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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2020
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)
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, $0.10 par value per share
 
AZPN
 
NASDAQ Global Select Market
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
 
 
None
 
 
____________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes     No 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes     No 
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     No 
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 and post such files). Yes     No 
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  o (Do not check if a smaller reporting company)
 
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.    

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes     No 
As of December 31, 2019, the aggregate market value of common stock (the only outstanding class of common equity of the registrant) held by non-affiliates of the registrant was $7,351,100,942 based on a total of 60,788,067 shares of common stock held by non-affiliates and on a closing price of $120.93 on December 31, 2019 for the common stock as reported on The NASDAQ Global Select Market.
There were 67,780,992 shares of common stock outstanding as of December 2, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement related to its 2020 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference in Part III, Items 10-14 of this Form 10-K.



Table of Contents

TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
____________________________________________


Our registered trademarks include aspenONE and Aspen Plus. All other trademarks, trade names and service marks appearing in this Form 10-K are the property of their respective owners.
Our fiscal year ends on June 30, and references to a specific fiscal year are the twelve months ended June 30 of such year (for example, "fiscal 2020" refers to the year ended June 30, 2020).

2

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "potential," "should," "target," or the negative of these terms or other similar words. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our, our customers' or our industry's actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. "Item 1. Business," "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as other sections in this Form 10-K, discuss some of the factors that could contribute to these differences. The forward-looking statements made in this Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in "Item 1A. Risk Factors." Unless the context indicates otherwise, references in this report to "we", "us", "our" and other similar references mean Aspen Technology, Inc. and its subsidiaries.
PART I
Item 1.    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.
Industry Background
The process manufacturing industries consist of companies that typically manufacture finished products by applying a controlled chemical process either to a raw material that is fed continuously through the plant or to a specific batch of raw material.

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Process industry characteristics and dynamics are complex and the scale of operation is very large; therefore, any small improvement in the high-volume feedstocks used, or to the chemical process applied, can have a significant impact on the efficiency and cost-effectiveness of manufacturing operations. As a result, process manufacturers, as well as the engineering and construction firms that partner with these manufacturers, have extensive technical requirements and need sophisticated, integrated software to help design, operate and maintain complex manufacturing assets. The unique characteristics associated with process manufacturing create special demands for business applications that frequently exceed the capabilities of generic or non-process manufacturing software packages.
Industry Specific Challenges Facing the Process Industries
Companies in different segments of the process industries face specific challenges that drive the need for software solutions that design, operate and maintain manufacturing environments more effectively:
Energy. Our energy markets are comprised of three primary sectors: Exploration and Production, also called "upstream," Oil and Gas Production and Processing, also called "midstream," and Refining and Marketing, also called "downstream":
Companies engaged in Exploration and Production explore for and produce hydrocarbons. They target reserves in increasingly diverse geographies involving geological, logistical and political challenges. They need to design and develop ever larger, more complex and more remote production, gathering and processing facilities as quickly as possible with the objective of optimizing production and ensuring regulatory compliance.
Companies engaged in Oil and Gas Production and Processing produce and gather oil and natural gas from well heads, clean it, process it, and separate it into oil, dry natural gas, and natural gas liquids in preparation for transport to downstream markets. The processing capacity of oil and gas processing plants in North America has increased significantly in recent years to process the oil and gas extracted from shale deposits.
Companies engaged in Refining and Marketing convert crude oil through a thermal and chemical manufacturing process into end products such as gasoline, jet and diesel fuels and into intermediate products for downstream chemical manufacturing companies. These companies are characterized by high volumes and low operating margins. In order to deliver better margins, they focus on optimizing feedstock selection and product mix, reducing energy and capital costs, maximizing throughput, and minimizing inventory, all while operating safely and in accordance with regulations.
Chemicals. The chemicals industry includes both bulk and specialty chemical companies:
Bulk chemical producers manufacture commodity chemicals and compete primarily on price; they seek to achieve economies of scale and manage operating margin pressure by building larger, more complex plants located near feedstock sources.
Specialty chemical manufacturers, which primarily manufacture highly differentiated customer-specific products, face challenges in managing diverse product lines, multiple plants, complex supply chains and product quality.
Engineering and construction. Engineering and construction firms that work with process manufacturers compete on a global basis by bidding on and executing on complex, large-scale projects. They need a digital environment in which optimal plant designs can be produced quickly and efficiently, incorporating highly accurate modeling, analysis and cost estimation technology. In addition, these projects require software that enables significant collaboration internally, with the manufacturer, and in many cases, with other engineering and construction firms.
Companies in the metals and mining, consumer packaged goods, power, pulp and paper, pharmaceuticals and biofuels industries are also seeking asset optimization solutions that help them deliver improved financial and operating results in the face of varied process manufacturing challenges.
Complexity of the Process Industries
Companies in the process industries constantly face pressure on margins causing them to continually seek ways to operate more efficiently. At the same time, these manufacturers face complexity as a result of the following:
Globalization of markets. Process manufacturers are continuously expanding their operations to take advantage of growing demand and more economically viable sources of feedstocks. Process manufacturers must be able to design, build and operate plants efficiently and economically while managing and optimizing ever broadening supply chains.

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Market volatility. Process manufacturers must react quickly to frequent changes in feedstock prices, temporary or longer-term feedstock shortages, and rapid changes in finished product prices. Unpredictable commodity markets strain the manufacturing and supply chain operations of process manufacturers, which must evaluate and implement changes in inventory levels, feedstock inputs, equipment usage and operational processes to remain competitive.
Environmental and safety regulations. Process companies must comply with an expanding array of data maintenance and reporting requirements under governmental and regulatory mandates, and the global nature of their operations can subject them to numerous regulatory regimes. These companies are increasingly relying upon software applications to model potential outcomes, store operating data and develop reporting capabilities in response to heightened scrutiny and oversight because of environmental, safety and other implications of their products and manufacturing processes.
Evolving Workforce. Process companies must adapt to the changing nature of the technical workforce. A generation of highly experienced plant operators and engineers is nearing retirement. New entrants to the workforce must be able to effectively leverage organization knowledge to become productive with far fewer years of experience.
Market Opportunity
Process industries have been focusing on digital transformation initiatives to improve productivity for more than 40 years. In the 1980s, process manufacturers implemented distributed control systems, or DCS, to automate the management of plant hardware. DCS use computer hardware, communication networks and industrial instruments to measure, record and automatically control process variables. In the 1990s, these manufacturers adopted enterprise resource planning, or ERP, systems to streamline back office functions and interact with DCS. These systems allowed process manufacturers to track, monitor and report the performance of each plant, rather than rely on traditional paper and generic desktop spreadsheets.
Many process manufacturers have implemented both DCS and ERP systems but have realized that their investments in hardware and back-office systems are inadequate. DCS are only able to control and monitor processes based on fixed sets of parameters and cannot dynamically react to changes in the manufacturing process unless instructed by end users. ERP systems can only record what is produced in operations. Although DCS and ERP systems help manage manufacturing performance, neither of these systems can optimize what is produced, how it is produced or where it is produced. Moreover, neither can help a process manufacturer understand how to improve its processes or how to identify opportunities to decrease operating expenses.
As digital transformation initiatives were extended to each aspect of asset operations, the opportunity to optimize across the full asset lifecycle came into focus. Asset optimization software focuses on the optimum design, operation, and maintenance of the manufacturing process; how the design is optimized for optimum operations and reliability, how the process is operated for optimal economic, safety, and sustainable performance, and how the design and operations impact the longevity and reliability of the equipment. By connecting DCS and ERP systems with intelligent applications, asset optimization software allows a manufacturer to make faster economic decisions, resulting in safer, greener, and more reliable asset operations. Examples of how asset optimization software can optimize a manufacturing environment include incorporating process manufacturing domain knowledge, supporting real-time decision making, predicting equipment failure, and providing the ability to respond and adapt to operational changes. Furthermore, these solutions can optimize the supply chain by helping a manufacturer to understand the operating conditions in each plant, enabling more efficient and optimized production decisions.
Process manufacturers employ highly skilled technical personnel specializing in areas such as process design, equipment design, control engineering, manufacturing operations, analytics, planning, scheduling, and supply chain management. To drive efficiency and improve operating margins, these personnel need to collaborate across functional areas and increasingly rely on software to enable this collaboration as well as automate complex tasks associated with their jobs. Process companies must adapt to the changing nature of the technical workforce. A generation of highly experienced plant operators and engineers is nearing retirement. As a result, we believe there is increasing demand for intelligent software applications that capture and automate expert knowledge and are intuitive and easy-to-learn.
aspenONE Solutions
We provide integrated asset optimization software solutions designed and developed specifically for the process and other capital-intensive industries. Customers use our solutions to improve their competitiveness and profitability by increasing throughput and productivity, reducing operating and maintenance costs, increasing reliability, enhancing capital efficiency, enabling collaboration among different functions, increasing safety, reducing risk, and decreasing working capital requirements. Our aspenONE solutions are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management (APM):

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Engineering. Our engineering software is used to develop process designs of new plants, re-vamp existing plants, and simulate and optimize existing processes. Through the use of advanced modeling technologies our engineering software can create digital twins of plant process and equipment that are used to troubleshoot and fine tune plant performance.
Manufacturing and Supply Chain. Our manufacturing software is used to optimize day-to-day processing activities, enabling process manufacturers to make better, more profitable decisions and to improve plant performance. Our supply chain management software is designed to enable process manufacturers to reduce inventory levels, increase asset efficiency, respond rapidly to market demands and optimize supply chain operations.
Asset Performance Management. Our asset performance management software is used to understand and predict the reliability of a system; be it multiple assets, a single asset, or equipment in a plant. The factors that impact reliability include how operating conditions degrade equipment performance over time, or how process conditions lead to equipment failure, and the ability to predict when the equipment will fail and prescribe actions to avoid such occurrences. The APM suite is a comprehensive suite of machine learning and analytics technologies which, when used in a standalone or integrated manner with historical and real time asset and equipment data, can help our customers improve their return on capital employed.
Our aspenONE licensing model is primarily a subscription offering under which customers receive access to all the products within the aspenONE suite(s) they license, including the right to any new unspecified future software products and updates that may be introduced into the licensed aspenONE software suite. This affords customers the ability to use our software whenever required and to experiment with different applications to best solve whatever critical business challenges they face.
We offer customer support, professional services and training services to our customers. Under our aspenONE licensing model, software maintenance and support is included for the term of the arrangement. Professional services are offered to customers as a means to further implement and extend our technology across their corporations.
The key benefits of our aspenONE solutions include:
Broad and comprehensive software suites. We believe that we offer the most comprehensive suites of software applications addressing the engineering, manufacturing and supply chain and maintenance requirements of process manufacturers. While some competitors offer solutions in one or two principal business areas, no other vendor can match the breadth of our aspenONE offerings. In addition, we have developed an extensive array of software applications that address extremely specific and complex industry and end user challenges, such as feedstock selection, dynamic optimization of plant assets, and production planning and scheduling for petroleum and chemicals companies.
Integrated software solutions. aspenONE provides a standards-based framework that integrates applications, data and models within each of our software suites. Process manufacturers seeking to improve their business operations can use the integrated software applications in the aspenONE Manufacturing and Supply Chain suite to support real-time decision making both for individual production facilities and across multiple sites.
Flexible commercial model. Our aspenONE subscription licensing model provides a customer with access to all of the applications within and across the aspenONE suite(s) that the customer licenses, including the right to any new unspecified future software products and updates that may be introduced into the licensed aspenONE software suites. The customer can change or alternate the use of multiple applications in a licensed suite through the use of exchangeable units of measurement, or tokens, licensed in quantities determined by the customer. This enables the customer to use those applications whenever required and to experiment with different applications to best solve whatever critical business challenges the customer faces. The customer can easily increase its usage of our software as their business requirements evolve.
Our Competitive Strengths
In addition to the breadth and depth of our integrated aspenONE software and the flexibility of our aspenONE licensing model, we believe our key competitive advantages include the following:
Industry-leading innovation based on substantial process industry expertise. For over 35 years, our significant investment in research and development has led to a number of major process engineering advances considered to be industry-standard applications. Our development organization is comprised of software engineers, chemical engineers and data scientists. This combination of expertise has been essential to the development of leading products embedded with chemical engineering principles, optimization and machine learning algorithms, analytics, and the process industries’ workflows and best practices. We recently embarked on a strategy to embed artificial intelligence within our products and solutions to support decision making and drive better results.

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Rapid, high return on investment. Many customers purchase our software because they believe it will provide rapid, demonstrable and significant returns on their investment and increase their profitability. For some customers, economic benefits in the first year following installation have exceeded the total cost of our software. For many customers, even a relatively small improvement in performance can generate substantial recurring benefits due to the large production volumes and limited profit margins typical in process industries. In addition, our solutions can generate organizational efficiencies and operational improvements that can further increase a process company's profitability.
Growth Strategy
We seek to maintain and extend our position as a leading global provider of process optimization software and related services to the process industries. We have introduced a new strategy to evolve our scope of optimization from the process units in a plant to the process and the equipment in the plant or entire asset. We have expanded our reach in optimization from conceptualization and design, operations, and supply chain to the maintenance aspects of the plant. We plan to continue to build on our expertise in process optimization, our installed base, and long-term customer relationships to further expand our reach in the maintenance area of the plant. By focusing on asset optimization, we will be able to optimize the design and operations of a plant considering the performance and constraints of process equipment so as to optimize the full asset lifecycle. Our primary growth strategy is to expand organically within our core verticals by leveraging our market leadership position and driving increased usage and product adoption of the broad capabilities in our aspenONE offerings. Additionally, we seek acquisitions to accelerate our overall growth in the design and operations of the process, and acquisitions that will expand our maintenance solution to deliver asset optimization. To accomplish these goals, we will pursue the following activities:
Continue to provide innovative, market-leading solutions. Our most recent product introduction, Aspen Enterprise Insights (AEI), allows our customers to build enterprise applications that drive insights in a collaborative workflow. AEI leverages information from across the enterprise to create insights and value for our customers.  We continue to research innovation that will transform the experience of our users with our products. We are researching ways to enhance our historical capabilities founded on first-principles of engineering with artificial intelligence capabilities to create a new generation of products that will deliver hybrid modeling functionality to create products that are more accurate in their predictions and model previously difficult to model areas of a process. These capabilities will require a cloud infrastructure for deployment in hybrid environments, edge or cloud, to support the ingestion of large amounts of data and high performance computing. The aggregation of the capabilities acquired through the Rt-Tech, Mnubo and Sabisu acquisitions will support the delivery of the cloud infrastructure. AEI will sit on top of the edge connectivity and cloud capabilities that will be in the future cloud infrastructure offering. Our next software release will begin the introduction of these capabilities. We expect software releases, including these capabilities, will continue for the foreseeable future as we enhance the product capabilities that our customers are accustomed to. In addition, our Aspen Mtell product recently received another award for "Technology Excellence in AI Manufacturing" from the Singapore Business Review, following the award received for "Best Asset Performance Monitoring" from Hydrocarbon Processing magazine.
Further penetrate existing customer base. We have an installed base of approximately 2,400 customers. Many of our customers only use a fraction of our products. We work with our customers to identify ways in which they can improve their business performance by using the entire licensed suite of aspenONE solutions, both at an individual user level and across all of their plant locations. Our customers are segmented based on their size and complexity. Our large complex customers are serviced by our Field Sales organization, while our other customers are serviced by our inside sales group. Additionally, we regularly enhance our products to make them easier to use and seek to increase productivity of users by offering more integrated workflows.
Adoption and usage in customer base. We strive for our customers to adopt and sustain the use of our products by maximizing the consumption of their token entitlement. We do so by focusing our go-to-market resources through specific customer success management activities that generate and sustain the value from our products by ensuring that customers are using the latest version of our products, that our software is deployed in the most optimal manner in their IT networks, and that our customers are familiar with the latest value enhancing functionality in our products.
Asset Performance Management expansion. In fiscal 2017, we introduced a new suite of products focused on improving the reliability of our customers’ assets and equipment using a combination of machine learning, data science and process modeling together with historical and real time asset and equipment data. We have increased our investment in the research and development, sales and marketing, and channel sales functions to build out the capabilities that will enable us to grow this new business area and deliver value for our customers. In addition, we target additional capital-intensive industries with the APM functionality that we refer to as the global economy industries. These include metals and mining, power, pulp and paper, pharmaceutical, and food and beverage.

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Build an ecosystem. The relevance of our solutions in the markets we serve means that we have the opportunity to leverage third parties interested in building or expanding their businesses to increase our market penetration. The breadth of relationships that we establish will depend on the profile of the third-party company and the objectives specified to be achieved from the promotion and implementation of our products and solutions.
Pursue acquisitions. As part of our make-vs-buy analyses, we regularly explore and evaluate acquisitions. We have made several acquisitions in recent years and believe the opportunity exists to do more, especially as we seek to evolve our strategy to asset optimization and the maintenance area of the plant.
Expand our total addressable market. Our focus on innovation also means introducing product capabilities or new product categories that create value for our customers and therefore expand our total addressable market.
Products
Our integrated asset optimization software solutions are designed and developed specifically for the process industries. Customers use our solutions to improve their competitiveness and profitability by increasing throughput and productivity, reducing operating costs, enhancing capital efficiency, and decreasing working capital requirements. We have designed and developed our software applications across four principal business areas:
Engineering. Our engineering software applications are used during both the design and the ongoing operation of plant facilities to model and improve the way engineers develop and deploy manufacturing assets. Process manufacturers must address a variety of challenges including design, operational improvement, collaborative engineering and economic evaluation. They must, for example, determine where they should locate facilities, how they can lower capital and manufacturing costs, what they should produce and how they can maximize plant efficiency.
Manufacturing. Our manufacturing software products focus on optimizing day-to-day processing activities, enabling customers to make better, faster decisions that lead to improved plant performance and operating results. These solutions include desktop and server applications that help customers make real-time decisions, which can reduce fixed and variable costs and improve product yields. Process manufacturers must address a wide range of manufacturing challenges such as optimizing execution efficiency, reducing costs, selecting the right raw materials, scheduling and coordinating production processes, and identifying an appropriate balance between turnaround times, delivery schedules, product quality, cost and inventory.
Supply Chain Management. Our supply chain management solutions include desktop and server applications that help customers optimize critical supply chain decisions in order to reduce inventory, increase asset efficiency, and respond more quickly to changing market conditions. Process manufacturers must address numerous challenges as they strive to manage raw materials inventory, production schedules and feedstock purchasing decisions effectively and efficiently. Supply chain managers face these challenges in an environment of ever-changing market prices, supply constraints and customer demands.
Asset Performance Management. Our asset performance management products are used to understand and predict the reliability of a system; be it multiple assets, a single asset, or equipment in a plant. Factors that impact reliability include how operating conditions degrade equipment performance over time, or how process conditions can lead to equipment failure. The APM suite is a comprehensive suite of machine learning and analytics technologies which can be used in a standalone or integrated manner with historical and real time asset and equipment data to help our customers predict when the equipment will fail and prescribe actions to avoid such occurrences, thereby improving return on capital employed.
Our software applications are currently offered in three suites: aspenONE Engineering, aspenONE Manufacturing and Supply Chain, and aspenONE Asset Performance Management. These suites are integrated applications that allow end users to design process manufacturing environments, monitor operational performance, respond and adapt to operational changes, predict asset reliability and equipment failure, and manage planning and scheduling activities as well as collaborate across these functions and activities. The three suites are designed around core modules and applications that allow customers to design, operate and maintain their process manufacturing environments, as shown below:

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aspenONE Engineering
 
 
 
 
 
 
 
Business Area
 
aspenONE Module
 
Major Products
 
Product Description
Engineering
 
Process Simulation for Energy

 
Aspen HYSYS
 
Process modeling software for the design and optimization of hydrocarbon processes, including flow assurance, refinery reactors, acid gas clean-up, and sulfur recovery
 
 
 
 
Aspen Operator Training
 
Solution for developing and deploying dynamic plant simulations for the purpose of training plant operators to respond to operational and safety scenarios in a virtual training environment
 
 
Process Simulation for Chemicals

 
Aspen Plus
 
Process modeling software for the design and optimization of chemical processes, including solids and batch processes
 
 
Economic Evaluation
 
Aspen Economic Evaluation
 
Economic evaluation software for estimating project capital costs and lifecycle asset economics - from conceptual definition through detailed cost estimation

 
 
Equipment Design & Rating

 
Aspen Exchanger Design and Rating
 
Software for the design, simulation and rating of various types of heat exchangers
 
 
Basic Engineering

 
Aspen Basic Engineering
 
Collaborative platform for managing process engineering data and producing front-end design deliverables such as multi-disciplinary datasheets, process flow diagrams, piping and instrument diagrams, and equipment lists

 
 
Operation Support

 
Aspen Online

 
Solution that connects process models to real-time plant data for expedited decisions, operational guidance, and optimization





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aspenONE Manufacturing and Supply Chain
 
 
 
 
 
 
 
Business Area
 
aspenONE Module
 
Major Products
 
Product Description
Manufacturing
 
Advanced Process Control
 
Aspen DMC3
 
Multi-variable controller software for maintaining processes at their optimal operating point under changing process conditions
 
 
 
 
Aspen Watch Performance Monitor
 
Real-time monitoring and diagnostic information software to help engineers and operators focus on the problems that erode margins
 
 
Dynamic Optimization
 
Aspen GDOT
 
Multi-unit dynamic optimization software for alignment of Advanced Process Control (APC) with Planning & Scheduling to enable unified production optimization for refineries and ethylene plants
 
 
Manufacturing Execution Systems
 
Aspen Info Plus.21
 
Data historian software for storing, visualizing and analyzing large volumes of data to improve production execution and enhance performance management
 
 
 
 
AspenONE Process Explorer
 
Software for combining process measurements, product characteristics, alarms, events and unstructured data for a complete view of production
 
 
 
 
Aspen Production Record Manager
 
Easy and fast segmentation of production data into batches, campaigns or other logical groupings for easier analysis and production reporting

 
 
 
 
Aspen Production Execution Manager
 
Workflow, order and recipe management software per cGMP guidelines that ensures operational consistency for improved yields, higher quality and lower production costs
Supply Chain
 
Refinery Planning & Scheduling
 
Aspen PIMS Advanced Optimization
 
Refinery planning software for optimizing feedstock selection, product slate and operational execution
 
 
 
 
Aspen Petroleum Scheduler
 
Refinery scheduling software for scheduling and optimization of refinery operations with integration to refinery planning, blending and dock operations
 
 
Supply & Distribution

 
Aspen Petroleum Supply Chain Planner
 
Economic planning software for optimizing the profitability of the petroleum distribution network, including transportation, raw materials, sales demands, and processing facilities
 
 
 
 
Aspen Fleet Optimizer
 
Software for inventory management and truck transportation optimization in secondary petroleum distribution
 
 
Supply Chain Management
 
Aspen Collaborative Demand Manager
 
Software for forecasting market demand and managing forecast through changes in the business environment by combining historical and real time data
 
 
 
 
Aspen Plant Scheduler
 
Software for generating optimal production schedules to meet total demand
 
 
 
 
Aspen Supply Planner
 
Software for determining the optimal production plan taking into account labor and equipment, feedstock, inbound /outbound transportation, storage capacity, and other variables

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aspenONE Asset Performance Management
 
 
 
 
 
 
 
Business Area
 
aspenONE Module
 
Major Products
 
Product Description
Asset Performance Management
 
Risk Analysis
 
Aspen Fidelis Reliability
 
Software for predicting the future performance of any system and quantifying the change in performance due to changes in design, capacity, operations, maintenance, logistics, market dynamics, and weather
 
 
Process Analytics
 
Aspen ProMV
 
Multivariate analysis software for analyzing interrelated process data for continuous and batch processes, to identify the minimum critical set of variables driving product quality and process performance, and identifying optimal set points
 
 
 
 
Aspen Asset Analytics
 
Software for analyzing plant operations in real time to identify causal precursors that can lead to an unplanned downtime event
 
 
Equipment Analytics
 
Aspen Mtell
 
Software for recognizing unique data patterns as predictions of future equipment behavior
 
 
Connect
 
Aspen Edge Connect
 
Software to collect data from assets, enterprise data sources, and MES systems using Industrial IoT technology, and integrating the data into enterprise systems on-premise or in the cloud
 
 
 
 
Aspen Cloud Connect
 
Our product development activities are currently focused on strengthening the integration of our applications and adding new capabilities that address specific operational business processes in each industry. As of June 30, 2020, we had a total of 626 employees in our research and development group, which is comprised of product management, software development and quality assurance. Research and development expenses were $92.2 million in fiscal 2020, $83.1 million in fiscal 2019 and $82.1 million in fiscal 2018.
Sales and Marketing
We employ a value-based sales approach, offering our customers a comprehensive suite of software and services that enhance the efficiency and productivity of their engineering, manufacturing and supply chain and maintenance operations. We have increasingly focused on positioning our products as a strategic investment and therefore devote an increasing portion of our sales efforts to our customers’ senior management, including senior decision makers in manufacturing, operations, maintenance and technology. Our aspenONE solution strategy supports this value-based approach by broadening the scope of optimization across the entire enterprise over its lifecycle, expanding the use of process models in the operations environment, and enabling the use of analytics and data science to enhance equipment and process reliability. We offer a variety of training programs focused on illustrating the capabilities of our applications as well as online training built into our applications. We have implemented incentive compensation programs for our sales force to reward efforts that increase customer usage of our products. Furthermore, we believe our aspenONE licensing model enables our sales force to develop consultative sales relationships with our customers.
Historically, most of our license sales have been generated through our direct Field Sales organization. In order to market the specific functionality and other technical features of our software, our account managers work with specialized teams of technical sales personnel and product specialists organized for each sales and marketing effort. Our technical sales personnel typically have degrees in chemical engineering or related disciplines and actively consult with a customer’s plant engineers. Product specialists share their detailed knowledge of the specific features of our software solutions as they apply to the unique business processes of different vertical industries. In addition to our direct Field Sales organization, we employ an inside sales team that targets customers in certain market segments.
We have established channel relationships with select companies that we believe can help us pursue opportunities in adjacent target markets. We also license our software products to universities that agree to use our products in teaching and research. We believe that students' familiarity with our products will stimulate future demand once the students enter the workplace.

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We supplement our sales efforts with a variety of marketing initiatives, including industry analyst and public relations activities, campaigns to promote product usage and adoption, user group meetings and customer relationship programs. Our broad user base spans multiple verticals and geographies and these users possess a variety of skills, experience and business needs. In order to reach each of them in an effective, productive and leveraged manner we will increasingly capitalize on digital customer engagement solutions. Using webinars, digital communities, social media, videos, email and other digital means, we seek to engage our extensive user base with targeted messages intended to address the specific needs of each market, customer and user.
Our overall sales force, which consists of sales account managers, technical sales personnel, indirect-channel personnel, inside sales personnel, and marketing personnel, consisted of 503 employees as of June 30, 2020.
Software Maintenance and Support, Professional Services and Training
Software maintenance and support (“SMS”) consists primarily of providing customer technical support and access to software fixes and upgrades. Customer technical support services are provided throughout the world by our three global call centers as well as via email and through our support website. For license term arrangements entered into subsequent to our transition to a subscription-based licensing model, SMS is included with the license arrangement. For license arrangements that do not include SMS, customers can purchase standalone SMS.
We offer professional services focused on implementation of our solutions. Our professional services team primarily consists of project engineers with degrees in chemical engineering or a similar discipline, or who have significant relevant industry experience. Our employees include experts in fields such as thermophysical properties, distillation, adsorption processes, polymer processes, industrial reactor modeling, the identification of empirical models for process control or analysis, large-scale optimization, supply distribution systems modeling and scheduling methods. Our primary focus is the successful implementation and usage of our software, and in many instances, this work can be professionally performed by qualified third parties. As a result, we often compete with third-party consulting firms when bidding for professional services contracts, particularly in developed markets. We offer our services on either a time-and-material or fixed-price basis.
We offer a variety of training solutions ranging from standardized training, which can be delivered in a public forum, on-site at a customer's location or over the Internet, to customized training sessions, which can be tailored to fit customer needs. We have also introduced a wide range of online computer-based training courses offering customers on-demand training in basic and advanced features of our products directly from within the products. As of June 30, 2020, we had a total of 293 employees in our customer support, professional services and training groups.
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.
Competition
Our markets in general are competitive, and we expect the intensity of competition in our markets to increase as existing competitors enhance and expand their product and service offerings and as new participants enter the market. Increased competition may result in price reductions, reduced profitability and loss of market share. We cannot ensure that we will be able to compete successfully against existing or future competitors. Some of our customers and companies with which we have strategic relationships also are, or may become, competitors.
Many of our current and potential competitors have greater financial, technical, marketing, service and other resources than we have. As a result, these companies may be able to offer lower prices, additional products or services, or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond more quickly to new technologies and may be able to undertake more extensive marketing campaigns. We believe they also have adopted and may continue to pursue more aggressive pricing policies and make more attractive offers to potential customers, employees and strategic partners. For example, some competitors may be able to initiate relationships through sales and installations of hardware and then seek to expand their customer relationships by offering asset optimization software at a discount. In addition, competitors with greater financial resources may make strategic acquisitions to increase their ability to gain market share or improve the quality or marketability of their products. Furthermore, we face challenges in selling our solutions to large companies in the process industries that have internally developed their own proprietary software solutions.

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We seek to develop and offer integrated suites of targeted, high-value vertical industry solutions that can be implemented with relatively limited service requirements. We believe this approach provides us with an advantage over many of our competitors that offer software products that are point solutions or are more service-based. Our key competitive differentiators include:
Breadth, depth and integration of our aspenONE software offering;
Rapid return on investment and increase in profitability;
Domain expertise of chemical engineering personnel;
Focus on software for the process industries;
Flexibility of our usage-based aspenONE licensing model; and
Consistent global support.
Proprietary Rights
Our software is proprietary and fundamental to our business. To protect our proprietary technology and brand, and prevent unauthorized use of our software, we rely on a combination of copyright, patent, trademark and trade secret laws in the United States and other jurisdictions, license and confidentiality agreements, and technology. We generally seek to protect our trade secrets by entering into non-disclosure agreements with our employees and customers, and historically have restricted access to our software and source code, which we regard as proprietary information. We have obtained or applied for patent protection with respect to some of our intellectual property and have registered or applied to register some of our trademarks in the United States and in selected other countries. We actively monitor use of our intellectual property and have enforced, and will continue to enforce, our intellectual property rights. In the United States, we are generally able to maintain our patents for up to 20 years from the earliest effective filing date, and to maintain our trademark registrations for as long as the trademarks are in use.
The laws of many countries in which our products are licensed may not protect our intellectual property rights to the same extent as the laws of the United States. While we consider our intellectual property rights to be valuable, we do not believe that our competitive position in the industry depends solely on obtaining legal protection for our software products and technology. Instead, we believe that the success of our business also depends on our ability to maintain a leadership position by continuing to develop innovative software products and technology.
Our proprietary rights are subject to risks and uncertainties described under Item 1A. “Risk Factors” below. You should read that discussion, which is incorporated into this section by reference.
Licenses
In connection with our acquisition of Hyprotech Ltd. and related subsidiaries of AEA Technology plc in May 2002 and the consent decree we entered into with the Federal Trade Commission in December 2004 to resolve allegations that the acquisition was improperly anticompetitive, we and certain of our subsidiaries entered into a purchase and sale agreement with Honeywell International Inc. and certain of its subsidiaries, pursuant to which we sold intellectual property and other assets to Honeywell relating to our operator training business and our Hyprotech engineering software products. Under the terms of the transactions, we retained a perpetual, irrevocable, worldwide, royalty-free non-exclusive license to the Hyprotech engineering software and have the right to continue to develop, license and sell the Hyprotech engineering products.
In March 1982, we entered into a System License Agreement with the Massachusetts Institute of Technology, or MIT, granting us a worldwide, perpetual non-exclusive license (with the right to sublicense) to use, reproduce, distribute and create derivative works of the computer program known as "ASPEN" which provides a framework for simulating the steady-state behavior of chemical processes that we utilize in the simulation engine for our Aspen Plus product. MIT agreed that we would own any derivative works and enhancements. MIT has the right to terminate the agreement if: we breach it and do not cure the breach within 90 days after receiving a written notice from MIT; we cease to carry on our business; or certain bankruptcy or insolvency proceedings are commenced and not dismissed. In the event of such termination, sublicenses granted to our customers prior to termination will remain in effect.
Employees
As of June 30, 2020, we had a total of approximately 1,710 full-time employees, of whom 821 were located in the United States. None of our employees in the United States is represented by a labor union; however, in certain foreign subsidiaries labor unions or workers’ councils may represent some of our employees. We have experienced no work stoppages and believe that our employee relations are satisfactory.

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Corporate Information
Aspen Technology, Inc. was formed in Massachusetts in 1981 and reincorporated in Delaware in 1998. Our principal executive offices are at 20 Crosby Drive, Bedford, Massachusetts 01730, and our telephone number at that address is (781) 221-6400. Our website address is http://www.aspentech.com. The information on our website is not part of this Form 10-K, unless expressly noted.
Available Information
We file reports with the Securities and Exchange Commission, or the SEC, which we make available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
Item 1A.    Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before purchasing our common stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties may also impair our business operations. If any of the following risks actually occurs, our business, financial condition, results of operations or cash flows would likely suffer. In that case, the trading price of our common stock could fall, and you may lose all or part of your investment in our common stock.
Risks Related to Our Business
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 the SARS-CoV-2 virus and associated COVID-19 disease. 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 in the last four months of the fiscal year ended June 30, 2020. 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.
If we fail to increase usage and product adoption of our aspenONE engineering and manufacturing and supply chain offerings and grow our aspenONE APM business, or fail to continue to provide innovative, market-leading solutions, we may be unable to implement our growth strategy successfully, and our business could be seriously harmed.
The maintenance and extension of our market leadership and our future growth is largely dependent upon our ability to increase usage and product adoption of our aspenONE engineering and manufacturing and supply chain offerings and grow our aspenONE APM business, and to develop new software products that achieve market acceptance with acceptable operating margins. Enterprises are requiring their application software vendors to provide greater levels of functionality and broader product offerings. We must continue to enhance our current product line and develop and introduce new products and services that keep pace with increasingly sophisticated customer requirements and the technological developments of our competitors. Our business and operating results could suffer if we cannot successfully execute our strategy and drive usage and product adoption.

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We have implemented a product strategy that unifies our software solutions under the aspenONE brand with differentiated aspenONE vertical solutions targeted at specific capital-intensive industries. We cannot ensure that our product strategy will result in products that will continue to meet market needs and achieve significant usage and product adoption. If we fail to increase usage and product adoption or fail to develop or acquire new software products that meet the demands of our customers or our target markets, our operating results and cash flows from operations will grow at a slower rate than we anticipate and our financial condition could suffer.
Our business could suffer if we do not grow our aspenONE APM business or if the demand for, or usage of, our other aspenONE software declines for any reason, including declines due to adverse changes in the process and other capital-intensive industries.

We have introduced the aspenONE APM suite, and our aspenONE engineering and manufacturing and supply chain suites account for a significant majority of our revenue and will continue to do so for the foreseeable future. If we do not grow our aspenONE APM business or if demand for, or usage of, our other suites declines for any reason, our operating results, cash flows from operations and financial position would suffer. Our business could be adversely affected by:

insufficient growth in our aspenONE APM business;
any decline in demand for or usage of our aspenONE suites;
the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our aspenONE suites;
technological innovations that our aspenONE suites do not address;
our inability to release enhanced versions of our aspenONE suites on a timely basis; and
adverse changes in capital intensive industries or otherwise that lead to reductions, postponements or cancellations of customer purchases of our products and services, or delays in the execution of license agreement renewals in the same quarter in which the original agreements expire.
Because of the nature of their products and manufacturing processes and their global operations, companies in the process and other capital-intensive industries are subject to risk of adverse or even catastrophic environmental, safety and health accidents or incidents and are often subject to changing standards and regulations worldwide.
In addition, worldwide economic downturns and pricing pressures experienced by energy, chemical, engineering and construction, and other capital-intensive industries have led to consolidations and reorganizations. In particular, we believe that the drop in demand for oil due to the COVID-19 pandemic, compounded by the excess supply arising from producers’ failure to agree on production cuts, impacted and may continue to impact the operating levels and capital spending of certain of our customers. This has resulted in, and could continue to result in, less predictable and lower demand for our products and services. Any such adverse environmental, safety or health incident, change in regulatory standards, or economic downturn that affects the capital-intensive industries, including continued challenges and uncertainty among customers whose business is adversely affected by volatility in oil prices, a shift to a greater percentage of renewable energy sources such as wind and solar, as well as general domestic and foreign economic conditions and other factors that reduce spending by companies in these industries, could harm our operating results in the future.
Unfavorable economic and market conditions or a lessening demand in the market for asset optimization software could adversely affect our operating results.
Our business is influenced by a range of factors that are beyond our control and difficult or impossible to predict. If the market for asset optimization software grows more slowly than we anticipate, demand for our products and services could decline and our operating results could be impaired. Further, the state of the global economy may deteriorate in the future. Our operating results may be adversely affected by unfavorable global economic and market conditions, including the significant drop in oil prices arising from producers’ failure to agree on production cuts and a drop in demand due to the COVID-19 pandemic, as well as a lessening demand for asset optimization software generally.

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Customer demand for our products is linked to the strength of the global economy. If weakness in the global economy persists, many customers, including those whose businesses are negatively impacted by lower oil prices, or the COVID-19 pandemic generally, may delay or reduce technology purchases. This could result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies, increased price competition or reduced use of our products by our customers. We will lose revenue if demand for our products is reduced because potential customers experience weak or deteriorating economic conditions, catastrophic environmental or other events, and our business, results of operations, financial condition and cash flow from operations would likely be adversely affected.
The majority of our revenue is attributable to operations outside the United States, and our operating results therefore may be materially affected by the economic, political, military, regulatory and other risks of foreign operations or of transacting business with customers outside the United States.
As of June 30, 2020, we operated in 33 countries. We sell our products primarily through a direct sales force located throughout the world. In the event that we are unable to adequately staff and maintain our foreign operations, we could face difficulties managing our international operations.
Customers outside the United States accounted for the majority of our total revenue during the fiscal years ended June 30, 2020, 2019 and 2018. We anticipate that revenue from customers outside the United States will continue to account for a significant portion of our total revenue for the foreseeable future. Our operating results attributable to operations outside the United States are subject to additional risks, including:
unexpected changes in regulatory or environmental requirements, tariffs and other barriers, including, for example, international trade disputes, changes in climate regulations, sanctions or other regulatory restrictions imposed by the United States or foreign governments; and the effects of the United Kingdom European Union membership referendum in June 2016 and the subsequent withdrawal process initiated in March 2017; pursuant to which the United Kingdom ceases to be a European Union member;
less effective protection of intellectual property;
requirements of foreign laws and other governmental controls;
delays in the execution of license agreement renewals in the same quarter in which the original agreements expire;
difficulties in collecting trade accounts receivable in other countries;
adverse tax consequences; and
the challenges of managing legal disputes in foreign jurisdictions.
Fluctuations in foreign currency exchange rates could result in declines in our reported revenue and operating results.
During fiscal 2020, 2019 and 2018, 6.6%, 10.1% and 9.0% 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 fiscal 2020, 2019 and 2018, 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.
Competition from software offered by current competitors and new market entrants, as well as from internally developed solutions by our customers, could adversely affect our ability to sell our software products and related services and could result in pressure to price our products in a manner that reduces our margins.

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Our markets in general are competitive and differ among our principal product areas: engineering, manufacturing, supply chain management and asset performance management. We face challenges in selling our solutions to large companies that have internally developed their own proprietary software solutions, and we face competition from well-established vendors as well as new entrants in our markets. Many of our current and potential competitors have greater financial, technical, marketing, service and other resources than we have. As a result, these companies may be able to offer lower prices, additional products or services, or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond more quickly to new technologies and may be able to undertake more extensive marketing campaigns. We believe they also have adopted and may continue to pursue more aggressive pricing policies and make more attractive offers to potential customers, employees and strategic partners. For example, some competitors may be able to initiate relationships through sales and installations of hardware and then seek to expand their customer relationships by offering asset optimization software at a discount. In addition, many of our competitors have established, and may in the future continue to establish, cooperative relationships with third parties to improve their product offerings and to increase the availability of their products in the marketplace. Competitors with greater financial resources may make strategic acquisitions to increase their ability to gain market share or improve the quality or marketability of their products.
Competition could seriously impede our ability to sell additional software products and related services on terms favorable to us. Businesses may continue to enhance their internally developed solutions, rather than investing in commercial software such as ours. Our current and potential commercial competitors may develop and market new technologies that render our existing or future products obsolete, unmarketable or less competitive. In addition, if these competitors develop products with similar or superior functionality to our products, we may need to decrease the prices for our products in order to remain competitive. If we are unable to maintain our current pricing due to competitive pressures, our margins will be reduced and our operating results will be negatively affected. We cannot ensure that we will be able to compete successfully against current or future competitors or that competitive pressures will not materially adversely affect our business, financial condition and operating results.
Defects or errors in our software products could harm our reputation, impair our ability to sell our products and result in significant costs to us.
Our software products are complex and may contain undetected defects or errors. We have not suffered significant harm from any defects or errors to date, but we have from time to time found defects in our products and we may discover additional defects in the future. We may not be able to detect and correct defects or errors before releasing products. Consequently, we or our customers may discover defects or errors after our products have been implemented. We have in the past issued, and may in the future need to issue, corrective releases of our products to remedy defects or errors. The occurrence of any defects or errors could result in:
lost or delayed market acceptance and sales of our products;
delays in payment to us by customers;
product returns;
injury to our reputation;
diversion of our resources;
increased service and warranty expenses or financial concessions;
increased insurance costs; and
legal claims, including product liability claims.
Defects and errors in our software products could result in claims for substantial damages against us.
Potential acquisitions could be difficult to consummate and integrate into our operations, and they and investment transactions could disrupt our business, dilute stockholder value or impair our financial results.
As part of our business strategy, we may continue from time to time to seek to grow our business through acquisitions of or investments in new or complementary businesses, technologies or products that we believe can improve our ability to compete in our existing customer markets or allow us to enter new markets. The potential risks associated with acquisitions and investment transactions include, but are not limited to:
failure to realize anticipated returns on investment, cost savings and synergies;
difficulty in assimilating the operations, policies and personnel of the acquired company;

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unanticipated costs associated with acquisitions;
challenges in combining product offerings and entering into new markets in which we may not have experience;
distraction of management’s attention from normal business operations;
potential loss of key employees of the acquired company;
difficulty implementing effective internal controls over financial reporting and disclosure controls and procedures;
impairment of relationships with customers or suppliers;
possibility of incurring impairment losses related to goodwill and intangible assets; and
other issues not discovered in due diligence, which may include product quality issues or legal or other contingencies
Acquisitions and/or investments may also result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, the expenditure of available cash, and amortization expenses or write-downs related to intangible assets such as goodwill, any of which could have a material adverse effect on our operating results or financial condition. Investments in immature businesses with unproven track records and technologies have an especially high degree of risk, with the possibility that we may lose our entire investment or incur unexpected liabilities.  We may experience risks relating to the challenges and costs of closing a business combination or investment transaction and the risk that an announced business combination or investment transaction may not close. There can be no assurance that we will be successful in making additional acquisitions in the future or in integrating or executing on our business plan for existing or future acquisitions.
We may be subject to significant expenses and damages because of product-related claims.
In the ordinary course of business, we are, from time to time, involved in lawsuits, claims, investigations, proceedings and threats of litigation. The amount of damages cannot be predicted with certainty, and a successful claim brought against us could materially harm our business and financial condition. Product-related claims, even if not successful, could damage our reputation, cause us to lose existing clients, limit our ability to obtain new clients, divert management's attention from operations, result in significant revenue loss, create potential liabilities for our clients and us, and increase insurance and other operational costs.
Claims that we infringe the intellectual property rights of others may be costly to defend or settle and could damage our business.
We cannot be certain that our software and services do not infringe patents, copyrights, trademarks or other intellectual property rights, so infringement claims might be asserted against us. In addition, we have agreed, and may agree in the future, to indemnify certain of our customers against infringement claims that third parties may assert against our customers based on use of our software or services. Such claims may have a material adverse effect on our business, may be time-consuming and may result in substantial costs and diversion of resources, including our management's attention to our business. Furthermore, a party making an infringement claim could secure a judgment that requires us to pay substantial damages and could also include an injunction or other court order that could prevent us from selling our software or require that we re-engineer some or all of our products. Claims of intellectual property infringement also might require us to enter costly royalty or license agreements. We may be unable to obtain royalty or license agreements on terms acceptable to us or at all. Our business, operating results and financial condition could be harmed significantly if any of these events were to occur, and the price of our common stock could be adversely affected.
We may not be able to protect our intellectual property rights, which could make us less competitive and cause us to lose market share.
Our software is proprietary. Our strategy is to rely on a combination of copyright, patent, trademark and trade secret laws in the United States and other jurisdictions, and to rely on license and confidentiality agreements and software security measures to further protect our proprietary technology and brand. We have obtained or applied for patent protection with respect to some of our intellectual property, but generally do not rely on patents as a principal means of protecting our intellectual property. We have registered or applied to register some of our trademarks in the United States and in selected other countries. We generally enter into non-disclosure agreements with our employees and customers, and historically have restricted third-party access to our software and source code, which we regard as proprietary information. In certain cases, we have provided copies of source code to customers for the purpose of special product customization or have deposited copies of the source code with a third-party escrow agent as security for ongoing service and license obligations. In these cases, we rely on non-disclosure and other contractual provisions to protect our proprietary rights.

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The steps we have taken to protect our proprietary rights may not be adequate to deter misappropriation of our technology or independent development by others of technologies that are substantially equivalent or superior to our technology. Our intellectual property rights may expire or be challenged, invalidated or infringed upon by third parties or we may be unable to maintain, renew or enter into new licenses on commercially reasonable terms. Any misappropriation of our technology or development of competitive technologies could harm our business and could diminish or cause us to lose the competitive advantages associated with our proprietary technology, and could subject us to substantial costs in protecting and enforcing our intellectual property rights, and/or temporarily or permanently disrupt our sales and marketing of the affected products or services. The laws of some countries in which our products are licensed do not protect our intellectual property rights to the same extent as the laws of the United States. Moreover, in some non-U.S. countries, laws affecting intellectual property rights are uncertain in their application, which can affect the scope of enforceability of our intellectual property rights.
Our software research and development initiatives and our customer relationships could be compromised if the security of our information technology is breached as a result of a cyber-attack. This could have a material adverse effect on our business, operating results and financial condition, and could harm our competitive position.
We devote significant resources to continually updating our software and developing new products, and our financial performance is dependent in part upon our ability to bring new products and services to market. Our customers use our software to optimize their manufacturing processes and manage asset performance, and they rely on us to provide updates and releases as part of our software maintenance and support services, and to provide remote on-line troubleshooting support. The security of our information technology environment is therefore important to our research and development initiatives, and an important consideration in our customers’ purchasing decisions. We maintain cybersecurity policies and procedures, including employee training, to manage risk to our information systems, and we continually evaluate and adapt our systems and processes to mitigate evolving cybersecurity threats.  We may incur additional costs to maintain appropriate cybersecurity protections in response to evolving cybersecurity threats, and we may not be able to safeguard against all data security breaches or misuses of data. If the security of our systems is impaired, our development initiatives might be disrupted, and we might be unable to provide service. Our customer relationships might deteriorate, our reputation in the industry could be harmed, and we could be subject to liability claims. This could reduce our revenues, and expose us to significant costs to detect, correct and avoid recurrences of any breach of security and to defend any claims against us. In addition, our insurance coverage may not be adequate to cover all costs related to cybersecurity incidents and the disruptions resulting from such events.
Risks Related to Our Common Stock
Our common stock may experience substantial price and volume fluctuations.
The equity markets have from time to time experienced extreme price and volume fluctuations, particularly in the high technology sector, and those fluctuations often have been unrelated to the operating performance of particular companies. In addition, the market price of our common stock may be affected by other factors, such as: (i) our financial performance; (ii) announcements of technological innovations or new products by us or our competitors; and (iii) market conditions in the computer software or hardware industries.
In the past, following periods of volatility in the market price of a public company's securities, securities class action litigation has often been instituted against that company. This type of litigation against us could result in substantial liability and costs and divert management's attention and resources.
Our corporate documents and provisions of Delaware law may prevent a change in control or management that stockholders may consider desirable.
Section 203 of the Delaware General Corporation Law, our charter and our by-laws contain provisions that might enable our management to resist a takeover of our company. These provisions include:
limitations on the removal of directors;
a classified board of directors, so that not all members of the board are elected at one time;
advance notice requirements for stockholder proposals and nominations;
the inability of stockholders to act by written consent or to call special meetings;
the ability of the board to make, alter or repeal our by-laws; and
the ability of the board to designate the terms of and issue new series of preferred stock without stockholder approval.
These provisions could:

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have the effect of delaying, deferring or preventing a change in control of our company or a change in our management that stockholders may consider favorable or beneficial;
discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions; and
limit the price that investors might be willing to pay in the future for shares of our common stock.
Item 1B.    Unresolved Staff Comments.
None.
Item 2.    Properties.
Our principal executive offices are located in leased facilities in Bedford, Massachusetts, consisting of approximately 143,000 square feet of office space to accommodate our product development, sales, marketing, operations, finance and administrative functions. The lease for our Bedford executive offices commenced in November 2014 and is scheduled to expire March 2025. Subject to the terms and conditions of the lease, we may extend the term of the lease for two successive terms of five years each.
We also lease approximately 69,000 square feet in Houston, Texas to accommodate sales, services and product development functions. In addition to our Bedford and Houston locations, we lease office space in the United Kingdom, Shanghai, Mexico City, Singapore, Beijing, Pune, Moscow, Tokyo, and Bahrain, to accommodate sales, services and product development functions.
In the remainder of our other locations, the majority of our leases have lease terms of one year or less that are generally based on the number of workstations required. We believe this facilities strategy provides us with significant flexibility to adjust to changes in our business environment. We do not own any real property. We believe that our leased facilities are adequate for our anticipated future needs.
Item 3.    Legal Proceedings.
None.
Item 4.    Mine Safety Disclosures
None.

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PART II
Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock currently trades on The NASDAQ Global Select Market under the symbol "AZPN." The closing price of our common stock on June 30, 2020 was $103.61.
Holders
On November 25, 2020, there were 319 holders of record of our common stock. The number of record holders does not include persons who held common stock in nominee or "street name" accounts through brokers.
Dividends
We have never declared or paid cash dividends on our common stock. We do not anticipate paying cash dividends on our common stock in the foreseeable future. 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 Amended and Restated Credit Agreement restricts us from declaring or paying dividends in cash on our capital stock if our Leverage Ratio is in excess of 2.75 to 1.00 (refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Credit Agreement” and Note 12, "Credit Agreement," to our Consolidated Financial Statements for further discussion of the Amended and Restated Credit Agreement). Our Leverage Ratio is below 2.75 to 1.00 as of June 30, 2020. Any future determination relating to our dividend policy will be made at the discretion of the Board of Directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition and future prospects and such other factors as the Board of Directors may deem relevant.
Purchases of Equity Securities by the Issuer
As of June 30, 2020, the total number of shares of common stock repurchased since November 1, 2010 under all programs approved by the Board of Directors was 36,270,015 shares.
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. Under the New Share Repurchase Program, purchases can be made from time to time using a variety of methods, which may include open market purchases, accelerated buyback programs, and others. The specific timing, price and size of purchases will depend on prevailing stock prices, general market and economic conditions, and other considerations, including the amount of cash generated in the United States and other potential uses of cash, such as acquisitions. Purchases may be made through a Rule 10b5-1 plan pursuant to predetermined metrics set forth in such plan. The Board of Directors' authorization of the New Share Repurchase Program does not obligate us to acquire any particular amount of common stock, and the program may be suspended or discontinued at any time.
During the first nine months of fiscal 2020, we repurchased 1,252,289 shares of our common stock in the open market for $150.0 million. We did not repurchase shares of our common stock during the fourth quarter of fiscal 2020. During fiscal 2019, we repurchased 3,074,127 shares of our common stock in the open market for $300.0 million. During fiscal 2018, we repurchased 2,797,623 shares of our common stock in the open market for $200.0 million.
As of June 30, 2020, the total remaining value under the Share Repurchase Program was approximately $196.3 million.

Item 6.    Selected Financial Data.

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The following tables present selected consolidated financial data for Aspen Technology, Inc. The consolidated statements of operations data set forth below for fiscal 2020, 2019 and 2018 and the consolidated balance sheets data as of June 30, 2020 and 2019, are derived from our consolidated financial statements included beginning on page F-1 of this Form 10-K. The consolidated statements of operations data for fiscal 2017 and 2016 and the consolidated balance sheet data as of June 30, 2018, 2017, and 2016 are derived from our consolidated financial statements that are not included in this Form 10-K. The data presented below should be read in conjunction with our consolidated financial statements and accompanying notes beginning on page F-1 and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Our historical results should not be viewed as indicative of results expected for any future period.
As a result of the adoption of new guidance related to revenue recognition during fiscal 2019, prior period information for fiscal 2018 and 2017 included below has been restated to reflect the new guidance. Prior period information for fiscal 2016 has not been restated and is, therefore, not comparable to the fiscal 2020, 2019, 2018, and 2017 information. In addition, we have revised the following table for immaterial error corrections discussed in Note 20, "Correction of Immaterial Errors," to our Consolidated Financial Statements.
 
Year Ended June 30,
 
2020
 
2019
 
2018
 
2017
 
2016
 
 
 
As Adjusted
 
As Adjusted
 
As Adjusted
 
 
 
(in Thousands, except per share data)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
 
 
Revenue
$
598,717

 
$
596,682

 
$
507,566

 
$
483,395

 
$
472,344

Gross profit
537,110

 
538,866

 
456,922

 
435,929

 
423,733

Income from operations
257,359

 
281,139

 
207,928

 
205,687

 
211,381

Net income
$
229,671

 
$
261,362

 
$
281,234

 
$
173,063

 
$
139,951

Basic income per share
$
3.38

 
$
3.74

 
$
3.90

 
$
2.26

 
$
1.69

Diluted income per share
$
3.34

 
$
3.69

 
$
3.85

 
$
2.25

 
$
1.68

Weighted average shares outstanding—Basic
68,000

 
69,925

 
72,140

 
76,491

 
82,892

Weighted average shares outstanding—Diluted
68,727

 
70,787

 
72,956

 
76,978

 
83,309


 
Year Ended June 30,
 
2020
 
2019
 
2018
 
2017
 
2016
 
 
 
As Adjusted
 
As Adjusted
 
As Adjusted
 
 
 
(in Thousands)
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
287,796

 
$
71,926

 
$
96,165

 
$
101,954

 
$
318,336

Marketable securities

 

 

 

 
3,006

Accounts receivable, net
56,301

 
47,784

 
41,810

 
42,656

 
20,476

Installments receivable, net

 

 

 

 
267

Contract assets
610,473

 
582,291

 
521,627

 
536,559

 

Total assets
1,223,306

 
863,013

 
814,453

 
816,730

 
419,738

Borrowings, net
427,532

 
220,000

 
170,000

 
140,000

 
140,000

Deferred revenue
57,081

 
44,891

 
27,504

 
44,860

 
282,078

Working capital (deficit)
415,942

 
105,645

 
155,389

 
213,150

 
(71,300
)
Total stockholders' equity (deficit)
466,353

 
361,960

 
377,974

 
268,759

 
(75,034
)

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion in conjunction with our consolidated financial statements and related notes beginning on page F-1. In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should read “Item 1A. Risk Factors” for a discussion of important factors that could cause our actual results to differ materially from our expectations.

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Our fiscal year ends on June 30, and references to a specific fiscal year are the twelve months ended June 30 of such year (for example, "fiscal 2020" refers to the year ended June 30, 2020).
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 fiscal 2020, our business was negatively impacted by these factors. Specifically, in the last four months of the fiscal year, 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 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.


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Table of Contents

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 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.

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Table of Contents

Interest Expense. Interest expense is primarily related to our Amended and Restated Credit Agreement.
Other (Expense) Income, 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 the company’s 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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Table of Contents

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 June 30, 2020, approximately 90% of our term license agreements (by value) are denominated in U.S. dollars. For agreements denominated in other currencies, the company uses 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 9.6% during fiscal 2020, from $541.0 million as of June 30, 2019 to $593.1 million as of June 30, 2020. We estimate that annual spend grew by approximately 10.6% during fiscal 2019, from $489.3 million as of June 30, 2018 to $541.0 million as of June 30, 2019.

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 and $2.6 billion as of June 30, 2020 and 2019, respectively.

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 was $610.1 million during fiscal 2020, compared to $651.8 million and $502.3 million during fiscal 2019 and 2018, respectively. The change in bookings during fiscal 2020, 2019, and 2018 is related 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, (c) non-capitalized acquired technology, and (d) other nonrecurring items, such as acquisition and litigation related payments.

The following table provides a reconciliation of GAAP cash flow from operating activities to free cash flow for the indicated periods:

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Table of Contents

 
June 30,
 
2020
 
2019
 
2018
 
(Dollars in Thousands)
Net cash provided by operating activities (GAAP)
$
243,258

 
$
238,313

 
$
206,936

Purchase of property, equipment, and leasehold improvements
(1,278
)
 
(436
)
 
(331
)
Payments for capitalized computer software costs
(141
)
 
(1,131
)
 
(329
)
Non-capitalized acquired technology

 

 
75

Litigation related payments

 

 
4,546

Acquisition related payments
1,264

 
27

 
1,148

Free cash flow (non-GAAP)
$
243,103

 
$
236,773

 
$
212,045

In fiscal 2018 we have excluded litigation related payments of $4.5 million.
Fiscal 2020 Compared to Fiscal 2019
Total free cash flow increased $6.3 million during fiscal 2020 as compared to the prior fiscal year primarily due to changes in working capital. For a more detailed description of these changes refer to "Liquidity and Capital Resources."
Fiscal 2019 Compared to Fiscal 2018
Total free cash flow increased $24.7 million during fiscal 2019 as compared to the prior fiscal year primarily due to changes in working capital. For a more detailed description of these changes refer to "Liquidity and Capital Resources."
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 litigation judgments and acquisition related fees, for the indicated periods:
 
June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
 
 
As Adjusted
 
As Adjusted
 
 
 
 
 
 
 
 
GAAP income from operations
$
257,359

 
$
281,139

 
$
207,928

 
$
(23,780
)
 
(8.5
)%
 
$
73,211

 
35.2
 %
Plus:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
31,548

 
27,573

 
22,688

 
3,975

 
14.4
 %
 
4,885

 
21.5
 %
Amortization of intangibles
6,572

 
4,533

 
2,231

 
2,039

 
45.0
 %
 
2,302

 
103.2
 %
Litigation judgment

 

 
1,689

 

 
 %
 
(1,689
)
 
(100.0
)%
Acquisition related fees
78

 
1,438

 
721

 
(1,360
)
 
(94.6
)%
 
717

 
99.4
 %
Non-GAAP income from operations
$
295,557

 
$
314,683

 
$
235,257

 
$
(19,126
)
 
(6.1
)%
 
$
79,426

 
33.8
 %
In fiscal 2018, we incurred an expense associated with a litigation judgment in the amount of $1.7 million.
Results of Operations

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The following table sets forth the results of operations, percentage of total revenue and the year-over-year percentage change in certain financial data for fiscal 2020, 2019 and 2018:
 
Year Ended June 30,
 
2020 Compared to 2019 %
 
2019 Compared to 2018 %
 
2020
 
2019
 
2018
 
 
 
 
 
 
 
As Adjusted
 
As Adjusted
 
 
 
 
 
(Dollars in Thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License
$
388,180

 
64.8
 %
 
$
404,581

 
67.8
 %
 
$
318,442

 
62.7
 %
 
(4.1
)%
 
27.1
 %
Maintenance
178,139

 
29.8

 
163,567

 
27.4

 
158,838

 
31.3

 
8.9

 
3.0

Services and other
32,398

 
5.4

 
28,534

 
4.8

 
30,286

 
6.0

 
13.5

 
(5.8
)
Total revenue
598,717

 
100.0

 
596,682

 
100.0

 
507,566

 
100.0

 
0.3

 
17.6

Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License
7,241

 
1.2

 
7,060

 
1.2

 
5,236

 
1.0

 
2.6

 
34.8

Maintenance
19,248

 
3.2

 
19,208

 
3.2

 
17,408

 
3.4

 
0.2

 
10.3

Services and other
35,118

 
5.9

 
31,548

 
5.3

 
28,000

 
5.5

 
11.3

 
12.7

Total cost of revenue
61,607

 
10.3

 
57,816

 
9.7

 
50,644

 
9.9

 
6.6

 
14.2

Gross profit
537,110

 
89.7

 
538,866

 
90.3

 
456,922

 
90.1

 
(0.3
)
 
17.9

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling and marketing
114,486

 
19.1

 
111,374

 
18.7

 
99,737

 
19.7

 
2.8

 
11.7

Research and development
92,230

 
15.4

 
83,122

 
13.9

 
82,076

 
16.2

 
11.0

 
1.3

General and administrative
73,035

 
12.2

 
63,231

 
10.6

 
67,181

 
13.2

 
15.5

 
(5.9
)
Total operating expenses
279,751

 
46.7

 
257,727

 
43.2

 
248,994

 
49.1

 
8.5

 
3.5

Income from operations
257,359

 
43.0

 
281,139

 
47.1

 
207,928

 
41.0

 
(8.5
)
 
35.2

Interest income
32,658

 
5.5

 
28,457

 
4.8

 
24,954

 
4.9

 
14.8

 
14.0

Interest (expense)
(11,862
)
 
(2.0
)
 
(8,733
)
 
(1.5
)
 
(5,691
)
 
(1.1
)
 
35.8

 
53.5

Other income (expense), net
1,202

 
0.2

 
664

 
0.1

 
(838
)
 
(0.2
)
 
81.0

 
(179.2
)
Income before income taxes
279,357

 
46.7

 
301,527

 
50.5

 
226,353

 
44.6

 
(7.4
)
 
33.2

Provision for (benefit from) income taxes
49,686

 
8.3

 
40,165

 
6.7

 
(54,881
)
 
(10.8
)
 
23.7

 
(173.2
)
Net income
$
229,671

 
38.4
 %
 
$
261,362

 
43.8
 %
 
$
281,234

 
55.4
 %
 
(12.1
)%
 
(7.1
)%
Revenue
Fiscal 2020 Compared to Fiscal 2019
Total revenue increased by $2.0 million during fiscal 2020 as compared to the prior fiscal year. The increase of $2.0 million was due to an increase in maintenance revenue of $14.6 million and an increase in services and other revenue of $3.9 million, partially offset by a decrease in license revenue of $(16.4) million, as compared to the prior fiscal year.
Fiscal 2019 Compared to Fiscal 2018
Total revenue increased by $89.1 million during fiscal 2019 as compared to the prior fiscal year. The increase of $89.1 million was due to an increase in license revenue of $86.1 million and an increase in maintenance revenue of $4.7 million, partially offset by a decrease in services and other revenue of $(1.8) million as compared to the prior fiscal year.

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Table of Contents

License Revenue
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
 
 
As Adjusted
 
As Adjusted
 
 
 
 
 
 
 
 
 
(Dollars in Thousands)
License revenue
$
388,180

 
$
404,581

 
$
318,442

 
$
(16,401
)
 
(4.1
)%
 
$
86,139

 
27.1
%
As a percent of total revenue
64.8
%
 
67.8
%
 
62.7
%
 
 
 
 
 
 
 
 
Fiscal 2020 Compared to Fiscal 2019
The decrease in license revenue of $(16.4) million during fiscal 2020 as compared to the prior fiscal year was primarily attributable to a decrease in bookings related to the timing of renewals.
Fiscal 2019 Compared to Fiscal 2018
The increase in license revenue of $86.1 million during fiscal 2019 as compared to the prior fiscal year was primarily due to an increase in bookings and the timing of renewals.
Maintenance Revenue
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
 
 
As Adjusted
 
As Adjusted
 
 
 
 
 
 
 
 
 
(Dollars in Thousands)
Maintenance revenue
$
178,139

 
$
163,567

 
$
158,838

 
$
14,572

 
8.9
%
 
$
4,729

 
3.0
%
As a percent of total revenue
29.8
%
 
27.4
%
 
31.3
%
 
 
 
 
 
 
 
 
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.
Fiscal 2020 Compared to Fiscal 2019
The increase in maintenance revenue of $14.6 million during fiscal 2020 as compared to the prior fiscal year was primarily due to growth of our base of arrangements, which include maintenance, being recognized on a ratable basis.
Fiscal 2019 Compared to Fiscal 2018
The increase in maintenance revenue of $4.7 million during fiscal 2019 as compared to the prior fiscal year was primarily due to growth of our base of arrangements, which include maintenance, being recognized on a ratable basis.
Services and Other Revenue
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
 
 
As Adjusted
 
As Adjusted
 
 
 
 
 
 
 
 
 
(Dollars in Thousands)
Services and other revenue
$
32,398

 
$
28,534

 
$
30,286

 
$
3,864

 
13.5
%
 
$
(1,752
)
 
(5.8
)%
As a percent of total revenue
5.4
%
 
4.8
%
 
6.0
%
 
 
 
 
 
 
 
 

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.
Fiscal 2020 Compared to Fiscal 2019
Services and other revenue increased by $3.9 million during fiscal 2020 as compared to the prior fiscal year primarily due to the timing and volume of professional services engagements.

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Table of Contents

Fiscal 2019 Compared to Fiscal 2018
Services and other revenue decreased by $(1.8) million during fiscal 2019 as compared to the prior fiscal year primarily due to the timing of professional services engagements.
Cost of Revenue
Cost of License Revenue
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
Cost of license revenue
$
7,241

 
$
7,060

 
$
5,236

 
$
181

 
2.6
%
 
$
1,824

 
34.8
%
As a percent of license revenue
1.9
%
 
1.7
%
 
1.6
%
 
 
 
 
 
 
 
 
Fiscal 2020 Compared to Fiscal 2019
Cost of license revenue increased by $0.2 million during fiscal 2020 as compared to the prior fiscal year. The increase in cost of license revenue during fiscal 2020 was primarily due to increased amortization of intangible assets from acquisitions. License gross profit margin was 98.1% in fiscal 2020 and was consistent with 98.3% in fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018
Cost of license revenue increased by $1.8 million during fiscal 2019 as compared to the prior fiscal year. The increase in cost of license revenue during fiscal 2019 was primarily due to increased amortization of intangible assets from acquisitions. License gross profit margin was 98.3% in fiscal 2019 and was consistent with 98.4% in fiscal 2018.
Cost of Maintenance Revenue
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
Cost of maintenance revenue
$
19,248

 
$
19,208

 
$
17,408

 
$
40

 
0.2
%
 
$
1,800

 
10.3
%
As a percent of maintenance revenue
10.8
%
 
11.7
%
 
11.0
%
 
 
 
 
 
 
 
 
Fiscal 2020 Compared to Fiscal 2019
Cost of maintenance revenue was consistent during fiscal 2020 as compared to the prior fiscal year. Maintenance gross profit margin was 89.2% in fiscal 2020 and was consistent with 88.4% in fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018
Cost of maintenance revenue increased by $1.8 million during fiscal 2019 as compared to the prior fiscal year. The increase in cost of maintenance revenue during fiscal 2019 was primarily due to higher headcount related costs. Maintenance gross profit margin was 88.4% in fiscal 2019 and was consistent with 89.1% in fiscal 2018.
Cost of Services and Other Revenue
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
Cost of services and other revenue
$
35,118

 
$
31,548

 
$
28,000

 
$
3,570

 
11.3
%
 
$
3,548

 
12.7
%
As a percent of services and other revenue
108.4
%
 
110.6
%
 
92.5
%
 
 
 
 
 
 
 
 


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Table of Contents

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.
Fiscal 2020 Compared to Fiscal 2019
Cost of services and other revenue increased by $3.6 million during fiscal 2020 as compared to the prior fiscal year. The increase in cost of services and other revenue during fiscal 2020 was primarily due to higher cost of delivering professional services to support the corresponding increase in revenue during the period. Services and other gross profit margin was (10.8)% in fiscal 2020, compared to (16.2)% in fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018
Cost of services and other revenue increased by $3.5 million during fiscal 2019 as compared to the prior fiscal year. The increase in cost of services and other revenue during fiscal 2019 was primarily due to higher cost of delivering professional services to support the corresponding increase in revenue during the period. Services and other gross profit margin was (16.2)% in fiscal 2019, compared to 1.0% in fiscal 2018.
Gross Profit
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
 
 
As Adjusted
 
As Adjusted
 
 
 
 
 
 
 
 
 
(Dollars in Thousands)
Gross profit
$
537,110

 
$
538,866

 
$
456,922

 
$
(1,756
)
 
(0.3
)%
 
$
81,944

 
17.9
%
As a percent of total revenue
89.7
%
 
90.3
%
 
90.1
%
 
 
 
 
 
 
 
 
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.
Fiscal 2020 Compared to Fiscal 2019
Gross profit decreased by $(1.8) million during fiscal 2020 as compared to the prior fiscal year and gross profit margin remained consistent at 89.7% in fiscal 2020 compared to 90.3% in fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018
Gross profit increased by $81.9 million during fiscal 2019 as compared to the prior fiscal year and gross profit margin remained consistent at 90.3% in fiscal 2019 compared to 90.1% in fiscal 2018.
Operating Expenses
Selling and Marketing Expense
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
Selling and marketing expense
$
114,486

 
$
111,374

 
$
99,737

 
$
3,112

 
2.8
%
 
$
11,637

 
11.7
%
As a percent of total revenue
19.1
%
 
18.7
%
 
19.7
%
 
 
 
 
 
 
 
 
Fiscal 2020 Compared to Fiscal 2019
The year-over-year increase of $3.1 million in selling and marketing expense in fiscal 2020 as compared to the prior fiscal year was primarily due to higher compensation costs of $6.9 million related to an increase in headcount and higher stock-based compensation of $1.0 million, partially offset by lower travel-related costs of $1.8 million, lower royalties of $0.9 million, and lower marketing costs of $0.8 million due to our biennial customer conference held in fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018

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The year-over-year increase of $11.6 million in selling and marketing expense in fiscal 2019 as compared to the prior fiscal year was primarily due to higher compensation costs of $4.9 million related to an increase in headcount, higher commissions expense of $3.8 million, higher marketing costs of $1.2 million due to our biennial customer conference held in fiscal 2019, and higher stock-based compensation of $1.1 million.
Research and Development Expense
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
Research and development expense
$
92,230

 
$
83,122

 
$
82,076

 
$
9,108

 
11.0
%
 
$
1,046

 
1.3
%
As a percent of total revenue
15.4
%
 
13.9
%
 
16.2
%
 
 
 
 
 
 
 
 
Fiscal 2020 Compared to Fiscal 2019
The year-over-year increase of $9.1 million in research and development expense in fiscal 2020 as compared to the prior fiscal year was primarily due to higher compensation costs of $6.8 million related to an increase in headcount and higher stock-based compensation of $1.7 million.
Fiscal 2019 Compared to Fiscal 2018
The year-over-year increase of $1.0 million in research and development expense in fiscal 2019 was primarily due to higher compensation costs of $1.2 million related to an increase in headcount, partially offset by lower stock-based compensation of $0.7 million.
General and Administrative Expense
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
General and administrative expense
$
73,035

 
$
63,231

 
$
67,181

 
$
9,804

 
15.5
%
 
$
(3,950
)
 
(5.9
)%
As a percent of total revenue
12.2
%
 
10.6
%
 
13.2
%
 
 
 
 
 
 
 
 
Fiscal 2020 Compared to Fiscal 2019
The year-over-year increase of $9.8 million in general and administrative expense during fiscal 2020 as compared to the prior fiscal year was primarily due to higher professional fees of $3.1 million, higher bad debt expense of $2.0 million, higher compensation costs of $1.7 million related to an increase in headcount, and higher stock-based compensation of $0.7 million.
Fiscal 2019 Compared to Fiscal 2018
The year-over-year decrease of $4.0 million in general and administrative expense during fiscal 2019 as compared to the prior fiscal year was primarily due to lower bad debt expense of $9.3 million and a decrease of $1.5 million associated with a litigation judgment in the prior period, partially offset by higher stock-based compensation of $3.4 million and higher compensation costs of $2.6 million related to an increase in headcount.
Non-Operating Income (Expense)
Interest Income
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
Interest income
$
32,658

 
$
28,457

 
$
24,954

 
$
4,201

 
14.8
%
 
$
3,503

 
14.0
%
As a percent of total revenue
5.5
%
 
4.8
%
 
4.9
%
 
 
 
 
 
 
 
 
Fiscal 2020 Compared to Fiscal 2019

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The year-over-year increase of $4.2 million in interest income during fiscal 2020 as compared to the prior fiscal year was a result of: (i) increased customer usage of our software; (ii) adding new customers; and (iii) escalating annual payments.

Fiscal 2019 Compared to Fiscal 2018
The year-over-year increase of $3.5 million in interest income during fiscal 2019 as compared to the prior fiscal year was a result of: (i) increased customer usage of our software; (ii) adding new customers; and (iii) escalating annual payments.
Interest Expense
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
Interest expense
$
(11,862
)
 
$
(8,733
)
 
$
(5,691
)
 
$
(3,129
)
 
35.8
%
 
$
(3,042
)
 
53.5
%
As a percent of total revenue
(2.0
)%
 
(1.5
)%
 
(1.1
)%
 
 
 
 
 
 
 
 
Fiscal 2020 Compared to Fiscal 2019
The year-over-year increase of $3.1 million in interest expense during fiscal 2020 as compared to the prior fiscal year was primarily due to interest expenses related to an increase in borrowings under our Amended and Restated Credit Agreement.
Fiscal 2019 Compared to Fiscal 2018
The year-over-year increase of $3.0 million in interest expense during fiscal 2019 as compared to the prior fiscal year was primarily due to interest expenses related to higher interest rates and an increase in borrowings under our Prior Credit Agreement, which was amended and restated pursuant to the Amended and Restated Credit Agreement.
Other Income (Expense), Net
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018
 
2020
 
2019
 
2018
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
Other income (expense), net
$
1,202

 
$
664

 
$
(838
)
 
$
538

 
81.0
%
 
$
1,502

 
(179.2
)%
As a percent of total revenue
0.2
%
 
0.1
%
 
(0.2
)%
 
 
 
 
 
 
 
 
Other income (expense), net is comprised primarily of unrealized and realized foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units.
Fiscal 2020 Compared to Fiscal 2019
Other income, net was comprised of $1.2 million and $0.7 million of net foreign currency exchange gains during fiscal 2020 and 2019, respectively.
Fiscal 2019 Compared to Fiscal 2018
Other income (expense), net was comprised of $0.7 million of net foreign currency exchange gains and $(0.8) million of net foreign currency exchange losses during fiscal 2019 and 2018, respectively.

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Provision for Income Taxes
 
Year Ended June 30,
 
2020 Compared to 2019
 
2019 Compared to 2018