PROGRESS SOFTWARE CORP /MAPRGS
PROGRESS SOFTWARE CORP /MA Income Taxes Disclosure
Income Taxes
The components of income before income taxes are as follows:
| Fiscal Year Ended | |||||||||||||||||
| (in thousands) | November 30, 2025 | November 30, 2024 | November 30, 2023 | ||||||||||||||
| U.S. | $ | 59,873 | $ | 73,746 | $ | 70,659 | |||||||||||
| Foreign | 21,755 | 20,518 | 8,998 | ||||||||||||||
| Total | $ | 81,628 | $ | 94,264 | $ | 79,657 | |||||||||||
The provision for income taxes is comprised of the following:
| Fiscal Year Ended | |||||||||||||||||
| (in thousands) | November 30, 2025 | November 30, 2024 | November 30, 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 18,658 | $ | 23,768 | $ | 28,905 | |||||||||||
| State | 4,203 | 4,635 | 4,373 | ||||||||||||||
| Foreign | 9,063 | 5,173 | 4,823 | ||||||||||||||
| Total current | 31,924 | 33,576 | 38,101 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | (20,079) | (7,868) | (22,763) | ||||||||||||||
| State | (1,758) | (163) | (1,592) | ||||||||||||||
| Foreign | (1,592) | 281 | (4,286) | ||||||||||||||
| Total deferred | (23,429) | (7,750) | (28,641) | ||||||||||||||
| Total | $ | 8,495 | $ | 25,826 | $ | 9,460 | |||||||||||
A reconciliation of the income taxes incurred at the U.S. federal statutory rate compared to the effective tax rate is as follows:
| Fiscal Year Ended | |||||||||||||||||
| (in thousands) | November 30, 2025 | November 30, 2024 | November 30, 2023 | ||||||||||||||
| Tax at U.S. federal statutory rate | $ | 17,142 | $ | 19,795 | $ | 16,728 | |||||||||||
| Foreign rate differences | (158) | (728) | (644) | ||||||||||||||
| Effects of foreign operations included in U.S. federal provision | 703 | 1,158 | 447 | ||||||||||||||
| State income taxes, net | 1,649 | 1,480 | 1,814 | ||||||||||||||
| Research credits | (3,643) | (2,513) | (894) | ||||||||||||||
| Nondeductible stock-based compensation | 4,282 | 2,625 | 2,498 | ||||||||||||||
| Meals and entertainment | 186 | 155 | 162 | ||||||||||||||
| Compensation subject to 162(m) | 1,391 | 1,028 | 928 | ||||||||||||||
| Uncertain tax positions and tax settlements | (210) | (108) | (1,056) | ||||||||||||||
| Net excess tax benefit from stock-based compensation plans | (80) | (1,419) | (2,058) | ||||||||||||||
| Global intangible low tax inclusion | 855 | 797 | 244 | ||||||||||||||
| Foreign derived intangible deduction | (8,064) | (10,218) | (8,297) | ||||||||||||||
| Tax on unremitted earnings | (7,497) | 13,889 | — | ||||||||||||||
| Tax on intercompany restructuring | 2,502 | — | — | ||||||||||||||
| Other | (563) | (115) | (412) | ||||||||||||||
| Total | $ | 8,495 | $ | 25,826 | $ | 9,460 | |||||||||||
The components of deferred tax assets and liabilities are as follows:
| (in thousands) | November 30, 2025 | November 30, 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Accounts receivable | $ | 1,463 | $ | 163 | |||||||
| Accrued compensation | 8,455 | 6,919 | |||||||||
| Accrued liabilities and other | 3,761 | 5,638 | |||||||||
| Deferred revenue | 20,071 | 40,199 | |||||||||
| Stock-based compensation | 11,923 | 10,138 | |||||||||
| Original issue discount | 8,335 | 12,055 | |||||||||
| Tax credit and loss carryforwards | 19,570 | 23,654 | |||||||||
| Interest expense carryforward | 5,142 | — | |||||||||
| Operating lease liabilities | 4,861 | 6,335 | |||||||||
| Capitalized research and development | 55,780 | 36,006 | |||||||||
| Gross deferred tax assets | 139,361 | 141,107 | |||||||||
| Valuation allowance | (1,458) | (1,656) | |||||||||
| Total deferred tax assets | 137,903 | 139,451 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Goodwill | (31,024) | (27,646) | |||||||||
| Right-of-use lease assets | (3,968) | (5,200) | |||||||||
| Depreciation and amortization | (13,464) | (34,385) | |||||||||
| Unremitted earnings of foreign subsidiaries | (7,932) | (13,674) | |||||||||
| Prepaid expenses | (5,231) | (4,646) | |||||||||
| Total deferred tax liabilities | (61,619) | (85,551) | |||||||||
| Total | $ | 76,284 | $ | 53,900 | |||||||
On July 4, 2025, the OBBBA was enacted into law, introducing significant changes to the U.S. federal income tax system. The legislation contains key modifications to the provisions of the 2017 Tax Cuts and Jobs Act and has multiple effective dates. There is no material impact to the tax provision for fiscal 2025. The majority of the legislative provisions become effective in our fiscal years 2026 and 2027.
The valuation allowance primarily applies to net operating loss carryforwards in foreign jurisdictions under conditions where realization is not more likely than not. The $0.2 million decrease in the valuation allowance during fiscal year 2025 primarily relates to the release of the valuation allowance on certain foreign losses.
At November 30, 2025, we have federal and foreign net operating loss carryforwards of $23.7 million expiring on various dates through 2035 and $27.5 million that do not expire. In addition, we have state net operating loss carryforwards of $40.0 million expiring on various dates through 2043 and $16.1 million that do not expire. At November 30, 2025, we have state tax credit carryforwards of approximately $2.0 million expiring on various dates through 2040 and $3.4 million that may be carried forward indefinitely. In addition, we have federal tax credit carryforwards of approximately $5.6 million expiring on various dates through 2039.
During the fourth quarter of 2024, we made the determination that a substantial portion of unremitted foreign earnings are no longer indefinitely reinvested. We made the decision as a direct result of changes in business needs related to the acquisition of ShareFile. As a result of the acquisition, the Company plans to utilize worldwide cash based on the needs of the parent entity. These amounts will be repatriated as needed. At November 30, 2025, we maintain a deferred tax liability of $7.9 million for the U.S. federal, state, and foreign withholding taxes expected to be imposed upon the repatriation of unremitted foreign earnings that are not considered indefinitely reinvested. There are approximately $29.6 million of unremitted foreign earnings which are deemed to be indefinitely reinvested to support the working capital requirements of our foreign subsidiaries. A determination of the deferred tax liability on this amount is not practicable due to the complexities, variables, and assumptions inherent in the hypothetical calculations.
As of November 30, 2025, the total amount of unrecognized tax benefits was $4.8 million, of which $0.9 million was recorded in other noncurrent liabilities on the consolidated balance sheet and $3.9 million as a reduction of deferred tax assets, principally related to U.S net operating loss carry-forwards and federal and state research and development tax credits.
A reconciliation of the balance of our unrecognized tax benefits is as follows:
| Fiscal Year Ended | |||||||||||||||||
| (in thousands) | November 30, 2025 | November 30, 2024 | November 30, 2023 | ||||||||||||||
| Balance, beginning of year | $ | 5,234 | $ | 5,172 | $ | 5,276 | |||||||||||
| Tax positions related to a prior period | — | 416 | 19 | ||||||||||||||
| Tax positions acquired | — | 311 | 423 | ||||||||||||||
| Settlements with tax authorities | (102) | — | (367) | ||||||||||||||
| Lapses due to expiration of the statute of limitations | (362) | (665) | (179) | ||||||||||||||
| Balance, end of year | $ | 4,770 | $ | 5,234 | $ | 5,172 | |||||||||||
If recognized, all amounts of unrecognized tax benefits would affect the effective tax rate.
We recognize interest and penalties related to uncertain tax positions as a component of our provision for income taxes. There was a minimal amount of estimated interest and penalties recorded in the provision for income taxes in the periods presented. We have accrued $0.3 million of estimated interest and penalties for both periods ending November 30, 2025 and 2024, respectively. We do not expect any significant changes to the amount of unrecognized tax benefits in the next twelve months.
Our federal income tax returns have been examined or are closed by statute for all years prior to fiscal year 2022. Our state income tax returns have been examined or are closed by statute for all years prior to fiscal year 2021, and we are no longer subject to audit for those periods. Tax authorities for certain non-U.S. jurisdictions are also examining tax returns for various years dating back to 2016 and the Company does not expect the results of these examinations to be material to our consolidated balance sheets, cash flows, or statements of operations. With some exceptions, we are generally no longer subject to tax examinations in non-U.S. jurisdictions for years prior to fiscal year 2020.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Jan 20, 2026 | Showing above |
| 2024 | Jan 21, 2025 | |
| 2023 | Jan 26, 2024 | |
| 2022 | Jan 27, 2023 | |
| 2021 | Jan 27, 2022 | |
| 2020 | Jan 27, 2021 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.