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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2020
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to _____.
Commission File Number: 0-19417
 
PROGRESS SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
04-2746201
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
14 Oak Park
Bedford, Massachusetts 01730
(Address of principal executive offices) (Zip code)

(781280-4000
(Registrant’s telephone number, including area code)

Not applicable
(Former name or former address, if changed since last report.)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
PRGS
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
Accelerated filer
 
Non-accelerated filer
 
(Do not check if a smaller reporting company)
Smaller reporting company
 
Emerging growth company
 
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
As of March 27, 2020, there were 44,788,449 shares of the registrant’s common stock, $.01 par value per share, outstanding.


Table of Contents

PROGRESS SOFTWARE CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2020
INDEX

 
 
 
PART I
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 5.
Other Information
Item 6.
 
 
 
 

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

(In thousands, except share data)
February 29,
2020
 
November 30,
2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
161,094

 
$
154,259

Short-term investments
15,961

 
19,426

Total cash, cash equivalents and short-term investments
177,055

 
173,685

Accounts receivable (less allowances of $932 and $825, respectively)
62,184

 
72,820

Unbilled receivables and contract assets
10,908

 
10,880

Other current assets
24,591

 
27,280

Total current assets
274,738

 
284,665

Long-term unbilled receivables and contract assets
12,792

 
12,492

Property and equipment, net
29,150

 
29,765

Intangible assets, net
93,615

 
99,392

Goodwill
432,789

 
432,824

Deferred tax assets
17,334

 
18,601

Operating lease right-of-use assets
25,907

 

Other assets
3,857

 
3,532

Total assets
$
890,182

 
$
881,271

Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt, net
$
12,599

 
$
10,717

Accounts payable
10,215

 
10,603

Accrued compensation and related taxes
17,928

 
34,444

Dividends payable to shareholders
7,465

 
7,498

Short-term operating lease liabilities
6,601

 

Income taxes payable
1,757

 
1,444

Other accrued liabilities
13,108

 
18,685

Short-term deferred revenue
161,049

 
157,494

Total current liabilities
230,722

 
240,885

Long-term debt, net
280,382

 
284,002

Long-term operating lease liabilities
21,049

 

Long-term deferred revenue
19,749

 
19,752

Deferred tax liabilities
3

 
3

Other noncurrent liabilities
10,320

 
6,347

Commitments and contingencies

 

Shareholders’ equity:
 
 
 
Preferred stock, $0.01 par value; authorized, 10,000,000 shares; issued, none

 

Common stock, $0.01 par value, and additional paid-in capital; authorized, 200,000,000 shares; issued and outstanding, 44,769,310 shares in 2020 and 45,036,441 shares in 2019
296,699

 
295,953

Retained earnings
64,475

 
64,303

Accumulated other comprehensive loss
(33,217
)
 
(29,974
)
Total shareholders’ equity
327,957

 
330,282

Total liabilities and shareholders’ equity
$
890,182

 
$
881,271

See notes to unaudited condensed consolidated financial statements.

3

Table of Contents

Condensed Consolidated Statements of Operations
 
 
Three Months Ended
(In thousands, except per share data)
February 29,
2020
 
February 28,
2019
Revenue:
 
 
 
Software licenses
$
30,629

 
$
22,802

Maintenance and services
79,054

 
66,747

Total revenue
109,683

 
89,549

Costs of revenue:
 
 
 
Cost of software licenses
1,389

 
1,167

Cost of maintenance and services
11,851

 
9,439

Amortization of acquired intangibles
1,646

 
5,433

Total costs of revenue
14,886

 
16,039

Gross profit
94,797

 
73,510

Operating expenses:
 
 
 
Sales and marketing
24,198

 
22,323

Product development
21,654

 
19,890

General and administrative
12,748

 
12,285

Amortization of acquired intangibles
4,131

 
3,188

Restructuring expenses
1,040

 
415

Acquisition-related expenses
314

 

Total operating expenses
64,085

 
58,101

Income from operations
30,712

 
15,409

Other (expense) income:
 
 
 
Interest expense
(2,792
)
 
(1,389
)
Interest income and other, net
211

 
229

Foreign currency loss, net
(816
)
 
(843
)
Total other expense, net
(3,397
)
 
(2,003
)
Income before income taxes
27,315

 
13,406

Provision for income taxes
6,199

 
4,004

Net income
$
21,116

 
$
9,402

Earnings per share:
 
 
 
Basic
$
0.47

 
$
0.21

Diluted
$
0.46

 
$
0.21

Weighted average shares outstanding:
 
 
 
Basic
44,897

 
44,956

Diluted
45,515

 
45,286

 
 
 
 
Cash dividends declared per common share
$
0.165

 
$
0.155

See notes to unaudited condensed consolidated financial statements.

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Condensed Consolidated Statements of Comprehensive Income

 
Three Months Ended
(In thousands)
February 29, 2020
 
February 28, 2019
Net income
$
21,116

 
$
9,402

Other comprehensive income, net of tax:
 
 
 
Foreign currency translation adjustments
(1,208
)
 
1,479

Unrealized loss on hedging activity, net of tax benefit of $708 for the first quarter of 2020
(2,106
)
 

Unrealized gain on investments, net of tax provision of $4 and $30 for the first quarter of 2020 and 2019, respectively
71

 
83

Total other comprehensive (loss) income, net of tax
(3,243
)
 
1,562

Comprehensive income
$
17,873

 
$
10,964


See notes to unaudited condensed consolidated financial statements.


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Condensed Consolidated Statements of Shareholders’ Equity
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Shareholders' Equity
(in thousands)
Number of Shares
 
Amount
 
 
 
 
Balance, December 1, 2019
45,037

 
$
450

 
$
295,503

 
$
64,303

 
$
(29,974
)
 
$
330,282

Issuance of stock under employee stock purchase plan
39

 

 
1,194

 

 

 
1,194

Exercise of stock options
62

 
1

 
1,940

 

 

 
1,941

Vesting of restricted stock units and release of deferred stock units
57

 
1

 
(1
)
 

 

 

Withholding tax payments related to net issuance of restricted stock units

 

 
(1,949
)
 

 

 
(1,949
)
Stock-based compensation

 

 
6,051

 

 

 
6,051

Dividends declared

 

 

 
(7,435
)
 

 
(7,435
)
Treasury stock repurchases and retirements
(426
)
 
(4
)
 
(6,487
)
 
(13,509
)
 

 
(20,000
)
Net income

 

 

 
21,116

 

 
21,116

Other comprehensive income

 

 

 

 
(3,243
)
 
(3,243
)
Balance, February 29, 2020
44,769

 
$
448

 
$
296,251

 
$
64,475

 
$
(33,217
)
 
$
327,957


 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Shareholders' Equity
(in thousands)
Number of Shares
 
Amount
 
 
 
 
Balance, December 1, 2018
45,115

 
$
451

 
$
266,602

 
$
85,125

 
$
(28,176
)
 
$
324,002

Issuance of stock under employee stock purchase plan
38

 

 
997

 

 

 
997

Exercise of stock options
9

 

 
268

 

 

 
268

Withholding tax payments related to net issuance of restricted stock units

 

 
(5
)
 

 

 
(5
)
Stock-based compensation

 

 
5,806

 

 

 
5,806

Adjustment due to adoption of ASU 2016-16

 

 

 
(3,397
)
 

 
(3,397
)
Dividends declared

 

 

 
(6,933
)
 

 
(6,933
)
Treasury stock repurchases and retirements
(688
)
 
(5
)
 
(1,260
)
 
(23,735
)
 

 
(25,000
)
Net income

 

 

 
9,402

 

 
9,402

Other comprehensive income

 

 

 

 
1,562

 
1,562

Balance, February 28, 2019
44,474

 
$
446

 
$
272,408

 
$
60,462

 
$
(26,614
)
 
$
306,702



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Condensed Consolidated Statements of Cash Flows
 
 
Three Months Ended
(In thousands)
February 29,
2020
 
February 28,
2019
Cash flows from operating activities:
 
 
 
Net income
$
21,116

 
$
9,402

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of property and equipment
1,717

 
1,620

Amortization of acquired intangibles and other
5,952

 
8,866

Stock-based compensation
6,051

 
5,806

Non-cash lease expense
3,087

 

Loss on disposal of property and equipment
57

 
153

Deferred income taxes
1,967

 
(3,069
)
Allowances for bad debt and sales credits
236

 
89

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
9,810

 
3,861

Other assets
2,010

 
5,147

Accounts payable and accrued liabilities
(20,893
)
 
(13,128
)
Lease liabilities
(2,356
)
 

Income taxes payable
373

 
(246
)
Deferred revenue
3,889

 
5,943

Net cash flows from operating activities
33,016

 
24,444

Cash flows from investing activities:
 
 
 
Purchases of investments
(4,259
)
 
(750
)
Sales and maturities of investments
7,767

 
8,155

Purchases of property and equipment
(1,148
)
 
(246
)
Net cash flows from investing activities
2,360

 
7,159

Cash flows used in financing activities:
 
 
 
Proceeds from stock-based compensation plans
4,245

 
1,894

Payments for taxes related to net share settlements of equity awards
(1,949
)
 

Repurchases of common stock
(20,000
)
 
(25,000
)
Dividend payments to shareholders
(7,468
)
 
(6,992
)
Payment of principal on long-term debt
(1,882
)
 
(1,547
)
Net cash flows used in financing activities
(27,054
)
 
(31,645
)
Effect of exchange rate changes on cash
(1,487
)
 
1,432

Net increase in cash and cash equivalents
6,835

 
1,390

Cash and cash equivalents, beginning of period
154,259

 
105,126

Cash and cash equivalents, end of period
$
161,094

 
$
106,516


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Condensed Consolidated Statements of Cash Flows, continued
 
Three Months Ended
 
February 29,
2020
 
February 28,
2019
Supplemental disclosure:
 
 
 
Cash paid for income taxes, net of refunds of $196 in 2020 and $166 in 2019
$
3,364

 
$
1,496

Cash paid for interest
$
2,588

 
$
1,169

Non-cash investing and financing activities:
 
 
 
Total fair value of restricted stock awards, restricted stock units and deferred stock units on date vested
$
4,652

 
$
76

Dividends declared
$
7,465

 
$
6,939

See notes to unaudited condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements

Note 1: Basis of Presentation

Company Overview - Progress Software Corporation ("Progress," the "Company," "we," "us," or "our") offers the leading platform for developing and deploying strategic business applications. We enable customers and partners to deliver modern, high-impact digital experiences with a fraction of the effort, time and cost. Progress offers powerful tools for easily building adaptive user experiences across any type of device or touchpoint, the flexibility of a cloud-native app dev platform to deliver modern apps, leading data connectivity technology, web content management, business rules, secure file transfer and network monitoring. Over 1,700 independent software vendors ("ISVs"), 100,000 enterprise customers, and 2 million developers rely on Progress to power their applications.

Our products are generally sold as perpetual licenses, but certain products also use term licensing models and our cloud-based offerings use a subscription-based model. More than half of our worldwide license revenue is realized through relationships with indirect channel partners, principally application partners, original equipment manufacturers ("OEMs"), distributors and value-added resellers. Application partners are ISVs that develop and market applications using our technology and resell our products in conjunction with sales of their own products that incorporate our technology. OEMs are companies that embed our products into their own software products or devices. Value-added resellers are companies that add features or services to our product, then resell it as an integrated product or complete "turn-key" solution.

We operate in North America and Latin America (the "Americas"); Europe, the Middle East and Africa ("EMEA"); and the Asia Pacific region, through local subsidiaries as well as independent distributors.

Basis of Presentation and Significant Accounting Policies - We prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements and these unaudited financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2019 ("Annual Report on Form 10-K for the fiscal year ended November 30, 2019").

We made no material changes in the application of our significant accounting policies that were disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2019. We have prepared the accompanying unaudited condensed consolidated financial statements on the same basis as the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2019, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full fiscal year.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an on-going basis, management evaluates its estimates and records changes in estimates in the period in which they become known. These estimates are based on historical data and experience, as well as various other assumptions that management believes to be reasonable under the circumstances. The most significant estimates relate to: the timing and amount 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. Actual results could differ from those estimates.

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Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). ASU 2017-12 intends to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. We adopted this standard at the beginning of the first quarter of fiscal year 2020; however, our existing accounting aligned with the guidance of ASU 2017-12 and therefore there was no impact to our financial statements from adoption.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASC 842"). ASC 842 supersedes the requirements in Topic 840, Leases, and requires lessees to recognize right-of-use ("ROU") assets and liabilities for leases with lease terms of more than twelve months. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. We adopted ASC 842 effective December 1, 2019 using the modified retrospective transition method of applying the new standard at the adoption date. Results for reporting periods beginning on or after December 1, 2019 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance. Disclosures required under the new standard will not be provided for dates and periods before December 1, 2019.

The new standard provided a number of optional practical expedients in transition. We elected the transition package of practical expedients available in the standard, which allowed the carry forward of historical assessments of whether a contract contains a lease, lease classification and initial direct costs. We also elected the practical expedient provided in ASC 842 to not separate lease components from non-lease components for each material underlying asset class: office leases, vehicle leases and equipment leases. For each lease, the non-lease components and related lease components are accounted for as a single lease component. Items or activities that do not transfer goods or services to the lessee, such as administrative tasks to set up the contract and reimbursement or payment of lessor costs, are not components of the contract and therefore no contract consideration is allocated to such items or activities. We did not elect the hindsight practical expedient to determine the lease term for existing leases. The adoption of the new standard also resulted in significant additional disclosures regarding our leasing activities. Refer to Note 8 for further details.

Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). ASU 2018-15 amends current guidance to align the accounting for costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs associated with developing or obtaining internal-use software. Capitalized implementation costs must be expensed over the term of the hosting arrangement and presented in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement. The guidance in ASU 2018-15 is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. We are currently accounting for costs incurred in a cloud computing arrangement in accordance with the guidance provided in ASU 2018-15.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 amends Topic 350 to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. This update requires the performance of an annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance in ASU 2017-04 is required for annual reporting periods beginning after December 15, 2019, with early adoption permitted. Upon adoption, we do not expect this update to have a material effect on our consolidated financial position and results of operations.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU 2016-13"). The amendment changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, contract assets, held-to-maturity debt securities, loans, and other instruments. ASU 2016-13 is effective for annual

10

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periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements.

Note 2: Cash, Cash Equivalents and Investments

A summary of our cash, cash equivalents and available-for-sale investments at February 29, 2020 is as follows (in thousands):
 
 
Amortized Cost Basis
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
Cash
$
147,494

 
$

 
$

 
$
147,494

Money market funds
13,600

 

 

 
13,600

State and municipal bond obligations
3,557

 
6

 

 
3,563

U.S. treasury bonds
5,757

 
48

 

 
5,805

Corporate bonds
6,549

 
44

 

 
6,593

Total
$
176,957

 
$
98

 
$

 
$
177,055


A summary of our cash, cash equivalents and available-for-sale investments at November 30, 2019 is as follows (in thousands):
 
 
Amortized Cost Basis
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
Cash
$
144,346

 
$

 
$

 
$
144,346

Money market funds
9,913

 

 

 
9,913

State and municipal bond obligations
7,036

 
1

 

 
7,037

U.S. treasury bonds
7,221

 
10

 

 
7,231

Corporate bonds
5,146

 
12

 

 
5,158

Total
$
173,662

 
$
23

 
$

 
$
173,685



Such amounts are classified on our condensed consolidated balance sheets as follows (in thousands):
 
 
February 29, 2020
 
November 30, 2019
 
Cash and
Equivalents
 
Short-Term
Investments
 
Cash and
Equivalents
 
Short-Term
Investments
Cash
$
147,494

 
$

 
$
144,346

 
$

Money market funds
13,600

 

 
9,913

 

State and municipal bond obligations

 
3,563

 

 
7,037

U.S. treasury bonds

 
5,805

 

 
7,231

Corporate bonds

 
6,593

 

 
5,158

Total
$
161,094

 
$
15,961

 
$
154,259

 
$
19,426



The fair value of debt securities by contractual maturity is as follows (in thousands):
 
 
February 29,
2020
 
November 30,
2019
Due in one year or less
$
9,515

 
$
14,004

Due after one year (1)
6,446

 
5,422

Total
$
15,961

 
$
19,426


(1)
Includes state and municipal bond obligations and corporate bonds, which are securities representing investments available for current operations and are classified as current on the condensed consolidated balance sheets.

We did not hold any investments with continuous unrealized losses as of February 29, 2020 or November 30, 2019.


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Note 3: Derivative Instruments

Cash Flow Hedge

On July 9, 2019, we entered into an interest rate swap contract with an initial notional amount of $150.0 million to manage the variability of cash flows associated with approximately one-half of our variable rate debt. The contract matures on April 30, 2024 and requires periodic interest rate settlements. Under this interest rate swap contract, we receive a floating rate based on the greater of 1-month LIBOR or 0.00% and pay a fixed rate of 1.855% on the outstanding notional amount.

We have designated the interest rate swap as a cash flow hedge and assess the hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative. To the extent that the interest rate swap is highly effective in offsetting the variability of the hedged cash flows, changes in the fair value of the derivative are included as a component of other comprehensive loss on our condensed consolidated balance sheets. Although we have determined at the onset of the hedge that the interest rate swap will be a highly effective hedge throughout the term of the contract, any portion of the fair value swap subsequently determined to be ineffective will be recognized in earnings. As of February 29, 2020, the fair value of the hedge was a loss of $4.9 million and was included in other noncurrent liabilities on our condensed consolidated balance sheets.

The following table presents our interest rate swap contract where the notional amount reflects the quarterly amortization of the interest rate swap, which is equal to approximately one-half of the corresponding reduction in the balance of our term loan as we make our scheduled principal payments. The fair value of the derivative represents the discounted value of the expected future discounted cash flows for the interest rate swap, based on the amortization schedule and the current forward curve for the remaining term of the contract, as of the date of each reporting period (in thousands):

 
February 29, 2020
 
November 30, 2019
 
Notional Value
 
Fair Value
 
Notional Value
 
Fair Value
Interest rate swap contracts designated as cash flow hedges
$
147,188

 
$
(4,868
)
 
$
148,125

 
$
(2,054
)


Forward Contracts

We generally use forward contracts that are not designated as hedging instruments to hedge economically the impact of the variability in exchange rates on intercompany accounts receivable and loans receivable denominated in certain foreign currencies. We generally do not hedge the net assets of our international subsidiaries.

All forward contracts are recorded at fair value on the consolidated balance sheets at the end of each reporting period and expire between 30 days and two years from the date the contract was entered. At February 29, 2020 and November 30, 2019, $1.0 million and $0.1 million were recorded in other noncurrent liabilities on the condensed consolidated balance sheets, respectively. In the three months ended February 29, 2020 and February 28, 2019, realized and unrealized losses of $0.6 million and gains of $0.7 million, respectively, from our forward contracts were recognized in foreign currency loss, net, on the condensed consolidated statements of operations. The losses and gains were substantially offset by realized and unrealized gains and losses on the offsetting positions.

The table below details outstanding foreign currency forward contracts where the notional amount is determined using contract exchange rates (in thousands):
 
 
February 29, 2020
 
November 30, 2019
 
Notional Value
 
Fair Value
 
Notional Value
 
Fair Value
Forward contracts to sell U.S. dollars
$
65,449

 
$
(990
)
 
$
66,951

 
$
(85
)
Forward contracts to purchase U.S. dollars
1,732

 
(29
)
 
1,457

 
5

Total
$
67,181

 
$
(1,019
)
 
$
68,408

 
$
(80
)



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Note 4: Fair Value Measurements

Recurring Fair Value Measurements

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at February 29, 2020 (in thousands):
 
 
 
 
Fair Value Measurements Using
 
Total Fair
Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Money market funds
$
13,600

 
$
13,600

 
$

 
$

State and municipal bond obligations
3,563

 

 
3,563

 

U.S. treasury bonds
5,805

 

 
5,805

 

Corporate bonds
6,593

 

 
6,593

 

Liabilities
 
 
 
 
 
 
 
Foreign exchange derivatives
(1,019
)
 

 
(1,019
)
 

Interest rate swap
$
(4,868
)
 
$

 
$
(4,868
)
 
$


The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2019 (in thousands):
 
 
 
 
Fair Value Measurements Using
 
Total Fair
Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Money market funds
$
9,913

 
$
9,913

 
$

 
$

State and municipal bond obligations
7,037

 

 
7,037

 

U.S. treasury bonds
7,231

 

 
7,231

 

Corporate bonds
5,158

 

 
5,158

 

Liabilities
 
 
 
 
 
 
 
Foreign exchange derivatives
(80
)
 

 
(80
)
 

Interest rate swap
$
(2,054
)
 
$

 
$
(2,054
)
 
$



When developing fair value estimates, we maximize the use of observable inputs and minimize the use of unobservable inputs. When available, we use quoted market prices to measure fair value. The valuation technique used to measure fair value for our Level 1 and Level 2 assets is a market approach, using prices and other relevant information generated by market transactions involving identical or comparable assets. If market prices are not available, the fair value measurement is based on models that use primarily market-based parameters including yield curves, volatilities, credit ratings and currency rates. In certain cases where market rate assumptions are not available, we are required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument.

Nonrecurring Fair Value Measurements

During the fourth quarter of fiscal year 2019, certain assets were measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). Based on the fair value measurement, we recorded a $22.7 million asset impairment charge, which was attributable to the intangible assets primarily associated with the technologies and trade names obtained in the acquisitions of DataRPM and Kinvey during the second and third quarters of fiscal year 2017, respectively.

The following table presents nonrecurring fair value measurements as of November 30, 2019 (in thousands):

 
Total Fair Value
 
Total Losses
Intangible assets
$

 
$
22,688



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The fair value measurements of intangible assets and long-lived assets were determined using an income-based valuation methodology, which incorporates unobservable inputs, including discounted expected cash flows over the remaining estimated useful life of the technology, thereby classifying the fair value as a Level 3 measurement within the fair value hierarchy. The expected cash flows include maintenance fees to be collected from existing customers using the products, offset by compensation related costs and hosting fees to be incurred over the remaining estimated useful lives.

We did not have any nonrecurring fair value measurements as of February 29, 2020.

Note 5: Intangible Assets and Goodwill

Intangible Assets

Intangible assets are comprised of the following significant classes (in thousands):
 
 
February 29, 2020
 
November 30, 2019
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
Purchased technology
$
135,186

 
$
(107,612
)
 
$
27,574

 
$
135,186

 
$
(105,967
)
 
$
29,219

Customer-related
134,042

 
(77,633
)
 
56,409

 
134,042

 
(74,175
)
 
59,867

Trademarks and trade names
24,740

 
(16,551
)
 
8,189

 
24,740

 
(16,043
)
 
8,697

Non-compete agreement
2,000

 
(557
)
 
1,443

 
2,000

 
(391
)
 
1,609

Total
$
295,968

 
$
(202,353
)
 
$
93,615

 
$
295,968

 
$
(196,576
)
 
$
99,392



In the first quarter of fiscal years 2020 and 2019, amortization expense related to intangible assets was $5.8 million and $8.6 million, respectively.

During the fourth quarter of fiscal year 2019, we evaluated the ongoing value of the intangible assets associated with the technology obtained in connection with the acquisitions of DataRPM and Kinvey. As a result of our decision to reduce our current and ongoing spending levels within our cognitive application product lines, which consist primarily of our DataRPM and Kinvey products, we determined that the intangible assets were fully impaired and incurred an impairment charge of $22.7 million (Note 4).

Future amortization expense for intangible assets as of February 29, 2020 is as follows (in thousands):
 
Remainder of 2020
$
17,458

2021
23,117

2022
22,136

2023
21,860

2024
9,044

Total
$
93,615



Goodwill

Changes in the carrying amount of goodwill in the three months ended February 29, 2020 are as follows (in thousands):

Balance, November 30, 2019
$
432,824

Translation adjustments
(35
)
Balance, February 29, 2020
$
432,789



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Changes in the goodwill balances by reportable segment in the three months ended February 29, 2020 are as follows (in thousands):
 
November 30, 2019
 
Translation adjustments
 
February 29, 2020
OpenEdge
$
366,819

 
$
(35
)
 
$
366,784

Data Connectivity and Integration
19,040

 

 
19,040

Application Development and Deployment
46,965

 

 
46,965

Total goodwill
$
432,824

 
$
(35
)
 
$
432,789



During the quarter ending February 29, 2020, no triggering events occurred that would indicate that it is more likely than not that the carrying values of any of our reporting units exceeded their fair values.

Note 6: Business Combinations

Ipswitch Acquisition

On April 30, 2019, we completed the acquisition of all of the outstanding equity interests of Ipswitch, Inc. (“Ipswitch”) from Roger Greene (the “Seller”) pursuant to the Stock Purchase Agreement, dated as of March 28, 2019, by and among Progress, Ipswitch and the Seller. The acquisition was completed for an aggregate purchase price of $225.0 million, subject to certain customary adjustments as further described in the Stock Purchase Agreement (the “Consideration”), which was paid in cash. Pursuant to the Stock Purchase Agreement, $22.5 million of the Consideration was deposited into an escrow account to secure certain indemnification and other potential obligations of the Seller to Progress. The Seller also received an award of approximately $2.0 million in Progress restricted stock as consideration for the Seller entering into a non-competition agreement for three years as set forth in the Stock Purchase Agreement.

Ipswitch enables approximately 24,000 small and medium-sized businesses and enterprises to provide secure data sharing and ensure high-performance infrastructure availability. Through this acquisition, we bolstered our core offerings to small and medium-sized businesses and enterprises, enabling those businesses to respond faster to business demands and to improve productivity. We funded the acquisition through a combination of existing cash resources and a $185.0 million term loan, which is part of a new $401.0 million term loan and revolving credit facility (Note 7).

The consideration has been allocated to Ipswitch’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values. The preliminary fair value estimates of the net assets acquired are based upon preliminary calculations and valuations, and those estimates and assumptions are subject to change as we obtain additional information for those estimates during the measurement period (up to one year from the acquisition date). The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill.

We recorded measurement period adjustments based on our ongoing valuation and purchase price allocation procedures. We are still finalizing the valuation and purchase price allocation as it relates to the net working capital amount in the table below.

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The allocation of the purchase price is as follows (in thousands):

 
Initial Purchase Price Allocation
 
Measurement Period Adjustments
 
Adjusted Purchase Price Allocation
 
Life
Net working capital
$
6,068

 
$
(216
)
 
$
5,852

 
 
Property, plant and equipment
4,661

 
 
 
4,661

 
 
Purchased technology
33,100

 
 
 
33,100

 
5 Years
Trade name
9,600

 
 
 
9,600

 
5 Years
Customer relationships
66,600

 
 
 
66,600

 
5 Years
Other assets
314

 
(4
)
 
310

 
 
Deferred revenue
(12,696
)
 
 
 
(12,696
)
 
 
Goodwill
117,651

 
220

 
117,871

 
 
Net assets acquired
$
225,298

 
$

 
$
225,298

 
 


The fair value of the intangible assets has been estimated using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to value the acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital. The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence, and revenue growth projections. Based on the preliminary valuation, the acquired intangible assets are comprised of customer relationships of approximately $66.6 million, existing technology of approximately $33.1 million, and trade names of approximately $9.6 million.

Tangible assets acquired and assumed liabilities were recorded at fair value. The valuation of the assumed deferred revenue was based on our contractual commitment to provide post-contract customer support to Ipswitch customers and future contractual performance obligations under existing hosting arrangements. The fair value of this assumed liability was based on the estimated cost plus a reasonable margin to fulfill these service obligations. A significant portion of the deferred revenue is expected to be recognized in the 12 months following the acquisition.

We recorded the excess of the purchase price over the identified tangible and intangible assets as goodwill. We believe that the investment value of the future enhancement of our product and solution offerings created as a result of this acquisition has principally contributed to a purchase price that resulted in the recognition of $117.9 million of goodwill, which is deductible for tax purposes.

An election was made under Section 338(h)(10) of the Internal Revenue Code to treat the transaction as the sale of all of Ipswitch's assets on the acquisition date.  As a result, the identifiable intangible assets and goodwill are deductible for tax purposes.

As previously noted, the Seller received a restricted stock award of approximately $2.0 million, subject to continued compliance with the three-year non-compete agreement. We concluded that the restricted stock award is not a compensation arrangement and we recorded the fair value of the award as an intangible asset separate from goodwill. We will recognize intangible asset amortization expense over the term of the agreement, which is 3 years. We recorded $0.2 million of amortization expense related to this restricted stock award for the three months ended February 29, 2020 in operating expenses on our condensed consolidated statement of operations.

Acquisition-related transaction costs (e.g., legal, due diligence, valuation, and other professional fees) and certain acquisition restructuring and related charges are not included as a component of consideration transferred but are required to be expensed as incurred. During the three months ended February 29, 2020, we incurred approximately $0.3 million of acquisition-related costs, which are included in acquisition-related expenses on our consolidated statement of operations.

The operations of Ipswitch are included in our operating results as part of the OpenEdge segment from the date of acquisition. The amount of revenue of Ipswitch included in our consolidated statement of operations during the first quarter of fiscal year 2020 was approximately $15.2 million. We determined that disclosing the amount of Ipswitch related earnings included in the consolidated statements of operations is impracticable, as certain operations of Ipswitch were integrated into the operations of the Company from the date of acquisition.

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Pro Forma Information

The following pro forma financial information presents the combined results of operations of Progress and Ipswitch as if the acquisition had occurred on December 1, 2017 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the Ipswitch acquisition and factually supportable.

These pro forma adjustments include (i) a decrease in revenue from Ipswitch due to the beginning balance of deferred revenue being adjusted to reflect the fair value of the acquired balance, (ii) a net increase in amortization expense to record amortization expense for the $111.3 million of acquired identifiable intangible assets and to eliminate historical amortization of Ipswitch intangible assets, (iii) an increase in interest expense to record interest for the period presented as a result of the new credit facility entered into by Progress in connection with the acquisition, and (iv) the income tax effect of the adjustments made at the statutory tax rate of the U.S. (approximately 24.5%). In addition, prior to the acquisition Ipswitch did not pay entity level corporate tax, with the exception of some states, because it was registered as an S-Corporation. Therefore, we applied the statutory tax rate of the U.S. (approximately 24.5%) to the income before tax of Ipswitch as if the acquisition had occurred on December 1, 2017.

The pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on December 1, 2017. These results are prepared in accordance with ASC 606.

(In thousands, except per share data)
 
Pro Forma
Three Months Ended February 28, 2019
Revenue
 
$
105,688

Net income
 
$
4,438

Net income per basic share
 
$
0.10

Net income per diluted share
 
$
0.10



Note 7: Term Loan and Line of Credit

On April 30, 2019, we entered into an amended and restated credit agreement (the "Credit Agreement") with certain lenders (the "Lenders"), which provides for a $301.0 million secured term loan and a $100.0 million secured revolving credit facility. The revolving credit facility may be made available in U.S. Dollars and certain other currencies and may be increased by up to an additional $125.0 million if the existing or additional lenders are willing to make such increased commitments. The revolving credit facility has sub-limits 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.

The Credit Agreement modified our prior credit facility by extending the maturity date to April 30, 2024 and extending the principal repayments of the term loan. We borrowed an additional $185.0 million under the term loan as part of this modification. The new term loan was used to partially fund our acquisition of Ipswitch (Note 6) and we expect to use the revolving credit facility for general corporate purposes, which may include acquisitions of other businesses, and may also use it for working capital.

Interest rates for the term loan and revolving credit facility are based upon our leverage ratio and determined based on an index selected at our option. The rates range from 1.50% to 2.00% above the Eurocurrency rate for Eurocurrency-based borrowings or from 0.50% to 1.00% above the defined base rate for base rate borrowings. Additionally, we may borrow certain foreign currencies at rates set in the same respective range above the London interbank offered interest rates for those currencies. A quarterly commitment fee on the undrawn portion of the revolving credit facility is required and ranges from 0.25% to 0.35% per annum based on our leverage ratio. The interest rate as of February 29, 2020 was 3.31%.

The credit facility matures on April 30, 2024, when all amounts outstanding will be due and payable in full. The revolving credit facility does not require amortization of principal. The outstanding balance of the term loan as of February 29, 2020 was $295.4 million, with $13.2 million due in the next 12 months. The term loan requires repayment of principal at the end of each fiscal quarter, beginning with the fiscal quarter ended February 29, 2020. The principal repayment amounts are in accordance with the following schedule: (i) four payments of $1.9 million each, (ii) four payments of $3.8 million each, (iii) four payments

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of $5.6 million each, (iv) four payments of $7.5 million each, (v) three payments of $9.4 million each, and (vi) 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. As of February 29, 2020, the carrying value of the term loan approximates the fair value, based on Level 2 inputs (observable market prices in less than active markets), as the interest rate is variable over the selected interest period and is similar to current rates at which we can borrow funds.

Costs incurred to obtain our long-term debt of $1.6 million, along with $1.2 million of unamortized debt issuance costs related to the previous credit agreement, are recorded as debt issuance costs as a direct deduction from the carrying value of the debt liability on our condensed consolidated balance sheets as of February 29, 2020. These costs are being amortized over the term of the debt agreement using the effective interest rate method. Amortization expense related to the debt issuance costs of $0.1 million for the three months ended February 29, 2020 and February 28, 2019 is recorded in interest expense on our condensed consolidated statements of operations.

Revolving loans may be borrowed, repaid, and reborrowed until April 30, 2024, at which time all amounts outstanding must be repaid. Accrued interest on the loans is payable quarterly in arrears with respect to base rate loans and at the end of each interest rate period (or at each three-month interval in the case of loans with interest periods greater than three months) with respect to Eurocurrency rate loans. We may prepay the loans or terminate or reduce the commitments in whole or in part at any time, without premium or penalty, subject to certain conditions and reimbursement of certain costs in the case of Eurocurrency rate loans. As of February 29, 2020, there were no amounts outstanding under the revolving line and $1.8 million of letters of credit.

We are the sole borrower under the credit facility. Our obligations under the Credit Agreement are secured by substantially all of our assets and each of our 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 Credit Agreement. Future material domestic subsidiaries will be required to guaranty our obligations under the Credit Agreement, and to grant security interests in substantially all of their assets to secure such obligations. The Credit Agreement generally prohibits, with certain exceptions, any other liens on our assets, subject to certain exceptions as described in the Credit Agreement.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our 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 the 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 fixed charge coverage ratio, a consolidated total leverage ratio and a consolidated senior secured leverage ratio.

As of February 29, 2020, aggregate principal payments of long-term debt for the next five years are (in thousands):

Remainder of 2020
$
9,406

2021
18,813

2022
26,338

2023
33,863

2024
206,938

Total
$
295,358



Note 8: Leases

In February 2016, the FASB issued ASC 842 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted the guidance on December 1, 2019 using the modified retrospective method and as a result did not adjust comparative periods or modify disclosures in those comparative periods.

The new guidance provides a number of optional practical expedients in transition. The Company elected the package of practical expedients, which does not require the reassessment of prior conclusions about lease identification, lease classification and initial direct costs. Further, the Company elected the practical expedients to combine lease and non-lease components. Contracts may be comprised of lease components, non-lease components, and elements that are not components. Each lease

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component represents a lessee’s right to use an underlying asset in the contract if the lessee can benefit from the right-of-use of the asset either on its own or together with other readily available resources and if the right-of-use is neither highly dependent or highly interrelated with other rights-of-use. Non-lease components include items such as common area maintenance and utilities provided by the lessor. We also elected the practical expedient to not recognize right-of-use assets and lease liabilities for short-term leases. Leases with an initial term of 12 months or less are classified as short-term leases.

Consideration in the contract is comprised of any fixed payments and variable payments that depend on an index or rate. Payments in the Company's operating lease arrangements primarily consist of base office rent. In accordance with the standard, variable payments in an agreement that are not dependent on an index or rate are excluded from the calculation of ROU assets and lease liabilities. The Company makes variable payments on certain of its leases related to taxes, insurance, common area maintenance, and utilities, among other things.

The adoption of ASC 842 on December 1, 2019 resulted in the recognition of operating lease ROU assets of approximately $28.9 million and operating lease liabilities of approximately $29.9 million. The difference between the value of the ROU assets and lease liabilities is due to the reclassification of existing deferred rent, prepaid rent, and unamortized lease incentives as of December 1, 2019. Operating leases are included in ROU assets and lease liabilities on the Company’s balance sheets. ROU assets and lease liabilities are to be presented separately for operating and finance leases; however, the Company currently has no material finance leases. The adoption of ASC 842 did not have a material impact on the Company’s condensed consolidated statement of operations, consolidated statement of stockholders' equity, consolidated statement of comprehensive income (loss) or consolidated statement of cash flows. The new standard also had no impact on liquidity or the Company’s debt-covenant compliance under its current debt agreements.

The Company determines if an arrangement is a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the duration of the lease term. Lease liabilities represent the Company’s contractual obligation to make lease payments over the lease term. ROU assets are recorded and recognized at commencement for the lease liability amount, plus initial direct costs incurred less lease incentives received. Lease liabilities are recorded at the present value of future lease payments over the lease term at commencement. Operating leases liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in the lease contracts is not readily determinable. As such, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Lease expenses relating to operating leases are recognized on a straight-line basis over the lease term.

The Company has operating leases for administrative, product development, and sales and marketing facilities, vehicles, and equipment under various non-cancelable lease agreements. The Company’s leases have remaining lease terms ranging from 1 year to 10 years. The Company’s lease terms may include options to extend or terminate the lease where it is reasonably certain that the Company will exercise those options. The Company considers several economic factors when making this determination, including but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty in replacing the asset, underlying contractual obligations, or specific characteristics unique to a particular lease. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of operating lease cost for the three months ended February 29, 2020 were as follows (in thousands):

 
Three Months Ended February 29, 2020
Lease costs under long-term operating leases
$
1,958

Lease costs under short-term operating leases
45

Variable lease cost under short-term and long-term operating leases(1)
106

Operating lease right-of-use asset impairment
923

Total operating lease cost
$
3,032

(1) Lease costs that are not fixed at lease commencement.


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The table below presents supplemental cash flow information related to leases during the three months ended February 29, 2020 (in thousands):

 
Three Months Ended February 29, 2020
Cash paid for leases
$
2,356

Right-of-use assets recognized for new leases and amendments (non-cash)


Weighted average remaining lease term in years and weighted average discount rate are as follows:

 
Three Months Ended February 29, 2020
Weighted average remaining lease term in years
4.81

Weighted average discount rate
2.4
%


Future payments under non-cancellable leases at February 29, 2020 are as follows (in thousands):

Remainder of 2020
$
5,617

2021
5,767

2022
5,212

2023
5,041

2024
4,974

Thereafter
2,684

Total lease payments
29,295

Less imputed interest(1)
(1,645
)
Present value of lease liabilities
$
27,650

(1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated as a result of a lease reassessment event.

As previously disclosed in the Company’s Form 10-K for the fiscal year ended November 30, 2019 and under the previous lease accounting standard, ASC 840, Leases, the following table summarizes the future non-cancelable minimum lease commitments (including office space, copiers, and automobiles) at November 30, 2019 (in thousands):

2020
$
7,453

2021
5,711

2022
4,977

2023
5,017

2024
5,102

Thereafter
2,904

Total
$
31,164



Note 9: Common Stock Repurchases

In January 2020, our Board of Directors increased the total share repurchase authorization from $75.0 million to $250.0 million. We repurchased and retired 0.4 million shares of our common stock for $20.0 million in the three months ended February 29, 2020, and 0.7 million shares for $25.0 million in the three months ended February 28, 2019. The shares were repurchased in both periods as part of our Board of Directors authorized share repurchase program. As of February 29, 2020, there was $230.0 million remaining under the current authorization.


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Note 10: Stock-Based Compensation

Stock-based compensation expense reflects the fair value of stock-based awards, less the present value of expected dividends when applicable, measured at the grant date and recognized over the relevant service period. We estimate the fair value of each stock-based award on the measurement date using the current market price of the stock, the Black-Scholes option valuation model, or the Monte Carlo Simulation valuation model.

During the first quarter of fiscal years 2018, 2019, and 2020, we granted performance-based restricted stock units that include two performance metrics under a Long-Term Incentive Plan (“LTIP”) where the performance measurement period is three years. Vesting of the LTIP awards is as follows: (i) 50% is based on our level of attainment of specified total stockholder return ("TSR") targets relative to the percentage appreciation of a specified index of companies for the respective three-year periods, and (ii) 50% is based on achievement of a three-year cumulative performance condition (operating income). In order to estimate the fair value of such awards, we used a Monte Carlo Simulation valuation model for the market condition portion of the award, and used the closing price of our common stock on the date of grant, less the present value of expected dividends when applicable, for the portion related to the performance condition.

The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. We recognize stock-based compensation expense related to options and restricted stock units on a straight-line basis over the service period of the award, which is generally 4 years for options and 3 years for restricted stock units. We recognize stock-based compensation expense related to our employee stock purchase plan using an accelerated attribution method.

The following table provides the classification of stock-based compensation as reflected in our condensed consolidated statements of operations (in thousands):

 
Three Months Ended
 
February 29,
2020
 
February 28,
2019
Cost of maintenance and services
$
319

 
$
244

Sales and marketing
1,050

 
1,048

Product development
1,926

 
1,928

General and administrative
2,756

 
2,586

Total stock-based compensation
$
6,051

 
$
5,806



Note 11: Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated balances of other comprehensive loss during the three months ended February 29, 2020 (in thousands):