Progress(PRGS) - 2025 Q2 - Quarterly Report

Part I: Financial Information Financial Statements (Unaudited) Unaudited financial statements for May 31, 2025, show total assets decreased, liabilities increased, and revenue grew to $475.4 million while net income declined to $28.0 million Note 4: Business Combinations The company acquired ShareFile for $875.0 million on October 31, 2024, contributing $129.6 million to revenue for the six months ended May 31, 2025 - Completed the acquisition of ShareFile on October 31, 2024, for an aggregate purchase price of $875.0 million in cash[35] - The acquisition contributed $65.9 million and $129.6 million in revenue for the three and six months ended May 31, 2025, respectively[41] Preliminary Purchase Price Allocation for ShareFile (in thousands) | Asset/Liability | Adjusted Purchase Price Allocation | | :--- | :--- | | Purchased technology | $119,000 | | Customer relationships | $318,000 | | Goodwill | $461,091 | | Net assets acquired | $853,897 | Note 12: Cyber Related Matters The company incurred $1.5 million in net costs for the MOVEit Vulnerability, facing ongoing lawsuits and inquiries, with no loss contingency recorded due to estimation difficulties - The company is party to class action lawsuits and governmental inquiries resulting from the May 2023 MOVEit Vulnerability[63] MOVEit Vulnerability Costs, Net (in thousands) | Period | Net Costs Incurred | | :--- | :--- | | Three Months Ended May 31, 2025 | $700 | | Six Months Ended May 31, 2025 | $1,500 | - As of May 31, 2025, approximately $5.4 million of cybersecurity insurance coverage remains available under the applicable policy[66] - A loss contingency liability has not been recorded as a range of possible losses cannot be reasonably estimated at this time[65] Condensed Consolidated Balance Sheet Summary (in thousands) | Account | May 31, 2025 | November 30, 2024 | | :--- | :--- | :--- | | Total current assets | $325,651 | $368,813 | | Total assets | $2,413,592 | $2,526,966 | | Total current liabilities | $750,271 | $455,145 | | Total liabilities | $1,960,891 | $2,088,178 | | Total stockholders' equity | $452,701 | $438,788 | Condensed Consolidated Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | Six Months Ended May 31, 2025 | Six Months Ended May 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $237,355 | $175,077 | $475,370 | $359,762 | | Income from operations | $38,616 | $27,148 | $71,042 | $62,154 | | Net income | $17,029 | $16,188 | $27,975 | $38,827 | | Diluted EPS | $0.39 | $0.37 | $0.63 | $0.87 | Condensed Consolidated Statement of Cash Flows Summary (in thousands) | Cash Flow Activity | Six Months Ended May 31, 2025 | Six Months Ended May 31, 2024 | | :--- | :--- | :--- | | Net cash flows from operating activities | $98,943 | $134,185 | | Net cash flows used in investing activities | $(2,980) | $(1,264) | | Net cash flows used in financing activities | $(118,103) | $(67,798) | | Net (decrease) increase in cash | $(16,071) | $63,462 | Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth, driven by the ShareFile acquisition, was offset by increased operating and interest expenses, while Annualized Recurring Revenue (ARR) grew 46% to $838 million, and liquidity was impacted by debt repayment and share repurchases Results of Operations Q2 2025 total revenue increased 36% to $237.4 million due to the ShareFile acquisition, driving SaaS revenue up 1,104%, despite increased operating expenses and interest costs Total Revenue Growth (in thousands) | Period | May 31, 2025 | May 31, 2024 | % Change (As Reported) | % Change (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended | $237,355 | $175,077 | 36% | 35% | | Six Months Ended | $475,370 | $359,762 | 32% | 32% | - The increase in total revenue was primarily due to the acquisition of ShareFile, which contributed $65.9 million and $129.6 million in the second quarter and first six months of fiscal 2025, respectively[74] Revenue by Type - Q2 2025 vs Q2 2024 (in thousands) | Revenue Type | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Software licenses | $50,795 | $53,979 | (6)% | | Maintenance | $103,491 | $102,503 | 1% | | SaaS | $72,105 | $5,988 | 1,104% | | Professional services | $10,964 | $12,607 | (13)% | - Interest expense increased 159% for the quarter and 155% for the six-month period, primarily due to costs associated with drawing on the revolving line of credit to acquire ShareFile[93] Select Performance Metrics Key performance metrics include Annualized Recurring Revenue (ARR) of $838 million, a 46% year-over-year increase, and a stable Net Retention Rate between 100% and 102% - Annualized Recurring Revenue (ARR) was $838 million as of May 31, 2025, an increase of 46% year-over-year, primarily driven by the acquisition of ShareFile[103] - The Net Retention Rate, a measure of revenue from existing customers, has generally ranged between 100% and 102% for all periods presented[105] Liquidity and Capital Resources Cash and cash equivalents decreased by $16.1 million to $102.0 million due to $70.0 million in debt repayments and $50.1 million in share repurchases, leading to a dividend suspension - Cash and cash equivalents decreased by $16.1 million from November 30, 2024, to $102.0 million at May 31, 2025[106] - Key uses of cash in the first six months of 2025 included $70.0 million to pay down the revolving line of credit and $50.1 million for share repurchases[106][112] - The Board of Directors approved the suspension of the quarterly dividend to redirect capital toward debt repayment, M&A, and share repurchases[114] Quantitative and Qualitative Disclosures About Market Risk No significant changes occurred in market risk disclosures during the first six months of fiscal 2025, apart from revolving credit facility repayments - There were no significant changes to the company's market risk disclosures, aside from repayments on the revolving credit facility[122] Controls and Procedures Management deemed disclosure controls effective as of May 31, 2025, excluding the ShareFile business, which comprised approximately 27% of consolidated revenues - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of May 31, 2025[124] - The assessment of controls excluded the ShareFile business, acquired on October 31, 2024. ShareFile represented about 27% of total consolidated revenues for the six months ended May 31, 2025[124] Part II: Other Information Legal Proceedings The company is addressing legal matters from the MOVEit Vulnerability, including class action lawsuits and governmental inquiries, with outcomes and potential losses currently unpredictable - The company is subject to class action lawsuits and governmental inquiries related to the MOVEit Vulnerability, which are in the early stages of litigation[119][126] - Management does not believe the outcome of other ordinary course legal matters will have a material effect on the company's financial position[127] Risk Factors Investors are directed to the comprehensive discussion of risk factors in the company's 2024 Annual Report on Form 10-K - For a complete discussion of risks, the report refers to Part I, Item 1A. Risk Factors in the 2024 Annual Report[128] Use of Proceeds and Stock Repurchases In Q2 2025, the company repurchased 351,216 shares for approximately $20.0 million, with $57.2 million remaining for future repurchases Stock Repurchases (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Total Cost (in thousands) | | :--- | :--- | :--- | :--- | | March 2025 | — | $— | $— | | April 2025 | 351,216 | $56.93 | $20,000 (approx) | | May 2025 | — | $— | $— | | Total | 351,216 | $56.93 | $20,000 (approx) | - As of May 31, 2025, $57.2 million remained available under the current share repurchase authorization[129] Other Information Several executive officers, including the CEO and CFO, adopted Rule 10b5-1 trading arrangements during Q2 2025 for future stock sales - The CEO, CFO, and Chief Accounting Officer each adopted a Rule 10b5-1 trading arrangement during the quarter[130]