PROGRESS SOFTWARE CORPORATION 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: the timing and amounts of revenue recognition, including the determination of the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and the transaction price allocated to performance obligations; the realization of tax assets and estimates of tax liabilities; fair values of investments in marketable securities; assets held for sale; intangible assets and goodwill valuations; the recognition and disclosure of contingent liabilities; the collectability of accounts receivable; and assumptions used to determine the fair value of stock-based compensation. This is not a comprehensive list of all of our accounting policies. For further information regarding the application of these and other accounting policies, see Note 1 to our Consolidated Financial Statements in Item 8 of our 2021 10-K.
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 contains certain safe harbor provisions regarding forward-looking statements. This Form 10-Q, and other information provided by us or statements made by our directors, officers or employees from time to time, may contain "forward-looking" statements and information, which involve risks and uncertainties. Actual future results may differ materially. Statements indicating that we "believe," "may," "could," "would," "might," "should," "expect," "intend," "plan," "target," "anticipate" and "continue," are forward-looking, as are other statements concerning future financial results, product offerings or other events that have not yet occurred. There are a number of factors that could cause actual results or future events to differ materially from those anticipated by the forward-looking statements, including, without limitation: (i) Economic, geopolitical and market conditions can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price; (ii) we may fail to achieve our financial forecasts due to such factors as delays or size reductions in transactions, fewer large transactions in a particular quarter, fluctuations in currency exchange rates, or a decline in our renewal rates for contracts; (iii) our ability to successfully manage transitions to new business models and markets, including an increased emphasis on a cloud and subscription strategy, may not be successful; (iv) if we are unable to develop new or sufficiently differentiated products and services, or to enhance and improve our existing products and services in a timely manner to meet market demand, partners and customers may not purchase new software licenses or subscriptions or purchase or renew support contracts; (v) We depend upon our extensive partner channel and we may not be successful in retaining or expanding our relationships with channel partners; (vi) our international sales and operations subject us to additional risks that can adversely affect our operating results, including risks relating to foreign currency gains and losses; (vii) If the security measures for our software, services, other offerings or our internal information technology infrastructure are compromised or subject to a successful cyber-attack, or if our software offerings contain significant coding or configuration errors, we may experience reputational harm, legal claims and financial exposure; (viii) we have made acquisitions, and may make acquisitions in the future, and those acquisitions may not be successful, may involve unanticipated costs or other integration issues or may disrupt our existing operations; (ix) delay or failure to realize the expected synergies and benefits of the Kemp acquisition could negatively impact our future results of operations and financial condition; (x) the continuing impact of the coronavirus disease (COVID-19) outbreak on our employees, customers, partners, and the global financial markets could adversely affect our business, results of operations and financial condition; (xi)Russia's recent invasion ofUkraine , and the international community's response, have created substantial political and economic disruption, uncertainty, and risk. For further information regarding risks and uncertainties associated with Progress' business, please refer to Part II, Item 1A (Risk Factors) in our Quarterly Report on Form 10-Q, as 29 -------------------------------------------------------------------------------- filed with theSEC onApril 7, 2022 ; and in Part I, Item 1A (Risk Factors) in our 2021 10-K. 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 which we might face. We undertake no obligation to update any forward-looking statements that we make.
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 inU.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. OverviewProgress Software Corporation ("Progress," the "Company," "we," "us," or "our") is dedicated to propelling business forward in a technology-driven world. As the trusted provider of the leading products to develop, deploy and manage high-impact applications, Progress enables customers to develop the applications and experiences the need, deploy where and how they want and manage it all safely and securely. Beginning in the second quarter of fiscal year 2021, we operate as one operating segment.
The key tenets of our strategic plan and operating model are as follows:
Trusted Partner of the Best Products to Develop, Deploy and Manage High Impact Business 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 Customer and Partner Retention to Drive Recurring Revenue and Profitability. Our organizational philosophy and operating principles focus primarily on customer and partner retention and success and a streamlined operating approach in order to more efficiently drive, 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 infrastructure software space, with products that appeal to both IT organizations and individual developers. These acquisitions must meet strict financial and other criteria, which help further our goal to provide significant stockholder returns by providing scale and increased cash flows. InApril 2019 , we acquiredIpswitch, Inc. ; inOctober 2020 , we acquiredChef Software, Inc. ; and inNovember 2021 , we acquired Kemp Technologies. These acquisitions met our strict financial criteria. Multi-Faceted Capital Allocation Approach. 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 the first six months of 2022, we repurchased and retired 1.1 million shares of our common stock for$51.5 million . As ofMay 31, 2022 , there was$103.5 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 inDecember 2016 and increased the quarterly cash dividend annually in fiscal years 2017, 2018 and 2019. OnSeptember 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 30 --------------------------------------------------------------------------------
dividend of
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 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 theU.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 recent volatility in the global economy, our revenue results in the second fiscal quarter of 2022 were impacted by fluctuations in foreign currency exchange rates.
Results of Operations
Revenue
Three Months Ended % Change
As Constant
(In thousands) May 31, 2022 May 31, 2021 Reported Currency
Revenue $ 148,747 $ 122,488 21 % 24 %
Six Months Ended % Change
As Constant
(In thousands) May 31, 2022 May 31, 2021 Reported Currency
Revenue $ 293,669 $ 243,768 20 % 23 %
Total revenue increased in both the second fiscal quarter and six month period
ended May 31, 2022 as compared to the same periods last year primarily due to
our acquisition of Kemp in the fourth quarter of fiscal year 2021, as well as
increases in our DataDirect and Chef product offerings. These increases were
partially offset by the negative impact of foreign exchange on license and
maintenance revenue in our EMEA region.
Software License Revenue
Three Months Ended % Change
As Constant
(In thousands) May 31, 2022 May 31, 2021 Reported Currency
Software licenses $ 44,814 $ 30,107 49 % 53 %
As a percentage of total revenue 30 % 25 %
Six Months Ended % Change
As Constant
(In thousands) May 31, 2022 May 31, 2021 Reported Currency
Software licenses $ 87,564 $ 63,424 38 % 41 %
As a percentage of total revenue 30 % 26 %
Software license revenue increased in both the second quarter and first six
months of fiscal year 2022 as compared to the same periods last year primarily
due to our acquisition of Kemp and increases in license sales in our DataDirect
product offerings.
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--------------------------------------------------------------------------------Maintenance and Services Revenue
Three Months Ended % Change
As Constant
(In thousands) May 31, 2022 May 31, 2021 Reported Currency
Maintenance $ 91,331 $ 80,069 14 % 17 %
As a percentage of total revenue 61 % 65 %
Services 12,602 12,312 2 % 4 %
As a percentage of total revenue 9 %
10 %
Total maintenance and services revenue
13 % 15 %
As a percentage of total revenue 70 % 75 %
Six Months Ended % Change
As Constant
(In thousands) May 31, 2022 May 31, 2021 Reported Currency
Maintenance $ 181,294 $ 157,046 15 % 18 %
As a percentage of total revenue 62 % 64 %
Services 24,811 23,298 6 % 8 %
As a percentage of total revenue 8 %
10 %
Total maintenance and services revenue
14 % 16 %
As a percentage of total revenue 70 % 74 %
Maintenance revenue increased in the second quarter and first six months of
fiscal year 2022 as compared to the same periods last year primarily due to our
acquisition of Kemp and increased maintenance revenue from our Chef product
offerings.
Our Ipswitch and DevTools product offerings also contributed to the year to date
increase in maintenance revenue. Services revenue increased in the second
quarter and first six months of fiscal year 2022 as compared to the same periods
last year primarily due to increased services revenue from our OpenEdge and
Ipswitch product offerings. The maintenance and services increases were
partially offset by the negative impact of foreign exchange in our EMEA region.
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Revenue by Region
Three Months Ended % Change
As Constant
(In thousands) May 31, 2022 May 31, 2021 Reported Currency
North America $ 85,394 $ 71,094 20 % 20 %
As a percentage of total revenue 58 %
58 %
20 % 28 %
As a percentage of total revenue 33 % 34 %
Latin America $ 4,678 $ 3,753 25 % 17 %
As a percentage of total revenue 3 % 3 %
Asia Pacific $ 9,041 $ 6,320 43 % 47 %
As a percentage of total revenue 6 % 5 %
Six Months Ended % Change
As Constant
(In thousands) May 31, 2022 May 31, 2021 Reported Currency
North America $ 163,487 $ 142,599 15 % 15 %
As a percentage of total revenue 56 %
58 %
27 % 33 %
As a percentage of total revenue 35 % 34 %
Latin America $ 8,561 $ 7,246 18 % 15 %
As a percentage of total revenue 3 % 3 %
Asia Pacific $ 18,285 $ 12,362 48 % 52 %
As a percentage of total revenue 6 % 5 %
Total revenue generated inNorth America increased$14.3 million and$20.9 million in the second quarter and first six months of fiscal year 2022, respectively. The increases were primarily due to our acquisition of Kemp, as well as increases from ourDataDirect and Chef product offerings. The increase in revenue generated in EMEA was primarily due to our acquisition of Kemp, as well as increased revenue from Chef, partially offset by a negative impact of foreign exchange. The increases in revenue generated in bothLatin America andAsia Pacific were due to our acquisition of Kemp, as well as increased revenue from our OpenEdge product offerings. In the first six months of fiscal year 2022 revenue generated in markets outsideNorth America represented 44% of total revenue compared to 45% of total revenue on a constant currency basis. In the first six months of fiscal year 2021 revenue generated in markets outsideNorth America represented 42% of total revenue at both actual rates and on a constant currency basis. Cost of Software Licenses Three Months Ended Six Months Ended (In thousands) May 31, 2022 May 31, 2021 Change May 31, 2022 May 31, 2021 Change Cost of software licenses$ 2,583 $ 1,038 $ 1,545 149 %$ 5,192 $ 2,189 $ 3,003 137 % As a percentage of software license revenue 6 % 3 % 6 % 3 % As a percentage of total revenue 2 % 1 % 2 % 1 % Cost of software licenses consists primarily of costs 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. The year over year increase is due to our acquisition of Kemp in the fourth quarter of fiscal year 2021. 33 --------------------------------------------------------------------------------
Cost of Maintenance and Services
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 Change May 31, 2022 May 31, 2021 Change
Cost of maintenance and services
$ 1,128 8 %$ 30,946 $ 27,992 $ 2,954 11 % As a percentage of maintenance and services revenue 15 % 16 % 15 % 16 % As a percentage of total revenue 10 % 12 % 10 % 11 % Components of cost of maintenance and services: Personnel related costs$ 11,034 $ 10,038 $ 996 10 %$ 21,838 $ 19,577 $ 2,261 12 % Contractors and outside services 3,254 3,457 (203) (6) % 6,222 6,035 187 3 % Hosting and other 1,513 1,178 335 28 % 2,886 2,380 506 21 % Total cost of maintenance and services$ 15,801 $ 14,673 $ 1,128 8 %$ 30,946 $ 27,992 $ 2,954 11 % Cost of maintenance and services consists primarily of costs of providing customer support, consulting, and education. The increases in all periods were primarily due to increased headcount and hosting costs resulting from our acquisition of Kemp. Amortization of Intangibles Three Months Ended Six Months Ended % (In thousands) May 31, 2022 May 31, 2021 % Change May 31, 2022 May 31, 2021 Change Amortization of intangibles$ 5,573 $ 3,599 55 %$ 11,031 $ 7,120 55 % As a percentage of total revenue 4 % 3 % 4 % 3 % 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 increases in both periods shown were due to the acquisition of Kemp. Gross Profit Three Months Ended Six Months Ended % (In thousands) May 31, 2022 May 31, 2021 % Change May 31, 2022 May 31, 2021 Change Gross profit$ 124,790 $ 103,178 21 %$ 246,500 $ 206,467 19 % As a percentage of total revenue 84 % 84 % 84 % 85 % Our gross profit increased primarily due to the increase in revenue, offset by the increases in costs of software licenses, costs of maintenance and services and the amortization of intangibles, each as described above. 34 --------------------------------------------------------------------------------
Sales and Marketing
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 Change May 31, 2022 May 31, 2021 Change
Sales and marketing $ 32,704 $ 29,262 $ 3,442 12 % $ 66,173 $ 58,731 $ 7,442 13 %
As a percentage of total revenue 22 % 24 % 23 % 24 %
Components of sales and marketing:
Personnel related costs $ 27,755 $ 25,248 $ 2,507 10 % $ 56,151 $ 51,140 $ 5,011 10 %
Contractors and outside services 759 968 (209) (22) % 1,579 1,356 223 16 %
Marketing programs and other 4,190 3,046 1,144 38 % 8,443 6,235 2,208 35 %
Total sales and marketing $ 32,704 $ 29,262 $ 3,442 12 % $ 66,173 $ 58,731 $ 7,442 13 %
Sales and marketing expenses increased in both periods shown, primarily due to
increased personnel related costs associated with our acquisition of Kemp, as
well as increases in marketing and sales events costs.
Product Development
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 Change May 31, 2022 May 31, 2021 Change
Product development costs $ 28,643 $ 26,415 $ 2,228 8 % $ 57,316 $ 50,963 $ 6,353 12 %
As a percentage of total revenue 19 % 22 % 20 % 21 %
Components of product
development costs:
Personnel related costs $ 27,754 $ 25,225 $ 2,529 10 % $ 55,233 $ 48,829 $ 6,404 13 %
Contractors and outside services 696 986 (290) (29) % 1,714 1,711 3 - %
Other product development costs 193 204 (11) (5) % 369 423 (54) (13) %
Total product development costs $ 28,643 $ 26,415 $ 2,228 8 % $ 57,316 $ 50,963 $ 6,353 12 %
Product development expenses increased in both periods shown primarily due to increased personnel related costs associated with our acquisition of Kemp.
General and Administrative
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 Change May 31, 2022 May 31, 2021 Change
General and administrative $ 19,207 $ 16,460 $ 2,747 17 % $ 36,198 $ 29,884 $ 6,314 21 %
As a percentage of total revenue 13 % 13 % 12 % 12 %
Components of general and
administrative:
Personnel related costs $ 15,751 $ 13,428 $ 2,323 17 % $ 29,803 $ 25,315 $ 4,488 18 %
Contractors and outside services 2,262 2,055 207 10 % 4,329 3,515 814 23 %
Other general and administrative costs 1,194 977 217 22 % 2,066 1,054 1,012 96 %
Total cost of general and
administrative $ 19,207 $ 16,460 $ 2,747 17 % $ 36,198 $ 29,884 $ 6,314 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 both periods shown primarily due to
higher personnel costs and contractors and outside services costs associated
with our acquisition of Kemp, as well as an increase in other general and
administrative costs.
35
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Amortization of Intangibles
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 % Change May 31, 2022 May 31, 2021 % Change
Amortization of intangibles $ 11,892 $ 7,979 49 % $ 23,614 $ 14,858 59 %
As a percentage of total revenue 8 % 7 % 8 % 6 %
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 in both periods shown due to the addition of Kemp
intangible assets, as discussed above.
Restructuring Expenses
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 % Change May 31, 2022 May 31, 2021 % Change
Restructuring expenses $ 143 $ (64) (323) % $ 654 $ 1,093 (40) %
As a percentage of total revenue - % - % - % - %
Restructuring expenses recorded in the second quarter and first six months of
fiscal year 2022 relate to the restructuring activities that occurred in the
fourth quarters of fiscal years 2021 and 2020 resulting from the acquisitions of
Kemp and Chef, respectively. Restructuring expenses recorded in the second
quarter and first six months of fiscal year 2021 are comprised mostly of costs
related to the Chef restructuring action of 2020. See the Liquidity and Capital
Resources section of this Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Acquisition-Related Expenses
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 % Change May 31, 2022 May 31, 2021 % Change
Acquisition-related expenses $ 2,736 $ 844 224 % $ 3,648 $ 1,240 194 %
As a percentage of total revenue 2 % 1 % 1 % 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 increased in the second quarter and first six
months of fiscal year 2022 due to our pursuit of other acquisition
opportunities, as well as our acquisition of Kemp. Acquisition-related expenses
in the same periods of fiscal year 2021 were primarily related to the
acquisition of Chef.
Gain on Sale of Assets Held for Sale
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 % Change May 31, 2022 May 31, 2021 % Change
Gain of sale of assets held for sale
* $ (10,770) $ - *
As a percentage of total revenue (7) % - % (4) % - % *not meaningful In the second quarter of fiscal year 2022, we sold corporate land and building assets previously reported as assets held for sale on our consolidated balance sheet. As the sale price less cost to sell was greater than the carrying value of these assets we recognized a net gain on the sale of approximately$10.8 million in the second quarter of fiscal year 2022. 36 --------------------------------------------------------------------------------
Income from Operations
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 % Change May 31, 2022 May 31, 2021 % Change
Income from operations $ 40,235 $ 22,282 81 % $ 69,667 $ 49,698 40 %
As a percentage of total revenue 27 % 18 % 24 % 20 %
Income from operations increased in both periods shown due to increases of
revenue, offset by an increase in costs of revenue and operating expenses as
shown above.
Other (Expense) Income, Net
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 % Change May 31, 2022 May 31, 2021 % Change
Interest expense $ (3,656) $ (4,601) 21 % $ (7,359) $ (7,115) (3) %
Interest income and other, net 155 4 * 744 123 505 %
Foreign currency gain (loss), net 111 (621) 118 % (255) (878) 71 %
Total other expense, net $ (3,390) $ (5,218) 35 % $ (6,870) $ (7,870) 13 %
As a percentage of total revenue (2) % (4) % (2) % (3) %
*not meaningful
Other expense, net, decreased in the second quarter and first six months of
fiscal year 2022 as compared to the same periods last year primarily due to
decreased foreign currency loss, net, in both periods, as well as higher
interest income and other, net, which resulted from the recognition of grant
income during the first quarter of fiscal year 2022. Interest expense decreased
in the second quarter of fiscal year 2022 as compared to the same period last
year due to decreased interest expense on our convertible senior notes resulting
from the adoption of ASU 2020-06. Refer to Note 1, Basis of Presentation for
further details on the impact of adoption. The decrease in interest expense on
our convertible senior notes was offset by increased interest expense on our
term loan, which was amended in the first quarter of fiscal year 2022. Refer to
Note 8, Debt. for further details on the impact of the amendment.
37
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Provision for Income Taxes
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 % Change May 31, 2022 May 31, 2021 % Change
Provision for income taxes $ 7,735 $ 3,507 121 % $ 13,233 $ 9,310 42 %
As a percentage of total revenue 5 % 3 % 5 % 4 %
Our effective tax rate was 21% in the second fiscal quarter of both 2022 and
2021. There were no significant discrete tax items in the second fiscal quarter
of either 2022 or 2021.
Net Income
Three Months Ended Six Months Ended
(In thousands) May 31, 2022 May 31, 2021 % Change May 31, 2022 May 31, 2021 % Change
Net income $ 29,110 $ 13,557 115 % $ 49,564 $ 32,518 52 %
As a percentage of total revenue 20 % 11 % 17 % 13 %
Select Performance Metrics:
Management evaluates our financial performance using a number of financial and operating metrics. These metrics are periodically reviewed and revised to reflect changes in our business.
Annual Recurring Revenue (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 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 GAAP revenue and deferred revenue and is not intended to be combined with or to replace, not be superior to, 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. All periods are reported in constant currency, using current year budgeted exchange rates.
Our ARR was
Net Dollar Retention Rate
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.
Our net dollar retention rates have generally ranged between 100% and 102% for all periods presented. Our high net dollar retention rates illustrate our predictable and durable top line performance.
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--------------------------------------------------------------------------------Liquidity and Capital Resources
Cash, Cash Equivalents and Short-Term Investments
(In thousands) May 31, 2022 November 30, 2021 Cash and cash equivalents$ 224,863 $ 155,406 Short-term investments 1,050 1,967
Total cash, cash equivalents and short-term investments
$ 157,373
The increase in cash, cash equivalents and short-term investments of$68.5 million from the end of fiscal year 2021 was due to cash inflows from operations of$112.4 million , proceeds from the sale of long-lived assets of$26.0 million , proceeds from the issuance of debt of$7.5 million , and$2.4 million in cash received from the issuance of common stock. These cash inflows were offset by repurchases of common stock of$51.5 million , dividend payments of$15.6 million , the effect of exchange rates on cash of$5.2 million , payments of debt obligations of$3.4 million , payments of issuance costs for long-term debt of$2.0 million , and purchases of property and equipment of$2.0 million . Except as described below, there are no limitations on our ability to access our cash, cash equivalents and short-term investments. As ofMay 31, 2022 ,$56.1 million of our cash, cash equivalents and short-term investments was held by our foreign subsidiaries. Foreign cash includes unremitted foreign earnings, which are invested indefinitely outside of theU.S. As such, it is 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 toU.S. income tax. However, we do not anticipate that this would have a material adverse impact on our liquidity.
Share Repurchase Program
InJanuary 2020 , our Board of Directors increased the total share repurchase authorization from$75 million to$250 million . In the six months endedMay 31, 2022 andMay 31, 2021 , we repurchased and retired 1.1 million shares for$51.5 million and 0.8 million shares for$35.0 million , respectively. The shares were repurchased in both periods as part of our Board of Directors authorized share repurchase program. As ofMay 31, 2022 , there was$103.5 million remaining under the current authorization. Dividends We began paying quarterly cash dividends to Progress stockholders inDecember 2016 , and have paid a quarterly cash dividend since that time. OnJune 21, 2022 , our Board of Directors declared a quarterly dividend of$0.175 per share of common stock that will be paid onSeptember 15, 2022 to stockholders of record as of the close of business onSeptember 1, 2022 . 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 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 three and six months endedMay 31, 2022 , we incurred expenses of$0.4 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 liability of$0.5 million is included in other accrued liabilities on the consolidated balance sheet atMay 31, 2022 . During the fourth quarter of fiscal year 2020, we restructured our operations in connection with the acquisition of Chef (Note 7). This restructuring resulted in a reduction in redundant positions, primarily within administrative functions of Chef. For the three and six months endedMay 31, 2022 , we incurred expenses of$0.1 million and$0.2 million , respectively, relating to this restructuring. Cash disbursements for expenses incurred to date under this restructuring are expected to be made through fiscal year 2027. Accordingly, the balance of the restructuring liability of$4.2 million is included in short-term and long-term lease liabilities on the condensed consolidated balance sheet atMay 31, 2022 . 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. 39 --------------------------------------------------------------------------------
Credit Facility
OnJanuary 25, 2022 , we entered into an amended and restated credit agreement (the "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 prior secured credit facility datedApril 30, 2019 .
The amount of the term loan outstanding under our prior secured credit facility was incorporated into the amended and restated credit facility.
The revolving line of credit has sublimits for swing line loans up to$25.0 million and for the issuance of standby letters of credit in a face amount up to$25.0 million . 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 Credit Agreement 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 Agreement matures on the earlier of (i)January 25, 2027 and (ii) the date that is 181 days prior to the maturity date of our Notes subject to certain conditions as set forth in the amended credit agreement, including the repayment of the Notes, the refinancing of the Notes including a maturity date that is at least 181 days afterJanuary 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 endingFebruary 28, 2022 . The first eight payments are in the principal amount of$1.7 million each, the following four payments are in the principal amount of$3.4 million each, the following eight payments are in the principal amount of$5.2 million 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. The outstanding balance of the term loan as ofMay 31, 2022 was$271.6 million , with$6.9 million due in the next 12 months. The term loan may be prepaid before maturity in whole or in part at our option without penalty or premium. The interest rate as 40 --------------------------------------------------------------------------------
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Convertible Senior Notes
InApril 2021 , we issued, in a private placement, Convertible Senior Notes (the "Notes") with an aggregate principal amount of$325 million , dueApril 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 granted the initial purchasers of the Notes an option to purchase up to an additional$50.0 million aggregate principal amount of the Notes, 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 onApril 15 andOctober 15 of each year, beginning onOctober 15, 2021 . The adoption of ASU 2020-06 had no impact on the Company's debt covenant compliance under the current arrangement. Refer to Note 8: Debt for further discussion.
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