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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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)
(781221-6400
(Registrant’s telephone number, including area code)
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common stock, $0.10 par value per shareAZPNNASDAQ Global Select Market
____________________________________________

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



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes  No ý
As of January 20, 2021, there were 67,836,428 shares of the registrant’s common stock (par value $0.10 per share) outstanding.



Table of Contents
TABLE OF CONTENTS
 
  Page
  
   
   
  
   
  
 
aspenONE is one of our registered trademarks. All other trade names, trademarks and service marks appearing in this Form 10-Q are the property of their respective owners.
 
Our fiscal year ends on June 30th, and references to a specific fiscal year are to the twelve months ended June 30th of such year (for example, “fiscal 2021” refers to the year ending June 30, 2021).
3

Table of Contents
PART I - FINANCIAL INFORMATION
 
Item 1.    Financial Statements.
 
Consolidated Financial Statements (unaudited)
 
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
December 31,
Six Months Ended
December 31,
 2020201920202019
 (Dollars in Thousands, Except per Share Data)
Revenue:    
License$180,170 $72,436 $242,029 $160,155 
Maintenance46,818 44,547 93,676 88,219 
Services and other6,730 9,029 12,984 17,815 
Total revenue233,718 126,012 348,689 266,189 
Cost of revenue:  
License2,238 2,009 4,374 3,669 
Maintenance4,128 4,584 8,892 9,561 
Services and other7,949 8,933 16,515 17,514 
Total cost of revenue14,315 15,526 29,781 30,744 
Gross profit219,403 110,486 318,908 235,445 
Operating expenses:  
Selling and marketing26,575 28,500 51,747 57,692 
Research and development22,172 22,625 44,702 45,118 
General and administrative21,203 16,422 38,836 36,306 
Total operating expenses69,950 67,547 135,285 139,116 
Income from operations149,453 42,939 183,623 96,329 
Interest income9,304 8,428 17,973 16,404 
Interest (expense)(2,049)(3,161)(4,144)(6,161)
Other (expense) income, net(333)(997)(1,802)135 
Income before income taxes156,375 47,209 195,650 106,707 
Provision for income taxes27,223 7,408 33,787 13,392 
Net income$129,152 $39,801 $161,863 $93,315 
Net income per common share:  
Basic$1.91 $0.58 $2.39 $1.37 
Diluted$1.89 $0.58 $2.37 $1.35 
Weighted average shares outstanding:  
Basic67,780 68,114 67,754 68,277 
Diluted68,400 68,844 68,360 69,090 
 
See accompanying Notes to these unaudited consolidated financial statements.
4

Table of Contents
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
December 31,
Six Months Ended
December 31,
 2020201920202019
 (Dollars in Thousands)
Net income$129,152 $39,801 $161,863 $93,315 
Other comprehensive income:  
Foreign currency translation adjustments7,266 3,739 11,419 637 
Total other comprehensive income7,266 3,739 11,419 637 
Comprehensive income$136,418 $43,540 $173,282 $93,952 
 
See accompanying Notes to these unaudited consolidated financial statements.
5

Table of Contents
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31,
2020
June 30,
2020
 (Dollars in Thousands, Except
Share Data)
ASSETS  
Current assets: 
Cash and cash equivalents$217,487 $287,796 
Accounts receivable, net46,348 56,301 
Current contract assets, net309,964 291,497 
Prepaid expenses and other current assets10,922 10,884 
Prepaid income taxes4,003 3,962 
Total current assets588,724 650,440 
Property, equipment and leasehold improvements, net5,748 5,963 
Computer software development costs, net1,438 928 
Goodwill157,797 137,055 
Intangible assets, net48,223 42,851 
Non-current contract assets, net419,258 318,976 
Contract costs28,295 28,614 
Operating lease right-of-use assets33,431 34,905 
Deferred tax assets2,863 1,735 
Other non-current assets2,112 1,839 
Total assets$1,287,889 $1,223,306 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$2,876 $3,988 
Accrued expenses and other current liabilities40,230 43,556 
Current operating lease liabilities7,094 6,824 
Income taxes payable4,359 1,799 
Current borrowings16,000 135,163 
Current deferred revenue48,582 43,168 
Total current liabilities119,141 234,498 
Non-current deferred revenue12,524 13,913 
Deferred tax liabilities181,734 179,978 
Non-current operating lease liabilities30,890 33,088 
Non-current borrowings, net284,757 292,369 
Other non-current liabilities4,711 3,107 
Commitments and contingencies (Note 17)
Series D redeemable convertible preferred stock, $0.10 par value—
Authorized— 367,000 shares as of December 31, 2020 and June 30, 2020
Issued and outstanding— none as of December 31, 2020 and June 30, 2020
  
Stockholders’ equity:  
Common stock, $0.10 par value— Authorized—210,000,000 shares
Issued— 104,099,832 shares at December 31, 2020 and 103,988,707 shares at June 30, 2020
Outstanding— 67,829,817 shares at December 31, 2020 and 67,718,692 shares at June 30, 2020
10,410 10,399 
Additional paid-in capital783,897 769,411 
Retained earnings1,620,193 1,458,330 
Accumulated other comprehensive income (loss)6,131 (5,288)
Treasury stock, at cost—36,270,015 shares of common stock at December 31, 2020 and 36,270,015 shares at June 30, 2020(1,766,499)(1,766,499)
Total stockholders’ equity654,132 466,353 
Total liabilities and stockholders’ equity$1,287,889 $1,223,306 
 

6

Table of Contents
See accompanying Notes to these unaudited consolidated financial statements.
7

Table of Contents
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common StockAdditional Paid-in CapitalRetained Earnings Accumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
Number of Shares$0.10 Par ValueNumber of SharesCost
(Dollars in Thousands, Except Share Data)
June 30, 2020103,988,707 $10,399 $769,411 $1,458,330 $(5,288)36,270,015 $(1,766,499)$466,353 
Comprehensive income:
Net income— — — 32,711 — — — 32,711 
Other comprehensive income— — — — 4,153 4,153 
Issuance of shares of common stock12,943 1 314 — — — 315 
Issuance of restricted stock units and net share settlement related to withholding taxes26,265 3 (1,761)— — — — (1,758)
Stock-based compensation— — 6,268 — — — — 6,268 
September 30, 2020104,027,915 $10,403 $774,232 $1,491,041 $(1,135)36,270,015 $(1,766,499)$508,042 
Comprehensive income:
Net income— — — 129,152 — — — 129,152 
Other comprehensive income— — — — 7,266 7,266 
Issuance of shares of common stock34,681 3 2,843 — — — 2,846 
Issuance of restricted stock units and net share settlement related to withholding taxes37,236 4 (2,274)— — — — (2,270)
Stock-based compensation— — 9,096 — — — — 9,096 
Balance December 31, 2020104,099,832 $10,410 $783,897 $1,620,193 $6,131 36,270,015 $(1,766,499)$654,132 


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Common StockAdditional Paid-in CapitalRetained Earnings Accumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
Number of Shares$0.10 Par ValueNumber of SharesCost
(Dollars in Thousands, Except Share Data)
June 30, 2019103,642,292 $10,365 $739,099 $1,228,659 $336 35,017,726 $(1,616,499)$361,960 
Comprehensive income:
Net income— — — 53,514 — — — 53,514 
Other comprehensive (loss)— — — — (3,102)(3,102)
Issuance of shares of common stock17,783 2 933 — — — 935 
Issuance of restricted stock units and net share settlement related to withholding taxes57,451 5 (3,399)— — — — (3,394)
Repurchase of common stock— — — — — 382,279 (50,000)(50,000)
Stock-based compensation— — 9,275 — — — — 9,275 
September 30, 2019103,717,526 $10,372 $745,908 $1,282,173 $(2,766)35,400,005 $(1,666,499)$369,188 
Comprehensive income:
Net income— — — 39,801 — — — 39,801 
Other comprehensive income— — — — 3,739 3,739 
Issuance of shares of common stock31,857 3 1,938 — — — 1,941 
Issuance of restricted stock units and net share settlement related to withholding taxes39,155 4 (2,623)— — — — (2,619)
Repurchase of common stock— — — — — 418,019 (50,000)(50,000)
Stock-based compensation— — 7,559 — — — — 7,559 
Balance December 31, 2019103,788,538 $10,379 $752,782 $1,321,974 $973 35,818,024 $(1,716,499)$369,609 

See accompanying Notes to these unaudited consolidated financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
 20202019
 (Dollars in Thousands)
Cash flows from operating activities:  
Net income$161,863 $93,315 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization4,857 4,479 
Reduction in the carrying amount of right-of-use assets
4,779 3,251 
Net foreign currency losses (gains)2,054 (162)
Stock-based compensation15,364 16,834 
Deferred income taxes212 (1,400)
Provision for bad debts4,736 1,264 
Other non-cash operating activities407 215 
Changes in assets and liabilities:  
Accounts receivable8,372 (4,539)
Contract assets, net(123,373)(29,887)
Contract costs321 (830)
Lease liabilities(5,235)(3,396)
Prepaid expenses, prepaid income taxes, and other assets42 (1,768)
Accounts payable, accrued expenses, income taxes payable and other liabilities(7,063)(23,105)
Deferred revenue6,954 7,936 
Net cash provided by operating activities74,290 62,207 
Cash flows from investing activities:  
Purchases of property, equipment and leasehold improvements(522)(968)
Payments for business acquisitions, net of cash acquired(15,943)(74,219)
Payments for equity method investments(166) 
Payments for capitalized computer software development costs(895)(70)
Net cash used in investing activities(17,526)(75,257)
Cash flows from financing activities:  
Issuance of shares of common stock3,114 2,714 
Repurchases of common stock (100,864)
Payments of tax withholding obligations related to restricted stock(4,107)(5,851)
Proceeds from revolving credit facility, net of repayments(119,182)129,163 
Repayments of amounts borrowed under term loan(8,000) 
Payments of debt issuance costs (3,454)
Net cash provided by (used in) financing activities(128,175)21,708 
Effect of exchange rate changes on cash and cash equivalents1,104 (98)
Increase (decrease) in cash, cash equivalents, and restricted cash(70,307)8,560 
Cash and cash equivalents, beginning of period287,796 71,926 
Cash, cash equivalents, and restricted cash, end of period$217,489 $80,486 
Supplemental disclosure of cash flow information:  
Income taxes paid, net$30,668 $19,748 
Interest paid4,217 5,192 
Supplemental disclosure of non-cash activities:
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses$57 $(96)
Change in repurchases of common stock included in accounts payable and accrued expenses (864)
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Lease liabilities arising from obtaining right-of-use assets1,291 4,824 
December 31,
2020
December 31,
2019
Reconciliation to amounts within the unaudited consolidated balance sheets:(Dollars in Thousands)
Cash and cash equivalents$217,487 $80,486 
Restricted cash included in other non-current assets2  
Cash, cash equivalents, and restricted cash, end of period$217,489 $80,486 
See accompanying Notes to these unaudited consolidated financial statements.
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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1.  Interim Unaudited Consolidated Financial Statements
 
The accompanying interim unaudited consolidated financial statements of Aspen Technology, Inc. and its subsidiaries have been prepared on the same basis as our annual consolidated financial statements.  We have omitted certain information and footnote disclosures normally included in our annual consolidated financial statements.  Such interim unaudited consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles ("GAAP"), as defined in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 270, Interim Reporting, for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  It is suggested that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2020, which are contained in our Annual Report on Form 10-K, as previously filed with the U.S. Securities and Exchange Commission ("SEC"). In the opinion of management, all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations, and cash flows at the dates and for the periods presented have been included and all intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and six months ended December 31, 2020 are not necessarily indicative of the results to be expected for the subsequent quarter or for the full fiscal year.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
Unless the context requires otherwise, references to we, our and us refer to Aspen Technology, Inc. and its subsidiaries.
 
2.  Significant Accounting Policies
 
(a)         Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of Aspen Technology, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

(b)         Significant Accounting Policies 

Our significant accounting policies are described in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020. We adopted Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses ("Topic 326") effective July 1, 2020. Refer to Note 2(h), “New Accounting Pronouncements Adopted in Fiscal 2021,” for further information regarding the adoption of Topic 326. There were no other material changes to our significant accounting policies during the three and six months ended December 31, 2020.
 
(c)  Loss Contingencies
 
We accrue estimated liabilities for loss contingencies arising from claims, assessments, litigation and other sources when it is probable that a liability has been incurred and the amount of the claim, assessment or damages can be reasonably estimated. We believe that we have sufficient accruals to cover any obligations resulting from claims, assessments or litigation that have met these criteria.

(d)         Foreign Currency Transactions
 
Foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our subsidiaries are recognized in our results of operations as incurred as a component of other (expense), net. Net foreign currency exchange (losses) gains were $(0.6) million and $(1.0) million during the three months ended December 31, 2020 and 2019, respectively, and $(2.1) million and $0.2 million during the six months ended December 31, 2020 and 2019, respectively.

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(e)    Research and Development Expense
We charge research and development expenditures to expense as the costs are incurred. Research and development expenses consist primarily of personnel expenses related to the creation of new products, enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technological feasibility. There was less than $0.1 million of capitalized direct labor costs associated with our development of software for sale during the three months ended December 31, 2020 and 2019, respectively, and $0.7 million and less than $0.1 million during the six months ended December 31, 2020 and 2019, respectively.
(f) Restricted Cash

As of December 31, 2020, our restricted cash balance of less than $0.1 million related to funds subject to contractual restrictions. We did not have a restricted cash balance as of June 30, 2020.

(g)    Equity Method Investments

During fiscal 2020, we entered into a limited partnership investment fund agreement. The primary objective of this partnership is investing in equity and equity-related securities (including convertible debt) of venture growth- stage businesses. We account for the investment in accordance with Topic 323, Investments - Equity Method and Joint Ventures. Our total commitment under this partnership is 5.0 million CAD ($3.9 million). Under the conditions of the equity method investment, unfavorable future changes in market conditions could lead to a potential loss up to the full value of our 5.0 million CAD ($3.9 million) commitment. As of December 31, 2020, the fair value of this investment is 0.7 million CAD ($0.5 million), representing our payment towards the total commitment, and is recorded in non-current assets in our consolidated balance sheet.

(h)          New Accounting Pronouncements Adopted in Fiscal 2021

In June 2016, the FASB issued Topic 326. The amendment changes the impairment model for most financial assets and certain other instruments. Under Topic 326, entities are required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, contract assets, held-to-maturity debt securities, loans, and other instruments. Topic 326 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. We adopted Topic 326 effective July 1, 2020 using the effective date method with a modified retrospective transition approach. The adoption of Topic 326 did not have a material impact on our balance sheet, operating results or cash flows, and there was no impact on our debt covenants.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“Topic 848”). ASU 2020-04 provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. ASU No. 2020-04 is effective as of March 12, 2020 through December 31, 2022, and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. We adopted ASU 2020-04 effective July 1, 2020. The adoption of ASU No. 2020-04 did not have a material impact on our operating results or cash flows, and there was no impact on our debt covenants.

(i)          Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes ("Topic 740") - Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020. Early adoption is permitted. We are currently evaluating the impact of ASU 2019-12 on our consolidated financial statements.  





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3.   Revenue from Contracts with Customers

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

Nature of Products and Services

We generate revenue from the following sources: (1) License revenue; (2) Maintenance revenue; and (3) Services and other revenue. We sell our software products to end users primarily under fixed-term licenses. We license our software products primarily through a subscription offering which we refer to as our aspenONE licensing model, which includes software maintenance and support, known as our Premier Plus SMS offering, for the entire term. Our aspenONE products are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management. The aspenONE licensing model provides customers with access to all of the products within the aspenONE suite(s) they license. We refer to these arrangements as token arrangements. Tokens are fixed units of measure. The amount of software usage is limited by the number of tokens purchased by the customer.

We also license our software through point product term arrangements, which include our Premier Plus SMS offering for the entire term.

We determine revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when, or as, we satisfy a performance obligation.

Term-based Arrangements: Term-based arrangements consist of on-premise term licenses as well as maintenance.

License

License revenue consists primarily of product and related revenue from our aspenONE licensing model and point product arrangements.

When a customer elects to license our products under our aspenONE licensing model, the customer receives, for the term of the arrangement, the right to all software products in the licensed aspenONE software suite. When a customer elects to license point products, the customer receives, for the term of the arrangement, the right to license specified products in the licensed aspenONE software suite. Revenue from initial product licenses is recognized upfront upon delivery.

Maintenance

When a customer elects to license our products under our aspenONE licensing model, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any updates that may be introduced into the licensed aspenONE software suite. When a customer elects to license point products, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any updates that may be introduced related to the specified products licensed. Maintenance represents a stand-ready obligation and, due to our obligation to provide unspecified future software updates on a when-and-if available basis as well as telephone support services, we are required to recognize revenue ratably over the term of the arrangement.

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Services and Other Revenue

Professional Services Revenue

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

Training Revenue

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

Contracts with Multiple Performance Obligations

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

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

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

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

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

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

Other policies and judgments

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

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

Disaggregation of Revenue

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

 Three Months Ended
December 31,
Six Months Ended
December 31,
 2020201920202019
(Dollars in Thousands)
Revenue by region:
North America$111,192 $49,389 $158,431 $111,814 
Europe77,474 32,468 111,190 70,746 
Other (1)45,052 44,155 79,068 83,629 
$233,718 $126,012 $348,689 $266,189 
Revenue by type of performance obligation:
Term licenses$180,170 $72,436 $242,029 $160,155 
Maintenance46,818 44,547 93,676 88,219 
Professional services and other6,730 9,029 12,984 17,815 
$233,718 $126,012 $348,689 $266,189 
Revenue by segment:
Subscription and software$226,988 $116,983 $335,705 $248,374 
Services and other6,730 9,029 12,984 17,815 
$233,718 $126,012 $348,689 $266,189 
____________________________________________
(1)Other consists primarily of Asia Pacific, Latin America and the Middle East.

Contract Assets and Deferred Revenue

The difference in the opening and closing balances of our contract assets and deferred revenue primarily results from the timing difference between our performance and the customer’s payment. We fulfill our obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. We recognize a contract asset when we transfer products or services to a customer and the right to consideration is conditional on something other than the passage of time. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional. We recognize deferred revenue when we have received consideration or an amount of consideration is due from the customer and we have a future obligation to transfer products or services.

Payment terms and conditions vary by contract type. Terms generally include a requirement of payment annually over the term of the license arrangement. During the majority of each customer contract term, the amount invoiced is generally less than the amount of revenue recognized to date, primarily because we transfer control of the performance obligation related to the software license at the inception of the contract term, and the allocation of contract consideration to the license performance
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obligation is a significant portion of the total contract consideration. Therefore, our contracts often result in the recording of a contract asset throughout the majority of the contract term. We record a contract asset when revenue recognized on a contract exceeds the billings.

The contract assets are subject to credit risk and reviewed in accordance with Topic 326. We monitor the credit quality of customer contract asset balances on an individual basis, at each reporting date, through credit characteristics, geographic location, and the industry in which they operate. We recognize an impairment on contract assets if, subsequent to contract inception, it becomes probable payment is not collectible. An allowance for expected credit loss reflects losses expected over the remaining term of the contract asset and is determined based upon historical losses, customer-specific factors, and current economic conditions.
The following table presents the change in the reserve for contract assets during the six months ended December 31, 2020:
June 30, 2020ProvisionWrite-Offs, Recoveries, and BillingsDecember 31, 2020
(Dollars in Thousands)
$(2,947)$(4,796)$33 $(7,710)

Our total contract assets, net and deferred revenue were as follows as of December 31, 2020 and June 30, 2020:
December 31,
2020
June 30,
2020
(Dollars in Thousands)
Contract assets, net$729,222 $610,473 
Deferred revenue(61,106)(57,081)
$668,116 $553,392 

Contract assets and deferred revenue are presented net at the contract level for each reporting period.

The change in deferred revenue in the six months ended December 31, 2020 was primarily due to an increase in new billings in advance of revenue recognition, partially offset by $25.2 million of revenue recognized that was included in deferred revenue as of June 30, 2020.

Contract Costs

We pay commissions for new product sales as well as for renewals of existing contracts. Commissions paid to obtain renewal contracts are not commensurate with the commissions paid for new product sales and therefore, a portion of the commissions paid for new contracts relate to future renewals.

We account for new product sales commissions using a portfolio approach and allocate the cost of commissions in proportion to the allocation of transaction price of license and maintenance performance obligations, including assumed renewals. Commissions allocated to the license and license renewal components are expensed at the time the license revenue is recognized. Commissions allocated to maintenance are capitalized and amortized on a straight-line basis over a period of four years to eight years for new contracts, reflecting our estimate of the expected period that we will benefit from those commissions.

Amortization of capitalized contract costs is included in selling and marketing expenses in our statement of operations.

Transaction Price Allocated to Remaining Performance Obligations

The following table includes the aggregate amount of the transaction price allocated as of December 31, 2020 to the performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
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Year Ended June 30,
20212022202320242025Thereafter
(Dollars in Thousands)
License$60,919 $21,414 $10,583 $4,019 $4,653 $700 
Maintenance90,190 150,787 115,109 84,035 53,523 23,311 
Services and other43,008 3,998 859 390 226 197 




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4. Leases

We have operating leases primarily for corporate offices, and other operating leases for data centers and certain equipment. We determine whether an arrangement is or contains a lease based on facts and circumstances present at the inception of the arrangement. We recognize lease expense on a straight-line basis over the lease term. Our leases have remaining lease terms of less than one year to approximately ten years, some of which include options to extend the leases for up to five years, and some of which include the option to terminate the leases upon advanced notice of 30 days or more. If we are reasonably certain we will exercise an option to extend or terminate the lease, the time period covered by the extension or termination option is included in the lease term.

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in the lease contracts is typically not readily determinable. As such, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as incentives received. We have lease agreements with lease and non-lease components, which are accounted for separately.

Operating lease costs are recognized on a straight-line basis over the term of the lease. The components of lease expenses for the three and six months ended December 31, 2020 and 2019 were as follows:
Three Months Ended
December 31,
Six Months Ended
December 31,
2020201920202019
 (Dollars in Thousands)(Dollars in Thousands)
Operating lease costs (1)
$2,474 $2,293 $4,897 $4,476 
Total lease costs$2,474 $2,293 $4,897 $4,476 
________
(1) Operating lease costs include rent and fixed fees

The following table represents the weighted-average remaining lease term and discount rate information related to our operating leases as of December 31, 2020 and June 30, 2020:
 December 31,
2020
June 30,
2020
Weighted average remaining lease term5.2 years5.7 years
Weighted average discount rate4.3 %4.4 %

The following table represents the maturities of our operating lease liabilities as of December 31, 2020 and June 30, 2020:
December 31,
2020
June 30,
2020
(Dollars in Thousands)
Year Ending June 30,
2021$3,752 $8,477 
20229,570 8,784 
20238,823 8,167 
20247,661 7,516 
20255,567 5,481 
Thereafter7,720 7,370 
Total lease payments43,093 45,795 
Less: imputed interest(5,109)(5,883)
$37,984 $39,912 

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

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

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

The following table summarizes financial assets and liabilities measured and recorded at fair value on a recurring basis in the accompanying consolidated balance sheets as of December 31, 2020 and June 30, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Fair Value Measurements at Reporting Date Using,
 
Quoted Prices in Active Markets for Identical Assets
(Level 1 Inputs)
Significant Other Observable Inputs
(Level 2 Inputs)
 (Dollars in Thousands)
December 31, 2020:
Cash equivalents$1,020 $ 
Equity method investments 548 
June 30, 2020:
Cash equivalents$1,020 $ 
Equity method investments 342 

Financial instruments not measured or recorded at fair value in the accompanying consolidated financial statements consist of accounts receivable, accounts payable and accrued liabilities. The estimated fair value of these financial instruments approximates their carrying value. The estimated fair value of the borrowings under the Amended and Restated Credit Agreement (described below in Note 12, "Credit Agreement") approximates its carrying value due to the floating interest rate.

6.  Accounts Receivable, Net
 
Our accounts receivable, net of the related allowance for doubtful accounts, were as follows as of December 31, 2020 and June 30, 2020:
 
 December 31,
2020
June 30,
2020
 (Dollars in Thousands)
Accounts receivable, gross$55,596 $62,925 
Allowance for doubtful accounts(9,248)(6,624)
Accounts receivable, net$46,348 $56,301 

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

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7.  Property and Equipment

Property, equipment and leasehold improvements consisted of the following as of December 31, 2020 and June 30, 2020:
 
 December 31,
2020
June 30,
2020
 (Dollars in Thousands)
Property, equipment and leasehold improvements, at cost:  
Computer equipment$7,424 $6,958 
Purchased software22,544 22,534 
Furniture & fixtures7,106 6,971 
Leasehold improvements12,672 12,424 
Property, equipment and leasehold improvements, at cost49,746 48,887 
Accumulated depreciation(43,998)(42,924)
Property, equipment and leasehold improvements, net$5,748 $5,963 


8. Acquisitions 

Camo Analytics AS
On November 17, 2020, we completed the acquisition of substantially all the outstanding shares of Camo Analytics AS (“Camo”), a leading provider of industrial analytics, for a total cash consideration of $12.8 million. The purchase price consisted of $10.1 million of cash paid at closing, $0.3 million to be paid for the remaining undelivered shares as of the closing date, and $2.4 million to be held back as security for certain representations, warranties, and obligations of the sellers. The holdback amounts are recorded in accrued expenses and other current liabilities in our consolidated balance sheet.
An allocation of the purchase price is as follows:
Amount
(Dollars in Thousands)
Tangible assets acquired, net$637 
Identifiable intangible assets:
Technology-related2,555 
Customer relationships1,916 
Goodwill7,668 
Total assets acquired, net$12,776 

The amounts above represent the preliminary fair value estimates as of December 31, 2020 and are subject to subsequent adjustment as we obtain additional information during the measurement period and finalize our fair value estimates. The goodwill reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling Camo products and services to our existing customers and is reported under the subscription and software reporting unit.  The results of operations of Camo have been included prospectively in our results of operations since the date of acquisition.

OptiPlant, Inc.
On December 8, 2020, we completed the acquisition of all the outstanding shares of OptiPlant, Inc. (“OptiPlant”), a leading provider of AI Driven 3D Conceptual Design and Engineering Automation software, for a total cash consideration of $8.3 million. The purchase price consisted of $6.8 million of cash paid at closing, $0.3 million to be held back for working capital adjustments, and $1.2 million to be held back as security for certain representations, warranties, and obligations of the sellers. The holdback amounts are recorded in accrued expenses and other current liabilities and other non-current liabilities, respectively, in our consolidated balance sheet.
An allocation of the purchase price is as follows:
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Table of Contents
Amount
(Dollars in Thousands)
Tangible assets acquired, net$45 
Identifiable intangible assets:
Technology-related1,485 
Customer relationships990 
Goodwill6,275 
Deferred tax liabilities(545)
Total assets acquired, net$8,250 
The amounts above represent the preliminary fair value estimates as of December 31, 2020 and are subject to subsequent adjustment as we obtain additional information during the measurement period and finalize our fair value estimates. The goodwill reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling OptiPlant products and services to our existing customers and is reported under the subscription and software reporting unit.  The results of operations of OptiPlant have been included prospectively in our results of operations since the date of acquisition.
9. Intangible Assets 
We include in our amortizable intangible assets those intangible assets acquired in our business and asset acquisitions. We amortize acquired intangible assets with finite lives over their estimated economic lives, generally using the straight-line method. Each period, we evaluate the estimated remaining useful lives of acquired intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. Acquired intangibles are removed from the accounts when fully amortized and no longer in use.
Intangible assets consisted of the following as of December 31, 2020 and June 30, 2020:
Gross Carrying AmountAccumulated AmortizationEffect of Currency TranslationNet Carrying Amount
(Dollars in Thousands)
December 31, 2020:
Technology$55,309 $(16,182)$636 $39,763 
Customer relationships12,054 (3,847)253 8,460 
Non-compete agreements553 (553)  
Total$67,916 $(20,582)$889 $48,223 
June 30, 2020:
Technology$51,269 $(13,245)$(842)$37,182 
Customer relationships9,148 (3,171)(