trading Arrangement" only permits transactions upon expiration of the applicable mandatory cooling-off period under the Rule.
3. Includes: (i) 3,450 shares of our common stock; and (ii) 32,427 employee stock options expected to be exercised via same-day sale.
4. Includes all common stock, net of shares withheld to cover tax withholding obligations, to be issued upon the anticipated vesting of 5,135 restricted stock units.
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Item 6. Exhibits
The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q:
| Incorporated by Reference | ||||||||||||||||||||||||||||||||
| Exhibit Number | Exhibit Description | Form | Filing Date | Exhibit | Filed Herewith | |||||||||||||||||||||||||||
| 31.1 | X | |||||||||||||||||||||||||||||||
| 31.2 | X | |||||||||||||||||||||||||||||||
| 32.1* | ||||||||||||||||||||||||||||||||
| 101* | The following materials from Progress Software Corporation’s Quarterly Report on Form 10-Q for the three months ended February 28, 2025, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of February 28, 2025 and November 30, 2024; (ii) Condensed Consolidated Statements of Operations for the three months ended February 28, 2025 and February 29, 2024; (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended February 28, 2025 and February 29, 2024; (iv) Condensed Consolidated Statements of Stockholders' Equity for the three months ended February 28, 2025 and February 29, 2024; (v) Condensed Consolidated Statements of Cash Flows for the three months ended February 28, 2025 and February 29, 2024; and (vi) Notes to Condensed Consolidated Financial Statements. | |||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||||||||||||||||||||||||||
| * | Furnished herewith | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PROGRESS SOFTWARE CORPORATION
(Registrant)
| Dated: | March 31, 2025 | /s/ YOGESH K. GUPTA | |||||||||
| Yogesh K. Gupta | |||||||||||
| President and Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
| Dated: | March 31, 2025 | /s/ ANTHONY FOLGER | |||||||||
| Anthony Folger | |||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
| Dated: | March 31, 2025 | /s/ DOMENIC LOCOCO | |||||||||
| Domenic LoCoco | |||||||||||
| Senior Vice President and Chief Accounting Officer | |||||||||||
| (Principal Accounting Officer) | |||||||||||
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