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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
 
☒      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
☐         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                      
 
Commission file number: 001-34630
 
ASPEN TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware   04-2739697
(State or other jurisdiction of incorporation or
organization) 		  (I.R.S. Employer Identification No.)
20 Crosby Drive    
Bedford
Massachusetts   01730
(Address of principal executive offices)   (Zip Code)
(781) 221-6400
(Registrant’s telephone number, including area code)
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common stock, $0.10 par value per share AZPN NASDAQ Global Select Market
____________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ☐ No ý
As of April 21, 2021, there were 68,014,924 shares of the registrant’s common stock (par value $0.10 per share) outstanding.


TABLE OF CONTENTS
 
 
aspenONE is one of our registered trademarks. All other trade names, trademarks and service marks appearing in this Form 10-Q are the property of their respective owners.
 
Our fiscal year ends on June 30th, and references to a specific fiscal year are to the twelve months ended June 30th of such year (for example, “fiscal 2021” refers to the year ending June 30, 2021).
3
PART I - FINANCIAL INFORMATION
 
Item 1.    Financial Statements.
 
Consolidated Financial Statements (unaudited)
 
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
March 31, 		Nine Months Ended
March 31,
  2021 2020 2021 2020
  (Dollars in Thousands, Except per Share Data)
Revenue:        
License $ 110,104  $ 78,156  $ 352,133  $ 238,311 
Maintenance 45,885  44,199  139,561  132,418 
Services and other 6,737  8,233  19,721  26,048 
Total revenue 162,726  130,588  511,415  396,777 
Cost of revenue:    
License 2,485  1,881  6,859  5,550 
Maintenance 5,174  4,778  14,066  14,339 
Services and other 8,396  9,046  24,911  26,560 
Total cost of revenue 16,055  15,705  45,836  46,449 
Gross profit 146,671  114,883  465,579  350,328 
Operating expenses:    
Selling and marketing 30,345  28,354  82,092  86,046 
Research and development 25,874  23,576  70,576  68,694 
General and administrative 21,553  18,219  60,389  54,525 
Total operating expenses 77,772  70,149  213,057  209,265 
Income from operations 68,899  44,734  252,522  141,063 
Interest income 8,410  8,173  26,383  24,577 
Interest (expense) (1,495) (3,207) (5,639) (9,368)
Other (expense), net (5) (352) (1,807) (217)
Income before income taxes 75,809  49,348  271,459  156,055 
Provision for income taxes 13,314  7,522  47,101  20,914 
Net income $ 62,495  $ 41,826  $ 224,358  $ 135,141 
Net income per common share:    
Basic $ 0.92  $ 0.62  $ 3.31  $ 1.98 
Diluted $ 0.91  $ 0.61  $ 3.28  $ 1.96 
Weighted average shares outstanding:    
Basic 67,920  67,806  67,809  68,122 
Diluted 68,608  68,482  68,439  68,906 
 
See accompanying Notes to these unaudited consolidated financial statements.
4
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
March 31, 		Nine Months Ended
March 31,
  2021 2020 2021 2020
  (Dollars in Thousands)
Net income $ 62,495  $ 41,826  $ 224,358  $ 135,141 
Other comprehensive income (loss):    
Foreign currency translation adjustments 396  (8,265) 11,815  (7,628)
Total other comprehensive income (loss) 396  (8,265) 11,815  (7,628)
Comprehensive income $ 62,891  $ 33,561  $ 236,173  $ 127,513 
 
See accompanying Notes to these unaudited consolidated financial statements.
5
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
2021 		June 30,
2020
  (Dollars in Thousands, Except
Share Data)
ASSETS    
Current assets:  
Cash and cash equivalents $ 317,099  $ 287,796 
Accounts receivable, net 49,034  56,301 
Current contract assets, net 298,835  291,497 
Prepaid expenses and other current assets 9,762  10,884 
Prepaid income taxes 12,008  3,962 
Total current assets 686,738  650,440 
Property, equipment and leasehold improvements, net 5,506  5,963 
Computer software development costs, net 1,255  928 
Goodwill 158,182  137,055 
Intangible assets, net 45,996  42,851 
Non-current contract assets, net 409,010  318,976 
Contract costs 28,419  28,614 
Operating lease right-of-use assets 31,589  34,905 
Deferred tax assets 2,924  1,735 
Other non-current assets 3,042  1,839 
Total assets $ 1,372,661  $ 1,223,306 
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $ 3,563  $ 3,988 
Accrued expenses and other current liabilities 43,063  43,556 
Current operating lease liabilities 7,214  6,824 
Income taxes payable 76  1,799 
Current borrowings 18,000  135,163 
Current deferred revenue 54,730  43,168 
Total current liabilities 126,646  234,498 
Non-current deferred revenue 11,535  13,913 
Deferred tax liabilities 188,896  179,978 
Non-current operating lease liabilities 28,894  33,088 
Non-current borrowings, net 278,960  292,369 
Other non-current liabilities 4,842  3,107 
Commitments and contingencies (Note 17)
Series D redeemable convertible preferred stock, $0.10 par value—
Authorized— 367,000 shares as of March 31, 2021 and June 30, 2020
Issued and outstanding— none as of March 31, 2021 and June 30, 2020 		—  — 
Stockholders’ equity:    
Common stock, $0.10 par value— Authorized—210,000,000 shares
Issued— 104,283,957 shares at March 31, 2021 and 103,988,707 shares at June 30, 2020
Outstanding— 68,013,942 shares at March 31, 2021 and 67,718,692 shares at June 30, 2020 		10,429  10,399 
Additional paid-in capital 799,743  769,411 
Retained earnings 1,682,688  1,458,330 
Accumulated other comprehensive income (loss) 6,527  (5,288)
Treasury stock, at cost—36,270,015 shares of common stock at March 31, 2021 and 36,270,015 shares at June 30, 2020 (1,766,499) (1,766,499)
Total stockholders’ equity 732,888  466,353 
Total liabilities and stockholders’ equity $ 1,372,661  $ 1,223,306 
 
See accompanying Notes to these unaudited consolidated financial statements.
6
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity
Number of Shares $0.10 Par Value Number of Shares Cost
(Dollars in Thousands, Except Share Data)
Balance June 30, 2020 103,988,707  $ 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 stock 12,943  1  314  —  —  —  315 
Issuance of restricted stock units and net share settlement related to withholding taxes 26,265  3  (1,761) —  —  —  —  (1,758)
Stock-based compensation —  —  6,268  —  —  —  —  6,268 
Balance September 30, 2020 104,027,915  $ 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 stock 34,681  3  2,843  —  —  —  2,846 
Issuance of restricted stock units and net share settlement related to withholding taxes 37,236  4  (2,274) —  —  —  —  (2,270)
Stock-based compensation —  —  9,096  —  —  —  —  9,096 
Balance December 31, 2020 104,099,832  $ 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 stock 148,541  15  9,233  —  —  —  9,248 
Issuance of restricted stock units and net share settlement related to withholding taxes 35,584  4  (2,612) —  —  —  —  (2,608)
Stock-based compensation —  —  9,225  —  —  —  —  9,225 
Balance March 31, 2021 104,283,957  $ 10,429  $ 799,743  $ 1,682,688  $ 6,527  36,270,015  $ (1,766,499) $ 732,888 


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Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity
Number of Shares $0.10 Par Value Number of Shares Cost
(Dollars in Thousands, Except Share Data)
Balance June 30, 2019 103,642,292  $ 10,365  $ 739,099  $ 1,228,659  $ 336  35,017,726  $ (1,616,499) $ 361,960 
Comprehensive income:
Net income —  —  —  53,514  —  —  —  53,514 
Other comprehensive (loss) —  —  —  —  (3,102) (3,102)
Issuance of shares of common stock 17,783  2  933  —  —  —  935 
Issuance of restricted stock units and net share settlement related to withholding taxes 57,451  5  (3,399) —  —  —  —  (3,394)
Repurchase of common stock —  —  —  —  —  382,279  (50,000) (50,000)
Stock-based compensation —  —  9,275  —  —  —  —  9,275 
Balance September 30, 2019 103,717,526  $ 10,372  $ 745,908  $ 1,282,173  $ (2,766) 35,400,005  $ (1,666,499) $ 369,188 
Comprehensive income:
Net income —  —  —  39,801  —  —  —  39,801 
Other comprehensive income —  —  —  —  3,739  3,739 
Issuance of shares of common stock 31,857  3  1,938  —  —  —  1,941 
Issuance of restricted stock units and net share settlement related to withholding taxes 39,155  4  (2,623) —  —  —  —  (2,619)
Repurchase of common stock —  —  —  —  —  418,019  (50,000) (50,000)
Stock-based compensation —  —  7,559  —  —  —  —  7,559 
Balance December 31, 2019 103,788,538  $ 10,379  $ 752,782  $ 1,321,974  $ 973  35,818,024  $ (1,716,499) $ 369,609 
Comprehensive income:
Net income —  —  —  41,826  —  —  —  41,826 
Other comprehensive (loss) —  —  —  —  (8,265) (8,265)
Issuance of shares of common stock 42,085  4  2,343  —  —  —  2,347 
Issuance of restricted stock units and net share settlement related to withholding taxes 38,281  4  (1,970) —  —  —  —  (1,966)
Repurchase of common stock —  —  —  —  —  451,991  (50,000) (50,000)
Stock-based compensation —  —  7,299  —  —  —  —  7,299 
Balance March 31, 2020 103,868,904  $ 10,387  $ 760,454  $ 1,363,800  $ (7,292) 36,270,015  $ (1,766,499) $ 360,850 

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,
  2021 2020
  (Dollars in Thousands)
Cash flows from operating activities:    
Net income $ 224,358  $ 135,141 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 7,545  7,028 
Reduction in the carrying amount of right-of-use assets 7,037  6,518 
Net foreign currency losses 2,027  183 
Stock-based compensation 24,589  24,133 
Deferred income taxes 7,029  (1,516)
Provision for bad debts 6,800  3,391 
Other non-cash operating activities 718  423 
Changes in assets and liabilities:    
Accounts receivable 4,115  (16,428)
Contract assets, net (103,538) 2,329 
Contract costs 198  (1,522)
Lease liabilities (7,533) (6,840)
Prepaid expenses, prepaid income taxes, and other assets (6,959) (2,201)
Accounts payable, accrued expenses, income taxes payable and other liabilities (6,847) (20,752)
Deferred revenue 13,410  13,701 
Net cash provided by operating activities 172,949  143,588 
Cash flows from investing activities:    
Purchases of property, equipment and leasehold improvements (733) (1,111)
Payments for business acquisitions, net of cash acquired (16,272) (74,460)
Payments for equity method investments (926) (319)
Payments for capitalized computer software development costs (895) (141)
Net cash used in investing activities (18,826) (76,031)
Cash flows from financing activities:    
Issuance of shares of common stock 12,508  5,364 
Repurchases of common stock —  (150,621)
Payments of tax withholding obligations related to restricted stock (6,719) (8,246)
Deferred business acquisition payments —  (4,600)
Proceeds from revolving credit facility, net of repayments (119,182) 219,163 
Repayments of amounts borrowed under term loan (12,000) (4,000)
Payments of debt issuance costs —  (3,533)
Net cash provided by (used in) financing activities (125,393) 53,527 
Effect of exchange rate changes on cash and cash equivalents 573  (838)
Increase in cash and cash equivalents 29,303  120,246 
Cash and cash equivalents, beginning of period 287,796  71,926 
Cash and cash equivalents, end of period $ 317,099  $ 192,172 
Supplemental disclosure of cash flow information:    
Income taxes paid, net $ 49,349  $ 26,359 
Interest paid 5,672  8,246 
Supplemental disclosure of non-cash activities:
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses $ 77  $ (89)
Change in repurchases of common stock included in accounts payable and accrued expenses —  (621)
Lease liabilities arising from obtaining right-of-use assets 1,488  11,626 
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. 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 nine months ended March 31, 2021 are not necessarily indicative of the results to be expected for the subsequent quarter or for the full fiscal year.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
Unless the context requires otherwise, references to we, our and us refer to Aspen Technology, Inc. and its subsidiaries.
 
2.  Significant Accounting Policies
 
(a)         Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of Aspen Technology, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

(b)         Significant Accounting Policies 

Our significant accounting policies are described in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 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 nine months ended March 31, 2021.
 
(c)  Loss Contingencies
 
We accrue estimated liabilities for loss contingencies arising from claims, assessments, litigation and other sources when it is probable that a liability has been incurred and the amount of the claim, assessment or damages can be reasonably estimated. We believe that we have sufficient accruals to cover any obligations resulting from claims, assessments or litigation that have met these criteria.

(d)         Foreign Currency Transactions
 
Foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our subsidiaries are recognized in our results of operations as incurred as a component of other (expense), net. Net foreign currency exchange (losses) gains were $0.1 million and $(0.3) million during the three months ended March 31, 2021 and 2020, respectively, and $(2.0) million and $(0.2) million during the nine months ended March 31, 2021 and 2020, respectively.

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(e)    Research and Development Expense
We charge research and development expenditures to expense as the costs are incurred. Research and development expenses consist primarily of personnel expenses related to the creation of new products, enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technological feasibility. There was 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, 2021 and 2020, respectively, and $0.7 million and less than $0.1 million during the nine months ended March 31, 2021 and 2020, 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, 2021, the fair value of this investment is $1.2 million CAD ($1.5 million), representing our payment towards the total commitment, and is recorded in non-current assets in our consolidated balance sheet.

(g)          New Accounting Pronouncements Adopted in Fiscal 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.

(h)          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 of this standard update is permitted and the impact it will have to our consolidated financial statements is not expected to be material. 





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3.   Revenue from Contracts with Customers

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

Nature of Products and Services

We generate revenue from the following sources: (1) License revenue; (2) Maintenance revenue; and (3) Services and other revenue. We sell our software products to end users primarily under fixed-term licenses. We license our software products primarily through a subscription offering which we refer to as our aspenONE licensing model, which includes software maintenance and support, known as our Premier Plus SMS offering, for the entire term. Our aspenONE products are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management. 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.

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Services and Other Revenue

Professional Services Revenue

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

Training Revenue

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

Contracts with Multiple Performance Obligations

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

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

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

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

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

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

Other policies and judgments

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

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

Disaggregation of Revenue

We disaggregate our revenue by region, type of performance obligation, and segment as follows:

  Three Months Ended
March 31, 		Nine Months Ended
March 31,
  2021 2020 2021 2020
(Dollars in Thousands)
Revenue by region:
North America $ 66,786  $ 58,826  $ 225,620  $ 170,643 
Europe 47,581  27,331  158,771  98,077 
Other (1) 48,359  44,431  127,024  128,057 
$ 162,726  $ 130,588  $ 511,415  $ 396,777 
Revenue by type of performance obligation:
Term licenses $ 110,104  $ 78,156  $ 352,133  $ 238,311 
Maintenance 45,885  44,199  139,561  132,418 
Professional services and other 6,737  8,233  19,721  26,048 
$ 162,726  $ 130,588  $ 511,415  $ 396,777 
Revenue by segment:
Subscription and software $ 155,989  $ 122,355  $ 491,694  $ 370,729 
Services and other 6,737  8,233  19,721  26,048 
$ 162,726  $ 130,588  $ 511,415  $ 396,777 
____________________________________________
(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
14
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 nine months ended March 31, 2021:
June 30, 2020 Provision Write-Offs, Recoveries, and Billings March 31, 2021
(Dollars in Thousands)
$ (2,947) $ (7,091) $ 4,812  $ (5,226)

Our total contract assets, net and deferred revenue were as follows as of March 31, 2021 and June 30, 2020:
March 31,
2021 		June 30,
2020
(Dollars in Thousands)
Contract assets, net $ 707,845  $ 610,473 
Deferred revenue (66,265) (57,081)
$ 641,580  $ 553,392 

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, 2021 was primarily due to an increase in new billings in advance of revenue recognition, partially offset by $33.8 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 March 31, 2021 to the performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
Year Ended June 30,
2021 2022 2023 2024 2025 Thereafter
(Dollars in Thousands)
License $ 40,583  $ 24,011  $ 12,507  $ 5,338  $ 4,837  $ 1,314 
Maintenance 46,934  161,498  124,719  92,787  60,672  28,175 
Services and other 38,717  8,200  968  491  301  261 
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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 nine months ended March 31, 2021 and 2020 were as follows:
Three Months Ended
March 31, 		Nine Months Ended
March 31,
2021 2020 2021 2020
  (Dollars in Thousands) (Dollars in Thousands)
Operating lease costs (1)
$ 2,514  $ 2,443  $ 7,411  $ 7,012 
Total lease costs $ 2,514  $ 2,443  $ 7,411  $ 7,012 
________
(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 March 31, 2021 and June 30, 2020:
  March 31,
2021 		June 30,
2020
Weighted average remaining lease term 5.1 years 5.7 years
Weighted average discount rate 4.3  % 4.4  %

The following table represents the maturities of our operating lease liabilities as of March 31, 2021 and June 30, 2020:
March 31,
2021 		June 30,
2020
(Dollars in Thousands)
Year Ending June 30,
2021 $ 1,462  $ 8,477 
2022 9,597  8,784 
2023 8,827  8,167 
2024 7,648  7,516 
2025 5,574  5,481 
Thereafter 7,767  7,370 
Total lease payments 40,875  45,795 
Less: imputed interest (4,767) (5,883)
$ 36,108  $ 39,912 

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

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

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

The following table summarizes financial assets and liabilities measured and recorded at fair value on a recurring basis in the accompanying consolidated balance sheets as of March 31, 2021 and June 30, 2020, 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, 2021:
Cash equivalents $ 1,020  $ — 
Equity method investments —  1,207 
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 March 31, 2021 and June 30, 2020:
 
  March 31,
2021 		June 30,
2020
  (Dollars in Thousands)
Accounts receivable, gross $ 56,922  $ 62,925 
Allowance for doubtful accounts (7,888) (6,624)
Accounts receivable, net $ 49,034  $ 56,301 

As of March 31, 2021 and June 30, 2020, we had no customer receivable balances that individually represented 10% or more of our net accounts receivable.

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7.  Property and Equipment

Property, equipment and leasehold improvements consisted of the following as of March 31, 2021 and June 30, 2020:
 
  March 31,
2021 		June 30,
2020
  (Dollars in Thousands)
Property, equipment and leasehold improvements, at cost:    
Computer equipment $ 7,163  $ 6,958 
Purchased software 22,617  22,534 
Furniture & fixtures 7,314  6,971 
Leasehold improvements 12,790  12,424 
Property, equipment and leasehold improvements, at cost 49,884  48,887 
Accumulated depreciation (44,378) (42,924)
Property, equipment and leasehold improvements, net $ 5,506  $ 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 $12.7 million. The purchase price consisted of $10.0 million of cash paid at closing, a subsequent working capital adjustment of $(0.1) million, $0.3 million to be paid for the remaining undelivered shares as of the closing date, and $2.4 million to be held back as security for certain representations, warranties, and obligations of the sellers. The holdback amounts are recorded in accrued expenses and other current liabilities in our consolidated balance sheet. As of March 31, 2021, $0.2 million has been subsequently paid for the remaining undelivered shares.
An allocation of the purchase price is as follows:
Amount
(Dollars in Thousands)
Tangible assets acquired, net $ 877 
Identifiable intangible assets:
Technology-related 2,533 
Customer relationships 1,900 
Goodwill 7,356 
Total assets acquired, net $ 12,666 

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

OptiPlant, Inc.
On December 8, 2020, we completed the acquisition of all the outstanding shares of OptiPlant, Inc. (“OptiPlant”), a leading provider of AI Driven 3D Conceptual Design and Engineering Automation software, for a total cash consideration of $8.2 million. The purchase price consisted of $6.8 million of cash paid at closing, $0.2 million to be held back for working capital adjustments, and $1.2 million to be held back as security for certain representations, warranties, and obligations of the sellers. The holdback amounts are recorded in other non-current liabilities in our consolidated balance sheet. The working capital adjustment holdback of $0.2 million was subsequently paid in March 2021.
An allocation of the purchase price is as follows:
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Amount
(Dollars in Thousands)
Tangible assets acquired, net $ 44 
Identifiable intangible assets:
Technology-related 1,485 
Customer relationships 990 
Goodwill 6,252 
Deferred tax liabilities (545)
Total assets acquired, net $ 8,226 
The goodwill reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling OptiPlant products and services to our existing customers and is reported under the subscription and software reporting unit.  The results of operations of OptiPlant have been included prospectively in our results of operations since the date of acquisition.
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 March 31, 2021 and June 30, 2020:
Gross Carrying Amount Accumulated Amortization Effect of Currency Translation Net Carrying Amount
(Dollars in Thousands)
March 31, 2021:
Technology $ 55,288  $ (17,786) $ 614  $ 38,116 
Customer relationships 12,038  (4,277) 119  7,880 
Non-compete agreements 553  (553) —  — 
Total $ 67,879  $ (22,616) $ 733  $ 45,996 
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 (for technology) and general and administrative expense (for customer relationships and non-compete agreements) and amounted to approximately $2.1 million and $1.9 million during the three months ended March 31, 2021 and 2020, respectively, and $5.7 million and $4.7 million during the nine months ended March 31, 2021 and 2020, respectively.
Future amortization expense as of March 31, 2021 is expected to be as follows:
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Year Ended June 30, Amortization Expense
  (Dollars in Thousands)
2021 $ 2,005 
2022 8,137 
2023 8,118 
2024 7,575 
2025 7,490 
Thereafter 12,671 
Total $ 45,996 

10. Goodwill
 
The changes in the carrying amount of goodwill for our subscription and software reporting unit during the three months ended March 31, 2021 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 13,608  —  —  13,608 
Foreign currency translation —  —  7,519  7,519 
March 31, 2021: $ 221,458  $ (65,569) $ 2,293  $ 158,182 

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.

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11. Accrued Expenses and Other Liabilities

Accrued expenses and other current liabilities consisted of the following as of March 31, 2021 and June 30, 2020:
 
  March 31,
2021 		June 30,
2020
  (Dollars in Thousands)
Compensation-related $ 23,800  $ 27,591 
Deferred acquisition payments 4,050  1,479 
Uncertain tax positions 331  318 
Royalties and external commissions 3,952  3,359 
Professional fees 3,041  2,115 
Other 7,889  8,694 
Total accrued expenses and other current liabilities $ 43,063  $ 43,556 

Other non-current liabilities consisted of the following as of March 31, 2021 and June 30, 2020:
 
  March 31,
2021 		June 30,
2020
  (Dollars in Thousands)
Uncertain tax positions $ 2,425  $ 2,027 
Deferred acquisition payments 1,200  — 
Asset retirement obligations 944  920 
Other 273  160 
Total other non-current liabilities $ 4,842  $ 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 rate as of March 31, 2021 was 1.61% on $300.0 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 March 31, 2021, our current borrowings of $18.0 million consist of the term loan facility. Our non-current borrowings of $279.0 million consist of $282.0 million of our term loan facility, net of $3.0 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.

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The indebtedness under the revolving credit facility matures on December 23, 2024. The following table summarizes the maturities of the term loan facility:

Year Ended June 30, Amount
  (Dollars in Thousands)
2021 $ 4,000 
2022 20,000 
2023 28,000 
2024 36,000 
2025 212,000 
Total $ 300,000 

The Amended and Restated Credit Agreement contains affirmative and negative covenants customary for facilities of this type, including restrictions on incurrence of additional debt, liens, fundamental changes, asset sales, restricted payments and transactions with affiliates. There are also financial covenants regarding maintenance as of the end of each fiscal quarter, commencing with the quarter ending March 31, 2021, 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 March 31, 2021, 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 $45.63 and $37.54 during the three months ended March 31, 2021 and 2020, respectively, and $38.76 and $33.15 during the nine months ended March 31, 2021 and 2020, respectively.
 
We utilized the Black-Scholes option valuation model with the following weighted average assumptions:
 
Nine Months Ended
March 31,
  2021 2020
Risk-free interest rate 0.4  % 1.5  %
Expected dividend yield 0.0  % 0.0  %
Expected life (in years) 4.7 4.5
Expected volatility factor 34.1  % 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 nine months ended March 31, 2021 and 2020 are as follows:
 
Three Months Ended
March 31, 		Nine Months Ended
March 31,
  2021 2020 2021 2020
  (Dollars in Thousands)
Recorded as expenses:        
Cost of maintenance $ 234  $ 343  $ 688  $ 1,104 
Cost of services and other 412  450  1,198  1,477 
Selling and marketing 1,869  1,472  4,655  4,228 
Research and development 2,273  2,082  6,515  6,193 
General and administrative 4,437  2,952  11,533  11,131 
Total stock-based compensation $ 9,225  $ 7,299  $ 24,589  $ 24,133 

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A summary of stock option and restricted stock unit ("RSU") activity under all equity plans for the nine months ended March 31, 2021 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, 2020 1,410,139  $ 76.19  6.67 $ 49,705  352,921  $ 112.45 
Granted 322,472  131.40      245,023  130.63 
Settled (RSUs) —        (148,386) 105.13 
Exercised (Stock options) (187,113) 62.05      —   
Cancelled / Forfeited (36,779) 115.82      (33,060) 115.97 
Outstanding at March 31, 2021 1,508,719  $ 88.77  6.67 $ 83,915  416,498  $ 125.49 
Vested and exercisable at March 31, 2021 969,700  $ 67.80  5.43 $ 74,212   
Vested and expected to vest as of March 31, 2021 1,451,661  $ 87.34  6.58 $ 82,837  365,640  $ 125.51 
 
As of March 31, 2021, common stock reserved for future issuance under equity compensation plans was 5.5 million shares.

Employee Stock Purchase Plan

On July 26, 2018, our Board of Directors approved the Aspen Technology, Inc. 2018 Employee Stock Purchase Plan (the "ESPP"), which provides for the issuance of up to 250,000 shares of common stock to participating employees. The ESPP is intended to be a qualified employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986 (the "IRC").  The ESPP was approved at our Annual Meeting of Stockholders on December 7, 2018.  The ESPP currently provides for a purchase price equal to 85% of the lower of (a) the fair market value of the common stock on the first trading day of each ESPP offering period and (b) the fair market value of the common stock on the last day of the offering period. Our initial offering period was January 1, 2019 through June 30, 2019, and our current offering period is January 1, 2021 through June 30, 2021.

We recorded stock-based compensation expense associated with the ESPP of $0.2 million and $0.2 million during the three months ended March 31, 2021 and 2020, respectively, and $0.5 million and $0.4 million during the nine months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there were 208,687 shares of common stock available for issuance under the ESPP.

 
14.  Stockholders’ Equity
 
Stock Repurchases

On January 22, 2015, our Board of Directors approved a share repurchase program (the "Share Repurchase Program") for up to $450.0 million of our common stock. The Share Repurchase Program was announced on January 28, 2015, and expires at the end of each fiscal year unless extended. On April 26, 2016, June 8, 2017, April 18, 2018, December 6, 2018, and April 17, 2019, the Board of Directors approved a $400.0 million, $200.0 million, $200.0 million, $100.0 million, and $200.0 million increase in the Share Repurchase Program, respectively. On July 22, 2020, our Board of Directors approved a new share repurchase program (the "New Share Repurchase Program") for up to $200.0 million of our common stock, and terminated the Share Repurchase Program. The timing and amount of any shares repurchased are based on market conditions and other factors. All shares of our common stock repurchased have been recorded as treasury stock under the cost method.

No shares of our common stock were repurchased in the open market under the New Share Repurchase Program during the three and nine months ended March 31, 2021. 451,991 and 1,252,289 shares of our common stock were repurchased in the open market for $50.0 million and $150.0 million under the Share Repurchase Program during the three and nine months ended March 31, 2020, respectively. As of March 31, 2021, the total remaining value under the New Share Repurchase Program was approximately $200.0 million.

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Accumulated Other Comprehensive Income (Loss)
 
As of March 31, 2021 and June 30, 2020, accumulated other comprehensive income (loss) was comprised of foreign currency translation adjustments of $6.5 million and $(5.3) million, respectively.
 
15.  Net Income Per Share
 
Basic income per share is determined by dividing net income by the weighted average common shares outstanding during the period. Diluted income per share is determined by dividing net income by diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect the dilutive effect, if any, of potential common shares. To the extent their effect is dilutive, employee equity awards and other commitments to be settled in common stock are included in the calculation of diluted net income per share based on the treasury stock method.
 
The calculations of basic and diluted net income per share and basic and dilutive weighted average shares outstanding for the three and nine months ended March 31, 2021 and 2020 are as follows:
 
Three Months Ended
March 31, 		Nine Months Ended
March 31,
  2021 2020 2021 2020
  (Dollars and Shares in Thousands, Except per Share Data)
Net income $ 62,495  $ 41,826  $ 224,358  $ 135,141 
Weighted average shares outstanding 67,920  67,806  67,809  68,122 
Dilutive impact from:        
Employee equity awards 688  676  630  784 
Dilutive weighted average shares outstanding 68,608  68,482  68,439  68,906 
Income per share        
Basic $ 0.92  $ 0.62  $ 3.31  $ 1.98 
Dilutive $ 0.91  $ 0.61  $ 3.28  $ 1.96 
 
For the three and nine months ended March 31, 2021 and 2020, 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 March 31, 2021 and 2020:
 
Three Months Ended
March 31, 		Nine Months Ended
March 31,
  2021 2020 2021 2020
  (Shares in Thousands)
Employee equity awards 507  688  869  678 

Included in the table above are options to purchase 23,943 and 567,676 shares of our common stock during the three and nine months ended March 31, 2021, which were not included in the computation of dilutive weighted average shares outstanding, because their exercise prices ranged from $129.70 per share to $151.33 per share, during the nine months ended March 31, 2021, and were greater than the average market price of our common stock during the period then ended. These options were outstanding as of March 31, 2021 and expire at various dates through March 29, 2031.

 
16.   Income Taxes
 
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, primarily the Foreign Derived Intangible Income (“FDII”) deduction.
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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 was 17.6% and 15.2% during the three months ended March 31, 2021 and 2020, respectively, and 17.3% and 13.4% during the nine months ended March 31, 2021 and 2020, respectively. Our effective tax rate was lower in the three months ended March 31, 2020 due to the higher FDII deduction taken last year compared to this year, and lower in the nine months ended March 31, 2020 as a result of the tax contingency reversal due to settling an IRS audit.

We recognized an income tax expense of $13.3 million and $7.5 million during the three months ended March 31, 2021 and 2020, respectively, and $47.1 million and $20.9 million during the nine months ended March 31, 2021 and 2020, respectively. Our income tax expense was driven primarily by pre-tax profitability in our domestic and foreign operations and the impact of permanent items. The permanent items are predominantly the FDII deduction, stock-based compensation expense and tax credits for research expenditures.

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.

 
17. Commitments and Contingencies
 
Standby letters of credit for $2.3 million and $3.5 million secured our performance on professional services contracts, certain facility leases and potential liabilities as of March 31, 2021 and June 30, 2020, respectively. The letters of credit expire at various dates through fiscal 2026.

18.  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, and includes our license and maintenance revenue. The services and other segment includes professional services and training, and includes our services and other revenue. We do not track assets or capital expenditures by operating segments. Consequently, it is not practical to present assets, capital expenditures, depreciation or amortization by operating segments.
 
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The following table presents a summary of our reportable segments’ profits:
 
  Subscription and Software Services and Other Total
  (Dollars in Thousands)
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 
Three Months Ended March 31, 2020      
Segment revenue $ 122,355  $ 8,233  $ 130,588 
Segment expenses (1) (58,589) (9,046) (67,635)
Segment profit (loss) $ 63,766  $ (813) $ 62,953 
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 
Nine Months Ended March 31, 2020      
Segment revenue $ 370,729  $ 26,048  $ 396,777 
Segment expenses (1) (174,629) (26,560) (201,189)
Segment profit (loss) $ 196,100  $ (512) $ 195,588 

(1)         Our reportable segments’ operating expenses include expenses directly attributable to the segments. Segment expenses include selling and marketing and research and development expenses. Segment expenses do not include allocations of general and administrative expense; interest income; interest expense; and other (expense) income, net.

Reconciliation to Income before Income Taxes
 
The following table presents a reconciliation of total segment profit to income before income taxes for the three and nine months ended March 31, 2021 and 2020:
 
Three Months Ended
March 31, 		Nine Months Ended
March 31,
  2021 2020 2021 2020
  (Dollars in Thousands)
Total segment profit for reportable segments $ 90,452  $ 62,953  $ 312,911  $ 195,588 
General and administrative expense (21,553) (18,219) (60,389) (54,525)
Interest income 8,410  8,173  26,383  24,577 
Interest (expense) (1,495) (3,207) (5,639) (9,368)
Other (expense), net (5) (352) (1,807) (217)
Income before income taxes $ 75,809  $ 49,348  $ 271,459  $ 156,055 


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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
You should read the following discussion in conjunction with our unaudited consolidated financial statements and related notes thereto contained in this report.  In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties.  You should 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 30th, 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 2021” refers to the year ending on June 30, 2021).

Business Overview 
We are a global leader in asset optimization software that optimizes asset design, operations and maintenance in complex, industrial environments. We combine decades of process modeling and operations expertise with big data, artificial intelligence, and advanced analytics. Our purpose-built software improves the competitiveness and profitability of our customers by increasing throughput, energy efficiency, and production levels, reducing unplanned downtime, plant emissions, and safety risks, enhancing capital efficiency, and decreasing working capital requirements over the entire asset lifecycle to support operational excellence.
Our software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domain expertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 35 years. We have developed our applications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain, and asset performance management. We are a recognized market and technology leader in providing process optimization and asset performance management software for each of these business areas.
We have established sustainable competitive advantages based on the following strengths:
•Innovative products that can enhance our customers' profitability and productivity;
•Long-term customer relationships;
•Large installed base of users of our software; and
•Long-term license contracts.
We have approximately 2,400 customers globally. Our customers consist of companies engaged in the process and other capital-intensive industries such as energy, chemicals, engineering and construction, as well as pharmaceuticals, food and beverage, transportation, power, metals and mining, pulp and paper, and consumer packaged goods.
Business Segments
We have two operating and reportable segments, which are consistent with our reporting units: (i) subscription and software and (ii) services and other. The subscription and software segment is engaged in the licensing of process optimization and asset performance management software solutions and associated support services, and includes our license and maintenance revenue. The services and other segment includes professional services and training, and includes our services and other revenue.
Recent Events
In December 2019, the novel SARS-CoV-2 virus and associated COVID-19 disease (“COVID-19”) were reported in China, and in March 2020 the World Health Organization declared a pandemic. Since the beginning of March 2020, the sudden decrease in demand for oil due to the COVID-19 pandemic, compounded by the excess supply arising from producers’ failure to agree on production cuts, resulted in a drop in oil prices. During the three and nine months ended March 31, 2021, our business was negatively impacted by these factors. Specifically, we saw a slowdown in closing customer contracts, a slight increase in our customer attrition rate due to non-renewals and renewals at lower entitlement level and, to a lesser extent, a slowdown in customer payments. We are continuing to assess the impact of these items on global markets and the various industries of our customers. The extent of the impact on our operational and financial performance going forward will depend on developments such as the duration and spread of the pandemic and other factors affecting oil prices, the impact of these items on our customers and our sales cycles, as well as on our employees, all of which are uncertain and cannot be predicted. We are continuing to monitor the potential impacts related to the current disruption of COVID-19 and uncertainty in the global
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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.
Key Components of Operations
Revenue
We generate revenue primarily from the following sources: 
License Revenue. We sell our software products to end users, primarily under fixed-term licenses, through a subscription offering which we refer to as our aspenONE licensing model. The aspenONE licensing model includes software maintenance and support, known as our Premier Plus SMS offering, for the entire term. Our aspenONE products are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management. The aspenONE licensing model provides customers with access to all of the products within the aspenONE suite(s) they license. Customers can change or alternate the use of multiple products in a licensed suite through the use of exchangeable units of measurement, called tokens, licensed in quantities determined by the customer. This licensing system enables customers to use products as needed and to experiment with different products to best solve whatever critical business challenges they face. Customers can increase their usage of our software by purchasing additional tokens as business needs evolve. 
We also license our software through point product arrangements with our Premier Plus SMS offering included for the contract term.
Maintenance Revenue. We provide customers technical support, access to software fixes and updates and the right to any new unspecified future software products and updates that may be introduced into the licensed aspenONE software suite. Our technical support services are provided from our customer support centers throughout the world, as well as via email and through our support website.
Services and Other Revenue. We provide training and professional services to our customers. Our professional services are focused on implementing our technology in order to improve customers' plant performance and gain better operational data. Customers who use our professional services typically engage us to provide those services over periods of up to 24 months. We charge customers for professional services on a time-and-materials or fixed-price basis. We provide training services to our customers, including on-site, Internet-based and customized training.
 Cost of Revenue
Cost of License. Our cost of license revenue consists of (i) royalties, (ii) amortization of capitalized software and intangibles, and (iii) distribution fees.
Cost of Maintenance. Our cost of maintenance revenue consists primarily of personnel-related costs of providing Premier Plus SMS bundled with our aspenONE licensing and point product arrangements.
Cost of Services and Other. Our cost of services and other revenue consists primarily of personnel-related and external consultant costs associated with providing customers professional services and training.
Operating Expenses
Selling and Marketing Expenses. Selling expenses consist primarily of the personnel and travel expenses related to the effort expended to license our products and services to current and potential customers, as well as for overall management of customer relationships. Marketing expenses include expenses needed to promote our company and our products and to conduct market research to help us better understand our customers and their business needs.
Research and Development Expenses. Research and development expenses consist primarily of personnel expenses related to the creation of new software products, enhancements and engineering changes to existing products.
General and Administrative Expenses. General and administrative expenses include the costs of corporate and support functions, such as executive leadership and administration groups, finance, legal, human resources and corporate communications, and other costs, such as outside professional and consultant fees, amortization of intangibles, and provision for bad debts. 
Other Income and Expenses
Interest Income. Interest income is recorded for financing components under Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("Topic 606"). When a contract includes a significant financing component, we generally receive the majority of the customer consideration after the recognition of a substantial portion of the
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arrangement fee as license revenue. As a result, we decrease the amount of revenue recognized and increase interest income by a corresponding amount. Interest income also includes the accretion of interest on investments in short-term money market instruments.
Interest Expense. Interest expense is primarily related to our Amended and Restated Credit Agreement.
Other (Expense), Net. Other (expense) income, net is comprised primarily of foreign currency exchange gains (losses) generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units.
Provision for Income Taxes. Provision for income taxes is comprised of domestic and foreign taxes. We record interest and penalties related to income tax matters as a component of income tax expense. Our effective income tax rate may fluctuate between fiscal years and from quarter to quarter due to items arising from discrete events, such as tax benefits from the disposition of employee equity awards, settlements of tax audits and assessments and tax law changes. Our effective income tax rate is also impacted by, and may fluctuate in any given period because of, the composition of income in foreign jurisdictions where tax rates differ.
 Key Business Metrics
Background
We utilize key business measures to track and assess the performance of our business. We have identified the following set of appropriate business metrics in the context of our evolving business:
 
•Annual spend

•Total contract value

•Bookings

We also use the following non-GAAP business metrics in addition to GAAP measures to track our business performance:

•Free cash flow

•Non-GAAP operating income

We make these measures available to investors and none of these metrics should be considered as an alternative to any measure of financial performance calculated in accordance with GAAP.
 
Annual Spend
 
Annual spend is an estimate of the annualized value of our portfolio of term license agreements, as of a specific date. Annual spend is calculated by summing the most recent annual invoice value of each of our active term license agreements. Annual spend also includes the annualized value of standalone SMS agreements purchased with certain legacy term license agreements, which have become an immaterial part of our business.

Comparing annual spend for different dates can provide insight into the growth and retention rates of our business, because annual spend represents the estimated annualized billings associated with our active term license agreements. Management utilizes the annual spend business metric to evaluate the growth and performance of our business as well as for planning and forecasting. In addition, our corporate and executive bonus programs are based in part on our success in meeting targets for growth in annual spend that are approved by our board. We believe that annual spend is a useful business metric to investors as it provides insight into the growth component of our term licenses and to how management evaluates and forecasts the business.

Annual spend increases as a result of new term license agreements with new or existing customers, renewals or modifications of existing term license agreements that result in higher license fees due to contractually-agreed price escalation or an increase in the number of tokens (units of software usage) or products licensed, and escalation of annual payments in our active term license agreements.
 
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Annual spend is adversely affected by term license and standalone SMS agreements that are renewed at a lower entitlement level or not renewed and, to a lesser extent, by customer agreements that become inactive during the agreement’s term because, in our determination, amounts due (or which will become due) under the agreement are not collectible. Because the annual spend calculation includes all of our active term license agreements, the reported balance may include agreements with customers that are delinquent in paying invoices, that are in bankruptcy proceedings, or where payment is otherwise in doubt.

As of March 31, 2021, approximately 87% of our term license agreements (by value) are 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 annual spend calculation the portion of the invoice allocable to the term license under Topic 606 rather than the portion of the invoice attributed to the license in the agreement. We believe that methodology more accurately allocates any discounts or premiums to the different elements of the agreement. We have not applied this methodology retroactively for agreements entered into in prior fiscal years.

We estimate that annual spend grew by approximately 1% during the third quarter of fiscal 2021, from $604.0 million at December 31, 2020 to $609.9 million at March 31, 2021, and by approximately 2.8% during the first nine months of fiscal 2021, from $593.1 million at June 30, 2020. 
 
Total Contract Value

Total Contract Value ("TCV") is the aggregate value of all payments received or to be received under all active term license agreements, including maintenance and escalation. TCV was $2.8 billion as of June 30, 2020. TCV is an annual metric and will be included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

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 $126.7 million during the three months ended March 31, 2020 to $175.6 million during the three months ended March 31, 2021. Bookings increased from $373.9 million during the nine months ended March 31, 2020 to $548.8 million during the nine months ended March 31, 2021. The change in bookings is due to the timing of renewals.

Free Cash Flow
 
We use a non-GAAP measure of free cash flow to analyze cash flows generated from our operations. Management believes that this financial measure is useful to investors because it permits investors to view our performance using the same tools that management uses to gauge progress in achieving our goals. We believe this measure is also useful to investors because it is an indication of cash flow that may be available to fund investments in future growth initiatives or to repay borrowings under the Amended and Restated Credit Agreement, and it is a basis for comparing our performance with that of our competitors. The presentation of free cash flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity.
 
Free cash flow is calculated as net cash provided by operating activities adjusted for the net impact of (a) purchases of property, equipment and leasehold improvements, (b) payments for capitalized computer software costs, and (c) other nonrecurring items, such as acquisition related receipts and payments.

The following table provides a reconciliation of GAAP net cash provided by operating activities to free cash flow for the indicated periods: 
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  Nine Months Ended
March 31,
  2021 2020
  (Dollars in Thousands)
Net cash provided by operating activities (GAAP) $ 172,949  $ 143,588 
Purchases of property, equipment, and leasehold improvements (733) (1,111)
Payments for capitalized computer software development costs (895) (141)
Acquisition related payments 2,433  1,264 
Free cash flow (non-GAAP) $ 173,754  $ 143,600 
 
Total free cash flow on a non-GAAP basis increased by $30.2 million during the nine months ended March 31, 2021 as compared to the same period of the prior fiscal year primarily due to changes in working capital. See additional commentary in the "Liquidity and Capital Resources" section below. 
Non-GAAP Income from Operations
Non-GAAP income from operations excludes certain non-cash and non-recurring expenses, and is used as a supplement to income from operations presented on a GAAP basis. We believe that non-GAAP income from operations is a useful financial measure because removing certain non-cash and other items provides additional insight into recurring profitability and cash flow from operations.
 
The following table presents our income from operations, as adjusted for stock-based compensation expense, amortization of intangibles, and other items, such as the impact of acquisition related fees, for the indicated periods:
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
(Dollars in Thousands)
GAAP income from operations $ 68,899  $ 44,734  $ 24,165  54.0  % $ 252,522  $ 141,063  $ 111,459  79.0  %
Plus:              
Stock-based compensation 9,225  7,299  1,926  26.4  % 24,589  24,133  456  1.9  %
Amortization of intangibles 2,047  1,864  183  9.8  % 5,657  4,741  916  19.3  %
Acquisition related fees 749  —  749  100.0  % 3,133  78  3,055  3,916.7  %
Non-GAAP income from operations $ 80,920  $ 53,897  $ 27,023  50.1  % $ 285,901  $ 170,015  $ 115,886  68.2  %
 
Critical Accounting Estimates and Judgments
 
Note 2, "Significant Accounting Policies," to the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 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 critical estimates, judgments and assumptions in the preparation of our consolidated financial statements are described in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, and include the subsection captioned "Revenue Recognition."

See Note 3, "Revenue from Contracts with Customers," to our Unaudited Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q for more information on our accounting policies related to revenue recognition.

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Results of Operations
 
Comparison of the Three and Nine Months Ended March 31, 2021 and 2020
 
The following table sets forth the results of operations and the period-over-period percentage change in certain financial data for the three and nine months ended March 31, 2021 and 2020:
 
Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase /
(Decrease)
Change
  2021 2020 % 2021 2020 %
  (Dollars in Thousands)
Revenue:            
License $ 110,104  $ 78,156  40.9  % $ 352,133  $ 238,311  47.8  %
Maintenance 45,885  44,199  3.8  % 139,561  132,418  5.4  %
Services and other 6,737  8,233  (18.2) % 19,721  26,048  (24.3) %
Total revenue 162,726  130,588  24.6  % 511,415  396,777  28.9  %
Cost of revenue:            
License 2,485  1,881  32.1  % 6,859  5,550  23.6  %
Maintenance 5,174  4,778  8.3  % 14,066  14,339  (1.9) %
Services and other 8,396  9,046  (7.2) % 24,911  26,560  (6.2) %
Total cost of revenue 16,055  15,705  2.2  % 45,836  46,449  (1.3) %
Gross profit 146,671  114,883  27.7  % 465,579  350,328  32.9  %
Operating expenses:            
Selling and marketing 30,345  28,354  7.0  % 82,092  86,046  (4.6) %
Research and development 25,874  23,576  9.7  % 70,576  68,694  2.7  %
General and administrative 21,553  18,219  18.3  % 60,389  54,525  10.8  %
Total operating expenses 77,772  70,149  10.9  % 213,057  209,265  1.8  %
Income from operations 68,899  44,734  54.0  % 252,522  141,063  79.0  %
Interest income 8,410  8,173  2.9  % 26,383  24,577  7.3  %
Interest (expense) (1,495) (3,207) (53.4) % (5,639) (9,368) (39.8) %
Other (expense), net (5) (352) (98.6) % (1,807) (217) 732.7  %
Income before income taxes 75,809  49,348  53.6  % 271,459  156,055  74.0  %
Provision for income taxes 13,314  7,522  77.0  % 47,101  20,914  125.2  %
Net income $ 62,495  $ 41,826  49.4  % $ 224,358  $ 135,141  66.0  %


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The following table sets forth the results of operations as a percentage of total revenue for certain financial data for the three and nine months ended March 31, 2021 and 2020:
 
Three Months Ended
March 31, 		Nine Months Ended
March 31,
  2021 2020 2021 2020
(% of Revenue)
Revenue:        
License 67.7  % 59.8  % 68.9  % 60.1  %
Maintenance 28.2  33.8  27.3  33.4 
Services and other 4.1  6.4  3.9  6.5 
Total revenue 100.0  100.0  100.1  100.0 
Cost of revenue:        
License 1.5  1.4  1.3  1.4 
Maintenance 3.2  3.7  2.8  3.6 
Services and other 5.2  6.9  4.9  6.7 
Total cost of revenue 9.9  12.0  9.0  11.7 
Gross profit 90.1  88.0  91.0  88.3 
Operating expenses:        
Selling and marketing 18.6  21.7  16.1  21.7 
Research and development 15.9  18.1  13.8  17.3 
General and administrative 13.2  14.0  11.8  13.7 
Total operating expenses 47.8  53.7  41.7  52.7 
Income from operations 42.3  34.3  49.4  35.6 
Interest income 5.2  6.3  5.2  6.2 
Interest (expense) (0.9) (2.5) (1.1) (2.4)
Other (expense), net —  (0.3) (0.4) (0.1)
Income before income taxes 46.6  37.8  53.1  39.3 
Provision for income taxes 8.2  5.8  9.2  5.3 
Net income 38.4  % 32.0  % 43.9  % 34.1  %
 
Revenue
 
Total revenue increased by $32.1 million during the three months ended March 31, 2021 as compared to the corresponding period of the prior fiscal year. The increase of $32.1 million during the three months ended March 31, 2021 was comprised of an increase in license revenue of $31.9 million and an increase in maintenance revenue of $1.7 million, partially offset by a decrease in services and other revenue of $1.5 million, as compared to the corresponding period of the prior fiscal year.

Total revenue increased by $114.6 million during the nine months ended March 31, 2021 as compared to the corresponding period of the prior fiscal year. The increase of $114.6 million during the nine months ended March 31, 2021 was comprised of an increase in license revenue of $113.8 million and an increase in maintenance revenue of $7.1 million, partially offset by a decrease in services and other revenue of $6.3 million, as compared to the corresponding period of the prior fiscal year.

License Revenue
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
License revenue $ 110,104  $ 78,156  $ 31,948  40.9  % $ 352,133  $ 238,311  $ 113,822  47.8  %
As a percent of total revenue 67.7  % 59.8  %     68.9  % 60.1  %  
 
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The period-over-period increase of $31.9 million and $113.8 million in license revenue during the three and nine months ended March 31, 2021, respectively, was primarily attributable to an increase in bookings related to the timing of renewals.

Maintenance Revenue
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Maintenance revenue $ 45,885  $ 44,199  $ 1,686  3.8  % $ 139,561  $ 132,418  $ 7,143  5.4  %
As a percent of total revenue 28.2  % 33.8  %     27.3  % 33.4  %  
 
We expect maintenance revenue to increase as a result of: (i) having a larger base of arrangements recognized on a ratable basis; (ii) increased customer usage of our software; (iii) adding new customers; and (iv) escalating annual payments.
The period-over-period increase of $1.7 million and $7.1 million in maintenance revenue during the three and nine months ended March 31, 2021, respectively, was 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
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Services and other revenue $ 6,737  $ 8,233  $ (1,496) (18.2) % $ 19,721  $ 26,048  $ (6,327) (24.3) %
As a percent of total revenue 4.1  % 6.4  %     3.9  % 6.5  %    
 
We recognize professional services revenue for our time-and-materials ("T&M") contracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using the proportional performance method based on the ratio of costs incurred to the total estimated project costs.

Services and other revenue decreased $1.5 million and $6.3 million during the three and nine months ended March 31, 2021, respectively, as compared to the corresponding period of the prior fiscal year primarily due to the timing and volume of professional services engagements.
 
Cost of Revenue
 
Cost of License Revenue
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Cost of license revenue $ 2,485  $ 1,881  $ 604  32.1  % $ 6,859  $ 5,550  $ 1,309  23.6  %
As a percent of license revenue 2.3  % 2.4  %     1.9  % 2.3  %    
 
Cost of license revenue increased $0.6 million and $1.3 million for the three and nine months ended March 31, 2021, respectively, as compared to the corresponding period of the prior fiscal year primarily due to increased amortization of intangible assets from acquisitions. License gross profit margin remained consistent at 97.7% and 97.6% for the three months ended March 31, 2021 and 2020, respectively, and 98.1% and 97.7% for the nine months ended March 31, 2021 and 2020, respectively, due to the low cost of license revenue.


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Cost of Maintenance Revenue
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Cost of maintenance revenue $ 5,174  $ 4,778  $ 396  8.3  % $ 14,066  $ 14,339  $ (273) (1.9) %
As a percent of maintenance revenue 11.3  % 10.8  %     10.1  % 10.8  %    
 
Cost of maintenance revenue increased $0.4 million and decreased $(0.3) million for the three and nine months ended March 31, 2021, respectively, as compared to the corresponding period of the prior fiscal year. Maintenance gross profit margin remained consistent at 88.7% and 89.2% for the three months ended March 31, 2021 and 2020, respectively, and 89.9% and 89.2% for the nine months ended March 31, 2021 and 2020, respectively.

Cost of Services and Other Revenue
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Cost of services and other revenue $ 8,396  $ 9,046  $ (650) (7.2) % $ 24,911  $ 26,560  $ (1,649) (6.2) %
As a percent of services and other revenue 124.6  % 109.9  %     126.3  % 102.0  %    
  
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 decreased $0.7 million and $1.6 million for the three and nine months ended March 31, 2021, respectively, as compared to the corresponding period of the prior fiscal year. Gross profit margin on services and other revenue was (24.6)% and (9.9)% for the three months ended March 31, 2021 and 2020, respectively, and (26.3)% and (2.0)% for the nine months ended March 31, 2021 and 2020, respectively.

Gross Profit
Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
2021 2020 $ % 2021 2020 $ %
(Dollars in Thousands)
Gross profit $ 146,671  $ 114,883  $ 31,788  27.7  % $ 465,579  $ 350,328  $ 115,251  32.9  %
As a percent of revenue 90.1  % 88.0  % 91.0  % 88.3  %
For further discussion of subscription and software gross profit and services and other gross profit, please refer to the “Cost of License Revenue," "Cost of Maintenance Revenue," and “Cost of Services and Other Revenue” sections above.
Gross profit increased by $31.8 million and $115.3 million for the three and nine months ended March 31, 2021, respectively, as compared to the corresponding period of the prior fiscal year. Gross profit margin remained consistent at 90.1% and 88.0% for the three months ended March 31, 2021 and 2020, respectively, and 91.0% and 88.3% for the nine months ended March 31, 2021 and 2020, respectively.

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Operating Expenses

Selling and Marketing Expense
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Selling and marketing expense $ 30,345  $ 28,354  $ 1,991  7.0  % $ 82,092  $ 86,046  $ (3,954) (4.6) %
As a percent of total revenue 18.6  % 21.7  %     16.1  % 21.7  %    
 
The period-over-period increase of $2.0 million in selling and marketing expense during the three months ended March 31, 2021 was primarily attributable higher compensation costs of $2.3 million related to an increase in headcount and higher expenses associated with events in the period of $0.7 million, partially offset by lower travel-related costs of $1.5 million

The period-over-period decrease of $4.0 million in selling and marketing expense during the nine months ended March 31, 2021 was primarily attributable to lower travel and event related costs of $7.0 million, partially offset by increases in compensation cost of $1.7 million due to increase in headcounts and higher consulting costs of $0.7 million mainly attributable to a market survey.

Research and Development Expense
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Research and development expense $ 25,874  $ 23,576  $ 2,298  9.7  % $ 70,576  $ 68,694  $ 1,882  2.7  %
As a percent of total revenue 15.9  % 18.1  %     13.8  % 17.3  %    
 
The period-over-period increase of $2.3 million in research and development expense during the three months ended March 31, 2021 was primarily attributable to higher compensation costs of $2.4 million related to an increase in headcount.

The period-over-period increase of $1.9 million in research and development expense during the nine months ended March 31, 2021 was primarily attributable to higher compensation costs of $2.9 million due to increase in headcounts, partially offset by lower travel and event related costs of $1.2 million.

General and Administrative Expense
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
General and administrative expense $ 21,553  $ 18,219  $ 3,334  18.3  % $ 60,389  $ 54,525  $ 5,864  10.8  %
As a percent of total revenue 13.2  % 14.0  %     11.8  % 13.7  %    
 
The period-over-period increase of $3.3 million in general and administrative expense during the three months ended March 31, 2021 was primarily attributable to higher compensation costs of $2.0 million related to an increase in headcount and higher acquisition costs of $0.8 million.

The period-over-period increase of $5.9 million in general and administrative expense during the nine months ended March 31, 2021 was primarily attributable to higher bad debt expense of $3.5 million, higher acquisition costs of $3.1 million, and increases in talent acquisition costs of $1.0 million related to executive management retained searches, partially offset by lower professional fees of $3.7 million.

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Non-Operating Income (Expense)

Interest Income
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Interest income $ 8,410  $ 8,173  $ 237  2.9  % $ 26,383  $ 24,577  $ 1,806  7.3  %
As a percent of total revenue 5.2  % 6.3  %     5.2  % 6.2  %    
 
The period-over-period increase of $0.2 million and $1.8 million in interest income during the three and nine months ended March 31, 2021, respectively, was a result of: (i) increased customer usage of our software; (ii) adding new customers; and (iii) escalating annual payments.

Interest (Expense)
 
  Three Months Ended
March 31, 		(Increase) / Decrease
Change 		Nine Months Ended
March 31, 		(Increase) / Decrease
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Interest (expense) $ (1,495) $ (3,207) $ 1,712  (53.4) % $ (5,639) $ (9,368) $ 3,729  (39.8) %
As a percent of total revenue (0.9) % (2.5) %     (1.1) % (2.4) %    
 
The period-over-period decrease of $1.7 million and $3.7 million in interest (expense) during the three and nine months ended March 31, 2021, respectively, was primarily due to lower interest expenses related to our Amended and Restated Credit Agreement and lower outstanding borrowing balance after we paid off our revolving credit facility in December 2020.
 
Other (Expense), Net
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Other (expense), net $ (5) $ (352) $ 347  (98.6) % $ (1,807) $ (217) $ (1,590) 732.7  %
As a percent of total revenue —  % (0.3) %     (0.4) % (0.1) %    
 
Other (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 March 31, 2021 and 2020, other (expense), net was primarily comprised of $0.1 million and $(0.3) million of currency gains and (losses), respectively.

During the nine months ended March 31, 2021 and 2020, other (expense), net was primarily comprised of $(2.0) million and $(0.2) million of currency losses, respectively.
  
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Provision for Income Taxes
 
  Three Months Ended
March 31, 		Increase / (Decrease)
Change 		Nine Months Ended
March 31, 		Increase / (Decrease)
Change
  2021 2020 $ % 2021 2020 $ %
  (Dollars in Thousands)
Provision for income taxes $ 13,314  $ 7,522  $ 5,792  77.0  % $ 47,101  $ 20,914  $ 26,187  125.2  %
Effective tax rate 17.6  % 15.2  %     17.3  % 13.4  %  
 
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, 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.

Our effective tax rate was 17.6% and 15.2% during the three months ended March 31, 2021 and 2020, respectively, and 17.3% and 13.4% during the nine months ended March 31, 2021 and 2020, respectively. Our effective tax rate was lower in the three months ended March 31, 2020 due to the higher FDII deduction taken last year compared to this year, and lower in the nine months ended March 31, 2020 as a result of the tax contingency reversal due to settling an IRS audit.

We recognized an income tax expense of $13.3 million and $7.5 million during the three months ended March 31, 2021 and 2020, respectively, and $47.1 million and $20.9 million during the nine months ended March 31, 2021 and 2020, respectively. Our income tax expense was driven primarily by pre-tax profitability in our domestic and foreign operations and the impact of permanent items. The permanent items are predominantly the FDII deduction, stock-based compensation expense and tax credits for research expenditures.

Liquidity and Capital Resources
 
Resources
 
In recent years, we have financed our operations with cash generated from operating activities. As of March 31, 2021, our principal capital resources consisted of $317.1 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 purposes is required beyond existing resources and our Amended and Restated Credit Agreement described below, we may not be able to effect a receivable, equity or debt financing on terms acceptable to us or at all.

Credit Agreement
 
In December 2019, we entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, joint lead arranger and joint bookrunner, Silicon Valley Bank, as joint lead arranger, joint bookrunner and syndication agent, and the lenders and co-documentation agents named therein (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement, which amends and restates the Credit Agreement we entered into as of February 26, 2016 with the same lenders (the “Prior Credit Agreement”), provides for a $200.0 million secured revolving credit facility and a $320.0 million secured term loan facility. The indebtedness under the revolving credit facility matures on December 23, 2024. Prior to the maturity of the Amended and Restated Credit Agreement, any amounts borrowed under the revolving credit facility may be repaid and, subject to the terms and conditions of the Amended and Restated Credit Agreement, borrowed again in whole or in part without penalty.

As of March 31, 2021, our current borrowings of $18.0 million consist of the term loan facility. Our non-current borrowings of $279.0 million consist of $282.0 million of our term loan facility, net of $3.0 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.

For a more detailed description of the Amended and Restated Credit Agreement, see Note 12, "Credit Agreement," to our Unaudited Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q.
 
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Cash Equivalents and Cash Flows
 
Our cash equivalents of $1.0 million and $1.0 million as of March 31, 2021 and June 30, 2020, respectively, consisted of money market funds. The objective of our investment policy is to manage our cash and investments to preserve principal and maintain liquidity.
 
The following table summarizes our cash flow activities for the periods indicated:
 
Nine Months Ended
March 31,
  2021 2020
  (Dollars in Thousands)
Cash flow provided by (used in):    
Operating activities $ 172,949  $ 143,588 
Investing activities (18,826) (76,031)
Financing activities (125,393) 53,527 
Effect of exchange rates on cash balances 573  (838)
Increase in cash and cash equivalents $ 29,303  $ 120,246 
 
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 $172.9 million during the nine months ended March 31, 2021. This amount resulted from net income of $224.4 million, adjusted for non-cash items of $55.7 million and net uses of cash of $(107.2) million related to changes in working capital.
 
Non-cash items during the nine months ended March 31, 2021 consisted primarily of stock-based compensation expense of $24.6 million, depreciation and amortization expense of $7.5 million, reduction in the carrying amount of right-of-use assets of $7.0 million, reduction in deferred income taxes of $7.0 million, provision for bad debts of $6.8 million, and net foreign currency losses of $2.0 million.
 
Cash used by working capital of $107.2 million during the nine months ended March 31, 2021 was primarily attributable to cash used by increases in contract assets of $103.5 million, decreases in lease liabilities of $7.5 million, increases in prepaid expenses, taxes and other assets of $7.0 million and decreases in accounts payable, accrued expenses and other current liabilities of $6.8 million and partially offset by increases in deferred revenue of $13.4 million, and decreases in accounts receivable of $4.1 million.
 
Investing Activities
 
During the nine months ended March 31, 2021, we used $18.8 million of cash for investing activities. We used $16.3 million for payments for business acquisitions, net of cash acquired, $0.9 million for equity method investments, $0.9 million for capitalized computer software costs and $0.7 million for capital expenditures.
 
Financing Activities
 
During the nine months ended March 31, 2021, we used $125.4 million of cash for financing activities. This amount resulted from $119.2 million of cash used for the repayment of the outstanding balance under our revolving credit facility, $12.0 million of cash used for maturities of amounts borrowed under our term loan facility, and $6.7 million of cash used for withholding taxes on vested and settled restricted stock units, offset by $12.5 million for cash provided by the exercise of employee stock options.
 
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Contractual Obligations
 
Standby letters of credit for $2.3 million and $3.5 million secured our performance on professional services contracts, certain facility leases and potential liabilities as of March 31, 2021 and June 30, 2020, respectively. The letters of credit expire at various dates through fiscal 2026.
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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 March 31, 2021 and 2020, 14.6% and 8.2% of our total revenue was denominated in a currency other than the U.S. dollar, respectively. During the nine months ended March 31, 2021 and 2020, 11.4% and 7.4% 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 nine months ended March 31, 2021 and 2020. Currently, our largest exposures to foreign exchange rates exist primarily with the Euro, Pound Sterling, Canadian Dollar, Japanese Yen, and Russian Ruble against the U.S. dollar.
 
We recorded $0.1 million and $(0.3) million of net foreign currency exchange gains (losses) during the three months ended March 31, 2021 and 2020, respectively, and $(2.0) million and $(0.2) million of net foreign currency exchange (losses) during the nine months ended March 31, 2021 and 2020, respectively, related to the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our 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 $2.5 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively, and by approximately $5.2 million and $1.7 million during the nine months ended March 31, 2021 and 2020, respectively.

Interest Rate Risk
 
We place our investments in money market instruments. Our analysis of our investment portfolio and interest rates at March 31, 2021 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.
 
As of March 31, 2021, we had current borrowings of $18.0 million and non-current borrowings of $279.0 million on our term loan facility. Our non-current borrowings of $279.0 million consist of $282.0 million of our term loan facility, net of $3.0 million in unamortized debt issuance costs.

As of June 30, 2020, we had $119.2 million and $312.0 million in outstanding borrowings on our revolving credit facility and term loan facility, respectively. Our current borrowings of $135.2 million at June 30, 2020 consist of $119.2 million of the revolving credit facility and $16.0 million of the term loan facility. Our non-current borrowings of $292.4 million at June 30, 2020 consist of $296.0 million of our term loan facility, net of $3.6 million in unamortized debt issuance costs. A hypothetical 100 basis point 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, 2021, the fair value of this investment is $1.2 million CAD ($1.5 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 March 31, 2021. 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 our management, including our 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 March 31, 2021, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
 
b)    Management's Plan to Remediate the Material Weakness
 
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, we implemented a remediation plan to address the material weakness mentioned above. Management enhanced our risk assessment process over the design and implementation of internal controls over new and emerging financial reporting matters such as the adoption of ASU No. 2016-02, Leases ("Topic 842"). We also performed an updated risk assessment of revenue and associated contract balances controls and identified and designed enhanced review controls over the accounting for revenue contracts under Topic 606, including the use of additional reporting tools and additional reconciliation controls. The COVID-19 pandemic and resulting remote working environment made timely completion of these remediation procedures more challenging, and all remediation efforts were not fully completed as of June 30, 2020. As a result, management concluded that the material weakness in our internal control over the financial reporting had not been fully remediated as of June 30, 2020. The weakness will be considered remediated when the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Our intention is that the remediation of this material weakness will be completed prior to the end of fiscal 2021. The remediation effort involves designing and implementing additional controls, testing those controls and concluding upon their effectiveness.

c)    Changes in Internal Controls Over Financial Reporting
 
There was no change in our internal control over financial reporting that occurred during the nine months ended March 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, with the exception of the change in our controls resulting from the adoption of Topic 326 as described in
Note 2, "Significant Accounting Policies," to our Unaudited Consolidated Financial Statements. We performed a risk assessment and implemented changes to our processes and control activities. 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.
 
None.
 
Item 1A. Risk Factors.
 
The risks described in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 and our Quarterly Report on Form 10-Q for the three and six months ended December 31, 2020, 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 2020 Annual Report on Form 10-K remains current in all material respects, with the exception of the revised risk factors below.

Our customers’ business operations have been, and continue to be, subject to business interruptions arising from the COVID‑19 pandemic. We continue to monitor the situation, but there can be no assurance that the pandemic will not result in delays or possibly reductions in demand for our solutions that could have a serious adverse effect on our business.

Many countries have imposed restrictions on travel and public assembly and closed schools and businesses in order to slow the spread of COVID-19. These governmental restrictions and related private sector responses have adversely affected the business operations of some of our customers and resulted in a slowdown in closing some customer contracts and, to a lesser extent, a delay in customer payments during the three and nine months ended March 31, 2021. While the measures instituted in response to COVID‑19 are expected to be temporary, the duration of the business disruptions and related operational and financial impact on our customers and us cannot be estimated with certainty at this time. The adverse effects on the economies and financial markets of many countries and markets may result in an economic downturn and changes in global economic policy that could reduce demand for our products and have a material adverse impact on our business, operating results and financial condition, including on our ability to collect accounts receivable. Our business may also be harmed if our employees are not able to perform services for customers on-site due to travel restrictions or facility closings.

Fluctuations in foreign currency exchange rates could result in declines in our reported revenue and operating results. 
During the three months ended March 31, 2021 and 2020, 14.6% and 8.2% of our total revenue was denominated in a currency other than the U.S. dollar, respectively. During the nine months ended March 31, 2021 and 2020, 11.4% and 7.4% of our total revenue was denominated in a currency other than the U.S. dollar, respectively. In addition, certain of our operating expenses incurred outside the United States are denominated in currencies other than the U.S. dollar. Our reported revenue and operating results are subject to fluctuations in foreign exchange rates. Foreign currency risk arises primarily from the net difference between non-U.S. dollar receipts from customers outside the United States and non-U.S. dollar operating expenses for subsidiaries in foreign countries. Currently, our largest exposures to foreign exchange rates exist primarily with the Euro, Pound Sterling, Canadian Dollar, Japanese Yen, and Russian Ruble against the U.S. dollar. During the three and nine months ended March 31, 2021 and 2020, we did not enter into, and were not a party to any, derivative financial instruments, such as forward currency exchange contracts, intended to manage the volatility of these market risks. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our revenue and operating results. Any hedging policies we may implement in the future may not be successful, and the cost of those hedging techniques may have a significant negative impact on our operating results.
  
44
 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 March 31, 2021 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)
January 1 to 31, 2021 —  $ —  — 
February 1 to 28, 2021 —  $ —  — 
March 1 to 31, 2021 —  $ —  —   
Total —  $ —  —  $ 200,000,000 
(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, June 8, 2017, April 18, 2018, December 6, 2018, and April 17, 2019, the Board of Directors approved a $400.0 million, $200.0 million, $200.0 million, $100.0 million, and $200.0 million increase in the Share Repurchase Program, respectively. On July 22, 2020, our Board of Directors approved a new share repurchase program (the "New Share Repurchase Program") for up to $200.0 million worth of our common stock, and terminated the Share Repurchase Program.
 
(2)         As of March 31, 2021, the total number of shares of common stock repurchased under all programs approved by the Board of Directors was 36,270,015.

(3)         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.
 
(4)     As of March 31, 2021, the total remaining value under the New Share Repurchase Program was approximately $200.0 million.
45
Item 6.   Exhibits.
 
     
     
Exhibit Number   Description
10.1
10.2
31.1  
31.2  
32.1  
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
^ Management contract or compensatory plan or arrangement

46
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: April 28, 2021 By: /s/ ANTONIO J. PIETRI
    Antonio J. Pietri
    President and Chief Executive Officer
    (Principal Executive Officer)
 
Date: April 28, 2021 By: /s/ CHANTELLE BREITHAUPT
    Chantelle Breithaupt
    Senior Vice President and Chief Financial Officer
    (Principal Financial Officer)





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