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, 2020, 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 and six months ended December 31, 2020 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, 2020. We adopted Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses ("Topic 326") effective July 1, 2020. Refer to Note 2(h), “New Accounting Pronouncements Adopted in Fiscal 2021,” for further information regarding the adoption of Topic 326. There were no other material changes to our significant accounting policies during the three and six months ended December 31, 2020.
(c) Loss Contingencies
We accrue estimated liabilities for loss contingencies arising from claims, assessments, litigation and other sources when it is probable that a liability has been incurred and the amount of the claim, assessment or damages can be reasonably estimated. We believe that we have sufficient accruals to cover any obligations resulting from claims, assessments or litigation that have met these criteria.
(d) Foreign Currency Transactions
Foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our subsidiaries are recognized in our results of operations as incurred as a component of other (expense), net. Net foreign currency exchange (losses) gains were $(0.6) million and $(1.0) million during the three months ended December 31, 2020 and 2019, respectively, and $(2.1) million and $0.2 million during the six months ended December 31, 2020 and 2019, 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. There was less than $0.1 million of capitalized direct labor costs associated with our development of software for sale during the three months ended December 31, 2020 and 2019, respectively, and $0.7 million and less than $0.1 million during the six months ended December 31, 2020 and 2019, respectively.
(f) Restricted Cash
As of December 31, 2020, our restricted cash balance of less than $0.1 million related to funds subject to contractual restrictions. We did not have a restricted cash balance as of June 30, 2020.
(g) 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 December 31, 2020, the fair value of this investment is 0.7 million CAD ($0.5 million), representing our payment towards the total commitment, and is recorded in non-current assets in our consolidated balance sheet.
(h) New Accounting Pronouncements Adopted in Fiscal 2021
In June 2016, the FASB issued Topic 326. The amendment changes the impairment model for most financial assets and certain other instruments. Under Topic 326, entities are required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, contract assets, held-to-maturity debt securities, loans, and other instruments. Topic 326 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. We adopted Topic 326 effective July 1, 2020 using the effective date method with a modified retrospective transition approach. The adoption of Topic 326 did not have a material impact on our balance sheet, operating results or cash flows, and there was no impact on our debt covenants.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“Topic 848”). ASU 2020-04 provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. ASU No. 2020-04 is effective as of March 12, 2020 through December 31, 2022, and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. We adopted ASU 2020-04 effective July 1, 2020. The adoption of ASU No. 2020-04 did not have a material impact on our operating results or cash flows, and there was no impact on our debt covenants.
(i) Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes ("Topic 740") - Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020. Early adoption is permitted. We are currently evaluating the impact of ASU 2019-12 on our consolidated financial statements.
3. Revenue from Contracts with Customers
In accordance with ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606"), we account for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable that we will collect substantially all of the consideration to which we are entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
Nature of Products and Services
We generate revenue from the following sources: (1) License revenue; (2) Maintenance revenue; and (3) Services and other revenue. We sell our software products to end users primarily under fixed-term licenses. We license our software products primarily through a subscription offering which we refer to as our aspenONE licensing model, which includes software maintenance and support, known as our Premier Plus SMS offering, for the entire term. Our aspenONE products are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management. The aspenONE licensing model provides customers with access to all of the products within the aspenONE suite(s) they license. We refer to these arrangements as token arrangements. Tokens are fixed units of measure. The amount of software usage is limited by the number of tokens purchased by the customer.
We also license our software through point product term arrangements, which include our Premier Plus SMS offering for the entire term.
We determine revenue recognition through the following steps:
• Identification of the contract, or contracts, with a customer;
• Identification of the performance obligations in the contract;
• Determination of the transaction price;
• Allocation of the transaction price to the performance obligations in the contract; and
• Recognition of revenue when, or as, we satisfy a performance obligation.
Term-based Arrangements: Term-based arrangements consist of on-premise term licenses as well as maintenance.
License
License revenue consists primarily of product and related revenue from our aspenONE licensing model and point product arrangements.
When a customer elects to license our products under our aspenONE licensing model, the customer receives, for the term of the arrangement, the right to all software products in the licensed aspenONE software suite. When a customer elects to license point products, the customer receives, for the term of the arrangement, the right to license specified products in the licensed aspenONE software suite. Revenue from initial product licenses is recognized upfront upon delivery.
Maintenance
When a customer elects to license our products under our aspenONE licensing model, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any updates that may be introduced into the licensed aspenONE software suite. When a customer elects to license point products, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any updates that may be introduced related to the specified products licensed. Maintenance represents a stand-ready obligation and, due to our obligation to provide unspecified future software updates on a when-and-if available basis as well as telephone support services, we are required to recognize revenue ratably over the term of the arrangement.
Services and Other Revenue
Professional Services Revenue
Professional services are provided to customers on a time-and-materials ("T&M") or fixed-price basis. The obligation to provide professional services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligation. For professional services, revenue is recognized by measuring progress toward the completion of our obligations. We recognize professional services fees for our T&M contracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using the proportional performance method based on the ratio of costs incurred to the total estimated project costs. The use of the proportional performance method is dependent upon our ability to reliably estimate the costs to complete a project. We use historical experience as a basis for future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. Out-of-pocket expenses which are reimbursed by customers are recorded as revenue.
Training Revenue
We provide training services to our customers, including on-site, Internet-based, public and customized training. The obligation to provide training services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligation. Revenue is recognized in the period in which the services are performed.
Contracts with Multiple Performance Obligations
Our contracts generally contain more than one of the products and services listed above, each of which is separately accounted for as a distinct performance obligation.
Allocation of consideration: We allocate total contract consideration to each distinct performance obligation in an arrangement on a relative standalone selling price basis. The standalone selling price reflects the price we would charge for a specific product or service if it was sold separately in similar circumstances and to similar customers.
If the arrangement contains professional services and other products or services, we allocate to the professional service obligation a portion of the total contract consideration based on the standalone selling price of professional services that is observed from consistently priced standalone sales.
The standalone selling price for term arrangements, which always include maintenance for the full term of the arrangement, is the price for the combined license and maintenance bundle. The amount assigned to the license and maintenance bundle is separated into license and maintenance amounts using the respective standalone selling prices represented by the value relationship between the software license and maintenance.
When two or more contracts are entered into at or near the same time with the same customer, we evaluate the facts and circumstances associated with the negotiation of those contracts. Where the contracts are negotiated as a package, we will account for them as a single arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.
Standalone selling price: When available, we use directly observable transactions to determine the standalone selling prices for performance obligations. Generally, directly observable data is not available for term licenses and maintenance. When term licenses are sold together with maintenance in a bundled arrangement, we estimate a standalone selling price for these distinct performance obligations using relevant information, including our overall pricing objectives and strategies and historical pricing data, and taking into consideration market conditions and other factors.
Other policies and judgments
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment annually over the term of the license arrangement. Therefore, we generally receive payment from a customer after the performance obligation related to the license has been satisfied, and therefore, our contracts generally contain a significant financing component. The significant financing component is calculated utilizing an interest rate that derives the net present value of the performance obligations delivered on an upfront basis based on the allocation of consideration. We have instituted a customer portfolio approach in assigning interest rates. The rates are determined at contract inception and are based on the credit characteristics of the customers within each portfolio.
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:
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Three Months Ended
December 31,
|
|
Six Months Ended
December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(Dollars in Thousands)
|
Revenue by region:
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|
|
|
|
|
|
|
North America
|
$
|
111,192
|
|
|
$
|
49,389
|
|
|
$
|
158,431
|
|
|
$
|
111,814
|
|
Europe
|
77,474
|
|
|
32,468
|
|
|
111,190
|
|
|
70,746
|
|
Other (1)
|
45,052
|
|
|
44,155
|
|
|
79,068
|
|
|
83,629
|
|
|
$
|
233,718
|
|
|
$
|
126,012
|
|
|
$
|
348,689
|
|
|
$
|
266,189
|
|
|
|
|
|
|
|
|
|
Revenue by type of performance obligation:
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|
|
|
|
|
|
Term licenses
|
$
|
180,170
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|
|
$
|
72,436
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|
|
$
|
242,029
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|
|
$
|
160,155
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|
Maintenance
|
46,818
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|
|
44,547
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|
|
93,676
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|
|
88,219
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|
Professional services and other
|
6,730
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|
|
9,029
|
|
|
12,984
|
|
|
17,815
|
|
|
$
|
233,718
|
|
|
$
|
126,012
|
|
|
$
|
348,689
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|
|
$
|
266,189
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|
|
|
|
|
|
|
|
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Revenue by segment:
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|
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|
Subscription and software
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$
|
226,988
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|
|
$
|
116,983
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|
|
$
|
335,705
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|
|
$
|
248,374
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|
Services and other
|
6,730
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|
|
9,029
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|
|
12,984
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|
|
17,815
|
|
|
$
|
233,718
|
|
|
$
|
126,012
|
|
|
$
|
348,689
|
|
|
$
|
266,189
|
|
____________________________________________
(1)Other consists primarily of Asia Pacific, Latin America and the Middle East.
Contract Assets and Deferred Revenue
The difference in the opening and closing balances of our contract assets and deferred revenue primarily results from the timing difference between our performance and the customer’s payment. We fulfill our obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. We recognize a contract asset when we transfer products or services to a customer and the right to consideration is conditional on something other than the passage of time. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional. We recognize deferred revenue when we have received consideration or an amount of consideration is due from the customer and we have a future obligation to transfer products or services.
Payment terms and conditions vary by contract type. Terms generally include a requirement of payment annually over the term of the license arrangement. During the majority of each customer contract term, the amount invoiced is generally less than the amount of revenue recognized to date, primarily because we transfer control of the performance obligation related to the software license at the inception of the contract term, and the allocation of contract consideration to the license performance
obligation is a significant portion of the total contract consideration. Therefore, our contracts often result in the recording of a contract asset throughout the majority of the contract term. We record a contract asset when revenue recognized on a contract exceeds the billings.
The contract assets are subject to credit risk and reviewed in accordance with Topic 326. We monitor the credit quality of customer contract asset balances on an individual basis, at each reporting date, through credit characteristics, geographic location, and the industry in which they operate. We recognize an impairment on contract assets if, subsequent to contract inception, it becomes probable payment is not collectible. An allowance for expected credit loss reflects losses expected over the remaining term of the contract asset and is determined based upon historical losses, customer-specific factors, and current economic conditions.
The following table presents the change in the reserve for contract assets during the six months ended December 31, 2020:
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|
|
|
|
|
|
|
|
|
|
June 30, 2020
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|
Provision
|
|
Write-Offs, Recoveries, and Billings
|
|
December 31, 2020
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(Dollars in Thousands)
|
$
|
(2,947)
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|
|
$
|
(4,796)
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|
|
$
|
33
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|
|
$
|
(7,710)
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|
Our total contract assets, net and deferred revenue were as follows as of December 31, 2020 and June 30, 2020:
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|
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|
|
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|
|
|
December 31,
2020
|
|
June 30,
2020
|
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(Dollars in Thousands)
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Contract assets, net
|
$
|
729,222
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|
|
$
|
610,473
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|
Deferred revenue
|
(61,106)
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|
|
(57,081)
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|
|
$
|
668,116
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|
|
$
|
553,392
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|
Contract assets and deferred revenue are presented net at the contract level for each reporting period.
The change in deferred revenue in the six months ended December 31, 2020 was primarily due to an increase in new billings in advance of revenue recognition, partially offset by $25.2 million of revenue recognized that was included in deferred revenue as of June 30, 2020.
Contract Costs
We pay commissions for new product sales as well as for renewals of existing contracts. Commissions paid to obtain renewal contracts are not commensurate with the commissions paid for new product sales and therefore, a portion of the commissions paid for new contracts relate to future renewals.
We account for new product sales commissions using a portfolio approach and allocate the cost of commissions in proportion to the allocation of transaction price of license and maintenance performance obligations, including assumed renewals. Commissions allocated to the license and license renewal components are expensed at the time the license revenue is recognized. Commissions allocated to maintenance are capitalized and amortized on a straight-line basis over a period of four years to eight years for new contracts, reflecting our estimate of the expected period that we will benefit from those commissions.
Amortization of capitalized contract costs is included in selling and marketing expenses in our statement of operations.
Transaction Price Allocated to Remaining Performance Obligations
The following table includes the aggregate amount of the transaction price allocated as of December 31, 2020 to the performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
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|
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Year Ended June 30,
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|
2021
|
|
2022
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|
2023
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2024
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2025
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Thereafter
|
|
(Dollars in Thousands)
|
License
|
$
|
60,919
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|
|
$
|
21,414
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|
|
$
|
10,583
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|
|
$
|
4,019
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|
|
$
|
4,653
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|
|
$
|
700
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|
Maintenance
|
90,190
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|
|
150,787
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|
|
115,109
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|
|
84,035
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|
|
53,523
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|
|
23,311
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|
Services and other
|
43,008
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|
|
3,998
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|
|
859
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|
|
390
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|
|
226
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|
|
197
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|
4. Leases
We have operating leases primarily for corporate offices, and other operating leases for data centers and certain equipment. We determine whether an arrangement is or contains a lease based on facts and circumstances present at the inception of the arrangement. We recognize lease expense on a straight-line basis over the lease term. Our leases have remaining lease terms of less than one year to approximately ten years, some of which include options to extend the leases for up to five years, and some of which include the option to terminate the leases upon advanced notice of 30 days or more. If we are reasonably certain we will exercise an option to extend or terminate the lease, the time period covered by the extension or termination option is included in the lease term.
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in the lease contracts is typically not readily determinable. As such, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as incentives received. We have lease agreements with lease and non-lease components, which are accounted for separately.
Operating lease costs are recognized on a straight-line basis over the term of the lease. The components of lease expenses for the three and six months ended December 31, 2020 and 2019 were as follows:
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|
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Three Months Ended
December 31,
|
|
Six Months Ended
December 31,
|
|
2020
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|
2019
|
|
2020
|
|
2019
|
|
(Dollars in Thousands)
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|
(Dollars in Thousands)
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Operating lease costs (1)
|
$
|
2,474
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|
|
$
|
2,293
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|
|
$
|
4,897
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|
|
$
|
4,476
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|
|
|
|
|
|
|
|
|
Total lease costs
|
$
|
2,474
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|
|
$
|
2,293
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|
|
$
|
4,897
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|
|
$
|
4,476
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|
________
(1) Operating lease costs include rent and fixed fees
The following table represents the weighted-average remaining lease term and discount rate information related to our operating leases as of December 31, 2020 and June 30, 2020:
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|
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|
|
|
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|
|
December 31,
2020
|
|
June 30,
2020
|
Weighted average remaining lease term
|
5.2 years
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|
5.7 years
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Weighted average discount rate
|
4.3
|
%
|
|
4.4
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%
|
The following table represents the maturities of our operating lease liabilities as of December 31, 2020 and June 30, 2020:
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|
|
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|
|
|
|
|
|
December 31,
2020
|
|
June 30,
2020
|
|
(Dollars in Thousands)
|
Year Ending June 30,
|
|
|
|
2021
|
$
|
3,752
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|
|
$
|
8,477
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|
2022
|
9,570
|
|
|
8,784
|
|
2023
|
8,823
|
|
|
8,167
|
|
2024
|
7,661
|
|
|
7,516
|
|
2025
|
5,567
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|
|
5,481
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|
Thereafter
|
7,720
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|
|
7,370
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|
Total lease payments
|
43,093
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|
|
45,795
|
|
Less: imputed interest
|
(5,109)
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|
|
(5,883)
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|
|
$
|
37,984
|
|
|
$
|
39,912
|
|
5. Fair Value
We determine fair value by utilizing a fair value hierarchy that ranks the quality and reliability of the information used in its determination. Fair values determined using “Level 1 inputs” utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Fair values determined using “Level 2 inputs” utilize data points that are observable, such as quoted prices, interest rates and yield curves for similar assets and liabilities.
Cash equivalents are reported at fair value utilizing quoted market prices in identical markets, or "Level 1 Inputs." Our cash equivalents consist of short-term money market instruments.
Equity method investments are reported at fair value calculated in accordance with the market approach, utilizing market consensus pricing models with quoted prices that are directly or indirectly observable, or "Level 2 Inputs."
The following table summarizes financial assets and liabilities measured and recorded at fair value on a recurring basis in the accompanying consolidated balance sheets as of December 31, 2020 and June 30, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
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|
|
|
|
|
|
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)
|
December 31, 2020:
|
|
|
|
Cash equivalents
|
$
|
1,020
|
|
|
$
|
—
|
|
Equity method investments
|
—
|
|
|
548
|
|
June 30, 2020:
|
|
|
|
Cash equivalents
|
$
|
1,020
|
|
|
$
|
—
|
|
Equity method investments
|
—
|
|
|
342
|
|
Financial instruments not measured or recorded at fair value in the accompanying consolidated financial statements consist of accounts receivable, accounts payable and accrued liabilities. The estimated fair value of these financial instruments approximates their carrying value. The estimated fair value of the borrowings under the Amended and Restated Credit Agreement (described below in Note 12, "Credit Agreement") approximates its carrying value due to the floating interest rate.
6. Accounts Receivable, Net
Our accounts receivable, net of the related allowance for doubtful accounts, were as follows as of December 31, 2020 and June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
June 30,
2020
|
|
(Dollars in Thousands)
|
Accounts receivable, gross
|
$
|
55,596
|
|
|
$
|
62,925
|
|
Allowance for doubtful accounts
|
(9,248)
|
|
|
(6,624)
|
|
Accounts receivable, net
|
$
|
46,348
|
|
|
$
|
56,301
|
|
As of December 31, 2020 and June 30, 2020, we had no customer receivable balances that individually represented 10% or more of our net accounts receivable.
7. Property and Equipment
Property, equipment and leasehold improvements consisted of the following as of December 31, 2020 and June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
June 30,
2020
|
|
(Dollars in Thousands)
|
Property, equipment and leasehold improvements, at cost:
|
|
|
|
Computer equipment
|
$
|
7,424
|
|
|
$
|
6,958
|
|
Purchased software
|
22,544
|
|
|
22,534
|
|
Furniture & fixtures
|
7,106
|
|
|
6,971
|
|
Leasehold improvements
|
12,672
|
|
|
12,424
|
|
Property, equipment and leasehold improvements, at cost
|
49,746
|
|
|
48,887
|
|
Accumulated depreciation
|
(43,998)
|
|
|
(42,924)
|
|
Property, equipment and leasehold improvements, net
|
$
|
5,748
|
|
|
$
|
5,963
|
|
8. Acquisitions
Camo Analytics AS
On November 17, 2020, we completed the acquisition of substantially all the outstanding shares of Camo Analytics AS (“Camo”), a leading provider of industrial analytics, for a total cash consideration of $12.8 million. The purchase price consisted of $10.1 million of cash paid at closing, $0.3 million to be paid for the remaining undelivered shares as of the closing date, and $2.4 million to be held back as security for certain representations, warranties, and obligations of the sellers. The holdback amounts are recorded in accrued expenses and other current liabilities in our consolidated balance sheet.
An allocation of the purchase price is as follows:
|
|
|
|
|
|
|
Amount
|
|
(Dollars in Thousands)
|
Tangible assets acquired, net
|
$
|
637
|
|
Identifiable intangible assets:
|
|
Technology-related
|
2,555
|
|
Customer relationships
|
1,916
|
|
Goodwill
|
7,668
|
|
|
|
Total assets acquired, net
|
$
|
12,776
|
|
The amounts above represent the preliminary fair value estimates as of December 31, 2020 and are subject to subsequent adjustment as we obtain additional information during the measurement period and finalize our fair value estimates. The goodwill reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling Camo products and services to our existing customers and is reported under the subscription and software reporting unit. The results of operations of Camo have been included prospectively in our results of operations since the date of acquisition.
OptiPlant, Inc.
On December 8, 2020, we completed the acquisition of all the outstanding shares of OptiPlant, Inc. (“OptiPlant”), a leading provider of AI Driven 3D Conceptual Design and Engineering Automation software, for a total cash consideration of $8.3 million. The purchase price consisted of $6.8 million of cash paid at closing, $0.3 million to be held back for working capital adjustments, and $1.2 million to be held back as security for certain representations, warranties, and obligations of the sellers. The holdback amounts are recorded in accrued expenses and other current liabilities and other non-current liabilities, respectively, in our consolidated balance sheet.
An allocation of the purchase price is as follows:
|
|
|
|
|
|
|
Amount
|
|
(Dollars in Thousands)
|
Tangible assets acquired, net
|
$
|
45
|
|
Identifiable intangible assets:
|
|
Technology-related
|
1,485
|
|
Customer relationships
|
990
|
|
Goodwill
|
6,275
|
|
Deferred tax liabilities
|
(545)
|
|
Total assets acquired, net
|
$
|
8,250
|
|
The amounts above represent the preliminary fair value estimates as of December 31, 2020 and are subject to subsequent adjustment as we obtain additional information during the measurement period and finalize our fair value estimates. The goodwill reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling OptiPlant products and services to our existing customers and is reported under the subscription and software reporting unit. The results of operations of OptiPlant have been included prospectively in our results of operations since the date of acquisition.
9. Intangible Assets
We include in our amortizable intangible assets those intangible assets acquired in our business and asset acquisitions. We amortize acquired intangible assets with finite lives over their estimated economic lives, generally using the straight-line method. Each period, we evaluate the estimated remaining useful lives of acquired intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. Acquired intangibles are removed from the accounts when fully amortized and no longer in use.
Intangible assets consisted of the following as of December 31, 2020 and June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Effect of Currency Translation
|
|
Net Carrying Amount
|
|
(Dollars in Thousands)
|
December 31, 2020:
|
|
|
|
|
|
|
|
Technology
|
$
|
55,309
|
|
|
$
|
(16,182)
|
|
|
$
|
636
|
|
|
$
|
39,763
|
|
Customer relationships
|
12,054
|
|
|
(3,847)
|
|
|
253
|
|
|
8,460
|
|
Non-compete agreements
|
553
|
|
|
(553)
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
67,916
|
|
|
$
|
(20,582)
|
|
|
$
|
889
|
|
|
$
|
48,223
|
|
June 30, 2020:
|
|
|
|
|
|
|
|
Technology
|
$
|
51,269
|
|
|
$
|
(13,245)
|
|
|
$
|
(842)
|
|
|
$
|
37,182
|
|
Customer relationships
|
9,148
|
|
|
(3,171)
|
|
|
(308)
|
|
|
5,669
|
|
Non-compete agreements
|
553
|
|
|
(553)
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
60,970
|
|
|
$
|
(16,969)
|
|
|
$
|
(1,150)
|
|
|
$
|
42,851
|
|
Total amortization expense related to intangible assets is included in cost of license revenue and operating expenses and amounted to approximately $1.9 million and $1.7 million during the three months ended December 31, 2020 and 2019, respectively, and $3.6 million and $2.9 million during the six months ended December 31, 2020 and 2019, respectively.
Future amortization expense as of December 31, 2020 is expected to be as follows:
|
|
|
|
|
|
Year Ended June 30,
|
Amortization Expense
|
|
(Dollars in Thousands)
|
2021
|
$
|
4,057
|
|
2022
|
8,173
|
|
2023
|
8,154
|
|
2024
|
7,608
|
|
2025
|
7,521
|
|
Thereafter
|
12,710
|
|
Total
|
$
|
48,223
|
|
10. Goodwill
The changes in the carrying amount of goodwill for our subscription and software reporting unit during the three months ended December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Impairment Losses
|
|
Effect of Currency Translation
|
|
Net Carrying Amount
|
|
(Dollars in Thousands)
|
June 30, 2020:
|
$
|
207,850
|
|
|
$
|
(65,569)
|
|
|
$
|
(5,226)
|
|
|
$
|
137,055
|
|
Goodwill from acquisitions
|
13,453
|
|
|
—
|
|
|
—
|
|
|
13,453
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
7,289
|
|
|
7,289
|
|
December 31, 2020:
|
$
|
221,303
|
|
|
$
|
(65,569)
|
|
|
$
|
2,063
|
|
|
$
|
157,797
|
|
We test goodwill for impairment annually (or more often if impairment indicators arise), at the reporting unit level. We first assess qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine based on this assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform the goodwill impairment test. The first step requires us to determine the fair value of the reporting unit and compare it to the carrying amount, including goodwill, of such reporting unit. If the fair value exceeds the carrying amount, no impairment loss is recognized. However, if the carrying amount of the reporting unit exceeds its fair value, the goodwill of the unit is impaired.
Fair value of a reporting unit is determined using a combined weighted average of a market-based approach (utilizing fair value multiples of comparable publicly traded companies) and an income-based approach (utilizing discounted projected cash flows). In applying the income-based approach, we would be required to make assumptions about the amount and timing of future expected cash flows, growth rates and appropriate discount rates. The amount and timing of future cash flows would be based on our most recent long-term financial projections. The discount rate we would utilize would be determined using estimates of market participant risk-adjusted weighted-average costs of capital and reflect the risks associated with achieving future cash flows.
We have elected December 31st as the annual impairment assessment date. We performed our annual impairment test for the subscription and software reporting unit as of December 31, 2020 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.
11. Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consisted of the following as of December 31, 2020 and June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
June 30,
2020
|
|
(Dollars in Thousands)
|
Compensation-related
|
$
|
19,963
|
|
|
$
|
27,591
|
|
Deferred acquisition payments
|
4,610
|
|
|
1,479
|
|
Uncertain tax positions
|
331
|
|
|
318
|
|
Royalties and external commissions
|
3,569
|
|
|
3,359
|
|
|
|
|
|
Professional fees
|
3,651
|
|
|
2,115
|
|
|
|
|
|
Other
|
8,106
|
|
|
8,694
|
|
Total accrued expenses and other current liabilities
|
$
|
40,230
|
|
|
$
|
43,556
|
|
Other non-current liabilities consisted of the following as of December 31, 2020 and June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
June 30,
2020
|
|
(Dollars in Thousands)
|
|
|
|
|
Uncertain tax positions
|
$
|
2,426
|
|
|
$
|
2,027
|
|
Deferred acquisition payments
|
1,200
|
|
|
—
|
|
Asset retirement obligations
|
954
|
|
|
920
|
|
Other
|
131
|
|
|
160
|
|
Total other non-current liabilities
|
$
|
4,711
|
|
|
$
|
3,107
|
|
12. Credit Agreement
In December 2019, we entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, joint lead arranger and joint bookrunner, Silicon Valley Bank, as joint lead arranger, joint bookrunner and syndication agent, and the lenders and co-documentation agents named therein (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement, which amends and restates the Credit Agreement we entered into as of February 26, 2016, provides for a $200.0 million secured revolving credit facility and a $320.0 million secured term loan facility.
Principal outstanding under the Amended and Restated Credit Agreement bears interest at a rate per annum equal to, at our option, either: (1) the sum of (a) the highest of (i) the rate of interest last quoted by The Wall Street Journal in the United States as the prime rate in effect, (ii) the NYFRB Rate (as defined in the Amended and Restated Credit Agreement) plus 0.5%, and (iii) the LIBO rate (as defined in the Amended and Restated Credit Agreement) multiplied by the Statutory Reserve Rate (as defined in the Amended and Restated Credit Agreement) plus 1.0%, plus (b) a margin initially of 0.5% for the first full fiscal quarter ending after the date of the Amended and Restated Credit Agreement and thereafter based on our leverage ratio (as defined in the Amended and Restated Credit Agreement); or (2) the sum of (a) the LIBO rate multiplied by the Statutory Reserve Rate, plus (b) a margin initially of 1.5% for the first full fiscal quarter ending after the date of the Amended and Restated Credit Agreement and thereafter based on our leverage ratio. The interest rates as of December 31, 2020 were 1.65% on $304.0 million in outstanding borrowings on our term loan facility.
All borrowings under the Amended and Restated Credit Agreement are secured by liens on substantially all of our assets and the assets of our subsidiary AspenTech Canada Holdings, LLC, which has guaranteed our obligations under the Amended and Restated Credit Agreement. Additional significant subsidiaries (as determined in the Amended and Restated Credit Agreement) may be required to guarantee our obligations and to grant liens on their assets in favor of the lenders.
As of December 31, 2020, our current borrowings of $16.0 million consist of the term loan facility. Our non-current borrowings of $284.8 million consist of $288.0 million of our term loan facility, net of $3.2 million in debt issuance costs. We had current borrowings of $135.2 million and non-current borrowings of $292.4 million as of June 30, 2020.
The indebtedness under the revolving credit facility matures on December 23, 2024. The following table summarizes the maturities of the term loan facility:
|
|
|
|
|
|
Year Ended June 30,
|
Amount
|
|
(Dollars in Thousands)
|
2021
|
$
|
8,000
|
|
2022
|
20,000
|
|
2023
|
28,000
|
|
2024
|
36,000
|
|
2025
|
212,000
|
|
|
|
Total
|
$
|
304,000
|
|
The Amended and Restated Credit Agreement contains affirmative and negative covenants customary for facilities of this type, including restrictions on incurrence of additional debt, liens, fundamental changes, asset sales, restricted payments and transactions with affiliates. There are also financial covenants regarding maintenance as of the end of each fiscal quarter, commencing with the quarter ending December 31, 2020, of a maximum leverage ratio of 3.50 to 1.00 and a minimum interest coverage ratio of 2.50 to 1.00. As of December 31, 2020, we were in compliance with these covenants.
13. Stock-Based Compensation
Stock Compensation Accounting
The weighted average estimated fair value of option awards granted was $37.30 and $27.85 during the three months ended December 31, 2020 and 2019, respectively, and $38.11 and $33.11 during the six months ended December 31, 2020 and 2019, respectively.
We utilized the Black-Scholes option valuation model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
December 31,
|
|
2020
|
|
2019
|
Risk-free interest rate
|
0.3
|
%
|
|
1.5
|
%
|
Expected dividend yield
|
0.0
|
%
|
|
0.0
|
%
|
Expected life (in years)
|
4.7
|
|
4.5
|
Expected volatility factor
|
34.2
|
%
|
|
26.8
|
%
|
The stock-based compensation expense under all equity plans and its classification in the unaudited consolidated statements of operations for the three and six months ended December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Six Months Ended
December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(Dollars in Thousands)
|
Recorded as expenses:
|
|
|
|
|
|
|
|
Cost of maintenance
|
$
|
122
|
|
|
$
|
362
|
|
|
$
|
438
|
|
|
$
|
761
|
|
Cost of services and other
|
351
|
|
|
484
|
|
|
801
|
|
|
1,027
|
|
Selling and marketing
|
1,612
|
|
|
1,209
|
|
|
2,856
|
|
|
2,756
|
|
Research and development
|
2,449
|
|
|
2,009
|
|
|
4,171
|
|
|
4,111
|
|
General and administrative
|
4,562
|
|
|
3,495
|
|
|
7,098
|
|
|
8,179
|
|
Total stock-based compensation
|
$
|
9,096
|
|
|
$
|
7,559
|
|
|
$
|
15,364
|
|
|
$
|
16,834
|
|
A summary of stock option and restricted stock unit ("RSU") activity under all equity plans for the six months ended December 31, 2020 is as follows: