10-Q 1 azpn-20210930.htm 10-Q azpn-20210930
0000929940false--06-302022Q1Acquisitions 
Camo Analytics AS

On November 17, 2020, we completed the acquisition of substantially all the outstanding shares of Camo Analytics AS (“Camo”), a leading provider of industrial analytics, for a total cash consideration of $12.7 million. The purchase price consisted of $10.0 million of cash paid at closing, a subsequent working capital adjustment of $(0.1) million, $0.3 million to be paid for the remaining undelivered shares as of the closing date, and $2.4 million to be held back as security for certain representations, warranties, and obligations of the sellers. The holdback amounts are recorded in accrued expenses and other current liabilities in our consolidated balance sheet. As of March 31, 2021, $0.2 million has been subsequently paid for the remaining undelivered shares.

An allocation of the purchase price is as follows:
Amount
(Dollars in Thousands)
Tangible assets acquired, net$877 
Identifiable intangible assets:
Technology-related2,533 
Customer relationships1,900 
Goodwill7,356 
Total assets acquired, net$12,666 

The goodwill reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling Camo products and services to our existing customers and is reported under the subscription and software reporting unit.  The results of operations of Camo have been included prospectively in our results of operations since the date of acquisition.

OptiPlant, Inc.

On December 8, 2020, we completed the acquisition of all the outstanding shares of OptiPlant, Inc. (“OptiPlant”), a leading provider of AI Driven 3D Conceptual Design and Engineering Automation software, for a total cash consideration of $8.2 million. The purchase price consisted of $6.8 million of cash paid at closing, $0.2 million to be held back for working capital adjustments, and $1.2 million to be held back as security for certain representations, warranties, and obligations of the sellers. The holdback amounts are recorded in other non-current liabilities in our consolidated balance sheet. The working capital adjustment holdback of $0.2 million was subsequently paid in March 2021.

An allocation of the purchase price is as follows:
Amount
(Dollars in Thousands)
Tangible assets acquired, net$44 
Identifiable intangible assets:
Technology-related1,485 
Customer relationships990 
Goodwill6,252 
Deferred tax liabilities(545)
Total assets acquired, net$8,226 

The goodwill reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling OptiPlant products and services to our existing customers and is reported under the subscription and software reporting unit.  The results of operations of OptiPlant have been included prospectively in our results of operations since the date of acquisition.
12.710.00.10.32.40.2
An allocation of the purchase price is as follows:
Amount
(Dollars in Thousands)
Tangible assets acquired, net$877 
Identifiable intangible assets:
Technology-related2,533 
Customer relationships1,900 
Goodwill7,356 
Total assets acquired, net$12,666 
8772,5331,9007,35612,6668.26.80.21.20.2
An allocation of the purchase price is as follows:
Amount
(Dollars in Thousands)
Tangible assets acquired, net$44 
Identifiable intangible assets:
Technology-related1,485 
Customer relationships990 
Goodwill6,252 
Deferred tax liabilities(545)
Total assets acquired, net$8,226 
441,4859906,2525458,226
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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 September 30, 2021
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: 001-34630
 
ASPEN TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2739697
(State or other jurisdiction of incorporation or
organization)
 (I.R.S. Employer Identification No.)
20 Crosby Drive  
Bedford
Massachusetts 01730
(Address of principal executive offices) (Zip Code)
(781221-6400
(Registrant’s telephone number, including area code)
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common stock, $0.10 par value per shareAZPNThe 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 ý No o
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 ý No o
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 filerý 
Accelerated filer       o
 
Non-accelerated filer  o
 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.    o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes  No ý
As of October 20, 2021, there were 66,918,691 shares of the registrant’s common stock (par value $0.10 per share) outstanding.



TABLE OF CONTENTS
 
 
aspenONE is one of our registered trademarks. All other trade names, trademarks and service marks appearing in this Form 10-Q are the property of their respective owners.
 
Our fiscal year ends on June 30th, and references to a specific fiscal year are to the twelve months ended June 30th of such year (for example, fiscal 2022 refers to the year ending June 30, 2022).
3

PART I - FINANCIAL INFORMATION
 
Item 1.    Financial Statements.
 
Consolidated Financial Statements (unaudited)
 
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
September 30,
 20212020
 (Dollars in Thousands, Except per Share Data)
Revenue:  
License$81,104 $61,859 
Maintenance48,213 46,858 
Services and other6,703 6,254 
Total revenue136,020 114,971 
Cost of revenue:  
License2,462 2,136 
Maintenance4,562 4,764 
Services and other7,859 8,566 
Total cost of revenue14,883 15,466 
Gross profit121,137 99,505 
Operating expenses:  
Selling and marketing29,481 25,172 
Research and development26,857 22,530 
General and administrative24,921 17,633 
Total operating expenses81,259 65,335 
Income from operations39,878 34,170 
Interest income8,664 8,669 
Interest (expense)(1,536)(2,095)
Other (expense), net(872)(1,469)
Income before income taxes46,134 39,275 
Provision for income taxes6,735 6,564 
Net income$39,399 $32,711 
Net income per common share:  
Basic$0.59 $0.48 
Diluted$0.58 $0.48 
Weighted average shares outstanding:  
Basic67,001 67,729 
Diluted67,412 68,299 
 
See accompanying Notes to these unaudited consolidated financial statements.
4

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
September 30,
 20212020
 (Dollars in Thousands)
Net income$39,399 $32,711 
Other comprehensive (loss) income:  
Foreign currency translation adjustments(4,058)4,153 
Total other comprehensive (loss) income(4,058)4,153 
Comprehensive income$35,341 $36,864 
 
See accompanying Notes to these unaudited consolidated financial statements.
5

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2021
June 30,
2021
 (Dollars in Thousands, Except
Share Data)
ASSETS  
Current assets: 
Cash and cash equivalents$247,965 $379,853 
Accounts receivable, net38,631 52,502 
Current contract assets, net306,008 308,607 
Prepaid expenses and other current assets15,044 12,716 
Prepaid income taxes2,474 14,639 
Total current assets610,122 768,317 
Property, equipment and leasehold improvements, net5,140 5,610 
Computer software development costs, net1,256 1,461 
Goodwill157,241 159,852 
Intangible assets, net41,742 44,327 
Non-current contract assets, net437,838 407,180 
Contract costs29,312 29,056 
Operating lease right-of-use assets31,865 32,539 
Deferred tax assets2,074 2,121 
Other non-current assets3,584 3,537 
Total assets$1,320,174 $1,454,000 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$4,087 $4,367 
Accrued expenses and other current liabilities44,477 50,575 
Current operating lease liabilities7,281 6,751 
Income taxes payable48,304 3,444 
Current borrowings22,000 20,000 
Current deferred revenue53,841 56,393 
Total current liabilities179,990 141,530 
Non-current deferred revenue8,471 11,732 
Deferred tax liabilities139,931 193,360 
Non-current operating lease liabilities28,474 29,699 
Non-current borrowings, net267,365 273,162 
Other non-current liabilities3,697 3,760 
Commitments and contingencies (Note 16)
Series D redeemable convertible preferred stock, $0.10 par value—
Authorized— 3,636 shares as of September 30, 2021 and June 30, 2021
Issued and outstanding— none as of September 30, 2021 and June 30, 2021
  
Stockholders’ equity:  
Common stock, $0.10 par value— Authorized—210,000,000 shares
Issued— 104,639,940 shares at September 30, 2021 and 104,543,414 shares at June 30, 2021
Outstanding— 66,942,492 shares at September 30, 2021 and 67,912,160 shares at June 30, 2021
10,465 10,455 
Additional paid-in capital825,780 819,642 
Retained earnings1,817,532 1,778,133 
Accumulated other comprehensive income4,968 9,026 
Treasury stock, at cost—37,697,448 shares of common stock at September 30, 2021 and 36,631,254 shares at June 30, 2021
(1,966,499)(1,816,499)
Total stockholders’ equity692,246 800,757 
Total liabilities and stockholders’ equity$1,320,174 $1,454,000 
 
See accompanying Notes to these unaudited consolidated financial statements.
6

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Common StockAdditional Paid-in CapitalRetained Earnings Accumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders’ Equity
Number of Shares$0.10 Par ValueNumber of SharesCost
(Dollars in Thousands, Except Share Data)
Balance June 30, 2021104,543,414 $10,455 $819,642 $1,778,133 $9,026 36,631,254 $(1,816,499)$800,757 
Comprehensive income:
Net income— — — 39,399 — — — 39,399 
Other comprehensive (loss)— — — — (4,058)(4,058)
Issuance of shares of common stock29,717 3 1,874 — — — 1,877 
Issuance of restricted stock units and net share settlement related to withholding taxes66,809 7 (5,826)— — — — (5,819)
Repurchase of common stock— — — — — 1,066,194 (150,000)(150,000)
Stock-based compensation— — 10,090 — — — — 10,090 
Balance September 30, 2021104,639,940 $10,465 $825,780 $1,817,532 $4,968 37,697,448 $(1,966,499)$692,246 


Common StockAdditional Paid-in CapitalRetained Earnings Accumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders’ Equity
Number of Shares$0.10 Par ValueNumber of SharesCost
(Dollars in Thousands, Except Share Data)
Balance June 30, 2020103,988,707 $10,399 $769,411 $1,458,330 $(5,288)36,270,015 $(1,766,499)$466,353 
Comprehensive income:
Net income— — — 32,711 — — — 32,711 
Other comprehensive income— — — — 4,153 4,153 
Issuance of shares of common stock12,943 1 314 — — — 315 
Issuance of restricted stock units and net share settlement related to withholding taxes26,265 3 (1,761)— — — — (1,758)
Stock-based compensation— — 6,268 — — — — 6,268 
Balance September 30, 2020104,027,915 $10,403 $774,232 $1,491,041 $(1,135)36,270,015 $(1,766,499)$508,042 

See accompanying Notes to these unaudited consolidated financial statements.

7

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
 20212020
 (Dollars in Thousands)
Cash flows from operating activities:  
Net income$39,399 $32,711 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization2,783 2,334 
Reduction in the carrying amount of right-of-use assets2,466 2,365 
Net foreign currency losses751 1,463 
Stock-based compensation10,090 6,268 
Deferred income taxes(53,352)41 
Provision for bad debts1,082 3,120 
Other non-cash operating activities331 202 
Changes in assets and liabilities:  
Accounts receivable12,190 2,243 
Contract assets, net(29,554)(7,366)
Contract costs(256)284 
Lease liabilities(2,561)(2,663)
Prepaid expenses, prepaid income taxes, and other assets9,790 (1,900)
Accounts payable, accrued expenses, income taxes payable and other liabilities44,386 (5,505)
Deferred revenue(4,858)2,854 
Net cash provided by operating activities32,687 36,451 
Cash flows from investing activities:  
Purchases of property, equipment and leasehold improvements(253)(177)
Payments for equity method investments(350)(334)
Payments for capitalized computer software development costs(178)(806)
Net cash used in investing activities(781)(1,317)
Cash flows from financing activities:  
Issuance of shares of common stock1,391 268 
Repurchases of common stock(154,353) 
Payments of tax withholding obligations related to restricted stock(6,053)(1,828)
Deferred business acquisition payments(10) 
Repayments of amounts borrowed(4,000)(4,000)
Net cash used in financing activities(163,025)(5,560)
Effect of exchange rate changes on cash and cash equivalents(558)228 
(Decrease) Increase in cash and cash equivalents(131,677)29,802 
Cash and cash equivalents, beginning of period379,853 287,796 
Cash, cash equivalents, and restricted cash, end of period$248,176 $317,598 
Supplemental disclosure of cash flow information:  
Income taxes paid, net$2,818 $2,703 
Interest paid1,333 2,121 
Supplemental disclosure of non-cash activities:
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses$(118)$281 
Change in repurchases of common stock included in accounts payable and accrued expenses(4,353) 
Lease liabilities arising from obtaining right-of-use assets1,463 223 


8

September 30,
2021
September 30,
2020
Reconciliation to amounts within the unaudited consolidated balance sheets: (Dollars in Thousands)
Cash and cash equivalents$247,965 $317,511 
Restricted cash included in other non-current assets 21187 
Cash, cash equivalents, and restricted cash, end of period$248,176 $317,598 

See accompanying Notes to these unaudited consolidated financial statements.
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1.  Interim Unaudited Consolidated Financial Statements
 
The accompanying interim unaudited consolidated financial statements of Aspen Technology, Inc. (“AspenTech”) and its subsidiaries have been prepared on the same basis as our annual consolidated financial statements.  We have omitted certain information and footnote disclosures normally included in our annual consolidated financial statements.  Such interim unaudited consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”), as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification “ASC”) Topic 270, Interim Reporting, for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  It is suggested that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2021, which are contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, as previously filed with the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations, and cash flows at the dates and for the periods presented have been included and all intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended September 30, 2021 are not necessarily indicative of the results to be expected for the subsequent quarter or for the full fiscal year.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
Unless the context requires otherwise, references to we, our and us refer to Aspen Technology, Inc. and its subsidiaries.
 
2.  Significant Accounting Policies
 
(a) Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of Aspen Technology, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

(b) Significant Accounting Policies 

Our significant accounting policies are described in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. We adopted Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (“Topic 740”) - Simplifying the Accounting for Income Taxes effective July 1, 2021. Refer to Note 2(g), “New Accounting Pronouncements Adopted in Fiscal 2022,” for further information regarding the adoption of ASU 2019-12. There were no other material changes to our significant accounting policies during the three months ended September 30, 2021.
 
(c) Loss Contingencies
 
We accrue estimated liabilities for loss contingencies arising from claims, assessments, litigation and other sources when it is probable that a liability has been incurred and the amount of the claim, assessment or damages can be reasonably estimated. We believe that we have sufficient accruals to cover any obligations resulting from claims, assessments or litigation that have met these criteria.

(d)   Foreign Currency Transactions
 
Foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our subsidiaries are recognized in our results of operations as incurred as a component of other (expense), net. Net foreign currency exchange (losses) were $(0.8) million and $(1.5) million during the three months ended September 30, 2021 and 2020, respectively.

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(e)   Research and Development Expense

We charge research and development expenditures to expense as the costs are incurred. Research and development expenses consist primarily of personnel expenses related to the creation of new products, enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technological feasibility. There were no capitalized direct labor costs associated with our development of software for sale during the three months ended September 30, 2021. There were $0.7 million of capitalized direct labor costs associated with our development of software for sale during the three months ended September 30, 2020.

(f)   Equity Method Investments

During fiscal 2020, we entered into a limited partnership investment fund agreement. The primary objective of this partnership is investing in equity and equity-related securities (including convertible debt) of venture growth- stage businesses. We account for the investment in accordance with Topic 323, Investments - Equity Method and Joint Ventures. Our total commitment under this partnership is 5.0 million CAD ($3.9 million). Under the conditions of the equity method investment, unfavorable future changes in market conditions could lead to a potential loss up to the full value of our 5.0 million CAD ($3.9 million) commitment. As of September 30, 2021, the fair value of this investment is $2.0 million CAD ($1.5 million), representing our payment towards the total commitment, and is recorded in non-current assets in our consolidated balance sheet.

(g)  New Accounting Pronouncements Adopted in Fiscal 2022

In December 2019, the FASB issued ASU 2019-12, which is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020. Early adoption of this standard update is permitted. We adopted ASU 2019-12 effective July 1, 2021. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

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3.   Revenue from Contracts with Customers

In accordance with ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), we account for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable that we will collect substantially all of the consideration to which we are entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.

Nature of Products and Services

We generate revenue from the following sources: (1) License revenue; (2) Maintenance revenue; and (3) Services and other revenue. We sell our software products to end users primarily under fixed-term licenses. We license our software products primarily through a subscription offering which we refer to as our aspenONE licensing model, which includes software maintenance and support, known as our Premier Plus SMS offering, for the entire term. Our aspenONE products are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management. Each product suite leverages our Artificial Intelligence of Things (AIoT) products as a foundation for applying Industrial AI at scale, to help us realize our vision for Industrial AI at scale. Our asset performance management product suite is licensed by customer sites, user seats or cloud connections. The engineering and manufacturing and supply chain product suites are licensed by tokens, which are interchangeable measures of usage based on the various units of measure such as users, servers, applications, manipulated variables, etc. Customers may use tokens flexibly to access any product or combination of products in the licensed suite.

We also license our software through point product term arrangements, which include our Premier Plus SMS offering for the entire term.

We determine revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when, or as, we satisfy a performance obligation.

Term-based Arrangements: Term-based arrangements consist of on-premise term licenses as well as maintenance.

License

License revenue consists primarily of product and related revenue from our aspenONE licensing model and point product arrangements.

When a customer elects to license our products under our aspenONE licensing model, the customer receives, for the term of the arrangement, the right to all software products in the licensed aspenONE software suite. When a customer elects to license point products, the customer receives, for the term of the arrangement, the right to license specified products in the licensed aspenONE software suite. Revenue from initial product licenses is recognized upfront upon delivery.

Maintenance

When a customer elects to license our products under our aspenONE licensing model, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any updates that may be introduced into the licensed aspenONE software suite. When a customer elects to license point products, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any updates that may be introduced related to the specified products licensed. Maintenance represents a stand-ready obligation and, due to our obligation to provide unspecified future software updates on a when-and-if available basis as well as telephone support services, we are required to recognize revenue ratably over the term of the arrangement.

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Services and Other Revenue

Professional Services Revenue

Professional services are provided to customers on a time-and-materials (“T&M”) or fixed-price basis. The obligation to provide professional services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligation. For professional services, revenue is recognized by measuring progress toward the completion of our obligations. We recognize professional services fees for our T&M contracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using the proportional performance method based on the ratio of costs incurred to the total estimated project costs. The use of the proportional performance method is dependent upon our ability to reliably estimate the costs to complete a project. We use historical experience as a basis for future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. Out-of-pocket expenses which are reimbursed by customers are recorded as revenue.

Training Revenue

We provide training services to our customers, including on-site, Internet-based, public and customized training. The obligation to provide training services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligation. Revenue is recognized in the period in which the services are performed.

Contracts with Multiple Performance Obligations

Our contracts generally contain more than one of the products and services listed above, each of which is separately accounted for as a distinct performance obligation.

Allocation of consideration: We allocate total contract consideration to each distinct performance obligation in an arrangement on a relative standalone selling price basis. The standalone selling price reflects the price we would charge for a specific product or service if it was sold separately in similar circumstances and to similar customers.

If the arrangement contains professional services and other products or services, we allocate to the professional service obligation a portion of the total contract consideration based on the standalone selling price of professional services that is observed from consistently priced standalone sales.

The standalone selling price for term arrangements, which always include maintenance for the full term of the arrangement, is the price for the combined license and maintenance bundle. The amount assigned to the license and maintenance bundle is separated into license and maintenance amounts using the respective standalone selling prices represented by the value relationship between the software license and maintenance.

When two or more contracts are entered into at or near the same time with the same customer, we evaluate the facts and circumstances associated with the negotiation of those contracts. Where the contracts are negotiated as a package, we will account for them as a single arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.

Standalone selling price: When available, we use directly observable transactions to determine the standalone selling prices for performance obligations. Generally, directly observable data is not available for term licenses and maintenance. When term licenses are sold together with maintenance in a bundled arrangement, we estimate a standalone selling price for these distinct performance obligations using relevant information, including our overall pricing objectives and strategies and historical pricing data, and taking into consideration market conditions and other factors.

Other policies and judgments

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment annually over the term of the license arrangement. Therefore, we generally receive payment from a customer after the performance obligation related to the license has been satisfied, and therefore, our contracts generally contain a significant financing component. The significant financing component is calculated utilizing an interest rate that derives the net present value of the performance obligations delivered on an upfront basis based on the allocation of consideration. We have instituted a customer portfolio approach in assigning interest rates. The rates are determined at contract inception and are based on the credit characteristics of the customers within each portfolio.
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Contract modifications

We sometimes enter into agreements to modify previously executed contracts, which constitute contract modifications. We assess each of these contract modifications to determine (i) if the additional products and services are distinct from the products and services in the original arrangement and (ii) if the amount of consideration expected for the added products and services reflects the stand-alone selling price of those products and services, as adjusted for contract-specific circumstances. A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either (i) a prospective basis as a termination of the existing contract and the creation of a new contract or (ii) a cumulative catch-up basis. Generally, our contract modifications meet both criteria and are accounted for as a separate contract, as adjusted for contract-specific circumstances.

Disaggregation of Revenue

We disaggregate our revenue by region, type of performance obligation, and segment as follows:
 Three Months Ended
September 30,
 20212020
(Dollars in Thousands)
Revenue by region:
North America$51,152 $47,642 
Europe37,235 33,716 
Other (1)47,633 33,613 
$136,020 $114,971 
Revenue by type of performance obligation:
Term licenses$81,104 $61,859 
Maintenance48,213 46,858 
Professional services and other6,703 6,254 
$136,020 $114,971 
Revenue by segment:
Subscription and software$129,317 $108,717 
Services and other6,703 6,254 
$136,020 $114,971 

(1)Other consists primarily of Asia Pacific, Latin America and the Middle East.

Contract Assets and Deferred Revenue

The difference in the opening and closing balances of our contract assets and deferred revenue primarily results from the timing difference between our performance and the customer’s payment. We fulfill our obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. We recognize a contract asset when we transfer products or services to a customer and the right to consideration is conditional on something other than the passage of time. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional. We recognize deferred revenue when we have received consideration or an amount of consideration is due from the customer and we have a future obligation to transfer products or services.

Payment terms and conditions vary by contract type. Terms generally include a requirement of payment annually over the term of the license arrangement. During the majority of each customer contract term, the amount invoiced is generally less than the amount of revenue recognized to date, primarily because we transfer control of the performance obligation related to the software license at the inception of the contract term, and the allocation of contract consideration to the license performance obligation is a significant portion of the total contract consideration. Therefore, our contracts often result in the recording of a
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contract asset throughout the majority of the contract term. We record a contract asset when revenue recognized on a contract exceeds the billings.

The contract assets are subject to credit risk and reviewed in accordance with Topic 326. We monitor the credit quality of customer contract asset balances on an individual basis, at each reporting date, through credit characteristics, geographic location, and the industry in which they operate. We recognize an impairment on contract assets if, subsequent to contract inception, it becomes probable payment is not collectible. An allowance for expected credit loss reflects losses expected over the remaining term of the contract asset and is determined based upon historical losses, customer-specific factors, and current economic conditions.
The following table presents the change in the reserve for contract assets during the three months ended September 30, 2021:
June 30, 2021ProvisionWrite-Offs, Recoveries, and BillingsSeptember 30, 2021
(Dollars in Thousands)
$(5,380)$(1,331)$2,087 $(4,624)

Our total contract assets, net and deferred revenue were as follows as of September 30, 2021 and June 30, 2021:
September 30,
2021
June 30,
2021
(Dollars in Thousands)
Contract assets, net$743,846 $715,787 
Deferred revenue(62,312)(68,125)
$681,534 $647,662 

Contract assets and deferred revenue are presented net at the contract level for each reporting period.

The change in deferred revenue in the three months ended September 30, 2021 was primarily due to an increase in new billings in advance of revenue recognition, partially offset by $19.1 million of revenue recognized that was included in deferred revenue as of June 30, 2021.

Contract Costs

We pay commissions for new product sales as well as for renewals of existing contracts. Commissions paid to obtain renewal contracts are not commensurate with the commissions paid for new product sales and therefore, a portion of the commissions paid for new contracts relate to future renewals.

We account for new product sales commissions using a portfolio approach and allocate the cost of commissions in proportion to the allocation of transaction price of license and maintenance performance obligations, including assumed renewals. Commissions allocated to the license and license renewal components are expensed at the time the license revenue is recognized. Commissions allocated to maintenance are capitalized and amortized on a straight-line basis over a period of four years to eight years for new contracts, reflecting our estimate of the expected period that we will benefit from those commissions.

Amortization of capitalized contract costs is included in selling and marketing expenses in our statement of operations.

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Transaction Price Allocated to Remaining Performance Obligations

The following table includes the aggregate amount of the transaction price allocated as of September 30, 2021 to the performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
Year Ending June 30,
20222023202420252026Thereafter
(Dollars in Thousands)
License$29,157 $20,095 $7,069 $6,513 $4,485 $446 
Maintenance135,185 143,840 109,458 74,006 42,032 15,640 
Services and other45,946 1,937 673 519 465 163 

4. Leases

We have operating leases primarily for corporate offices, and other operating leases for data centers and certain equipment. We determine whether an arrangement is or contains a lease based on facts and circumstances present at the inception of the arrangement. We recognize lease expense on a straight-line basis over the lease term. Our leases have remaining lease terms of less than one year to approximately ten years, some of which include options to extend the leases for up to five years, and some of which include the option to terminate the leases upon advanced notice of 2 months or more. If we are reasonably certain we will exercise an option to extend or terminate the lease, the time period covered by the extension or termination option is included in the lease term.

Operating lease liabilities and their corresponding right-of-use 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 typically 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. Certain adjustments to the right-of-use asset may be required for items such as incentives received. We have lease agreements with lease and non-lease components, which are accounted for separately.

Operating lease costs are recognized on a straight-line basis over the term of the lease. Total lease expenses consisted of rent and fixed fees of $2.6 million and $2.4 million for the three months ended September 30, 2021 and 2020, respectively.

The following table represents the weighted-average remaining lease term and discount rate information related to our operating leases as of September 30, 2021 and June 30, 2021:
 September 30,
2021
June 30,
2021
Weighted average remaining lease term6.1 years6.1 years
Weighted average discount rate3.6 %3.6 %

The following table represents the maturities of our operating lease liabilities as of September 30, 2021 and June 30, 2021:
September 30,
2021
June 30,
2021
(Dollars in Thousands)
Year Ending June 30,
2022$6,125 $7,973 
20238,523 8,024 
20247,804 7,355 
20255,448 5,353 
20262,228 2,209 
Thereafter9,451 11,008 
Total lease payments39,579 41,922 
Less: imputed interest(3,824)(5,472)
$35,755 $36,450 

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5.   Fair Value
 
We determine fair value by utilizing a fair value hierarchy that ranks the quality and reliability of the information used in its determination. Fair values determined using “Level 1 inputs” utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Fair values determined using “Level 2 inputs” utilize data points that are observable, such as quoted prices, interest rates and yield curves for similar assets and liabilities. 

Cash equivalents are reported at fair value utilizing quoted market prices in identical markets, or “Level 1 Inputs.” Our cash equivalents consist of short-term money market instruments.

Equity method investments are reported at fair value calculated in accordance with the market approach, utilizing market consensus pricing models with quoted prices that are directly or indirectly observable, or “Level 2 Inputs.”

The following table summarizes financial assets and liabilities measured and recorded at fair value on a recurring basis in the accompanying consolidated balance sheets as of September 30, 2021 and June 30, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Fair Value Measurements at Reporting Date Using,
 
Quoted Prices in Active Markets for Identical Assets
(Level 1 Inputs)
Significant Other Observable Inputs
(Level 2 Inputs)
 (Dollars in Thousands)
September 30, 2021:
Cash equivalents$1,019 $ 
Equity method investments 1,530 
June 30, 2021:
Cash equivalents$1,020 $ 
Equity method investments 1,326 

Financial instruments not measured or recorded at fair value in the accompanying consolidated financial statements consist of accounts receivable, accounts payable and accrued liabilities. The estimated fair value of these financial instruments approximates their carrying value. The estimated fair value of the borrowings under the Amended and Restated Credit Agreement (described below in Note 11, “Credit Agreement”) approximates carrying value due to the floating interest rate.

6.  Accounts Receivable, Net
 
Our accounts receivable, net of the related allowance for doubtful accounts, were as follows as of September 30, 2021 and June 30, 2021:
 September 30,
2021
June 30,
2021
 (Dollars in Thousands)
Accounts receivable, gross$46,480 $61,273 
Allowance for doubtful accounts(7,849)(8,771)
Accounts receivable, net$38,631 $52,502 

As of September 30, 2021, we had one customer receivable balance that individually represented approximately 13% of
our net accounts receivable. As of June 30, 2021, we had no customer receivable balance that individually represented 10% or more of our net accounts receivable.

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7.  Property and Equipment

Property, equipment and leasehold improvements consisted of the following as of September 30, 2021 and June 30, 2021:
 September 30,
2021
June 30,
2021
 (Dollars in Thousands)
Property, equipment and leasehold improvements, at cost:  
Computer equipment$6,391 $6,250 
Purchased software22,732 22,711 
Furniture & fixtures6,510 6,592 
Leasehold improvements12,564 12,982 
Property, equipment and leasehold improvements, at cost48,197 48,535 
Accumulated depreciation(43,057)(42,925)
Property, equipment and leasehold improvements, net$5,140 $5,610 


8. Intangible Assets 

We include in our amortizable intangible assets those intangible assets acquired in our business and asset acquisitions. We amortize acquired intangible assets with finite lives over their estimated economic lives, generally using the straight-line method. Each period, we evaluate the estimated remaining useful lives of acquired intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. Acquired intangibles are removed from the accounts when fully amortized and no longer in use.

Intangible assets consisted of the following as of September 30, 2021 and June 30, 2021:
Gross Carrying AmountAccumulated AmortizationEffect of Currency TranslationNet Carrying Amount
(Dollars in Thousands)
September 30, 2021:
Technology$55,288 $(21,002)$471 $34,757 
Customer relationships12,038 (5,124)71 6,985 
Non-compete agreements553 (553)  
Total$67,879 $(26,679)$542 $41,742 
June 30, 2021:
Technology$55,288 $(19,378)$911 $36,821 
Customer relationships12,038 (4,713)181 7,506 
Non-compete agreements553 (553)  
Total$67,879 $(24,644)$1,092 $44,327 

Total amortization expense related to intangible assets is included in cost of license revenue (for technology) and general and administrative expense (for customer relationships and non-compete agreements) and amounted to approximately $2.0 million and $1.7 million during the three months ended September 30, 2021 and 2020, respectively.

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Future amortization expense as of September 30, 2021 is expected to be as follows:
Year Ending June 30,Amortization Expense
 (Dollars in Thousands)
2022$6,072 
20238,077 
20247,532 
20257,446 
20265,239 
Thereafter7,376 
Total$41,742 

9. Goodwill
 
The changes in the carrying amount of goodwill for our subscription and software reporting unit during the three months ended September 30, 2021 were as follows:
Gross Carrying AmountAccumulated Impairment LossesEffect of Currency TranslationNet Carrying Amount
(Dollars in Thousands)
June 30, 2021:$221,458 $(65,569)$3,963 $159,852 
Foreign currency translation— — (2,611)(2,611)
September 30, 2021$221,458 $(65,569)$1,352 $157,241 

We test goodwill for impairment annually (or more often if impairment indicators arise), at the reporting unit level. We first assess qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine based on this assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform the goodwill impairment test. The first step requires us to determine the fair value of the reporting unit and compare it to the carrying amount, including goodwill, of such reporting unit. If the fair value exceeds the carrying amount, no impairment loss is recognized. However, if the carrying amount of the reporting unit exceeds its fair value, the goodwill of the unit is impaired.

Fair value of a reporting unit is determined using a combined weighted average of a market-based approach (utilizing fair value multiples of comparable publicly traded companies) and an income-based approach (utilizing discounted projected cash flows). In applying the income-based approach, we would be required to make assumptions about the amount and timing of future expected cash flows, growth rates and appropriate discount rates. The amount and timing of future cash flows would be based on our most recent long-term financial projections. The discount rate we would utilize would be determined using estimates of market participant risk-adjusted weighted-average costs of capital and reflect the risks associated with achieving future cash flows.

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10. Accrued Expenses and Other Liabilities

Accrued expenses and other current liabilities consisted of the following as of September 30, 2021 and June 30, 2021:
 September 30,
2021
June 30,
2021
 (Dollars in Thousands)
Compensation-related$23,371 $26,442 
Share repurchases 4,353 
Royalties and outside commissions3,634 3,642 
Professional fees5,033 2,964 
Deferred acquisition payments2,817 2,862 
Uncertain tax positions1,087 1,087 
Other8,535 9,225 
Total accrued expenses and other current liabilities$44,477 $50,575 

Other non-current liabilities consisted of the following as of September 30, 2021 and June 30, 2021:
 September 30,
2021
June 30,
2021
 (Dollars in Thousands)
Uncertain tax positions$1,340 $1,343 
Deferred acquisition payments1,200 1,200 
Asset retirement obligations886 947 
Other271 270 
Total other non-current liabilities$3,697 $3,760 

11.  Credit Agreement
 
In December 2019, we entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, joint lead arranger and joint bookrunner, Silicon Valley Bank, as joint lead arranger, joint bookrunner and syndication agent, and the lenders and co-documentation agents named therein (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement, which amends and restates the Credit Agreement we entered into as of February 26, 2016, provides for a $200.0 million secured revolving credit facility and a $320.0 million secured term loan facility.

Principal outstanding under the Amended and Restated Credit Agreement bears interest at a rate per annum equal to, at our option, either: (1) the sum of (a) the highest of (i) the rate of interest last quoted by The Wall Street Journal in the United States as the prime rate in effect, (ii) the NYFRB Rate (as defined in the Amended and Restated Credit Agreement) plus 0.5%, and (iii) the LIBO rate (as defined in the Amended and Restated Credit Agreement) multiplied by the Statutory Reserve Rate (as defined in the Amended and Restated Credit Agreement) plus 1.0%, plus (b) a margin initially of 0.5% for the first full fiscal quarter ending after the date of the Amended and Restated Credit Agreement and thereafter based on our leverage ratio (as defined in the Amended and Restated Credit Agreement); or (2) the sum of (a) the LIBO rate multiplied by the Statutory Reserve Rate, plus (b) a margin initially of 1.5% for the first full fiscal quarter ending after the date of the Amended and Restated Credit Agreement and thereafter based on our leverage ratio. The interest rate as of September 30, 2021 was 1.59% on $292.0 million in outstanding borrowings on our term loan facility.

All borrowings under the Amended and Restated Credit Agreement are secured by liens on substantially all of our assets and the assets of our subsidiary AspenTech Canada Holdings, LLC, which has guaranteed our obligations under the Amended and Restated Credit Agreement. Additional significant subsidiaries (as determined in the Amended and Restated Credit Agreement) may be required to guarantee our obligations and to grant liens on their assets in favor of the lenders.

As of September 30, 2021, our current borrowings of $22.0 million consisted of the term loan facility. Our non-current borrowings of $267.4 million consisted of $270.0 million of our term loan facility, net of $2.6 million in debt issuance costs. As of June 30, 2021, our current borrowings of $20.0 million consisted of the term loan facility. As of June 30, 2021, our non-current borrowings of $273.2 million consisted of $276.0 million of our term facility, net of $2.8 million in debt issuance costs.
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The indebtedness under the revolving credit facility matures on December 23, 2024. The following table summarizes the maturities of the term loan facility:
Year Ending June 30,Amount
 (Dollars in Thousands)
2022$16,000 
202328,000 
202436,000 
2025212,000 
Total$292,000 

The Amended and Restated Credit Agreement contains affirmative and negative covenants customary for facilities of this type, including restrictions on incurrence of additional debt, liens, fundamental changes, asset sales, restricted payments and transactions with affiliates. There are also financial covenants regarding maintenance as of the end of each fiscal quarter, commencing with the quarter ending December 31, 2019, of a maximum leverage ratio of 3.50 to 1.00 and a minimum interest coverage ratio of 2.50 to 1.00. As of September 30, 2021, we were in compliance with these covenants.
 
12.  Stock-Based Compensation 

The stock-based compensation expense under all equity plans and its classification in the unaudited consolidated statements of operations for the three months ended September 30, 2021 and 2020 are as follows:
Three Months Ended
September 30,
 20212020
 (Dollars in Thousands)
Recorded as expenses:  
Cost of maintenance$205 $316 
Cost of services and other280 450 
Selling and marketing1,863 1,244 
Research and development1,998 1,722 
General and administrative5,744 2,536 
Total stock-based compensation$10,090 $6,268 

A summary of stock option and restricted stock unit (“RSU”) activity under all equity plans for the three months ended September 30, 2021 is as follows:
 Stock OptionsRestricted Stock Units
 SharesWeighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic Value
(in 000’s)
SharesWeighted
Average
Grant Date
Fair Value
Outstanding at June 30, 20211,285,221 $94.18 6.93$56,032 362,024 $128.66 
Granted265,158 129.65   204,777 129.84 
Settled (RSUs)—    (109,523)129.05 
Exercised (Stock options)(29,717)63.17   —  
Cancelled / Forfeited(15,445)129.44   (10,747)128.98 
Outstanding at September 30, 20211,505,217 $100.24 7.16$40,321 446,531 $129.25 
Vested and exercisable at September 30, 2021900,427