azpn-20230930

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 September 30, 2023

☐ 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: 001-41400

ASPEN TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)


Delaware						87-3100817
(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)

(Registrant’s telephone number, including area code): (781) 221-6400

____________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common stock, $0.0001 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

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ☐ No ý

There were 63,699,354 shares of common stock outstanding as of October 31, 2023.

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TABLE OF CONTENTS


		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited).	4
	Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended September 30, 2023 and 2022	5
	Condensed Consolidated Balance Sheets as of September 30, 2023 and June 30, 2023	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2023 and 2022	7
	Condensed Consolidated Statements of Cash Flow for the Three Months Ended September 30, 2023 and 2022	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	27
Item 4.	Controls and Procedures.	28

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	29
Item 1A.	Risk Factors.	29
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.	30
Item 3.	Defaults upon Senior Securities.	30
Item 4.	Mine Safety Disclosures.	30
Item 5.	Other Information.	31
Item 6.	Exhibits.	32
	SIGNATURES

Aspen Technology, Inc. (“AspenTech”) has many registered trademarks including aspenONE and Aspen Plus. All other trade names, trademarks and service marks appearing in this Form 10-Q not owned by AspenTech 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 2024” refers to the year ending June 30, 2024).

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Condensed Consolidated Financial Statements (unaudited)

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended September 30,
	2023		2022

	(Dollars and Shares in Thousands, Except per share data)
Revenue:
License and solutions	$	148,648	$	160,224
Maintenance	84,968		78,366
Services and other	15,692		12,229
Total revenue	249,308		250,819
Cost of revenue:
License and solutions	71,578		69,513
Maintenance	10,200		9,217
Services and other	16,282		12,400
Total cost of revenue	98,060		91,130
Gross profit	151,248		159,689
Operating expenses:
Selling and marketing	122,378		118,274
Research and development	53,676		49,740
General and administrative	35,405		42,848
Restructuring costs	—		9
Total operating expenses	211,459		210,871
Loss from operations	(60,211)		(51,182)
Other expense, net	(5,830)		(58,632)
Interest income, net	14,049		5,023
Loss before benefit for income taxes	(51,992)		(104,791)
Benefit for income taxes	(17,467)		(93,547)
Net loss	$	(34,525)	$	(11,244)
Net loss per common share:
Basic	$	(0.54)	$	(0.17)
Diluted	$	(0.54)	$	(0.17)
Weighted average shares outstanding:
Basic	64,319		64,454
Diluted	64,319		64,454

See accompanying notes to these unaudited condensed consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


	Three Months Ended September 30,
	2023		2022

	(Dollars in Thousands)
Net loss	$	(34,525)	$	(11,244)
Other comprehensive loss:
Foreign currency translation adjustments	(11,201)		(8,865)
Total other comprehensive loss	(11,201)		(8,865)
Comprehensive loss	$	(45,726)	$	(20,109)

See accompanying notes to these unaudited condensed consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2023		June 30, 2023

	(Dollars in Thousands, Except Share Data)
ASSETS
Current assets:
Cash and cash equivalents	$	120,540	$	241,209
Accounts receivable, net	87,977		122,789
Current contract assets, net	369,019		367,539
Prepaid expenses and other current assets	32,010		27,728
Receivables from related parties	59,458		62,375
Prepaid income taxes	15,319		11,424
Total current assets	684,323		833,064
Property, equipment and leasehold improvements, net	17,484		18,670
Goodwill	8,328,192		8,330,811
Intangible assets, net	4,549,858		4,659,657
Non-current contract assets, net	547,617		536,104
Contract costs	17,138		15,992
Operating lease right-of-use assets	64,322		67,642
Deferred income tax assets	12,019		10,638
Other non-current assets	19,721		13,474
Total assets	$	14,240,674	$	14,486,052

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,301	$	20,299
Accrued expenses and other current liabilities	79,536		99,526
Due to related parties	29,253		22,019
Current operating lease liabilities	12,570		12,928
Income taxes payable	48,461		46,205
Current contract liabilities	117,110		151,450
Total current liabilities	302,231		352,427
Non-current contract liabilities	27,671		30,103
Deferred income tax liabilities	911,967		957,911
Non-current operating lease liabilities	52,485		55,442
Other non-current liabilities	19,401		19,240
Stockholders’ equity:
Common stock, $0.0001 par value Authorized—600,000,000 shares Issued— 65,030,408 and 64,952,868 shares Outstanding— 63,855,939 and 64,465,242 shares	6		6
Additional paid-in capital	13,230,178		13,194,028
Accumulated deficit	(75,916)		(41,391)
Accumulated other comprehensive (loss) income	(8,765)		2,436
Treasury stock, at cost — 1,174,469 and 487,626 shares of common stock	(218,584)		(84,150)
Total stockholders’ equity	12,926,919		13,070,929
Total liabilities and stockholders’ equity	$	14,240,674	$	14,486,052

See accompanying notes to these unaudited condensed consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Accumulated Other Comprehensive Income (Loss)		Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock			Total Stockholders’ Equity
			Number of Shares	Par Value						Number of Shares	Cost

	(Dollars in Thousands, Except Share Data)
Balance June 30, 2023	$	2,436	64,952,868	$	6	$	13,194,028	$	(41,391)	487,626	$	(84,150)	$	13,070,929
Net Loss	—		—	—		—		(34,525)		—	—		(34,525)
Other comprehensive loss	(11,201)		—	—		—		—		—	—		(11,201)
Issuance of shares of common stock	—		29,644	—		3,826		—		—	—		3,826
Issuance of restricted stock units and net share settlement related to withholding taxes	—		47,896	—		(4,585)		—		—	—		(4,585)
Repurchase of common stock	—		—	—		20,210		—		686,843	(134,434)		(114,224)
Stock-based compensation	—		—	—		16,699		—		—	—		16,699
Balance September 30, 2023	$	(8,765)	65,030,408	$	6	$	13,230,178	$	(75,916)	1,174,469	$	(218,584)	$	12,926,919


	Accumulated Other Comprehensive Loss		Common Stock			Additional Paid-in Capital		Retained Earnings		Total Equity/Stockholders’ Equity
			Number of Shares	Par Value

	(Dollars in Thousands, Except Share Data)
Balance June 30, 2022	$	(4,588)	64,425,378	$	6	$	13,107,570	$	66,369	$	13,169,357
Net loss	—		—	—		—		(11,244)		(11,244)
Other comprehensive loss	(8,865)		—	—		—		—		(8,865)
Issuance of shares of common stock	—		71,547	—		8,489		—		8,489
Issuance of restricted stock units and net share settlement related to withholding taxes	—		34,375	—		(4,683)		—		(4,683)
Stock-based compensation	—		—	—		17,736		—		17,736
Balance September 30, 2022	$	(13,453)	64,531,300	$	6	$	13,129,112	$	55,125	$	13,170,790

See accompanying notes to these unaudited condensed consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended September 30,
	2023		2022

	(Dollars in Thousands)
Cash flows from operating activities:
Net loss	$	(34,525)	$	(11,244)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	123,219		122,546
Reduction in the carrying amount of right-of-use assets	3,562		3,291
Net foreign currency losses	5,894		8,332
Stock-based compensation	16,699		17,736
Deferred income taxes	(51,080)		(70,438)
Provision for uncollectible receivables	1,788		3,609
Other non-cash operating activities	19		3,225
Changes in assets and liabilities:
Accounts receivable	29,417		8,009
Contract assets	(24,062)		(68,357)
Contract costs	(1,163)		(3,451)
Lease liabilities	(3,770)		(1,659)
Prepaid expenses, prepaid income taxes, and other assets	(17,022)		(47,004)
Liability from foreign currency forward contract	—		50,259
Accounts payable, accrued expenses, income taxes payable and other liabilities	4,735		(13,476)
Contract liabilities	(36,730)		3,699
Net cash provided by operating activities	16,981		5,077
Cash flows from investing activities:
Purchases of property, equipment and leasehold improvements	(937)		(1,321)

Payments for business acquisitions, net of cash acquired	(8,273)		(74,947)

Payments for equity method investments	(98)		—
Payments for capitalized computer software development costs	—		(99)

Payments for asset acquisitions	(12,500)		—

Net cash used in investing activities	(21,808)		(76,367)
Cash flows from financing activities:
Issuance of shares of common stock	3,285		8,470
Repurchases of common stock	(114,224)		—
Payment of tax withholding obligations related to restricted stock	(1,938)		(3,422)
Deferred business acquisition payments	—		(1,363)
Repayments of amounts borrowed under term loan	—		(6,000)
Net transfers from Parent Company	3,890		12,446
Payments of debt issuance costs	—		(2,375)
Net cash (used in) provided by financing activities	(108,987)		7,756
Effect of exchange rate changes on cash and cash equivalents	(6,855)		(3,733)
Decrease in cash and cash equivalents	(120,669)		(67,267)
Cash and cash equivalents, beginning of period	241,209		449,725
Cash and cash equivalents, end of period	$	120,540	$	382,458

Supplemental disclosure of cash flow information:
Income taxes paid, net	$	31,842	$	6,950
Interest paid	$	663	$	3,815
Supplemental disclosure of non-cash activities:
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses	$	249	$	(702)
Lease liabilities arising from obtaining right-of-use assets	$	397	$	68

See accompanying notes to these unaudited condensed consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

AspenTech, together with its subsidiaries (the “Company”), is a leading industrial software company that develops solutions to address complex industrial environments where it is critical to optimize the asset design, operations and maintenance lifecycle. Through the Company’s unique combination of product capabilities, deep domain expertise and award-winning innovation, customers across diverse end markets in capital-intensive industries can improve their operational excellence while achieving sustainability goals.

The Company operates globally in 120 countries as of September 30, 2023.

Basis of Presentation

The Company has prepared the accompanying unaudited condensed consolidated financial statements as of September 30, 2023, and for the first quarters of fiscal 2024 and 2023 pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and in accordance with generally accepted accounting principles in the United States (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The actual results that the Company experiences may differ materially from these estimates.

Russia and Ukraine

The Company maintains operations in Russia and licenses software and provides related services to customers in Russia and areas of Ukraine that are not under sanction. The Company had revenues of approximately $7.2 million and $10.0 million for the three months ended September 30, 2023 and 2022, respectively, and total assets of approximately $37.8 million and $39.7 million as of September 30, 2023 and June 30, 2023, respectively, related to operations in Russia.

The Company may be required to cease or suspend operations in Russia or, should the conflict or the effects of sanctions, export control measures and business restrictions worsen, the Company may voluntarily elect to do so. For example, the Company recently has terminated all engineering services in Russia and the Company has limited its operations to contract renewals only with existing customers. While the Company continues to evaluate the impact, if any, of the various sanctions, export control measures and business restrictions imposed by the United States, other governments, and financial institutions on the ability to do business in Russia and areas of Ukraine that are not under sanction, maintain contracts with vendors and pay employees in Russia, and receive payment from customers in Russia and areas of Ukraine that are not under sanction, there is no assurance that the Company will be able to do so in the future. Any disruption to, or suspension of, the Company’s business and operations in Russia would result in the loss of revenue from the business in Russia and would negatively impact growth. The Company may also suffer reputational harm as a result of continued operations in Russia, which may adversely impact sales and other businesses in other countries.

2. 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, 2023. There were no material changes to our significant accounting policies during the three months ended September 30, 2023.

(a) Revenue Recognition

Prior to the third quarter of fiscal 2023, Open Systems International, Inc. (“OSI Inc.”) software licenses were primarily sold with professional services and hardware to form an integrated solution for the customer. The professional services and hardware sold with the license significantly customized the underlying functionality and usability of the software. As such, none of the software license, hardware or professional services were considered distinct within the context of the contract and were therefore considered a single performance obligation. Because the integrated solution had no alternative use to the Company and the Company held an enforceable right to payment, revenue was recognized over time (typically one to two years) using an input measure of progress based on the ratio of actual costs incurred to date to the total estimated cost to

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complete. For integrated solution contracts executed prior to the third quarter of fiscal 2023, revenue continues to be recognized over time until the implementation is complete.

At the start of the third quarter of fiscal 2023, the Company completed a series of business transformation activities relating to OSI Inc. products and services in conjunction with its ongoing integration activities. As part of a change in the related go-to-market strategy, the Company has invested in tools and processes to simplify and streamline the implementation services to significantly reduce the complexity and interdependency associated with its software. In addition, the Company has identified and trained several third-party implementation service partners to operate autonomously and directly with OSI Inc. customers to implement its products.

Accordingly, effective January 1, 2023, following the completion of these business transformation activities, for all new OSI Inc. contracts entered into after January 1, 2023, the Company accounts for the OSI Inc. software license, hardware, maintenance, and professional services as separate and distinct performance obligations. Software license revenue is recognized at a point in time when control transfers to the customer, which generally aligns with the first day of the contractual term. Hardware revenue is recognized at the point in time when control transfers to the customer, which generally occurs upon delivery. The recognition of maintenance revenue at OSI Inc. is unchanged. Maintenance revenue continues to be recognized ratably over the maintenance term. Professional services revenue is recognized over time (typically one to two years) using the proportional performance method by comparing the costs incurred to the total estimated project costs.

(b) Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements that will be applicable to the Company are not expected to have a material impact on the Company’s condensed consolidated financial statements.

3. Revenue from Contracts with Customers

Contract Assets and Contract Liabilities

Contract assets are subject to credit risk and reviewed in accordance with Accounting Standards Codification (“ASC”) 326, Financial Instruments Credit Losses. The Company monitors 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. The Company recognizes 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 potential impact of credit losses on contract assets was immaterial as of September 30, 2023. The Company’s contract assets and contract liabilities were as follows as of September 30, 2023 and June 30, 2023:


	September 30, 2023		June 30, 2023

	(Dollars in Thousands)
Contract assets	$	916,636	$	903,643
Contract liabilities	(144,781)		(181,553)
Net contract assets	$	771,855	$	722,090

The majority of the Company’s contract balances are related to arrangements where revenue is recognized at a point in time and payments are made according to a contractual billing schedule. The change in the net contract asset balance during the three months ended September 30, 2023 was primarily due to greater revenue recognition as compared to billings. Revenue recognized during the first quarter of fiscal 2024 included $41.0 million that was included in the beginning contract liability balance.

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Transaction Price Allocated to Remaining Performance Obligations

The following table includes the aggregate amount of the transaction price allocated as of September 30, 2023 to the performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:


	Year Ending June 30,
	2024		2025		2026		2027		2028		Thereafter		Total

	(Dollars in Thousands)
License and solutions	$	108,987	$	96,644	$	42,092	$	14,588	$	2,396	$	1,279	$	265,986
Maintenance	223,670		223,635		164,342		114,089		69,953		33,105		828,794
Services and other	53,036		22,957		8,941		2,868		952		157		88,911
Total	$	385,693	$	343,236	$	215,375	$	131,545	$	73,301	$	34,541	$	1,183,691

Disaggregated Revenue Information

The table below reflects disaggregated revenues by business for the three months ended September 30, 2023 and 2022:


	Three Months Ended September 30,
	2023		2022

	(Dollars in Thousands)
Heritage AspenTech	$	175,743	$	176,406
Subsurface Science & Engineering	24,081		32,988
OSI, Inc.	49,484		41,425
Total	$	249,308	$	250,819

The Company did not have any customers that accounted for 10 percent or more of the Company’s revenues for the three months ended September 30, 2023 and 2022, respectively.

4. Acquisitions

Inmation Software GmbH

On August 29, 2022, the Company completed the acquisition of inmation Software GmbH (“Inmation”) for total cash consideration of $87.2 million. The purchase price consisted of $78.9 million of cash paid at closing and an additional $8.3 million in indemnification holdbacks, which was paid on August 18, 2023. The total cash acquired from Inmation was approximately $6.4 million resulting in a net cash payment of $72.5 million during the three months ended September 30, 2022. The Company recognized goodwill of $63.0 million (none of which is expected to be tax deductible) and identifiable intangible assets of $31.5 million, primarily consisting of developed technology and customer relationships, with a useful life of approximately five years for developed technology and seven years for customer relationships.

Inmation’s revenue and net loss included in the Company’s condensed consolidated statements of operations during the three months ended September 30, 2023 were $0.5 million and $0.1 million, respectively. Results included amortization of developed technology and customer relationships of $1.4 million.

Prior to the closing date, Inmation was considered a related party to AspenTech as Emerson Electric Co. (“Emerson” or “Parent Company”), through one of its subsidiaries, held an equity-method investment in Inmation. At the time of close, $17.6 million was paid to Emerson in exchange for all its shares in Inmation, with another $1.9 million paid 12 months after the close on August 18, 2023.

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5. Intangible Assets

Intangible assets consist of the following as of September 30, 2023 and June 30, 2023:


	September 30, 2023
	Developed Technology		Trademarks		Customer Relationships and Backlog		Capitalized Software and Other		Total

	(Dollars in Thousands)
Gross carrying amount	$	1,903,599	$	464,400	$	3,082,541	$	24,026	$	5,474,566
Less: Accumulated amortization	(393,392)		(14,931)		(507,170)		(9,215)		(924,708)
Net carrying amount	$	1,510,207	$	449,469	$	2,575,371	$	14,811	$	4,549,858

	June 30, 2023
	Developed Technology		Trademarks		Customer Relationships and Backlog		Capitalized Software and Other		Total

	(Dollars in Thousands)
Gross carrying amount	$	1,903,599	$	464,400	$	3,082,541	$	11,526	$	5,462,066
Less: Accumulated amortization	(341,964)		(13,821)		(437,673)		(8,951)		(802,409)
Net carrying amount	$	1,561,635	$	450,579	$	2,644,868	$	2,575	$	4,659,657

Of the total intangible assets net carrying amount of $4.5 billion as of September 30, 2023, $430.0 million relates to the registered trademarks associated with the Transaction (as defined below) that are not subject to amortization. Total intangible asset amortization expense was $121.7 million and $121.2 million during the three months ended September 30, 2023 and 2022, respectively.

6. Goodwill

The changes in the carrying amount of goodwill during the three months ended September 30, 2023 were as follows:


	Carrying Value
	(Dollars in Thousands)
Balance as of June 30, 2023	$	8,330,811