NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Unaudited Consolidated Financial Statements
The accompanying interim unaudited consolidated financial statements of Aspen Technology, Inc. and its subsidiaries have been prepared on the same basis as our annual consolidated financial statements. We have omitted certain information and footnote disclosures normally included in our annual consolidated financial statements. Such interim unaudited consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (GAAP), as defined in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 270,
Interim Reporting
, for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. It is suggested that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements for the year ended
June 30, 2018
, which are contained in our Annual Report on Form 10-K, as previously filed with the U.S. Securities and Exchange Commission (SEC). In the opinion of management, all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations, and cash flows at the dates and for the periods presented have been included and all intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended
September 30, 2018
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, 2018
. We adopted Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers
("Topic 606") and ASU No. 2017-01,
Business Combinations (Topic 805) - Clarifying the Definition of a Business
effective July 1, 2018. Refer to Note 2 (f), “New Accounting Pronouncements Adopted in Fiscal 2019,” for further information regarding the adoption of Topic 606 and ASU No. 2017-01. There were no other material changes to our significant accounting policies during the three months ended
September 30, 2018
.
(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 gains (losses) were
$0.1 million
and
$(0.6) million
during the three months ended
September 30, 2018
and
2017
, respectively.
(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.
We acquired
no
technology during the three months ended
September 30, 2018
and
2017
, respectively.
(f)
New Accounting Pronouncements Adopted in Fiscal 2019
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. We adopted ASU No. 2017-01 effective July 1, 2018. The adoption of ASU No. 2017-01 did not have a material effect on the consolidated financial statements or related disclosures.
In May 2014, the FASB issued Topic 606, which 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 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 Topic 606, more judgment and estimates are required within the revenue recognition process than were required under previous 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.
We adopted Topic 606 effective July 1, 2018 using the full retrospective method, which required us to adjust the prior periods presented. The adoption of Topic 606 impacted 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 are now required to recognize as revenue a portion of the arrangement fee upon delivery of the software license. We recognize as revenue a portion of the arrangement fee related to maintenance and support, professional services, and training over time as the services are provided. Additionally, under the new standard, we capitalize certain direct and incremental commission costs to obtain a contract and amortize such costs over the expected period of benefit, rather than expensing them as incurred in the period that the commissions are earned. See Note 3, "Revenue from Contracts with Customers," to our Unaudited Consolidated Financial Statements for more information on our accounting policies as a result of the adoption of Topic 606.
(g)
Recently Issued Accounting Pronouncements
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 2018, the FASB issued ASU No. 2018-05,
Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
. The amendment provides guidance on accounting for the impact of the Tax Cuts and Jobs Act (the “Tax Act”) and allows entities to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Tax Act has several significant changes that impact all taxpayers, including a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986. We currently estimate 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 December 31, 2018.
In August 2018, the FASB issued ASU No. 2018-13,
Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.
The amendment modifies, removes, and adds certain disclosure requirements on fair value measurements. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2018-13 on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15,
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service
Contract.
The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendment. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2018-15 on our consolidated financial statements.
3. Revenue from Contracts with Customers
In accordance with Topic 606, we account for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable that we will collect substantially all of the consideration to which we are entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
Nature of Products and Services
We generate revenue from the following sources: (1) License revenue; (2) Maintenance revenue; and (3) Services and other revenue. We sell our software products to end users primarily under fixed-term licenses. We license our software products primarily through a subscription offering which we refer to as our aspenONE licensing model, which includes software maintenance and support, known as our Premier Plus SMS offering, for the entire term. Our aspenONE products are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management. The aspenONE licensing model provides customers with access to all of the products within the aspenONE suite(s) they license. We refer to these arrangements as token arrangements. Tokens are fixed units of measure. The amount of software usage is limited by the number of tokens purchased by the customer.
We also license our software through point product term arrangements, which include our Premier Plus SMS offering for the entire term.
We determine revenue recognition through the following steps:
•
Identification of the contract, or contracts, with a customer;
•
Identification of the performance obligations in the contract;
•
Determination of the transaction price;
•
Allocation of the transaction price to the performance obligations in the contract; and
•
Recognition of revenue when, or as, we satisfy a performance obligation.
Term-based Arrangements:
Term-based arrangements consist of on-premise term licenses as well as maintenance.
Term licenses
License revenue consists primarily of product and related revenue from our aspenONE licensing model and point product arrangements.
When a customer elects to license our products under our aspenONE licensing model, the customer receives, for the term of the arrangement, the right to all software products in the licensed aspenONE software suite. When a customer elects to license point products, the customer receives, for the term of the arrangement, the right to license specified products in the licensed aspenONE software suite. Revenue from initial product licenses is recognized upfront upon delivery.
Maintenance
When a customer elects to license our products under our aspenONE licensing model, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any updates that may be introduced into the licensed aspenONE software suite. When a customer elects to license point products, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any updates that may be introduced related to the specified products licensed. Maintenance represents a stand-ready obligation and, due to our obligation to provide unspecified future software updates on a when-and-if available basis as well as telephone support services, we are required to recognize revenue ratably over the term of the arrangement.
Services and Other Revenue
Professional Services Revenue
Professional services are provided to customers on a time-and-materials ("T&M") or fixed-price basis. The obligation to provide professional services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligation. For professional services, revenue is recognized by measuring progress toward the completion of our obligations. We recognize professional services fees for our T&M contracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using the proportional performance method based on the ratio of costs incurred to the total estimated project costs. The use of the proportional performance method is dependent upon our ability to reliably estimate the costs to complete a project. We use historical experience as a basis for future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. Out-of-pocket expenses which are reimbursed by customers are recorded as revenue.
Training Revenue
We provide training services to our customers, including on-site, Internet-based, public and customized training. The obligation to provide training services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligation. Revenue is recognized in the period in which the services are performed.
Contracts with Multiple Performance Obligations
Our contracts generally contain more than one of the products and services listed above, each of which is separately accounted for as a distinct performance obligation.
Allocation of consideration
: We allocate total contract consideration to each distinct performance obligation in an arrangement on a relative standalone selling price basis. The standalone selling price reflects the price we would charge for a specific product or service if it was sold separately in similar circumstances and to similar customers.
If the arrangement contains professional services and other products or services, we allocate to the professional service obligation a portion of the total contract consideration based on the standalone selling price of professional services that is observed from consistently priced standalone sales.
The standalone selling price for term licenses, which are always sold with maintenance, is the price for the combined license and maintenance bundle. The amount assigned to the license and maintenance bundle is separated into license and maintenance amounts using the respective standalone selling prices represented by the value relationship between the software license and maintenance.
When two or more contracts are entered into at or near the same time with the same customer, we evaluate the facts and circumstances associated with the negotiation of those contracts. Where the contracts are negotiated as a package, we will account for them as a single arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.
Standalone selling price
: When available, we use directly observable transactions to determine the standalone selling prices for performance obligations. Generally, directly observable data is not available for term licenses and maintenance. When term licenses are sold together with maintenance in a bundled arrangement, we estimate a standalone selling price for these distinct performance obligations using relevant information, including our overall pricing objectives and strategies and historical pricing data, and taking into consideration market conditions and other factors, such as customer type and geography.
Other policies and judgments
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment annually over the term of the license arrangement. Therefore, we generally receive payment from a customer after the performance obligation related to the license has been satisfied, and therefore, our contracts generally contain a significant financing component. The significant financing component is calculated utilizing an interest rate that derives the net present value of the performance obligations delivered on an upfront basis based on the allocation of consideration. We have instituted a customer portfolio approach in assigning interest rates. The rates are determined at contract inception and are based on the credit characteristics of the customers within each portfolio.
Contract modifications
We sometimes enter into agreements to modify previously executed contracts, which constitute contract modifications. We assess each of these contract modifications to determine (i) if the additional products and services are distinct from the products and services in the original arrangement; and (ii) if the amount of consideration expected for the added products and services reflects the stand-alone selling price of those products and services, as adjusted for contract-specific circumstances. A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either (i) a prospective basis as a termination of the existing contract and the creation of a new contract; or (ii) a cumulative catch-up basis. Generally, our contract modifications meet both criteria and are accounted for as a separate contract, as adjusted for contract-specific circumstances.
Disaggregation of Revenue
We disaggregate our revenue by region, type of performance obligation, timing of revenue recognition, and segment as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2018
|
|
2017
|
Revenue by region:
|
|
|
|
United States
|
$
|
39,228
|
|
|
$
|
53,213
|
|
Europe
|
28,946
|
|
|
26,256
|
|
Other (1)
|
45,995
|
|
|
47,018
|
|
|
$
|
114,169
|
|
|
$
|
126,487
|
|
|
|
|
|
Revenue by type of performance obligation:
|
|
|
|
Term licenses
|
$
|
63,755
|
|
|
$
|
78,890
|
|
Maintenance
|
43,039
|
|
|
40,264
|
|
Professional services and other
|
7,375
|
|
|
7,333
|
|
|
$
|
114,169
|
|
|
$
|
126,487
|
|
|
|
|
|
Revenue by segment:
|
|
|
|
Subscription and software
|
$
|
106,794
|
|
|
$
|
119,154
|
|
Services and other
|
7,375
|
|
|
7,333
|
|
|
$
|
114,169
|
|
|
$
|
126,487
|
|
____________________________________________
|
|
(1)
|
Other consists primarily of Asia Pacific, Canada, Latin America and the Middle East.
|
Contract Balances
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.
Our contract assets (liabilities) were as follows as of
September 30, 2018
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
June 30, 2018
|
|
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Contract assets
|
$
|
675,914
|
|
|
$
|
645,000
|
|
Deferred revenue
|
(38,783
|
)
|
|
(27,504
|
)
|
|
$
|
637,131
|
|
|
$
|
617,496
|
|
Contract assets and deferred revenue are presented net at the contract level for each reporting period.
The change in deferred revenue in the three months ended September 30, 2018, excluding the impact of the netting of contract assets and deferred revenue, was primarily due to an increase in new billings in advance of revenue recognition, partially offset by
$2.7 million
of revenue recognized that was included in deferred revenue at June 30, 2018.
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
to
eight years
for new contracts, reflecting our estimate of the expected period that we will benefit from those commissions.
Amortization of capitalized contract costs is included in sales and marketing expenses in our Condensed Consolidated Statement of Operations.
Transaction Price Allocated to Remaining Performance Obligations
The following table includes the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
(Dollars in Thousands)
|
License
|
$
|
34,414
|
|
|
$
|
16,434
|
|
|
$
|
13,786
|
|
|
$
|
7,784
|
|
|
$
|
1,310
|
|
|
$
|
173
|
|
Maintenance
|
120,392
|
|
|
129,547
|
|
|
93,578
|
|
|
58,657
|
|
|
31,948
|
|
|
11,735
|
|
Services and other
|
38,967
|
|
|
5,270
|
|
|
2,987
|
|
|
1,467
|
|
|
979
|
|
|
432
|
|
Impact to Prior Period Information
The following table presents the effect of the adoption of Topic 606 on select consolidated statements of operations line items for the three months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Adjusted
|
|
(Dollars in Thousands, Except per Share Data)
|
Consolidated Statements of Operations
:
|
|
|
|
|
|
License revenue
|
$
|
—
|
|
|
$
|
78,890
|
|
|
$
|
78,890
|
|
Maintenance revenue
|
—
|
|
|
40,264
|
|
|
40,264
|
|
Subscription and software revenue
|
115,756
|
|
|
(115,756
|
)
|
|
—
|
|
Services and other revenue
|
7,025
|
|
|
308
|
|
|
7,333
|
|
Gross profit
|
110,049
|
|
|
3,706
|
|
|
113,755
|
|
Selling and marketing expense
|
23,571
|
|
|
(55
|
)
|
|
23,516
|
|
General and administrative expense
|
13,676
|
|
|
1,361
|
|
|
15,037
|
|
Income from operations
|
53,313
|
|
|
2,400
|
|
|
55,713
|
|
Interest income
|
141
|
|
|
6,165
|
|
|
6,306
|
|
Provision for income taxes
|
16,877
|
|
|
2,800
|
|
|
19,677
|
|
Net income
|
$
|
34,755
|
|
|
$
|
5,766
|
|
|
$
|
40,521
|
|
Basic
|
$
|
0.48
|
|
|
|
|
$
|
0.55
|
|
Diluted
|
$
|
0.47
|
|
|
|
|
$
|
0.55
|
|
Weighted average shares outstanding - Basic
|
73,024
|
|
|
|
|
73,024
|
|
Weighted average shares outstanding - Diluted
|
73,609
|
|
|
|
|
73,609
|
|
The following table presents the effect of the adoption of Topic 606 on select consolidated balance sheet line items as of June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Consolidated Balance Sheets
:
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Current contract assets
|
$
|
—
|
|
|
$
|
304,378
|
|
|
$
|
304,378
|
|
Contract costs
|
—
|
|
|
20,500
|
|
|
20,500
|
|
Accounts receivable, net
|
21,910
|
|
|
19,900
|
|
|
41,810
|
|
Non-current contract assets
|
—
|
|
|
340,622
|
|
|
340,622
|
|
Liabilities:
|
|
|
|
|
|
Current deferred revenue
|
286,845
|
|
|
(271,695
|
)
|
|
15,150
|
|
Non-current deferred revenue
|
28,259
|
|
|
(15,905
|
)
|
|
12,354
|
|
Deferred income taxes
|
—
|
|
|
214,125
|
|
|
214,125
|
|
Other non-current liabilities
|
18,492
|
|
|
(1,424
|
)
|
|
17,068
|
|
Stockholders' equity:
|
|
|
|
|
|
Retained earnings
|
305,208
|
|
|
760,299
|
|
|
1,065,507
|
|
The adoption of Topic 606 had no impact on our total cash flows or net cash provided by operating activities. The impacts of adoption resulted in offsetting shifts in cash flows throughout the components of net income and various changes in working capital balances. The following table presents the effect of the adoption of Topic 606 on select consolidated statement of cash flows line items for the three months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Consolidated Statements of Cash Flows:
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
34,755
|
|
|
$
|
5,766
|
|
|
$
|
40,521
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
Contract assets
|
—
|
|
|
(35,791
|
)
|
|
(35,791
|
)
|
Contract costs
|
—
|
|
|
(185
|
)
|
|
(185
|
)
|
Accounts receivable, net
|
(504
|
)
|
|
(8,589
|
)
|
|
(9,093
|
)
|
Deferred revenue
|
(40,037
|
)
|
|
38,799
|
|
|
(1,238
|
)
|
Net cash provided by operating activities
|
$
|
12,360
|
|
|
$
|
—
|
|
|
$
|
12,360
|
|
4. 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
$5.0 million
as of
September 30, 2018
and
June 30, 2018
, respectively, were reported at fair value utilizing quoted market prices in identical markets, or “Level 1 inputs.” Our cash equivalents consist of short-term, highly liquid investments with remaining maturities of three months or less when purchased.
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 Credit Agreement (described below in Note 11, "Credit Agreement") approximates its carrying value due to the floating interest rate.
5. Accounts Receivable, Net
Our accounts receivable, net of the related allowance for doubtful accounts, were as follows as of
September 30, 2018
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Allowance
|
|
Net
|
|
(Dollars in Thousands)
|
September 30, 2018:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
$
|
56,872
|
|
|
$
|
2,873
|
|
|
$
|
53,999
|
|
|
|
|
|
|
|
June 30, 2018, As Adjusted:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
$
|
44,513
|
|
|
$
|
2,703
|
|
|
$
|
41,810
|
|
As of
September 30, 2018
, we had
no
customer receivable balances that individually represented
10%
or more of our net accounts receivable.
6. Property and Equipment
Property, equipment and leasehold improvements in the accompanying unaudited consolidated balance sheets consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
June 30,
2018
|
|
(Dollars in Thousands)
|
Property, equipment and leasehold improvements, at cost:
|
|
|
|
|
|
Computer equipment
|
$
|
8,339
|
|
|
$
|
8,344
|
|
Purchased software
|
24,245
|
|
|
24,225
|
|
Furniture & fixtures
|
6,827
|
|
|
6,850
|
|
Leasehold improvements
|
11,993
|
|
|
12,023
|
|
Property, equipment and leasehold improvements, at cost
|
51,404
|
|
|
51,442
|
|
Accumulated depreciation
|
(42,398
|
)
|
|
(41,636
|
)
|
Property, equipment and leasehold improvements, net
|
$
|
9,006
|
|
|
$
|
9,806
|
|
7. Acquisitions
Apex Optimisation
On February 5, 2018, we completed the acquisition of all the outstanding shares of Apex Optimisation and affiliates (“Apex”), a provider of software which aligns Advanced Process Control with Planning and Scheduling to unify production optimization, for a total cash consideration of
$23.0 million
. The purchase price consisted of
$18.4 million
of cash paid at closing and an additional
$4.6 million
to be held back until February 2020 as security for certain representations, warranties, and obligations of the sellers. The holdback is recorded in other non-current liabilities in our consolidated balance sheet.
A preliminary allocation of the purchase price is as follows. The valuation of the net assets acquired and the deferred tax liabilities are considered preliminary as of
September 30, 2018
:
|
|
|
|
|
|
Amount
|
|
(Dollars in Thousands)
|
Liabilities assumed, net
|
$
|
(1,164
|
)
|
Identifiable intangible assets:
|
|
Technology-related
|
4,500
|
|
Customer relationships
|
3,800
|
|
Goodwill
|
17,483
|
|
Deferred tax liabilities
|
(1,619
|
)
|
Total assets acquired, net
|
$
|
23,000
|
|
We used the relief from royalty and income approaches to derive the fair value of the technology-related and customer relationship intangible assets, respectively. The weighted-average discount rate (or rate of return) used to determine the value of the Apex intangible assets was
28%
and the effective tax rate used was
21%
. The technology-related and customer relationship intangible assets are each being amortized on a straight-line basis over their estimated useful lives of
seven years
.
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 Apex products and services to our existing customers. The results of operations of Apex have been included prospectively in our results of operations since the date of acquisition.
8. Intangible Assets
We include in our amortizable intangible assets those intangible assets acquired in our business and asset acquisitions. We amortize acquired intangible assets with finite lives over their estimated economic lives, generally using the straight-line method. Each period, we evaluate the estimated remaining useful lives of acquired intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. Acquired intangibles are removed from the accounts when fully amortized and no longer in use.
Intangible assets consisted of the following as of
September 30, 2018
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Effect of Currency Translation
|
|
Net Carrying Amount
|
|
(Dollars in Thousands)
|
September 30, 2018:
|
|
|
|
|
|
|
|
Technology and patents
|
$
|
35,644
|
|
|
$
|
(6,068
|
)
|
|
$
|
(27
|
)
|
|
$
|
29,549
|
|
Customer relationships
|
4,979
|
|
|
(513
|
)
|
|
(23
|
)
|
|
4,443
|
|
Non-compete agreements
|
553
|
|
|
(353
|
)
|
|
—
|
|
|
200
|
|
Total
|
$
|
41,176
|
|
|
$
|
(6,934
|
)
|
|
$
|
(50
|
)
|
|
$
|
34,192
|
|
June 30, 2018:
|
|
|
|
|
|
|
|
Technology and patents
|
$
|
35,898
|
|
|
$
|
(5,182
|
)
|
|
$
|
(254
|
)
|
|
$
|
30,462
|
|
Customer relationships
|
5,181
|
|
|
(377
|
)
|
|
(202
|
)
|
|
4,602
|
|
Non-compete agreements
|
553
|
|
|
(307
|
)
|
|
—
|
|
|
246
|
|
Total
|
$
|
41,632
|
|
|
$
|
(5,866
|
)
|
|
$
|
(456
|
)
|
|
$
|
35,310
|
|
Total amortization expense related to intangible assets is included in operating expenses and amounted to approximately
$1.1 million
and
$0.5 million
for the three months ended
September 30, 2018
and
2017
, respectively.
Future amortization expense as of
September 30, 2018
is expected to be as follows:
|
|
|
|
|
Year Ended June 30,
|
Amortization Expense
|
|
(Dollars in Thousands)
|
2019
|
$
|
3,479
|
|
2020
|
4,710
|
|
2021
|
4,754
|
|
2022
|
4,694
|
|
2023
|
4,609
|
|
Thereafter
|
11,946
|
|
Total
|
$
|
34,192
|
|
9. Goodwill
The changes in the carrying amount of goodwill for our subscription and software reporting segment during the three months ended
September 30, 2018
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Impairment Losses
|
|
Effect of Currency Translation
|
|
Net Carrying Amount
|
|
(Dollars in Thousands)
|
June 30, 2018:
|
$
|
142,316
|
|
|
$
|
(65,569
|
)
|
|
$
|
(1,157
|
)
|
|
$
|
75,590
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
59
|
|
|
59
|
|
September 30, 2018:
|
$
|
142,316
|
|
|
$
|
(65,569
|
)
|
|
$
|
(1,098
|
)
|
|
$
|
75,649
|
|
No
triggering events indicating goodwill impairment occurred during the three months ended
September 30, 2018
.
10. Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities in the accompanying unaudited consolidated balance sheets consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
June 30,
2018
|
|
(Dollars in Thousands)
|
Payroll and payroll-related
|
$
|
14,763
|
|
|
$
|
21,796
|
|
Royalties and outside commissions
|
3,306
|
|
|
3,333
|
|
Professional fees
|
1,582
|
|
|
1,695
|
|
Deferred acquisition payments
|
1,700
|
|
|
1,700
|
|
Other
|
10,649
|
|
|
10,991
|
|
Total accrued expenses and other current liabilities
|
$
|
32,000
|
|
|
$
|
39,515
|
|
Other non-current liabilities in the accompanying unaudited consolidated balance sheets consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
June 30,
2018
|
|
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Deferred rent
|
$
|
6,138
|
|
|
$
|
6,442
|
|
Uncertain tax positions
|
4,327
|
|
|
4,510
|
|
Deferred acquisition payments
|
4,600
|
|
|
4,294
|
|
Other
|
1,768
|
|
|
1,822
|
|
Total other non-current liabilities
|
$
|
16,833
|
|
|
$
|
17,068
|
|
11. Credit Agreement
On February 26, 2016, we entered into a
$250.0 million
Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, Silicon Valley Bank, as syndication agent, and the lenders and other parties named therein (the “Lenders”). On August 9, 2017, we entered into an Amendment to increase the 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
$170.0 million
and
$170.0 million
in outstanding borrowings under the Credit Agreement as of
September 30, 2018
and
June 30, 2018
, respectively.
Borrowings under the Credit Agreement bear interest at a rate equal to either, at our option, the sum of (a) the highest of (1) the rate of interest publicly announced by JPMorgan Chase Bank, N.A. as its prime rate in effect, (2) the Federal Funds Effective Rate plus
0.5%
, and (3) the one-month Adjusted LIBO Rate plus
1.0%
,
plus
(b) a margin initially of
0.5%
for the first full fiscal quarter ending after the date of the Credit Agreement and thereafter based on our Leverage Ratio; or the Adjusted LIBO Rate plus a margin initially of
1.5%
for the first full fiscal quarter ending after the date of the Credit Agreement and thereafter based on our Leverage Ratio. We must also pay, on a quarterly basis, an unused commitment fee at a rate of between
0.2%
and
0.3%
per annum, based on our Leverage Ratio. The interest rates as of
September 30, 2018
were
3.75%
on
$159.0 million
of our outstanding borrowings, and
3.57%
on the remaining
$11.0 million
of our outstanding borrowings.
All borrowings under the Credit Agreement are secured by liens on substantially all of our assets. The Credit Agreement contains affirmative and negative covenants customary for facilities of this type, including restrictions on: incurrence of additional debt; liens; fundamental changes; asset sales; restricted payments; and transactions with affiliates. The Credit Agreement contains financial covenants regarding maintenance as of the end of each fiscal quarter, commencing with the quarter ending June 30, 2016, of a maximum Leverage Ratio of
3.0
to
1.0
and a minimum Interest Coverage Ratio of
3.0
to
1.0
. As of
September 30, 2018
we were in compliance with these covenants.
12. Stock-Based Compensation
The weighted average estimated fair value of option awards granted was
$31.70
and
$16.91
during the three months ended
September 30, 2018
and
2017
, respectively.
We utilized the Black-Scholes option valuation model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2018
|
|
2017
|
Risk-free interest rate
|
2.8
|
%
|
|
1.7
|
%
|
Expected dividend yield
|
0.0
|
%
|
|
0.0
|
%
|
Expected life (in years)
|
4.6
|
|
|
4.6
|
|
Expected volatility factor
|
26.6
|
%
|
|
28.1
|
%
|
The stock-based compensation expense under all equity plans and its classification in the unaudited consolidated statements of operations for the three months ended
September 30, 2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2018
|
|
2017
|
|
(Dollars in Thousands)
|
Recorded as expenses:
|
|
|
|
|
|
Cost of services and other
|
$
|
465
|
|
|
$
|
450
|
|
Selling and marketing
|
1,331
|
|
|
885
|
|
Research and development
|
2,295
|
|
|
1,896
|
|
General and administrative
|
4,774
|
|
|
3,183
|
|
Total stock-based compensation
|
$
|
8,865
|
|
|
$
|
6,414
|
|
A summary of stock option and RSU activity under all equity plans for the three months ended
September 30, 2018
is as follows: