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Business Combinations | 9 Months Ended
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Aug. 31, 2022
Business Combination and Asset Acquisition [Abstract] |
Business Combinations | Business Combinations Kemp Acquisition On November 1, 2021, we completed the acquisition of the parent company of Kemp Technologies, Inc. (“Kemp”), which is described in greater detail in our 2021 10-K. The acquisition was completed for a base purchase price of $258.0 million (subject to certain customary adjustments) in cash. The acquisition consideration for Kemp has been preliminarily allocated to Kemp’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. 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 | $ | 27,075 |  |  | $ | (772) |  |  | $ | 26,303 |  |  |
Property, plant and equipment | 803 |  |  | (8) |  |  | 795 |  |  |
Purchased technology | 39,400 |  |  | — |  |  | 39,400 |  |  | 5 years
Trade name | 7,200 |  |  | — |  |  | 7,200 |  |  | 5 years
Customer relationships | 75,500 |  |  | — |  |  | 75,500 |  |  | 5 years
Other assets | 170 |  |  | 27 |  |  | 197 |  |  |
Other noncurrent liabilities | (604) |  |  | (1,133) |  |  | (1,737) |  |  |
Deferred taxes | (23,187) |  |  | — |  |  | (23,187) |  |  |
Deferred revenue | (29,997) |  |  | — |  |  | (29,997) |  |  |
Goodwill | 179,521 |  |  | 1,752 |  |  | 181,273 |  |  |
Net assets acquired | $ | 275,881 |  |  | $ | (134) |  |  | $ | 275,747 |  |  |
The fair value of the intangible assets was estimated using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to value the acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital. The valuation assumptions take into consideration our estimates of customer attrition, technology obsolescence, and revenue growth projections. Based on the preliminary valuation, the acquired intangible assets are comprised of customer relationships of approximately $75.5 million, existing technology of approximately $39.4 million, and trade names of approximately $7.2 million. Tangible assets acquired and assumed liabilities were recorded at fair value. We determined the acquisition date deferred revenue balance based on our assessment of the individual contracts acquired. 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 $181.3 million of goodwill, which is not deductible for tax purposes. 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 and nine months ended August 31, 2022, we incurred approximately $0.1 million and $0.9 million of acquisition-related costs, which are included in acquisition-related expenses on our consolidated statement of operations. We determined that disclosing the amount of Kemp related earnings included in the consolidated statements of operations is impracticable, as certain operations of Kemp were integrated into the operations of the Company from the date of acquisition. Pro Forma Information The following pro forma financial information presents the combined results of operations of Progress and Kemp as if the acquisition had occurred on December 1, 2019, after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the Kemp acquisition and factually supportable. These pro forma adjustments include: (i) an increase in revenue from Kemp as a result of the application of Topic 606 to recognize and measure contract assets and contract liabilities in the business combination, (ii) a net increase in amortization expense to record amortization expense relating to the $122.1 million of acquired identifiable intangible assets, (iii) a decrease in interest expense to remove the interest expense associated with Kemp’s debt obligations, and (iv) the income tax effect of the adjustments made at the statutory tax rate of the U.S. (approximately 24.5%). 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, 2019. These results are prepared in accordance with ASC 606.
(in thousands, except per share data) | Pro Forma Three Months Ended August 31, 2021
Revenue | $ | 163,735 |
Net income | $ | 30,420 |
Net income per basic share | $ | 0.70 |
Net income per diluted share | $ | 0.68 |
(in thousands, except per share data) | Pro Forma Nine Months Ended August 31, 2021
Revenue | $ | 438,372 |
Net income | $ | 59,883 |
Net income per basic share | $ | 1.36 |
Net income per diluted share | $ | 1.34 |
Chef Acquisition On October 5, 2020, we completed the acquisition of Chef Software Inc. (“Chef”), which is described in greater detail in our 2021 10-K. The acquisition was completed for a base purchase price of $220.0 million (subject to certain customary adjustments) in cash. We funded the acquisition through a combination of existing cash resources and by drawing down $98.5 million from our then-existing revolving credit facility. Refer to Note 8: Debt for further information. The acquisition considerations for Chef has been allocated to Chef’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values. 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 in accordance with FASB’s guidance regarding business combinations in the third and fourth quarters of fiscal year 2021 based on our valuation and purchase price allocation procedures. The measurement period adjustments were completed during the fourth quarter of fiscal year 2021. The allocation of the purchase price is as follows (in thousands):
| Initial Purchase Price Allocation |  | Measurement Period Adjustments |  | Final Purchase Price Allocation |  | Life
Net working capital | $ | 52,330 |  |  | $ | 147 |  |  | $ | 52,477 |  |  |
Property, plant and equipment | 498 |  |  | — |  |  | 498 |  |  |
Purchased technology | 38,300 |  |  | — |  |  | 38,300 |  |  | 5 years
Trade name | 5,700 |  |  | — |  |  | 5,700 |  |  | 5 years
Customer relationships | 97,300 |  |  | — |  |  | 97,300 |  |  | 7 years
Other assets | 122 |  |  | — |  |  | 122 |  |  |
Other noncurrent liabilities | (841) |  |  | — |  |  | (841) |  |  |
Lease liabilities, net | (1,810) |  |  | — |  |  | (1,810) |  |  |
Deferred taxes | (7,817) |  |  | 126 |  |  | (7,691) |  |  |
Deferred revenue | (12,525) |  |  | — |  |  | (12,525) |  |  |
Goodwill | 59,858 |  |  | (273) |  |  | 59,585 |  |  |
Net assets acquired | $ | 231,115 |  |  | $ | — |  |  | $ | 231,115 |  |  |
The fair value of the intangible assets was estimated using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to value the acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital. The valuation assumptions take into consideration our estimates of customer attrition, technology obsolescence, and revenue growth projections. 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 Chef 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 was 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 $59.6 million of goodwill, which is not deductible for tax purposes. 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 and nine months ended August 31, 2022, we incurred approximately $0.1 million and $0.2 million of acquisition-related costs, which are included in acquisition-related expenses on our consolidated statement of operations. The operations of Chef were included in our operating results beginning on the date of acquisition. We determined that disclosing the amount of Chef related earnings included in the consolidated statements of operations is impracticable, as certain operations of Chef were integrated into the operations of the Company from the date of acquisition.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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