UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 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: 001-34630
____________________________________________
Aspen Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
20 Crosby Drive
Bedford
Massachusetts
(Address of principal executive offices)
04-2739697
(I.R.S. Employer
Identification No.)
01730
(Zip Code)
Registrant's telephone number, including area code: 781-221-6400
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common stock, $0.10 par value per share
AZPN
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
____________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 and post
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
Non-accelerated filer (Do not check if a smaller reporting
company)
☒
Accelerated filer
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of December 31, 2019, the aggregate market value of common stock (the only outstanding class of common equity of the registrant) held by non-
affiliates of the registrant was $7,351,100,942 based on a total of 60,788,067 shares of common stock held by non-affiliates and on a closing price of
$120.93 on December 31, 2019 for the common stock as reported on The NASDAQ Global Select Market.
There were 67,780,992 shares of common stock outstanding as of December 2, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement related to its 2020 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference in
Part III, Items 10-14 of this Form 10-K.
Table of Contents
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
PART I
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
PART IV
SIGNATURES
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Our registered trademarks include aspenONE and Aspen Plus. All other trademarks, trade names and service marks appearing in this Form 10-K are
the property of their respective owners.
Our fiscal year ends on June 30, and references to a specific fiscal year are the twelve months ended June 30 of such year (for example, "fiscal 2020"
refers to the year ended June 30, 2020).
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-
looking statements by terminology such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "potential," "should," "target," or the
negative of these terms or other similar words. These statements are only predictions. The outcome of the events described in these forward-looking
statements is subject to known and unknown risks, uncertainties and other factors that may cause our, our customers' or our industry's actual results, levels
of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. "Item 1. Business," "Item 1A. Risk Factors"
and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as other sections in this Form 10-K, discuss
some of the factors that could contribute to these differences. The forward-looking statements made in this Form 10-K relate only to events as of the date
on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on
which the statement is made or to reflect the occurrence of unanticipated events. Our forward-looking statements do not reflect the potential impact of any
future acquisitions, mergers, dispositions, joint ventures or investments we may make. The industry in which we operate is subject to a high degree of
uncertainty and risk due to variety of factors, including those described in "Item 1A. Risk Factors." Unless the context indicates otherwise, references in
this report to "we", "us", "our" and other similar references mean Aspen Technology, Inc. and its subsidiaries.
PART I
Item 1. Business.
Overview
We are a global leader in asset optimization software that optimizes asset design, operations and maintenance in complex, industrial environments.
We combine decades of process modeling and operations expertise with big data, artificial intelligence, and advanced analytics. Our purpose-built software
improves the competitiveness and profitability of our customers by increasing throughput, energy efficiency, and production levels, reducing unplanned
downtime, plant emissions, and safety risks, enhancing capital efficiency, and decreasing working capital requirements over the entire asset lifecycle to
support operational excellence.
Our software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domain
expertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 35 years. We have developed our
applications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain, and asset performance
management. We are a recognized market and technology leader in providing process optimization and asset performance management software for each of
these business areas.
We have established sustainable competitive advantages based on the following strengths:
•
Innovative products that can enhance our customers' profitability and productivity;
• Long-term customer relationships;
• Large installed base of users of our software; and
• Long-term license contracts.
We have approximately 2,400 customers globally. Our customers consist of companies engaged in the process and other capital-intensive industries
such as energy, chemicals, engineering and construction, as well as pharmaceuticals, food and beverage, transportation, power, metals and mining, pulp and
paper, and consumer packaged goods.
Industry Background
The process manufacturing industries consist of companies that typically manufacture finished products by applying a controlled chemical process
either to a raw material that is fed continuously through the plant or to a specific batch of raw material.
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Process industry characteristics and dynamics are complex and the scale of operation is very large; therefore, any small improvement in the high-
volume feedstocks used, or to the chemical process applied, can have a significant impact on the efficiency and cost-effectiveness of manufacturing
operations. As a result, process manufacturers, as well as the engineering and construction firms that partner with these manufacturers, have extensive
technical requirements and need sophisticated, integrated software to help design, operate and maintain complex manufacturing assets. The unique
characteristics associated with process manufacturing create special demands for business applications that frequently exceed the capabilities of generic or
non-process manufacturing software packages.
Industry Specific Challenges Facing the Process Industries
Companies in different segments of the process industries face specific challenges that drive the need for software solutions that design, operate and
maintain manufacturing environments more effectively:
Energy. Our energy markets are comprised of three primary sectors: Exploration and Production, also called "upstream," Oil and Gas Production
and Processing, also called "midstream," and Refining and Marketing, also called "downstream":
•
•
•
Companies engaged in Exploration and Production explore for and produce hydrocarbons. They target reserves in increasingly diverse
geographies involving geological, logistical and political challenges. They need to design and develop ever larger, more complex and
more remote production, gathering and processing facilities as quickly as possible with the objective of optimizing production and
ensuring regulatory compliance.
Companies engaged in Oil and Gas Production and Processing produce and gather oil and natural gas from well heads, clean it, process
it, and separate it into oil, dry natural gas, and natural gas liquids in preparation for transport to downstream markets. The processing
capacity of oil and gas processing plants in North America has increased significantly in recent years to process the oil and gas extracted
from shale deposits.
Companies engaged in Refining and Marketing convert crude oil through a thermal and chemical manufacturing process into end
products such as gasoline, jet and diesel fuels and into intermediate products for downstream chemical manufacturing companies. These
companies are characterized by high volumes and low operating margins. In order to deliver better margins, they focus on optimizing
feedstock selection and product mix, reducing energy and capital costs, maximizing throughput, and minimizing inventory, all while
operating safely and in accordance with regulations.
Chemicals. The chemicals industry includes both bulk and specialty chemical companies:
•
•
Bulk chemical producers manufacture commodity chemicals and compete primarily on price; they seek to achieve economies of scale
and manage operating margin pressure by building larger, more complex plants located near feedstock sources.
Specialty chemical manufacturers, which primarily manufacture highly differentiated customer-specific products, face challenges in
managing diverse product lines, multiple plants, complex supply chains and product quality.
Engineering and construction. Engineering and construction firms that work with process manufacturers compete on a global basis by bidding on
and executing on complex, large-scale projects. They need a digital environment in which optimal plant designs can be produced quickly and efficiently,
incorporating highly accurate modeling, analysis and cost estimation technology. In addition, these projects require software that enables significant
collaboration internally, with the manufacturer, and in many cases, with other engineering and construction firms.
Companies in the metals and mining, consumer packaged goods, power, pulp and paper, pharmaceuticals and biofuels industries are also seeking
asset optimization solutions that help them deliver improved financial and operating results in the face of varied process manufacturing challenges.
Complexity of the Process Industries
Companies in the process industries constantly face pressure on margins causing them to continually seek ways to operate more efficiently. At the
same time, these manufacturers face complexity as a result of the following:
Globalization of markets. Process manufacturers are continuously expanding their operations to take advantage of growing demand and more
economically viable sources of feedstocks. Process manufacturers must be able to design, build and operate plants efficiently and economically while
managing and optimizing ever broadening supply chains.
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Market volatility. Process manufacturers must react quickly to frequent changes in feedstock prices, temporary or longer-term feedstock
shortages, and rapid changes in finished product prices. Unpredictable commodity markets strain the manufacturing and supply chain operations of process
manufacturers, which must evaluate and implement changes in inventory levels, feedstock inputs, equipment usage and operational processes to remain
competitive.
Environmental and safety regulations. Process companies must comply with an expanding array of data maintenance and reporting requirements
under governmental and regulatory mandates, and the global nature of their operations can subject them to numerous regulatory regimes. These companies
are increasingly relying upon software applications to model potential outcomes, store operating data and develop reporting capabilities in response to
heightened scrutiny and oversight because of environmental, safety and other implications of their products and manufacturing processes.
Evolving Workforce. Process companies must adapt to the changing nature of the technical workforce. A generation of highly experienced plant
operators and engineers is nearing retirement. New entrants to the workforce must be able to effectively leverage organization knowledge to become
productive with far fewer years of experience.
Market Opportunity
Process industries have been focusing on digital transformation initiatives to improve productivity for more than 40 years. In the 1980s, process
manufacturers implemented distributed control systems, or DCS, to automate the management of plant hardware. DCS use computer hardware,
communication networks and industrial instruments to measure, record and automatically control process variables. In the 1990s, these manufacturers
adopted enterprise resource planning, or ERP, systems to streamline back office functions and interact with DCS. These systems allowed process
manufacturers to track, monitor and report the performance of each plant, rather than rely on traditional paper and generic desktop spreadsheets.
Many process manufacturers have implemented both DCS and ERP systems but have realized that their investments in hardware and back-office
systems are inadequate. DCS are only able to control and monitor processes based on fixed sets of parameters and cannot dynamically react to changes in
the manufacturing process unless instructed by end users. ERP systems can only record what is produced in operations. Although DCS and ERP systems
help manage manufacturing performance, neither of these systems can optimize what is produced, how it is produced or where it is produced. Moreover,
neither can help a process manufacturer understand how to improve its processes or how to identify opportunities to decrease operating expenses.
As digital transformation initiatives were extended to each aspect of asset operations, the opportunity to optimize across the full asset lifecycle came
into focus. Asset optimization software focuses on the optimum design, operation, and maintenance of the manufacturing process; how the design is
optimized for optimum operations and reliability, how the process is operated for optimal economic, safety, and sustainable performance, and how the
design and operations impact the longevity and reliability of the equipment. By connecting DCS and ERP systems with intelligent applications, asset
optimization software allows a manufacturer to make faster economic decisions, resulting in safer, greener, and more reliable asset operations. Examples of
how asset optimization software can optimize a manufacturing environment include incorporating process manufacturing domain knowledge, supporting
real-time decision making, predicting equipment failure, and providing the ability to respond and adapt to operational changes. Furthermore, these solutions
can optimize the supply chain by helping a manufacturer to understand the operating conditions in each plant, enabling more efficient and optimized
production decisions.
Process manufacturers employ highly skilled technical personnel specializing in areas such as process design, equipment design, control engineering,
manufacturing operations, analytics, planning, scheduling, and supply chain management. To drive efficiency and improve operating margins, these
personnel need to collaborate across functional areas and increasingly rely on software to enable this collaboration as well as automate complex tasks
associated with their jobs. Process companies must adapt to the changing nature of the technical workforce. A generation of highly experienced plant
operators and engineers is nearing retirement. As a result, we believe there is increasing demand for intelligent software applications that capture and
automate expert knowledge and are intuitive and easy-to-learn.
aspenONE Solutions
We provide integrated asset optimization software solutions designed and developed specifically for the process and other capital-intensive industries.
Customers use our solutions to improve their competitiveness and profitability by increasing throughput and productivity, reducing operating and
maintenance costs, increasing reliability, enhancing capital efficiency, enabling collaboration among different functions, increasing safety, reducing risk,
and decreasing working capital requirements. Our aspenONE solutions are organized into three suites: 1) engineering; 2) manufacturing and supply chain;
and 3) asset performance management (APM):
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Engineering. Our engineering software is used to develop process designs of new plants, re-vamp existing plants, and simulate and optimize
existing processes. Through the use of advanced modeling technologies our engineering software can create digital twins of plant process and equipment
that are used to troubleshoot and fine tune plant performance.
Manufacturing and Supply Chain. Our manufacturing software is used to optimize day-to-day processing activities, enabling process
manufacturers to make better, more profitable decisions and to improve plant performance. Our supply chain management software is designed to enable
process manufacturers to reduce inventory levels, increase asset efficiency, respond rapidly to market demands and optimize supply chain operations.
Asset Performance Management. Our asset performance management software is used to understand and predict the reliability of a system; be it
multiple assets, a single asset, or equipment in a plant. The factors that impact reliability include how operating conditions degrade equipment performance
over time, or how process conditions lead to equipment failure, and the ability to predict when the equipment will fail and prescribe actions to avoid such
occurrences. The APM suite is a comprehensive suite of machine learning and analytics technologies which, when used in a standalone or integrated
manner with historical and real time asset and equipment data, can help our customers improve their return on capital employed.
Our aspenONE licensing model is primarily a subscription offering under which customers receive access to all the products within the aspenONE
suite(s) they license, including the right to any new unspecified future software products and updates that may be introduced into the licensed aspenONE
software suite. This affords customers the ability to use our software whenever required and to experiment with different applications to best solve
whatever critical business challenges they face.
We offer customer support, professional services and training services to our customers. Under our aspenONE licensing model, software maintenance
and support is included for the term of the arrangement. Professional services are offered to customers as a means to further implement and extend our
technology across their corporations.
The key benefits of our aspenONE solutions include:
Broad and comprehensive software suites. We believe that we offer the most comprehensive suites of software applications addressing the
engineering, manufacturing and supply chain and maintenance requirements of process manufacturers. While some competitors offer solutions in one or
two principal business areas, no other vendor can match the breadth of our aspenONE offerings. In addition, we have developed an extensive array of
software applications that address extremely specific and complex industry and end user challenges, such as feedstock selection, dynamic optimization of
plant assets, and production planning and scheduling for petroleum and chemicals companies.
Integrated software solutions. aspenONE provides a standards-based framework that integrates applications, data and models within each of our
software suites. Process manufacturers seeking to improve their business operations can use the integrated software applications in the aspenONE
Manufacturing and Supply Chain suite to support real-time decision making both for individual production facilities and across multiple sites.
Flexible commercial model. Our aspenONE subscription licensing model provides a customer with access to all of the applications within and
across the aspenONE suite(s) that the customer licenses, including the right to any new unspecified future software products and updates that may be
introduced into the licensed aspenONE software suites. The customer can change or alternate the use of multiple applications in a licensed suite through the
use of exchangeable units of measurement, or tokens, licensed in quantities determined by the customer. This enables the customer to use those applications
whenever required and to experiment with different applications to best solve whatever critical business challenges the customer faces. The customer can
easily increase its usage of our software as their business requirements evolve.
Our Competitive Strengths
In addition to the breadth and depth of our integrated aspenONE software and the flexibility of our aspenONE licensing model, we believe our key
competitive advantages include the following:
Industry-leading innovation based on substantial process industry expertise. For over 35 years, our significant investment in research and
development has led to a number of major process engineering advances considered to be industry-standard applications. Our development organization is
comprised of software engineers, chemical engineers and data scientists. This combination of expertise has been essential to the development of leading
products embedded with chemical engineering principles, optimization and machine learning algorithms, analytics, and the process industries’ workflows
and best practices. We recently embarked on a strategy to embed artificial intelligence within our products and solutions to support decision making and
drive better results.
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Rapid, high return on investment. Many customers purchase our software because they believe it will provide rapid, demonstrable and significant
returns on their investment and increase their profitability. For some customers, economic benefits in the first year following installation have exceeded the
total cost of our software. For many customers, even a relatively small improvement in performance can generate substantial recurring benefits due to the
large production volumes and limited profit margins typical in process industries. In addition, our solutions can generate organizational efficiencies and
operational improvements that can further increase a process company's profitability.
Growth Strategy
We seek to maintain and extend our position as a leading global provider of process optimization software and related services to the process
industries. We have introduced a new strategy to evolve our scope of optimization from the process units in a plant to the process and the equipment in the
plant or entire asset. We have expanded our reach in optimization from conceptualization and design, operations, and supply chain to the maintenance
aspects of the plant. We plan to continue to build on our expertise in process optimization, our installed base, and long-term customer relationships to
further expand our reach in the maintenance area of the plant. By focusing on asset optimization, we will be able to optimize the design and operations of a
plant considering the performance and constraints of process equipment so as to optimize the full asset lifecycle. Our primary growth strategy is to expand
organically within our core verticals by leveraging our market leadership position and driving increased usage and product adoption of the broad
capabilities in our aspenONE offerings. Additionally, we seek acquisitions to accelerate our overall growth in the design and operations of the process, and
acquisitions that will expand our maintenance solution to deliver asset optimization. To accomplish these goals, we will pursue the following activities:
Continue to provide innovative, market-leading solutions. Our most recent product introduction, Aspen Enterprise Insights (AEI), allows our
customers to build enterprise applications that drive insights in a collaborative workflow. AEI leverages information from across the enterprise to create
insights and value for our customers. We continue to research innovation that will transform the experience of our users with our products. We are
researching ways to enhance our historical capabilities founded on first-principles of engineering with artificial intelligence capabilities to create a new
generation of products that will deliver hybrid modeling functionality to create products that are more accurate in their predictions and model previously
difficult to model areas of a process. These capabilities will require a cloud infrastructure for deployment in hybrid environments, edge or cloud, to support
the ingestion of large amounts of data and high performance computing. The aggregation of the capabilities acquired through the Rt-Tech, Mnubo and
Sabisu acquisitions will support the delivery of the cloud infrastructure. AEI will sit on top of the edge connectivity and cloud capabilities that will be in
the future cloud infrastructure offering. Our next software release will begin the introduction of these capabilities. We expect software releases, including
these capabilities, will continue for the foreseeable future as we enhance the product capabilities that our customers are accustomed to. In addition, our
Aspen Mtell product recently received another award for "Technology Excellence in AI Manufacturing" from the Singapore Business Review, following the
award received for "Best Asset Performance Monitoring" from Hydrocarbon Processing magazine.
Further penetrate existing customer base. We have an installed base of approximately 2,400 customers. Many of our customers only use a
fraction of our products. We work with our customers to identify ways in which they can improve their business performance by using the entire licensed
suite of aspenONE solutions, both at an individual user level and across all of their plant locations. Our customers are segmented based on their size and
complexity. Our large complex customers are serviced by our Field Sales organization, while our other customers are serviced by our inside sales group.
Additionally, we regularly enhance our products to make them easier to use and seek to increase productivity of users by offering more integrated
workflows.
Adoption and usage in customer base. We strive for our customers to adopt and sustain the use of our products by maximizing the consumption
of their token entitlement. We do so by focusing our go-to-market resources through specific customer success management activities that generate and
sustain the value from our products by ensuring that customers are using the latest version of our products, that our software is deployed in the most
optimal manner in their IT networks, and that our customers are familiar with the latest value enhancing functionality in our products.
Asset Performance Management expansion. In fiscal 2017, we introduced a new suite of products focused on improving the reliability of our
customers’ assets and equipment using a combination of machine learning, data science and process modeling together with historical and real time asset
and equipment data. We have increased our investment in the research and development, sales and marketing, and channel sales functions to build out the
capabilities that will enable us to grow this new business area and deliver value for our customers. In addition, we target additional capital-intensive
industries with the APM functionality that we refer to as the global economy industries. These include metals and mining, power, pulp and paper,
pharmaceutical, and food and beverage.
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Build an ecosystem. The relevance of our solutions in the markets we serve means that we have the opportunity to leverage third parties interested
in building or expanding their businesses to increase our market penetration. The breadth of relationships that we establish will depend on the profile of the
third-party company and the objectives specified to be achieved from the promotion and implementation of our products and solutions.
Pursue acquisitions. As part of our make-vs-buy analyses, we regularly explore and evaluate acquisitions. We have made several acquisitions in
recent years and believe the opportunity exists to do more, especially as we seek to evolve our strategy to asset optimization and the maintenance area of
the plant.
Expand our total addressable market. Our focus on innovation also means introducing product capabilities or new product categories that create
value for our customers and therefore expand our total addressable market.
Products
Our integrated asset optimization software solutions are designed and developed specifically for the process industries. Customers use our solutions
to improve their competitiveness and profitability by increasing throughput and productivity, reducing operating costs, enhancing capital efficiency, and
decreasing working capital requirements. We have designed and developed our software applications across four principal business areas:
Engineering. Our engineering software applications are used during both the design and the ongoing operation of plant facilities to model and
improve the way engineers develop and deploy manufacturing assets. Process manufacturers must address a variety of challenges including design,
operational improvement, collaborative engineering and economic evaluation. They must, for example, determine where they should locate facilities, how
they can lower capital and manufacturing costs, what they should produce and how they can maximize plant efficiency.
Manufacturing. Our manufacturing software products focus on optimizing day-to-day processing activities, enabling customers to make better,
faster decisions that lead to improved plant performance and operating results. These solutions include desktop and server applications that help customers
make real-time decisions, which can reduce fixed and variable costs and improve product yields. Process manufacturers must address a wide range of
manufacturing challenges such as optimizing execution efficiency, reducing costs, selecting the right raw materials, scheduling and coordinating production
processes, and identifying an appropriate balance between turnaround times, delivery schedules, product quality, cost and inventory.
Supply Chain Management. Our supply chain management solutions include desktop and server applications that help customers optimize critical
supply chain decisions in order to reduce inventory, increase asset efficiency, and respond more quickly to changing market conditions. Process
manufacturers must address numerous challenges as they strive to manage raw materials inventory, production schedules and feedstock purchasing
decisions effectively and efficiently. Supply chain managers face these challenges in an environment of ever-changing market prices, supply constraints and
customer demands.
Asset Performance Management. Our asset performance management products are used to understand and predict the reliability of a system; be it
multiple assets, a single asset, or equipment in a plant. Factors that impact reliability include how operating conditions degrade equipment performance
over time, or how process conditions can lead to equipment failure. The APM suite is a comprehensive suite of machine learning and analytics technologies
which can be used in a standalone or integrated manner with historical and real time asset and equipment data to help our customers predict when the
equipment will fail and prescribe actions to avoid such occurrences, thereby improving return on capital employed.
Our software applications are currently offered in three suites: aspenONE Engineering, aspenONE Manufacturing and Supply Chain, and aspenONE
Asset Performance Management. These suites are integrated applications that allow end users to design process manufacturing environments, monitor
operational performance, respond and adapt to operational changes, predict asset reliability and equipment failure, and manage planning and scheduling
activities as well as collaborate across these functions and activities. The three suites are designed around core modules and applications that allow
customers to design, operate and maintain their process manufacturing environments, as shown below:
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aspenONE Engineering
Business Area
Engineering
aspenONE Module
Process Simulation
for Energy
Major Products
Aspen HYSYS
Aspen Operator Training
Product Description
Process modeling software for the design and optimization of
hydrocarbon processes, including flow assurance, refinery reactors,
acid gas clean-up, and sulfur recovery
Solution for developing and deploying dynamic plant simulations for
the purpose of training plant operators to respond to operational and
safety scenarios in a virtual training environment
Process Simulation
for Chemicals
Aspen Plus
Process modeling software for the design and optimization of
chemical processes, including solids and batch processes
Economic Evaluation
Aspen Economic
Evaluation
Economic evaluation software for estimating project capital costs
and lifecycle asset economics - from conceptual definition through
detailed cost estimation
Equipment Design &
Rating
Aspen Exchanger Design
and Rating
Software for the design, simulation and rating of various types of
heat exchangers
Basic Engineering
Aspen Basic Engineering
Collaborative platform for managing process engineering data and
producing front-end design deliverables such as multi-disciplinary
datasheets, process flow diagrams, piping and instrument diagrams,
and equipment lists
Operation Support
Aspen Online
Solution that connects process models to real-time plant data for
expedited decisions, operational guidance, and optimization
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aspenONE Manufacturing and Supply Chain
Business Area
Manufacturing
aspenONE Module
Advanced Process
Control
Dynamic
Optimization
Major Products
Aspen DMC3
Aspen Watch
Performance Monitor
Aspen GDOT
Manufacturing
Execution Systems
Aspen Info Plus.21
AspenONE Process
Explorer
Product Description
Multi-variable controller software for maintaining processes at their
optimal operating point under changing process conditions
Real-time monitoring and diagnostic information software to help
engineers and operators focus on the problems that erode margins
Multi-unit dynamic optimization software for alignment of
Advanced Process Control (APC) with Planning & Scheduling to
enable unified production optimization for refineries and ethylene
plants
Data historian software for storing, visualizing and analyzing large
volumes of data to improve production execution and enhance
performance management
Software for combining process measurements, product
characteristics, alarms, events and unstructured data for a complete
view of production
Aspen Production Record
Manager
Easy and fast segmentation of production data into batches,
campaigns or other logical groupings for easier analysis and
production reporting
Aspen Production
Execution Manager
Workflow, order and recipe management software per cGMP
guidelines that ensures operational consistency for improved yields,
higher quality and lower production costs
Supply Chain
Refinery Planning &
Scheduling
Aspen PIMS Advanced
Optimization
Refinery planning software for optimizing feedstock selection,
product slate and operational execution
Aspen Petroleum
Scheduler
Supply & Distribution
Aspen Petroleum Supply
Chain Planner
Aspen Fleet Optimizer
Supply Chain
Management
Aspen Collaborative
Demand Manager
Aspen Plant Scheduler
Aspen Supply Planner
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Refinery scheduling software for scheduling and optimization of
refinery operations with integration to refinery planning, blending
and dock operations
Economic planning software for optimizing the profitability of the
petroleum distribution network, including transportation, raw
materials, sales demands, and processing facilities
Software for inventory management and truck transportation
optimization in secondary petroleum distribution
Software for forecasting market demand and managing forecast
through changes in the business environment by combining
historical and real time data
Software for generating optimal production schedules to meet total
demand
Software for determining the optimal production plan taking into
account labor and equipment, feedstock, inbound /outbound
transportation, storage capacity, and other variables
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aspenONE Asset Performance Management
Business Area
Asset Performance
Management
aspenONE Module
Risk Analysis
Major Products
Aspen Fidelis Reliability
Process Analytics
Aspen ProMV
Aspen Asset Analytics
Equipment Analytics
Aspen Mtell
Connect
Aspen Edge Connect
Aspen Cloud Connect
Product Description
Software for predicting the future performance of any system and
quantifying the change in performance due to changes in design,
capacity, operations, maintenance, logistics, market dynamics, and
weather
Multivariate analysis software for analyzing interrelated process data
for continuous and batch processes, to identify the minimum critical
set of variables driving product quality and process performance, and
identifying optimal set points
Software for analyzing plant operations in real time to identify
causal precursors that can lead to an unplanned downtime event
Software for recognizing unique data patterns as predictions of
future equipment behavior
Software to collect data from assets, enterprise data sources, and
MES systems using Industrial IoT technology, and integrating the
data into enterprise systems on-premise or in the cloud
Our product development activities are currently focused on strengthening the integration of our applications and adding new capabilities that address
specific operational business processes in each industry. As of June 30, 2020, we had a total of 626 employees in our research and development group,
which is comprised of product management, software development and quality assurance. Research and development expenses were $92.2 million in fiscal
2020, $83.1 million in fiscal 2019 and $82.1 million in fiscal 2018.
Sales and Marketing
We employ a value-based sales approach, offering our customers a comprehensive suite of software and services that enhance the efficiency and
productivity of their engineering, manufacturing and supply chain and maintenance operations. We have increasingly focused on positioning our products
as a strategic investment and therefore devote an increasing portion of our sales efforts to our customers’ senior management, including senior decision
makers in manufacturing, operations, maintenance and technology. Our aspenONE solution strategy supports this value-based approach by broadening the
scope of optimization across the entire enterprise over its lifecycle, expanding the use of process models in the operations environment, and enabling the
use of analytics and data science to enhance equipment and process reliability. We offer a variety of training programs focused on illustrating the
capabilities of our applications as well as online training built into our applications. We have implemented incentive compensation programs for our sales
force to reward efforts that increase customer usage of our products. Furthermore, we believe our aspenONE licensing model enables our sales force to
develop consultative sales relationships with our customers.
Historically, most of our license sales have been generated through our direct Field Sales organization. In order to market the specific functionality
and other technical features of our software, our account managers work with specialized teams of technical sales personnel and product specialists
organized for each sales and marketing effort. Our technical sales personnel typically have degrees in chemical engineering or related disciplines and
actively consult with a customer’s plant engineers. Product specialists share their detailed knowledge of the specific features of our software solutions as
they apply to the unique business processes of different vertical industries. In addition to our direct Field Sales organization, we employ an inside sales
team that targets customers in certain market segments.
We have established channel relationships with select companies that we believe can help us pursue opportunities in adjacent target markets. We also
license our software products to universities that agree to use our products in teaching and research. We believe that students' familiarity with our products
will stimulate future demand once the students enter the workplace.
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We supplement our sales efforts with a variety of marketing initiatives, including industry analyst and public relations activities, campaigns to
promote product usage and adoption, user group meetings and customer relationship programs. Our broad user base spans multiple verticals and
geographies and these users possess a variety of skills, experience and business needs. In order to reach each of them in an effective, productive and
leveraged manner we will increasingly capitalize on digital customer engagement solutions. Using webinars, digital communities, social media, videos,
email and other digital means, we seek to engage our extensive user base with targeted messages intended to address the specific needs of each market,
customer and user.
Our overall sales force, which consists of sales account managers, technical sales personnel, indirect-channel personnel, inside sales personnel, and
marketing personnel, consisted of 503 employees as of June 30, 2020.
Software Maintenance and Support, Professional Services and Training
Software maintenance and support (“SMS”) consists primarily of providing customer technical support and access to software fixes and upgrades.
Customer technical support services are provided throughout the world by our three global call centers as well as via email and through our support
website. For license term arrangements entered into subsequent to our transition to a subscription-based licensing model, SMS is included with the license
arrangement. For license arrangements that do not include SMS, customers can purchase standalone SMS.
We offer professional services focused on implementation of our solutions. Our professional services team primarily consists of project engineers
with degrees in chemical engineering or a similar discipline, or who have significant relevant industry experience. Our employees include experts in fields
such as thermophysical properties, distillation, adsorption processes, polymer processes, industrial reactor modeling, the identification of empirical models
for process control or analysis, large-scale optimization, supply distribution systems modeling and scheduling methods. Our primary focus is the successful
implementation and usage of our software, and in many instances, this work can be professionally performed by qualified third parties. As a result, we
often compete with third-party consulting firms when bidding for professional services contracts, particularly in developed markets. We offer our services
on either a time-and-material or fixed-price basis.
We offer a variety of training solutions ranging from standardized training, which can be delivered in a public forum, on-site at a customer's location
or over the Internet, to customized training sessions, which can be tailored to fit customer needs. We have also introduced a wide range of online computer-
based training courses offering customers on-demand training in basic and advanced features of our products directly from within the products. As of
June 30, 2020, we had a total of 293 employees in our customer support, professional services and training groups.
Business Segments
We have two operating and reportable segments, which are consistent with our reporting units: i) subscription and software and ii) services and other.
The subscription and software segment is engaged in the licensing of process optimization and asset performance management software solutions and
associated support services, and includes our license and maintenance revenue. The services and other segment includes professional services and training,
and includes our services and other revenue.
Competition
Our markets in general are competitive, and we expect the intensity of competition in our markets to increase as existing competitors enhance and
expand their product and service offerings and as new participants enter the market. Increased competition may result in price reductions, reduced
profitability and loss of market share. We cannot ensure that we will be able to compete successfully against existing or future competitors. Some of our
customers and companies with which we have strategic relationships also are, or may become, competitors.
Many of our current and potential competitors have greater financial, technical, marketing, service and other resources than we have. As a result,
these companies may be able to offer lower prices, additional products or services, or other incentives that we cannot match or offer. These competitors
may be in a stronger position to respond more quickly to new technologies and may be able to undertake more extensive marketing campaigns. We believe
they also have adopted and may continue to pursue more aggressive pricing policies and make more attractive offers to potential customers, employees and
strategic partners. For example, some competitors may be able to initiate relationships through sales and installations of hardware and then seek to expand
their customer relationships by offering asset optimization software at a discount. In addition, competitors with greater financial resources may make
strategic acquisitions to increase their ability to gain market share or improve the quality or marketability of their products. Furthermore, we face
challenges in selling our solutions to large companies in the process industries that have internally developed their own proprietary software solutions.
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We seek to develop and offer integrated suites of targeted, high-value vertical industry solutions that can be implemented with relatively limited
service requirements. We believe this approach provides us with an advantage over many of our competitors that offer software products that are point
solutions or are more service-based. Our key competitive differentiators include:
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Breadth, depth and integration of our aspenONE software offering;
Rapid return on investment and increase in profitability;
Domain expertise of chemical engineering personnel;
Focus on software for the process industries;
Flexibility of our usage-based aspenONE licensing model; and
Consistent global support.
Proprietary Rights
Our software is proprietary and fundamental to our business. To protect our proprietary technology and brand, and prevent unauthorized use of our
software, we rely on a combination of copyright, patent, trademark and trade secret laws in the United States and other jurisdictions, license and
confidentiality agreements, and technology. We generally seek to protect our trade secrets by entering into non-disclosure agreements with our employees
and customers, and historically have restricted access to our software and source code, which we regard as proprietary information. We have obtained or
applied for patent protection with respect to some of our intellectual property and have registered or applied to register some of our trademarks in the
United States and in selected other countries. We actively monitor use of our intellectual property and have enforced, and will continue to enforce, our
intellectual property rights. In the United States, we are generally able to maintain our patents for up to 20 years from the earliest effective filing date, and
to maintain our trademark registrations for as long as the trademarks are in use.
The laws of many countries in which our products are licensed may not protect our intellectual property rights to the same extent as the laws of the
United States. While we consider our intellectual property rights to be valuable, we do not believe that our competitive position in the industry depends
solely on obtaining legal protection for our software products and technology. Instead, we believe that the success of our business also depends on our
ability to maintain a leadership position by continuing to develop innovative software products and technology.
Our proprietary rights are subject to risks and uncertainties described under Item 1A. “Risk Factors” below. You should read that discussion, which is
incorporated into this section by reference.
Licenses
In connection with our acquisition of Hyprotech Ltd. and related subsidiaries of AEA Technology plc in May 2002 and the consent decree we entered
into with the Federal Trade Commission in December 2004 to resolve allegations that the acquisition was improperly anticompetitive, we and certain of our
subsidiaries entered into a purchase and sale agreement with Honeywell International Inc. and certain of its subsidiaries, pursuant to which we sold
intellectual property and other assets to Honeywell relating to our operator training business and our Hyprotech engineering software products. Under the
terms of the transactions, we retained a perpetual, irrevocable, worldwide, royalty-free non-exclusive license to the Hyprotech engineering software and
have the right to continue to develop, license and sell the Hyprotech engineering products.
In March 1982, we entered into a System License Agreement with the Massachusetts Institute of Technology, or MIT, granting us a worldwide,
perpetual non-exclusive license (with the right to sublicense) to use, reproduce, distribute and create derivative works of the computer program known as
"ASPEN" which provides a framework for simulating the steady-state behavior of chemical processes that we utilize in the simulation engine for our Aspen
Plus product. MIT agreed that we would own any derivative works and enhancements. MIT has the right to terminate the agreement if: we breach it and do
not cure the breach within 90 days after receiving a written notice from MIT; we cease to carry on our business; or certain bankruptcy or insolvency
proceedings are commenced and not dismissed. In the event of such termination, sublicenses granted to our customers prior to termination will remain in
effect.
Employees
As of June 30, 2020, we had a total of approximately 1,710 full-time employees, of whom 821 were located in the United States. None of our
employees in the United States is represented by a labor union; however, in certain foreign subsidiaries labor unions or workers’ councils may represent
some of our employees. We have experienced no work stoppages and believe that our employee relations are satisfactory.
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Corporate Information
Aspen Technology, Inc. was formed in Massachusetts in 1981 and reincorporated in Delaware in 1998. Our principal executive offices are at 20
Crosby Drive, Bedford, Massachusetts 01730, and our telephone number at that address is (781) 221-6400. Our website address is
http://www.aspentech.com. The information on our website is not part of this Form 10-K, unless expressly noted.
Available Information
We file reports with the Securities and Exchange Commission, or the SEC, which we make available on our website free of charge. These reports
include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is
provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. You can also read and
copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional
information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website
(http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC,
including us.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before
purchasing our common stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties
may also impair our business operations. If any of the following risks actually occurs, our business, financial condition, results of operations or cash flows
would likely suffer. In that case, the trading price of our common stock could fall, and you may lose all or part of your investment in our common stock.
Risks Related to Our Business
Our customers’ business operations have been, and continue to be, subject to business interruptions arising from the COVID‑19 pandemic. We
continue to monitor the situation, but there can be no assurance that the pandemic will not result in delays or possibly reductions in demand for our
solutions that could have a serious adverse effect on our business.
Many countries have imposed restrictions on travel and public assembly and closed schools and businesses in order to slow the spread of the SARS-
CoV-2 virus and associated COVID-19 disease. These governmental restrictions and related private sector responses have adversely affected the business
operations of some of our customers and resulted in a slowdown in closing some customer contracts and, to a lesser extent, a delay in customer payments in
the last four months of the fiscal year ended June 30, 2020. While the measures instituted in response to COVID‑19 are expected to be temporary, the
duration of the business disruptions and related operational and financial impact on our customers and us cannot be estimated with certainty at this time.
The adverse effects on the economies and financial markets of many countries and markets may result in an economic downturn and changes in global
economic policy that could reduce demand for our products and have a material adverse impact on our business, operating results and financial condition,
including on our ability to collect accounts receivable. Our business may also be harmed if our employees are not able to perform services for customers
on-site due to travel restrictions or facility closings.
If we fail to increase usage and product adoption of our aspenONE engineering and manufacturing and supply chain offerings and grow our
aspenONE APM business, or fail to continue to provide innovative, market-leading solutions, we may be unable to implement our growth strategy
successfully, and our business could be seriously harmed.
The maintenance and extension of our market leadership and our future growth is largely dependent upon our ability to increase usage and product
adoption of our aspenONE engineering and manufacturing and supply chain offerings and grow our aspenONE APM business, and to develop new
software products that achieve market acceptance with acceptable operating margins. Enterprises are requiring their application software vendors to
provide greater levels of functionality and broader product offerings. We must continue to enhance our current product line and develop and introduce new
products and services that keep pace with increasingly sophisticated customer requirements and the technological developments of our competitors. Our
business and operating results could suffer if we cannot successfully execute our strategy and drive usage and product adoption.
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We have implemented a product strategy that unifies our software solutions under the aspenONE brand with differentiated aspenONE vertical
solutions targeted at specific capital-intensive industries. We cannot ensure that our product strategy will result in products that will continue to meet
market needs and achieve significant usage and product adoption. If we fail to increase usage and product adoption or fail to develop or acquire new
software products that meet the demands of our customers or our target markets, our operating results and cash flows from operations will grow at a slower
rate than we anticipate and our financial condition could suffer.
Our business could suffer if we do not grow our aspenONE APM business or if the demand for, or usage of, our other aspenONE software declines for
any reason, including declines due to adverse changes in the process and other capital-intensive industries.
We have introduced the aspenONE APM suite, and our aspenONE engineering and manufacturing and supply chain suites account for a significant
majority of our revenue and will continue to do so for the foreseeable future. If we do not grow our aspenONE APM business or if demand for, or usage of,
our other suites declines for any reason, our operating results, cash flows from operations and financial position would suffer. Our business could be
adversely affected by:
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insufficient growth in our aspenONE APM business;
any decline in demand for or usage of our aspenONE suites;
the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our aspenONE
suites;
technological innovations that our aspenONE suites do not address;
our inability to release enhanced versions of our aspenONE suites on a timely basis; and
adverse changes in capital intensive industries or otherwise that lead to reductions, postponements or cancellations of customer purchases of our
products and services, or delays in the execution of license agreement renewals in the same quarter in which the original agreements expire.
Because of the nature of their products and manufacturing processes and their global operations, companies in the process and other capital-intensive
industries are subject to risk of adverse or even catastrophic environmental, safety and health accidents or incidents and are often subject to changing
standards and regulations worldwide.
In addition, worldwide economic downturns and pricing pressures experienced by energy, chemical, engineering and construction, and other capital-
intensive industries have led to consolidations and reorganizations. In particular, we believe that the drop in demand for oil due to the COVID-19
pandemic, compounded by the excess supply arising from producers’ failure to agree on production cuts, impacted and may continue to impact the
operating levels and capital spending of certain of our customers. This has resulted in, and could continue to result in, less predictable and lower demand
for our products and services. Any such adverse environmental, safety or health incident, change in regulatory standards, or economic downturn that affects
the capital-intensive industries, including continued challenges and uncertainty among customers whose business is adversely affected by volatility in oil
prices, a shift to a greater percentage of renewable energy sources such as wind and solar, as well as general domestic and foreign economic conditions and
other factors that reduce spending by companies in these industries, could harm our operating results in the future.
Unfavorable economic and market conditions or a lessening demand in the market for asset optimization software could adversely affect our operating
results.
Our business is influenced by a range of factors that are beyond our control and difficult or impossible to predict. If the market for asset optimization
software grows more slowly than we anticipate, demand for our products and services could decline and our operating results could be impaired. Further,
the state of the global economy may deteriorate in the future. Our operating results may be adversely affected by unfavorable global economic and market
conditions, including the significant drop in oil prices arising from producers’ failure to agree on production cuts and a drop in demand due to the COVID-
19 pandemic, as well as a lessening demand for asset optimization software generally.
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Customer demand for our products is linked to the strength of the global economy. If weakness in the global economy persists, many customers,
including those whose businesses are negatively impacted by lower oil prices, or the COVID-19 pandemic generally, may delay or reduce technology
purchases. This could result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies, increased price competition or
reduced use of our products by our customers. We will lose revenue if demand for our products is reduced because potential customers experience weak or
deteriorating economic conditions, catastrophic environmental or other events, and our business, results of operations, financial condition and cash flow
from operations would likely be adversely affected.
The majority of our revenue is attributable to operations outside the United States, and our operating results therefore may be materially affected by the
economic, political, military, regulatory and other risks of foreign operations or of transacting business with customers outside the United States.
As of June 30, 2020, we operated in 33 countries. We sell our products primarily through a direct sales force located throughout the world. In the
event that we are unable to adequately staff and maintain our foreign operations, we could face difficulties managing our international operations.
Customers outside the United States accounted for the majority of our total revenue during the fiscal years ended June 30, 2020, 2019 and 2018. We
anticipate that revenue from customers outside the United States will continue to account for a significant portion of our total revenue for the foreseeable
future. Our operating results attributable to operations outside the United States are subject to additional risks, including:
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unexpected changes in regulatory or environmental requirements, tariffs and other barriers, including, for example, international trade disputes,
changes in climate regulations, sanctions or other regulatory restrictions imposed by the United States or foreign governments; and the effects of
the United Kingdom European Union membership referendum in June 2016 and the subsequent withdrawal process initiated in March 2017;
pursuant to which the United Kingdom ceases to be a European Union member;
less effective protection of intellectual property;
requirements of foreign laws and other governmental controls;
delays in the execution of license agreement renewals in the same quarter in which the original agreements expire;
difficulties in collecting trade accounts receivable in other countries;
adverse tax consequences; and
the challenges of managing legal disputes in foreign jurisdictions.
Fluctuations in foreign currency exchange rates could result in declines in our reported revenue and operating results.
During fiscal 2020, 2019 and 2018, 6.6%, 10.1% and 9.0% of our total revenue was denominated in a currency other than the U.S. dollar,
respectively. In addition, certain of our operating expenses incurred outside the United States are denominated in currencies other than the U.S. dollar. Our
reported revenue and operating results are subject to fluctuations in foreign exchange rates. Foreign currency risk arises primarily from the net difference
between non-U.S. dollar receipts from customers outside the United States and non-U.S. dollar operating expenses for subsidiaries in foreign countries.
Currently, our largest exposures to foreign exchange rates exist primarily with the Euro, Pound Sterling, Canadian Dollar, Japanese Yen, and Russian Ruble
against the U.S. dollar. During fiscal 2020, 2019 and 2018, we did not enter into, and were not a party to any, derivative financial instruments, such as
forward currency exchange contracts, intended to manage the volatility of these market risks. We cannot predict the impact of foreign currency fluctuations,
and foreign currency fluctuations in the future may adversely affect our revenue and operating results. Any hedging policies we may implement in the
future may not be successful, and the cost of those hedging techniques may have a significant negative impact on our operating results.
Competition from software offered by current competitors and new market entrants, as well as from internally developed solutions by our customers,
could adversely affect our ability to sell our software products and related services and could result in pressure to price our products in a manner that
reduces our margins.
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Our markets in general are competitive and differ among our principal product areas: engineering, manufacturing, supply chain management and
asset performance management. We face challenges in selling our solutions to large companies that have internally developed their own proprietary
software solutions, and we face competition from well-established vendors as well as new entrants in our markets. Many of our current and potential
competitors have greater financial, technical, marketing, service and other resources than we have. As a result, these companies may be able to offer lower
prices, additional products or services, or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond more
quickly to new technologies and may be able to undertake more extensive marketing campaigns. We believe they also have adopted and may continue to
pursue more aggressive pricing policies and make more attractive offers to potential customers, employees and strategic partners. For example, some
competitors may be able to initiate relationships through sales and installations of hardware and then seek to expand their customer relationships by
offering asset optimization software at a discount. In addition, many of our competitors have established, and may in the future continue to establish,
cooperative relationships with third parties to improve their product offerings and to increase the availability of their products in the marketplace.
Competitors with greater financial resources may make strategic acquisitions to increase their ability to gain market share or improve the quality or
marketability of their products.
Competition could seriously impede our ability to sell additional software products and related services on terms favorable to us. Businesses may
continue to enhance their internally developed solutions, rather than investing in commercial software such as ours. Our current and potential commercial
competitors may develop and market new technologies that render our existing or future products obsolete, unmarketable or less competitive. In addition, if
these competitors develop products with similar or superior functionality to our products, we may need to decrease the prices for our products in order to
remain competitive. If we are unable to maintain our current pricing due to competitive pressures, our margins will be reduced and our operating results
will be negatively affected. We cannot ensure that we will be able to compete successfully against current or future competitors or that competitive
pressures will not materially adversely affect our business, financial condition and operating results.
Defects or errors in our software products could harm our reputation, impair our ability to sell our products and result in significant costs to us.
Our software products are complex and may contain undetected defects or errors. We have not suffered significant harm from any defects or errors to
date, but we have from time to time found defects in our products and we may discover additional defects in the future. We may not be able to detect and
correct defects or errors before releasing products. Consequently, we or our customers may discover defects or errors after our products have been
implemented. We have in the past issued, and may in the future need to issue, corrective releases of our products to remedy defects or errors. The
occurrence of any defects or errors could result in:
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lost or delayed market acceptance and sales of our products;
delays in payment to us by customers;
product returns;
injury to our reputation;
diversion of our resources;
increased service and warranty expenses or financial concessions;
increased insurance costs; and
legal claims, including product liability claims.
Defects and errors in our software products could result in claims for substantial damages against us.
Potential acquisitions could be difficult to consummate and integrate into our operations, and they and investment transactions could disrupt our
business, dilute stockholder value or impair our financial results.
As part of our business strategy, we may continue from time to time to seek to grow our business through acquisitions of or investments in new or
complementary businesses, technologies or products that we believe can improve our ability to compete in our existing customer markets or allow us to
enter new markets. The potential risks associated with acquisitions and investment transactions include, but are not limited to:
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failure to realize anticipated returns on investment, cost savings and synergies;
difficulty in assimilating the operations, policies and personnel of the acquired company;
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unanticipated costs associated with acquisitions;
challenges in combining product offerings and entering into new markets in which we may not have experience;
distraction of management’s attention from normal business operations;
potential loss of key employees of the acquired company;
difficulty implementing effective internal controls over financial reporting and disclosure controls and procedures;
impairment of relationships with customers or suppliers;
possibility of incurring impairment losses related to goodwill and intangible assets; and
other issues not discovered in due diligence, which may include product quality issues or legal or other contingencies
Acquisitions and/or investments may also result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities,
the expenditure of available cash, and amortization expenses or write-downs related to intangible assets such as goodwill, any of which could have a
material adverse effect on our operating results or financial condition. Investments in immature businesses with unproven track records and technologies
have an especially high degree of risk, with the possibility that we may lose our entire investment or incur unexpected liabilities. We may experience risks
relating to the challenges and costs of closing a business combination or investment transaction and the risk that an announced business combination or
investment transaction may not close. There can be no assurance that we will be successful in making additional acquisitions in the future or in integrating
or executing on our business plan for existing or future acquisitions.
We may be subject to significant expenses and damages because of product-related claims.
In the ordinary course of business, we are, from time to time, involved in lawsuits, claims, investigations, proceedings and threats of litigation. The
amount of damages cannot be predicted with certainty, and a successful claim brought against us could materially harm our business and financial
condition. Product-related claims, even if not successful, could damage our reputation, cause us to lose existing clients, limit our ability to obtain new
clients, divert management's attention from operations, result in significant revenue loss, create potential liabilities for our clients and us, and increase
insurance and other operational costs.
Claims that we infringe the intellectual property rights of others may be costly to defend or settle and could damage our business.
We cannot be certain that our software and services do not infringe patents, copyrights, trademarks or other intellectual property rights, so
infringement claims might be asserted against us. In addition, we have agreed, and may agree in the future, to indemnify certain of our customers against
infringement claims that third parties may assert against our customers based on use of our software or services. Such claims may have a material adverse
effect on our business, may be time-consuming and may result in substantial costs and diversion of resources, including our management's attention to our
business. Furthermore, a party making an infringement claim could secure a judgment that requires us to pay substantial damages and could also include an
injunction or other court order that could prevent us from selling our software or require that we re-engineer some or all of our products. Claims of
intellectual property infringement also might require us to enter costly royalty or license agreements. We may be unable to obtain royalty or license
agreements on terms acceptable to us or at all. Our business, operating results and financial condition could be harmed significantly if any of these events
were to occur, and the price of our common stock could be adversely affected.
We may not be able to protect our intellectual property rights, which could make us less competitive and cause us to lose market share.
Our software is proprietary. Our strategy is to rely on a combination of copyright, patent, trademark and trade secret laws in the United States and
other jurisdictions, and to rely on license and confidentiality agreements and software security measures to further protect our proprietary technology and
brand. We have obtained or applied for patent protection with respect to some of our intellectual property, but generally do not rely on patents as a principal
means of protecting our intellectual property. We have registered or applied to register some of our trademarks in the United States and in selected other
countries. We generally enter into non-disclosure agreements with our employees and customers, and historically have restricted third-party access to our
software and source code, which we regard as proprietary information. In certain cases, we have provided copies of source code to customers for the
purpose of special product customization or have deposited copies of the source code with a third-party escrow agent as security for ongoing service and
license obligations. In these cases, we rely on non-disclosure and other contractual provisions to protect our proprietary rights.
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The steps we have taken to protect our proprietary rights may not be adequate to deter misappropriation of our technology or independent
development by others of technologies that are substantially equivalent or superior to our technology. Our intellectual property rights may expire or be
challenged, invalidated or infringed upon by third parties or we may be unable to maintain, renew or enter into new licenses on commercially reasonable
terms. Any misappropriation of our technology or development of competitive technologies could harm our business and could diminish or cause us to lose
the competitive advantages associated with our proprietary technology, and could subject us to substantial costs in protecting and enforcing our intellectual
property rights, and/or temporarily or permanently disrupt our sales and marketing of the affected products or services. The laws of some countries in
which our products are licensed do not protect our intellectual property rights to the same extent as the laws of the United States. Moreover, in some non-
U.S. countries, laws affecting intellectual property rights are uncertain in their application, which can affect the scope of enforceability of our intellectual
property rights.
Our software research and development initiatives and our customer relationships could be compromised if the security of our information technology
is breached as a result of a cyber-attack. This could have a material adverse effect on our business, operating results and financial condition, and could
harm our competitive position.
We devote significant resources to continually updating our software and developing new products, and our financial performance is dependent in
part upon our ability to bring new products and services to market. Our customers use our software to optimize their manufacturing processes and manage
asset performance, and they rely on us to provide updates and releases as part of our software maintenance and support services, and to provide remote on-
line troubleshooting support. The security of our information technology environment is therefore important to our research and development initiatives,
and an important consideration in our customers’ purchasing decisions. We maintain cybersecurity policies and procedures, including employee training, to
manage risk to our information systems, and we continually evaluate and adapt our systems and processes to mitigate evolving cybersecurity threats. We
may incur additional costs to maintain appropriate cybersecurity protections in response to evolving cybersecurity threats, and we may not be able to
safeguard against all data security breaches or misuses of data. If the security of our systems is impaired, our development initiatives might be disrupted,
and we might be unable to provide service. Our customer relationships might deteriorate, our reputation in the industry could be harmed, and we could be
subject to liability claims. This could reduce our revenues, and expose us to significant costs to detect, correct and avoid recurrences of any breach of
security and to defend any claims against us. In addition, our insurance coverage may not be adequate to cover all costs related to cybersecurity incidents
and the disruptions resulting from such events.
Risks Related to Our Common Stock
Our common stock may experience substantial price and volume fluctuations.
The equity markets have from time to time experienced extreme price and volume fluctuations, particularly in the high technology sector, and those
fluctuations often have been unrelated to the operating performance of particular companies. In addition, the market price of our common stock may be
affected by other factors, such as: (i) our financial performance; (ii) announcements of technological innovations or new products by us or our competitors;
and (iii) market conditions in the computer software or hardware industries.
In the past, following periods of volatility in the market price of a public company's securities, securities class action litigation has often been
instituted against that company. This type of litigation against us could result in substantial liability and costs and divert management's attention and
resources.
Our corporate documents and provisions of Delaware law may prevent a change in control or management that stockholders may consider desirable.
Section 203 of the Delaware General Corporation Law, our charter and our by-laws contain provisions that might enable our management to resist a
takeover of our company. These provisions include:
•
•
•
•
•
•
limitations on the removal of directors;
a classified board of directors, so that not all members of the board are elected at one time;
advance notice requirements for stockholder proposals and nominations;
the inability of stockholders to act by written consent or to call special meetings;
the ability of the board to make, alter or repeal our by-laws; and
the ability of the board to designate the terms of and issue new series of preferred stock without stockholder approval.
These provisions could:
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•
•
•
have the effect of delaying, deferring or preventing a change in control of our company or a change in our management that stockholders may
consider favorable or beneficial;
discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions; and
limit the price that investors might be willing to pay in the future for shares of our common stock.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive offices are located in leased facilities in Bedford, Massachusetts, consisting of approximately 143,000 square feet of office
space to accommodate our product development, sales, marketing, operations, finance and administrative functions. The lease for our Bedford executive
offices commenced in November 2014 and is scheduled to expire March 2025. Subject to the terms and conditions of the lease, we may extend the term of
the lease for two successive terms of five years each.
We also lease approximately 69,000 square feet in Houston, Texas to accommodate sales, services and product development functions. In addition to
our Bedford and Houston locations, we lease office space in the United Kingdom, Shanghai, Mexico City, Singapore, Beijing, Pune, Moscow, Tokyo, and
Bahrain, to accommodate sales, services and product development functions.
In the remainder of our other locations, the majority of our leases have lease terms of one year or less that are generally based on the number of
workstations required. We believe this facilities strategy provides us with significant flexibility to adjust to changes in our business environment. We do not
own any real property. We believe that our leased facilities are adequate for our anticipated future needs.
Item 3. Legal Proceedings.
None.
Item 4. Mine Safety Disclosures
None.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock currently trades on The NASDAQ Global Select Market under the symbol "AZPN." The closing price of our common stock on
June 30, 2020 was $103.61.
Holders
On November 25, 2020, there were 319 holders of record of our common stock. The number of record holders does not include persons who held
common stock in nominee or "street name" accounts through brokers.
Dividends
We have never declared or paid cash dividends on our common stock. We do not anticipate paying cash dividends on our common stock in the
foreseeable future. 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 with the same lenders (the “Prior Credit Agreement”), provides for a $200.0 million
secured revolving credit facility and a $320.0 million secured term loan facility. The Amended and Restated Credit Agreement restricts us from declaring
or paying dividends in cash on our capital stock if our Leverage Ratio is in excess of 2.75 to 1.00 (refer to “Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital Resources - Credit Agreement” and Note 12, "Credit Agreement," to our
Consolidated Financial Statements for further discussion of the Amended and Restated Credit Agreement). Our Leverage Ratio is below 2.75 to 1.00 as of
June 30, 2020. Any future determination relating to our dividend policy will be made at the discretion of the Board of Directors and will depend on a
number of factors, including our future earnings, capital requirements, financial condition and future prospects and such other factors as the Board of
Directors may deem relevant.
Purchases of Equity Securities by the Issuer
As of June 30, 2020, the total number of shares of common stock repurchased since November 1, 2010 under all programs approved by the Board of
Directors was 36,270,015 shares.
On January 22, 2015, our Board of Directors approved a share repurchase program (the "Share Repurchase Program") for up to $450.0 million worth
of our common stock. On April 26, 2016, June 8, 2017, April 18, 2018, December 6, 2018, and April 17, 2019, the Board of Directors approved a $400.0
million, $200.0 million, $200.0 million, $100.0 million, and $200.0 million increase in the Share Repurchase Program, respectively. On July 22, 2020, our
Board of Directors approved a new share repurchase program (the "New Share Repurchase Program") for up to $200.0 million worth of our common stock,
and terminated the Share Repurchase Program. Under the New Share Repurchase Program, purchases can be made from time to time using a variety of
methods, which may include open market purchases, accelerated buyback programs, and others. The specific timing, price and size of purchases will
depend on prevailing stock prices, general market and economic conditions, and other considerations, including the amount of cash generated in the United
States and other potential uses of cash, such as acquisitions. Purchases may be made through a Rule 10b5-1 plan pursuant to predetermined metrics set
forth in such plan. The Board of Directors' authorization of the New Share Repurchase Program does not obligate us to acquire any particular amount of
common stock, and the program may be suspended or discontinued at any time.
During the first nine months of fiscal 2020, we repurchased 1,252,289 shares of our common stock in the open market for $150.0 million. We did not
repurchase shares of our common stock during the fourth quarter of fiscal 2020. During fiscal 2019, we repurchased 3,074,127 shares of our common stock
in the open market for $300.0 million. During fiscal 2018, we repurchased 2,797,623 shares of our common stock in the open market for $200.0 million.
As of June 30, 2020, the total remaining value under the Share Repurchase Program was approximately $196.3 million.
Item 6. Selected Financial Data.
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The following tables present selected consolidated financial data for Aspen Technology, Inc. The consolidated statements of operations data set forth
below for fiscal 2020, 2019 and 2018 and the consolidated balance sheets data as of June 30, 2020 and 2019, are derived from our consolidated financial
statements included beginning on page F-1 of this Form 10-K. The consolidated statements of operations data for fiscal 2017 and 2016 and the
consolidated balance sheet data as of June 30, 2018, 2017, and 2016 are derived from our consolidated financial statements that are not included in this
Form 10-K. The data presented below should be read in conjunction with our consolidated financial statements and accompanying notes beginning on
page F-1 and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Our historical results should not be viewed as indicative of results expected for any future period.
As a result of the adoption of new guidance related to revenue recognition during fiscal 2019, prior period information for fiscal 2018 and 2017
included below has been restated to reflect the new guidance. Prior period information for fiscal 2016 has not been restated and is, therefore, not
comparable to the fiscal 2020, 2019, 2018, and 2017 information. In addition, we have revised the following table for immaterial error corrections
discussed in Note 20, "Correction of Immaterial Errors," to our Consolidated Financial Statements.
Consolidated Statements of Operations Data:
Revenue
Gross profit
Income from operations
Net income
Basic income per share
Diluted income per share
Weighted average shares outstanding—Basic
Weighted average shares outstanding—Diluted
Consolidated Balance Sheet Data:
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Installments receivable, net
Contract assets
Total assets
Borrowings, net
Deferred revenue
Working capital (deficit)
Total stockholders' equity (deficit)
2020
2019
2018
2017
2016
Year Ended June 30,
As Adjusted
As Adjusted
As Adjusted
(in Thousands, except per share data)
$
$
$
$
598,717 $
596,682 $
507,566 $
483,395 $
537,110
257,359
538,866
281,139
456,922
207,928
435,929
205,687
229,671 $
261,362 $
281,234 $
173,063 $
3.38 $
3.34 $
68,000
68,727
3.74 $
3.69 $
69,925
70,787
3.90 $
3.85 $
72,140
72,956
2.26 $
2.25 $
76,491
76,978
472,344
423,733
211,381
139,951
1.69
1.68
82,892
83,309
2020
2019
2018
2017
2016
Year Ended June 30,
As Adjusted
As Adjusted
As Adjusted
(in Thousands)
$
287,796 $
71,926 $
96,165 $
101,954 $
318,336
—
56,301
—
610,473
1,223,306
427,532
57,081
415,942
466,353
—
47,784
—
582,291
863,013
220,000
44,891
105,645
361,960
—
41,810
—
521,627
814,453
170,000
27,504
155,389
377,974
—
42,656
—
536,559
816,730
140,000
44,860
213,150
268,759
3,006
20,476
267
—
419,738
140,000
282,078
(71,300)
(75,034)
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion in conjunction with our consolidated financial statements and related notes beginning on page F-1. In
addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should read “Item 1A. Risk
Factors” for a discussion of important factors that could cause our actual results to differ materially from our expectations.
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Our fiscal year ends on June 30, and references to a specific fiscal year are the twelve months ended June 30 of such year (for example, "fiscal 2020"
refers to the year ended June 30, 2020).
Business Overview
We are a global leader in asset optimization software that optimizes asset design, operations and maintenance in complex, industrial environments.
We combine decades of process modeling and operations expertise with big data, artificial intelligence, and advanced analytics. Our purpose-built software
improves the competitiveness and profitability of our customers by increasing throughput, energy efficiency, and production levels, reducing unplanned
downtime, plant emissions, and safety risks, enhancing capital efficiency, and decreasing working capital requirements over the entire asset lifecycle to
support operational excellence.
Our software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domain
expertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 35 years. We have developed our
applications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain, and asset performance
management. We are a recognized market and technology leader in providing process optimization and asset performance management software for each of
these business areas.
We have established sustainable competitive advantages based on the following strengths:
•
Innovative products that can enhance our customers' profitability and productivity;
• Long-term customer relationships;
• Large installed base of users of our software; and
• Long-term license contracts.
We have approximately 2,400 customers globally. Our customers consist of companies engaged in the process and other capital-intensive industries
such as energy, chemicals, engineering and construction, as well as pharmaceuticals, food and beverage, transportation, power, metals and mining, pulp and
paper, and consumer packaged goods.
Business Segments
We have two operating and reportable segments, which are consistent with our reporting units: (i) subscription and software and (ii) services and
other. The subscription and software segment is engaged in the licensing of process optimization and asset performance management software solutions
and associated support services, and includes our license and maintenance revenue. The services and other segment includes professional services and
training, and includes our services and other revenue.
Recent Events
In December 2019, the novel SARS-CoV-2 virus and associated COVID 19 disease (“COVID-19”) were reported in China, and in March 2020 the
World Health Organization declared a pandemic. Since the beginning of March 2020, the sudden decrease in demand for oil due to the COVID-19
pandemic, compounded by the excess supply arising from producers’ failure to agree on production cuts, resulted in a drop in oil prices. During fiscal
2020, our business was negatively impacted by these factors. Specifically, in the last four months of the fiscal year, we saw a slowdown in closing customer
contracts, a slight increase in our customer attrition rate due to non-renewals and renewals at lower entitlement level and, to a lesser extent, a slowdown in
customer payments. We are continuing to assess the impact of these items on global markets and the various industries of our customers. The extent of the
impact on our operational and financial performance going forward will depend on developments such as the duration and spread of the pandemic and
other factors affecting oil prices, the impact of these items on our customers and our sales cycles, as well as on our employees, all of which are uncertain
and cannot be predicted. We are continuing to monitor the potential impacts related to the current disruption of COVID-19 and uncertainty in the global
markets on the various industries of our customers. These factors could potentially impact the signing of new agreements, as well as the recoverability of
assets, including accounts receivable and contract costs.
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Key Components of Operations
Revenue
We generate revenue primarily from the following sources:
License Revenue. We sell our software products to end users, primarily under fixed-term licenses, through a subscription offering which we refer to as
our aspenONE licensing model. The aspenONE licensing model 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. The aspenONE licensing model provides customers with access to all of the products within the aspenONE suite(s) they license. Customers
can change or alternate the use of multiple products in a licensed suite through the use of exchangeable units of measurement, called tokens, licensed in
quantities determined by the customer. This licensing system enables customers to use products as needed and to experiment with different products to best
solve whatever critical business challenges they face. Customers can increase their usage of our software by purchasing additional tokens as business needs
evolve.
We also license our software through point product arrangements with our Premier Plus SMS offering included for the contract term.
Maintenance Revenue. We provide customers technical support, access to software fixes and updates and the right to any new unspecified future
software products and updates that may be introduced into the licensed aspenONE software suite. Our technical support services are provided from our
customer support centers throughout the world, as well as via email and through our support website.
Services and Other Revenue. We provide training and professional services to our customers. Our professional services are focused on implementing
our technology in order to improve customers' plant performance and gain better operational data. Customers who use our professional services typically
engage us to provide those services over periods of up to 24 months. We charge customers for professional services on a time-and-materials or fixed-price
basis. We provide training services to our customers, including on-site, Internet-based and customized training.
Cost of Revenue
Cost of License. Our cost of license revenue consists of (i) royalties, (ii) amortization of capitalized software and intangibles, and (iii) distribution
fees.
Cost of Maintenance. Our cost of maintenance revenue consists primarily of personnel-related costs of providing Premier Plus SMS bundled with our
aspenONE licensing and point product arrangements.
Cost of Services and Other. Our cost of services and other revenue consists primarily of personnel-related and external consultant costs associated
with providing customers professional services and training.
Operating Expenses
Selling and Marketing Expenses. Selling expenses consist primarily of the personnel and travel expenses related to the effort expended to license our
products and services to current and potential customers, as well as for overall management of customer relationships. Marketing expenses include
expenses needed to promote our company and our products and to conduct market research to help us better understand our customers and their business
needs.
Research and Development Expenses. Research and development expenses consist primarily of personnel expenses related to the creation of new
software products, enhancements and engineering changes to existing products.
General and Administrative Expenses. General and administrative expenses include the costs of corporate and support functions, such as executive
leadership and administration groups, finance, legal, human resources and corporate communications, and other costs, such as outside professional and
consultant fees, amortization of intangibles, and provision for bad debts.
Other Income and Expenses
Interest Income. Interest income is recorded for financing components under Accounting Standards Update ("ASU") No. 2014-09, Revenue from
Contracts with Customers ("Topic 606"). When a contract includes a significant financing component, we generally receive the majority of the customer
consideration after the recognition of a substantial portion of the arrangement fee as license revenue. As a result, we decrease the amount of revenue
recognized and increase interest income by a corresponding amount. Interest income also includes the accretion of interest on investments in short-term
money market instruments.
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Interest Expense. Interest expense is primarily related to our Amended and Restated Credit Agreement.
Other (Expense) Income, Net. Other (expense) income, net is comprised primarily of foreign currency exchange gains (losses) generated from the
settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units.
Provision for Income Taxes. Provision for income taxes is comprised of domestic and foreign taxes. We record interest and penalties related to
income tax matters as a component of income tax expense. Our effective income tax rate may fluctuate between fiscal years and from quarter to quarter due
to items arising from discrete events, such as tax benefits from the disposition of employee equity awards, settlements of tax audits and assessments and tax
law changes. Our effective income tax rate is also impacted by, and may fluctuate in any given period because of, the composition of income in foreign
jurisdictions where tax rates differ.
Key Business Metrics
Background
We utilize key business measures to track and assess the performance of our business. We have identified the following set of appropriate business
metrics in the context of our evolving business:
•
•
•
Annual spend
Total contract value
Bookings
We also use the following non-GAAP business metrics in addition to GAAP measures to track our business performance:
•
•
Free cash flow
Non-GAAP operating income
We make these measures available to investors and none of these metrics should be considered as an alternative to any measure of financial
performance calculated in accordance with GAAP.
Annual Spend
Annual spend is an estimate of the annualized value of our portfolio of term license agreements, as of a specific date. Annual spend is calculated by
summing the most recent annual invoice value of each of our active term license agreements. Annual spend also includes the annualized value of
standalone SMS agreements purchased with certain legacy term license agreements, which have become an immaterial part of our business.
Comparing annual spend for different dates can provide insight into the growth and retention rates of our business, because annual spend represents
the estimated annualized billings associated with our active term license agreements. Management utilizes the annual spend business metric to evaluate the
growth and performance of our business as well as for planning and forecasting. In addition, our corporate and executive bonus programs are based in part
on the company’s success in meeting targets for growth in annual spend that are approved by our board. We believe that annual spend is a useful business
metric to investors as it provides insight into the growth component of our term licenses and to how management evaluates and forecasts the business.
Annual spend increases as a result of new term license agreements with new or existing customers, renewals or modifications of existing term license
agreements that result in higher license fees due to contractually-agreed price escalation or an increase in the number of tokens (units of software usage) or
products licensed, and escalation of annual payments in our active term license agreements.
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Annual spend is adversely affected by term license and standalone SMS agreements that are renewed at a lower entitlement level or not renewed and,
to a lesser extent, by customer agreements that become inactive during the agreement’s term because, in our determination, amounts due (or which will
become due) under the agreement are not collectible. Because the annual spend calculation includes all of our active term license agreements, the reported
balance may include agreements with customers that are delinquent in paying invoices, that are in bankruptcy proceedings, or where payment is otherwise
in doubt.
As of June 30, 2020, approximately 90% of our term license agreements (by value) are denominated in U.S. dollars. For agreements denominated in
other currencies, the company uses a fixed historical exchange rate to calculate annual spend in dollars rather than using current exchange rates, so that our
calculation of growth in annual spend is not affected by fluctuations in foreign currencies.
Beginning in fiscal 2019 and for all future periods, for term license agreements that contain professional services or other products and services, we
have included in the annual spend calculation the portion of the invoice allocable to the term license under Topic 606 rather than the portion of the invoice
attributed to the license in the agreement. We believe that methodology more accurately allocates any discounts or premiums to the different elements of
the agreement. We have not applied this methodology retroactively for agreements entered into in prior fiscal years.
We estimate that annual spend grew by approximately 9.6% during fiscal 2020, from $541.0 million as of June 30, 2019 to $593.1 million as of
June 30, 2020. We estimate that annual spend grew by approximately 10.6% during fiscal 2019, from $489.3 million as of June 30, 2018 to $541.0 million
as of June 30, 2019.
Total Contract Value
Total Contract Value ("TCV") is the aggregate value of all payments received or to be received under all active term license agreements, including
maintenance and escalation. TCV was $2.8 billion and $2.6 billion as of June 30, 2020 and 2019, respectively.
Bookings
Bookings is the total value of customer term license contracts signed in the current period, less the value of such contracts signed in the current period
where the initial licenses are not yet deemed delivered, plus term license contracts signed in a previous period for which the initial licenses are deemed
delivered in the current period.
Bookings was $610.1 million during fiscal 2020, compared to $651.8 million and $502.3 million during fiscal 2019 and 2018, respectively. The change
in bookings during fiscal 2020, 2019, and 2018 is related to the timing of renewals.
Free Cash Flow
We use a non-GAAP measure of free cash flow to analyze cash flows generated from our operations. Management believes that this financial measure
is useful to investors because it permits investors to view our performance using the same tools that management uses to gauge progress in achieving our
goals. We believe this measure is also useful to investors because it is an indication of cash flow that may be available to fund investments in future growth
initiatives or to repay borrowings under the Amended and Restated Credit Agreement, and it is a basis for comparing our performance with that of our
competitors. The presentation of free cash flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities as a
measure of liquidity.
Free cash flow is calculated as net cash provided by operating activities adjusted for the net impact of (a) purchases of property, equipment and
leasehold improvements, (b) payments for capitalized computer software costs, (c) non-capitalized acquired technology, and (d) other nonrecurring items,
such as acquisition and litigation related payments.
The following table provides a reconciliation of GAAP cash flow from operating activities to free cash flow for the indicated periods:
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2020
June 30,
2019
(Dollars in Thousands)
2018
Net cash provided by operating activities (GAAP)
$
243,258 $
238,313 $
206,936
Purchase of property, equipment, and leasehold improvements
Payments for capitalized computer software costs
Non-capitalized acquired technology
Litigation related payments
Acquisition related payments
Free cash flow (non-GAAP)
(1,278)
(141)
—
—
1,264
(436)
(1,131)
—
—
27
(331)
(329)
75
4,546
1,148
$
243,103 $
236,773 $
212,045
In fiscal 2018 we have excluded litigation related payments of $4.5 million.
Fiscal 2020 Compared to Fiscal 2019
Total free cash flow increased $6.3 million during fiscal 2020 as compared to the prior fiscal year primarily due to changes in working capital. For a
more detailed description of these changes refer to "Liquidity and Capital Resources."
Fiscal 2019 Compared to Fiscal 2018
Total free cash flow increased $24.7 million during fiscal 2019 as compared to the prior fiscal year primarily due to changes in working capital. For a
more detailed description of these changes refer to "Liquidity and Capital Resources."
Non-GAAP Income from Operations
Non-GAAP income from operations excludes certain non-cash and non-recurring expenses, and is used as a supplement to income from operations
presented on a GAAP basis. We believe that non-GAAP income from operations is a useful financial measure because removing certain non-cash and other
items provides additional insight into recurring profitability and cash flow from operations.
The following table presents our income from operations, as adjusted for stock-based compensation expense, amortization of intangibles, and other
items, such as the impact of litigation judgments and acquisition related fees, for the indicated periods:
2020
June 30,
2019
2020 Compared to 2019
2019 Compared to 2018
2018
$
%
$
%
As Adjusted
As Adjusted
GAAP income from operations
$
257,359 $
281,139 $
207,928 $
(23,780)
(8.5)% $
73,211
35.2 %
Plus:
Stock-based compensation
Amortization of intangibles
Litigation judgment
Acquisition related fees
31,548
6,572
—
78
27,573
4,533
—
1,438
22,688
2,231
1,689
721
3,975
2,039
—
(1,360)
14.4 %
45.0 %
— %
(94.6)%
4,885
2,302
(1,689)
717
Non-GAAP income from operations
$
295,557 $
314,683 $
235,257 $
(19,126)
(6.1)% $
79,426
In fiscal 2018, we incurred an expense associated with a litigation judgment in the amount of $1.7 million.
21.5 %
103.2 %
(100.0)%
99.4 %
33.8 %
Results of Operations
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The following table sets forth the results of operations, percentage of total revenue and the year-over-year percentage change in certain financial data
for fiscal 2020, 2019 and 2018:
2020
Year Ended June 30,
2019
As Adjusted
2018
As Adjusted
(Dollars in Thousands)
2020 Compared
to 2019 %
2019 Compared
to 2018 %
Revenue:
License
$ 388,180
64.8 % $ 404,581
67.8 % $ 318,442
62.7 %
(4.1)%
27.1 %
Maintenance
Services and other
178,139
32,398
29.8
5.4
163,567
28,534
27.4
4.8
158,838
30,286
31.3
6.0
Total revenue
598,717
100.0
596,682
100.0
507,566
100.0
Cost of revenue:
License
Maintenance
Services and other
Total cost of revenue
Gross profit
Operating expenses:
Selling and marketing
Research and development
General and administrative
Total operating
expenses
Income from operations
Interest income
Interest (expense)
Other income (expense), net
7,241
19,248
35,118
61,607
537,110
114,486
92,230
73,035
279,751
257,359
32,658
(11,862)
1,202
Income before income taxes
279,357
1.2
3.2
5.9
10.3
89.7
19.1
15.4
12.2
46.7
43.0
5.5
(2.0)
0.2
46.7
7,060
19,208
31,548
57,816
1.2
3.2
5.3
9.7
5,236
17,408
28,000
50,644
1.0
3.4
5.5
9.9
538,866
90.3
456,922
90.1
111,374
83,122
63,231
257,727
281,139
28,457
(8,733)
664
301,527
18.7
13.9
10.6
43.2
47.1
4.8
(1.5)
0.1
50.5
99,737
82,076
67,181
248,994
207,928
24,954
(5,691)
(838)
226,353
19.7
16.2
13.2
49.1
41.0
4.9
(1.1)
(0.2)
44.6
8.9
13.5
0.3
2.6
0.2
11.3
6.6
(0.3)
2.8
11.0
15.5
8.5
(8.5)
14.8
35.8
81.0
(7.4)
23.7
3.0
(5.8)
17.6
34.8
10.3
12.7
14.2
17.9
11.7
1.3
(5.9)
3.5
35.2
14.0
53.5
(179.2)
33.2
(173.2)
Provision for (benefit from)
income taxes
Net income
Revenue
49,686
8.3
40,165
6.7
(54,881)
(10.8)
$ 229,671
38.4 % $ 261,362
43.8 % $ 281,234
55.4 %
(12.1)%
(7.1)%
Fiscal 2020 Compared to Fiscal 2019
Total revenue increased by $2.0 million during fiscal 2020 as compared to the prior fiscal year. The increase of $2.0 million was due to an increase in
maintenance revenue of $14.6 million and an increase in services and other revenue of $3.9 million, partially offset by a decrease in license revenue of
$(16.4) million, as compared to the prior fiscal year.
Fiscal 2019 Compared to Fiscal 2018
Total revenue increased by $89.1 million during fiscal 2019 as compared to the prior fiscal year. The increase of $89.1 million was due to an increase
in license revenue of $86.1 million and an increase in maintenance revenue of $4.7 million, partially offset by a decrease in services and other revenue of
$(1.8) million as compared to the prior fiscal year.
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License Revenue
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
As Adjusted
As Adjusted
(Dollars in Thousands)
License revenue
$
388,180
$
404,581
$
318,442
$
(16,401)
(4.1)% $
86,139
27.1%
As a percent of total revenue
64.8%
67.8%
62.7%
Fiscal 2020 Compared to Fiscal 2019
The decrease in license revenue of $(16.4) million during fiscal 2020 as compared to the prior fiscal year was primarily attributable to a decrease in
bookings related to the timing of renewals.
Fiscal 2019 Compared to Fiscal 2018
The increase in license revenue of $86.1 million during fiscal 2019 as compared to the prior fiscal year was primarily due to an increase in bookings
and the timing of renewals.
Maintenance Revenue
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
As Adjusted
As Adjusted
(Dollars in Thousands)
Maintenance revenue
$
178,139
$
163,567
$
158,838
$
14,572
8.9% $
4,729
3.0%
As a percent of total revenue
29.8%
27.4%
31.3%
We expect maintenance revenue to increase as a result of: (i) having a larger base of arrangements recognized on a ratable basis; (ii) increased
customer usage of our software; (iii) adding new customers; and (iv) escalating annual payments.
Fiscal 2020 Compared to Fiscal 2019
The increase in maintenance revenue of $14.6 million during fiscal 2020 as compared to the prior fiscal year was primarily due to growth of our base
of arrangements, which include maintenance, being recognized on a ratable basis.
Fiscal 2019 Compared to Fiscal 2018
The increase in maintenance revenue of $4.7 million during fiscal 2019 as compared to the prior fiscal year was primarily due to growth of our base
of arrangements, which include maintenance, being recognized on a ratable basis.
Services and Other Revenue
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
As Adjusted
As Adjusted
(Dollars in Thousands)
Services and other revenue
$
32,398
$
28,534
$
30,286
$
3,864
13.5% $
(1,752)
(5.8)%
As a percent of total revenue
5.4%
4.8%
6.0%
We recognize professional services revenue for our time-and-materials ("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.
Fiscal 2020 Compared to Fiscal 2019
Services and other revenue increased by $3.9 million during fiscal 2020 as compared to the prior fiscal year primarily due to the timing and volume
of professional services engagements.
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Fiscal 2019 Compared to Fiscal 2018
Services and other revenue decreased by $(1.8) million during fiscal 2019 as compared to the prior fiscal year primarily due to the timing of
professional services engagements.
Cost of Revenue
Cost of License Revenue
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
(Dollars in Thousands)
Cost of license revenue
$
7,241
$
7,060
$
5,236
$
181
2.6% $
1,824
34.8%
As a percent of license revenue
1.9%
1.7%
1.6%
Fiscal 2020 Compared to Fiscal 2019
Cost of license revenue increased by $0.2 million during fiscal 2020 as compared to the prior fiscal year. The increase in cost of license revenue
during fiscal 2020 was primarily due to increased amortization of intangible assets from acquisitions. License gross profit margin was 98.1% in fiscal 2020
and was consistent with 98.3% in fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018
Cost of license revenue increased by $1.8 million during fiscal 2019 as compared to the prior fiscal year. The increase in cost of license revenue
during fiscal 2019 was primarily due to increased amortization of intangible assets from acquisitions. License gross profit margin was 98.3% in fiscal 2019
and was consistent with 98.4% in fiscal 2018.
Cost of Maintenance Revenue
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
(Dollars in Thousands)
Cost of maintenance revenue
$
19,248
$
19,208
$
17,408
$
40
0.2% $
1,800
10.3%
As a percent of maintenance
revenue
10.8%
11.7%
11.0%
Fiscal 2020 Compared to Fiscal 2019
Cost of maintenance revenue was consistent during fiscal 2020 as compared to the prior fiscal year. Maintenance gross profit margin was 89.2% in
fiscal 2020 and was consistent with 88.4% in fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018
Cost of maintenance revenue increased by $1.8 million during fiscal 2019 as compared to the prior fiscal year. The increase in cost of maintenance
revenue during fiscal 2019 was primarily due to higher headcount related costs. Maintenance gross profit margin was 88.4% in fiscal 2019 and was
consistent with 89.1% in fiscal 2018.
Cost of Services and Other Revenue
Cost of services and other
revenue
As a percent of services and
other revenue
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
(Dollars in Thousands)
$
35,118
$
31,548
$
28,000
$
3,570
11.3% $
3,548
12.7%
108.4%
110.6%
92.5%
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The timing of revenue and expense recognition on professional service arrangements can impact the comparability of cost and gross profit margin of
professional services revenue from year to year. For example, 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.
Fiscal 2020 Compared to Fiscal 2019
Cost of services and other revenue increased by $3.6 million during fiscal 2020 as compared to the prior fiscal year. The increase in cost of services
and other revenue during fiscal 2020 was primarily due to higher cost of delivering professional services to support the corresponding increase in revenue
during the period. Services and other gross profit margin was (10.8)% in fiscal 2020, compared to (16.2)% in fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018
Cost of services and other revenue increased by $3.5 million during fiscal 2019 as compared to the prior fiscal year. The increase in cost of services
and other revenue during fiscal 2019 was primarily due to higher cost of delivering professional services to support the corresponding increase in revenue
during the period. Services and other gross profit margin was (16.2)% in fiscal 2019, compared to 1.0% in fiscal 2018.
Gross Profit
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
As Adjusted
As Adjusted
(Dollars in Thousands)
Gross profit
$
537,110
$
538,866
$
456,922
$
(1,756)
(0.3)% $
81,944
17.9%
As a percent of total revenue
89.7%
90.3%
90.1%
For further discussion of subscription and software gross profit and services and other gross profit, please refer to the “Cost of License Revenue,"
"Cost of Maintenance Revenue," and “Cost of Services and Other Revenue” sections above.
Fiscal 2020 Compared to Fiscal 2019
Gross profit decreased by $(1.8) million during fiscal 2020 as compared to the prior fiscal year and gross profit margin remained consistent at 89.7%
in fiscal 2020 compared to 90.3% in fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018
Gross profit increased by $81.9 million during fiscal 2019 as compared to the prior fiscal year and gross profit margin remained consistent at 90.3%
in fiscal 2019 compared to 90.1% in fiscal 2018.
Operating Expenses
Selling and Marketing Expense
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
(Dollars in Thousands)
Selling and marketing expense
$
114,486
$
111,374
$
99,737
$
3,112
2.8% $
11,637
11.7%
As a percent of total revenue
19.1%
18.7%
19.7%
Fiscal 2020 Compared to Fiscal 2019
The year-over-year increase of $3.1 million in selling and marketing expense in fiscal 2020 as compared to the prior fiscal year was primarily due to
higher compensation costs of $6.9 million related to an increase in headcount and higher stock-based compensation of $1.0 million, partially offset by
lower travel-related costs of $1.8 million, lower royalties of $0.9 million, and lower marketing costs of $0.8 million due to our biennial customer
conference held in fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018
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The year-over-year increase of $11.6 million in selling and marketing expense in fiscal 2019 as compared to the prior fiscal year was primarily due to
higher compensation costs of $4.9 million related to an increase in headcount, higher commissions expense of $3.8 million, higher marketing costs of $1.2
million due to our biennial customer conference held in fiscal 2019, and higher stock-based compensation of $1.1 million.
Research and Development Expense
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
(Dollars in Thousands)
Research and development
expense
$
92,230
$
83,122
$
82,076
$
9,108
11.0% $
1,046
1.3%
As a percent of total revenue
15.4%
13.9%
16.2%
Fiscal 2020 Compared to Fiscal 2019
The year-over-year increase of $9.1 million in research and development expense in fiscal 2020 as compared to the prior fiscal year was primarily
due to higher compensation costs of $6.8 million related to an increase in headcount and higher stock-based compensation of $1.7 million.
Fiscal 2019 Compared to Fiscal 2018
The year-over-year increase of $1.0 million in research and development expense in fiscal 2019 was primarily due to higher compensation costs of
$1.2 million related to an increase in headcount, partially offset by lower stock-based compensation of $0.7 million.
General and Administrative Expense
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
(Dollars in Thousands)
General and administrative
expense
$
73,035
$
63,231
$
67,181
$
9,804
15.5% $
(3,950)
(5.9)%
As a percent of total revenue
12.2%
10.6%
13.2%
Fiscal 2020 Compared to Fiscal 2019
The year-over-year increase of $9.8 million in general and administrative expense during fiscal 2020 as compared to the prior fiscal year was
primarily due to higher professional fees of $3.1 million, higher bad debt expense of $2.0 million, higher compensation costs of $1.7 million related to an
increase in headcount, and higher stock-based compensation of $0.7 million.
Fiscal 2019 Compared to Fiscal 2018
The year-over-year decrease of $4.0 million in general and administrative expense during fiscal 2019 as compared to the prior fiscal year was
primarily due to lower bad debt expense of $9.3 million and a decrease of $1.5 million associated with a litigation judgment in the prior period, partially
offset by higher stock-based compensation of $3.4 million and higher compensation costs of $2.6 million related to an increase in headcount.
Non-Operating Income (Expense)
Interest Income
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
(Dollars in Thousands)
Interest income
$
32,658
$
28,457
$
24,954
$
4,201
14.8% $
3,503
14.0%
As a percent of total revenue
5.5%
4.8%
4.9%
Fiscal 2020 Compared to Fiscal 2019
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The year-over-year increase of $4.2 million in interest income during fiscal 2020 as compared to the prior fiscal year was a result of: (i) increased
customer usage of our software; (ii) adding new customers; and (iii) escalating annual payments.
Fiscal 2019 Compared to Fiscal 2018
The year-over-year increase of $3.5 million in interest income during fiscal 2019 as compared to the prior fiscal year was a result of: (i) increased
customer usage of our software; (ii) adding new customers; and (iii) escalating annual payments.
Interest Expense
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
(Dollars in Thousands)
Interest expense
$
(11,862)
$
(8,733)
$
(5,691)
$
(3,129)
35.8% $
(3,042)
53.5%
As a percent of total revenue
(2.0)%
(1.5)%
(1.1)%
Fiscal 2020 Compared to Fiscal 2019
The year-over-year increase of $3.1 million in interest expense during fiscal 2020 as compared to the prior fiscal year was primarily due to interest
expenses related to an increase in borrowings under our Amended and Restated Credit Agreement.
Fiscal 2019 Compared to Fiscal 2018
The year-over-year increase of $3.0 million in interest expense during fiscal 2019 as compared to the prior fiscal year was primarily due to interest
expenses related to higher interest rates and an increase in borrowings under our Prior Credit Agreement, which was amended and restated pursuant to the
Amended and Restated Credit Agreement.
Other Income (Expense), Net
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
(Dollars in Thousands)
Other income (expense), net
$
1,202
$
As a percent of total revenue
0.2%
664
$
0.1%
(838)
$
(0.2)%
538
81.0% $
1,502
(179.2)%
Other income (expense), net is comprised primarily of unrealized and realized foreign currency exchange gains and losses generated from the
settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units.
Fiscal 2020 Compared to Fiscal 2019
Other income, net was comprised of $1.2 million and $0.7 million of net foreign currency exchange gains during fiscal 2020 and 2019, respectively.
Fiscal 2019 Compared to Fiscal 2018
Other income (expense), net was comprised of $0.7 million of net foreign currency exchange gains and $(0.8) million of net foreign currency
exchange losses during fiscal 2019 and 2018, respectively.
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Provision for Income Taxes
Year Ended June 30,
2020 Compared to 2019
2019 Compared to 2018
2020
2019
2018
$
%
$
%
As Adjusted
As Adjusted
Provision for income taxes
$
49,686
$
40,165
$
(Dollars in Thousands)
9,521
$
(54,881)
23.7% $
95,046
(173.2)%
Effective tax rate
17.8%
13.3%
(24.3)%
Fiscal 2020 Compared to Fiscal 2019
The effective tax rate for the periods presented is primarily the result of income earned in the U.S. taxed at U.S. federal and state statutory income tax
rates, income earned in foreign tax jurisdictions taxed at the applicable rates, as well as the impact of permanent differences between book and tax income.
Our effective tax rate was 17.8% and 13.3% during fiscal 2020 and 2019, respectively.
We recognized income tax expense of $49.7 million during fiscal 2020 compared to $40.2 million during fiscal 2019. Fiscal 2020 was unfavorably
impacted by the recognition of $6.4 million tax expense due to an accounting method change election when we filed our fiscal 2019 federal tax return as a
result of a change in tax regulations during this fiscal year. Fiscal 2020 was favorably impacted by the Foreign-Derived Intangible Income (“FDII”)
deduction and tax credits. Assuming certain requirements are met, the FDII deduction is a benefit for US companies that sell their products or services to
customers for use outside the US. Fiscal 2019 was also favorably impacted by the FDII deduction and the recognition of excess tax benefits related to
stock-based compensation.
As of June 30, 2020, we maintained a valuation allowance in the U.S. primarily for certain deferred tax assets related to the investment in a joint
venture and on state research and development (R&D) credits. We also maintain a valuation allowance on certain foreign subsidiary tax attributes,
primarily net operating loss carryforwards because it is more likely than not that a benefit will not be realized. As of June 30, 2020 and 2019, our total
valuation allowance was $6.2 million and $4.9 million, respectively.
We made cash tax payments totaling $39.5 million during fiscal 2020. We paid $37.1 million for U.S. federal and state income taxes and $2.4 million
for foreign tax liabilities.
Fiscal 2019 Compared to Fiscal 2018
The effective tax rate for the periods presented is primarily the result of income earned in the U.S. taxed at U.S. federal and state statutory income tax
rates, income earned in foreign tax jurisdictions taxed at the applicable rates, as well as the impact of permanent differences between book and tax income.
On December 22, 2017, the President of the United States signed into law Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs
Act (the “Tax Act”), following its passage by the United States Congress. The Tax Act made significant changes to U.S. federal income tax laws, including
reduction of the corporate tax rate from 35.0% to 21.0%, and the implementation of a territorial tax system resulting in a one-time transition tax on the
unremitted earnings of our foreign subsidiaries. The Tax Act also contains additional provisions that are effective for us in fiscal year 2019, including a new
deduction for FDII, the repeal of the domestic production activity deduction, a new tax on Global Intangible Low-Taxed Income (“GILTI”), and increased
limitations on the deductibility of certain executive compensation.
Under U.S. GAAP, we are allowed to make an accounting policy choice to either (i) treat taxes due on future U.S. inclusions in taxable income
related to GILTI as a current-period expense when incurred (the "period cost method"); or (ii) factor in such amounts into the measurement of our deferred
taxes (the "deferred method"). Our selection of an accounting policy related to the GILTI tax provisions depends, in part, on analyzing our global income to
determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. While our
future global operations depend on a number of different factors, we do expect to have future U.S. inclusions in taxable income related to GILTI. Further,
we have made a policy decision to record GILTI tax as a current-period expense when incurred. We expect to continue to account for the tax on GILTI as a
period cost and therefore has not adjusted any of the deferred tax assets and liabilities of its foreign subsidiaries in connection with the Tax Act.
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Table of Contents
The Tax Act has several significant changes that impact all taxpayers, including a transition tax, which is a one-time tax charge on accumulated,
undistributed foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to
1986. We have concluded that we will not be subject to the transition tax associated with our accumulated, undistributed foreign earnings. We do not
provide deferred taxes on unremitted earnings of our foreign subsidiaries as we intend to indefinitely reinvest those earnings.
Our effective tax rate was 13.3% and (24.3)% during fiscal 2019 and 2018, respectively.
We recognized income tax expense of $40.2 million during fiscal 2019 compared to a tax benefit of $(54.9) million during fiscal 2018. Fiscal 2019
was favorably impacted by the FDII deduction, the recognition of excess tax benefits related to stock-based compensation and the lower U.S. statutory tax
rate of 21.0% as a result of the enactment of the Tax Act discussed above. Fiscal 2018 was favorably impacted by the revaluation of our deferred income
tax liabilities using the reduced corporate income tax rate as the result of the Tax Act, recognition of excess tax benefits related to stock-based
compensation and the domestic production activity deduction.
As of June 30, 2019, we maintained a valuation allowance in the U.S. primarily for certain deferred tax assets related to the investment in a joint
venture. We also maintain a valuation allowance on certain foreign subsidiary tax attributes, primarily net operating loss carryforwards because it is more
likely than not that a benefit will not be realized. During fiscal 2019, we released a valuation allowance for the deferred tax assets related to capital losses
that expired unused. As of June 30, 2019 and 2018, our total valuation allowance was $4.9 million and $10.4 million, respectively.
We made cash tax payments totaling $53.2 million during fiscal 2019. We paid $44.5 million for U.S. federal and state income taxes and $8.7 million
for foreign tax liabilities.
Liquidity and Capital Resources
Resources
In recent years, we have financed our operations with cash generated from operating activities. As of June 30, 2020 and 2019, our principal sources
of liquidity consisted of $287.8 million and $71.9 million in cash and cash equivalents, respectively.
We believe our existing cash and cash equivalents, together with our cash flows from operating activities, will be sufficient to meet our anticipated
cash needs for at least the next twelve months. We may need to raise additional funds if we decide to make one or more acquisitions of businesses,
technologies or products. If additional funding for such purposes is required beyond existing resources and our Amended and Restated Credit Agreement
described below, we may not be able to effect a receivable, equity or debt financing on terms acceptable to us or at all.
In March 2020, we borrowed $100.0 million under the revolving credit facility described below under "Credit Agreement," with the majority of the
proceeds held as cash and cash equivalents. We increased our borrowing under the revolving credit facility as a precautionary measure to increase our cash
position and preserve financial flexibility in light of disruption and uncertainty in the global markets resulting from the outbreak of the novel SARS-CoV-2
virus and associated COVID-19 disease and its impact on the demand for oil, compounded by the excess supply arising from producers’ failure to agree on
production cuts.
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 with the same lenders (the “Prior Credit Agreement”), provides for a $200.0 million secured
revolving credit facility and a $320.0 million secured term loan facility. The indebtedness under the revolving credit facility matures on December 23,
2024. Prior to the maturity of the Amended and Restated Credit Agreement, any amounts borrowed under the revolving credit facility may be repaid and,
subject to the terms and conditions of the Amended and Restated Credit Agreement, borrowed again in whole or in part without penalty.
As of June 30, 2020, we had $119.2 million and $312.0 million in outstanding borrowings on our revolving credit facility and term loan facility,
respectively. Our current borrowings of $135.2 million consist of $119.2 million of the revolving credit facility and $16.0 million of the term loan facility.
Our non-current borrowings of $292.4 million consist of $296.0 million of our term loan facility, net of $3.6 million in debt issuance costs. We had $220.0
million in outstanding current borrowings as of June 30, 2019.
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For a more detailed description of the Amended and Restated Credit Agreement, refer to Note 12, "Credit Agreement," to our Consolidated Financial
Statements.
Cash Equivalents and Cash Flows
Our cash equivalents of $1.0 million as of June 30, 2020 and 2019, respectively, consisted of money market funds. The objective of our investment
policy is to manage our cash and investments to preserve principal and maintain liquidity.
The following table summarizes our cash flow activities for the periods indicated:
Cash flow provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rates on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Operating Activities
Year Ended June 30,
2020
2019
2018
(Dollars in Thousands)
$
$
243,258 $
238,313 $
(76,203)
49,435
(620)
(7,665)
(254,527)
(360)
215,870 $
(24,239) $
206,936
(34,360)
(178,479)
114
(5,789)
Our primary source of cash is from the annual installments associated with our software license arrangements and related software support services,
and to a lesser extent from professional services and training. We believe that cash inflows from our term license business will grow as we benefit from the
continued growth of our portfolio of term license contracts.
Fiscal 2020
Cash from operating activities provided $243.3 million during fiscal 2020. This amount resulted from net income of $229.7 million, adjusted for non-
cash items of $83.2 million, and net uses of cash of $(69.6) million related to changes in working capital.
Non-cash items within net income consisted primarily of stock-based compensation expense of $31.5 million, deferred income taxes of $28.1 million,
depreciation and amortization expense of $9.6 million, reduction in the carrying amount of right-of-use assets of $9.1 million, provision for bad debts of
$5.3 million, and net foreign currency gains of $(0.9) million.
Cash used by working capital of $(69.6) million in fiscal 2020 was primarily attributable to cash used by increases in contract assets of $28.1 million,
decreases in accounts payable, accrued expenses and other current liabilities of $23.4 million, increases in accounts receivable of $12.9 million, decreases
in lease liabilities of $9.5 million, increases in prepaid expenses, prepaid income taxes, and other assets of $5.3 million, and increases in contract costs of
$3.6 million, partially offset by cash provided by increases in deferred revenue of $13.0 million.
Fiscal 2019
Cash from operating activities provided $238.3 million during fiscal 2019. This amount resulted from net income of $261.4 million, adjusted for non-
cash items of $8.4 million, and net uses of cash of $(31.5) million related to changes in working capital.
Non-cash items within net income consisted primarily of stock-based compensation expense of $27.6 million, depreciation and amortization expense
of $8.1 million, deferred income taxes of $(27.1) million, provision for bad debts of $0.6 million, and net foreign currency gains of $(1.3) million.
Cash used by working capital of $(31.5) million was primarily attributable to cash used by increases in contract assets of $57.7 million, increases in
accounts receivable of $6.6 million, increases in contract costs of $4.5 million, and increases in prepaid expenses, prepaid income taxes, and other assets of
$2.4 million, partially offset by cash provided by increases in accounts payable, accrued expenses and other current liabilities of $21.9 million, and
increases in deferred revenue of $17.8 million. The increase in accounts payable, accrued expenses and other current liabilities is primarily due to an
increase in income taxes payable as of June 30, 2019 from the tax liability associated with adopting Topic 606. There was a correlating decrease in deferred
income taxes during fiscal 2019.
Fiscal 2018
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Cash from operating activities provided $206.9 million during fiscal 2018. This amount resulted from net income of $281.2 million, adjusted for non-
cash items of $(77.1) million, and net sources of cash of $2.8 million related to changes in working capital.
Non-cash items within net income consisted primarily of stock-based compensation expense of $22.7 million, depreciation and amortization expense
of $6.5 million, deferred income taxes of $(109.1) million, provision for bad debts of $1.4 million, and net foreign currency losses of $1.0 million.
Cash provided by working capital of $2.8 million was primarily attributable to cash provided by decreases in contract assets of $14.9 million,
decreases in prepaid expenses, prepaid income taxes, and other assets of $3.8 million, increases in accounts payable, accrued expenses and other current
liabilities of $1.2 million, and decreases in accounts receivable of $0.8 million, partially offset by cash used by decreases in deferred revenue of $17.4
million and increases in contract costs of $0.6 million.
Investing Activities
Fiscal 2020
During fiscal 2020, we used $76.2 million of cash from investing activities. We used $74.5 million for business acquisitions, $1.3 million for capital
expenditures, $0.3 million for equity method investments, and $0.1 million for capitalized computer software development costs.
Fiscal 2019
During fiscal 2019, we used $7.7 million of cash from investing activities. We used $6.1 million for business acquisitions, $1.1 million for capitalized
computer software development costs, and $0.4 million for capital expenditures.
Fiscal 2018
During fiscal 2018, we used $34.4 million of cash from investing activities. We used $33.7 million for business acquisitions, $0.3 million for capital
expenditures, and $0.3 million for capitalized computer software development costs.
Financing Activities
Fiscal 2020
Cash from financing activities provided $49.4 million during fiscal 2020. Sources of cash in the period included proceeds of $219.2 million from debt
and proceeds of $9.0 million from the exercise of employee stock options, partially offset by uses of cash of $152.4 million for repurchases of our common
stock, $10.2 million for withholding taxes on vested and settled restricted stock units, $8.0 million for repayments of amounts borrowed, $4.6 million for
deferred business acquisition payments, and $3.5 million for debt issuance costs.
Fiscal 2019
During fiscal 2019, we used $254.5 million of cash for financing activities. We used $299.2 million for repurchases of our common stock, $1.7
million for deferred business acquisition payments, and $14.5 million for withholding taxes on vested and settled restricted stock units. Sources of cash in
the period included proceeds of $50.0 million from the Prior Credit Agreement and proceeds of $10.9 million from the exercise of employee stock options.
Fiscal 2018
During fiscal 2018, we used $178.5 million of cash for financing activities. We used $205.0 million for repurchases of our common stock,$8.6
million for deferred business acquisition payments, $7.9 million for withholding taxes on vested and settled restricted stock units, and $0.4 million for
issuance costs related to our Prior Credit Agreement. Sources of cash in the period included proceeds of $30.0 million from the Prior Credit Agreement and
proceeds of $13.5 million from the exercise of employee stock options.
Contractual Obligations and Requirements
Our contractual obligations, which consisted of borrowings, interest, and fees under our Amended and Restated Credit Agreement, operating lease
commitments for our headquarters and other facilities, royalty obligations, equity method investments, deferred acquisition payments, and standby letters
of credit and other obligations, were as follows as of June 30, 2020:
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Contractual Cash Obligations:
Credit agreement (1)
Operating leases (2)
Royalty obligations
Equity method investments
Deferred acquisition payments
Other purchase obligations
Total contractual cash obligations
Other Commercial Commitments:
Standby letters of credit
Total commercial commitments
____________________________________________
Total
Less than 1 Year
1 to 3 Years
3 to 5 Years
More than 5 Years
Payments due by Period
$
456,791 $
142,698 $
57,881 $
256,212 $
46,518
2,080
3,658
1,479
23,647
8,677
988
3,658
1,479
16,904
16,965
1,092
—
—
4,658
13,245
—
—
—
1,146
534,173 $
174,404 $
80,596 $
270,603 $
3,453 $
1,908 $
— $
268 $
537,626 $
176,312 $
80,596 $
270,871 $
$
$
$
—
7,631
—
—
—
939
8,570
1,277
9,847
(1) The $456.8 million of contractual obligations related to our Amended and Restated Credit Agreement includes $119.2 million and $312.0 million in outstanding borrowings on our
revolving credit facility and term loan facility, respectively, and $25.6 million of interest expense and commitment fees as of June 30, 2020. All contractual obligations related to our
revolving credit facility are classified as being due in less than one year.
(2) The $46.5 million of contractual obligations includes rent and fixed fees for all of our operating leases, including those not recognized on the balance sheet.
We are not currently a party to any other material purchase contracts related to future capital expenditures, and we do not expect our future
investment in capital expenditures to be materially different from recent levels.
The standby letters of credit were issued by Silicon Valley Bank in the United States and secure our performance on professional services contracts
and certain facility leases.
The above table does not reflect a liability for uncertain tax positions of $2.1 million as of June 30, 2020. We estimate that none of this amount will
be paid within the next year and we are currently unable to reasonably estimate the timing of payments for the remainder of the liability.
Off-Balance Sheet Arrangements
As of June 30, 2020, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Estimates and Judgments
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on
historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe that the assumptions and estimates associated with revenue recognition policies have the greatest potential impact on our consolidated
financial statements.
For further information on our significant accounting policies, refer to Note 2, "Significant Accounting Policies," and Note 3, "Revenue from
Contracts with Customers," to our Consolidated Financial Statements.
Revenue Recognition
In accordance with 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
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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. The aspenONE licensing model provides customers with access to all of the products within the aspenONE suite(s) they license. We refer to
these arrangements as token arrangements. Tokens are fixed units of measure. The amount of software usage is limited by the number of tokens purchased
by the customer.
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.
Services and Other Revenue
Professional Services Revenue
Professional services are provided to customers on a 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.
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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 licenses, which are always sold with maintenance, 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.
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.
Contract Costs
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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 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 sales and marketing expenses in our Condensed Consolidated Statement of Operations.
Recent Accounting Pronouncements
Refer to Note 2 (o) "New Accounting Pronouncements Adopted in Fiscal 2020" and Note 2 (p) "Recently Issued Accounting Pronouncements," to
our Consolidated Financial Statements for information about recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
In the ordinary course of conducting business, we are exposed to certain risks associated with potential changes in market conditions. These market
risks include changes in currency exchange rates and interest rates which could affect operating results, financial position and cash flows. We manage our
exposure to these market risks through our regular operating and financing activities and, if considered appropriate, we may enter into derivative financial
instruments such as forward currency exchange contracts.
Foreign Currency Risk
During fiscal 2020 and 2019, 6.6% and 10.1% of our total revenue was denominated in a currency other than the U.S. dollar. In addition, certain of
our operating costs incurred outside the United States are denominated in currencies other than the U.S. dollar. We conduct business on a worldwide basis
and as a result, a portion of our revenue, earnings, net assets, and net investments in foreign affiliates is exposed to changes in foreign currency exchange
rates. We measure our net exposure for cash balance positions and for cash inflows and outflows in order to evaluate the need to mitigate our foreign
exchange risk. We may enter into foreign currency forward contracts to minimize the impact related to unfavorable exchange rate movements, although we
have not done so during fiscal 2020 and fiscal 2019. Our largest exposures to foreign currency exchange rates exist primarily with the Euro, Pound
Sterling, Canadian Dollar, Japanese Yen, and Russian Ruble.
During fiscal 2020 and fiscal 2019, we recorded net foreign currency gains of $0.9 million and $0.7 million, respectively, related to the settlement
and remeasurement of transactions denominated in currencies other than the functional currency of our operating units. Our analysis of operating results
transacted in various foreign currencies indicated that a hypothetical 10% change in the foreign currency exchange rates could have increased or decreased
the consolidated results of operations by approximately $4.8 million for fiscal 2020 and 2019, respectively.
Interest Rate Risk
We place our investments in money market instruments. Our analysis of our investments and interest rates at June 30, 2020 and 2019 indicated that a
hypothetical 100 basis point increase or decrease in interest rates would not have a material impact on the fair value of our investments determined in
accordance with an income-based approach utilizing portfolio future cash flows discounted at the appropriate rates.
As of June 30, 2020, we had $119.2 million and $312.0 million in outstanding borrowings on our revolving credit facility and term loan facility,
respectively. Our current borrowings of $135.2 million consist of $119.2 million of the revolving credit facility and $16.0 million of the term loan facility.
Our non-current borrowings of $292.4 million consist of $296.0 million of our term loan facility, net of $3.6 million in debt issuance costs. A hypothetical
10% increase or decrease in interest rates paid on outstanding borrowings under the Amended and Restated Credit Agreement would not have a material
impact on our financial position, results of operations or cash flows.
Investment Risk
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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 ($3.5 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
($3.5 million) commitment. As of June 30, 2020, the fair value of this investment is 0.5 million CAD ($0.3 million), representing our payments towards the
total commitment during fiscal 2020, and is recorded in non-current assets in our consolidated balance sheet.
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements specified by this Item, together with the reports thereon of KPMG LLP, are presented following
Item 15 of this Form 10-K:
Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended June 30, 2020, 2019 and 2018
Consolidated Balance Sheets as of June 30, 2020 and 2019
Consolidated Statements of Stockholders' Equity for the years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended June 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, or Exchange Act, as of the end of the period covered by this
report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we
recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives, and our management necessarily applies its judgment in evaluating and implementing possible controls and procedures. The
effectiveness of our disclosure controls and procedures is also necessarily limited by the staff and other resources available to us and the geographic
diversity of our operations. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting
discussed below in Management’s Annual Report on Internal Control Over Financial Reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
(i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
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(ii)
(iii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute assurance that the control system’s objectives will be met.
As of June 30, 2019, we reported the following material weakness in our internal control over financial reporting. We did not effectively design
process level control activities over the accuracy of the retrospective restatement of revenue and related contract balances recorded upon the adoption of
ASC Topic 606, which also impacted the related deferred tax assets and liabilities on the consolidated balance sheet. The control deficiencies identified
resulted from an ineffective risk assessment and the lack of timely creation of relevant reporting tools and complete and accurate information used to
support the functioning of internal control. These deficiencies created a reasonable possibility that a material misstatement would not have been prevented
or detected on a timely basis and accordingly management concluded that the deficiencies represented a material weakness in our internal control over
financial reporting.
Additional deficiencies related to the fiscal 2019 material weakness were identified in fiscal 2020. Consequently, there were control failures in the
areas of revenue and contract asset balances, which also impacted the related deferred tax liabilities.
Management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over
financial reporting as of June 30, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management has concluded that our
internal control over financial reporting was not effective as of June 30, 2020. This material weakness resulted in newly identified immaterial
misstatements (i.e. misstatements identified in fiscal 2020) related to contract assets and associated deferred tax liabilities, retained earnings, revenue, and
provision for (benefit from) income taxes, which were corrected prior to issuance of the Company’s financial statements. Furthermore, a reasonable
possibility exists that material misstatements in the Company’s financial statements will not be prevented or detected on a timely basis.
The independent registered public accounting firm that audited the Company’s consolidated financial statements included elsewhere in this Annual
Report on Form 10‑K has issued an adverse opinion on the effectiveness of the Company’s internal control over financial reporting. That report appears
immediately following this report.
Remediation
During fiscal 2020, we implemented a remediation plan to address the material weakness mentioned above. Management enhanced our risk
assessment process over the design and implementation of internal controls over new and emerging financial reporting matters such as the adoption of ASC
Topic 842. We have also performed an updated risk assessment of revenue and associated contract balances controls and have identified and designed
enhanced review controls over the accounting for revenue contracts under ASC Topic 606, including the use of additional reporting tools and additional
reconciliation controls. The COVID-19 pandemic and resulting remote working environment made timely completion of these remediation procedures
more challenging, and all remediation efforts were not fully completed as of June 30, 2020. As a result, management concluded that the prior year’s
material weakness in our internal control over the financial reporting had not been fully remediated as of June 30, 2020. The weakness will be considered
remediated when the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are
operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2021.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2020 that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
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We performed an updated risk assessment to determine if new controls were needed due to the outbreak of the novel SARS-CoV-2 virus and
associated COVID-19 disease. As a result, we enhanced internal controls to include more frequent reviews and incorporate new review criteria.
We will continue to review and document our disclosure controls and procedures, including our internal control over financial reporting, and may
from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Aspen Technology, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Aspen Technology, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of June 30, 2020, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’
equity, and cash flows for each of the years in the three-year period ended June 30, 2020, and the related notes and financial statement Schedule II -
Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated December 9, 2020, expressed an unqualified
opinion on those consolidated financial statements.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following
material weakness has been identified and included in management’s assessment:
The Company did not effectively design process level control activities over the accuracy of the retrospective restatement of revenue and related
contract balances recorded upon the adoption of ASC Topic 606, which also impacted the related deferred tax liabilities on the consolidated
balance sheet. The control deficiencies identified resulted from an ineffective risk assessment and the lack of timely creation of relevant reporting
tools and complete and accurate information used to support the functioning of internal control.
Consequently, there were control failures in the areas of revenue and contract asset balances, which also impacted the related deferred tax
liabilities. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the fiscal 2020
consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the
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company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Boston, Massachusetts
December 9, 2020
Item 9B. Other Information.
None.
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Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Certain information required under this Item 10 will appear under the sections entitled “Executive Officers of the Registrant,” “Election of
Directors,” “Information Regarding our Board of Directors and Corporate Governance,” “Code of Business Conduct and Ethics,” and “Section 16(a)
Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our 2020 annual meeting of stockholders, and is incorporated herein by
reference.
Item 11. Executive Compensation.
Certain information required under this Item 11 will appear under the sections entitled “Director Compensation,” “Compensation Discussion and
Analysis,” “Executive Compensation” and “Employment and Change in Control Agreements” in our definitive proxy statement for our 2020 annual
meeting of stockholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain information required under this Item 12 will appear under the sections entitled “Stock Owned by Directors, Executive Officers and Greater-
than 5% Stockholders” and “Securities Authorized for Issuance Under Equity Compensation Plans” in our definitive proxy statement for our 2020 annual
meeting of stockholders, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Certain information required under this Item 13 will appear under the sections entitled “Information Regarding the Board of Directors and Corporate
Governance” and “Related Party Transactions” in our definitive proxy statement for our 2020 annual meeting of stockholders, and is incorporated herein by
reference.
Item 14. Principal Accounting Fees and Services.
Certain information required under this Item 14 will appear under the section entitled “Independent Registered Public Accountants” in our definitive
proxy statement for our 2020 annual meeting of stockholders, and is incorporated herein by reference.
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Item 15. Exhibits and Financial Statement Schedules.
(a)(1) Financial Statements
PART IV
Description
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended June 30, 2020, 2019 and 2018
Consolidated Balance Sheets as of June 30, 2020 and 2019
Consolidated Statements of Stockholders' Equity for the years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended June 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Page
50
52
53
54
56
57
59
(a)(2) Financial Statement Schedules
Schedule II-Valuation and Qualifying Accounts for the years ended June 30, 2020, 2019 and 2018 appears immediately following the financial
statements. All other schedules are omitted because they are not required or the required information is shown in the consolidated financial statements or
notes thereto.
(a)(3) Exhibits
The exhibits listed in the accompanying exhibit index are filed or incorporated by reference as part of this Form 10-K.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended June 30, 2020, 2019 and 2018
Consolidated Balance Sheets as of June 30, 2020 and 2019
Consolidated Statements of Stockholders' Equity for the years ended June 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended June 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
49
50
52
53
54
56
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Aspen Technology, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Aspen Technology, Inc. and subsidiaries (the Company) as of June 30, 2020 and 2019,
the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period
ended June 30, 2020, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts, (collectively, the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as
of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2020, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report dated December 9, 2020 expressed an adverse opinion on the
effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2(o) to the consolidated financial statements, the Company has changed its method of accounting for leases as of July 1, 2019 due to
the adoption of Accounting Standards Codification (ASC) Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
Determination of Standalone Selling Prices for Term License and Maintenance Performance Obligations
As discussed in Note 3 to the consolidated financial statements, the Company recognized term license revenue and maintenance revenue of $388.2
million and $178.1 million, respectively, for the year ended June 30, 2020. The Company allocates the transaction price to each distinct
performance obligation on a relative standalone selling price basis. For term license and maintenance performance obligations, directly observable
data is generally not available, which requires the Company to make significant assumptions regarding the relative fair value of the related
performance obligations.
We identified the determination of standalone selling prices for term license and maintenance performance obligations as a critical audit matter.
There is a high degree of subjective auditor judgment involved in performing procedures on the Company’s assumptions, since there is no direct
observable data available.
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The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the
Company’s revenue process, including the control over the development of standalone selling prices. We evaluated the information used by the
Company to determine standalone selling prices by comparing it to external sources, such as available information regarding industry pricing
practices, and internal data, including the Company’s pricing practices.
Sufficiency of audit evidence over incomplete revenue contracts at the adoption date of Topic 606 that were modified prior to the adoption date of
Topic 606
As discussed in Note 3 to the consolidated financial statements, the Company accounts for revenue in accordance with Topic 606, Revenue from
Contracts with Customers (Topic 606). The Company enters into agreements to modify previously executed contracts, which constitute contract
modifications. They 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.
We identified the evaluation of the sufficiency of audit evidence over incomplete revenue contracts at the adoption date of Topic 606 that were
modified prior to the adoption of Topic 606 as a critical audit matter. Subjective auditor judgment was required because of the nature and extent of
customer contract modifications and the material weakness in internal control over financial reporting identified.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature
and extent of procedures to be performed over incomplete revenue contracts at the adoption date of Topic 606 that were modified prior to the
adoption of Topic 606. We performed procedures to test the completeness and accuracy of the population of incomplete contracts that were
modified prior to the adoption of Topic 606. Specifically, we agreed information from certain underlying contracts to reports used in
management’s analysis of contract assets and tested the reconciliation of those contract assets to future revenues and billings. For a selection of
contracts modified prior to the adoption of Topic 606 from management's analysis, we inspected the related revenue contract and supporting
documentation and compared the related contract asset balance to future contractual billings and future revenue amounts to be recognized under
the customer arrangement. For each item selected, we also assessed the (1) current year revenue, (2) historical revenue, (3) contract asset, and (4)
deferred revenue balance. Additionally, to ensure the customer invoices related to our selections were accounted for with the appropriate contract,
we inspected the related invoicing data and revenue contracts and agreed them to the calculations underlying the amounts recorded by the
Company. For a sample of current year revenue transactions, contract asset balances, and deferred revenue balances, we obtained and inspected
the related revenue contracts and supporting documents and compared them to the revenue, contract asset balances, and deferred revenue balances
that were recorded as of and for the fiscal year ended June 30, 2020. In addition, we evaluated the overall sufficiency of audit evidence obtained
over incomplete revenue contracts at the adoption date of Topic 606 that were modified prior to the adoption date of Topic 606 by assessing the
results of the procedures performed.
/s/ KPMG LLP
We have served as the Company’s auditor since 2008.
Boston, Massachusetts
December 9, 2020
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue:
License
Maintenance
Services and other
Total revenue
Cost of revenue:
License
Maintenance
Services and other
Total cost of revenue
Gross profit
Operating expenses:
Selling and marketing
Research and development
General and administrative
Total operating expenses
Income from operations
Interest income
Interest (expense)
Other income (expense), net
Income before income taxes
Provision for (benefit from) income taxes
Net income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Year Ended June 30,
2020
2019
2018
As Adjusted
As Adjusted
(Dollars in Thousands, Except per Share Data)
$
388,180 $
404,581 $
178,139
32,398
598,717
7,241
19,248
35,118
61,607
163,567
28,534
596,682
7,060
19,208
31,548
57,816
318,442
158,838
30,286
507,566
5,236
17,408
28,000
50,644
537,110
538,866
456,922
114,486
92,230
73,035
279,751
257,359
32,658
(11,862)
1,202
279,357
49,686
111,374
83,122
63,231
257,727
281,139
28,457
(8,733)
664
301,527
40,165
$
$
$
229,671 $
261,362 $
3.38 $
3.34 $
3.74 $
3.69 $
68,000
68,727
69,925
70,787
99,737
82,076
67,181
248,994
207,928
24,954
(5,691)
(838)
226,353
(54,881)
281,234
3.90
3.85
72,140
72,956
See accompanying notes to these consolidated financial statements.
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income
Other comprehensive loss:
Foreign currency translation adjustments
Total other comprehensive loss
Comprehensive income
Year Ended June 30,
2020
2019
2018
As Adjusted
As Adjusted
(Dollars in Thousands)
229,671 $
261,362 $
281,234
(5,624)
(5,624)
(1,052)
(1,052)
(71)
(71)
224,047 $
260,310 $
281,163
$
$
See accompanying notes to these consolidated financial statements.
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Current contract assets
Prepaid expenses and other current assets
Prepaid income taxes
Total current assets
Property, equipment and leasehold improvements, net
Computer software development costs, net
Goodwill
Intangible assets, net
Non-current contract assets
Contract costs
Operating lease right-of-use assets
Deferred tax assets
Other non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Current operating lease liabilities
Income taxes payable
Current borrowings
Current deferred revenue
Total current liabilities
Non-current deferred revenue
Deferred income taxes
Non-current operating lease liabilities
Non-current borrowings, net
Other non-current liabilities
Commitments and contingencies (Note 17)
June 30,
2020
2019
As Adjusted
(Dollars in Thousands, Except Share and Per
Share Data)
$
287,796 $
56,301
291,497
10,884
3,962
650,440
5,963
928
137,055
42,851
318,976
28,614
34,905
1,735
1,839
71,926
47,784
294,193
9,988
2,509
426,400
7,234
1,306
78,383
33,607
288,098
24,982
—
1,669
1,334
$
$
1,223,306 $
863,013
3,988 $
43,556
6,824
1,799
135,163
43,168
234,498
13,913
179,978
33,088
292,369
3,107
5,891
54,594
—
14,952
220,000
25,318
320,755
19,573
150,344
—
—
10,381
Series D redeemable convertible preferred stock, $0.10 par value—Authorized—3,636 shares as of June 30,
2020 and 2019
Issued and outstanding—none as of June 30, 2020 and 2019
—
—
Stockholders' equity:
Common stock, $0.10 par value—Authorized—210,000,000 shares
Issued—103,988,707 shares at June 30, 2020 and 103,642,292 shares at June 30, 2019
Outstanding—67,718,692 shares at June 30, 2020 and 68,624,566 shares at June 30, 2019
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
54
10,399
769,411
10,365
739,099
1,458,330
1,228,659
(5,288)
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Treasury stock, at cost— 36,270,015 shares of common stock at June 30, 2020 and 35,017,726 shares at
June 30, 2019
Total stockholders' equity
Total liabilities and stockholders' equity
(1,766,499)
(1,616,499)
466,353
$
1,223,306 $
361,960
863,013
See accompanying notes to these consolidated financial statements.
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Number of
Shares
$0.10 Par
Value
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Treasury Stock
Number of
Shares
Cost
Total
Stockholders'
Equity
June 30, 2017, As Adjusted
102,567,129
$
10,257
$
687,479 $
686,063 $
1,459
29,145,976 $
(1,116,499) $
268,759
(Dollars in Thousands, Except Share Data)
Comprehensive income:
Net income
Other comprehensive loss
Issuance of shares of common
stock
Issuance of restricted stock
units and net share settlement
related to withholding taxes
Repurchase of common stock
Stock-based compensation
—
—
362,515
200,656
—
—
—
—
36
20
—
—
June 30, 2018, As Adjusted
103,130,300
$
10,313
$
—
—
281,234
—
13,395
—
(8,087)
—
22,688
715,475 $
—
—
—
967,297 $
261,362
—
—
—
—
—
1,228,659 $
Comprehensive income:
Net income
Other comprehensive loss
Issuance of shares of common
stock
Issuance of restricted stock
units and net share settlement
related to withholding taxes
Repurchase of common stock
Stock-based compensation
—
—
266,014
245,978
—
—
—
—
27
25
—
—
June 30, 2019, As Adjusted
103,642,292
$
10,365
$
Comprehensive income:
Net income
Other comprehensive loss
Issuance of shares of common
stock
Issuance of restricted stock
units and net share settlement
related to withholding taxes
Repurchase of common stock
Stock-based compensation
—
—
173,390
173,025
—
—
—
—
17
17
—
—
June 30, 2020
103,988,707
$
10,399
$
—
—
10,803
(14,752)
—
27,573
739,099 $
—
—
8,921
(10,157)
—
31,548
769,411 $
—
(71)
—
—
—
—
1,388
—
(1,052)
—
—
—
—
—
2,797,623
—
—
(200,000)
—
31,943,599 $
(1,316,499) $
—
—
—
—
—
—
336
—
3,074,127
—
—
(300,000)
—
35,017,726 $
(1,616,499) $
281,234
(71)
13,431
(8,067)
(200,000)
22,688
377,974
261,362
(1,052)
10,830
(14,727)
(300,000)
27,573
361,960
229,671
(5,624)
8,938
(10,140)
(150,000)
31,548
466,353
229,671
—
—
(5,624)
—
—
—
—
—
—
1,458,330 $
—
—
—
—
—
(5,288)
—
1,252,289
—
—
(150,000)
—
36,270,015 $
(1,766,499) $
See accompanying notes to these consolidated financial statements.
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Reduction in the carrying amount of right-of-use assets
Net foreign currency (gains) losses
Stock-based compensation
Deferred income taxes
Provision for bad debts
Other non-cash operating activities
Changes in assets and liabilities:
Accounts receivable
Contract assets
Contract costs
Lease liabilities
Prepaid expenses, prepaid income taxes, and other assets
Accounts payable, accrued expenses, income taxes payable and other liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, equipment and leasehold improvements
Payments for business acquisitions, net of cash acquired
Payments for equity method investments
Payments for capitalized computer software costs
Net cash used in investing activities
Cash flows from financing activities:
Issuance of shares of common stock
Repurchases of common stock
Payment of tax withholding obligations related to restricted stock
Deferred business acquisition payments
Proceeds from borrowings, net of repayments
Repayments of amounts borrowed
Payments of debt issuance costs
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
57
Year Ended June 30,
2020
2019
2018
As Adjusted
As Adjusted
(Dollars in Thousands)
$
229,671 $
261,362 $
281,234
9,550
9,094
(945)
31,548
28,101
5,255
625
(12,875)
(28,084)
(3,570)
(9,508)
(5,288)
(23,360)
13,044
243,258
(1,278)
(74,460)
(324)
(141)
(76,203)
9,004
(152,432)
(10,167)
(4,600)
219,163
(8,000)
(3,533)
49,435
(620)
215,870
8,143
—
(1,251)
27,573
(27,129)
645
429
(6,626)
(57,660)
(4,482)
—
(2,411)
21,921
17,799
238,313
(436)
(6,098)
—
(1,131)
(7,665)
10,864
(299,214)
(14,477)
(1,700)
50,000
—
—
6,544
—
980
22,688
(109,131)
1,418
421
846
14,932
(617)
—
3,821
1,156
(17,356)
206,936
(331)
(33,700)
—
(329)
(34,360)
13,466
(205,049)
(7,896)
(8,649)
30,000
—
(351)
(254,527)
(178,479)
(360)
(24,239)
114
(5,789)
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Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Income taxes paid, net
Interest paid
Supplemental disclosure of non-cash activities:
Change in purchases of property, equipment and leasehold improvements included in
accounts payable and accrued expenses
Change in repurchases of common stock included in accounts payable and accrued expenses
Lease liabilities arising from obtaining right-of-use assets
$
$
$
71,926
287,796 $
96,165
71,926 $
101,954
96,165
39,533 $
12,444
53,153 $
8,121
50,557
5,038
(99) $
(2,432)
14,013
104 $
786
—
(61)
(5,049)
—
See accompanying notes to these consolidated financial statements.
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(1) Operations
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aspen Technology, Inc., together with its subsidiaries, is a global leader in asset optimization software that optimizes asset design, operations and
maintenance in complex, industrial environments. Our aspenONE software and related services have been developed specifically for companies engaged in
the process and other capital-intensive industries such as energy, chemicals, engineering and construction, as well as pharmaceuticals, food and beverage,
transportation, power, metals and mining, pulp and paper, and consumer packaged goods. Customers use our solutions to improve their competitiveness
and profitability by increasing throughput, energy efficiency, and production levels, reducing unplanned downtime, plant emissions, and safety risks,
enhancing capital efficiency, and decreasing working capital requirements over the entire asset lifecycle to support operational excellence. We operate
globally in 33 countries as of June 30, 2020.
(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) Correction of Errors
As discussed in further detail in Note 20, "Immaterial Correction to Prior Period Financial Statements," to our Consolidated Financial Statements, the
Company has revised its prior period financial statements to correct immaterial misstatements related to the adoption of, and ongoing accounting under,
ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606").
(c) Management Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
(d) Cash and Cash Equivalents
Cash and cash equivalents consist of short-term money market instruments.
(e) Computer Software Development Costs
Certain computer software development costs are capitalized in the accompanying consolidated balance sheets. Capitalization of computer software
development costs begins upon establishing technological feasibility defined as meeting specifications determined by the program design. Amortization of
capitalized computer software development costs is provided on a product-by-product basis using the greater of (a) the amount computed using the ratio
that current gross revenue for a product bears to total of current and anticipated future gross revenue for that product or (b) the straight-line method,
beginning upon commercial release of the product, and continuing over the remaining estimated economic life of the product, not to exceed three years.
Total computer software costs capitalized were $0.2 million, $1.1 million and $0.4 million during the years ended June 30, 2020, 2019 and 2018,
respectively. Total amortization expense charged to operations was approximately $0.6 million, $0.5 million and $0.4 million for the years ended June 30,
2020, 2019 and 2018, respectively. Computer software development accumulated amortization totaled $75.7 million and $75.1 million as of June 30, 2020
and 2019, respectively. Weighted average remaining useful life of computer software development costs was 2.0 years and 2.5 years at June 30, 2020 and
2019, respectively.
At each balance sheet date, we evaluate the unamortized capitalized software costs for potential impairment by comparing the balance to the net
realizable value of the products. During the years ended June 30, 2020, 2019 and 2018, our computer software development costs were not considered
impaired and as such, we did not recognize impairment losses during the periods then ended.
(f) Foreign Currency Translation
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The determination of the functional currency of subsidiaries is based on the subsidiaries' financial and operational environment. Gains and losses
from foreign currency translation related to entities whose functional currency is not our reporting currency are credited or charged to accumulated other
comprehensive income included in stockholders' equity in the consolidated balance sheets. In all instances, foreign currency transaction and remeasurement
gains or losses are credited or charged to the consolidated statements of operations as incurred as a component of other income (expense), net. Net foreign
currency transaction and remeasurement gains were $0.9 million and $0.7 million in fiscal 2020 and 2019, respectively, and losses were $(0.8) million in
fiscal 2018.
(g) Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk are principally cash and cash equivalents, contract assets, and
accounts receivable. Our cash is held in financial institutions and our cash equivalents are invested in money market mutual funds that we believe to be of
high credit quality.
Concentration of credit risk with respect to contract assets and receivables is limited to certain customers to which we make substantial sales. To
reduce risk, we assess the financial strength of our customers. We do not require collateral or other security in support of our contact assets and receivables.
As of June 30, 2020 and 2019, we had no customer receivable balance that represented approximately 10% or more of our total receivables.
(h) Computer Software Developed for Internal Use and Long-Lived Assets
Computer Software Developed for Internal Use:
Computer software developed for internal use is capitalized in accordance with ASC Topic 350-40, Intangibles Goodwill and Other—Internal Use
Software. We capitalize costs incurred to develop internal-use software during the application development stage after determining software technological
requirements and obtaining management approval for funding projects probable of completion.
In fiscal 2020, 2019 and 2018, there were no capitalized direct labor costs associated with our development of software for internal use.
Impairment of Long-Lived Assets:
We evaluate our long-lived assets, which include finite-lived intangible assets, property and leasehold improvements for impairment as events and
circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. We assess the recoverability of the asset or a group
of assets based on the undiscounted future cash flows the asset is expected to generate, and recognize an impairment loss when estimated undiscounted
future cash flows expected to result from the use of the asset are less than its carrying value. If an asset or a group of assets are deemed to be impaired, the
amount of the impairment loss, if any, represents the excess of the asset's or a group of assets' carrying value compared to their estimated fair values.
(i) Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income and its components for fiscal 2020, 2019 and 2018 are disclosed in the accompanying
consolidated statements of comprehensive income.
As of June 30, 2020 and 2019, accumulated other comprehensive income is comprised of foreign translation adjustments of $(5.3) million and $0.3
million, respectively.
(j) Accounting for Stock-Based Compensation
Substantially all stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over
the vesting period.
(k) Income Taxes
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities. Deferred
tax assets and liabilities are measured using the statutory tax rates and laws expected to apply to taxable income in the years in which the temporary
differences are expected to reverse. Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income and the timing of the temporary differences becoming deductible. Management considers, among other available information,
scheduled reversals of deferred tax liabilities, projected future taxable income, limitations of availability of net operating loss carryforwards, and other
matters in making this assessment.
We do not provide deferred taxes on unremitted earnings of foreign subsidiaries since we intend to indefinitely reinvest either currently or sometime
in the foreseeable future. Unrecognized provisions for taxes on undistributed earnings of foreign subsidiaries, which are considered indefinitely reinvested,
are not material to our consolidated financial position or results of operations. We are continuously subject to examination by the IRS, as well as various
state and foreign jurisdictions. The IRS and other taxing authorities may challenge certain deductions and credits reported by us on our income tax returns.
In accordance with provisions of ASC Topic 740, Income Taxes (ASC 740), an entity should recognize a tax benefit when it is more-likely-than-not, based
on the technical merits, that the position would be sustained upon examination by a taxing authority. The amount to be recognized, if the more-likely-than-
not threshold was passed, should be measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate
settlement with a taxing authority that has full knowledge of all relevant information. Furthermore, any change in the recognition, de-recognition or
measurement of a tax position should be recorded in the period in which the change occurs. We account for interest and penalties related to uncertain tax
positions as part of the provision for income taxes.
(l) 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.
(m) Advertising Costs
Advertising costs are expensed as incurred and are classified as sales and marketing expenses. We incurred advertising expenses of $3.5 million, $4.4
million and $3.2 million during fiscal 2020, 2019 and 2018, respectively.
(n) 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.
(o) 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 ($3.5 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
($3.5 million) commitment. As of June 30, 2020, the fair value of this investment is 0.5 million CAD ($0.3 million), representing our payments towards the
total commitment during fiscal 2020, and is recorded in non-current assets in our consolidated balance sheet.
(p) New Accounting Pronouncements Adopted in Fiscal 2020
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02, Leases ("Topic 842"). Under the amendment, lessees are
required to recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The ASU is effective for annual
periods, including interim periods within those annual periods, beginning after December 15, 2018. We adopted Topic 842 effective July 1, 2019 using the
effective date method with a modified retrospective transition approach. Results for reporting periods beginning on or after July 1, 2019 are presented
under Topic 842, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting
under Topic 840 “Leases.” We elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed
the carry forward of historical assessments of whether a contract contains a lease, lease classification and initial direct costs. The most significant impact of
the adoption of Topic 842 was the recognition of operating lease right-of-use assets of $28.5 million and current and non-current operating lease liabilities
of $7.4 million and $26.5 million, respectively, and the reversal of deferred rent of $6.5 million as of July 1, 2019. The adoption of Topic 842 did not have
a material impact on our operating results or cash flows, and there was no impact on our debt covenants. See Note 4, "Leases," to our Consolidated
Financial Statements for more information on the impact of adopting Topic 842.
(q) Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses ("Topic 326"). 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. Topic 326 is effective for annual
periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. We are currently
evaluating the impact of Topic 326 on our consolidated financial statements. Based upon the work performed to date, we do not expect the adoption of
Topic 326 will result in a material impact to our consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes ("Topic 740") - Simplifying the Accounting for Income Taxes. ASU 2019-12 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 is permitted. We are currently evaluating the impact of ASU 2019-12 on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“Topic 848”). ASU
2020-04 provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by
reference rate reform if certain criteria are met. The expedients and exceptions provided by ASU 2020-04 apply only to contracts, hedging relationships,
and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued as a result of
reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after
December 31, 2022. ASU No. 2020-04 is effective as of March 12, 2020 through December 31, 2022, and may be applied to contract modifications and
hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. We are currently evaluating the impact of
ASU 2020-04 on our consolidated financial statements.
(3) Revenue from Contracts with Customers
In accordance with 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
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The aspenONE licensing model provides customers with access to all of the products within the aspenONE suite(s) they license. We refer to
these arrangements as token arrangements. Tokens are fixed units of measure. The amount of software usage is limited by the number of tokens purchased
by the customer.
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.
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.
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Training Revenue
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We disaggregate our revenue by region, type of performance obligation, timing of revenue recognition, and segment as follows:
Revenue by region:
North America
Europe
Other (1)
Revenue by type of performance obligation:
Term licenses
Maintenance
Professional services and other
Revenue by segment:
Subscription and software
Services and other
Year Ended June 30,
2020
2019
2018
As Adjusted
As Adjusted
(Dollars in Thousands)
$
$
$
$
$
$
264,134 $
254,428 $
148,774
185,809
153,284
188,970
598,717 $
596,682 $
388,180 $
404,581 $
178,139
32,398
163,567
28,534
598,717 $
596,682 $
566,319 $
568,148 $
32,398
28,534
598,717 $
596,682 $
235,430
115,990
156,146
507,566
318,442
158,838
30,286
507,566
477,280
30,286
507,566
____________________________________________
(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 contract asset throughout the majority of the contract term. We record a contract asset when revenue recognized on a contract
exceeds the billings. We recognize an impairment on contract assets if subsequent to contract inception it becomes probable payment is not collectible. We
review contract assets for impairment at each reporting date using the same methodology used in determining the allowance for doubtful accounts under
Topic 310, Receivables. We review customer receivables and contract assets on an individual basis, and we impair receivables and the associated contract
assets if it is probable that some or all of the asset is not collectible, taking into account historical losses, economic conditions and customer-specific
factors.
Our contract assets and deferred revenue were as follows as of June 30, 2020 and 2019:
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contract assets
Deferred revenue
June 30, 2020
June 30, 2019
As Adjusted
(Dollars in Thousands)
$
$
610,473 $
(57,081)
553,392 $
582,291
(44,891)
537,400
Contract assets and deferred revenue are presented net at the contract level for each reporting period.
The change in deferred revenue during fiscal 2020 was primarily due to an increase in new billings in advance of revenue recognition, partially offset
by $34.1 million of revenue recognized that was included in deferred revenue at June 30, 2019.
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.
Transaction Price Allocated to Remaining Performance Obligations
The following table includes the aggregate amount of the transaction price allocated as of June 30, 2020 to the performance obligations that are
unsatisfied (or partially unsatisfied) at the end of the reporting period:
Year Ended June 30,
2021
2022
2023
2024
2025
Thereafter
(Dollars in Thousands)
$
74,685 $
17,937 $
5,299 $
2,924 $
1,493 $
170,465
129,353
94,647
64,913
37,153
50,589
901
650
313
172
66
9,690
141
License
Maintenance
Services and other
(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 30 days 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.
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The components of lease expenses for the twelve months ended
June 30, 2020 were as follows:
Operating lease costs (1)
Total lease costs
________
(1) Operating lease costs include rent and fixed fees
Twelve Months Ended
June 30, 2020
(Dollars in Thousands)
$
$
9,230
9,230
The following table represents the weighted-average remaining lease term and discount rate information related to our operating leases:
Weighted average remaining lease term
Weighted average discount rate
The following table represents the maturities of our operating lease liabilities as of June 30, 2020:
Year Ending June 30,
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
The following table represents the contractual obligations for our operating leases as of June 30, 2019:
Year Ending June 30,
2020
2021
2022
2023
2024
Thereafter
________
(1) As previously disclosed in our 2019 Annual Report on Form 10-K under the previous lease accounting standard, Topic 840, Leases.
67
June 30, 2020
5.7 years
4.4%
June 30, 2020
(Dollars in Thousands)
8,477
8,784
8,167
7,516
5,481
7,370
45,795
(5,883)
39,912
June 30, 2019 (1)
(Dollars in Thousands)
8,399
7,820
6,514
5,862
4,932
3,307
36,834
$
$
$
$
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(5) Fair Value
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2020 and 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure
fair value:
June 30, 2020:
Cash equivalents
Equity method investments
June 30, 2019:
Cash equivalents
Fair Value Measurements at Reporting Date Using,
Quoted Prices in Active Markets for
Identical Assets
Significant Other Observable Inputs
(Level 1 Inputs)
(Level 2 Inputs)
(Dollars in Thousands)
$
$
1,020 $
—
1,007 $
—
342
—
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 12, "Credit Agreement") approximates its carrying value
due to the floating interest rate.
(6) Accounts Receivable
Our accounts receivable, net of the related allowance for doubtful accounts, were as follows as of June 30, 2020 and 2019:
Accounts receivable, gross
Allowance for doubtful accounts
Accounts receivable, net
June 30,
2020
June 30,
2019
(Dollars in Thousands)
62,925 $
(6,624)
56,301 $
51,133
(3,349)
47,784
$
$
As of June 30, 2020 and 2019, we had no customer receivable balance that represented approximately 10% or more of our total receivables.
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(7) Property and Equipment
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, equipment and leasehold improvements in the accompanying consolidated balance sheets consist of the following:
Property, equipment and leasehold improvements, at cost:
Computer equipment
Purchased software
Furniture & fixtures
Leasehold improvements
Property, equipment and leasehold improvements, at cost
Accumulated depreciation
Property, equipment and leasehold improvements, net
Year Ended June 30,
2020
2019
(Dollars in Thousands)
$
$
6,958 $
22,534
6,971
12,424
48,887
(42,924)
5,963 $
6,642
22,793
6,794
12,232
48,461
(41,227)
7,234
Property and equipment are stated at cost. We record depreciation using the straight-line method over their estimated useful lives, as follows:
Asset Classification
Computer equipment
Purchased software
Furniture and fixtures
Leasehold improvements
Estimated Useful Life
3 years
3 - 5 years
3 - 10 years
Life of lease or asset, whichever is shorter
During fiscal 2020 and 2019, we wrote off fully depreciated property, equipment and leasehold improvements that were no longer in use with gross
book values of $0.9 million and $3.5 million, respectively.
Depreciation expense was $2.4 million, $3.1 million and $3.9 million for fiscal 2020, 2019 and 2018, respectively.
We account for asset retirement obligations in accordance with ASC Topic 410, Asset Retirement and Environmental Obligations. Our asset
retirement obligations relate to leasehold improvements for leased properties. The balance of our asset retirement obligations was $0.9 million as of
June 30, 2020 and 2019, respectively.
(8) Acquisitions
Sabisu Ltd.
On June 12, 2019, we completed the acquisition of all the outstanding shares of Argent & Waugh Limited and Sabisu Ltd. (“Sabisu”), a provider of a
flexible enterprise visualization and workflow solution to deliver real-time decision support, for a total cash consideration of £6.2 million ($7.9 million).
The purchase price consisted of £4.8 million ($6.1 million) of cash paid at closing, a subsequent working capital adjustment of £0.2 million ($0.3 million),
and an additional £1.2 million ($1.5 million) to be held back until June 2021 as security for certain representations, warranties, and obligations of the
sellers. The holdback is recorded in other non-current liabilities in our consolidated balance sheet.
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An allocation of the purchase price is as follows:
Tangible assets acquired, net
Identifiable intangible assets:
Technology-related
Customer relationships
Goodwill
Deferred tax liabilities
Total assets acquired, net
Amount
(Dollars in Thousands)
706
$
1,966
1,180
4,576
(564)
7,864
$
The goodwill reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling Sabisu products and
services to our existing customers. The results of operations of Sabisu have been included prospectively in our results of operations since the date of
acquisition
Mnubo, Inc.
On July 12, 2019, we completed the acquisition of all the outstanding shares of Mnubo Inc. (“Mnubo”), a Canada-based provider of purpose-built
artificial intelligence and analytics infrastructure for the Internet of things, for a total cash consideration of $78.3 million (102.3 million CAD). The
purchase price of $78.3 million includes $7.9 million (10.3 million CAD) paid into an escrow account as security for certain representations, warranties,
and obligations of the sellers, which was released from the escrow account in July 2020.
An allocation of the purchase price is as follows:
Tangible assets acquired, net
Identifiable intangible assets:
Technology-related
Customer relationships
Goodwill
Deferred tax liabilities
Total assets acquired, net
Amount
(Dollars in Thousands)
512
$
13,660
2,990
62,485
(1,347)
78,300
$
The goodwill reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling Mnubo products and
services to our existing customers. The results of operations of Mnubo have been included prospectively in our results of operations since the date of
acquisition.
(9) 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.
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets consist of the following as of June 30, 2020 and 2019:
June 30, 2020:
Technology
Customer relationships
Non-compete agreements
Total
June 30, 2019:
Technology
Customer relationships
Non-compete agreements
Total
Gross Carrying
Amount
Accumulated
Amortization
Effect of Currency
Translation
Net Carrying
Amount
(Dollars in Thousands)
$
51,269 $
(13,245) $
9,148
(3,171)
(842) $
(308)
37,182
5,669
553
(553)
—
—
60,970 $
(16,969) $
(1,150) $
42,851
37,168 $
6,503
(8,868) $
(1,039)
(118) $
(100)
28,182
5,364
553
(492)
—
61
44,224 $
(10,399) $
(218) $
33,607
$
$
$
Total amortization expense related to intangible assets amounted to $6.6 million, $4.5 million and $2.2 million in fiscal 2020, 2019 and 2018,
respectively.
Future amortization expense as of June 30, 2020 is expected to be as follows:
Year Ended June 30,
2021
2022
2023
2024
2025
Thereafter
Total
Amortization Expense
(Dollars in Thousands)
6,842
6,867
6,843
6,288
6,197
9,814
42,851
$
$
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(10) Goodwill
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in the carrying amount of goodwill for our subscription and software reporting segment during the fiscal years ended June 30, 2020 and
2019 were as follows:
June 30, 2019:
Goodwill from acquisitions, net of adjustments
Foreign currency translation
June 30, 2020:
June 30, 2018:
Goodwill from acquisitions, net of adjustments
Foreign currency translation
June 30, 2019:
$
$
$
$
Gross Carrying
Amount
Accumulated
Impairment Losses
Effect of Currency
Translation
145,572 $
(65,569) $
(1,620) $
Net Carrying Amount
78,383
62,278
—
—
—
—
(3,606)
207,850 $
(65,569) $
(5,226) $
62,278
(3,606)
137,055
Gross Carrying
Amount
Accumulated
Impairment Losses
Effect of Currency
Translation
142,316 $
(65,569) $
(1,157) $
Net Carrying Amount
75,590
3,256
—
—
—
—
(463)
145,572 $
(65,569) $
(1,620) $
3,256
(463)
78,383
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.
We have elected December 31st as the annual impairment assessment date. We performed our annual impairment test for the subscription and
software reporting unit as of December 31, 2019 and, based upon the results of our qualitative assessment, determined that it was not likely that its fair
value was less than its carrying amount. As such, we did not recognize impairment losses as a result of our analysis. There were also no impairment losses
recognized during fiscal 2019 and 2018. If an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying value, goodwill will be evaluated for impairment between annual tests.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities in the accompanying consolidated balance sheets consist of the following:
Compensation-related
Deferred acquisition payments
Uncertain tax positions
Royalties and external commissions
Share repurchases
Professional fees
Deferred rent
Other
Total accrued expenses and other current liabilities
Other non-current liabilities in the accompanying consolidated balance sheets consist of the following:
Deferred rent
Uncertain tax positions
Deferred acquisition payments
Asset retirement obligations
Other
Total other non-current liabilities
(12) Credit Agreement
June 30,
2020
June 30,
2019
(Dollars in Thousands)
27,591 $
27,147
1,479
318
3,359
—
2,115
—
8,694
4,600
3,751
3,665
2,432
3,053
1,331
8,615
43,556 $
54,594
June 30,
2020
June 30,
2019
(Dollars in Thousands)
— $
2,027
—
920
160
5,187
2,274
1,524
914
482
3,107 $
10,381
$
$
$
$
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 plus
0.5%, and (iii) the LIBO rate multiplied by the Statutory Reserve Rate 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 rates as of June 30,
2020 were 1.68% on $312.0 million in outstanding borrowings on our term loan facility and 1.69% and 1.68% on $100.0 million and $19.2 million,
respectively, in outstanding borrowings on our revolving credit facility.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2020, we had $119.2 million and $312.0 million in outstanding borrowings on our revolving credit facility and term loan facility,
respectively. Our current borrowings of $135.2 million consist of $119.2 million of the revolving credit facility and $16.0 million of the term loan facility.
Our non-current borrowings of $292.4 million consist of $296.0 million of our term loan facility, net of $3.6 million in debt issuance costs. We had $220.0
million in outstanding current borrowings as of June 30, 2019.
The indebtedness under the revolving credit facility matures on December 23, 2024. The following table summarizes the maturities of the term loan
facility:
Year Ended June 30,
2021
2022
2023
2024
2025
Total
Amount
(Dollars in Thousands)
16,000
20,000
28,000
36,000
212,000
312,000
$
$
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 March 31, 2020, 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 June 30, 2020, we were in compliance with these covenants.
(13) Stock-Based Compensation
Stock Compensation Plans
In December 2016, the shareholders approved the establishment of the 2016 Omnibus Incentive Plan (the 2016 Plan), which provides for the issuance
of a maximum of 6,000,000 shares of common stock. The 2016 Plan provides for the grant of incentive and nonqualified stock options, stock appreciation
rights, restricted stock, restricted stock units, other stock-related awards, and performance awards that may be settled in cash, stock, or other property. As of
June 30, 2020, there were 5,999,368 shares of common stock available for issuance subject to awards under the 2016 Plan.
In April 2010, the shareholders approved the establishment of the 2010 Equity Incentive Plan (the 2010 Plan), which provides for the issuance of a
maximum of 7,000,000 shares of common stock. The 2010 Plan provides for the grant of incentive and nonqualified stock options, stock appreciation
rights, restricted stock, restricted stock units, other stock-related awards, and performance awards that may be settled in cash, stock, or other property. The
2010 Plan expired in March 2020.
Employee Stock Purchase Plan
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 26, 2018, our Board of Directors approved the Aspen Technology, Inc. 2018 Employee Stock Purchase Plan (the "ESPP"), which provides for
the issuance of up to 250,000 shares of common stock to participating employees. The ESPP is intended to be a qualified employee stock purchase plan
under Section 423 of the Internal Revenue Code of 1986, or the IRC. The ESPP was approved at our Annual Meeting of Stockholders on December 7,
2018. The ESPP currently provides for a purchase price equal to 85% of the lower of (a) the fair market value of the common stock on the first trading day
of each ESPP offering period and (b) the fair market value of the common stock on the last day of the offering period. Our initial offering period was
January 1, 2019 through June 30, 2019. Our current offering period is July 1, 2020 through December 31, 2020.
We recorded stock-based compensation expense associated with the ESPP of approximately $0.5 million and $0.3 million during fiscal 2020 and
2019, respectively. As a result of employee stock purchases, we issued 19,222 shares and 13,039 shares of common stock during fiscal 2020 and 2019,
respectively. The aggregate intrinsic value of shares issued under the ESPP was $1.8 million and $0.9 million during fiscal 2020 and 2019, respectively. As
of June 30, 2020, there were 217,739 shares of common stock available for issuance under the ESPP.
General Award Terms
We issue stock options and restricted stock units (RSUs) to our employees and outside directors, pursuant to shareholder-approved equity
compensation plans. Option awards are granted with an exercise price equal to the market closing price of our stock on the trading day prior to the grant
date. Those options generally vest over four years and expire within 7 or 10 years of grant. RSUs generally vest over four years. Historically, our practice
has been to settle stock option exercises and RSU vesting through newly-issued shares.
Stock Compensation Accounting
Our stock-based compensation is accounted for as awards of equity instruments. Our policy is to issue new shares upon the exercise of stock awards.
We utilize the Black-Scholes option valuation model for estimating the fair value of options granted. The Black-Scholes option valuation model
incorporates assumptions regarding expected stock price volatility, the expected life of the option, the risk-free interest rate, dividend yield and the market
value of our common stock. The expected stock price volatility is determined based on our stock's historic prices over a period commensurate with the
expected life of the award. The expected life of an option represents the period for which options are expected to be outstanding as determined by historic
option exercises and cancellations. The risk-free interest rate is based on the U.S. Treasury yield curve for notes with terms approximating the expected life
of the options granted. The expected dividend yield is zero, based on our history and expectation of not paying dividends on common shares. We recognize
compensation costs on a straight-line basis, net of forfeitures, over the requisite service period for time-vested awards.
The weighted average estimated fair value of option awards granted during fiscal 2020, 2019 and 2018 was $33.13, $31.25, and $17.07, respectively.
We utilized the Black-Scholes option valuation model with the following weighted average assumptions:
Risk-free interest rate
Expected dividend yield
Expected life (in years)
Expected volatility factor
Year Ended June 30,
2020
2019
2018
1.5%
2.8%
None
4.5
None
4.6
26.8%
26.6%
1.7%
None
4.6
28.0%
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The stock-based compensation expense and its classification in the accompanying consolidated statements of operations for fiscal 2020, 2019 and
2018 was as follows:
Recorded as expenses:
Cost of maintenance
Cost of service and other
Selling and marketing
Research and development
General and administrative
Total stock-based compensation
Year Ended June 30,
2020
2019
2018
(Dollars in Thousands)
$
$
1,441 $
1,282 $
1,961
5,656
8,306
14,184
31,548 $
1,420
4,849
6,923
13,099
27,573 $
559
920
3,862
7,617
9,730
22,688
A summary of stock option and RSU activity under all equity plans in fiscal 2020 is as follows:
Stock Options
Restricted Stock Units
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in 000's)
Shares
60.33
133.00
46.31
99.00
76.19
59.86
6.94 $
83,388
793,718 $
266,514
(263,136)
(444,175)
352,921 $
6.67 $
5.87 $
49,705
45,976
Weighted
Average
Grant
Date Fair
Value
98.38
133.35
84.30
116.46
112.45
Shares
1,304,017 $
297,859
(154,168)
(37,569)
1,410,139 $
977,190 $
1,364,448 $
74.94
6.61 $
49,308
291,775 $
112.33
Outstanding at June 30, 2019
Granted
Settled (RSUs)
Exercised
Cancelled / Forfeited
Outstanding at June 30, 2020
Exercisable at June 30, 2020
Vested and expected to vest at
June 30, 2020
During fiscal 2020, 2019 and 2018, the weighted average grant-date fair value of RSUs granted was $133.35, $114.72 and $64.32, respectively.
During fiscal 2020, 2019 and 2018 the total fair value of vested shares from RSU grants amounted to $29.7 million, $39.9 million and $23.0 million,
respectively.
As of June 30, 2020, the total future unrecognized compensation cost related to stock options and RSUs was $10.0 million and $20.1 million,
respectively, and are expected to be recorded over a weighted average period of 2.42 years and 2.09 years, respectively.
During fiscal 2020, 2019 and 2018 the weighted average exercise price of stock options granted was $133.00, $113.88 and $64.30. The total intrinsic
value of options exercised during fiscal 2020, 2019 and 2018 was $9.9 million, $18.2 million and $15.1 million, respectively. We received $9.0 million,
$10.9 million and $13.5 million in cash proceeds from issuances of shares of common stock during fiscal 2020, 2019 and 2018, respectively. We paid $10.2
million, $14.7 million and $8.1 million for withholding taxes on vested RSUs during fiscal 2020, 2019 and 2018, respectively.
At June 30, 2020, common stock reserved for future issuance under equity compensation plans was 6.0 million shares.
Performance Awards
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Beginning in fiscal 2019, we granted performance-based long-term incentive awards (“performance awards”) to certain of our executives, including
our named executive officers. The performance period for each performance award is either of the following two-year periods: (i) fiscal 2019 - fiscal 2020,
or (ii) fiscal 2020 - fiscal 2021. Participants receive RSUs on the grant date associated with achievement of all performance targets. The performance
targets for the performance awards are based on meeting at least ten percent growth in annual spend for each fiscal year, defined as an estimate of the
annualized value of our portfolio of term license arrangements, as of a specific date, and the performance goals set out in the executive bonus plan for each
fiscal year, such as free cash flow. If the performance targets are met during one of the two performance periods and the participant remains actively
employed by us, the RSUs convert to time-based vesting wherein fifty percent of the awards immediately vest, and the remaining fifty percent are subject
to additional service vesting over a three-year period. If the performance targets are not met, the participant is no longer actively employed by us prior to
the performance targets being met, or the participant is otherwise determined to be ineligible, the participant forfeits all of the RSUs.
We record compensation expense for the performance awards based on the fair value of the awards, in an amount proportionate to the service time
rendered by the participant, when it is probable that the achievement of the goals will be met. The total fair value of the performance awards was estimated
using the closing price on the date of grant as well as the estimated probable achievement levels of the performance metrics. If the performance-based
conditions are not met, no compensation cost is recognized and any recognized compensation cost is reversed.
We granted 418,886 RSUs in connection with the performance awards. As of June 30, 2020, all of the RSUs issued in connection with the
performance awards were forfeited, due to the performance-based conditions not being met in fiscal 2020. No compensation expense was recognized
during fiscal 2020 and 2019.
(14) Common Stock
On January 22, 2015, our Board of Directors approved a share repurchase program (the "Share Repurchase Program") for up to $450.0 million of our
common stock. The Share Repurchase Program was announced on January 28, 2015, and expires at the end of each fiscal year unless extended. On April
26, 2016, June 8, 2017, April 18, 2018, December 6, 2018, and April 17, 2019, the Board of Directors approved a $400.0 million, $200.0 million, $200.0
million, $100.0 million, and $200.0 million increase in the Share Repurchase Program, respectively. On July 22, 2020, our Board of Directors approved a
new share repurchase program (the "New Share Repurchase Program") for up to $200.0 million of our common stock, and terminated the Share
Repurchase Program. The timing and amount of any shares repurchased are based on market conditions and other factors. All shares of our common stock
repurchased have been recorded as treasury stock under the cost method.
During fiscal 2020, we repurchased 1,252,289 shares of our common stock in the open market for $150.0 million. During fiscal 2019, we repurchased
3,074,127 shares of our common stock in the open market for $300.0 million. During fiscal 2018, we repurchased 2,797,623 shares of our common stock in
the open market for $200.0 million.
As of June 30, 2020, the remaining dollar value under the Share Repurchase Program was $196.3 million.
(15) Net Income Per Share
Basic income per share is determined by dividing net income by the weighted average common shares outstanding during the period. Diluted income
per share is determined by dividing net income by diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect
the dilutive effect, if any, of potential common shares. To the extent their effect is dilutive, employee equity awards and other commitments to be settled in
common stock are included in the calculation of diluted net income per share based on the treasury stock method.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The calculations of basic and diluted net income per share and basic and dilutive weighted average shares outstanding for the years ended June 30,
2020, 2019 and 2018 are as follows:
Net income
Weighted average shares outstanding
Dilutive impact from:
Employee equity awards
Dilutive weighted average shares outstanding
Income per share
Basic
Dilutive
Year Ended June 30,
2020
2019
2018
As Adjusted
As Adjusted
(Dollars and Shares in Thousands, Except per Share Data)
$
229,671 $
261,362 $
281,234
68,000
69,925
727
68,727
3.38 $
3.34 $
862
70,787
3.74 $
3.69 $
72,140
816
72,956
3.90
3.85
$
$
For the years ended June 30, 2020, 2019 and 2018, certain employee equity awards were anti-dilutive based on the treasury stock method. The
following employee equity awards were excluded from the calculation of dilutive weighted average shares outstanding because their effect would be anti-
dilutive as of the balance sheet date:
Employee equity awards
Year Ended June 30,
2020
2019
2018
(Shares in Thousands)
670
784
419
Included in the table above are options to purchase 287,809 shares of our common stock as of June 30, 2020 which were not included in the
computation of dilutive weighted average shares outstanding, because their exercise prices ranged from $116.90 per share to $138.14 per share and were
greater than the average market price of our common stock during the period then ended. These options were outstanding as of June 30, 2020 and expire at
various dates through February 17, 2030.
(16) Income Taxes
Income before provision for income taxes consists of the following:
Domestic
Foreign
Income before provision for income taxes
Year Ended June 30,
2020
2019
As Adjusted
(Dollars in Thousands)
2018
As Adjusted
$
$
274,066 $
297,002 $
5,291
4,525
279,357 $
301,527 $
218,452
7,901
226,353
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes shown in the accompanying consolidated statements of operations is composed of the following:
Federal—
Current
Deferred
State—
Current
Deferred
Foreign—
Current
Deferred
Year Ended June 30,
2020
2019
As Adjusted
(Dollars in Thousands)
2018
As Adjusted
$
17,048 $
28,101
64,194 $
(27,267)
47,734
(107,588)
1,367
500
2,797
(127)
3,246
(1,033)
1,549
(524)
1,471
939
2,296
267
$
49,686 $
40,165 $
(54,881)
Our tax expense for fiscal 2020 was unfavorably impacted by the recognition of $6.4 million tax expense due to an accounting method change
election when we filed our fiscal 2019 federal tax return as a result of a change in tax regulations during this fiscal year, to defer the acceleration of income
for tax purposes as a result of adopting Topic 606. Fiscal 2020 was favorably impacted by the FDII deduction and tax credits.
The provision for income taxes differs from that based on the federal statutory rate due to the following:
Federal tax provision at statutory rate
State income taxes
Remeasurement of deferred taxes
Foreign-derived intangible income (FDII)
Global intangible low-taxed income (GILTI)
Effect of foreign operations
Impact of tax accounting method change
Foreign taxes and rate differences
Stock-based compensation
Tax credits
Uncertain tax positions
Domestic production activity deduction
Valuation allowance
Other, net
Provision for income taxes
Year Ended June 30,
2020
2019
As Adjusted
(Dollars in Thousands)
2018
As Adjusted
$
58,665 $
63,321 $
1,225
—
(13,581)
404
6,148
6,433
404
33
(7,969)
(3,236)
—
504
656
1,533
—
(20,326)
797
7,395
—
514
(3,774)
(9,677)
1,055
—
(550)
(123)
63,515
1,411
(110,986)
—
—
4,700
—
(164)
(2,951)
(7,913)
(185)
(4,869)
2,326
235
$
49,686 $
40,165 $
(54,881)
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net deferred tax liabilities consist of the following at June 30, 2020 and 2019:
Deferred tax assets:
State and foreign credits
Net operating loss carryforwards
Deferred revenue
Other reserves and accruals
Intangible assets
Property, leasehold improvements, and other basis differences
Other temporary differences
Deferred tax liabilities:
Contract assets and costs
Deferred revenue
Intangible assets
Property, leasehold improvements, and other basis differences
Valuation allowance
Net deferred tax liabilities
Year Ended June 30,
2020
2019
As Adjusted
(Dollars in Thousands)
$
4,922 $
1,200
4,596
7,465
982
5,514
925
4,055
906
5,252
6,082
1,020
1,433
453
25,604
19,201
(158,538)
(27,066)
(6,815)
(5,223)
(197,642)
(6,205)
$
(178,243) $
(147,619)
(8,610)
(5,635)
(1,146)
(163,010)
(4,866)
(148,675)
Reflected in the deferred tax assets above at June 30, 2020, we have foreign net operating loss carryforwards of $1.2 million, with unlimited
carryforwards, and state and foreign research and development credits of $5.4 million which begin to expire in 2025.
Our valuation allowance for deferred tax assets was $6.2 million and $4.9 million as of June 30, 2020 and 2019, respectively. The most significant
portion of the valuation allowance as of June 30, 2020 is attributable to a reserve against state R&D tax credits of $4.8 million.
For fiscal 2020, our income tax provision included amounts determined under the provisions of ASC 740 intended to satisfy additional income tax
assessments, including interest and penalties, that could result from any tax return positions for which the likelihood of sustaining the position on audit does
not meet a threshold of "more likely than not." Tax liabilities were recorded as a component of our income taxes payable and other non-current liabilities.
The ultimate amount of taxes due will not be known until examinations are completed and settled or the audit periods are closed by statutes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the reserve for uncertain tax positions is as follows:
Uncertain tax positions, beginning of year
Gross increases (decreases) —tax positions in prior period
Gross increases—tax positions in current period
Gross decreases—lapse of statutes
Currency translation adjustment
Uncertain tax positions, end of year
Year Ended June 30,
2020
2019
2018
(Dollars in Thousands)
5,380 $
3,931 $
(2,216)
—
(1,032)
(26)
407
1,789
(740)
(7)
2,106 $
5,380 $
3,921
544
—
(637)
103
3,931
$
$
At June 30, 2020, the total amount of unrecognized tax benefits is $2.1 million. Upon being recognized, $1.9 million would reduce the effective tax
rate. Our policy is to recognize interest and penalties related to income tax matters as provision for (benefit from) income taxes. At June 30, 2020, we had
approximately $0.3 million of accrued interest and $0.1 million of penalties related to uncertain tax positions. We recorded a benefit for interest and
penalties of approximately $0.3 million during fiscal 2020.
We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years
2009 to 2019, some of which are currently under audit by local tax authorities. The resolutions of these audits are not expected to be material to our
consolidated financial statements.
(17) Commitments and Contingencies
Standby letters of credit for $3.5 million and $3.9 million secured our performance on professional services contracts, certain facility leases and
potential liabilities as of June 30, 2020 and 2019, respectively. The letters of credit as of June 30, 2020 expire at various dates through fiscal 2026.
(18) Retirement Plans
We maintain a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code (IRC) covering all eligible employees, as
defined. Under the plan, a participant may elect to defer receipt of a stated percentage of his or her compensation, subject to limitation under the IRC,
which would otherwise be payable to the participant for any plan year. We may make discretionary contributions to this plan, including making matching
contributions of 50%, up to a maximum of 6% of an employee's pretax contribution. We made matching contributions of approximately $2.8 million, $2.6
million and $2.7 million in fiscal 2020, 2019 and 2018, respectively. Additionally, we participate in certain government mandated and defined contribution
plans throughout the world for which we comply with all funding requirements.
(19) Segment and Geographic Information
Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available
and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to assess performance. Our chief operating decision
maker is our President and Chief Executive Officer.
We have two operating and reportable segments, which are consistent with our reporting units: i) subscription and software and ii) services and other.
The subscription and software segment is engaged in the licensing of process optimization and asset performance management software solutions and
associated support services, and includes our license and maintenance revenue. The services and other segment includes professional services and training,
and includes our services and other revenue. We do not track assets or capital expenditures by operating segments. Consequently, it is not practical to
present assets, capital expenditures, depreciation or amortization by operating segments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a summary of our reportable segments' profits:
Year Ended June 30, 2020:
Segment revenue
Segment expenses (1)
Segment profit
Year Ended June 30, 2019, As Adjusted:
Segment revenue
Segment expenses (1)
Segment profit
Year Ended June 30, 2018, As Adjusted:
Segment revenue
Segment expenses (1)
Segment profit
____________________________________________
Subscription and
Software
Services and Other
Total
(Dollars in Thousands)
$
$
$
$
$
$
566,319 $
(233,205)
333,114 $
568,148 $
(220,764)
347,384 $
477,280 $
(204,457)
272,823 $
32,398 $
(35,118)
(2,720) $
28,534 $
(31,548)
(3,014) $
30,286 $
(28,000)
2,286 $
598,717
(268,323)
330,394
596,682
(252,312)
344,370
507,566
(232,457)
275,109
(1) Our reportable segments’ operating expenses include expenses directly attributable to the segments. Segment expenses include selling and
marketing and research and development expenses. Segment expenses do not include allocations of general and administrative expense; interest
income; interest expense; and other (expense) income, net.
Reconciliation to Income Before Income Taxes
The following table presents a reconciliation of total segment operating profit to income before provision for income taxes:
Total segment profit for reportable segments
General and administrative
Interest income
Interest (expense)
Other (expense) income, net
Income before income taxes
Geographic Information:
Year Ended June 30,
2020
2019
2018
As Adjusted
As Adjusted
$
$
(Dollars in Thousands)
330,394 $
344,370 $
(73,035)
32,658
(11,862)
1,202
(63,231)
28,457
(8,733)
664
279,357 $
301,527 $
275,109
(67,181)
24,954
(5,691)
(838)
226,353
We have long-lived assets of approximately $92.9 million that are located domestically and $132.4 million that reside in other geographic locations
as of June 30, 2020. We had long-lived assets of approximately $79.0 million that were located domestically and $44.5 million that reside in other
geographic locations as of June 30, 2019.
(20) Immaterial Correction to Prior Period Financial Statements
82
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the fourth quarter of fiscal 2020, we identified errors affecting the transition adjustment recorded upon the adoption of Topic 606 as well as errors in the
determination of revenue balances in the periods post-adoption of Topic 606, and as a consequence, we have corrected the impact of the previously
reported transition adjustment related to contract assets to reflect a lower contract asset balance and related deferred income taxes balance, in addition to
reductions in revenue and net income for the fiscal years ended June 30, 2019 and 2018. The Company considered both the quantitative and qualitative
factors within the provisions of SEC Staff Accounting Bulletin No. 99, Materiality, and Staff Accounting Bulletin No. 108, Considering the Effect of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. Based on evaluation of the misstatements on an individual and
aggregate basis, the Company concluded the prior period errors were immaterial to the previously issued consolidated financial statements. As such, the
Company has elected to correct the identified error in the prior periods within the current Consolidated Financial Statements. Future filings that include
prior periods will be corrected, as needed, when filed. The following presents the effect of recording the immaterial correction in the consolidated financial
statements as of and for the fiscal years ended June 30, 2019 and 2018:
Consolidated Statements of Operations
Revenue:
License
Maintenance
Services and other
Total revenue
Gross profit
Income from operations
Income before income taxes
Provision for (benefit from) income taxes
Net income
Net income per common share:
Basic
Diluted
Consolidated Statements of Operations
Revenue:
License
Maintenance
Services and other
Total revenue
Gross profit
Income from operations
Income before income taxes
Provision for (benefit from) income taxes
Net income
Net income per common share:
Basic
Diluted
As Previously Reported
Adjustments
As Adjusted
Year Ended June 30, 2019
(Dollars in Thousands, Except per Share Data)
$
404,122 $
459 $
165,436
28,787
598,345
540,529
282,802
303,190
40,456
(1,869)
(253)
(1,663)
(1,663)
(1,663)
(1,663)
(291)
$
$
$
262,734 $
(1,372) $
3.76 $
3.71 $
(0.02) $
(0.02) $
404,581
163,567
28,534
596,682
538,866
281,139
301,527
40,165
261,362
3.74
3.69
As Previously Reported
Adjustments
As Adjusted
Year Ended June 30, 2018
(Dollars in Thousands, Except per Share Data)
$
326,549 $
(8,107) $
161,065
31,245
518,859
468,215
219,221
237,646
(56,057)
(2,227)
(959)
(11,293)
(11,293)
(11,293)
(11,293)
1,176
293,703 $
(12,469) $
4.07 $
4.03 $
(0.17) $
(0.18) $
$
$
$
83
318,442
158,838
30,286
507,566
456,922
207,928
226,353
(54,881)
281,234
3.90
3.85
Table of Contents
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Prepaid expenses and other current assets
Non-current contract assets
Total assets
Deferred income taxes
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
Consolidated Statements of Stockholders' Equity
Retained earnings, beginning of year
Retained earnings, end of year
Consolidated Statements of Stockholders' Equity
Retained earnings, beginning of year
Retained earnings, end of year
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes
Changes in assets and liabilities:
Contract assets
Net cash provided by operating activities
84
As Previously Reported
June 30, 2019
Adjustments
(Dollars in Thousands)
As Adjusted
$
$
$
12,628 $
(2,640) $
325,510
903,065
159,071
1,259,984
393,285
(37,412)
(40,052)
(8,727)
(31,325)
(31,325)
903,065 $
(40,052) $
9,988
288,098
863,013
150,344
1,228,659
361,960
863,013
As Previously Reported
June 30, 2019
Adjustments
(Dollars in Thousands)
As Adjusted
997,250 $
(29,953) $
967,297
1,259,984
(31,325)
1,228,659
As Previously Reported
June 30, 2018
Adjustments
(Dollars in Thousands)
As Adjusted
$
703,547 $
(17,484) $
997,250
(29,953)
686,063
967,297
As Previously Reported
Adjustments
As Adjusted
Year Ended June 30, 2019
(Dollars in Thousands)
$
262,734 $
(1,372) $
261,362
(26,839)
(290)
(27,129)
(59,322)
238,313
1,662
—
(57,660)
238,313
Table of Contents
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes
Changes in assets and liabilities:
Contract assets
Net cash provided by operating activities
(21) Quarterly Financial Data (Unaudited)
As Previously Reported
Adjustments
As Adjusted
Year Ended June 30, 2018
(Dollars in Thousands)
$
293,703 $
(12,469) $
281,234
(110,308)
1,177
(109,131)
3,640
206,936
11,292
—
14,932
206,936
The following tables present quarterly consolidated statement of operations data for fiscal 2020 and 2019. The below data is unaudited but, in our
opinion, reflects all adjustments necessary for a fair presentation of this data in accordance with GAAP. Selected quarterly data provided below has been
revised, as compared to the selected quarterly financial data presented in the Company’s Quarterly Reports on Form 10-Q for the immaterial correction
discussed within Note 20, "Immaterial Correction to Prior Period Financial Statements."
The following presents results of operations for the fourth quarter of fiscal 2020, and also presents the effect of recording the immaterial correction in
the consolidated quarterly financial data for the first three quarters of fiscal 2020 and the four quarters of fiscal 2019:
Total revenue
Gross profit
Income from operations
Net income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Three Months Ended
June 30, 2020
(Dollars in Thousands, Except per Share Data)
201,940
186,782
116,296
94,530
1.40
1.39
67,634
68,176
$
$
$
85
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total revenue
Gross profit
Income from operations
Net income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Total revenue
Gross profit
Income from operations
Net income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Total revenue
Gross profit
Income from operations
Net income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
$
$
Three Months Ended March 31, 2020
As Previously Reported
Adjustments
As Adjusted
(Dollars in Thousands, Except per Share Data)
132,027 $
(1,439) $
116,322
46,173
43,521
0.64 $
0.64 $
67,806
68,482
(1,439)
(1,439)
(1,695)
(0.02) $
(0.03) $
—
—
130,588
114,883
44,734
41,826
0.62
0.61
67,806
68,482
Three Months Ended December 31, 2019
As Previously Reported
Adjustments
As Adjusted
(Dollars in Thousands, Except per Share Data)
124,732 $
109,206
41,659
38,275
0.56 $
0.56 $
68,114
68,844
1,280 $
1,280
1,280
1,526
0.02 $
0.02 $
—
—
126,012
110,486
42,939
39,801
0.58
0.58
68,114
68,844
Three Months Ended September 30, 2019
As Previously Reported
Adjustments
As Adjusted
(Dollars in Thousands, Except per Share Data)
134,091 $
118,873
47,304
46,284
0.68 $
0.67 $
68,441
69,317
6,086 $
6,086
6,086
7,230
0.10 $
0.10 $
—
—
140,177
124,959
53,390
53,514
0.78
0.77
68,441
69,317
86
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total revenue
Gross profit
Income from operations
Net income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Total revenue
Gross profit
Income from operations
Net income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Total revenue
Gross profit
Income from operations
Net income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
$
$
Three Months Ended June 30, 2019
As Previously Reported
Adjustments
As Adjusted
(Dollars in Thousands, Except per Share Data)
195,769 $
180,279
111,223
103,865
1.51 $
1.49 $
68,839
69,638
1,388 $
1,388
1,388
2,129
0.03 $
0.03 $
—
—
197,157
181,667
112,611
105,994
1.54
1.52
68,839
69,638
Three Months Ended March 31, 2019
As Previously Reported
Adjustments
As Adjusted
(Dollars in Thousands, Except per Share Data)
147,984 $
133,624
70,831
61,587
0.89 $
0.88 $
69,423
70,160
312 $
312
312
364
— $
— $
—
—
148,296
133,936
71,143
61,951
0.89
0.88
69,423
70,160
Three Months Ended December 31, 2018
As Previously Reported
Adjustments
As Adjusted
(Dollars in Thousands, Except per Share Data)
140,423 $
(2,400) $
125,684
63,758
59,217
0.84 $
0.83 $
70,428
71,148
(2,400)
(2,400)
(2,763)
(0.04) $
(0.04) $
—
—
138,023
123,284
61,358
56,454
0.80
0.79
70,428
71,148
87
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total revenue
Gross profit
Income from operations
Net income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Three Months Ended September 30, 2018
As Previously Reported
Adjustments
As Adjusted
(Dollars in Thousands, Except per Share Data)
114,169 $
100,942
36,990
38,066
0.54 $
0.53 $
70,988
72,015
(963) $
(963)
(963)
(1,100)
(0.02) $
(0.02) $
—
—
113,206
99,979
36,027
36,966
0.52
0.51
70,988
72,015
$
$
$
88
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Schedule II - Valuation and Qualifying Accounts
Description
Balance at Beginning of
Year
Additions:
Charges to Costs and
Expenses
Deductions:
Returns and Write-Offs
Balance at End of Year
Year ended June 30, 2020
Allowance for doubtful accounts
Year ended June 30, 2019
Allowance for doubtful accounts
Year ended June 30, 2018
Allowance for doubtful accounts
$
(3,349) $
(5,255) $
1,980 $
(Dollars in Thousands)
(1,621)
(2,463)
975
1,045
(2,703)
(1,285)
89
(6,624)
(3,349)
(2,703)
Table of Contents
EXHIBIT INDEX
Exhibit Number
3.1
Certificate of Incorporation of Aspen Technology, Inc., as amended
Description
Filed with this Form 10-
K
3.2
4.1
4.2
10.1
10.2
10.3
Amended and Restated By-laws of Aspen Technology, Inc., adopted on May 19, 2020
Specimen certificate for common stock, $.10 par value, of Aspen Technology, Inc.
Description of Securities
Lease Agreement dated January 27, 2014 between RAR2-Crosby Corporate Center QRS, Inc. and Aspen
Technology, Inc. regarding 20, 22 and 28 Crosby Drive, Bedford, Massachusetts
System License Agreement dated March 30, 1982 between Aspen Technology, Inc. and the Massachusetts
Institute of Technology
Amendment dated March 30, 1982 to System License Agreement dated March 30, 1982 between Aspen
Technology, Inc. and the Massachusetts Institute of Technology
10.4
Rule 2.7 Announcement, dated January 12, 2016
10.5
10.6
10.7
10.8
10.9
10.10
10.11
364-Day Bridge Credit Agreement, dated as of January 12, 2016, among Aspen Technology, Inc., as
borrower, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan
Securities LLC, as sole lead arranger and sole bookrunner
Credit Agreement, dated as of February 26, 2016, among Aspen Technology, Inc., as borrower, the lenders,
co-documentation agents and issuing banks party thereto, JPMorgan Chase Bank, N.A., as administrative
agent, joint lead arranger and joint bookrunner, and Silicon Valley Bank, as syndication agent, joint lead
arranger and joint bookrunner
Incremental Facility Amendment, dated as of August 9, 2017, to the Credit Agreement dated as of February
26, 2016 among Aspen Technology, Inc. as borrower, the lenders, JPMorgan Chase Bank, N.A. as
administrative agent and issuing bank, and certain other Lenders acting in such capacity from time to time, as
issuing banks
Amended and Restated Credit Agreement dated as of December 23, 2019, among Aspen Technology, Inc., as
borrower, the lenders party thereto, 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
Citibank N.A., Citizens Bank, N.A., TD Bank, N.A. and Wells Fargo Bank, N.A., as co-documentation
agents
First Amendment to Amended and Restated Credit Agreement dated as of August 5, 2020, among Aspen
Technology, Inc., as borrower, the lenders party thereto, 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 Citibank N.A., Citizens Bank, N.A., TD Bank, N.A. and Wells Fargo Bank, N.A.,
as co-documentation agents
Master Confirmation-Accelerated Share Repurchase Dated August 29, 2016, with J.P. Morgan Securities, as
agent for JP Morgan Chase Bank
Stock Purchase Agreement dated October 26, 2016 by and among AspenTech Holding Corporation,
Mtelligence Corporation, each of the stockholders and key sellers of Mtelligence Corporation, and Cito
Capital Corporation
90
X
X
Table of Contents
Exhibit Number
10.12^
10.13^
10.14^
Aspen Technology, Inc. 2010 Equity Incentive Plan
Description
Form of Terms and Conditions of Restricted Stock Unit Agreement granted under Aspen Technology, Inc.
2010 Equity Incentive Plan
Form of Terms and Conditions of Stock Option Agreement Granted under Aspen Technology, Inc. 2010
Equity Incentive Plan
Filed with this Form 10-
K
10.15^
Aspen Technology, Inc. 2016 Omnibus Incentive Plan
10.16^
10.17^
Form of Terms and Conditions of Restricted Stock Unit Agreement Granted Under Aspen Technology Inc.
2016 Omnibus Incentive Plan
Form of Terms and Conditions of Stock Option Agreement Granted Under Aspen Technology Inc. 2016
Omnibus Incentive Plan
10.18^
Aspen Technology, Inc. Executive Annual Incentive Bonus Plan (Fiscal Year 2016)
10.19^
Aspen Technology, Inc. Executive Annual Bonus Plan (Fiscal Year 2017)
10.20^
Aspen Technology, Inc. Executive Annual Bonus Plan (Fiscal Year 2017)(Correction of the exhibit filed as
Exhibit 10.1 of the 8-K filed on July 22, 2016, in which Growth in Annual Spend was referred to as Growth
in License Annual Spend)
10.21^
Aspen Technology, Inc. Executive Annual Incentive Bonus Plan (Fiscal Year 2018)
10.22^
Aspen Technology, Inc. Executive Annual Incentive Bonus Plan (Fiscal Year 2019)
10.23^
Aspen Technology, Inc. FY20 Executive Bonus Plan
10.24^
Aspen Technology, Inc. FY21 Executive Bonus Plan
10.25^
Letter agreement dated August 2, 2019 between Aspen Technology, Inc. and Gary M. Weiss
10.26^
10.27^
Amended and Restated Executive Retention Agreement dated January 31, 2019 entered into by Aspen
Technology, Inc. and Antonio J. Pietri
Form of Amended and Restated Executive Retention Agreement dated January 31, 2019 entered into between
Aspen Technology, Inc. and each of Gary M. Weiss, Karl E. Johnsen and Frederic G. Hammond
10.28^
Form of Confidentiality and Non-Competition Agreement of Aspen Technology, Inc.
10.29^
21.1
23.1
31.1
31.2
32.1*
Non-Competition and Non-Solicitation Agreement dated July 1, 2013 entered into by Aspen Technology, Inc.
and Antonio J. Pietri
Subsidiaries of Aspen Technology, Inc.
Consent of KPMG LLP
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
101.INS
Inline Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
91
X
X
X
X
X
X
X
X
X
Table of Contents
Exhibit Number
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
Description
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information
contained in Exhibits 101)
Filed with this Form 10-
K
X
X
X
____________________________________________
(1) The SEC File No. is 000-24786 for Exhibits 3.1, 4.1, 10.2, 10.3, and 10.28, inclusive. The SEC File No. for all other exhibits is 001-34630.
^
*
Management contract or compensatory plan or arrangement
The certification attached as Exhibit 32.1 that accompanies this Form 10-K is not deemed filed with the SEC and is not to be incorporated by
reference into any filing of Aspen Technology, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or
after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.
92
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: December 9, 2020
Date: December 9, 2020
ASPEN TECHNOLOGY, INC.
By:
By:
/s/ ANTONIO J. PIETRI
Antonio J. Pietri
President and Chief Executive Officer
/s/ KARL E. JOHNSEN
Karl E. Johnsen
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
93
Table of Contents
Signature
Title
Date
President and Chief Executive Officer and Director
(Principal Executive Officer)
December 9, 2020
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
December 9, 2020
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
December 9, 2020
Chairman of the Board of Directors
December 9, 2020
/s/ ANTONIO J. PIETRI
Antonio J. Pietri
/s/ KARL E. JOHNSEN
Karl E. Johnsen
/s/ CHRISTOPHER J. STAGNO
Christopher J. Stagno
/s/ ROBERT M. WHELAN, JR.
Robert M. Whelan, Jr.
/s/ DR. THOMAS BRADICICH
Dr. Thomas Bradicich
/s/ DONALD P. CASEY
Donald P. Casey
/s/ AMAR HANSPAL
Amar Hanspal
/s/ GARY E. HAROIAN
Gary E. Haroian
Director
Director
Director
Director
/s/ ADRIANA KARABOUTIS
Adriana Karaboutis
Director
/s/ GEORGIA KERESTY
Georgia Keresty
/s/ JOAN C. MCARDLE
Joan C. McArdle
/s/ SIMON OREBI GANN
Simon Orebi Gann
/s/ R. HALSEY WISE
R. Halsey Wise
Director
Director
Director
Director
94
December 9, 2020
December 9, 2020
December 9, 2020
December 9, 2020
December 9, 2020
December 9, 2020
December 9, 2020
December 9, 2020
December 9, 2020
Description of Aspen Technology, Inc. Capital Stock
Exhibit 4.2
The following information constitutes the “Description of Securities” required by Item 202(a) of Regulation S-K. References herein to “we,” “our,”
“us,” or "our company” refer to Aspen Technology, Inc., a Delaware corporation. The following information summarizes the material terms of our common
and preferred stock, as well as relevant provisions of our charter, which includes certificates of designations relating to each series of our preferred stock,
and bylaws and the Delaware General Corporation Law. For a complete description of the terms of our common and preferred stock, please refer to our
charter and bylaws. While the terms summarized below will apply generally to any shares of common or preferred stock that we may offer in the future,
we will describe the particular terms of any series of these securities in more detail in the applicable prospectus relating to the offering of these securities.
The terms of any common or preferred stock that we offer pursuant to a prospectus may differ from the terms described below, and any such additional or
different terms will be set forth in that prospectus.
Our authorized capital stock consists of 220,000,000 shares. These shares consist of 210,00,000 shares of common stock, $0.10 par value per share,
and 10,000,000 shares of preferred stock, $0.10 par value per share, of which 3,636 shares have been designated as Series D redeemable convertible
preferred stock.
Common Stock
Voting. Each holder of common stock is entitled to one vote on all matters to be voted upon by stockholders for each share held on the record date for
such vote.
Dividends. Subject to any preference rights of holders of preferred stock, holders of common stock are entitled to receive dividends, when, as and if
declared by the board of directors, out of funds legally available for dividends.
Liquidation. Upon liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all of our assets available for
distribution to stockholders in proportion to the amount of common stock they own. The amount available for common stockholders is calculated after our
payment of liabilities. Holders of preferred stock will receive their preferential share of our assets before the holders of common stock receive any assets.
Other Rights. Holders of common stock have no right to:
•
•
•
convert the common stock into any other security,
have the common stock redeemed or
purchase additional shares of common stock to maintain their proportionate ownership interest.
The common stock does not have any cumulative voting rights, which means that the holders of a majority of the shares can elect all the directors to be
elected by common stockholders and that the holders of the remaining shares will not be able to elect any of those directors. All outstanding shares of
common stock are validly issued, fully paid and non-assessable. The rights, preferences and privileges of holders of common stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of preferred stock that we have designated and issued or may designate and issue
in the future.
Preferred Stock
Our charter authorizes the board of directors to issue, without any further action by the stockholders, preferred stock in one or more series, to establish
from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of the shares of each series
and the qualifications, limitations or restrictions thereof, including voting rights, dividend rights, conversion rights, liquidation preferences, redemption
privileges and sinking fund terms. The rights, preferences and restrictions of the preferred stock of each series are or will be fixed by the certificate of
designations relating to that series. Any or all of the rights of a series of preferred stock may be greater than the rights of the common stock. In addition, a
series of preferred stock may have other rights, including economic rights senior to our common stock, so that the issuance of such preferred stock would
adversely affect the market value of our common stock. The issuance of preferred stock may also have the effect of delaying, deferring or preventing a
change in control of our company without any action by the stockholders.
1
Our charter authorizes two series of Series D preferred: Series D-1 convertible preferred stock and Series D-2 preferred, which we collectively refer
to as the Series D preferred. All of the previously authorized and outstanding shares of Series D preferred were surrendered for conversion into common
stock and, upon such conversion, (a) all rights with respect to such shares of Series D preferred ceased and terminated and (b) all of such shares of Series D
preferred were retired and canceled and could not be reissued. We may, without the need for action by any stockholders, take such appropriate action as
may be necessary to eliminate the authorized number of shares of Series D preferred and thereby return such number of shares to the status of additional
shares of authorized undesignated preferred stock.
Certain Effects of Authorized but Unissued Stock
We have granted our board of directors the authority to issue preferred stock and to determine its rights and preferences in order to eliminate delays
associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from
acquiring, a majority of our outstanding voting stock.
Certain Provisions of Our Charter and By-Laws
We must comply with Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date the person
became an interested stockholder, unless the business combination is approved in a prescribed manner. Generally, a “business combination” includes
mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” includes a
person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock. The
existence of this provision generally will have an anti-takeover effect for a transaction not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Our charter provides for the division of the board of directors into three classes as nearly equal in size as possible with staggered three-year terms. In
addition, our charter provides that directors may be removed only for cause by the affirmative vote of the holders of two-thirds of the shares of capital stock
of the corporation entitled to vote. Under our charter, any vacancy on the board of directors, however occurring, including a vacancy resulting from an
enlargement of the board, may only be filled by vote of a majority of the directors then in office. The classification of the board and the limitations on the
removal of directors and filling of vacancies could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party
from acquiring, control of us.
Our charter also provides that any action required or permitted to be taken by our stockholders at any annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting and may not be taken by written consent in lieu of a meeting. Our charter
further provides that special meetings of the stockholders may only be called by our chairman of the board of directors, our chief executive officer or, if
none, our president, or by the board of directors. Under our bylaws, in order for any matter to be considered properly brought before a meeting, a
stockholder must comply with certain requirements regarding advance notice to us. The foregoing provisions could have the effect of delaying until the
next stockholders’ meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities. These provisions may
also discourage another person from making a tender offer for our common stock, because such person, even if it acquired a majority of our outstanding
voting securities, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders’
meeting, and not by written consent.
The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation’s charter or by-laws, unless a corporation’s charter or bylaws, as the case may be, requires a greater percentage. Our
charter and bylaws require the affirmative vote of the holders of at least 75% of the voting power of all the shares of our capital stock issued, outstanding
and entitled to vote to amend or repeal any of the provisions described in the prior two paragraphs.
Our charter contains certain provisions permitted under the Delaware General Corporation Law relating to the liability of directors. The provisions
eliminate a director’s liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful acts, such as the
breach of a director’s duty of loyalty or acts or omissions that involve intentional misconduct or a knowing violation of law. Further, our charter contains
provisions to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law.
2
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock Transfer & Trust Company.
NASDAQ Global Select Market Listing
The common stock has been approved for trading and quotation on the NASDAQ Global Select Market under the symbol “AZPN.”
3
Exhibit 10.9
ASPEN TECHNOLOGY, INC.
List of Subsidiaries as of June 30, 2020
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Apex Optimisation Technologies B.V.
Name of Subsidiary
Apex Optimisation UK Ltd.
Apex Optimisation Ltd.
Apex Optimisation Inc.
Apex Optimisation SRO
Aspen Tech de Mexico, S. de R.L. de C.V.
Aspen Tech India Private Ltd.
Aspen Technology (Asia), Inc.
Aspen Technology Australia Pty. Ltd.
Aspen Technology International, Inc.
Aspen Technology LLC
Aspen Technology S.A.S.
Aspen Technology S.L.
Aspen Technology Services Corporation
AspenTech (Beijing) Ltd.
AspenTech (Shanghai) Ltd.
AspenTech (Thailand) Ltd.
AspenTech Africa (Pty.) Ltd.
AspenTech Argentina S.R.L.
AspenTech Canada Corporation
AspenTech Canada Holdings, LLC
AspenTech Europe B.V.
AspenTech Europe, S.A./N.V.
AspenTech Holding Corporation
AspenTech Japan Co. Ltd.
AspenTech Ltd.
AspenTech Pte. Ltd.
AspenTech S.r.l.
AspenTech Software Brasil Ltda.
AspenTech Software Corporation
AspenTech Solutions Sdn. Bhd.
AspenTech Venezuela C.A.
Hyprotech UK Ltd.
Mnubo Solutions Inc. d/b/a Mnubo Inc.
Mtelligence Corporation
The Fidelis Group, LLC
Argent & Waugh Ltd.
Sabisu Ltd.
Exhibit 21.1
State or Country
of Incorporation
Netherlands
United Kingdom
United Kingdom
Delaware
Czech Republic
Mexico
India
Delaware
Australia
Delaware
Russia
Colombia
Spain
Delaware
PRC
PRC
Thailand
South Africa
Argentina
Canada
Delaware
Netherlands
Belgium
Delaware
Japan
United Kingdom
Singapore
Italy
Brazil
Delaware
Malaysia
Venezuela
United Kingdom
Canada
Delaware
Texas
United Kingdom
United Kingdom
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
To the Board of Directors
Aspen Technology, Inc.
We consent to the incorporation by reference in the registration statements (No. 333-128423, 333-169657, 333-215818, and 333-228978) on Form S-
8 of Aspen Technology, Inc. (the Company) of our reports dated December 9, 2020, with respect to the consolidated balance sheets of Aspen Technology,
Inc. as of June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each
of the years in the three-year period ended June 30, 2020, and the related notes and financial statement Schedule II-Valuation and Qualifying Accounts
(collectively, the consolidated financial statements), and the effectiveness of internal control over financial reporting as of June 30, 2020, which reports
appear in the June 30, 2020 annual report on Form 10‑K of Aspen Technology, Inc.
As discussed in Note 3(o) to the consolidated financial statements, the Company has changed its method of accounting for leases as of July 1, 2019
due to the adoption of Accounting Standards Codification (ASC) Topic 842, Leases.
Our report dated December 9, 2020, on the effectiveness of internal control over financial reporting as of June 30, 2020, expresses our opinion that
the Company did not maintain effective internal control over financial reporting as of June 30, 2020 because of the effect of a material weakness on the
achievement of the objectives of the control criteria and contains an explanatory paragraph that states that the following material weakness has been
identified:
The Company did not effectively design process level control activities over the accuracy of the retrospective restatement of revenue and related
contract balances recorded upon the adoption of ASC Topic 606, which also impacted the related deferred tax liabilities on the consolidated
balance sheet. The control deficiencies identified resulted from an ineffective risk assessment and the lack of timely creation of relevant reporting
tools and complete and accurate information used to support the functioning of internal control.
Consequently, there were control failures in the areas of revenue and contract asset balances, which also impacted the related deferred tax liabilities.
/s/ KPMG LLP
Boston, Massachusetts
December 9, 2020
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Antonio J. Pietri, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Aspen Technology, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 9, 2020
/s/ ANTONIO. J. PIETRI
Antonio J. Pietri
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Karl E. Johnsen, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Aspen Technology, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 9, 2020
/s/ KARL E. JOHNSEN
Karl E. Johnsen
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Aspen Technology, Inc. (the "Company") for the year ended June 30, 2020, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned hereby certifies in his capacity as an officer of the
Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: December 9, 2020
Date: December 9, 2020
/s/ ANTONIO J. PIETRI
Antonio J. Pietri
President and Chief Executive Officer
/s/ KARL E. JOHNSEN
Karl E. Johnsen
Senior Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Aspen Technology, Inc. and will be retained by Aspen
Technology, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.