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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
 
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DecemberMarch 31, 20172022
or
oTRANSITION 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)
Delaware04-2739697
(State or other jurisdiction of incorporation or

organization)
(I.R.S. Employer Identification No.)
20 Crosby Drive
Bedford Massachusetts01730
Massachusetts01730
(Address of principal executive offices)(Zip Code)
(781) 221-6400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common stock, $0.10 par value per shareAZPNThe Nasdaq Stock Market LLC



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”filer” “accelerated filer,"filer”, “smaller reporting company,”company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.



Large accelerated filerý
Accelerated filer       o
Non-accelerated filer  o (Do not check if a smaller reporting company)
Smaller reporting companyo
Emerging growth companyo
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o




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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes o No ý
As of January 17, 2018,April 20, 2022, there were 71,938,92566,609,310 shares of the registrant’s common stock (par value $0.10 per share) outstanding.




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Page
 
aspenONE is one of our registered trademarks. All other trade names, trademarks and service marks appearing in this Form 10-Q are the property of their respective owners.
 
Our fiscal year ends on June 30th, and references to a specific fiscal year are to the twelve months ended June 30th of such year (for example, “fiscal 2018”fiscal 2022 refers to the year ending June 30, 2018)2022).

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PART I - FINANCIAL INFORMATION
 
Item 1.    Financial Statements.
 
Consolidated Financial Statements (unaudited)
 
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
December 31,
 Six Months Ended
December 31,
Three Months Ended
March 31,
Nine Months Ended
March 31,
2017 2016 2017 2016 2022202120222021
(Dollars in Thousands, Except per Share Data) (Dollars in Thousands, Except Per Share Data)
Revenue: 
  
  
  
Revenue:   
Subscription and software$117,658
 $112,916
 $233,414
 $226,360
LicenseLicense$130,032 $110,104 $327,247 $352,133 
MaintenanceMaintenance50,017 45,885 146,615 139,561 
Services and other7,244
 7,017
 14,269
 13,623
Services and other7,704 6,737 21,267 19,721 
Total revenue124,902
 119,933
 247,683
 239,983
Total revenue187,753 162,726 495,129 511,415 
Cost of revenue: 
  
  
  
Cost of revenue:  
Subscription and software5,486
 5,176
 11,269
 10,245
LicenseLicense489 2,485 5,291 6,859 
MaintenanceMaintenance4,760 5,174 13,674 14,066 
Services and other6,603
 6,403
 13,552
 12,839
Services and other8,373 8,396 24,436 24,911 
Total cost of revenue12,089
 11,579
 24,821
 23,084
Total cost of revenue13,622 16,055 43,401 45,836 
Gross profit112,813
 108,354
 222,862
 216,899
Gross profit174,131 146,671 451,728 465,579 
Operating expenses: 
  
  
  
Operating expenses:  
Selling and marketing24,380
 21,829
 47,951
 43,854
Selling and marketing33,977 30,345 94,088 82,092 
Research and development19,790
 18,597
 39,279
 37,229
Research and development28,704 25,874 80,975 70,576 
General and administrative14,178
 11,863
 27,854
 25,020
General and administrative30,694 21,553 87,542 60,389 
Total operating expenses58,348
 52,289
 115,084
 106,103
Total operating expenses93,375 77,772 262,605 213,057 
Income from operations54,465
 56,065
 107,778
 110,796
Income from operations80,756 68,899 189,123 252,522 
Interest income40
 216
 181
 488
Interest income8,287 8,410 25,646 26,383 
Interest (expense)(1,261) (892) (2,467) (1,762)Interest (expense)(1,572)(1,495)(4,626)(5,639)
Other (expense) income, net(238) 697
 (854) 1,344
Income before provision for income taxes53,006
 56,086
 104,638
 110,866
Other income (expense), netOther income (expense), net522 (5)(2,107)(1,807)
Income before income taxesIncome before income taxes87,993 75,809 208,036 271,459 
Provision for income taxes14,928
 19,076
 31,805
 38,855
Provision for income taxes12,870 13,314 31,650 47,101 
Net income$38,078
 $37,010
 $72,833
 $72,011
Net income$75,123 $62,495 $176,386 $224,358 
Net income per common share: 
  
  
  
Net income per common share:  
Basic$0.53
 $0.48
 $1.00
 $0.92
Basic$1.13 $0.92 $2.64 $3.31 
Diluted$0.52
 $0.48
 $0.99
 $0.92
Diluted$1.12 $0.91 $2.62 $3.28 
Weighted average shares outstanding: 
  
  
  
Weighted average shares outstanding:  
Basic72,342
 76,905
 72,683
 77,977
Basic66,594 67,920 66,791 67,809 
Diluted73,036
 77,318
 73,333
 78,356
Diluted67,014 68,608 67,241 68,439 
 
See accompanying Notes to these unaudited consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
December 31,
 Six Months Ended
December 31,
Three Months Ended
March 31,
Nine Months Ended
March 31,
2017 2016 2017 2016 2022202120222021
(Dollars in Thousands) (Dollars in Thousands)
Net income$38,078
 $37,010
 $72,833
 $72,011
Net income$75,123 $62,495 $176,386 $224,358 
Other comprehensive income (loss): 
  
  
  
Other comprehensive income (loss):  
Net unrealized losses on available for sale securities, net of tax effects of ($5) and $10 for the three and six months ended December 31, 2016
 10
 
 (17)
Foreign currency translation adjustments73
 (1,717) 1,474
 (2,620)Foreign currency translation adjustments755 396 (3,935)11,815 
Total other comprehensive income (loss)73
 (1,707) 1,474
 (2,637)Total other comprehensive income (loss)755 396 (3,935)11,815 
Comprehensive income$38,151
 $35,303
 $74,307
 $69,374
Comprehensive income$75,878 $62,891 $172,451 $236,173 
 
See accompanying Notes to these unaudited consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31,
2017
 June 30,
2017
March 31,
2022
June 30,
2021
(Dollars in Thousands, Except
Share Data)
(Dollars in Thousands, Except
Share and Per Share Data)
ASSETS 
  
ASSETS  
Current assets: 
  
Current assets: 
Cash and cash equivalents$48,703
 $101,954
Cash and cash equivalents$285,217 $379,853 
Accounts receivable, net24,208
 27,670
Accounts receivable, net49,182 52,502 
Current contract assets, netCurrent contract assets, net345,633 308,607 
Prepaid expenses and other current assets10,420
 12,061
Prepaid expenses and other current assets11,848 12,716 
Prepaid income taxes5,408
 4,501
Prepaid income taxes3,154 14,639 
Total current assets88,739
 146,186
Total current assets695,034 768,317 
Property, equipment and leasehold improvements, net11,483
 13,400
Property, equipment and leasehold improvements, net4,650 5,610 
Computer software development costs, net766
 667
Computer software development costs, net1,003 1,461 
Goodwill55,703
 51,248
Goodwill157,855 159,852 
Intangible assets, net27,737
 20,789
Intangible assets, net37,737 44,327 
Non-current deferred tax assets10,093
 14,352
Non-current contract assets, netNon-current contract assets, net416,604 407,180 
Contract costsContract costs30,274 29,056 
Operating lease right-of-use assetsOperating lease right-of-use assets31,609 32,539 
Deferred tax assetsDeferred tax assets2,157 2,121 
Other non-current assets1,275
 1,300
Other non-current assets4,094 3,537 
Total assets$195,796
 $247,942
Total assets$1,381,017 $1,454,000 
   
LIABILITIES AND STOCKHOLDERS’ DEFICIT 
  
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities: 
  
Current liabilities:  
Accounts payable$3,996
 $5,467
Accounts payable$7,176 $4,367 
Accrued expenses and other current liabilities42,753
 48,149
Accrued expenses and other current liabilities46,161 50,575 
Current operating lease liabilitiesCurrent operating lease liabilities7,119 6,751 
Income taxes payable17
 1,603
Income taxes payable33,649 3,444 
Borrowings under credit agreement151,000
 140,000
Current borrowingsCurrent borrowings26,000 20,000 
Current deferred revenue232,653
 272,024
Current deferred revenue50,569 56,393 
Total current liabilities430,419
 467,243
Total current liabilities170,674 141,530 
Non-current deferred revenue26,025
 28,335
Non-current deferred revenue12,114 11,732 
Deferred income tax liabilitiesDeferred income tax liabilities139,921 193,360 
Non-current operating lease liabilitiesNon-current operating lease liabilities27,761 29,699 
Non-current borrowings, netNon-current borrowings, net253,412 273,162 
Other non-current liabilities13,859
 13,148
Other non-current liabilities2,280 3,760 
Commitments and contingencies (Note 15)
 
Series D redeemable convertible preferred stock, $0.10 par value—
Authorized— 3,636 shares as of December 31, 2017 and June 30, 2017
Issued and outstanding— none as of December 31, 2017 and June 30, 2017

 
Stockholders’ deficit: 
  
Common stock, $0.10 par value— Authorized—210,000,000 shares
Issued— 102,775,919 shares at December 31, 2017 and 102,567,129 shares at June 30, 2017
Outstanding— 72,034,435 shares at December 31, 2017 and 73,421,153 shares at June 30, 2017
10,278
 10,257
Commitments and contingencies (Note 16)Commitments and contingencies (Note 16)00
Series D redeemable convertible preferred stock, $0.10 par value—
Authorized— 3,636 shares as of March 31, 2022 and June 30, 2021
Issued and outstanding— none as of March 31, 2022 and June 30, 2021
Series D redeemable convertible preferred stock, $0.10 par value—
Authorized— 3,636 shares as of March 31, 2022 and June 30, 2021
Issued and outstanding— none as of March 31, 2022 and June 30, 2021
— — 
Stockholders’ equity:Stockholders’ equity:  
Common stock, $0.10 par value— Authorized—210,000,000 shares
Issued— 104,845,904 shares at March 31, 2022 and 104,543,414 shares at June 30, 2021
Outstanding— 66,607,779 shares at March 31, 2022 and 67,912,160 shares at June 30, 2021
Common stock, $0.10 par value— Authorized—210,000,000 shares
Issued— 104,845,904 shares at March 31, 2022 and 104,543,414 shares at June 30, 2021
Outstanding— 66,607,779 shares at March 31, 2022 and 67,912,160 shares at June 30, 2021
10,485 10,455 
Additional paid-in capital699,428
 687,479
Additional paid-in capital850,948 819,642 
Retained earnings229,353
 156,520
Retained earnings1,954,519 1,778,133 
Accumulated other comprehensive income2,933
 1,459
Accumulated other comprehensive income5,091 9,026 
Treasury stock, at cost—30,741,484 shares of common stock at December 31, 2017 and 29,145,976 shares at June 30, 2017(1,216,499) (1,116,499)
Total stockholders’ deficit(274,507) (260,784)
Total liabilities and stockholders’ deficit$195,796
 $247,942
Treasury stock, at cost—38,238,125 shares of common stock at March 31, 2022 and 36,631,254 shares at June 30, 2021Treasury stock, at cost—38,238,125 shares of common stock at March 31, 2022 and 36,631,254 shares at June 30, 2021(2,046,188)(1,816,499)
Total stockholders’ equityTotal stockholders’ equity774,855 800,757 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$1,381,017 $1,454,000 
 
See accompanying Notes to these unaudited consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders’ Equity
Number of Shares$0.10 Par ValueNumber of SharesCost
(Dollars in Thousands, Except Share Data)
Balance June 30, 2021104,543,414 $10,455 $819,642 $1,778,133 $9,026 36,631,254 $(1,816,499)$800,757 
Comprehensive income (loss):
Net income— — — 39,399 — — — 39,399 
Other comprehensive (loss)— — — — (4,058)(4,058)
Issuance of shares of common stock29,717 1,874 — — — 1,877 
Issuance of restricted stock units and net share settlement related to withholding taxes66,809 (5,826)— — — — (5,819)
Repurchase of common stock— — — — — 1,066,194 (150,000)(150,000)
Stock-based compensation— — 10,090 — — — — 10,090 
Balance September 30, 2021104,639,940 $10,465 $825,780 $1,817,532 $4,968 37,697,448 $(1,966,499)$692,246 
Comprehensive income (loss):
Net income— — — 61,864 — — — 61,864 
Other comprehensive (loss)— — — — (632)(632)
Issuance of shares of common stock124,959 12 12,472 — — — 12,484 
Issuance of restricted stock units and net share settlement related to withholding taxes28,131 (2,338)— — — — (2,335)
Repurchase of common stock— — (15,000)— — 439,233 (64,689)(79,689)
Stock-based compensation— — 7,866 — — — — 7,866 
Balance December 31, 2021104,793,030 $10,480 $828,780 $1,879,396 $4,336 38,136,681 $(2,031,188)$691,804 
Comprehensive income:
Net income— — — 75,123 — — — 75,123 
Other comprehensive income— — — — 755 755 
Issuance of shares of common stock23,899 1,774 — — — 1,776 
Issuance of restricted stock units and net share settlement related to withholding taxes28,975 (2,363)— — — — (2,360)
Repurchase of common stock— — 15,000 — — 101,444 (15,000)— 
Stock-based compensation— — 7,757 — — — — 7,757 
Balance March 31, 2022104,845,904 $10,485 $850,948 $1,954,519 $5,091 38,238,125 $(2,046,188)$774,855 


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Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders’ Equity
Number of Shares$0.10 Par ValueNumber of SharesCost
(Dollars in Thousands, Except Share Data)
Balance June 30, 2020103,988,707 $10,399 $769,411 $1,458,330 $(5,288)36,270,015 $(1,766,499)$466,353 
Comprehensive income:
Net income— — — 32,711 — — — 32,711 
Other comprehensive income— — — — 4,153 4,153 
Issuance of shares of common stock12,943 314 — — — 315 
Issuance of restricted stock units and net share settlement related to withholding taxes26,265 (1,761)— — — — (1,758)
Stock-based compensation— — 6,268 — — — — 6,268 
Balance September 30, 2020104,027,915 $10,403 $774,232 $1,491,041 $(1,135)36,270,015 $(1,766,499)$508,042 
Comprehensive income:
Net income— — — 129,152 — — — 129,152 
Other comprehensive income— — — — 7,266 7,266 
Issuance of shares of common stock34,681 2,843 — — — 2,846 
Issuance of restricted stock units and net share settlement related to withholding taxes37,236 (2,274)— — — — (2,270)
Stock-based compensation— — 9,096 — — — — 9,096 
Balance December 31, 2020104,099,832 $10,410 $783,897 $1,620,193 $6,131 36,270,015 $(1,766,499)$654,132 
Comprehensive income:
Net income— — — 62,495 — — — 62,495 
Other comprehensive income— — — — 396 396 
Issuance of shares of common stock148,541 15 9,233 — — — 9,248 
Issuance of restricted stock units and net share settlement related to withholding taxes35,584 (2,612)— — — — (2,608)
Stock-based compensation— — 9,225 — — — — 9,225 
Balance March 31, 2021104,283,957 $10,429 $799,743 $1,682,688 $6,527 36,270,015 $(1,766,499)$732,888 

See accompanying Notes to these unaudited consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
 20222021
 (Dollars in Thousands)
Cash flows from operating activities:  
Net income$176,386 $224,358 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization8,151 7,545 
Reduction in the carrying amount of right-of-use assets7,566 7,037 
Net foreign currency losses2,238 2,027 
Stock-based compensation25,713 24,589 
Deferred income taxes(53,472)7,029 
Provision for receivables2,276 6,800 
Other non-cash operating activities1,507 718 
Changes in assets and liabilities:  
Accounts receivable805 4,115 
Contract assets, net(49,739)(103,538)
Contract costs(1,218)198 
Lease liabilities(7,908)(7,533)
Prepaid expenses, prepaid income taxes, and other assets12,111 (6,959)
Accounts payable, accrued expenses, income taxes payable and other liabilities36,036 (6,847)
Deferred revenue(5,366)13,410 
Net cash provided by operating activities155,086 172,949 
Cash flows from investing activities:  
Purchases of property, equipment and leasehold improvements(1,138)(733)
Payments for business acquisitions, net of cash acquired— (16,272)
Payments for equity method investments(617)(926)
Payments for capitalized computer software development costs(361)(895)
Net cash used in investing activities(2,116)(18,826)
Cash flows from financing activities:  
Issuance of shares of common stock15,923 12,508 
Repurchases of common stock(234,043)— 
Payments of tax withholding obligations related to restricted stock(12,656)(6,719)
Deferred business acquisition payments(1,220)— 
Repayments of amounts borrowed(14,000)(131,182)
Payments of debt issuance costs(402)— 
Net cash used in financing activities(246,398)(125,393)
Effect of exchange rate changes on cash and cash equivalents(1,208)573 
(Decrease) increase in cash and cash equivalents(94,636)29,303 
Cash and cash equivalents, beginning of period379,853 287,796 
Cash and cash equivalents, end of period$285,217 $317,099 
Supplemental disclosure of cash flow information:  
Income taxes paid, net$42,697 $49,349 
Interest paid3,975 5,672 
Supplemental disclosure of non-cash activities:
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses$(99)$77 
Change in repurchases of common stock included in accounts payable and accrued expenses(4,353)— 
Lease liabilities arising from obtaining right-of-use assets4,860 1,488 
 Six Months Ended
December 31,
 2017 2016
 (Dollars in Thousands)
Cash flows from operating activities: 
  
Net income$72,833
 $72,011
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Depreciation and amortization3,358
 3,300
Net foreign currency (gains) losses990
 (2,301)
Stock-based compensation11,869
 9,630
Deferred income taxes4,296
 182
Provision for (recovery from) bad debts(28) 56
Tax benefits from stock-based compensation
 1,032
Excess tax benefits from stock-based compensation
 (1,032)
Other non-cash operating activities207
 40
Changes in assets and liabilities: 
  
Accounts receivable3,656
 2,494
Prepaid expenses, prepaid income taxes, and other assets959
 3,661
Accounts payable, accrued expenses, income taxes payable and other liabilities(1,792) 5,084
Deferred revenue(41,586) (40,740)
Net cash provided by operating activities54,762
 53,417
Cash flows from investing activities: 
  
Purchases of marketable securities
 (683,748)
Maturities of marketable securities
 613,379
Purchases of property, equipment and leasehold improvements(156) (1,374)
Payments for business acquisitions, net of cash acquired(10,800) (36,171)
Payments for capitalized computer software costs(356) (100)
Net cash used in investing activities(11,312) (108,014)
Cash flows from financing activities: 
  
Exercises of stock options3,548
 4,843
Repurchases of common stock(105,037) (199,584)
Payments of tax withholding obligations related to restricted stock(3,467) (2,786)
Deferred business acquisition payments(2,600) 
Excess tax benefits from stock-based compensation
 1,032
Proceeds from credit agreement11,000
 
Payments of credit agreement issuance costs(351) 
Net cash used in financing activities(96,907) (196,495)
Effect of exchange rate changes on cash and cash equivalents206
 (218)
Decrease in cash and cash equivalents(53,251) (251,310)
Cash and cash equivalents, beginning of period101,954
 318,336
Cash and cash equivalents, end of period$48,703
 $67,026
Supplemental disclosure of cash flow information: 
  
Income taxes paid, net$29,742
 $25,000
Interest paid2,039
 1,579
Supplemental disclosure of non-cash investing and financing activities:   
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses$(44) $506
Change in common stock repurchases included in accounts payable and accrued expenses(5,037) 416




See accompanying Notes to these unaudited consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1.  Interim Unaudited Consolidated Financial Statements
 
The accompanying interim unaudited consolidated financial statements of Aspen Technology, Inc. (“AspenTech”) and its subsidiaries have been prepared on the same basis as our annual consolidated financial statements.  We have omitted certain information and footnote disclosures normally included in our annual consolidated financial statements.  Such interim unaudited consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (GAAP)(“GAAP”), as defined in the Financial Accounting Standards Board (FASB)(“FASB”) Accounting Standards Codification (ASC)(“ASC”) Topic 270, Interim Reporting, for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  It is suggested that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2017,2021, which are contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, as previously filed with the U.S. Securities and Exchange Commission (SEC)(“SEC”). In the opinion of management, all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations, and cash flows at the dates and for the periods presented have been included and all intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and sixnine months ended DecemberMarch 31, 20172022 are not necessarily indicative of the results to be expected for the subsequent quarter or for the full fiscal year.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
Unless the context requires otherwise, references to we, our and us refer to Aspen Technology, Inc. and its subsidiaries.
 
2.  Significant Accounting Policies
 
(a)Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of Aspen Technology, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.


(b)Significant Accounting Policies


Our significant accounting policies are described in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017.2021. We adopted Accounting Standards Update (ASU)(“ASU”) No. 2016-09, Compensation2019-12, Income Taxes(“Topic 740”) - Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentSimplifying the Accounting (“ASU No. 2016-09”)for Income Taxes effective July 1, 2017.2021. Refer to Note 2 (g)2(g), “Recently Issued“New Accounting Pronouncements Adopted in Fiscal 2022,” for further information regarding the adoption of ASU No. 2016-09.2019-12. There were no other significantmaterial changes to our significant accounting policies during the three and sixnine months ended DecemberMarch 31, 2017.2022.
 
(c) Loss Contingencies
We accrue estimated liabilities for loss contingencies arising from claims, assessments, litigation and other sources when it is probable that a liability has been incurred and the amount of the claim, assessment or damages can be reasonably estimated. We believe that we have sufficient accruals to cover any obligations resulting from claims, assessments or litigation that have met these criteria.

(d) Foreign Currency Transactions
Foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our subsidiaries are recognized in our results of operations as incurred as a component of other income (expense), net. Net foreign currency exchange gain (losses) were $0.1 million and $(0.1) million during the three months ended March 31, 2022 and 2021, respectively, and $(2.2) million and $(2.0) million during the nine months ended March 31, 2022 and 2021, respectively.

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(e)   Research and Development Expense

We charge research and development expenditures to expense as the costs are incurred. Research and development expenses consist primarily of personnel expenses related to the creation of new products, enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technological feasibility. There were less than $0.1 million of capitalized direct labor costs associated with our development of software for sale during the three months ended March 31, 2022 and 2021, respectively, and less than $0.1 million and $0.7 million of capitalized direct labor costs associated with our development of software for sale during the nine months ended March 31, 2022 and 2021, respectively.

(f)   Equity Method Investments

During fiscal 2020, we entered into a limited partnership investment fund agreement. The primary objective of this partnership is investing in equity and equity-related securities (including convertible debt) of venture growth- stage businesses. We account for the investment in accordance with Topic 323, Investments - Equity Method and Joint Ventures. Our total commitment under this partnership is 5.0 million CAD ($3.9 million). Under the conditions of the equity method investment, unfavorable future changes in market conditions could lead to a potential loss up to the full value of our 5.0 million CAD ($3.9 million) commitment. As of March 31, 2022, the fair value of this investment was $3.0 million CAD ($2.3 million), representing our payment towards the total commitment, and is recorded in non-current assets in our consolidated balance sheet.

(g)New Accounting Pronouncements Adopted in Fiscal 2022

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

(h) Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to 1) recognition of an acquired contract liability, and 2) payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022. Early adoption of this ASU is permitted. We are currently evaluating the impact of ASU 2021-08 on our consolidated financial statements.
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3.   Revenue Recognitionfrom Contracts with Customers

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

Nature of Products and Services

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

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

We determine revenue recognition through the following steps:

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

Term-based Arrangements: Term-based arrangements consist of on-premise term licenses as well as perpetual license arrangements.maintenance.
Four basic criteria must be satisfied before software license revenue can be recognized: persuasive evidence of an arrangement between us and an end user; delivery of our product has occurred; the fee for the product is fixed or determinable; and collection of the fee is probable.

License
Persuasive evidence of an arrangement—We use a signed contract as evidence of an arrangement for software licenses and SMS. For professional services we use a signed contract and a work proposal to evidence an arrangement. In cases where both a signed contract and a purchase order are required by the customer, we consider both taken together as evidence of the arrangement.
Delivery of our product—Software and the corresponding access keys are generally delivered to customers via electronic delivery or via physical medium with standard shipping terms of Free Carrier, our warehouse (i.e., FCA, AspenTech). Our software license agreements do not contain conditions for acceptance.
Fee is fixed or determinable—We assess whether a fee is fixed or determinable at the outset of the arrangement. Significant judgment is involved in making this assessment.
As a standard business practice, we offer fixed-term license arrangements, which are generally payable on an annual basis.
We cannot assert that the fees under our aspenONE licensing model and point product arrangements with Premier Plus SMS are fixed or determinable because of the rights provided to customers, economics of the arrangements, and because we do not have an established history of our arrangements going to term end date without providing concessions to customers. As a result, the amount of revenue recognized for these arrangements is limited by the amount of customer payments that become due.
Collection of fee is probable—We assess the probability of collecting from each customer at the outset of the arrangement based on a number of factors, including the customer's payment history, its current creditworthiness, economic conditions in the customer's industry and geographic location, and general economic conditions. If in our judgment collection of a fee is not probable, revenue is recognized as cash is collected, provided all other conditions for revenue recognition have been met.
Vendor-Specific Objective Evidence of Fair Value (VSOE)
We have established VSOE for professional services and certain training offerings, but not for our software products or our SMS offerings. We assess VSOE for SMS, professional services, and training, based on an analysis of standalone sales of the offerings using the bell-shaped curve approach. We do not have a history of selling our Premier Plus SMS offering to customers on a standalone basis, and as a result are unable to establish VSOE for this deliverable.
Subscription and Software Revenue
Subscription and softwareLicense revenue consists primarily of product and related revenue from our (i) aspenONE licensing model; (ii)model and point product arrangements witharrangements.

When a customer elects to license our Premier Plus SMS offering includedproducts under our aspenONE licensing model, the customer receives, for the contract term; and (iii) perpetual arrangements.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 new unspecified future software products and updates that may be introduced into the licensed aspenONE software suite. DueWhen 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 products and updates and because we do not have VSOE for our Premier Plus SMS offering,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, once the other revenue recognition criteria noted above have been met.arrangement.

Our point product arrangements with Premier Plus SMS include SMS for the term
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Table of the arrangement. Since we do not have VSOE for our Premier Plus SMS offering, the SMS element of our point product arrangements is not separable. As a result, revenue associated with point product arrangements with Premier Plus SMS included for the contract term is recognized ratably over the term of the arrangement, once the other revenue recognition criteria have been met.Contents

Services and Other Revenue

Professional Services Revenue

Professional services are provided to customers on a time-and-materials (T&M)(“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. Project costs are typically expensed as incurred. 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.
In certain circumstances, professional services revenue may be recognized over a longer time period than the period over which the services are performed. If the costs to complete a project are not estimable or the completion is uncertain, the revenue and related costs are recognized upon completion of the services. In circumstances in which professional services are sold as a single arrangement with, or in contemplation of, a new aspenONE license or point product arrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the period the services are performed, or (ii) the license term. When we provide professional services considered essential to the functionality of the software, we recognize the combined revenue from the sale of the software and related services using the completed contract or percentage-of-completion method.
We have occasionally been required to commit unanticipated additional resources to complete projects, which resulted in losses on those contracts. Provisions for estimated losses on contracts are made during the period in which such losses become probable and can be reasonably estimated.

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. In

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 inand 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 training servicesalways 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 soldentered 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 ormaintenance in contemplationa bundled arrangement, we estimate a standalone selling price for these distinct performance obligations using relevant information, including our overall pricing objectives and strategies and historical pricing data, and taking into consideration market conditions and other factors.

Other Policies and Judgments

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

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

Disaggregation of Revenue

We disaggregate our revenue by region, type of performance obligation, and segment as follows:
 Three Months Ended
March 31,
Nine Months Ended
March 31,
 2022202120222021
(Dollars in Thousands)
Revenue by region:
North America$67,983 $66,786 $189,156 $225,620 
Europe68,382 47,581 156,813 158,771 
Other (1)51,388 48,359 149,160 127,024 
$187,753 $162,726 $495,129 $511,415 
Revenue by type of performance obligation:
Term licenses$130,032 $110,104 $327,247 $352,133 
Maintenance50,017 45,885 146,615 139,561 
Professional services and other7,704 6,737 21,267 19,721 
$187,753 $162,726 $495,129 $511,415 
Revenue by segment:
Subscription and software$180,049 $155,989 $473,862 $491,694 
Services and other7,704 6,737 21,267 19,721 
$187,753 $162,726 $495,129 $511,415 

(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 or point product arrangement with Premier Plus SMS,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 deferred anda significant portion of the total contract consideration. Therefore, our contracts often result in the recording of a
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contract asset throughout the majority of the contract term. We record a contract asset when revenue recognized on a ratable basis overcontract exceeds the longer of (i) the period the servicesbillings.

The contract assets are performed or (ii) the license term.
Deferred Revenue
Deferred revenue includes amounts billed or collectedsubject to credit risk and reviewed in advance of revenue recognition, including arrangements under the aspenONE licensing model, point product arrangementsaccordance with Premier Plus SMS, professional services, and training. Deferred revenue is recorded as each invoice becomes due. 
Other Licensing Matters
Our standard licensing agreements include a product warranty provision. We have not experienced significant claims related to software warranties beyond the scope of SMS support, which we are already obligated to provide, and consequently, we have not established reserves for warranty obligations.
Our agreements with our customers generally require us to indemnify the customer against claims that our software infringes third-party patent, copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects, including our right to replace an infringing product. As of December 31, 2017 and June 30, 2017, we had not experienced any material losses related to these indemnification obligations and no claims with respect thereto were outstanding. We do not expect significant claims related to these indemnification obligations, and consequently, have not established any related reserves.
(d)  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. Please refer to Note 15 for discussion of these matters and related liability accruals.


(e)Foreign Currency Transactions
Foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our subsidiaries are recognized in our results of operations as incurred as a component of other income (expense), net. Net foreign currency (losses) gains were $(0.2) million and $(0.9) million during the three and six months ended December 31, 2017, respectively, and $0.7 million and $1.3 million during the three and six months ended December 31, 2016, respectively.

(f)    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.
We acquired technology for $0.4 million during the six months ended December 31, 2016. At the time we acquired the technology, the projects to develop commercially available products did not meet the accounting definition of having reached technological feasibility and therefore the cost of the acquired technology was expensed as a research and development expense.
(g)Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires entities to recognize revenue when they transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Under the new guidance, an entity is required to evaluate revenue recognition through a five-step process.  In applying the principles of ASU 2014-09, it is possible more judgment and estimates may be required within the revenue recognition process than is required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation.  As currently issued and amended, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, though early adoption is permitted for annual reporting periods beginning after December 15, 2016. We will adopt ASU No. 2014-09 during the first quarter of fiscal 2019. Based on our preliminary assessment, the adoption of ASU No. 2014-09 will impact the timing of the license portion of the revenue recognized from our term contracts.  Under the new standard, for arrangements that include term-based software licenses bundled with maintenance and support, we will be required to recognize as revenue a portion of the arrangement fee upon delivery of the software license. We are continuing to evaluate all the potential impacts of ASU No. 2014-09 on our consolidated financial statements and implementing accounting system changes related to the adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the amendment, lessees will be 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. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2016-02 on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendment identifies several areas for simplification applicable to entities that issue share-based payment awards to their employees, including income tax consequences, the option to recognize gross stock compensation expense with actual forfeitures recognized when they occur, and certain classifications on the statements of cash flows. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. We adopted ASU No. 2016-09 effective July 1, 2017.
As a result of adopting the new standard, excess tax benefits from stock-based compensation are now reflected in the consolidated statements of operations as a component of the provision for income taxes, whereas they were previously a component of stockholders’ deficit. The adoption of ASU No. 2016-09 resulted in a decrease in our provision for income taxes of $0.4 million and $1.0 million for the three and six months ended December 31, 2017, respectively. This represents a decrease in our effective tax rate of approximately 1.0 percentage point for both the three and six months ended December 31, 2017, due to the recognition of excess tax benefits for options exercised and the vesting of equity awards. There was no change as a result of how we account for forfeitures for financial statement reporting purposes. We adopted the cash flow presentation prospectively, and accordingly, excess tax benefits from stock-based compensation of $1.0 million is presented as a cash inflow from operating activity included within the change in income tax payable for the six months ended December 31, 2017, while $1.0 million of excess tax benefits from equity-based compensation is presented as a financing activity for the six months

ended December 31, 2016. We prospectively excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share under the treasury stock method, which did not have a material impact on our diluted earnings per share for the three and six months ended December 31, 2017.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). We monitor the credit quality of customer contract asset balances on an individual basis, at each reporting date, through credit characteristics, geographic location, and the industry in which they operate. We recognize an impairment on contract assets if, subsequent to contract inception, it becomes probable payment is not collectible. An allowance for expected credit loss reflects losses expected over the remaining term of the contract asset and is determined based upon historical losses, customer-specific factors, and current economic conditions.
The amendment changesfollowing table presents the impairment modelchange in the reserve for most financialcontract assets during the nine months ended March 31, 2022:
June 30, 2021ProvisionWrite-Offs, Recoveries, and BillingsMarch 31, 2022
(Dollars in Thousands)
$(5,380)$(2,922)$3,889 $(4,413)

Our total contract assets, net and deferred revenue were as follows as of March 31, 2022 and June 30, 2021:
March 31,
2022
June 30,
2021
(Dollars in Thousands)
Contract assets, net$762,237 $715,787 
Deferred revenue(62,683)(68,125)
$699,554 $647,662 

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

The change in deferred revenue in the nine months ended March 31, 2022 was primarily due to $39.1 million of revenue recognized that was included in deferred revenue as of June 30, 2021, partially offset by an increase in new billings in advance of revenue recognition.

Contract Costs

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

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

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

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Transaction Price Allocated to Remaining Performance Obligations

The following table includes the aggregate amount of the transaction price allocated as of March 31, 2022 to the performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
Year Ending June 30,
20222023202420252026Thereafter
(Dollars in Thousands)
License$66,420 $26,271 $12,221 $16,856 $5,909 $693 
Maintenance50,367 174,091 138,460 100,038 65,808 38,699 
Services and other33,960 9,081 1,607 1,526 1,369 1,117 

4. Leases

We have operating leases primarily for corporate offices, and other operating leases for data centers and certain other instruments. Entitiesequipment. 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 nine years, some of which include options to extend the leases for up to five years, and some of which include the option to terminate the leases upon advanced notice of 2 months or more. If we are reasonably certain we will exercise an option to extend or terminate the lease, the time period covered by the extension or termination option is included in the lease term.

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in the lease contracts is typically not readily determinable. As such, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required to usefor 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 model that will result instraight-line basis over the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized costterm of the securities. The ASU is effectivelease. Total lease expenses consisted of rent and fixed fees of $2.5 million and $2.5 million 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 ASU No. 2016-13 on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The amendment updates the guidance as to how certain cash receipts and cash payments should be presented and classified, and is intended to reduce the existing diversity in practice. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2016-15 on our consolidated financial statements. 
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business. The amendment changes the definition of a business to assist entities in evaluating when a set of transferred assets and activities constitutes a business. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We do not anticipate the adoption of ASU No. 2017-01 will have a material effect on the consolidated financial statements or related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other Topics (Topic 350) - Simplifying the Test for Goodwill Impairment. The amendment eliminates Step 2 of the goodwill impairment test and requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We early adopted ASU No. 2017-04 during the three months ended DecemberMarch 31, 2017, prior2022 and 2021, respectively, and rent and fixed fees of $7.5 million and $7.4 million for the nine months ended March 31, 2022 and 2021, respectively.

The following table represents the weighted-average remaining lease term and discount rate information related to our annual testingoperating leases as of goodwill impairment. There was no impact onMarch 31, 2022 and June 30, 2021:
 March 31,
2022
June 30,
2021
Weighted average remaining lease term5.8 years6.1 years
Weighted average discount rate3.8 %3.6 %

16

The following table represents the maturities of our consolidated financial statementsoperating lease liabilities as of March 31, 2022 and related disclosures as a result of adopting ASU No. 2017-04.June 30, 2021:

March 31,
2022
June 30,
2021
(Dollars in Thousands)
Year Ending June 30,
2022$1,447 $7,973 
20238,922 8,024 
20248,228 7,355 
20256,085 5,353 
20263,135 2,209 
Thereafter12,425 11,008 
Total lease payments40,242 41,922 
Less: imputed interest(5,362)(5,472)
$34,880 $36,450 

3.
5.   Fair Value
 
We determine fair value by utilizing a fair value hierarchy that ranks the quality and reliability of the information used in its determination. Fair values determined using “Level 1 inputs” utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Fair values determined using “Level 2 inputs” utilize data points that are observable, such as quoted prices, interest rates and yield curves for similar assets and liabilities.

Cash equivalents of $4.9 million and $79.7 million as of December 31, 2017 and June 30, 2017, respectively, wereare reported at fair value utilizing quoted market prices in identical markets, or “Level 1 inputs.Inputs.” Our cash equivalents consist of short-term highly liquidmoney market instruments.

Equity method investments are reported at fair value calculated in accordance with remaining maturitiesthe 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 three months or less when purchased.March 31, 2022 and June 30, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Fair Value Measurements at Reporting Date Using,
Quoted Prices in Active Markets for Identical Assets
(Level 1 Inputs)
Significant Other Observable Inputs
(Level 2 Inputs)
(Dollars in Thousands)
March 31, 2022:
Cash equivalents$1,019 $— 
Equity method investments— 2,286 
June 30, 2021:
Cash equivalents$1,020 $— 
Equity method investments— 1,326 

Financial instruments not measured or recorded at fair value in the accompanying unaudited 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 10, Credit Agreement)11, “Credit Agreement”) approximates its carrying value due to the floating interest rate.


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6.  Accounts Receivable, Net
 
Our accounts receivable, net of the related allowance for doubtful accounts, were as follows as of DecemberMarch 31, 20172022 and June 30, 2017:2021:
 March 31,
2022
June 30,
2021
 (Dollars in Thousands)
Accounts receivable, gross$56,079 $61,273 
Allowance for doubtful accounts(6,897)(8,771)
Accounts receivable, net$49,182 $52,502 

 Gross Allowance Net
 (Dollars in Thousands)
December 31, 2017: 
  
  
Accounts receivable$25,263
 $1,055
 $24,208
      
June 30, 2017: 
  
  
Accounts receivable$28,955
 $1,285
 $27,670

As of December 31, 2017, weWe had oneno customer receivable balance that individually represented approximately 11%10% or more of our net accounts receivable.receivable as of March 31, 2022 and June 30, 2021.


5.7.  Property and Equipment


Property, equipment and leasehold improvements in the accompanying unaudited consolidated balance sheets consisted of the following:
 December 31,
2017
 June 30,
2017
 (Dollars in Thousands)
Property, equipment and leasehold improvements, at cost: 
  
Computer equipment$8,366
 $8,262
Purchased software24,183
 24,091
Furniture & fixtures6,861
 6,805
Leasehold improvements12,078
 12,025
Property, equipment and leasehold improvements, at cost51,488
 51,183
Accumulated depreciation(40,005) (37,783)
Property, equipment and leasehold improvements, net$11,483
 $13,400


6. Acquisitions

RtTech Software, Inc.
In December 2017, we acquired certain net assets, principally technology, from RtTech Software, Inc. (“RtTech”) for a total cash consideration of $12.0 million. The purchase price consisted of $10.8 million of cash paid at closing and an additional $1.2 million to be held back until December 2018 as security for certain representations, warranties, and obligations of the sellers. The acquisition met the definition of a business combination as it contained inputs and processes that are capable of being operated as a business. We allocated $8.0 million of the purchase price to developed technology and $4.0 million to goodwill. The fair value of the developed technology of $8.0 million was determined using the replacement cost approach. The developed technology is being amortized on a straight-line basis over its estimated useful life of seven years. The acquisition is treated as an asset purchase for tax purposes and accordingly, the goodwill resulting from the acquisition is expected to be deductible.
Mtelligence Corporation
On October 26, 2016, we completed the acquisition of all the outstanding shares of Mtelligence Corporation (“Mtell”), a provider of predictive and prescriptive maintenance software and related services used to optimize asset performance, for total cash consideration of $37.4 million. The purchase price consisted of $31.9 million of cash paid at closing and an additional $5.5 million to be held back until April 2018 as security for certain representations, warranties, and obligations of the sellers. The holdback was recorded at its fair valuefollowing as of the acquisition date of $5.3 million,March 31, 2022 and is recorded in other current liabilities in our consolidated balance sheet.June 30, 2021:

 March 31,
2022
June 30,
2021
 (Dollars in Thousands)
Property, equipment and leasehold improvements, at cost:  
Computer equipment$6,719 $6,250 
Purchased software23,174 22,711 
Furniture & fixtures6,166 6,592 
Leasehold improvements11,244 12,982 
Property, equipment and leasehold improvements, at cost47,303 48,535 
Accumulated depreciation(42,653)(42,925)
Property, equipment and leasehold improvements, net$4,650 $5,610 
An allocation of the purchase price is as follows:
 Amount
 (Dollars in Thousands)
Tangible assets acquired, net$779
Identifiable intangible assets: 
Developed technology11,385
Customer relationships679
Non-compete agreements553
  
Goodwill25,888
Deferred tax liabilities, net(2,099)
Total assets acquired$37,185
We used the income approach to determine the values of the identifiable intangible assets. The weighted-average discount rate (or rate of return) used to determine the value of the Mtell intangible assets was 19% and the effective tax rate used was 34%.  The values of the developed technology, customer relationships and non-compete agreements are being amortized on a straight-line basis, except technology, which is being amortized on a proportional use basis, over their estimated useful lives of 12 years, 6 years and 3 years, respectively.
The goodwill, which is not deductible for tax purposes, reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling Mtell products and services to our existing customers.  The results of operations of Mtell have been included prospectively in our results of operations since the date of acquisition.

7.8. Intangible Assets

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

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Intangible assets consisted of the following as of DecemberMarch 31, 20172022 and June 30, 2017:2021:
Gross Carrying AmountAccumulated AmortizationEffect of Currency TranslationNet Carrying Amount
(Dollars in Thousands)
March 31, 2022:
Technology$55,288 $(24,231)$573 $31,630 
Customer relationships12,038 (5,937)6,107 
Non-compete agreements553 (553)— — 
Total$67,879 $(30,721)$579 $37,737 
June 30, 2021:
Technology$55,288 $(19,378)$911 $36,821 
Customer relationships12,038 (4,713)181 7,506 
Non-compete agreements553 (553)— — 
Total$67,879 $(24,644)$1,092 $44,327 
 Gross Carrying Amount Accumulated Amortization Net Carrying Amount
 (Dollars in Thousands)
December 31, 2017:     
Technology and patents$30,443
 $(4,203) $26,240
Customer relationships1,432
 (273) 1,159
Non-compete agreements553
 (215) 338
Total$32,428
 $(4,691) $27,737
June 30, 2017:     
Technology and patents$22,350
 $(3,254) $19,096
Customer relationships1,432
 (169) 1,263
Non-compete agreements553
 (123) 430
Total$24,335
 $(3,546) $20,789

Total amortization expense related to intangible assets is included in operating expensescost of license revenue (for technology) and general and administrative expense (for customer relationships and non-compete agreements) and amounted to approximately $0.5$2.0 million and $1.1$2.1 million forduring the three and six months ended DecemberMarch 31, 2017,2022 and 2021, respectively, and approximately $0.1$6.1 million forand $5.7 million during the three and sixnine months ended DecemberMarch 31, 2016.2022 and 2021, respectively.

Future amortization expense as of DecemberMarch 31, 20172022 is expected to be as follows:

Year Ending June 30,Amortization Expense
 (Dollars in Thousands)
2022$2,020 
20238,063 
20247,521 
20257,436 
20265,263 
Thereafter7,434 
Total$37,737 

Year Ended June 30,Amortization Expense
 (Dollars in Thousands)
2018$1,623
20193,206
20203,277
20213,349
20223,594
Thereafter12,688
Total$27,737

8.9. Goodwill
 
The changes in the carrying amount of goodwill for our subscription and software reporting unit during the sixnine months ended DecemberMarch 31, 2017 was2022 were as follows:
Gross Carrying AmountAccumulated Impairment LossesEffect of Currency TranslationNet Carrying Amount
(Dollars in Thousands)
June 30, 2021:$221,458 $(65,569)$3,963 $159,852 
Foreign currency translation— — (1,997)(1,997)
March 31, 2022$221,458 $(65,569)$1,966 $157,855 
 Gross Carrying Amount Accumulated Impairment Losses Effect of Currency Translation Net Carrying Amount
 (Dollars in Thousands)
June 30, 2017:$116,817
 $(65,569) $
 $51,248
Goodwill from acquisitions4,000
 
 
 4,000
Foreign currency translation
 
 455
 455
December 31, 2017:$120,817
 $(65,569) $455
 $55,703

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
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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. In January 2017, the FASB issued ASU No. 2017-04, which eliminates Step 2 of the goodwill impairment test and requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. We early adopted ASU No. 2017-04 during the three months ended December 31, 2017, prior to our annual testing of goodwill impairment. There was no impact on our consolidated financial statements and related disclosures as a result of adopting ASU No. 2017-04.

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 31st31 as the annual impairment assessment date and perform additional impairment tests if triggering events occur.date. We performed our annual impairment test for the subscription and software reporting unit as of December 31, 20172021 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. 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.



9.10. Accrued Expenses and Other Liabilities


Accrued expenses and other current liabilities in the accompanying unaudited consolidated balance sheets consisted of the following:following as of March 31, 2022 and June 30, 2021:
 March 31,
2022
June 30,
2021
 (Dollars in Thousands)
Compensation-related$27,909 $30,539 
Acquisition and integration planning related fees6,395 — 
Professional fees2,789 2,964 
Deferred acquisition payments2,775 2,862 
Uncertain tax positions1,005 1,087 
Royalties and outside commissions747 3,642 
Share repurchases— 4,353 
Other4,541 5,128 
Total accrued expenses and other current liabilities$46,161 $50,575 
 December 31,
2017
 June 30,
2017
 (Dollars in Thousands)
Payroll and payroll-related$15,770
 $20,864
Royalties and outside commissions3,035
 2,733
Professional fees2,265
 2,216
Deferred acquisition payments7,191
 8,548
Other14,492
 13,788
Total accrued expenses and other current liabilities$42,753
 $48,149


Other non-current liabilities in the accompanying unaudited consolidated balance sheets consisted of the following:following as of March 31, 2022 and June 30, 2021:
 March 31,
2022
June 30,
2021
 (Dollars in Thousands)
Uncertain tax positions$1,207 $1,343 
Deferred acquisition payments— 1,200 
Asset retirement obligations857 947 
Other216 270 
Total other non-current liabilities$2,280 $3,760 

 December 31,
2017
 June 30,
2017
 (Dollars in Thousands)
Deferred rent$7,052
 $6,916
Uncertain tax positions4,228
 3,921
Other2,579
 2,311
Total other non-current liabilities$13,859
 $13,148

10.11.  Credit Agreement
 
On February 26, 2016,In December 2019, we entered into a $250.0 millionan Amended and Restated Credit Agreement (the “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 other partiesco-documentation agents named therein (the “Lenders”“Amended and Restated Credit Agreement”). On August 9, 2017,The Amended and Restated Credit Agreement, which amends and restates the Credit Agreement we entered into an Amendment to increaseas 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 to $350.0 million. The indebtedness evidenced by the Credit Agreement matures on February 26, 2021. Prior to the maturity of the Credit Agreement, any amounts borrowed may be repaid and, subject to the terms and conditions of the Credit Agreement, borrowed again in whole or in part without penalty. We had $151.0 million and $140.0 million in outstanding borrowings under the Credit Agreement as of December 31, 2017 and June 30, 2017, respectively.
Borrowings under the Credit Agreement bearbears interest at a rate per annum equal to, either, at our option, either: (1) the sum of (a) the highest of (1)(i) the rate of interest publicly announcedlast quoted by JPMorgan Chase Bank, N.A. The Wall Street Journal in the United States
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as itsthe prime rate in effect, (2)(ii) the Federal Funds EffectiveNYFRB Rate (as defined in the Amended and Restated Credit Agreement) plus 0.5%, and (3)(iii) the one-month Adjusted LIBO rate (as defined in the Amended and Restated Credit Agreement) multiplied by the Statutory Reserve Rate (as defined in the Amended and Restated Credit Agreement) plus 1.0%, plus (b) a margin initially of 0.5% for the first full fiscal quarter ending after the date of the Amended and Restated Credit Agreement and thereafter based on our Leverage Ratio;leverage ratio (as defined in the Amended and Restated Credit Agreement); or (2) the Adjustedsum 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.  We must also pay,leverage ratio. The interest rate as of March 31, 2022 was 1.71% on a quarterly basis, an unused commitment fee at a rate of between 0.2% and 0.3% per annum, based$282.0 million in outstanding borrowings on our Leverage Ratio. The interest rates as of December 31, 2017 were 3.07% on $140.0 million of our outstanding borrowings and 2.91% on the remaining $11.0 million of our outstanding borrowings.term loan facility.

All borrowings under the Amended and Restated Credit Agreement are secured by liens on substantially all of our assets.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.

On December 14, 2021, we and JPMorgan Chase Bank, N.A., as administrative agent, entered into a Waiver and Second Amendment (the “Waiver and Amendment”) to the Amended and Restated Credit Agreement dated as of December 23, 2019. The Waiver and Amendment amends the Amended and Restated Credit Agreement to (i) permanently waive the specified event of default resulting from the consummation of the Transactions (as defined in Note 18) under the Transaction Agreement and Plan of Merger (the “Transaction Agreement”) with Emerson Electric Co. (“Emerson”), EMR Worldwide Inc., a wholly owned subsidiary of Emerson (“Emerson Sub”), Emersub CX, Inc., a wholly owned subsidiary of Emerson (“New AspenTech”), and Emersub CXI, Inc., a direct wholly owned subsidiary of New AspenTech (“Merger Subsidiary”); (ii) permanently waive a possible change of fiscal year event of default in the future if we change the end of our fiscal year; (iii) establish a benchmark replacement for each affected currency due to the 2021 LIBOR cessation; and (iv) make New AspenTech a loan party and guarantor of the Amended and Restated Credit Agreement, if and when the Transactions are consummated. The waivers and New AspenTech accession would become effective upon the consummation of the Transactions. The benchmark amendments became effective as of the effective date of the Waiver and Amendment.

As of March 31, 2022, our current borrowings of $26.0 million consisted of the term loan facility. Our non-current borrowings of $253.4 million consisted of $256.0 million of our term loan facility, net of $2.6 million in debt issuance costs. As of June 30, 2021, our current borrowings of $20.0 million consisted of the term loan facility. As of June 30, 2021, our non-current borrowings of $273.2 million consisted of $276.0 million of our term facility, net of $2.8 million in debt issuance costs.

The indebtedness under the revolving credit facility matures on December 23, 2024. The following table summarizes the maturities of the term loan facility:
Year Ending June 30,Amount
 (Dollars in Thousands)
2022$6,000 
202328,000 
202436,000 
2025212,000 
Total$282,000 

The Amended and Restated Credit Agreement contains affirmative and negative covenants customary for facilities of this type, including restrictions on:on incurrence of additional debt; liens;debt, liens, fundamental changes;changes, asset sales;sales, restricted payments;payments and transactions with affiliates. The Credit Agreement containsThere are also financial covenants regarding maintenance as of the end of each fiscal quarter, commencing with the quarter ending June 30, 2016,December 31, 2019, of a maximum Leverage Ratioleverage ratio of 3.03.50 to 1.01.00 and a minimum Interest Coverage Ratiointerest coverage ratio of 3.02.50 to 1.0.1.00. As of DecemberMarch 31, 20172022, we were in compliance with these covenants.
 
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12.  Stock-Based Compensation
The weighted average estimated fair value of option awards granted was $16.65 and $16.86 during the three and six months ended December 31, 2017, respectively, and $12.45 and $12.96 during the three and six months ended December 31, 2016, respectively.

We utilized the Black-Scholes option valuation model with the following weighted average assumptions:
 Six Months Ended
December 31,
 2017 2016
Risk-free interest rate1.7% 1.1%
Expected dividend yield0.0% 0.0%
Expected life (in years)4.6
 4.6
Expected volatility factor28.1% 31.4%

The stock-based compensation expense under all equity plans and its classification in the unaudited consolidated statements of operations for the three and sixnine months ended DecemberMarch 31, 20172022 and 2016 are2021 were as follows:
Three Months Ended
March 31,
Nine Months Ended
March 31,
 2022202120222021
 (Dollars in Thousands)
Recorded as expenses:    
Cost of maintenance$150 $234 $505 $688 
Cost of services and other225 412 731 1,198 
Selling and marketing1,687 1,869 5,324 4,655 
Research and development1,702 2,273 5,434 6,515 
General and administrative3,993 4,437 13,719 11,533 
Total stock-based compensation$7,757 $9,225 $25,713 $24,589 
 Three Months Ended
December 31,
 Six Months Ended
December 31,
 2017 2016 2017 2016
 (Dollars in Thousands)
Recorded as expenses: 
  
  
  
Cost of services and other$324
 $374
 $774
 $743
Selling and marketing1,006
 1,010
 1,891
 1,965
Research and development1,891
 1,495
 3,788
 2,558
General and administrative2,234
 1,792
 5,416
 4,364
Total stock-based compensation$5,455
 $4,671
 $11,869
 $9,630


A summary of stock option and RSUrestricted stock unit (“RSU”) activity under all equity plans for the sixnine months ended DecemberMarch 31, 20172022 is as follows:
 Stock Options Restricted Stock Units
 Shares 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
(Years)
 
Aggregate
Intrinsic Value
(in 000’s)
 Shares 
Weighted
Average
Grant Date
Fair Value
Outstanding at June 30, 20171,353,558
 $37.98
 7.30 $23,535
 615,998
 $45.62
Granted386,556
 63.24
    
 319,741
 63.24
Settled (RSUs)
  
    
 (158,814) 49.79
Exercised(103,334) 34.29
    
 
  
Cancelled / Forfeited(33,563) 50.54
    
 (27,152) 54.83
Outstanding at December 31, 20171,603,217
 $44.05
 7.54 $35,522
 749,773
 $51.92
Vested and exercisable at December 31, 2017878,023
 $36.56
 6.42 $26,023
 
  
Vested and expected to vest as of December 31, 20171,527,998
 $43.58
 7.47 $34,563
 670,628
 $51.94
 Stock OptionsRestricted Stock Units
 SharesWeighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic Value
(in 000’s)
SharesWeighted
Average
Grant Date
Fair Value
Outstanding at June 30, 20211,285,221 $94.18 6.93$56,032 362,024 $128.66 
Granted274,777 130.29   393,769 135.79 
Settled (RSUs)—    (196,532)127.62 
Exercised (Stock options)(171,895)89.35   —  
Cancelled / Forfeited(37,721)128.78   (36,208)131.76 
Outstanding at March 31, 20221,350,382 $100.69 6.78$85,818 523,053 $134.52 
Vested and exercisable at March 31, 2022869,953 $84.81 5.72$70,087  
Vested and expected to vest as of March 31, 20221,262,415 $99.16 6.68$83,580 409,774 $134.27 
 
As of March 31, 2022, the RSUs expected to vest included 169,351 shares of RSUs granted during second and third quarter of fiscal 2022 which vest over a 12 to 18 month period contingent upon the close of the Transactions and continued service. Stock-based compensation expense associated with these awards will begin recognition at the closing date of the Transactions. Accordingly, there was no stock-based compensation expense recognized during the three and nine months ended March 31, 2022 for these awards.

The weighted average grant-dateestimated fair value of RSUsoption awards granted was $66.52$47.93 and $63.24$45.63 during the three and six months ended DecemberMarch 31, 2017,2022 and 2021, respectively, and $47.73$40.50 and $45.93$38.76 during the three and sixnine months ended DecemberMarch 31, 2016, respectively.  The total fair value of shares vested from RSU grants was $4.9 million2022 and $10.2 million during the three and six months ended December 31, 2017, respectively, and $4.2 million and $8.3 million during the three and six months ended December 31, 2016,2021, respectively.
 
At DecemberWe utilized the Black-Scholes option valuation model with the following weighted average assumptions:
Nine Months Ended
March 31,
 20222021
Risk-free interest rate0.8 %0.4 %
Expected dividend yield0.0 %0.0 %
Expected life (in years)4.74.7
Expected volatility factor35.4 %34.1 %
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As of March 31, 2017,2022, the total future unrecognized compensation cost related to stock options and RSUs was $9.4$13.7 million and is$46.0 million, respectively, and was expected to be recorded over a weighted average period of 2.8 years.  At December 31, 2017,2.57 years and 2.74 years, respectively. Of the $46.0 million total future unrecognized compensation cost related to RSUs, $24.2 million was $32.5 million and is expected to be recorded over a weighted average periodassociated with the awards that are contingent upon the close of 2.8 years.the Transactions.


The total intrinsic valueAs of options exercised was $1.3 million and $2.9 million during the three and six months ended DecemberMarch 31, 2017, respectively, and $1.4 million and $4.1 million during the three and six months ended December 31, 2016, respectively. We received cash proceeds from option exercises of $1.1 million and $3.5 million during the three and six months ended December 31, 2017, respectively, and $1.8 million and $4.8 million during the three and six months ended December 31, 2016, respectively. We withheld withholding taxes on vested RSUs of $1.8 million and $3.4 million during the three and six months ended December 31, 2017, respectively, and $1.5 million and $2.8 million during the three and six months ended December 31, 2016, respectively.
At December 31, 2017,2022, common stock reserved for future issuance or settlement under equity compensation plans was 10.54.9 million shares.

12.  Stockholders’ Deficit
13.  Stock Repurchases


On JanuaryJuly 22, 2015,2020, our Board of Directors approved a share repurchase program (the "Share Repurchase Program"“FY 2021 Program”) for up to $450.0$200.0 million worth of our common stock. The FY 2021 Program expired on June 30, 2021. On April 26, 2016 and June 8, 2017, the4, 2021, our Board of Directors approved a $400.0new share repurchase program (the “FY 2022 Program”) for up to $300.0 million and $200.0 million increase to the Share Repurchase Program, respectively.of our common stock in our fiscal year ending June 30, 2022. The timing and amount of any shares repurchased under the FY 2022 Program 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.


DuringOn June 14, 2021, as part of our FY 2022 Program, we entered into an accelerated share repurchase program (the “ASR Program”) with a third-party financial institution to repurchase an aggregate of $150.0 million of our common stock. Pursuant to the three and six months ended December 31, 2017,terms of the ASR Program, we made an upfront payment of $150.0 million on July 1, 2021 in exchange for the delivery of 872,473 initial shares of our common stock. The actual number of shares repurchased 756,349 and 1,595,508 shares, respectively,is determined at the maturity of the ASR Program based on the volume-weighted average price per share of our common stock over the term of the ASR Program, less an agreed-upon discount.

The ASR Program was completed on August 20, 2021. We repurchased in total 1,066,194 shares of our common stock for $150.0 million as part of the open marketASR Program. These shares were recorded as an increase to treasury stock.

On November 12, 2021, as part of our FY 2022 Program, we entered into another accelerated share repurchase program (the “Second ASR Program”) with a third-party financial institution to repurchase an aggregate of $75.0 million of our common stock. Pursuant to the terms of the Second ASR Program, we made an upfront payment of $75.0 million on November 16, 2021 in exchange for $50.0the delivery of 402,874 initial shares of our common stock. The actual number of shares repurchased is determined at the maturity of the program based on volume-weighted average price per share of our common stock over the term of the program, less an agreed-upon discount.

The Second ASR Program was completed on January 21,2022. We repurchased in total 504,318 shares of our common stock for $75.0 million and $100.0as part of the Second ASR Program. These shares were recorded as an increase to treasury stock.

Additionally, we repurchased 36,359 shares of our common stock for $4.7 million respectively.during the second quarter of fiscal 2022 under the FY 2022 Program. As of DecemberMarch 31, 2017,2022, the total remaining value under the Share RepurchaseFY 2022 Program was approximately $246.3 million.

Accumulated Other Comprehensive Income
As of December 31, 2017, accumulated other comprehensive income was comprised of foreign currency translation adjustments of $2.9 million. As of June 30, 2017, accumulated other comprehensive income was comprised of foreign currency translation adjustments of $1.5 million and net unrealized gains on available for sale securities of less than $0.1$70.3 million.
 
13.14.  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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The calculations of basic and diluted net income per share and basic and dilutive weighted average shares outstanding for the three and sixnine months ended DecemberMarch 31, 20172022 and 20162021 are as follows:
Three Months Ended
December 31,
 Six Months Ended
December 31,
Three Months Ended
March 31,
Nine Months Ended
March 31,
2017 2016 2017 2016 2022202120222021
(Dollars and Shares in Thousands, Except per Share Data) (Dollars and Shares in Thousands, 
Except Per Share Data)
Net income$38,078
 $37,010
 $72,833
 $72,011
Net income$75,123 $62,495 $176,386 $224,358 
       
Weighted average shares outstanding72,342
 76,905
 72,683
 77,977
Weighted average shares outstanding66,594 67,920 66,791 67,809 
       
Dilutive impact from: 
  
  
  
Dilutive impact from:    
Share-based payment awards694
 413
 650
 379
Employee equity awardsEmployee equity awards420 688 450 630 
Dilutive weighted average shares outstanding73,036
 77,318
 73,333
 78,356
Dilutive weighted average shares outstanding67,014 68,608 67,241 68,439 
       
Income per share 
  
  
  
Income per share    
Basic$0.53
 $0.48
 $1.00
 $0.92
Basic$1.13 $0.92 $2.64 $3.31 
Dilutive$0.52
 $0.48
 $0.99
 $0.92
Dilutive$1.12 $0.91 $2.62 $3.28 
 
For the three and sixnine months ended DecemberMarch 31, 20172022 and 2016,2021, 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 DecemberMarch 31, 20172022 and 2016:2021:
Three Months Ended
March 31,
Nine Months Ended
March 31,
 2022202120222021
 (Shares in Thousands)
Employee equity awards539 507 638 869 
 Three Months Ended
December 31,
 Six Months Ended
December 31,
 2017 2016 2017 2016
 (Shares in Thousands)
Employee equity awards388
 721
 664
 873


Included in the table above are options to purchase 10,72328,504 and 377,74029,586 shares of our common stock during the three and sixnine months ended DecemberMarch 31, 2017, respectively,2022, which were not included in the computation of dilutive weighted average shares outstanding, because their exercise prices ranged from $63.25$144.83 per share to $66.57$167.96 per share during the nine months ended March 31, 2022, and were greater than the average market price of our common stock during the periodsperiod then ended. These options were outstanding as of DecemberMarch 31, 20172022 and expire at various dates through December 5, 2027.March 28, 2032.


14.15.   Income Taxes
 
The effective tax rate for the periods presented wasis 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.income, primarily the Foreign Derived Intangible Income (“FDII”) deduction. Assuming certain requirements are met, the FDII deduction is a benefit for U.S. companies that sell their products or services to customers outside the U.S.
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 will make significant changes to U.S. federal income tax laws, including reduction of the corporate tax rate from 35.0% to 21.0%, limitation of the tax deduction for interest expense to 30.0% of earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80.0% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions.

As a result of the Tax Act, we have revised our estimated annual effective rate to reflect a change in the federal statutory rate from 35.0% to 21.0%. The rate change is administratively effective as of January 1, 2018. As a result, the blended statutory tax rate for our fiscal year is 28.1%.


Our effective tax rate was 28.2%14.6% and 30.4% for17.6% during the three and six months ended DecemberMarch 31, 2017,2022 and 2021, respectively, and 33.9%15.2% and 35.0% for17.3% during the three and sixnine months ended DecemberMarch 31, 2016,2022 and 2021, respectively. Our effective tax rate decreased forwas lower in the three and sixnine months ended DecemberMarch 31, 20172022 due to the higher FDII deduction taken this year compared to the same periods in 2016last year due to a reductionthe timing of revenue recognition for tax purposes on multi-year software license agreements as the result of the change in the federal corporateincome tax rate from 35.0% to the blended rate of 28.1%, partially offset by a discreteregulations.

We recognized income tax expense of $4.3$12.9 million due to the revaluation of the net deferred tax assets as of the enactment date of the Tax Act on December 22, 2017 due to the reduction in the tax rate. Duringand $13.3 million during the three and six months ended DecemberMarch 31, 20172022 and 2016, our2021, respectively, and $31.7 million and $47.1 million during the nine months ended March 31, 2022 and 2021. Our income tax expense was driven primarily by pre-tax profitability in our domestic and foreign operations and the impact of permanent items and discrete tax items. The permanent items are predominantly a U.S. domestic production activitythe FDII deduction, stock-based compensation expense and tax credits for research expenditures.


The Tax Act has several significant changes that impacts all taxpayers, including a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation
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Table of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986. We are currently estimating that we will not be subject to the transition tax associated with our accumulated, undistributed foreign earnings. We will continue to evaluate this area and expect to finalize our conclusions by the end of fiscal 2018.Contents

We adopted ASU No. 2016-09 effective July 1, 2017. As a result of adopting the new standard, excess tax benefits from stock-based compensation are now reflected in the consolidated statements of operations as a component of the provision for income taxes, whereas they were previously a component of stockholders’ deficit. The adoption of ASU No. 2016-09 resulted in a decrease in our provision for income taxes of $0.4 million and $1.0 million for the three and six months ended December 31, 2017, respectively. This represents a decrease in our effective tax rate of approximately 1.0 percentage point for both the three and six months ended December 31, 2017, due to the recognition of excess tax benefits for options exercised and the vesting of equity awards.

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 our foreign subsidiaries as we intend to indefinitely reinvest those earnings.  We are also estimating that the transition tax on any undistributed earnings that existed as of December 31, 2017 will be zero.


15.16. Commitments and Contingencies
Operating Leases
We lease certain facilities under non-cancellable operating leases with terms in excess of one year. Rental expense on leased facilities under operating leases was approximately $2.0 million and $4.1 million during the three and six months ended December 31, 2017, respectively, and $2.1 million and $4.2 million during the three and six months ended December 31, 2016, respectively.
 
Standby letters of credit for $3.0$2.2 million and $2.9$2.3 million securesecured our performance on professional services contracts, certain facility leases and potential liabilities as of DecemberMarch 31, 20172022 and June 30, 2017,2021, respectively. The letters of credit expire at various dates through fiscal 2025.


Legal Matters
In the ordinary course of business, we are, from time to time, involved in lawsuits, claims, investigations, proceedings and threats of litigation. These matters include an April 2004 claim by a customer that certain of our software products and implementation services failed to meet the customer's expectations. In March 2014, a judgment was issued by the trial court against us in the amount of approximately 1.9 million Euro (“€”) plus interest and a portion of legal fees.  We subsequently filed an appeal of that judgment.  In March 2016, the appellate court determined that we are liable for damages in the amount of approximately €1.7 million plus interest, with the possibility of additional damages to be determined in further proceedings by the appellate court. In December 2017, following additional proceedings in the appellate court, the court issued a judgment against us in the amount of approximately €3.5 million, including interest, plus approximately €0.1 million in costs and legal fees. As of December 31, 2017, there has been no change to the appellate court’s determination.
While the outcome of the proceedings and claims referenced above cannot be predicted with certainty, there were no such matters, as of December 31, 2017 that, in the opinion of management, are reasonably possible to have a material adverse effect on our financial position, results of operations or cash flows. Liabilities, if applicable, related to the aforementioned matters discussed in this Note have been included in our accrued liabilities at December 31, 2017, and are not material to our financial position for the period then ended. As of December 31, 2017, we do not believe that there is a reasonable possibility of a material loss exceeding the amounts already accrued for the proceedings or matters discussed above. However, the results of litigation (including the above-referenced appeal) and claims cannot be predicted with certainty; unfavorable resolutions are possible and could materially affect our results of operations, cash flows or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of attorneys' fees and costs, diversion of management resources and other factors.

16.17.  Segment 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.services, and includes our license and maintenance revenue. The services and other segment includes professional services and training.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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The following table presents a summary of our reportable segments’ profits:
 Subscription and SoftwareServices and OtherTotal
 (Dollars in Thousands)
Three Months Ended March 31, 2022   
Segment revenue$180,049 $7,704 $187,753 
Segment expenses (1)(67,930)(8,373)(76,303)
Segment profit (loss)$112,119 $(669)$111,450 
Three Months Ended March 31, 2021   
Segment revenue$155,989 $6,737 $162,726 
Segment expenses (1)(63,878)(8,396)(72,274)
Segment profit (loss)$92,111 $(1,659)$90,452 
Nine Months Ended March 31, 2022   
Segment revenue$473,862 $21,267 $495,129 
Segment expenses (1)(194,028)(24,436)(218,464)
Segment profit (loss)$279,834 $(3,169)$276,665 
Nine Months Ended March 31, 2021   
Segment revenue$491,694 $19,721 $511,415 
Segment expenses (1)(173,593)(24,911)(198,504)
Segment profit (loss)$318,101 $(5,190)$312,911 

 
Subscription
and Software
 Services Total
 (Dollars in Thousands)
Three Months Ended December 31, 2017 
  
  
Segment revenue$117,658
 $7,244
 $124,902
Segment expenses (1)(49,656) (6,603) (56,259)
Segment profit$68,002
 $641
 $68,643
Three Months Ended December 31, 2016 
  
  
Segment revenue$112,916
 $7,017
 $119,933
Segment expenses (1)(45,602) (6,403) (52,005)
Segment profit$67,314
 $614
 $67,928

 
Subscription
and Software
 Services Total
 (Dollars in Thousands)
Six Months Ended December 31, 2017 
  
  
Segment revenue$233,414
 $14,269
 $247,683
Segment expenses (1)(98,499) (13,552) (112,051)
Segment profit$134,915
 $717
 $135,632
Six Months Ended December 31, 2016 
  
  
Segment revenue$226,360
 $13,623
 $239,983
Segment expenses (1)(91,328) (12,839) (104,167)
Segment profit$135,032
 $784
 $135,816

(1) Our reportable segments’ operating expenses include expenses directly attributable to the segments. Segment expenses include selling and marketing and research and development stock-based compensation and certain corporate expenses incurred in support of the segments.expenses. Segment expenses do not include allocations of general and administrative;administrative expense; interest income, net;income; interest expense; and other (expense) income, net.


Reconciliation to Income before Income Taxes
 
The following table presents a reconciliation of total segment profit to income before income taxes for the three and sixnine months ended DecemberMarch 31, 20172022 and 2016:2021:
Three Months Ended
March 31,
Nine Months Ended
March 31,
 2022202120222021
 (Dollars in Thousands)
Total segment profit for reportable segments$111,450 $90,452 $276,665 $312,911 
General and administrative expense(30,694)(21,553)(87,542)(60,389)
Interest income8,287 8,410 25,646 26,383 
Interest (expense)(1,572)(1,495)(4,626)(5,639)
Other (expense), net522 (5)(2,107)(1,807)
Income before income taxes$87,993 $75,809 $208,036 $271,459 

18. Transaction Agreement with Emerson Electric Co.
On October 10, 2021, we entered into the Transaction Agreement with Emerson, Emerson Sub, New AspenTech, and Merger Subsidiary, pursuant to which, among other things, (i) Emerson will contribute $6,014,000,000 in cash to New AspenTech in exchange for New AspenTech common stock, (ii) Emerson Sub will contribute Emersons Open Systems International, Inc. and Geological Simulation Software businesses to New AspenTech in exchange for New AspenTech common stock, (iii) Merger Subsidiary will merge with and into AspenTech, with AspenTech being the surviving corporation (the “Surviving Corporation”) and becoming a wholly owned subsidiary of New AspenTech and (iv) as a result of the merger, each issued and outstanding share of our common stock (subject to certain exceptions) will be converted into the right to
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 Three Months Ended
December 31,
 Six Months Ended
December 31,
 2017 2016 2017 2016
 (Dollars in Thousands)
        
Total segment profit for reportable segments$68,643
 $67,928
 $135,632
 $135,816
General and administrative(14,178) (11,863) (27,854) (25,020)
Other (expense) income, net(238) 697
 (854) 1,344
Interest (expense) income, net(1,221) (676) (2,286) (1,274)
Income before income taxes$53,006
 $56,086
 $104,638
 $110,866
receive 0.42 shares of New AspenTech common stock and a per share cash consideration amount, calculated by dividing $6,014,000,000 by the number of outstanding shares of our common stock as of the closing of the transactions contemplated by the Transaction Agreement (the “Closing”) on a fully diluted basis, which per share cash consideration amount was estimated to be approximately $87.50 per share of our common stock.


Immediately following the Closing, Emerson and Emerson Sub will collectively own 55% of the outstanding New AspenTech common stock (on a fully diluted basis) and our stockholders will own the remaining outstanding New AspenTech common stock. Following the Closing, New AspenTech and its subsidiaries will operate under the name “Aspen Technology, Inc.”

The Transaction Agreement includes customary representations, warranties and covenants of the parties. Among other things and subject to certain exceptions, until the earlier of the termination of the Transaction Agreement or the Closing, we and Emerson have agreed to use reasonable best efforts to conduct our and Emersons respective businesses (in Emerson’s case, the contributed business) in the ordinary course consistent with past practice. The Transaction Agreement also prohibits our solicitation of proposals relating to alternative transactions and restricts our ability to furnish information to, or participate in any discussions or negotiations with, any third party with respect to any such transaction, subject to certain limited exceptions.

The obligation of the parties to consummate the Transactions is subject to customary conditions, including, among other things, (i) the affirmative vote of the holders of a majority of our outstanding common stock, (ii) the approvals under applicable regulatory and competition laws, including the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (in each case, without the requirement to take actions that would be reasonably expected to materially and adversely affect Emerson and its subsidiaries or New AspenTech and its subsidiaries after giving effect of the Transactions), which approvals have been obtained and (iii) the effectiveness of the registration statement on Form S-4 filed by Emerson Sub with the SEC, which occurred on April 18, 2022, and the approval of the listing on Nasdaq of the shares of New AspenTech common stock to be issued in the Transactions.

The Transaction Agreement contains certain termination rights for each of us and Emerson, including the right of each party to terminate the Transaction Agreement if the Transactions have not been consummated by October 10, 2022. Under the Transaction Agreement, we are required to pay a termination fee in the amount of $325,000,000 to Emerson in certain events described in the Transaction Agreement, including if Emerson terminates the Transaction Agreement in the event our Board of Directors changes its recommendation that our stockholders approve the Transaction Agreement.

All of the parties to the Transaction Agreement entered into an amendment to the Transaction Agreement on March 23, 2022 (“Amendment No. 1”). Amendment No. 1 amends Exhibit G to the Transaction Agreement, which is the form of the certificate of incorporation of New AspenTech following the closing of the Transactions, to clarify that the exclusive forum provision for certain types of stockholder claims does not apply to claims under the Securities Exchange Act of 1934. The foregoing description of Amendment No. 1 does not purport to be complete, and is qualified in its entirety by reference to the full text of Amendment No. 1 which is attached to this Form 10-Q as Exhibit 2.2 and is incorporated herein by reference.

We filed a definitive proxy statement on Schedule 14A on April 18, 2022, with respect to the special stockholder meeting to be held on May 16, 2022 for the approval of the Transactions, which contains detailed information relating to the Transaction Agreement and the Transactions as well as additional details of the process.


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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Caution Concerning Forward-Looking Statements

This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, prospective products, size of market, plans, objectives of management, expected market growth and the anticipated effects of the coronavirus (COVID-19) pandemic (and any COVID-19 variants, the “COVID-19 pandemic”) on our business, operating results and financial condition are forward-looking statements.

In addition, this Quarterly Report contains forward-looking statements regarding the pending Transactions with Emerson (each as defined below under “Transaction Agreement with Emerson Electric Co.”), including: statements regarding the expected timing and structure of the Transactions; the ability of the parties to complete the Transactions considering the various closing conditions; the expected benefits of the Transactions, such as improved operations, enhanced revenues and cash flow, synergies, growth potential, market profile, business plans, expanded portfolio and financial strength; the competitive ability and position of New AspenTech (as defined below) following completion of the Transactions; legal, economic and regulatory conditions; and any assumptions underlying any of the foregoing.

Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “plan,” “could,” “would,” “project,” “predict,” “continue,” “target” or other similar words or expressions or negatives of these words, but not all forward-looking statements include such identifying words. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. We can give no assurance that such plans, estimates or expectations will be achieved and therefore, actual results may differ materially from any plans, estimates or expectations in such forward-looking statements.

Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others: (1) that one or more closing conditions to the Transactions, including certain regulatory approvals, may not be satisfied or waived, on a timely basis or otherwise, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the Transactions, may require conditions, limitations or restrictions in connection with such approvals or that the required approval by our stockholders may not be obtained; (2) the risk that the Transactions may not be completed in the time frame expected by us or Emerson, or at all; (3) unexpected costs, charges or expenses resulting from the Transactions; (4) uncertainty of the expected financial performance of New AspenTech following completion of the Transactions; (5) failure to realize the anticipated benefits of the Transactions, including as a result of delay in completing the Transactions or integrating the industrial software business of Emerson with our business; (6) the ability of New AspenTech to implement its business strategy; (7) difficulties and delays in achieving revenue and cost synergies of New AspenTech; (8) inability to retain and hire key personnel; (9) the occurrence of any event that could give rise to termination of the Transactions; (10) potential litigation in connection with the Transactions or other settlements or investigations that may affect the timing or occurrence of the Transactions or result in significant costs of defense, indemnification and liability; (11) evolving legal, regulatory and tax regimes; (12) changes in economic, financial, political and regulatory conditions, in the United States and elsewhere, and other factors that contribute to uncertainty and volatility, natural and man-made disasters, civil unrest, pandemics (e.g., the COVID-19 pandemic), geopolitical uncertainty, and conditions that may result from legislative, regulatory, trade and policy changes associated with the current or subsequent U.S. administration; (13) our ability and the ability of Emerson and New AspenTech to successfully recover from a disaster or other business continuity problem due to a hurricane, flood, earthquake, terrorist attack, war, pandemic, security breach, cyber-attack, power loss, telecommunications failure or other natural or man-made event, including the ability to function remotely during long-term disruptions such as the COVID-19 pandemic; (14) the impact of public health crises, such as pandemics (including the COVID-19 pandemic) and epidemics and any related company or governmental policies and actions to protect the health and safety of individuals or governmental policies or actions to maintain the functioning of national or global economies and markets, including any quarantine, “ shelter in place,” “ stay at home,” workforce reduction, social distancing, shut down or similar actions and policies; (15) actions by third parties, including government agencies; (16) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the Transactions; (17) the risk that disruptions from the Transactions will harm Emerson’s and our business, including current plans and operations; (18) certain restrictions during the pendency of the Transactions that may impact Emerson’s or our ability to pursue certain business opportunities or strategic transactions; (19) our, Emerson’s and New AspenTech’s ability to meet expectations regarding the accounting and tax treatments of the Transactions; and (20) other risk factors as detailed from time to time in Emerson’s and our reports filed with the SEC,
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including Emerson’s and our annual report on Form 10-K, periodic quarterly reports on Form 10-Q, periodic current reports on Form 8-K and other documents filed with the SEC. While the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.

Any forward-looking statements speak only as of the date of this Quarterly Report. We undertake no obligation to update any forward-looking statements, whether as a result of new information or development, future events or otherwise, except as required by law. You should read the following discussion in conjunction with our unaudited consolidated financial statements and related and notes thereto contained in this report.  In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties.  You should also read “Item 1A. Risk Factors” of Part II for a discussion of important factors that could cause our actual results to differ materially from our expectations.
 
Our fiscal year ends on June 30,th, and references in this Quarterly Report to a specific fiscal year are to the twelve months ended June 30th of such year (for example, “fiscal 2018”2022” refers to the year ending on June 30, 2018)2022).

Business Overview

We are a leading global supplier ofleader in asset optimization solutionssoftware that optimizeoptimizes asset design, operations and maintenance in complex, industrial environments.environments to enable organizations to meet their business goals for sustainability and profitability. We combine decades of process modeling and operations expertise with big data, machine-learningartificial intelligence, and advanced analytics. Our purpose-built software solutions improve thehelps organizations meet their sustainability goals to reduce emissions and drive innovation which enables competitiveness and profitability of our customers by increasing throughput, energy efficiency, and production, reducing unplanned downtime, enhancingcustomers. Our software enhances capital efficiency and decreasingdecreases working capital requirements over the entire asset lifecycle to supportdriving a higher level of operational excellence. In addition, we help our customers increase throughput, drive resource efficiencies, increase production levels, reduce unplanned downtime, manage emissions to reach their net-zero footprint goals, and improve overall safety.

Our software incorporatescombines our proprietary mathematical and empirical models of manufacturing and planning processes andwhich reflects the deep domain expertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 3540 years. Our products have embedded artificial intelligence, or AI, capabilities that create insights, provide guidance, and automate and democratize knowledge, known as Industrial AI, to create more value for the industries we serve. For customers beginning to consider how AI can be applied to their domain-specific challenges, we recently introduced our hybrid model methodology. This capability enhances first principles-driven models with AI to improve accuracy, safety and predictability without requiring customers to have additional data science expertise.

We have developed our applications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain, and asset performance management.management, or APM. Each business area leverages our Artificial Intelligence of Things, or AIoT, products as the foundation of applying Industrial AI at scale. We are athe recognized market and technology leader in providing process optimization and asset performance management software solutions for each of these business areas.

We have established sustainable competitive advantages based on the following strengths:

Innovative products that can enhancehelp our customers'customer’ meet their sustainability and profitability and productivity;goals;

Long-term customer relationships;

Large installed base of users of our software; and

Long-term license contracts.

We have approximately 2,1002,500 customers globally. Our customers consist of companies engaged in the process and other capital-intensive industries such asincluding energy, chemicals, engineering and construction, as well as pharmaceuticals, food and beverage, transportation, power, metals and mining, pulp and paper, and consumer packaged goods.

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Business Segments

We have two operating and reportable segments: i)segments, which are consistent with our reporting units: (i) subscription and softwaresoftware; and ii) services.(ii) services and other. The subscription and software segment is engaged in the licensing of process optimization and asset optimizationperformance management software solutions and associated support services.services, and includes our license and maintenance revenue. The services and other segment includes professional services and training.training, and includes our services and other revenue.

Recent Events

Due to the COVID-19 pandemic, beginning in March 2020, there was a sudden decrease in demand for oil, compounded by the excess supply arising from producers’ failure to agree on production cuts, which resulted in a drop in oil prices. Our business was negatively impacted by these factors. Specifically, we saw a slowdown in closing customer contracts, a higher than pre-COVID customer attrition rate due to non-renewals and renewals at lower entitlement level and, to a lesser extent, a slowdown in customer payments. During fiscal year 2022, there has been a normalization of transaction closing cycles and customer payment timing. As of March 31, 2022, oil prices have fully recovered and surpassed pre-pandemic levels and our customers’ operations are now more normalized although some effects remain. 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 capital expenditure and operational expenditure budgetary cycles that are inherent in our customers’ procurement strategies, which are informed by oil prices and environmental factors such as COVID-19, all of which are uncertain and cannot be predicted. We are continuing to monitor the potential impacts related to the 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.

Russia’s invasion of Ukraine on February 24, 2022 and the ongoing military conflict between Ukraine and Russia, exacerbated by sanctions and other regulatory measures imposed by the global community, have resulted in significant volatility in financial markets and depreciation of the Russian ruble and Ukrainian hryvnia, as well as in an increase in energy and commodity prices globally. We maintain operations in Russia and license software and provide related services to customers in Russia and Ukraine. While the conflict has not had a material impact on our financial results, we continue to evaluate the impact, if any, of the various sanctions and export control measures imposed by the United States and other governments on our ability to do business in Russia, maintain contracts with vendors and pay employees in Russia, receive payment from customers in Russia and Ukraine, and assess our operations for potential asset impairment. The outcome of these assessments will depend on how the conflict evolves and any further actions that may be taken by the United States, Russia, and other governments around the world. As a software company, there is no material impact to supply chain operations expected due to the conflict in Ukraine.

Transaction Agreement with Emerson Electric Co.

On October 11, 2021, we announced that we had entered into the Transaction Agreement with Emerson, pursuant to which Emerson will combine its Open Systems International, Inc. and Geological Simulation Software businesses, with us to form New AspenTech. Upon closing of the Transactions, which is subject to the satisfaction of certain customary conditions, including the approval of our stockholders, each issued and outstanding share of our common stock (subject to certain exceptions) will be converted into the right to receive 0.42 shares of New AspenTech common stock and a per share cash consideration amount, calculated by dividing $6,014,000,000 by the number of outstanding shares of our common stock as of the closing of the Transactions on a fully diluted basis.

Immediately following the closing of the Transactions, Emerson and its affiliates will collectively own 55% of the outstanding New AspenTech common stock (on a fully diluted basis) and our stockholders will own the remaining outstanding New AspenTech common stock. Following the closing, New AspenTech and its subsidiaries will operate under the name “Aspen Technology, Inc.”

The Transaction Agreement was negotiated and signed subsequent to a process that our Board of Directors originally undertook beginning in late 2020 to explore options to increase our value to our shareholders. As part of that process, we retained financial advisors, including JPMorgan Chase & Co., which assisted in facilitating contact with third parties, including Emerson, to assess the level of interest on the part of such third parties in a potential strategic corporate transaction involving us. Potential transactions included a range of structures, from a minority stake to finance targeted acquisitions, to a majority stake and up to a potential whole company acquisition. After discussions with such third parties, it became apparent that there were no such transactions that were of interest among the parties or that we wished to pursue, and in May 2021 our Board of Directors determined to close the process. Subsequently, an arrangement was proposed by Emerson that our Board of Directors
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found to be an attractive pathway to increasing shareholder value and creating a global leader in our industry; accordingly, our Board of Directors advanced those discussions, which ultimately resulted in the Transaction Agreement with Emerson.

We filed a definitive proxy statement on Schedule 14A on April 18, 2022, with respect to the special stockholder meeting to be held on May 16, 2022 for the approval of the Transactions, which contains detailed information relating to the Transaction Agreement and the Transactions as well as additional details of the process.

For more detail about the transaction with Emerson, please see our Current Report on Form 8-K filed with the SEC on October 12, 2021 and Note 18 – Transaction Agreement with Emerson Electric Co. to our consolidated financial statements included in this Quarterly Report on Form 10-Q, as well as the definitive proxy statement on Schedule 14A we filed referenced above.

Key Components of Operations

Revenue

We generate revenue primarily from the following sources: 
Subscription and Software
License Revenue. We sell our software products to end users, primarily under fixed-term licenses. We license our software products primarilylicenses, through a subscription offering which we refer to as our aspenONE licensing model. The aspenONE licensing model which includes software maintenance and support, known as our Premier Plus SMS offering, for the entire term. Our aspenONE products are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management. Each product suite leverages our AIoT products as a foundation for applying Industrial AI at scale. Our APM product suite is licensed by customer sites, user seats or cloud connections. The aspenONE licensing model provides customers withengineering and manufacturing and supply chain product suites are licensed by tokens, which are interchangeable measures of usage based on the various units of measure such as users, servers, applications, manipulated variables, etc. Customers may use tokens flexibly to access to all of the products within the aspenONE suite(s) they license. Customers can changeone or alternate the use of multiplemore products in a licensedthe suite through the use of exchangeable units of measurement, called tokens, licensed in quantities determined by the customer.any combination. 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 purchasingthe customer faces, and to license 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.
We also license our software through point product arrangements with our Premier Plus SMS offering included for the contract term, as well as perpetual license arrangements.
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'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.
Our services and other revenue consists of revenue related to professional services and training. The amount and timing of this revenue depend on a number of factors, including:
whether the professional services arrangement was sold as a single arrangement with, or in contemplation of, a new aspenONE licensing arrangement;
the number, value and rate per hour of service transactions booked during the current and preceding periods;
the number and availability of service resources actively engaged on billable projects;
the timing of milestone acceptance for engagements contractually requiring customer sign-off;
the timing of collection of cash payments when collectability is uncertain; and
the size of the installed base of license contracts.
Cost of Revenue

Cost of Subscription and Software. License. Our cost of subscription and softwarelicense revenue consists of (i) royalties, (ii) amortization of capitalized software and intangibles,intangible assets, and (iii) distribution fees, and (iv)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 our customers professional services and training.

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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 and costs of acquired technology prior to establishing technological feasibility.products.

General and Administrative Expenses. General and administrative expenses include the costspersonnel expenses 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 intangible assets, and the provision for bad debts. receivables. 

Other Income and Expenses

Interest Income. Interest income is recorded for financing components under Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) or Topic 606. When a contract includes a significant financing component, we generally receive the accretionmajority 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 on the investment in marketable securities and short-term money market instruments.income by a corresponding amount.

Interest Expense. During the three and six months ended December 31, 2017 and 2016, interestInterest expense wasis primarily related to theoutstanding borrowings under our Amended and Restated Credit Agreement we entered into with various lenders on February 26, 2016, as amended August 9, 2017 (the “Credit Agreement”).Agreement.


Other (Expense) Income, (Expense), Net. Other (expense) income, (expense), 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.entities.

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 certain key non-GAAP and other business measures to track and assess the performance of our business and we make these measures available to investors.business. We have refinedidentified the following set of appropriate business metrics in the context of our evolving business andbusiness:
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:

Annual spend;

Free cash flow; andflow


Non-GAAP operating income.income

NoneWe 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.
 
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Annual Spend
 
Annual spend is an estimate of the annualized value of our portfolio of term license arrangements,agreements, as of a specific date. Management believes that this financial measure is a useful metric to investors as it provides insight into the growth component of license bookings during a fiscal period. Annual spend is calculated by summing the most recent annual invoice value of each of our active term license contracts.agreements. Annual spend also includes the annualized value of standalone SMS agreements purchased in conjunction with certain legacy term license agreements. 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, and sincebecause annual spend represents the estimated annualized billings associated with our active term license agreements,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 our success in meeting targets for growth in annual spend that are approved by our Board of Directors. We believe that annual spend is a useful business metric to investors as it provides insight into the future valuegrowth component of subscriptionour term licenses and software revenue.to how management evaluates and forecasts the results of the business.

Annual spend increases as a result of:
Newof new term license agreements with new or existing customers;

Renewalscustomers, 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;licensed, and

Escalation escalation of annual payments in our active term license contracts.agreements.
 
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 contractsagreements 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 terminated duringdelinquent in paying invoices, that are in bankruptcy proceedings, or where payment is otherwise in doubt.

As of March 31, 2022, approximately 85% of our term license agreements (by value) were denominated in U.S. dollars. For agreements denominated in other currencies, we use 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 contract term dueannual spend calculation the portion of the invoice allocable to the customer ceasing operations.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 1.7%2.4% during the secondthird quarter of fiscal 2018,2022, from $460.9 million at September 30, 2017 to $469.0$640.2 million at December 31, 2017,2021 to $655.3 million at March 31, 2022 and by approximately 2.0%5.5% during the first sixnine months of fiscal 2018,2022, from $459.6$621.3 million at June 30, 2017.2021. 
 

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 $2.9 billion as of June 30, 2021. TCV is an annual metric.

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 increased from $175.6 million during the three months ended March 31, 2021 to $207.0 million during the three months ended March 31, 2022. Bookings decreased from $548.8 million during the nine months ended March 31, 2021 to $516.7 million during the nine months ended March 31, 2022. The change in bookings is due to the timing of renewals.
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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:of (a) purchases of property, equipment and leasehold improvements;improvements, (b) payments for capitalized computer software development costs; excess tax benefits from stock-based compensation; non-capitalized acquired technology;costs, and (c) other nonrecurring items, such as acquisition and integration planning related payments. Acquisition and integration planning related payments are costs we paid to effect a business combination. Those costs include: finders fees; advisory, legal, accounting and due diligence, valuation, and other professional or consulting fees; and costs of registering and issuing equity securities.


The following table provides a reconciliation of GAAP net cash flows provided by operating activities to free cash flow for the indicated periods:
 Six Months Ended
December 31,
 2017 2016
 (Dollars in Thousands)
Net cash provided by operating activities$54,762
 $53,417
Purchases of property, equipment, and leasehold improvements(156) (1,374)
Capitalized computer software development costs(356) (100)
Non-capitalized acquired technology75
 846
Excess tax benefits from stock-based compensation


 1,032
Acquisition related fee payments88
 413
Free cash flows (non-GAAP)$54,413
 $54,234
 Nine Months Ended
March 31,
 20222021
 (Dollars in Thousands)
Net cash provided by operating activities (GAAP)$155,086 $172,949 
Purchase of property, equipment, and leasehold improvements(1,138)(733)
Payments for capitalized computer software development costs(361)(895)
Acquisition and integration planning related payments20,592 2,433 
Free cash flow (non-GAAP)$174,179 $173,754 
 
Total free cash flow on a non-GAAP basis increased by $0.2$0.4 million during the sixnine months ended DecemberMarch 31, 20172022 as compared to the same period of the prior fiscal yearyear. The increase was primarily due to changeshigher customer receipts and a decrease in working capital.tax payments, offset by an increase in supplier and compensation-related payments resulting from an increase in headcount. See additional commentary in the “Liquidity and Capital Resources” section below. 
In the six months ended December 31, 2017 and 2016, we have excluded payments of $0.1 million and $0.8 million, respectively, for non-capitalized acquired technology (including $0.1 million and $0.5 million, respectively, of final payments related to non-capitalized acquired technology from prior fiscal periods) from free cash flow to be consistent with the treatment of other transactions where the acquired assets were capitalized.


Non-GAAP Operating Income from Operations

Non-GAAP operating income from operations excludes certain non-cash and non-recurring expenses, and is used as a supplement to operating income from operations presented on a GAAP basis. We believe that non-GAAP operating 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.
 

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The following table presents our net income from operations, as adjusted for stock-based compensation expense, non-capitalized acquired technology and amortization of purchased technology intangibles,intangible assets, and other items, such as the impact of litigation judgmentsacquisition and acquisitionintegration planning related fees, for the indicated periods:
Three Months Ended
December 31,
 2017 Compared to 2016 Six Months Ended
December 31,
 2017 Compared to 2016 Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
2017 2016 $ % 2017 2016 $ % 20222021$%20222021$%
(Dollars in Thousands)(Dollars in Thousands)
GAAP income from operations$54,465
 $56,065
 $(1,600) (2.9)% $107,778
 $110,796
 $(3,018) (2.7)%GAAP income from operations$80,756 $68,899 $11,857 17.2 %$189,123 $252,522 $(63,399)(25.1)%
Plus: 
  
  
  
  
  
  
  
Plus:       
Stock-based compensation5,455
 4,671
 784
 16.8 % 11,869
 9,630
 2,239
 23.3 %Stock-based compensation7,757 9,225 (1,468)(15.9)%25,713 24,589 1,124 4.6 %
Non-capitalized acquired technology
 
 
  % 
 350
 (350) (100.0)%
Amortization of intangibles526
 56
 470
 839.3 % 1,052
 111
 941
 847.7 %Amortization of intangibles2,025 2,047 (22)(1.1)%6,102 5,657 445 7.9 %
Litigation judgment
1,548
 
 1,548
 100.0 % 1,548
 
 1,548
 100.0 %
Acquisition related fees198
 99
 99
 100.0 % 328
 461
 (133) (28.9)%
Acquisition and integration planning related feesAcquisition and integration planning related fees11,923 749 11,174 1,491.9 %29,066 3,133 25,933 827.7 %
Non-GAAP income from operations$62,192
 $60,891
 $1,301
 2.1 % $122,575
 $121,348
 $1,227
 1.0 %Non-GAAP income from operations$102,461 $80,920 $21,541 26.6 %$250,004 $285,901 $(35,897)(12.6)%
 
During the six months ended December 31, 2016, we acquired technology that did not meet the accounting requirements for capitalization and therefore the cost of the acquired technology was expensed as research and development. We have excluded the expense of the acquired technology from non-GAAP operating income to be consistent with transactions where the acquired assets were capitalized. During the three and six months ended December 31, 2017, we incurred an expense associated with a litigation judgment in the amount of $1.5 million. We have excluded the expense of the litigation judgment from non-GAAP operating income to reflect the non-recurring nature of the expense.

Critical Accounting Estimates and Judgments
 
Note 2, "Significant“Significant Accounting Policies"Policies,” to the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 20172021 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements appearing in this report. The accounting policies that reflect our more significantcritical estimates, judgments and assumptions in the preparation of our consolidated financial statements are described in "Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2017,2021, and include the following:subsection captioned “Revenue Recognition.”


revenue recognition;

accounting for income taxes; and

loss contingencies.

There were no significant changesSee Note 3, “Revenue from Contracts with Customers,” to our criticalUnaudited Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q for more information on our accounting policies and estimates during the three and six months ended December 31, 2017.related to revenue recognition.



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Results of Operations
 
Comparison of the Three and SixNine Months Ended DecemberMarch 31, 20172022 and 2021
 
The following table sets forth the results of operations and the period-over-period percentage change in certain financial data for the three and sixnine months ended DecemberMarch 31, 2017:2022 and 2021:
Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase /
(Decrease)
Change
 20222021%20222021%
 (Dollars in Thousands)
Revenue:      
License$130,032 $110,104 18.1 %$327,247 $352,133 (7.1)%
Maintenance50,017 45,885 9.0 %146,615 139,561 5.1 %
Services and other7,704 6,737 14.4 %21,267 19,721 7.8 %
Total revenue187,753 162,726 15.4 %495,129 511,415 (3.2)%
Cost of revenue:  
License489 2,485 (80.3)%5,291 6,859 (22.9)%
Maintenance4,760 5,174 (8.0)%13,674 14,066 (2.8)%
Services and other8,373 8,396 (0.3)%24,436 24,911 (1.9)%
Total cost of revenue13,622 16,055 (15.2)%43,401 45,836 (5.3)%
Gross profit174,131 146,671 18.7 %451,728 465,579 (3.0)%
Operating expenses:  
Selling and marketing33,977 30,345 12.0 %94,088 82,092 14.6 %
Research and development28,704 25,874 10.9 %80,975 70,576 14.7 %
General and administrative30,694 21,553 42.4 %87,542 60,389 45.0 %
Total operating expenses93,375 77,772 20.1 %262,605 213,057 23.3 %
Income from operations80,756 68,899 17.2 %189,123 252,522 (25.1)%
Interest income8,287 8,410 (1.5)%25,646 26,383 (2.8)%
Interest (expense)(1,572)(1,495)5.2 %(4,626)(5,639)(18.0)%
Other income (expense), net522 (5)(10,540.0)%(2,107)(1,807)16.6 %
Income before income taxes87,993 75,809 16.1 %208,036 271,459 (23.4)%
Provision for income taxes12,870 13,314 (3.3)%31,650 47,101 (32.8)%
Net income$75,123 $62,495 20.2 %$176,386 $224,358 (21.4)%


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 Three Months Ended
December 31,
 
Increase /
(Decrease)
Change
 Six Months Ended
December 31,
 
Increase /
(Decrease)
Change
 2017 2016 % 2017 2016 %
 (Dollars in Thousands)
Revenue: 
  
  
  
  
  
Subscription and software$117,658
 $112,916
 4.2 % $233,414
 $226,360
 3.1 %
Services and other7,244
 7,017
 3.2 % 14,269
 13,623
 4.7 %
Total revenue124,902
 119,933
 4.1 % 247,683
 239,983
 3.2 %
Cost of revenue: 
  
  
  
  
  
Subscription and software5,486
 5,176
 6.0 % 11,269
 10,245
 10.0 %
Services and other6,603
 6,403
 3.1 % 13,552
 12,839
 5.6 %
Total cost of revenue12,089
 11,579
 4.4 % 24,821
 23,084
 7.5 %
Gross profit112,813
 108,354
 4.1 % 222,862
 216,899
 2.7 %
Operating expenses: 
  
  
  
  
  
Selling and marketing24,380
 21,829
 11.7 % 47,951
 43,854
 9.3 %
Research and development19,790
 18,597
 6.4 % 39,279
 37,229
 5.5 %
General and administrative14,178
 11,863
 19.5 % 27,854
 25,020
 11.3 %
Total operating expenses, net58,348
 52,289
 11.6 % 115,084
 106,103
 8.5 %
Income from operations54,465
 56,065
 (2.9)% 107,778
 110,796
 (2.7)%
Interest income40
 216
 (81.5)% 181
 488
 (62.9)%
Interest (expense)(1,261) (892) 41.4 % (2,467) (1,762) 40.0 %
Other (expense) income, net(238) 697
 (134.1)% (854) 1,344
 (163.5)%
Income before provision for income taxes53,006
 56,086
 (5.5)% 104,638
 110,866
 (5.6)%
Provision for income taxes14,928
 19,076
 (21.7)% 31,805
 38,855
 (18.1)%
Net income$38,078
 $37,010
 2.9 % $72,833
 $72,011
 1.1 %
Table of Contents



The following table sets forth the results of operations as a percentage of nettotal revenue for certain financial data for the three and sixnine months ended DecemberMarch 31, 2017:2022 and 2021:
Three Months Ended
December 31,
 Six Months Ended
December 31,
Three Months Ended
March 31,
Nine Months Ended
March 31,
2017 2016 2017 2016 2022202120222021
(% of Revenue)(% of Revenue)
Revenue: 
  
  
  
Revenue:    
Subscription and software94.2 % 94.1 % 94.2 % 94.3 %
LicenseLicense69.3 %67.7 %66.1 %68.9 %
MaintenanceMaintenance26.6 28.2 29.6 27.3 
Services and other5.8
 5.9
 5.8
 5.7
Services and other4.1 4.1 4.3 3.9 
Total revenue100.0
 100.0
 100.0
 100.0
Total revenue100.0 100.0 100.0 100.1 
Cost of revenue: 
  
  
  
Cost of revenue:    
Subscription and software4.4
 4.3
 4.5
 4.3
LicenseLicense0.3 1.5 1.1 1.3 
MaintenanceMaintenance2.5 3.2 2.8 2.8 
Services and other5.3
 5.3
 5.5
 5.3
Services and other4.5 5.2 4.9 4.9 
Total cost of revenue9.7
 9.7
 10.0
 9.6
Total cost of revenue7.3 9.9 8.8 9.0 
Gross profit90.3
 90.3
 90.0
 90.4
Gross profit92.7 90.1 91.2 91.0 
Operating expenses: 
  
  
  
Operating expenses:    
Selling and marketing19.5
 18.2
 19.4
 18.3
Selling and marketing18.1 18.6 19.0 16.1 
Research and development15.8
 15.5
 15.9
 15.5
Research and development15.3 15.9 16.4 13.8 
General and administrative11.4
 9.9
 11.2
 10.4
General and administrative16.3 13.2 17.7 11.8 
Total operating expenses, net46.7
 43.6
 46.5
 44.2
Total operating expensesTotal operating expenses49.7 47.8 53.0 41.7 
Income from operations43.6
 46.7
 43.5
 46.2
Income from operations43.0 42.3 38.2 49.4 
Interest income
 0.2
 0.1
 0.2
Interest income4.4 5.2 5.2 5.2 
Interest (expense)(1.0) (0.7) (1.0) (0.7)Interest (expense)(0.8)(0.9)(0.9)(1.1)
Other (expense) income, net(0.2) 0.6
 (0.3) 0.6
Income before provision for income taxes42.4
 46.8
 42.2
 46.2
Other income (expense), netOther income (expense), net0.3 — (0.4)(0.4)
Income before income taxesIncome before income taxes46.9 46.6 42.0 53.1 
Provision for income taxes12.0
 15.9
 12.8
 16.2
Provision for income taxes6.9 8.2 6.4 9.2 
Net income30.5 % 30.9 % 29.4 % 30.0 %Net income40.0 %38.4 %35.6 %43.9 %
 
Revenue
 
Total revenue increased by $5.0 million and $7.7 million during the three and six months ended December 31, 2017, respectively, as compared to the corresponding periods of the prior fiscal year. The increase of $5.0$25.0 million during the three months ended DecemberMarch 31, 2017 was comprised of an increase in subscription and software revenue of $4.7 million and an increase in services and other revenue of $0.2 million,2022 as compared to the corresponding period of the prior fiscal year. The increase of $7.7$25.0 million during the sixthree months ended DecemberMarch 31, 20172022 was comprised of an increase in subscriptionlicense revenue of $19.9 million, an increase in maintenance revenue of $4.1 million, and softwarean increase in services and other revenue of $1.0 million, as compared to the corresponding period of the prior fiscal year.

Total revenue decreased by $16.3 million during the nine months ended March 31, 2022 as compared to the corresponding period of the prior fiscal year. The decrease of $16.3 million during the nine months ended March 31, 2022 was comprised of a decrease in license revenue of $24.9 million, offset in part by an increase in maintenance revenue of $7.1 million, and an increase in services and other revenue of $0.6$1.5 million, as compared to the corresponding period of the prior fiscal year.


Subscription and SoftwareLicense Revenue
 
Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
Three Months Ended
December 31,
 
Period-to-Period
Change
 Six Months Ended
December 31,
 
Period-to-Period
Change
20222021$%20222021$%
2017 2016 $ % 2017 2016 $ % (Dollars in Thousands)
(Dollars in Thousands)
Subscription and software revenue$117,658
 $112,916
 $4,742
 4.2% $233,414
 $226,360
 $7,054
 3.1%
License revenueLicense revenue$130,032 $110,104 $19,928 18.1 %$327,247 $352,133 $(24,886)(7.1)%
As a percent of total revenue94.2% 94.1%  
  
 94.2% 94.3%    
As a percent of total revenue69.3 %67.7 %  66.1 %68.9 % 
 
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The period-over-period increase of $4.7 million and $7.1$19.9 million in subscription and softwarelicense revenue during the three and six months ended DecemberMarch 31, 2017, respectively,2022 was primarily attributable to increases in bookings driven by the growthtiming of our baserenewals. The period-over-period decrease of $24.9 million in license arrangements being recognized on a ratable basis.revenue during the nine months ended March 31, 2022 was primarily attributable to decreases in bookings driven by the timing of renewals.



Maintenance Revenue
 Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
 20222021$%20222021$%
 (Dollars in Thousands)
Maintenance revenue$50,017 $45,885 $4,132 9.0 %$146,615 $139,561 $7,054 5.1 %
As a percent of total revenue26.6 %28.2 %  29.6 %27.3 % 
We expect subscription and softwaremaintenance revenue to continue to increase as a result of: (i) having a larger base of license arrangements recognized on a ratable basis; (ii) increased customer usage of our software; (iii) adding new customers; and (iv) escalating annual payments.


The period-over-period increases of $4.1 million and $7.1 million in maintenance revenue during the three and nine months ended March 31, 2022, respectively, were primarily due to growth of our base of arrangements, which include maintenance, being recognized on a ratable basis.

Services and Other Revenue
 
Three Months Ended
December 31,
 
Period-to-Period
Change
 Six Months Ended
December 31,
 
Period-to-Period
Change
Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
2017 2016 $ % 2017 2016 $ % 20222021$%20222021$%
(Dollars in Thousands) (Dollars in Thousands)
Services and other revenue$7,244
 $7,017
 $227
 3.2% $14,269
 $13,623
 $646
 4.7%Services and other revenue$7,704 $6,737 $967 14.4 %$21,267 $19,721 $1,546 7.8 %
As a percent of total revenue5.8% 5.9%  
  
 5.8% 5.7%  
  
As a percent of total revenue4.1 %4.1 %  4.3 %3.9 %  
 
The period-over-period increaseWe recognize professional services revenue for our time-and-materials, or 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 $0.2 million in servicescosts incurred to the total estimated project costs.

Services and other revenue increased $1.0 million and $1.5 million during the three and nine months ended DecemberMarch 31, 2017 was2022, respectively, as compared to the corresponding period of the prior fiscal year primarily attributabledue to higher training revenuethe timing and volume of $0.3 million and lower professional services revenue of $0.1 million.

The period-over-period increase of $0.6 million in services and other revenue during the six months ended December 31, 2017 was primarily attributable to higher professional services revenue of $0.5 million and higher training revenue of $0.1 million.
Under the aspenONE licensing model, revenue from committed professional service arrangements that are sold as a single arrangement with, or in contemplation of, a new aspenONE licensing transaction is deferred and recognized on a ratable basis over the longer of (a) the period the services are performed or (b) the term of the related software arrangement. As our typical contract term approximates five years, professional services revenue on these types of arrangements will usually be recognized over a longer period than the period over which the services are performed.engagements.
 
Cost of Revenue
 
Cost of Subscription and SoftwareLicense Revenue
 
 Three Months Ended
December 31,
 
Period-to-Period
Change
 Six Months Ended
December 31,
 
Period-to-Period
Change
 2017 2016 $ % 2017 2016 $ %
 (Dollars in Thousands)
Cost of subscription and software revenue$5,486
 $5,176
 $310
 6.0% $11,269
 $10,245
 $1,024
 10.0%
As a percent of subscription and software revenue4.7% 4.6%  
  
 4.8% 4.5%  
  
 Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
 20222021$%20222021$%
 (Dollars in Thousands)
Cost of license revenue$489 $2,485 $(1,996)(80.3)%$5,291 $6,859 $(1,568)(22.9)%
As a percent of license revenue0.4 %2.3 %  1.6 %1.9 %  
 
Cost of subscription and softwarelicense revenue increased $0.3decreased $2.0 million and $1.0$1.6 million for the three and sixnine months ended DecemberMarch 31, 2017,2022, respectively, as compared to the corresponding periodsperiod of the prior fiscal year, primarily due to increased amortization expense related to acquired technology.
Subscription and softwarea decrease in royalty expenses. License gross profit margin was consistent at 95.3% and 95.4% duringincreased to 99.6% from 97.7% for the three months ended DecemberMarch 31, 20172022 and 2016, respectively. Subscription2021, respectively, and softwareto 98.4% from 98.1% for the nine months ended March 31, 2022 and 2021, respectively due to lower cost of license revenue.
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Table of Contents

Cost of Maintenance Revenue
 Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
 20222021$%20222021$%
 (Dollars in Thousands)
Cost of maintenance revenue$4,760 $5,174 $(414)(8.0)%$13,674 $14,066 $(392)(2.8)%
As a percent of maintenance revenue9.5 %11.3 %  9.3 %10.1 %  
Cost of maintenance revenue remained consistent for the three and nine months ended March 31, 2022, respectively, as compared to the corresponding period of the prior fiscal year. Maintenance gross profit margin was consistent at 95.2%increased for the three and 95.5% during the sixnine months ended DecemberMarch 31, 20172022 and 2016, respectively.2021, respectively, due to higher maintenance revenue.



Cost of Services and Other Revenue
 
Three Months Ended
December 31,
 
Period-to-Period
Change
 Six Months Ended
December 31,
 
Period-to-Period
Change
Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
2017 2016 $ % 2017 2016 $ % 20222021$%20222021$%
(Dollars in Thousands) (Dollars in Thousands)
Cost of services and other revenue$6,603
 $6,403
 $200
 3.1% $13,552
 $12,839
 $713
 5.6%Cost of services and other revenue$8,373 $8,396 $(23)(0.3)%$24,436 $24,911 $(475)(1.9)%
As a percent of services and other revenue91.2% 91.2%  
  
 95.0% 94.2%  
  
As a percent of services and other revenue108.7 %124.6 %  114.9 %126.3 %  
  
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.


Cost of services and other revenue increased $0.2 million and $0.7 millionremained consistent for the three and sixnine months ended DecemberMarch 31, 2017,2022, respectively, as compared to the corresponding period of the prior fiscal year.
Gross profit margin on services and other revenue of 8.8%was (8.7)% and (24.6)% for the three months ended DecemberMarch 31, 2017 was consistent with2022 and 2021, respectively, and (14.9)% and (26.3)% for the corresponding period of the prior fiscal year.

Grossnine months ended March 31, 2022 and 2021, respectively. The improved gross profit margin on services and other revenue of 5.0% for the sixthree and nine months ended DecemberMarch 31, 2017 decreased from 5.8% for2022, as compared to the corresponding periodsame periods of the prior fiscal year, primarily duewas a function of an increase in services and other revenues attributable to higher subcontractor costsincreased training services and a decrease in cost of $0.6 million.services and other expenses.


Gross Profit
Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
20222021$%20222021$%
(Dollars in Thousands)
Gross profit$174,131 $146,671 $27,460 18.7 %$451,728 $465,579 $(13,851)(3.0)%
As a percent of revenue92.7 %90.1 %91.2 %91.0 %
Gross profit increased $4.5 million and $6.0 million for the three and six months ended December 31, 2017, respectively, as compared to the corresponding period of the prior fiscal year.

Gross profit margin of 90.3% during the three months ended December 31, 2017 was consistent with the corresponding period of the prior fiscal year, while it decreased from 90.4% during the six months ended December 31, 2016 to 90.0% during the corresponding period of the current fiscal year. For further discussion of subscription and software gross profit and services and other gross profit, please refer to the “Cost of Subscription and Software Revenue”License Revenue,” “Cost of Maintenance Revenue,” and “Cost of Services and Other Revenue” sections above.

Gross profit increased by $27.5 million and decreased by $13.9 million for the three and nine months ended March 31, 2022, respectively, as compared to the corresponding period of the prior fiscal year. Gross profit margin increased to 92.7% from 90.1% for the three months ended March 31, 2022 and 2021, respectively, and increased to 91.2% from 91.0% for the nine months ended March 31, 2022 and 2021, respectively. The increase for the three months ended March 31, 2022 was primarily attributable to an increase in license revenue due to an increase in bookings driven by the timing of renewals during the three months ended March 31, 2022, as compared to the same periods last year, while costs decreased. The decrease for the nine months ended March 31, 2022 was primarily attributable to a decrease in license revenue, partially offset by increases in maintenance and service and other revenues and decreases in cost of license revenue.
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Table of Contents

Operating Expenses


Selling and Marketing Expense
 
Three Months Ended
December 31,
 
Period-to-Period
Change
 Six Months Ended
December 31,
 
Period-to-Period
Change
Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
2017 2016 $ % 2017 2016 $ % 20222021$%20222021$%
(Dollars in Thousands) (Dollars in Thousands)
Selling and marketing expense$24,380
 $21,829
 $2,551
 11.7% $47,951
 $43,854
 $4,097
 9.3%Selling and marketing expense$33,977 $30,345 $3,632 12.0 %$94,088 $82,092 $11,996 14.6 %
As a percent of total revenue19.5% 18.2%  
  
 19.4% 18.3%  
  
As a percent of total revenue18.1 %18.6 %  19.0 %16.1 %  
 
The period-over-period increase of $2.6$3.6 million in selling and marketing expense during the three months ended DecemberMarch 31, 20172022 was primarily attributable to higher compensation costs of $1.1$1.7 million related to an increase insalaries, benefits, and bonuses as a result of increased headcount, higher commissionsand greater acquisition and integration planning related expenses of $0.7 million, and higher professional services fees of $0.3$1.5 million.


The period-over-period increase of $4.1$12.0 million in selling and marketing expense during the six monthsnine month ended DecemberMarch 31, 20172022 was primarily attributable to higher compensation costs of $2.0$4.9 million related to salaries, benefits, and bonuses due to an increase in headcount, higher commissionsgreater acquisition and integration planning related expenses of $2.8 million, greater commission expense of $1.2 million, increased travel expenses of $1.0 million, increased stock-based compensation expense of $0.7 million, and higher professional services feesgreater marketing costs of $0.4 million.


Research and Development Expense
 
Three Months Ended
December 31,
 Period-to-Period
Change
 Six Months Ended
December 31,
 Period-to-Period
Change
Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
2017 2016 $ % 2017 2016 $ % 20222021$%20222021$%
(Dollars in Thousands) (Dollars in Thousands)
Research and development expense$19,790
 $18,597
 $1,193
 6.4% $39,279
 $37,229
 $2,050
 5.5%Research and development expense$28,704 $25,874 $2,830 10.9 %$80,975 $70,576 $10,399 14.7 %
As a percent of total revenue15.8% 15.5%  
  
 15.9% 15.5%  
  
As a percent of total revenue15.3 %15.9 %  16.4 %13.8 %  
 
The period-over-period increase of $1.2$2.8 million in research and development expense during the three months ended DecemberMarch 31, 20172022 was primarily attributable to higher compensation costs of $1.0$2.3 million related to an increase insalaries, benefits, and bonuses as a result of increased headcount, and higher stock-based compensationcapitalized software development costs of $0.4 million partiallyin the prior fiscal year period, offset in part by lower professional services feesa reduction on stock-based compensation expense of $0.2$0.6 million.


The period-over-period increase of $2.1$10.4 million in research and development expense during the sixnine months ended DecemberMarch 31, 20172022 was primarily attributable to higher compensation costs of $1.8$7.1 million related to an increase insalaries, benefits, and bonuses as a result of increased headcount, greater information services allocated expenses of $1.8 million, and higher stock-based compensation of $1.2 million, partially offset by lower overhead allocations of $0.5 million and lowercapitalized software development costs of acquired technology of $0.4 million.$0.7 million in the prior fiscal year period.

Overhead allocations consist of information systems costs, facility costs and certain benefit costs. The overhead expenses are allocated to departments based on relative headcount, geographic location and total salary.
In the six months ended December 31, 2016, we acquired technology for $0.4 million. At the time we acquired the technology, the projects to develop commercially available products did not meet the accounting definition of having reached technological feasibility and therefore the cost of the acquired technology was expensed as a research and development expense. 
General and Administrative Expense
 
Three Months Ended
December 31,
 Period-to-Period
Change
 Six Months Ended
December 31,
 Period-to-Period
Change
Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
2017 2016 $ % 2017 2016 $ % 20222021$%20222021$%
(Dollars in Thousands) (Dollars in Thousands)
General and administrative expense$14,178
 $11,863
 $2,315
 19.5% $27,854
 $25,020
 $2,834
 11.3%General and administrative expense$30,694 $21,553 $9,141 42.4 %$87,542 $60,389 $27,153 45.0 %
As a percent of total revenue11.4% 9.9%  
  
 11.2% 10.4%  
  
As a percent of total revenue16.3 %13.2 %  17.7 %11.8 %  
 
The period-over-period increase of $2.3$9.1 million in general and administrative expense during the three months ended DecemberMarch 31, 20172022 was primarily attributable to higher litigationan increase in acquisition and integration planning related expenses of $1.8$9.7 million, higher compensation costs of $0.5$1.3 million related to an increasesalaries, benefits, and bonuses as a result of increased headcount, offset in headcount, and higher stock-based compensation of $0.4 million, partially offsetpart by lower office-relateda reduction in information services allocation costs of $0.5$1.5 million.


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The period-over-periodperiod over period increase of $2.8$27.2 million in general and administrative expense during the sixnine months ended DecemberMarch 31, 20172022 was primarily attributable to higher litigationacquisition and integration planning related expenses of $1.8 million, higher overhead allocations of $1.3$23.0 million, higher stock-based compensationcosts expenses of $1.1$2.2 million, higher compensation costs of $0.7 million related to an increase in headcount, and higher bonus costshardware, software, and maintenance expenses of $0.3 million, partially offset by lower office-related costs of $1.2 million, lower consulting fees of $0.7 million, and lower amortization expense of $0.4$2.2 million.


Non-Operating Income (Expense)


Interest Income
 
Three Months Ended
December 31,
 Period-to-Period
Change
 Six Months Ended
December 31,
 Period-to-Period
Change
Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
2017 2016 $ % 2017 2016 $ % 20222021$%20222021$%
(Dollars in Thousands) (Dollars in Thousands)
Interest income$40
 $216
 $(176) (81.5)% $181
 $488
 $(307) (62.9)%Interest income$8,287 $8,410 $(123)(1.5)%$25,646 $26,383 $(737)(2.8)%
As a percent of total revenue% 0.2%  
  
 0.1% 0.2%  
  
As a percent of total revenue4.4 %5.2 %  5.2 %5.2 %  
 
The period-over-period decrease of $0.2 million and $0.3 million in interestInterest income duringremained consistent for the three and sixnine months ended DecemberMarch 31, 2017, respectively, was attributable2022.

Interest (Expense)
 Three Months Ended
March 31,
(Increase) / Decrease
Change
Nine Months Ended
March 31,
(Increase) / Decrease
Change
 20222021$%20222021$%
 (Dollars in Thousands)
Interest (expense)$(1,572)$(1,495)$(77)5.2 %$(4,626)$(5,639)$1,013 (18.0)%
As a percent of total revenue(0.8)%(0.9)%  (0.9)%(1.1)%  
Interest (expense) remained consistent for the three months ended March 31, 2022. Interest (expense) decreased $1.0 million during the nine months ended March 31, 2022, due to a lower leveloutstanding borrowing balance as a result of interest income from investments.

Interest Expense
 Three Months Ended
December 31,
 Period-to-Period
Change
 Six Months Ended
December 31,
 Period-to-Period
Change
 2017 2016 $ % 2017 2016 $ %
 (Dollars in Thousands)
Interest expense$(1,261) $(892) $(369) 41.4% $(2,467) $(1,762) $(705) 40.0%
As a percent of total revenue(1.0)% (0.7)%  
  
 (1.0)% (0.7)%  
  
The period-over-period increase of $0.4 million and $0.7 millionpaying off our revolving credit facility in interest expense during the three and six months ended December 31, 2017, respectively, was attributable to an $11.0 million increase in our outstanding borrowings and an increase in applicable interest rates compared to the prior fiscal year related to our outstanding borrowings, which we entered into in February 2016, as described in the "Liquidity and Capital Resources" section below.2020.
 
Other (Expense) Income net(Expense), Net
 
 Three Months Ended
March 31,
(Increase) / Decrease
Change
Nine Months Ended
March 31,
(Increase) / Decrease
Change
 20222021$%20222021$%
 (Dollars in Thousands)
Other income (expense), net$522 $(5)$527 (10,540.0)%$(2,107)$(1,807)$(300)16.6 %
As a percent of total revenue0.3 %— %  (0.4)%(0.4)%  
 Three Months Ended
December 31,
 Period-to-Period
Change
 Six Months Ended
December 31,
 Period-to-Period
Change
 2017 2016 $ % 2017 2016 $ %
 (Dollars in Thousands)
Other (expense) income, net$(238) $697
 $(935) (134.1)% $(854) $1,344
 $(2,198) (163.5)%
As a percent of total revenue(0.2)% 0.6%  
  
 (0.3)% 0.6%  
  
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 entities.

During the three months ended DecemberMarch 31, 20172022 and 2016,2021, other income (expense) income,, net was primarily comprised of $(0.2)$0.4 million of equity income from equity method investments and $(0.1) million of foreign currency exchange (losses), respectively.

During the nine months ended March 31, 2022 and 2021 other income (expense), net was primarily comprised of $(2.2) million and $0.7$(2.0) million of foreign currency exchange (losses) gains, respectively. During the six months ended December 31, 2017 and 2016, other (expense) income, net was comprised of $(0.9) million and $1.3 million of currency (losses) gains,, respectively.
  
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Provision for Income Taxes
 
Three Months Ended
December 31,
 Period-to-Period
Change
 Six Months Ended
December 31,
 Period-to-Period
Change
Three Months Ended
March 31,
Increase / (Decrease)
Change
Nine Months Ended
March 31,
Increase / (Decrease)
Change
2017 2016 $ % 2017 2016 $ % 20222021$%20222021$%
(Dollars in Thousands) (Dollars in Thousands)
Provision for income taxes$14,928
 $19,076
 $(4,148) (21.7)% $31,805
 $38,855
 $(7,050) (18.1)%Provision for income taxes$12,870 $13,314 $(444)(3.3)%$31,650 $47,101 $(15,451)(32.8)%
Effective tax rate28.2% 33.9%  
  
 30.4% 35.0%  
 -0.046
Effective tax rate14.6 %17.6 %  15.2 %17.3 % 
 

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 will make significant changes to U.S. federal income tax laws, including reduction of the corporate tax rate from 35.0% to 21.0%, limitation of the tax deduction for interest expense to 30.0% of earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80.0% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions.

As a result of the Tax Act, we have revised our estimated annual effective rate to reflect a change in the federal statutory rate from 35.0% to 21.0%. The rate change is administratively effective at the beginning of our fiscal year, using a blended rate for the annual period. As a result, the blended statutory tax rate for our fiscal year is 28.1%.

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. income, primarily the Foreign Derived Intangible Income, or FDII, deduction. Assuming certain requirements are met, the FDII deduction is a benefit for U.S. companies that sell their products or services to customers outside the U.S.

Our effective tax rate decreased to 28.2%was 14.6% and 30.4% for17.6% during the three months ended March 31, 2022 and 2021, respectively, and 15.2% and 17.3% during the nine months ended March 31, 2022 and 2021, respectively. Our effective tax rate was lower in the three and sixnine months ended DecemberMarch 31, 2017, respectively,2022 due to the higher FDII deduction taken this year compared to 33.9% and 35.0% for the corresponding periods of the prior fiscallast year due to the reduced federal corporatetiming of revenue recognition for tax rate, partially offset by a discretepurposes on multi-year software license agreements as the result of the change in income tax regulations.

We recognized income tax expense of $4.3$12.9 million due toand $13.3 million during the revaluation ofthree months ended March 31, 2022 and 2021, respectively, and $31.7 million and $47.1 million during the net deferrednine months ended March 31, 2022 and 2021, respectively. Our income tax assets as of the enactment date of the Tax Act on December 22, 2017 due to the reduction in the tax rate. The adoption of ASU No. 2016-09 resulted in a decreaseexpense was driven primarily by pre-tax profitability in our provision for income taxes of $0.4 milliondomestic and $1.0 million for the three and six months ended December 31, 2017, respectively. This represents a decrease in our effective tax rate of approximately 1.0 percentage point for both the three and six months ended December 31, 2017, due to the recognition of excess tax benefits for options exercisedforeign operations and the vestingimpact of equity awards.permanent items and discrete tax items. The permanent items are predominantly the FDII deduction, stock-based compensation expense and tax credits for research expenditures.

The Tax Act has several significant changes that impacts 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 are currently estimating that we will not be subject to the transition tax associated with our accumulated, undistributed foreign earnings. We will continue to evaluate this area and expect to finalize our conclusions by the end of fiscal 2018.


Liquidity and Capital Resources
 
Resources
 
In recent years, we have financed our operations with cash generated from operating activities. As of DecemberMarch 31, 2017,2022, our principal capital resources consisted of $48.7$285.2 million in cash and cash equivalents.


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 purposepurposes 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.


Credit Agreement
 
On February 26, 2016, we entered into the $250.0 million Credit Agreement with various lenders. On August 9, 2017,In December 2019, we entered into an amendmentAmended 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, which we refer to increaseas the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement, which amends and restates the Credit Agreement to $350.0 million.we entered into as of February 26, 2016 with the same lenders, provides for a $200.0 million secured revolving credit facility and a $320.0 million secured term loan facility. The Credit Agreementindebtedness under the revolving credit facility matures on February 26, 2021.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.

On December 14, 2021, we and JPMorgan Chase Bank, N.A., as administrative agent, entered into the Waiver and Second Amendment to the Amended and Restated Credit Agreement dated as of December 23, 2019, which we refers to as the Waiver and Amendment. The Waiver and Amendment amends the Amended and Restated Credit Agreement to (i) permanently waive the specified event of default resulting from the consummation of the Transactions under the Transaction Agreement with Emerson, Emerson Sub, New AspenTech, and Merger Subsidiary; (ii) permanently waive a possible change of fiscal year event
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of default in the future if we change the end of our fiscal year; (iii) establish a benchmark replacement for each affected currency due to the 2021 LIBOR cessation; (iv) make New AspenTech a loan party and guarantor of the Amended and Restated Credit Agreement, if and when the Transactions are consummated. The waivers and New AspenTech accession would become effective upon the consummation of the Transactions. The benchmark amendments became effective as of the effective date of the Waiver and Amendment.

As of DecemberMarch 31, 2017, we had $151.02022, our current borrowings of $26.0 million consisted of the term loan facility. Our non-current borrowings of $253.4 million consisted of $256.0 million of our term loan facility, net of $2.6 million in outstandingdebt issuance costs. As of June 30, 2021, our current borrowings underof $20.0 million consisted of the Credit Agreement.term loan facility. As of June 30, 2021, our non-current borrowings of $273.2 million consisted of $276.0 million of our term facility, net of $2.8 million in debt issuance costs.

For a more detailed description of the Amended and Restated Credit Agreement, see Note 10, Credit Agreement,11, “Credit Agreement”, to our Unaudited Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q.
 
Cash Equivalents and Cash Flows
 
Our cash equivalents remained consistent at $1.0 million as of $4.9 millionMarch 31, 2022 and June 30, 2021, consisted of money market funds as of December 31, 2017.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:
Nine Months Ended
March 31,
Six Months Ended
December 31,
20222021
2017 2016
(Dollars in Thousands) (Dollars in Thousands)
Cash flow provided by (used in): 
  
Cash flow provided by (used in):  
Operating activities$54,762
 $53,417
Operating activities$155,086 $172,949 
Investing activities(11,312) (108,014)Investing activities(2,116)(18,826)
Financing activities(96,907) (196,495)Financing activities(246,398)(125,393)
Effect of exchange rates on cash balances206
 (218)
Decrease in cash and cash equivalents$(53,251) $(251,310)
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents(1,208)573 
(Decrease) increase in cash and cash equivalents(Decrease) increase in cash and cash equivalents$(94,636)$29,303 
 
Operating Activities
 
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.
 
Cash from operating activities provided $54.8$155.1 million during the sixnine months ended DecemberMarch 31, 2017.2022. This amount resulted from net income of $72.8$176.4 million, adjusted for non-cash items of $20.7 million and net uses of cash of $38.8$(15.3) million and non-cash items of $(6.0) million related to changes in working capital.
 
Non-cash items during the sixnine months ended DecemberMarch 31, 20172022 consisted primarily of a reduction in deferred income taxes of $53.5 million, partially offset by stock-based compensation expense of $11.9$25.7 million, deferred income taxes of $4.3 million, and depreciation and amortization expense of $3.4$8.2 million, a reduction in the carrying amount of right-of-use assets of $7.6 million, a provision for receivables of $2.3 million, and net foreign currency losses of $2.2 million. A $53.5 million decrease in deferred income taxes was mainly because of the adjustment resulting from tax accounting method changes related to revenue recognition associated with our multi-year software licenses as a result of the change in income tax regulations.
 
Cash used by working capital of $38.8$15.3 million during the sixnine months ended DecemberMarch 31, 20172022 was primarily attributable to an increase in cash outflows related to decreasesused in deferred revenuecontract assets of $41.6$49.7 million (cash flows related to deferred revenue vary due to the timingand a decrease in lease liabilities of invoicing,$7.9 million, partially offset by an increase in particular the anniversary dates of annual installments associated with multi-year software license arrangements) and accounts payable, accrued expenses and other current liabilities of $1.8$36.0 million, partially offset by cash provided by decreasesan increase in accounts receivable of $3.7 million and prepaid expenses, prepaid income taxes and other assets of $1.0$12.1 million, an increase in deferred revenue of $5.4 million, and an increase in accounts receivable of $0.8 million. A $36.0 million increase in accounts payable, accrued expenses and other current liabilities was mainly comprised of a $30.2 million increase in income taxes payable.
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Investing Activities
 
During the sixnine months ended DecemberMarch 31, 2017,2022, we used $11.3$2.1 million of cash for investing activities. We used $10.8$1.1 million for business acquisitions,capital expenditures, $0.6 million for equity method investments, and $0.4 million for capitalized computer software development costs, and $0.2 million for capital expenditures.costs.
 
Financing Activities
 
During the sixnine months ended DecemberMarch 31, 2017,2022, we used $96.9$246.4 million of cash for financing activities. WeThis amount resulted from $234.0 million of cash used $105.0 million for repurchasesthe repurchase of our common stock, $3.5$14.0 million of cash used for maturities of amounts borrowed under our term loan facility, and $12.7 million of cash used for withholding taxes on vested and settled restricted stock units, $2.6offset in part by $15.9 million for deferred business acquisition payments, and $0.4 million for issuance costs in connection with the Credit Agreement, partially offsetcash provided by proceeds of $11.0 million from the Credit Agreement and $3.5 million from the exercise of employee stock options.
 
Contractual Obligations
 
Standby letters of credit for $3.0$2.2 million and $2.9$2.3 million securesecured our performance on professional services contracts, certain facility leases and potential liabilities as of DecemberMarch 31, 20172022 and June 30, 2017,2021, respectively. The letters of credit expire at various dates through fiscal 2025.

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Item 3.    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 the three months ended DecemberMarch 31, 20172022 and 2016, 9.5%2021, 21.5% and 10.0%14.6% of our total revenue was denominated in a currency other than the U.S. dollar, respectively. During the sixnine months ended DecemberMarch 31, 20172022 and 2016, 9.5%2021, 15.2% and 10.0%11.4% of our total revenue was denominated in a currency other than the U.S. dollar, respectively. 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 the three and sixnine months ended DecemberMarch 31, 20172022 and 2016. Our2021. Currently, our largest exposures to foreign currency exchange rates exist primarily with the Euro, Pound Sterling, Canadian Dollar, Japanese Yen, and Japanese Yen.Russian Ruble against the U.S. dollar.
 
DuringWe recorded $0.1 million and $(0.1) million of net foreign currency exchange gains (losses) during the three months ended DecemberMarch 31, 20172022 and 2016, we recorded $(0.2)2021, respectively, and $(2.2) million and $0.7$(2.0) million of net foreign currency exchange (losses) gainsduring the nine months ended March 31, 2022 and 2021, respectively, related to the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units.entities. 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 $0.9$3.9 million and $1.0$2.5 million for the three months ended DecemberMarch 31, 20172022 and 2016, respectively.

During2021, respectively, and by approximately $8.6 million and $5.2 million during the sixnine months ended DecemberMarch 31, 20172022 and 2016, we recorded $(0.9) million and $1.3 million of net foreign currency exchange (losses) gains 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 $1.8 million and $2.2 million for the six months ended December 31, 2017 and 2016,2021, respectively.

Interest Rate Risk
 
We place our investments in money market instruments and high quality, investment grade, fixed-income corporate debt securities that meet high credit quality standards, as specified in our investment guidelines.
We mitigate the risks by diversifying our investment portfolio, limiting the amount of investments in debt securities of any single issuer and using a third-party investment manager. We held no investments in marketable securities as of December 31, 2017 and June 30, 2017. We do not use derivative financial instruments in our investment portfolio.
instruments. Our analysis of our investment portfolio and interest rates at DecemberMarch 31, 20172022 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 investment portfolio determined in accordance with an income-based approach utilizing portfolio future cash flows discounted at the appropriate rates.
 
WeAs of March 31, 2022, we had $151.0current borrowings of $26.0 million and non-current borrowings of $253.4 million on our term loan facility. Our non-current borrowings of $253.4 million consist of $256.0 million of our term loan facility, net of $2.6 million in outstandingunamortized debt issuance costs.

As of June 30, 2021, our current borrowings of $20.0 million consisted of the term loan facility under the Amended and Restated Credit Agreement. Our non-current borrowings of $273.2 million consisted of $276.0 million under our Credit Agreement asterm loan facility, net of December 31, 2017.$2.8 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

During fiscal 2020, we entered into a limited partnership investment fund agreement. The primary objective of this partnership is investing in equity and equity-related securities (including convertible debt) of venture growth- stage businesses. We account for the investment in accordance with Topic 323, Investments - Equity Method and Joint Ventures. Our total commitment under this partnership is $5.0 million CAD ($3.9 million). Under the conditions of the equity method investment, unfavorable future changes in market conditions could lead to a potential loss up to the full value of our 5.0 million CAD ($3.9 million) commitment. As of March 31, 2022, the fair value of this investment is $3.0 million CAD ($2.3 million), representing our payment towards the total commitment, and is recorded in non-current assets in our consolidated balance sheet.
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Item 4.Controls and Procedures.
 
a)Disclosure Controls and Procedures
 
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of DecemberMarch 31, 2017.2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’sour management, including itsour principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of DecemberMarch 31, 2017,2022, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

b)Changes in Internal Controls Over Financial Reporting
 
During the three and six months ended December 31, 2017,There was no changes were identifiedchange in our internal controlscontrol over financial reporting that occurred during the nine months ended March 31, 2022, that has materially affected, or wereis reasonably likely to materially affect, our internal controlscontrol over financial reporting. 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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PART II - OTHER INFORMATION
 
Item 1.Legal Proceedings.
 
Refer to Note 15, “Commitments and Contingencies,” in the Notes to the Unaudited Consolidated Financial Statements for information regarding certain legal proceedings, the contents of which are herein incorporated by reference.None.
 
Item 1A. Risk Factors.
 
The risks described in "Item“Item 1A. Risk Factors"Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017,2021, could materially and adversely affect our business, financial condition and results of operations. These risk factors do not identify all risks that we face—our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. The Risk Factors section of our 20172021 Annual Report on Form 10-K remains current in all material respects, with the exception of the revised risk factors below.

FluctuationsRisks Related to the Transactions

The Transactions are subject to a number of conditions to closing, which may not be satisfied on a timely basis or at all.

The Transactions are subject to several closing conditions outlined in the Transaction Agreement, including the adoption of the Transaction Agreement by our stockholders, the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the receipt of regulatory approvals in certain other foreign currency exchange ratesjurisdictions. Although the parties have obtained all regulatory clearances, consents and approvals required to complete the Transactions, governmental or regulatory agencies could still seek to block or challenge the Transactions or could impose restrictions they deem necessary or desirable in the public interest as a condition to approving the Transactions. If any one of these conditions is not satisfied or waived, the Transactions may not be completed.

Failure to complete the Transactions could adversely affect our financial results and our future business and operations.

There is no assurance that the Transactions will be completed on the terms or timeline currently contemplated, or at all. If the Transactions are not consummated by October 10, 2022, the Transaction Agreement may be terminated in accordance with its terms. If our stockholders do not approve and adopt the Transaction Agreement or if the Transactions are not completed for any other reason, we would be subject to a number of risks, including the following:

the attention of our management may have been diverted to the Transactions instead of on our operations and pursuit of other opportunities that may have been beneficial to us;

resulting negative customer perception could adversely affect our ability to compete for, or to win, new and renewal business in the marketplace;

we and our stockholders would not realize the anticipated benefits of the Transactions, including a cash payment of $6,014,000,000 in the aggregate and any anticipated synergies from combining our business with Emerson’s industrial software business;

we may be required to pay a termination fee of $325,000,000 if the Transaction Agreement is terminated in the case of certain events described in the Transaction Agreement, including if Emerson terminates the Transaction Agreement in the event our Board of Directors changes its recommendation that our stockholders approve the Transaction Agreement;

the trading price of our common stock may experience increased volatility to the extent that the current market prices reflect a market assumption that the Transactions will be completed; or

we could be subject to litigation from stockholders related to the Transaction Agreement.
The occurrence of any of these events individually or in combination could have a material adverse effect on our financial condition, operations or the trading price of our common stock.

The Transaction Agreement contains provisions that limit our ability to pursue alternatives to the Transactions, which
could discourage third parties from making a competing transaction proposal.
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The Transaction Agreement contains provisions that may discourage third parties from submitting business combination proposals to us that might result in greater value to our stockholders than the Transactions. The Transaction Agreement generally prohibits us from soliciting any competing business combination proposal. In addition, if the Transaction Agreement is terminated by us or Emerson in circumstances that obligates us to pay a termination fee of $325,000,000 to Emerson, our financial condition may be adversely affected as a result of the payment of the termination fee, which might deter third parties from proposing alternative business combination proposals.

The pendency of the Transactions could adversely affect our business.

In connection with the Transactions, some of our suppliers and customers may delay or defer sales and purchasing decisions, which could negatively impact revenues, earnings and cash flows regardless of whether the Transactions are completed. We have agreed in the Transaction Agreement to refrain from taking certain actions with respect to our business and financial affairs during the pendency of the Transactions, and such restrictions could be in place for an extended period of time if completion of the Transactions is delayed and could adversely impact our financial condition, operations or cash flows. These restrictions may prevent us from pursuing otherwise attractive business opportunities and making other changes to our business before completion of the Transactions or termination of the Transaction Agreement. The process of seeking to accomplish the Transactions could also divert the focus of our management from pursuing other opportunities that could be beneficial to us.

The pursuit of the Transactions and the preparation for the integration of Emerson’s industrial software business have placed, and will continue to place, a significant burden on our management and internal resources. There is a significant degree of difficulty and management distraction inherent in the process of seeking to close the Transactions and integrate Emerson’s industrial software business, which could cause an interruption of, or loss of momentum in, the activities of our existing business, regardless of whether the Transactions are eventually completed. Our management team will be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage our existing businesses, service existing customers, attract new customers and develop new products, services or strategies. One potential consequence of such distractions could be the failure of management to realize other opportunities that could be beneficial to us. If our senior management is not able to effectively manage the process leading up to and immediately following closing, or if any significant business activities are interrupted as a result of the integration process, our business could suffer.

We may be unable to attract and retain key employees during the pendency of the Transactions.

In connection with the Transactions, our current employees and any prospective employees may experience uncertainty about their future roles with New AspenTech following the Transactions, which may materially adversely affect our ability to attract and retain key personnel during the pendency of the Transactions. Even though we have implemented a retention plan for key personnel, key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with New AspenTech following the Transactions. The departure of existing key employees or the failure of potential key employees to accept employment with New AspenTech, despite our recruiting efforts, could have a material adverse impact on our business, financial condition and operating results, regardless of whether the Transactions are eventually completed.

Even if the Transactions are closed, the integration of our business and Emerson’s industrial software business following the closing will present significant challenges that may result in a decline in the anticipated benefits of the Transactions.

The Transactions involve the combination of businesses that currently operate as independent businesses. New AspenTech will be required to devote management attention and resources to integrating its business practices and operations, and prior to the Transactions, management attention and resources will be required to plan for such integration. Potential difficulties New AspenTech may encounter in the integration process include the following:

the inability to successfully integrate the two businesses, including operations, technologies, products and services, in a
manner that permits New AspenTech to achieve the cost savings and operating synergies anticipated to result from the Transactions, which could result in declinesthe anticipated benefits of the Transactions not being realized partly or wholly in the time frame currently anticipated or at all;

lost sales and customers as a result of certain customers of either or both of the two businesses deciding not to do business with New AspenTech, or deciding to decrease their amount of business in order to reduce their reliance on a single company;

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the necessity of coordinating geographically separated organizations, systems and facilities;

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Transactions;

integrating personnel with diverse business backgrounds and business cultures, while maintaining focus on providing consistent, high-quality products and services;

consolidating and rationalizing information technology platforms and administrative infrastructures as well as accounting systems and related financial reporting activities;

preserving our reported revenueimportant relationships as well as those of Emerson’s industrial software business and resolving potential conflicts that may arise; and

performance shortfalls as a result of the diversion of management’s attention caused by completing the Transactions and integrating the two businesses’ operations.

Failure of the parties to successfully implement and operate under the commercial agreement between New AspenTech and Emerson could impact the potential benefits of the Transactions.

The Transaction Agreement provides for a commercial agreement between New AspenTech and Emerson to become effective following the Closing of the Transactions. Among other things, the commercial agreement will allow Emerson to resell New AspenTech software solutions. If the parties are unsuccessful at implementing and operating results.under the commercial agreement, some of the potential benefits contemplated in connection with the Transactions might not be realized.

DuringFollowing the threeClosing of the Transactions, Emerson will control New AspenTech and six months ended Decemberwill continue to have approval rights over certain actions taken by New AspenTech so long as Emerson beneficially owns a certain percentage of New AspenTech’s common stock. The interests of Emerson in its capacity as a stockholder of New AspenTech may differ from the interests of other stockholders of New AspenTech.

Upon the Closing of the Transactions, Emerson is expected to beneficially own or control 55% of the common stock of New AspenTech on a fully diluted basis. Under the stockholders agreement to be entered into between New AspenTech and Emerson as provided in the Transaction Agreement and Emerson’s control of New AspenTech’s voting power, Emerson will have substantial influence over the outcome of corporate actions of New AspenTech, including the election of directors, any merger, consolidation or sale of all or substantially all of New AspenTech’s assets or certain other agreed-upon corporate transactions. Particularly, so long as Emerson owns greater than 40% of the common stock of New AspenTech, Emerson has the ability to elect a majority of New AspenTech’s Board of Directors. Emerson also may exert influence in delaying or preventing a change in control of New AspenTech, even if such change in control would benefit the other stockholders of New AspenTech. In addition, the significant concentration of stock ownership may adversely affect the market value of New AspenTech’s common stock due to investors’ perception that conflicts of interest may exist or arise.

Moreover, the stockholders agreement to be entered into between New AspenTech and Emerson permits Emerson to require New AspenTech to avail itself of “Controlled Company” exemptions to the corporate governance listing standards of Nasdaq for so long as Emerson owns greater than 50% of the common stock of New AspenTech. If so requested by Emerson, New AspenTech will avail itself of some or all of the “Controlled Company” exemptions to certain corporate governance listing standards of Nasdaq, including the requirements that (i) New AspenTech’s Board of Directors be composed of a majority of independent directors, (ii) compensation of New AspenTech’s executive officers be determined by a compensation committee composed solely of independent directors, and (iii) director nominees be selected or recommended for the Board of Directors’ selection either by a majority of the independent directors or a nominating committee composed solely of independent directors.

Risks Related to Our Operations

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, including in Russia and Ukraine.

As of March 31, 20172022, we operated in 35 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 2016, 9.5% and 10.0%maintain our foreign operations, we could face difficulties managing our international operations.
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Customers outside the United States accounted for the majority of our total revenue was denominated in a currency other thanduring the U.S. dollar, respectively. During the sixthree and nine months ended DecemberMarch 31, 20172022 and 2016, 9.5% and 10.0% of our totalMarch 31, 2021. We anticipate that 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 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:

unexpected changes in regulatory or environmental requirements, tariffs and non-U.S. dollar operating expensesother barriers, including, for subsidiariesexample, international trade disputes, changes in climate regulations, sanctions or other regulatory restrictions imposed by the United States or foreign governments;

less effective protection of intellectual property;

requirements of foreign laws and other governmental controls;

difficulties in collecting trade accounts receivable in other countries;

adverse tax consequences; and

the challenges of managing legal disputes in foreign countries. Currently,jurisdictions.

In the event that we are unable to adequately staff and maintain our largest exposuresforeign operations, we could face difficulties managing our international operations.

In addition, the ongoing conflict in Ukraine could adversely impact our business, financial position, cash flows and results of operations in the region which may in turn adversely impact our overall business, financial position, cash flows and results of operations. We maintain operations in Russia and license software and provide related services to foreign exchange rates exist primarilycustomers in Russia and Ukraine. While the conflict has not had a material impact on our financial results, we continue to evaluate the impact, if any, of the various sanctions and export control measures imposed by the United States and other governments on our ability to do business in Russia, maintain contracts with vendors and pay employees in Russia, receive payment from customers in Russia and Ukraine, and assess our operations for potential asset impairment. The outcome of these assessments will depend on how the conflict evolves and any further actions that may be taken by the United States, Russia, and other governments around the world. As a software company, there is no material impact to supply chain operations expected due to the conflict in Ukraine.

If the sanctions and other retaliatory measures imposed by the global community change, we may be required to cease or suspend operations in the region or, should the conflict worsen, we may voluntarily elect to do so. Any disruption to, or suspension of, the business and operations in Russia would result in the loss of revenues from the business in Russia. In addition, as a result of the risk of collectability of receivables from our customers in Russia, we may be required to adjust our accounting practices relating to revenue recognition in this region, with the Euro, Pound Sterling, Canadian dollarresult that we may not be able to recognize revenue until there is no significant risk of revenue reversal. We may also suffer reputational harm as a result of our continued operations in Russia, which may adversely impact our sales and Japanese Yenother businesses in other countries.

While the precise effects of the ongoing military conflict and sanctions on the Russian and global economies remain uncertain, they have already resulted in significant volatility in financial markets and depreciation of the Russian ruble and the Ukrainian hryvnia against the U.S. dollar. Duringdollar, as well as in an increase in energy and commodity prices globally. Should the threeconflict continue or escalate, there may be various economic and six months ended December 31, 2017security consequences including, but not limited to, supply shortages of different kinds, further increases in prices of commodities, including piped gas, oil and 2016,agricultural goods, reduced consumer purchasing power, significant disruptions in logistics infrastructure, telecommunications services and risks relating to the unavailability of information technology systems and infrastructure. The resulting impacts to the global economy, financial markets, inflation, interest rates and unemployment, among others, could adversely impact economic and financial conditions, and may disrupt the global economy’s ongoing recovery following the COVID-19 pandemic. Other potential consequences include, but are not limited to, growth in the number of popular uprisings in the region, increased political discontent, especially in the regions most affected by the conflict or economic sanctions, increase in cyberterrorism activities and attacks, displacement of persons to regions close to the areas of conflict and an increase in the number of refugees fleeing across Europe, among other unforeseen social and humanitarian effects. As a result of the ongoing conflict between Russia and Ukraine, we did not enter into,may experience other risks, difficulties and were notchallenges in the way we conduct our business and operations generally.

A protracted conflict between Ukraine and Russia, any escalation of that conflict, and the financial and economic sanctions and import and/or export controls imposed on Russia by the United States, the UK, the EU, Canada and others, as well as
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restrictions imposed by Russia, and the above-mentioned adverse effect on our operations (both in this region and generally) and on the wider global economy and market conditions could, in turn, have a partymaterial adverse impact on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares to any, derivativedecline.

Our software research and development initiatives, our customer relationships, and our customers operations could be compromised if the security of our information technology is breached as a result of a cyberattack. This could have a material adverse effect on our business, operating results and financial instruments, suchcondition, and could impact 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 forward currency exchange contracts, intendedpart 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, including the volatilityincrease in ransomware attacks. Our policy is to follow the appropriate cybersecurity framework to manage and reduce cybersecurity risk. 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 these market risks. We cannot predictdata. If the impactsecurity of foreign currency fluctuations,our systems is impaired, or if our systems are infiltrated by unauthorized persons, our development initiatives might be disrupted, we might be unable to provide service, and foreign currency fluctuationsour customers and their operations may be subject to cyberattacks and resulting business disruptions and financial losses. Our customer relationships might deteriorate, our reputation in the futureindustry could be impacted, 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.

In addition, there may be an increased risk of cyberattacks by state actors due to the current conflict between Russia and Ukraine. Any increase in such attacks on us or our systems could adversely affect our revenuenetwork systems or other operations. Although we maintain cybersecurity policies and operating results. Any hedging policiesprocedures to manage risk to our information systems, continuously adapt our systems and processes to mitigate such threats, and plan to enhance our protections against such attacks, we may implement in the future may not be successful,able to address these cybersecurity threats proactively or implement adequate preventative measures and the cost of those hedging techniques may have a significant negative impact on our operating results.there can be no assurance that we will promptly detect and address any such disruption or security breach, if at all.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
 
The following table provides information about purchases by us during the three months ended DecemberMarch 31, 20172022 of shares of our common stock: 
Period 
Total Number
of Shares
Purchased (2)
 
Average Price
Paid per Share
(3)
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Program
(1)
 
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Program (4)
         
October 1 to 31, 2017 247,065
 $64.85
 247,065
  
November 1 to 30, 2017 260,769
 $66.74
 260,769
  
December 1 to 31, 2017 248,515
 $66.68
 248,515
  
Total 756,349
 $66.11
 756,349
 $246,292,803
(1)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 and June 8, 2017, the Board of Directors approved a $400.0 million and $200.0 million increase to the Share Repurchase Program, respectively.
PeriodTotal Number
of Shares
Purchased 
(1)
Average Price
Paid per Share
(2)
Total Number of
Shares Purchased as
Part of Publicly
Announced Program
(3)
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Program
(4)
January 1 to 31, 2022101,444 $148.72 101,444 
February 1 to 28, 2022— $— — 
March 1 to 31, 2022— $— —  
Total101,444 $— 101,444 $70,309,854 
 
(2)(1)     As of DecemberMarch 31, 2017,2022, the total number of shares of common stock repurchased under all programs approved by the Board of Directors was 30,741,484.38,238,125.


(3)(2)     The total average price paid per share is calculated as the total amount paid for the repurchase of our common stock during the period divided by the total number of shares repurchased.

(3)     On June 4, 2021, our Board of Directors approved a new share repurchase program for up to $300.0 million worth of our common stock.
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(4)   As of DecemberMarch 31, 2017,2022, the total remaining value under the New Share Repurchase Program was approximately $246.3$70.3 million.

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Item 6.Exhibits.
 
Exhibit NumberDescription
2.2
31.1Incorporated by Reference
Exhibit
Number
Description
Filed with
this Form
10-Q
Form
Filing Date with
SEC
Exhibit
Number
31.1X
31.2X
32.1X
101.INSInline Instance DocumentX
101.SCHInline XBRL Taxonomy Extension Schema DocumentX
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentX
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX
104Cover Page Interactive Data File (embedded within the Inline XBRL document)


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SIGNATURES
 
Pursuant to the requirements 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.
 
Aspen Technology, Inc.
Date: January 24, 2018By:/s/ ANTONIO J. PIETRI
Antonio J. Pietri
President and Chief Executive Officer
(Principal Executive Officer)
Date: January 24, 2018By:/s/ KARL E. JOHNSEN
Karl E. Johnsen
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

EXHIBIT INDEX
Incorporated by ReferenceAspen Technology, Inc.
Exhibit
Number
Date: April 27, 2022
By:Description
Filed with
this Form
10-Q
Form
Filing Date with
SEC
Exhibit
Number
/s/ ANTONIO J. PIETRI
Antonio J. Pietri
31.1X
31.2X
32.1
(Principal Executive Officer)
Date: April 27, 2022By:/s/ CHANTELLE BREITHAUPT
Chantelle Breithaupt
Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X
101.INSInstance DocumentX
101.SCHXBRL Taxonomy Extension Schema DocumentX
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABXBRL Taxonomy Extension Label Linkbase DocumentX
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentX(Principal Financial Officer)










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