PROGRESS SOFTWARE CORP /MA Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help the reader understand the
results of operations and financial condition of Progress Software Corporation.
MD&A is provided as a supplement to, and should be read in conjunction with, our
consolidated financial statements and the accompanying Notes to Financial
Statements (Part II, Item 8 of this Form 10-K). This section generally discusses
the results of our operations for the year ended November 30, 2021 compared to
the year ended November 30, 2020. For a discussion of the year ended November
30, 2020 compared to the year ended November 30, 2019, please refer to Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in our Annual Report on Form 10-K for the year ended November 30,
2020, as amended.

Forward-Looking Statements

Certain statements below about anticipated results and our products and markets
are forward-looking statements that are based on our current plans and
assumptions. Important information about the bases for these plans and
assumptions and factors that may cause our actual results to differ materially
from these statements is contained below and in Part I, Item 1A. "Risk Factors"
of this Annual Report on Form 10-K.

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.

Impact of COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19
as a pandemic, which continues to impact the U.S. and the world. We are unable
to accurately predict the full impact that COVID-19 will have due to numerous
uncertainties, including the duration of the outbreak, actions that may be taken
by governmental authorities, the impact to the business of our customers and
partners and other factors identified in Part I, Item 1A "Risk Factors" in this
Form 10-K. We will continue to evaluate the nature and extent of the impact to
our business, consolidated results of operations, and financial condition.

Overview

Progress Software Corporation ("Progress," the "Company," "we," "us," or "our")
provides the best products to develop, deploy and manage high-impact
applications. Our comprehensive product solutions are designed to make
technology teams more productive and we have a deep commitment to the developer
community, both open source and commercial alike. Beginning in the second
quarter of fiscal year 2021, we operate as one operating segment.

The key principles of our strategic plan and operating model are:

Trusted Provider of the Best Products to Develop, Deploy and Manage High Impact
Applications. A key element of our strategy is centered on providing the
platform and tools enterprises need to build, deploy, and manage modern,
strategic business applications. We offer these products and tools to both new
customers and partners as well as our existing partner and customer ecosystems.
This strategy builds on our vast experience in application development that
we've acquired over the past 40 years.

Focus on retaining customers and partners to drive recurring revenue and profitability. Our organizational philosophy and operating principles focus primarily on customer and partner retention and success and a streamlined operational approach to more effectively generate predictable and stable recurring revenue and high levels of profitability.

Total Growth Strategy Driven by Accretive M&A. We are pursuing a total growth
strategy driven by accretive acquisitions of businesses within the software
infrastructure space, with products that appeal to both IT organizations and
individual developers. These acquisitions must meet strict financial and other
criteria, with the goal of driving significant stockholder returns by providing
scale and increased cash flows. In April 2019, we acquired Ipswitch, Inc. and in
October 2020, we acquired Chef Software. These
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acquisitions met our strict financial criteria. As described below, in November
2021, we acquired Kemp Technologies. This acquisition is expected to meet our
strict financial criteria.

Kemp is the always-on application experience company that helps enterprises
deliver, optimize and secure applications and networks across any cloud or
hybrid environment. The purchase price for Kemp was $258 million and we funded
the purchase price with existing cash balances. With this acquisition, we
extended our portfolio of market-leading products in DevOps, Application
Development, Data Connectivity and Digital Experience, adding Application
Experience Management (AX). Kemp Loadmaster and Flowmon Network Visibility
products monitor application performance, and distribute and balance traffic and
workloads across servers, in the cloud or on premise, ensuring high performance
and availability.

Multi-Faceted Capital Allocation Strategy. Our capital allocation policy
emphasizes accretive M&A, which allows us to expand our business and drive
significant stockholder returns, and utilizes dividends and share repurchases to
return capital to stockholders. We intend to repurchase our shares in sufficient
quantities to offset dilution from our equity plans. Lastly, we return a
significant portion of our annual cash flows from operations to stockholders in
the form of dividends.

In fiscal year 2021, we repurchased and retired 0.8 million shares of our common
stock for $35.0 million. As of November 30, 2021, there was $155.0 million
remaining under share repurchase authorization. The timing and amount of any
shares repurchased will be determined by management based on its evaluation of
market conditions and other factors, and the Board of Directors may choose to
suspend, expand or discontinue the repurchase program at any time.

We began paying quarterly cash dividends of $0.125 per share of common stock to
Progress stockholders in December 2016 and increased the quarterly cash dividend
annually in fiscal years 2017, 2018 and 2019. On September 22, 2020, our Board
of Directors approved an additional increase of 6% to our quarterly cash
dividend from $0.165 to $0.175 and declared a quarterly dividend of $0.175 per
share of common stock. Future declarations of dividends and the establishment of
future record and payment dates are subject to the final determination of our
Board of Directors.

We will continue to pursue acquisitions meeting our financial criteria and
designed to expand our business and drive significant stockholder returns. As a
result, our expected uses of cash could change, our cash position could be
reduced, and we may incur additional debt obligations to the extent we complete
additional acquisitions. However, we believe that existing cash balances,
together with funds generated from operations and amounts available under our
credit facility, will be sufficient to finance our operations and meet our
foreseeable cash requirements, including quarterly cash dividends and stock
repurchases to Progress stockholders, as applicable, through at least the next
twelve months.

We also believe that our financial resources have allowed, and will continue to
allow us to manage the impact of COVID-19 on our business operations for the
foreseeable future. The challenges posed by COVID-19 on our business continue to
evolve. Consequently, we will continue to evaluate our financial position in
light of future developments, particularly those relating to COVID-19.

We derive a significant portion of our revenue from international operations,
which are primarily conducted in foreign currencies. As a result, changes in the
value of these foreign currencies relative to the U.S. dollar have significantly
impacted our results of operations and may impact our future results of
operations. Since approximately one-third of our revenue is denominated in
foreign currency, and given the volatility in the global economy created by
COVID-19, our revenue results in fiscal year 2021 were impacted by fluctuations
in foreign currency exchange rates.

Operating results

Fiscal 2021 vs. Fiscal 2020

Revenue
                                 Fiscal Year Ended                         Percentage Change
                                                                                           Constant
   (In thousands)    November 30, 2021       November 30, 2020         As Reported         Currency
   Revenue          $          531,313      $          442,150                   20  %         19  %



The increase in revenue in fiscal year 2021 was driven by the acquisition of
Chef which closed during the fourth quarter of fiscal year 2020, increased
demand for our OpenEdge and Ipswitch product offerings and to a lesser extent,
the acquisition of Kemp which contributed $5.9 million of revenue during the
fourth quarter of fiscal year 2021. Changes in prices from fiscal year 2020 to
2021 did not have a significant impact on our revenue.

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Software License Revenue
                                                          Fiscal Year Ended                              Percentage Change
                                                  November 30,        November 30,                                           Constant
(In thousands)                                        2021                2020                  As Reported                  Currency
License                                           $  156,590          $  115,249                             36  %                  34  %
As a percentage of total revenue                          29  %             

26%

Software licensing revenue increased in fiscal 2021, primarily due to the acquisitions of Chef and Kemp, as well as increased demand for our OpenEdge,
Data Directand Ipswitch product offerings.

Maintenance and Services revenue

                                                            Fiscal Year Ended                              Percentage Change
                                                    November 30,        November 30,                                           Constant
(In thousands)                                          2021                2020                  As Reported                  Currency
Maintenance                                         $  325,863          $  288,887                             13  %                  11  %
As a percentage of total revenue                            61  %               65  %
Professional services                               $   48,860          $   38,014                             29  %                  27  %
As a percentage of total revenue                            10  %                9  %
Total maintenance and services revenue              $  374,723          $  326,901                             15  %                  13  %
As a percentage of total revenue                            71  %           

74%



Maintenance revenue increased in fiscal year 2021 primarily due to the
acquisitions of Chef and Kemp, as well as an increase in maintenance revenue
from our Ipswitch and OpenEdge product offerings. Professional services revenue
increased primarily due to the acquisition of Chef, as well as an increase in
professional services revenue from our OpenEdge product offerings.

Revenue by Region
                                                          Fiscal Year Ended                              Percentage Change
                                                  November 30,        November 30,                                           Constant
(In thousands)                                        2021                2020                  As Reported                  Currency
North America                                     $  317,814          $  260,998                             22  %                  22  %
As a percentage of total revenue                          60  %               59  %
EMEA                                              $  169,335          $  143,754                             18  %                  14  %
As a percentage of total revenue                          32  %               33  %
Latin America                                     $   17,036          $   14,574                             17  %                  20  %
As a percentage of total revenue                           3  %                3  %
Asia Pacific                                      $   27,128          $   22,824                             19  %                  16  %
As a percentage of total revenue                           5  %             

5%



Total revenue generated in North America increased $56.8 million, and total
revenue generated outside North America increased $32.3 million, in fiscal year
2021. The increases in North America and EMEA were primarily due to the
acquisitions of Chef and Kemp and increases in license and maintenance revenues
from our OpenEdge and Ipswitch product offerings. Revenue from Latin America
increased due to an increase in OpenEdge license sales. Revenue from Asia
Pacific increased slightly, which was primarily due to the acquisition of Chef.

Total revenue generated in markets outside North America represented 40% of
total revenue in fiscal year 2021 compared to 41% of total revenue in the same
period last year. If exchange rates had remained constant in fiscal year 2021 as
compared to the exchange rates in effect in fiscal year 2020, total revenue
generated in markets outside North America would have been 39% of total revenue.

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Cost of Software Licenses
                                                                           Fiscal Year Ended
(In thousands)                               November 30, 2021         November 30, 2020                   Change
Cost of software licenses                   $          5,271          $          4,473          $   798                18  %
As a percentage of software license revenue                3  %                      4  %
As a percentage of total revenue                           1  %             

1%



Cost of software licenses consists primarily of costs of royalties, electronic
software distribution, duplication, and packaging. The increase in cost of
software licenses was the result of higher payments of royalties to third
parties as compared to the prior fiscal year. Cost of software licenses as a
percentage of software license revenue varies from period to period depending
upon the relative product mix.

Cost of maintenance and services

                                                                              Fiscal Year Ended
(In thousands)                                  November 30, 2021         November 30, 2020                  Change
Cost of maintenance and services               $         58,242          $         49,744          $ 8,498               17  %
As a percentage of maintenance and services
revenue                                                      16  %                     15  %
As a percentage of total revenue                             11  %                     11  %
Components of cost of maintenance and
services:
Personnel Related Costs                        $         40,015          $         35,156          $ 4,859               14  %
Contractors and Outside Services                         13,087                    11,317            1,770               16  %
Hosting and Other                                         5,140                     3,271            1,869               57  %

Total cost of maintenance and services $58,242

        49,744          $ 8,498               17  %



Cost of maintenance and services consists primarily of costs of providing
customer support, consulting, and education. Cost of maintenance and services
increased primarily due to higher personnel, contractor, and hosting related
costs resulting from the acquisitions of Chef and Kemp.

Amortization of acquired intangible assets

                                                          Fiscal Year Ended
(In thousands)                          November 30, 2021      November 30, 

2020 % change Amortization of acquired intangible assets $14,936 $7,897

            89  %
As a percentage of total revenue                      3  %                  

2%

Amortization of acquired intangible assets included in cost of sales primarily represents the amortization of the value assigned to technology-related intangible assets obtained through business combinations. The year-over-year increase is attributable to the addition of intangible assets acquired by Chef and Kemp.

Gross Profit
                                                      Fiscal Year Ended
(In thousands)                      November 30, 2021      November 30, 2020      % Change
Gross profit                       $        452,864       $        380,036            19  %
As a percentage of total revenue                 85  %                  86  %



Our gross profit increased primarily due to increased revenue, offset by increased maintenance and service costs and amortization of intangible assets, each as described above.

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Sales and Marketing
                                                                            Fiscal Year Ended
(In thousands)                               November 30, 2021         November 30, 2020                   Change
Sales and marketing                         $        125,890          $        100,113          $ 25,777                26  %
As a percentage of total revenue                          24  %                     23  %
Components of sales and marketing:
Personnel related costs                     $        107,335          $         85,167          $ 22,168                26  %
Contractors and outside services                       3,079                     2,122               957                45  %
Marketing programs and other                          15,476                    12,824             2,652                21  %
Total sales and marketing                   $        125,890          $        100,113          $ 25,777                26  %


Sales and marketing expenses increased in fiscal 2021 primarily due to increased personnel costs resulting from the Chef and Kemp acquisitions, increased variable compensation due to performance company-wide and increased marketing programs.

Product Development
                                                                              Fiscal Year Ended
(In thousands)                                 November 30, 2021         November 30, 2020                   Change
Product development                           $        103,338          $         88,599          $ 14,739                17  %
As a percentage of total revenue                            19  %                     20  %
Components of product development costs:
Personnel related costs                       $         98,747          $         85,624          $ 13,123                15  %
Contractors and outside services                         3,504                     2,351             1,153                49  %
Other product development costs                          1,087                       624               463                74  %
Total product developments costs              $        103,338          $         88,599          $ 14,739                17  %



Product development expenses increased in fiscal 2021 due to increased personnel, contractor and external services costs resulting from the Chef and Kemp acquisitions.

General and Administrative
                                                                                 Fiscal Year Ended
(In thousands)                                    November 30, 2021         November 30, 2020                   Change
General and administrative                       $         65,128          $         54,004          $ 11,124                21  %
As a percentage of total revenue                               12  %                     12  %
Components of general and administrative:
Personnel Related Costs                          $         51,601          $         43,025          $  8,576                20  %
Contractors and Outside Services                            9,299                     8,338               961                12  %
Other general and administrative costs                      4,228                     2,641             1,587                60  %

Total cost of general and administrative expenses $65,128 $54,004 $11,124

                21  %



General and administrative expenses include the costs of our finance, human
resources, legal, information systems and administrative departments. General
and administrative expenses increased in fiscal year 2021 primarily due to
higher personnel related costs associated with our acquisitions of Chef and
Kemp, as well as increases in contractors and outside services and other general
and administrative costs.

Amortization of Intangibles
                                                      Fiscal Year Ended
(In thousands)                      November 30, 2021      November 30, 2020      % Change
Amortization of intangibles        $         31,996       $         20,049            60  %
As a percentage of total revenue                  6  %                   5  %



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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 acquired intangibles increased in fiscal year 2021 due to the additions of
Chef and Kemp acquired intangibles.

Restructuring Expenses
                                                      Fiscal Year Ended
(In thousands)                      November 30, 2021      November 30, 2020      % Change
Restructuring expenses             $          6,308       $          5,906             7  %
As a percentage of total revenue                  1  %                   1  %



Restructuring expenses recorded in fiscal year 2021 primarily relate to the
restructuring activities that occurred in fiscal years 2021 and 2020. See Note
16: Restructuring to our Consolidated Financial Statements in Part II, Item 8 of
this Form 10-K for additional details, including types of expenses incurred and
the timing of future expenses and cash payments.

Acquisition-related expenses

                                                      Fiscal Year Ended
(In thousands)                      November 30, 2021      November 30, 2020      % Change
Acquisition-related expenses       $          4,102       $          3,637            13  %
As a percentage of total revenue                  1  %                   1  %




Acquisition-related costs are expensed as incurred and include those costs
incurred as a result of a business combination. These costs primarily consist of
professional services fees, including third-party legal and valuation-related
fees, as well as retention fees. Acquisition-related expenses in fiscal year
2021 were primarily related to the acquisition of Kemp, as well as our pursuit
of other acquisition opportunities. Acquisition-related expenses in fiscal year
2020 were primarily related to the acquisitions of Chef and Ipswitch.

Income from Operations
                                                      Fiscal Year Ended
(In thousands)                      November 30, 2021      November 30, 2020      % Change
Income from operations             $        116,102       $        107,728             8  %
As a percentage of total revenue                 22  %                  24  %



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

Other (Expense) Income
                                                      Fiscal Year Ended
(In thousands)                      November 30, 2021      November 30, 2020      % Change
Interest expense                   $        (20,045)      $        (10,170)          (97) %
Interest income and other, net                  777                  1,495           (48) %
Foreign currency loss, net                   (1,300)                (2,418)           46  %
Total other expense, net           $        (20,568)      $        (11,093)          (85) %
As a percentage of total revenue                 (4) %                  (3) %



Total other expense, net, increased in fiscal year 2021 as a result of increased
interest expense over the period, offset by lower foreign currency loss due to
lower costs of forward points on our outstanding forward contracts. The increase
in interest expense is due to our convertible senior notes, which we issued in
April 2021. See the Liquidity and Capital Resources section of this Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations for a description of the convertible senior notes.

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Provision for Income Taxes
                                                      Fiscal Year Ended
(In thousands)                      November 30, 2021      November 30, 2020      % Change
Provision for income taxes         $         17,114       $         16,913             1  %
As a percentage of total revenue                  3  %                   4  %



Our effective income tax rate was 18% for both fiscal years 2021 and 2020. Our
jurisdictional mix of profits remained consistent which resulted in a relatively
flat tax provision and effective tax rate year-over-year.

Net Income
                                                      Fiscal Year Ended
(In thousands)                      November 30, 2021      November 30, 2020      % Change
Net income                         $         78,420       $         79,722            (2) %
As a percentage of total revenue                 15  %                  18  %



Select Performance Metrics:

Management assesses our financial performance using a number of financial and operational measures. These measures are periodically reviewed and revised to reflect changes in our business.

Recurring Annual Income (ARR)

We are providing an ARR performance metric to help investors better understand
and assess the performance of our business because our mix of revenue generated
from recurring sources has increased in recent years. ARR represents the
annualized contract value for all active and contractually binding term-based
contracts at the end of a period. ARR includes maintenance, software upgrade
rights, public cloud and on-premises subscription-based transactions and managed
services. ARR mitigates fluctuations due to seasonality, contract term and the
sales mix of subscriptions for term-based licenses and SaaS. ARR is not
calculated in accordance with GAAP. 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 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.

We define ARR as the annual recurring revenue of term-based contracts from all
customers at a point in time. We calculate ARR by taking monthly recurring
revenue, or MRR, and multiplying it by 12. MRR for each month is calculated by
aggregating, for all customers during that month, monthly revenue from committed
contractual amounts, additional usage and monthly subscriptions. The calculation
is done at constant currency using the current year budgeted exchange rates for
all periods presented.

Our ARR was $486.0 million and $434.0 million as of November 30, 2021 and 2020,
respectively, which is an increase of 12% year-over-year. The growth in our ARR
is primarily driven by the acquisition of Kemp.

Net retention rate in dollars

We calculate net dollar 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 dollar
retention rate. Net dollar retention rate is not calculated in accordance with
GAAP.

Our net dollar retention rates have generally fluctuated between 98% and 101% for all periods presented. Our high retention rates in net dollars illustrate our predictable and sustainable revenue performance.

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Cash and capital resources

Cash, Cash Equivalents and Short-Term Investments
(In thousands)                                              November 30, 2021           November 30, 2020
Cash and cash equivalents                                 $          155,406          $           97,990
Short-term investments                                                 1,967                       8,005

Total cash, cash equivalents and short-term investments $157,373 $105,995



The increase in cash, cash equivalents and short-term investments of $51.4
million from the end of fiscal year 2020 was primarily due to cash inflow from
the issuance of the convertible senior notes of $349.2 million, cash inflows
from operations of $178.5 million, $9.8 million in cash received from the
issuance of common stock, and a decrease in escrow receivable of $2.1 million.
These cash inflows were offset by payments for acquisitions, net of cash
acquired, of $254.0 million, payments of debt obligations in the amount of
$117.3 million, cash paid for the purchase of capped calls of $43.1 million in
connection with the convertible note offering, dividend payments of $31.6
million, repurchases of common stock of $35.0 million, purchases of property and
equipment of $4.7 million, and the effect of exchange rates on cash of $2.9
million. Except as described below, there are no limitations on our ability to
access our cash, cash equivalents and short-term investments.

Cash, cash equivalents and short-term investments held by our foreign
subsidiaries were $36.8 million and $24.7 million at November 30, 2021 and 2020,
respectively. Foreign cash includes unremitted foreign earnings, which are
invested indefinitely outside of the U.S. As such, they are not available to
fund our domestic operations. If we were to repatriate these earnings, we may be
subject to income tax withholding in certain tax jurisdictions and a portion of
the repatriated earnings may be subject to U.S. income tax. However, we do not
anticipate that the repatriation of earnings would have a material adverse
impact on our liquidity.

Share buybacks

In January 2020, our Board of Directors increased the total share repurchase
authorization from $75.0 million to $250.0 million. In fiscal years 2021 and
2020, we repurchased and retired 0.8 million shares of our common stock for
$35.0 million and 1.4 million shares of our common stock for $60.0 million,
respectively, under this current authorization. In fiscal year 2019, we
repurchased and retired 0.7 million shares of our common stock for $25.0
million. As of November 30, 2021, there was $155.0 million remaining under the
current share repurchase authorization.

Dividends

We began paying quarterly cash dividends of $0.125 per share of common stock to
Progress stockholders in December 2016 and have paid quarterly dividends since
that time. On September 21, 2021, our Board of Directors declared a quarterly
dividend of $0.175 per share of common stock that was paid on December 15, 2021
to stockholders of record as of the close of business on December 1, 2021. We
have paid aggregate cash dividends totaling $31.6 million, $29.9 million and
$27.8 million for the years ended November 30, 2021, November 30, 2020 and
November 30, 2019, respectively. Future declarations of dividends and the
establishment of future record and payment dates are subject to the final
determination of our Board of Directors.

Restructuring activities

During the fourth quarter of fiscal year 2020, we restructured our operations in
connection with the acquisition of Chef. This restructuring resulted in a
reduction in redundant positions, primarily within administrative functions of
Chef. For the fiscal years ended November 30, 2021 and 2020, we incurred
expenses of $4.1 million and $3.9 million, respectively, relating to this
restructuring. The expenses are recorded as restructuring expenses in the
consolidated statements of operations. We expect to incur additional expenses as
part of this action related to employee costs and facility closures as we
consolidate offices in various locations during fiscal year 2022, but we do not
expect these costs to be material. Cash disbursements for expenses incurred to
date under this restructuring are expected to be made through fiscal year 2022.
Accordingly, the balance of the restructuring reserve of $4.5 million is
included in other accrued liabilities on the consolidated balance sheet at
November 30, 2021.

During the fourth quarter of fiscal year 2021, we restructured our operations in
connection with the acquisition of Kemp. This restructuring resulted in a
reduction in redundant positions, primarily within administrative functions of
Kemp. For the fiscal year ended November 30, 2021, we incurred expenses of $2.0
million relating to this restructuring. The expenses are recorded as
restructuring expenses in the consolidated statements of operations. We expect
to incur additional expenses as part of this action related to employee costs
and facility closures as we consolidate offices in various locations during
fiscal year 2022, but we do not expect these costs to be material. Cash
disbursements for expenses incurred to date under this restructuring are
expected to be made through fiscal year 2022. Accordingly, the balance of the
restructuring reserve of $1.9 million is included in other accrued liabilities
on the consolidated balance sheet at November 30, 2021.

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Credit facility

On January 25, 2022, we entered into an amended credit agreement providing for a
$275.0 million secured term loan and a $300.0 million secured revolving credit
facility. The revolving credit facility may be increased, and new term loan
commitments may be entered into, by up to an additional amount up to the sum of
(A) the greater of (x) $260.0 million and (y) 100% of our consolidated EBITDA
and (B) an unlimited additional amount subject to pro forma compliance with a
consolidated senior secured net leverage ratio of no greater than 3.75 to 1.00
if the existing or additional lenders are willing to make such increased
commitments. This new credit facility replaces our existing secured credit
facility dated April 30, 2019.

The term loan amount outstanding under our existing secured credit facility has been incorporated into the amended and restated credit facility.

The revolving credit facility has sublimits for swing line loans up to $25.0
million and for the issuance of standby letters of credit in a face amount up to
$25.0 million. We expect to use the revolving credit facility for general
corporate purposes, which may include the acquisitions of other businesses, and
may also use it for working capital.

Interest rates for the term loan and revolving credit facility are determined by
reference to a term benchmark rate or a base rate at our option and would range
from 1.00% to 2.00% above the term benchmark rate or would range from 0.00% to
1.00% above the defined base rate for base rate borrowings, in each case based
upon our leverage ratio. Additionally, we may borrow certain foreign currencies
at rates set in the same range above the respective term benchmark rates for
those currencies, based on our leverage ratio. We will incur a quarterly
commitment fee on the undrawn portion of the revolving credit facility, ranging
from 0.125% to 0.275% per annum, based upon our leverage ratio. At closing of
the revolving credit facility, the applicable interest rate and commitment fee
are at the third lowest rate in each range.

The credit facility matures on the earlier of (i) January 25, 2027 and (ii) the
date that is 181 days prior to the maturity date of our Convertible Senior Notes
subject to certain conditions as set forth in the amended credit agreement,
including the repayment of the Convertible Senior Notes, the refinancing of the
Convertible Senior Notes including a maturity date that is at least 181 days
after January 25, 2027 and compliance with a liquidity test when all amounts
outstanding will be due and payable in full. The revolving credit facility does
not require amortization of principal. The term loan requires repayment of
principal at the end of each fiscal quarter, beginning with the fiscal quarter
ending February 28, 2022. The first eight payments are in the principal amount
of $1,718,750 each, the following four payments are in the principal amount of
$3,437,500 each, the following eight payments are in the principal amount of
$5,156,250 each and the last payment is of the remaining principal amount. Any
amounts outstanding under the term loan thereafter would be due on the maturity
date. The term loan may be prepaid before maturity in whole or in part at our
option without penalty or premium.

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

The amended credit agreement contains customary affirmative and negative
covenants, including covenants that limit or restrict us and our subsidiaries'
ability to, among other things, grant liens, make investments, make
acquisitions, incur indebtedness, merge or consolidate, dispose of assets, pay
dividends or make distributions, repurchase stock, change the nature of its
business, enter into certain transactions with affiliates and enter into
burdensome agreements, in each case subject to customary exceptions for a credit
facility of this size and type. We are also required to maintain compliance with
a consolidated interest charge coverage ratio and a consolidated total net
leverage ratio.

The amended credit agreement includes customary events of default that include,
among other things, non-payment defaults, covenant defaults, inaccuracy of
representations and warranties, cross default to material indebtedness,
bankruptcy and insolvency defaults, material judgment defaults, ERISA defaults
and a change of control default. The occurrence of an event of default could
result in the acceleration of the obligations under the amended credit
agreement.

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Senior Convertible Bonds

In April 2021, we issued, in a private placement, Convertible Senior Notes with
an aggregate principal amount of $325 million, due April 15, 2026, unless
earlier repurchased, redeemed or converted. There are no required principal
payments prior to the maturity of the Notes. In addition, the Company also
granted the initial purchasers of the Notes an option to purchase up to an
additional $50.0 million aggregate principal amount of the Notes, for settlement
within a 13-day period beginning on, and including, April 13, 2021, of which $35
million of additional Notes were purchased for total proceeds of $360 million.
The Notes bear interest at an annual rate of 1%, payable semi-annually in
arrears on April 15 and October 15 of each year, beginning on October 15, 2021.
See Note 9: Debt for further discussion.

Cash flow from operating activities

                                                                              Fiscal Year Ended
                                                            November 30,        November 30,        November 30,
(In thousands)                                                  2021                2020                2019
Net income                                                  $   78,420          $   79,722          $   26,400
Non-cash reconciling items included in net income              100,666              64,534              90,139
Changes in operating assets and liabilities                       (556)                591              11,945
Net cash flows from operating activities                    $  178,530      

$144,847 $128,484



The increase in cash generated from operations in fiscal year 2021 as compared
to fiscal year 2020 was primarily due to increased collections resulting from
the acquisitions of Chef and Kemp, as well as particularly strong collections
generated from the rest of the business, partially offset by increased personnel
related expenditures. The increase in non-cash reconciling items included in net
income primarily relates to the increase in amortization of intangibles due to
the recent acquisitions of Chef and Kemp.

Our gross accounts receivable as of November 30, 2021 increased by $15.1 million
from the end of fiscal year 2020, which is primarily due to the acquisition of
Kemp and the timing of billings. Days sales outstanding ("DSO") in accounts
receivable increased to 60 days at the end of fiscal year 2021 compared to 54
days at the end of fiscal year 2020, with the increase also due to the timing of
billings. In addition, our total deferred revenue as of November 30, 2021
increased by $59.1 million from the end of fiscal year 2020.

The significant changes in operating assets and liabilities in fiscal year 2020
as compared to fiscal year 2019 were primarily due to a decrease in accounts
receivable and unbilled receivables. There weren't any significant non-cash
reconciling items included in net income in fiscal year 2020. In fiscal year
2019 there was a $22.7 million intangible asset impairment charge, which was the
most significant non-cash reconciling item included in net income. See Note 4:
Fair Value Measurements for further discussion. In addition, our gross accounts
receivable as of November 30, 2020 increased by $11.7 million from the end of
fiscal year 2019, which was primarily due to the acquisition of Chef. DSO in
accounts receivable decreased to 54 days at the end of fiscal year 2020 compared
to 56 days at the end of fiscal year 2019.

Cash flow (used) from investing activities

                                                                                 Fiscal Year Ended
                                                               November 30,         November 30,         November 30,
(In thousands)                                                     2021                 2020                 2019
Net investment activity                                       $     5,950          $    11,392          $    14,770
Purchases of property and equipment                                (4,654)              (6,517)              (3,998)
Proceeds from sale of long-lived assets, net                            -                  889                6,146
Decrease in escrow receivable and other                             2,330                    -                    -
Payments for acquisitions, net of cash acquired                  (253,961)            (213,057)            (225,298)
Net cash flows (used in) from investing activities            $  (250,335)  

($207,293) ($208,380)



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, as well as the timing
of acquisitions and divestitures. Cash used in investing activities was impacted
by the acquisition of Kemp for a net cash amount of $254.0 million, and Chef for
a net cash amount of $213.1 million, in fiscal years 2021 and 2020,
respectively. In fiscal year 2019 we acquired Ipswitch for a net cash amount of
$225.3 million. In addition, we purchased $4.7 million of property and equipment
in fiscal year 2021, as compared to $6.5 million in fiscal year 2020 and $4.0
million in fiscal year 2019. We also sold $0.9 million of intangible assets in
the fourth quarter of fiscal year 2020 and $6.1 million of certain corporate
land and building assets in the second quarter of fiscal year 2019.
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Cash flows from (used in) financing activities

                                                                               Fiscal Year Ended
                                                             November 30,        November 30,        November 30,
(In thousands)                                                   2021                2020                2019
Proceeds from stock-based compensation plans                 $   15,033          $   11,099          $    9,265
Repurchases of common stock                                     (35,000)            (60,000)            (25,000)
Dividend payment to stockholders                                (31,561)            (29,900)            (27,760)

Proceeds from the issuance of senior convertible bonds, net of issuance costs of $9.9 million

                                  350,100                   -                   -
Purchase of capped calls                                        (43,056)                  -                   -

Proceeds from debt issuance, net of principal repayments and debt issuance costs

                              (118,217)             87,212             178,065
Other financing activities                                       (5,186)             (5,331)             (4,278)
Net cash flows from (used in) financing activities           $  132,113     

$3,080 $130,292



During fiscal year 2021, we received $15.0 million from the exercise of stock
options and the issuance of shares under our employee stock purchase plan as
compared to $11.1 million in fiscal year 2020 and $9.3 million in fiscal year
2019. In addition, we made dividend payments of $31.6 million to our
stockholders in fiscal year 2021, as compared to dividend payments of $29.9
million and $27.8 million in fiscal years 2020 and 2019, respectively. Most
significantly, in the second quarter of fiscal year 2021, we received $349.2
million in net proceeds from the issuance of convertible senior notes and paid
$43.1 million to purchase capped calls in connection with the convertible note
offering. We received proceeds from the issuance of debt of $98.5 million in
fiscal year 2020 and $185.0 million in fiscal year 2019 in connection with the
acquisitions of Chef and Ipswitch, respectively. In addition, we repurchased
$35.0 million of our common stock under our share repurchase plan in fiscal year
2021, compared to $60.0 million in fiscal year 2020 and $25.0 million in fiscal
year 2019. We also made principal payments on our debt of $117.3 million
(including a $98.5 million repayment on the revolving line of credit) during
fiscal year 2021, as compared to $11.3 million in fiscal year 2020 and $5.3
million in fiscal year 2019.

Indemnification obligations

We include standard intellectual property indemnification provisions in our
licensing agreements in the ordinary course of business. Pursuant to our product
license agreements, we will indemnify, hold harmless, and agree to reimburse the
indemnified party for losses suffered or incurred by the indemnified party,
generally business partners or customers, in connection with certain patent,
copyright or other intellectual property infringement claims by third parties
with respect to our products. Other agreements with our customers provide
indemnification for claims relating to property damage or personal injury
resulting from the performance of services by us or our subcontractors.
Historically, our costs to defend lawsuits or settle claims relating to such
indemnity agreements have been insignificant. Accordingly, the estimated fair
value of these indemnification provisions is immaterial.

Liquidity outlook

Cash from operations in fiscal year 2022 could be affected by various risks and
uncertainties, including, but not limited to, the effects of COVID-19 and other
risks detailed in Part I, Item 1A titled "Risk Factors." While the pandemic has
not negatively impacted our liquidity and capital resources to date, it has led
to increased disruption and volatility in capital markets and credit markets
generally which 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 credit facility, will be sufficient to finance our
operations and meet our foreseeable cash requirements through at least the next
twelve months. 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, quarterly cash dividends, share repurchases, lease commitments,
restructuring obligations and other long-term obligations.

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Critical accounting estimates

Management's discussion and analysis of financial condition and results of
operations are based on 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 we believe are reasonable under
the circumstances.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the
global economy and financial markets. We are not aware of any specific event or
circumstance that would require updates to our estimates or judgments or require
us to revise the carrying value of our assets or liabilities as of the date of
filing of this Annual Report on Form 10-K with the SEC. These estimates may
change as new events occur and additional information is obtained. Actual
results could differ materially from these estimates under different assumptions
or conditions.

We have identified the following critical accounting estimates that require the use of significant judgments and estimates in the preparation of our consolidated financial statements.

Revenue recognition

Our contracts with customers typically include promises to license one or more
products and services to a customer. Determining whether products and services
are distinct performance obligations that should be accounted for separately
requires significant judgment. Significant judgment is also required to
determine the stand-alone selling price ("SSP") of each distinct performance
obligation. Our licenses are sold as perpetual or term licenses, and the
arrangements typically contain various combinations of maintenance and services,
which are generally accounted for as separate performance obligations. We use
the residual approach to allocate the transaction price to our software license
performance obligations because, due to the pricing of our licenses being highly
variable, they do not have an observable SSP.

Maintenance revenue is recognized ratably over the contract period. The SSP of
maintenance services is a percentage of the net selling price of the related
software license. Professional services revenue is generally recognized as the
services are delivered to the customer. We apply the practical expedient of
recognizing revenue upon invoicing for time and materials-based arrangements.
The SSP of services is based upon observable prices in similar transactions
using the hourly rates sold in stand-alone services transactions. Services are
either sold on a time and materials basis or prepaid upfront. Revenue related to
software-as-a-service ("SaaS") offerings is recognized ratably over the contract
period. The SSP of SaaS performance obligations is determined based upon
observable prices in stand-alone SaaS transactions.

We also consider whether an arrangement has any discounts, material rights, or
specified future upgrades that may represent additional performance obligations,
although we do not have a history of offering these elements.

Good will and impairment of intangible assets

We had goodwill and net intangible assets of $958.3 million at November 30,
2021. We evaluate goodwill and other intangible assets with indefinite useful
lives for impairment annually or on an interim basis when events and
circumstances arise that indicate impairment may have occurred. We perform our
annual goodwill impairment as of October 31st of each fiscal year.

Application of the goodwill impairment test requires judgment, including the
identification of reporting units. We periodically reevaluate our business and
have determined during fiscal year 2021 that we have one operating segment and
one reporting unit. As such, our goodwill is tested at the entity-level. During
fiscal years 2020 and 2019, we operated as three distinct segments. If our
assumptions change in the future, we may be required to record impairment
charges to reduce our goodwill's carrying value. Changes in the valuation of
goodwill could materially impact our operating results and financial position.

When we evaluate potential impairments outside of our annual measurement date,
judgment is required in determining whether an event has occurred that may
impair the value of goodwill or intangible assets. Factors that could indicate
that an impairment may exist include significant underperformance relative to
plan or long-term projections, significant changes in business strategy,
significant negative industry or economic trends or a significant decline in our
stock price for a sustained period of time.
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Income Tax Accounting

We had a net deferred tax liability of $12.7 million at November 30, 2021. We
consider scheduled reversals of temporary differences, projected future taxable
income, tax planning strategies and other matters in assessing the need for and
the amount of a valuation allowance. If we were to change our assumptions or
otherwise determine that we were unable to realize all or part of our net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged to income in the period that such change or determination was made.

Management judgment is also required in evaluating whether a tax position taken
or expected to be taken in a tax return, based on the weight of available
evidence, indicates that it is more likely than not that, on an evaluation of
the technical merits, the tax position will be sustained on audit, including
resolution of any related appeals or litigation processes. Management judgment
is also required in measuring the tax benefit as the largest amount that is more
than 50% likely of being realized upon ultimate settlement. If management made
different estimates or judgments, material differences in the amount accrued for
uncertain tax positions would occur.

Convertible Senior Notes and Capped Call Options

In April 2021, we issued Convertible Senior Notes (the "Notes") and also entered
into privately negotiated capped call transactions ("Capped Call Transactions")
with certain financial institutions. Applying the accounting framework for the
Notes and the Capped Call Transaction requires the exercise of judgment and the
determination of the fair value of the liability component of the Notes and the
fair value of the Capped Calls requires the Company to make significant
estimates and assumptions.

In accounting for tickets and capped buy transactions:

•The initial carrying amount of the liability component was calculated by
measuring the fair value of a similar debt instrument that does not have an
associated conversion feature. The excess of the Notes' principal amount over
the initial carrying amount of the liability component, referred to as the debt
discount, is amortized as interest expense over the Notes' contractual term. The
fair value was determined based on a discounted cash flow model. The discount
rate used reflected both the time value of money and credit risk inherent in the
Notes.
•The Notes' fair value, inclusive of the conversion feature embedded in the
Notes, is determined based on the Notes' quoted price in an over-the-counter
market on the last trading day of the reporting period.
•The equity component, which represents the difference between the gross
proceeds and the initial liability component, was recorded as an increase to
additional paid-in capital and is not remeasured as long as it continues to meet
the conditions for equity classification. The carrying amount of the equity
component representing the conversion option was determined by deducting the
fair value of the liability component from the par value of the Notes.
•The Capped Call Transactions are accounted for as derivative instruments. The
Capped Call Transactions qualify for the equity scope exception to derivative
accounting pursuant to ASC 815 and are measured at fair value, which is the
premium paid, at issuance. No subsequent measurement is required as long as they
continue to meet the equity scope exception.

Stock-based compensation

We recognize stock-based compensation expense based on the fair value of
stock-based awards, less the present value of expected dividends when
applicable, measured at the date of grant. We estimate the fair value of each
stock-based award on the measurement date using either the current market price,
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 the expected stock price volatility, the expected
term of the award, a risk-free interest rate and a dividend yield. The expected
volatility is based on the historical volatility of our stock price. The
expected term is derived from historical data on employee exercises and
post-vesting employment termination behavior. The risk-free interest rate is
based on the yield of zero-coupon U.S. Treasury securities for the period that
is commensurate with the expected option term at the time of grant. The expected
dividend yield is based on our historical behavior and future expectations of
dividend declarations. The valuations determined by the Monte Carlo Simulation
simulate 250,000 future stock prices for Progress and our peer group. We have
chosen this amount for the simulation as to minimize the standard modeling error
and believe that the resulting distribution gives a reasonable estimate of the
grant date fair value.

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Business combinations

We allocate the purchase price of acquired companies to the tangible and
intangible assets acquired and liabilities assumed based on their estimated fair
values. The estimates used to value the net assets acquired are based in part on
historical experience and information obtained from the management of the
acquired company. We generally value the identifiable intangible assets acquired
using a discounted cash flow model. The significant estimates used in valuing
certain of the intangible assets include, but are not limited to: future
expected cash flows of the asset, discount rates to determine the present value
of the future cash flows, attrition rates of customers, and expected technology
life cycles. We also estimate the useful lives of the intangible assets based on
the expected period over which we anticipate generating economic benefit from
the asset.

Our fair value estimates are based on assumptions believed to be reasonable at the time. If management has made different estimates or judgments, material differences in the fair values ​​of the net assets acquired could result.

Recent accounting pronouncements

See Note 1: Nature of Business and Summary of Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

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