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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, 2021
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-34630
____________________________________________
Aspen Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware04-2739697
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
20 Crosby Drive
Bedford
Massachusetts01730
(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 ClassTrading SymbolName of Each Exchange on Which Registered
Common stock, $0.10 par value per shareAZPNNASDAQ 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 Exchange 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 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  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, 2020, 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 $8,795,495,299 based on a total of 67,527,795 shares of common stock held by non-affiliates and on a closing price of $130.25 on December 31, 2020 for the common stock as reported on The NASDAQ Global Select Market.
There were 67,076,892 shares of common stock outstanding as of August 11, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement related to the registrant's 2021 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.








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 2021" refers to the year ended June 30, 2021).
Unless the context indicates otherwise, references in this report to "we", "us", "our" and similar references mean Aspen Technology, Inc. and its subsidiaries.
2






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."
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 combines our proprietary mathematical and empirical models of manufacturing and planning processes which reflects the deep domain expertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 40 years. Our products have embedded artificial intelligence, or AI, capabilities that create insights, provide guidance, and automate and democratize knowledge, known as Industrial AI, to create more value for the process industries. For customers beginning to consider how AI can be applied to their domain-specific challenges, we recently introduced our hybrid model methodology. This capability enhances first principles-driven models with AI to improve accuracy, safety and predictability without requiring customers to have additional data science expertise.

We have developed our applications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain, and asset performance management. Each business area leverages our artificial intelligence of things, or AIoT, products as the foundation of industrial data, to help us realize our vision for Industrial AI at scale. We are the 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.




3






We have approximately 2,500 customers globally. Our customers consist of companies engaged in the process industry 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.
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, for example, 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 their 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 driving their 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.
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Other Industries. We recently embarked on a new strategy to market our products and solutions to support companies in the pharmaceuticals and metal and mining industries. These industries desire a far more connected digital infrastructure than the one they have now, and are seeking asset optimization solutions that help them improve their processes, reduce costs and improve quality. Companies in the consumer packaged goods, power, and pulp and paper industries are also seeking asset optimization solutions that help them deliver improved financial and operating results in the face of varied process manufacturing challenges.
Organizations in the process industries now also view sustainability efforts as being a more urgent necessity due to a variety of factors including governmental regulations, environmental stewardship, and new market opportunities. Achieving sustainability goals requires organizations to focus on their environmental footprints, which include everything from reducing the use of non-renewable resources, such as water for feedstocks or energy generation, to decreasing carbon emissions related to standard business operations. Key techniques used to meet these goals can include sustainability tracking, enhanced waste management, process intensification, process redesign and making better use of energy and water. AspenTech products are solutions for each of these techniques.
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.
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 leverage effectively 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, or to reduce environmental impact.
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.
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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.
Increasingly, industrial organizations are focusing on how AI can be applied to address domain-specific industrial challenges. They are concentrating on tangible business outcomes from AI-enabled use cases to further validate the case for widespread industrial AI adoption. These initiatives involve shifting from mass data collection to more strategic industrial data management with a specific focus on data integration, mobility, and accessibility across the enterprise. As a result, integrated data management, edge and cloud infrastructure, and production-grade AI environments are in demand to build, deploy and host industrial AI applications at the appropriate speeds and scale.

AspenTech solutions help customers meet these challenges with proven domain expertise and innovative solutions. Our hybrid model methodology and capabilities in particular enhance first-principles driven models with AI. This is important because highly nonlinear processes are very difficult to model using first principles, and our software can model them using machine learning capabilities and insert empirical data models as objects into first principles-driven models to improve accuracy, safety and predictability.
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. Guided by 40 years of industrial expertise, we are delivering fit-for-purpose Industrial AI to create the next generation of domain-specific applications that extract new levels of value from industrial data across the entire enterprise. Customers use our solutions to accelerate their digitalization efforts in order to meet sustainability and profitability goals. Our solutions help customers automate processes to improve competitiveness and operational and resource efficiencies by increasing throughput and productivity, reducing operating and maintenance costs, increasing reliability, enhancing capital efficiency, enabling collaboration among different functions, increasing safety, reducing emissions and risk, and decreasing working capital requirements. Our solutions also help organizations design, operate, and maintain the production of innovative products from new energy sources like hydrogen to new genetic-based pharmaceuticals such as vaccines. Our aspenONE solutions are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management or APM. Each product suite leverages our AIoT products as the foundation of industrial data.
Engineering. Our engineering software is used to develop process designs of new plants, re-vamp existing plants, and simulate and optimize existing processes. Using advanced modeling technologies including industrial AI, our engineering software can create digital twins of new and existing plant processes and equipment that are used to troubleshoot, fine-tune plant operations and improve overall environmental impact.
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 while driving more sustainable operations. 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 delivers Industrial AI through comprehensive 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 and adhere to their sustainability goals.
Artificial Intelligence of Things. Our artificial intelligence of things products are used to: collect large volumes of data for reporting and analysis; integrate data across plants and technologies; visualize data to identify trends, outliers and patterns; and customize applications with our Data Science Studio. Each suite leverage our AIoT products to capture industrial data to help us realize our Industrial AI vision.
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We offer customer support, professional services and training services to our customers. Under our aspenONE licensing model, software maintenance and support are 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 the following.
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 embed fit-for-purpose Industrial AI to help customers capture value from industrial data 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, production planning and scheduling, design of new plant operations, maintenance of assets, quality of products delivered, sustainability and much more.
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 Engineering, Manufacturing and Supply Chain, Asset Performance Engineering suites to support real-time decision making both for individual production facilities and across multiple sites.
Flexible commercial model. Our aspenONE licensing model is primarily a subscription offering that provides customers with access to all of the applications within and across the aspenONE suite(s) that the customers license, including the right to any 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 interchangeable measures of usage, 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.
Cloud-ready infrastructure. The Aspen AIoT Hub is the cloud-ready Industrial AI infrastructure that enables our vision for the Self-Optimizing Plant. It provides the integrated data management, edge, and cloud infrastructure, and a production-grade AI environment, that enable customers to build, deploy and host Industrial AI applications at the enterprise speed and scale needed to gain critical insights from industrial data across plants and the enterprise.
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 40 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.
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. We believe this
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strategy is proving effective as our customers are increasingly facing a dual challenge in today’s environment – meeting the demand for resources and higher standards of living from a growing population while also addressing sustainability goals, reductions in emissions and reductions in plastic waste. This means generating new levels of operational excellence while simultaneously addressing sustainability targets. In this complex and uncertain environment, companies require the agility in operations to address volatility, the flexibility to operate across different scenarios, and access to critical supply chain insights. These requirements in turn necessitate digitalization across the enterprise to deliver increased safety in operations, greater reliability, and improved efficiencies. In combination, these results drive greater sustainability by delivering safer, greener, and faster operations, all while supporting increased profitability.
Additionally, we seek acquisitions to accelerate our overall growth in the design and operations of the process, acquisitions that will expand our maintenance solution to deliver asset optimization, or acquisitions that will introduce us to or allow us to further penetrate new industries. To accomplish these goals, we will pursue the following activities:
Continue to provide innovative, market-leading solutions. Our recent product release, aspenONE V12, embeds AI across the product portfolio, and uses the cloud for delivery of enterprise-wide analytics and insights for increased safety, sustainability, and improved margins. This new release further supports our Industrial AI solutions and the ability to democratize the application of AI where it can deliver most value and is a vital step towards our vision for the Self-Optimizing Plant.

aspenONE V12 solutions have Industrial AI hybrid model capability that is purpose-built for the process industries and other capital-intensive industries. Aspen Hybrid Models capture data from assets across the enterprise, and then apply AI, engineering first principles and AspenTech’s domain expertise to deliver comprehensive, more accurate models at enterprise speed and scale. With AspenTech’s four decades of knowledge about the unique challenges of building solutions for process industries and other capital-intensive industries, aspenONE V12 enables customers to apply AI to critical processes without additional data science expertise and offers support for new users without deep process knowledge or experience.
Further penetrate existing customer base. We have an installed base of approximately 2,500 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 other industries such as metals and mining, pharmaceutical, power, pulp and paper, and food and beverage.
Build an ecosystem. The relevance of our solutions in the markets we serve means that we can 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 as well us diversify the types of industries we serve.
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. For example, the needs of pharmaceutical customers are evolving by requiring more agility while still meeting high expectations for quality. This
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momentum, in particular the increasing role of digitalization, electronic batch release and online process models, is creating additional opportunities for AspenTech strengths.
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 and emissions, enhancing capital efficiency, and decreasing working capital requirements. We have designed and developed our software applications across three principal business areas: engineering, manufacturing and supply chain, and asset performance management. Each business area leverages our AIoT products as the foundation of industrial data, to help us realize our vision for Industrial AI at scale.
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.
Artificial Intelligence of Things. Our AIoT solutions are used to leverage industrial data by collecting large volumes of data for reporting and analysis; integrating data across plants and technologies; visualizing data to identify trends, outliers and patterns; and customizing data science applications with an AI workbench.
Our software applications are currently offered in three suites: aspenONE Engineering, aspenONE Manufacturing and Supply Chain, and aspenONE Asset Performance Management. Each business suite leverages our AIoT products as the foundation of industrial data. These suites and our AIoT products 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 and our AIoT products 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 AreaaspenONE ModuleMajor ProductsProduct Description
EngineeringProcess Simulation for Energy
Aspen HYSYSProcess modeling software for the design and optimization of hydrocarbon processes, including flow assurance, refinery reactors, acid gas clean-up, and sulfur recovery - with embedded Industrial AI capabilities
Aspen Operator TrainingSolution 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 PlusProcess modeling software for the design and optimization of chemical processes, including solids and batch processes - with embedded Industrial AI capabilities
Economic Evaluation
Aspen Capital Cost Estimator
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
Aspen OptiPlant 3D Layout
A platform used to develop rapid 3D Models, engineer multiple options for analysis, select the design optimized for Cost, Layout, Constructability, Safety and Operations
Basic Engineering
Aspen Basic EngineeringCollaborative 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



aspenONE Manufacturing and Supply Chain
Business AreaaspenONE ModuleMajor ProductsProduct Description
ManufacturingAdvanced Process ControlAspen DMC3
Multi-variable controller software for maintaining processes at their optimal operating point under changing process conditions with Industrial AI
Aspen Inferential Qualities
Maintain tighter quality control and reduce lab work with accurate real-time estimates of infrequently measured properties using powerful deep learning technology
Dynamic OptimizationAspen GDOTMulti-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 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
Aspen Operations Reconciliation and Accounting
Accuracy in production accounting and better decision-making with reconciled production data using one model that integrates unit- and plant-boundary balances
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Aspen Tank and Operations Manager
Efficiently execute and monitor inventory operations with a powerful interface for movement and tank operations

Multivariate Statistical Analysis and Real-time MonitoringAspen UnscramblerIndustry-leading tool for modeling, prediction and optimization using multivariate statistical analysis and interactive visualizations. Develop products faster, improve quality and optimize processes by analyzing large, complex data sets easier than ever
Aspen Unscrambler HSISolve complex problems with explorative, multivariate analysis of hyperspectral images for transformations, outlier detection and model validation to classify products and improve quality
Aspen Process Pulse Monitor, control and optimize processes with real-time visibility of all types of process and spectral data. Run models for early fault detection, process deviation warnings, Process Analytical Technology (PAT) support and continuous improvement while enabling compliance with regulatory mandates
Supply ChainRefinery Planning & SchedulingAspen Unified PIMS Refinery and olefins planning software for optimizing feedstock selection, product slate and operational execution
Aspen Unified SchedulingRefinery and olefins scheduling software for scheduling and optimization of refinery operations with integration to refinery planning, blending and dock operations
Supply & Distribution
Aspen Petroleum Supply Chain PlannerEconomic planning software for optimizing the profitability of the petroleum distribution network, including transportation, raw materials, sales demands, and processing facilities
Aspen Fleet OptimizerSoftware for inventory management and truck transportation optimization in secondary petroleum distribution
Supply Chain ManagementAspen Collaborative Demand ManagerSoftware for forecasting market demand and managing forecast through changes in the business environment by combining historical and real time data
Aspen Plant SchedulerSoftware for generating optimal production schedules to meet total demand
Aspen Supply PlannerSoftware for determining the optimal production plan taking into account labor and equipment, feedstock, inbound /outbound transportation, storage capacity, and other variables
Aspen Schedule ExplorerEnable flawless operational execution by aligning teams via a common collaborative hub, allowing supply chain and operations to communicate and make proactive decisions
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aspenONE Asset Performance Management
Business AreaaspenONE ModuleMajor ProductsProduct Description
Asset Performance ManagementRisk AnalysisAspen Fidelis ReliabilitySoftware 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 AnalyticsAspen ProMVMultivariate 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 Event AnalyticsSoftware for analyzing plant operations in real time to identify causal precursors that can lead to an unplanned downtime event
Aspen MtellSoftware for recognizing unique data patterns as predictions of future equipment behavior
aspenONE Artificial Intelligence of Things
Business AreaaspenONE ModuleMajor ProductsProduct Description
Artificial Intelligence of ThingsConnectAspen Cloud ConnectSoftware 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 InfoPlus.21Local data historian software for storing, visualizing and analyzing large volumes of data to improve production execution and enhance performance management
Aspen Enterprise IP.21 Historian Aggregate data in the cloud across multiple IP.21 or third-party historian sites, support smaller sites, provide inherent high-availability and enable an industrial data lake strategy
aspenONE Process ExplorerSoftware for combining process measurements, product characteristics, alarms, events and unstructured data for a complete view of production
Aspen Production Record ManagerEasy and fast segmentation of production data into batches, campaigns or other logical groupings for easier analysis and production reporting
Aspen Enterprise InsightsEnterprise Visibility, Collaboration and Workflow Automation- Translate real-time data into faster, smarter, profitable business decisions to visualize deviations automatically and identify risks early
Aspen Data Science StudioEnable an Industrial AI Application Ecosystem-Out-of-the box analytics libraries and AI development collaboration tools empowering both domain experts and data scientists
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, 2021, we had a total of 747 employees in our research and development group, which is comprised of product management, software development and quality assurance. Research and development expenses were $94.2 million in fiscal 2021, $92.2 million in fiscal 2020 and $83.1 million in fiscal 2019.
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,
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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.
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 543 employees as of June 30, 2021.
Software Maintenance and Support, Professional Services and Training
Software maintenance and support, or 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, 2021, we had a total of 351 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.
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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.
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;
Focus on software for the process industries;
Embedded AI capabilities that create insights, provide guidance, and automate and democratize knowledge;
Flexibility of our usage-based aspenONE licensing model;
Consistent global support; and
Deep domain expertise and AI to deliver Industrial AI.
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 software security measures to further protect our proprietary technology and brand. 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
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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, 2021, we had a total of approximately 1,897 full-time employees, of whom 863 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.
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 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 fiscal year ended June 30, 2021. While the measures instituted in response to COVID‑19 are expected to be temporary, the duration of the business disruptions and related operational and financial impact on our customers and us cannot be estimated with certainty at this time. The adverse effects on the economies and financial markets of many countries and markets may result in an economic downturn and changes in global economic policy that could reduce demand for our products and have a material adverse impact on our business, operating
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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.
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:

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 reduced demand for oil due to the COVID-19 pandemic, 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 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.
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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. Customer demand for our products is linked to the strength of the global economy. If weakness in the global economy persists, many customers may amend their procurement strategies to delay or reduce their technology purchases. Capital expenditure and operating expense budgetary cycles are inherent in our customers’ procurement strategies. These cycles are often informed by oil prices and environmental factors such as the COVID-19 pandemic. Delay or reduction in our customers' technology purchases 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, 2021, we operated in 35 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, 2021, 2020 and 2019. 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;
less effective protection of intellectual property;
requirements of foreign laws and other governmental controls;
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 2021, 2020 and 2019, 12.6%, 6.6% and 10.1% 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 2021, 2020 and 2019, 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, and supply chain, asset performance management and AIoT. 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 these acquisitions 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 or liabilities associated with or arising from 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 cyberattack. 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, including the increase in ransomware attacks. Our policy is to follow the NIST cybersecurity framework to manage and reduce cybersecurity risk. 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, or if our systems are infiltrated by unauthorized persons, 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 of Directors to make, alter or repeal our by-laws; and
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the ability of the Board of Directors to designate the terms of and issue new series of preferred stock without stockholder approval.
These provisions could:
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 80,000 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
Not applicable.
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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, 2021 was $137.54.
Holders
On August 11, 2021, there were 305 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, which we refer to as 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, which we refer to as 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 (as defined in the Amended and Restated Credit Agreement) 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, 2021. 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, 2021, the total number of shares of common stock repurchased since November 1, 2010 under all programs approved by the Board of Directors was 36,631,254 shares.
On January 22, 2015, our Board of Directors approved a share repurchase program, or the Share Repurchase Program for up to $450.0 million of our common stock. The Share Repurchase Program was announced on January 28, 2015, and expires at the end of each fiscal year unless extended. On April 26, 2016, June 8, 2017, April 18, 2018, December 6, 2018, and April 17, 2019, the Board of Directors approved a $400.0 million, $200.0 million, $200.0 million, $100.0 million, and $200.0 million increase in the Share Repurchase Program, respectively. On July 22, 2020, our Board of Directors approved a new share repurchase program, or the FY 2021 Program, for up to $200.0 million of our common stock, and terminated the Share Repurchase Program. The FY 2021 Program expired on June 30, 2021. On June 4, 2021, our Board of Directors approved another share repurchase program, or the FY 2022 Program, for up to $300.0 million of our common stock in our fiscal year ending June 30, 2022. 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 FY 2022 Program does not obligate us to acquire any particular amount of common stock, and the program may be suspended or discontinued at any time. 
On June 14, 2021, as part of our FY 2022 Program, we entered into an accelerated share repurchase program, or the ASR Program, with a third party financial institution to repurchase an aggregate of $150.0 million of our common stock. The final settlement of the transaction under the ASR Program is expected to occur in the first quarter of our fiscal year 2022. For more details on of the ASR Program, refer to Note 21, "Subsequent Events".

During fiscal 2021, we repurchased 361,239 shares of our common stock in the open market for $50.0 million. During fiscal 2020, we repurchased 1,252,289 shares of our common stock in the open market for $150.0 million. During fiscal 2019, we repurchased 3,074,127 shares of our common stock in the open market for $300.0 million.

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As of June 30, 2021, there was no remaining dollar value under the FY 2021 Program, and $300.0 million remaining under the FY 2022 Program.

Item 6.    Selected Financial Data.
The following tables present selected consolidated financial data for Aspen Technology, Inc. The consolidated statements of operations data set forth below for fiscal 2021, 2020 and 2019 and the consolidated balance sheets data as of June 30, 2021 and 2020, are derived from our consolidated financial statements included beginning on page 51 of this Form 10-K. The consolidated statements of operations data for fiscal 2018 and 2017 and the consolidated balance sheet data as of June 30, 2019, 2018, and 2017 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.
Year Ended June 30,
20212020201920182017
(in Thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue$709,376 $598,717 $596,682 $507,566 $483,395 
Gross profit649,225 537,110 538,866 456,922 435,939 
Income from operations358,401 257,359 281,139 207,928 205,687 
Net income$319,803 $229,671 $261,362 $281,234 $173,063 
Basic income per share$4.71 $3.38 $3.74 $3.90 $2.26 
Diluted income per share$4.67 $3.34 $3.69 $3.85 $2.25 
Weighted average shares outstanding—Basic67,863 68,000 69,925 72,140 76,491 
Weighted average shares outstanding—Diluted68,492 68,727 70,787 72,956 76,978 

Year Ended June 30,
20212020201920182017
(in Thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents$379,853 $287,796 $71,926 $96,165 $101,954 
Accounts receivable, net52,502 56,301 47,784 41,810 42,656 
Contract assets715,787 610,473 582,291 521,627 536,559 
Total assets1,454,000 1,223,306 863,013 814,453 816,730 
Borrowings, net293,162 427,532 220,000 170,000 140,000 
Deferred revenue68,125 57,081 44,891 27,504 44,860 
Working capital626,787 415,942 105,645 155,389 213,150 
Total stockholders' equity800,757 466,353 361,960 377,974 268,759 

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 51. 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.
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 2021" refers to the year ended June 30, 2021).
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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 combines our proprietary mathematical and empirical models of manufacturing and planning processes which reflects the deep domain expertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 40 years. Our products have embedded AI capabilities that create insights, provide guidance, and automate and democratize knowledge, known as Industrial AI, to create more value for the process industries. We have developed our applications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain, and asset performance management. Each business area leverages our artificial intelligence of things products as the foundation of industrial data to help us realize our vision for Industrial AI at scale. We are the 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 2,500 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, or 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 2021, our business was negatively impacted by these factors. Specifically, we saw a slowdown in closing customer contracts, a slight increase in our customer attrition rate due to non-renewals and renewals at lower entitlement level and, to a lesser extent, a slowdown in customer payments. We are continuing to assess the impact of these items on global markets and the various industries of our customers. The extent of the impact on our operational and financial performance going forward will depend on capital expenditure and operational expenditure budgetary cycles that are inherent in our customers’ procurement strategies, which are informed by oil prices and environmental factors such as COVID-19, 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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On June 14, 2021, as part of our common stock repurchase program, we entered into an accelerated share repurchase program, or the ASR Program, with a third-party financial institution. Pursuant to the terms of the ASR Program, on July 1, 2021 we made an upfront payment of $150.0 million in exchange for an initial delivery of approximately 872,473 shares of our common stock, representing 80% of the total shares ultimately expected to be delivered over the program's term.
At the ASR Program's conclusion, the financial institution may be required to deliver additional shares of common stock to us, or, under certain circumstances, we may be required to, at our election, deliver shares of our common stock or make a cash payment to the financial institution. Final settlement of the ASR Program is expected to occur during the first quarter of fiscal 2022, with the number of shares to be delivered, or the amount of any cash payment to be made, determined based on the volume-weighted average price per share of our common stock over the term of the ASR Program, less an agreed-upon discount.
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. Each product suite leverages our AIoT products as the foundation of industrial data. Our APM product suite is licensed by customer sites, user seats or cloud connections. The engineering and manufacturing and supply chain product suites are licensed by tokens, which are interchangeable measures of usage based on the various units of measure such as users, servers, applications, manipulated variables, etc. Customers may use tokens flexibly to access one or more products in the suite in any combination. This licensing system enables customers to use products as needed, and to experiment with different products to best solve whatever critical business challenges the customer faces, and to license 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 intangible assets, 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 our 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.
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General and Administrative Expenses. General and administrative expenses include the personnel expenses 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 intangible assets, and the provision for bad debt on accounts receivable. 
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) or 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 Expense. Interest expense is primarily related to outstanding borrowings under 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 entities.
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.

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Comparing annual spend for different dates can provide insight into the growth and retention rates of our business, because annual spend represents the estimated annualized billings associated with our active term license agreements. Management utilizes the annual spend business metric to evaluate the growth and performance of our business as well as for planning and forecasting. In addition, our corporate and executive bonus programs are based in part on our success in meeting targets for growth in annual spend that are approved by our Board of Directors. 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 results of 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.
 
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, 2021, approximately 90% of our term license agreements (by value) are denominated in U.S. dollars. For agreements denominated in other currencies, we use a fixed historical exchange rate to calculate annual spend in dollars rather than using current exchange rates, so that our calculation of growth in annual spend is not affected by fluctuations in foreign currencies.

Beginning in fiscal 2019 and for all future periods, for term license agreements that contain professional services or other products and services, we have included in the annual spend calculation the portion of the invoice allocable to the term license under Topic 606 rather than the portion of the invoice attributed to the license in the agreement. We believe that methodology more accurately allocates any discounts or premiums to the different elements of the agreement. We have not applied this methodology retroactively for agreements entered into in prior fiscal years.
 
We estimate that annual spend grew by approximately 4.8% during fiscal 2021, from $593.1 million as of June 30, 2020 to $621.3 million as of June 30, 2021. 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.

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 $2.9 billion and $2.8 billion as of June 30, 2021 and 2020, 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 $774.5 million during fiscal 2021, compared to $610.1 million and $651.8 million during fiscal 2020 and 2019, respectively. The change in bookings during fiscal 2021, 2020, and 2019 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.
 
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Free cash flow is calculated as net cash provided by operating activities adjusted for the net impact of (a) purchases of property, equipment and leasehold improvements, (b) payments for capitalized computer software costs, and (c) other nonrecurring items, such as acquisition related payments.

The following table provides a reconciliation of GAAP cash flow from operating activities to free cash flow for the indicated periods:
June 30,
202120202019
(Dollars in Thousands)
Net cash provided by operating activities (GAAP)$276,134 $243,258 $238,313 
Purchase of property, equipment, and leasehold improvements(1,237)(1,278)(436)
Payments for capitalized computer software costs(1,129)(141)(1,131)
Acquisition related payments3,733 1,264 27 
Free cash flow (non-GAAP)$277,501 $243,103 $236,773 
Fiscal 2021 Compared to Fiscal 2020
Total free cash flow increased $34.4 million during fiscal 2021 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 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."
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 intangible assets, and other items, such as the impact of acquisition related fees, for the indicated periods:
June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
GAAP income from operations$358,401 $257,359 $281,139 $101,042 39.3 %$(23,780)(8.5)%
Plus:
Stock-based compensation33,644 31,548 27,573 2,096 6.6 %3,975 14.4 %
Amortization of intangible assets7,697 6,572 4,533 1,125 17.1 %2,039 45.0 %
Acquisition related fees4,518 78 1,438 4,440 5,692.3 %(1,360)(94.6)%
Non-GAAP income from operations$404,260 $295,557 $314,683 $108,703 36.8 %$(19,126)(6.1)%







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Results of Operations
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 2021, 2020 and 2019.
Year Ended June 30,2021 Compared to 2020 %2020 Compared to 2019 %
202120202019
(Dollars in Thousands)
Revenue:
License$497,479 70.1 %$388,180 64.8 %$404,581 67.8 %28.2 %(4.1)%
Maintenance185,164 26.1 178,139 29.8 163,567 27.4 3.9 8.9 
Services and other26,733 3.8 32,398 5.4 28,534 4.8 (17.5)13.5 
Total revenue709,376 100.0 598,717 100.0 596,682 100.0 18.5 0.3 
Cost of revenue:
License9,276 1.3 7,241 1.2 7,060 1.2 28.1 2.6 
Maintenance18,287 2.6 19,248 3.2 19,208 3.2 (5.0)0.2 
Services and other32,588 4.6 35,118 5.9 31,548 5.3 (7.2)11.3 
Total cost of revenue60,151 8.5 61,607 10.3 57,816 9.7 (2.4)6.6 
Gross profit649,225 91.5 537,110 89.7 538,866 90.3 20.9 (0.3)
Operating expenses:
Selling and marketing114,959 16.2 114,486 19.1 111,374 18.7 0.4 2.8 
Research and development94,229 13.3 92,230 15.4 83,122 13.9 2.2 11.0 
General and administrative81,636 11.5 73,035 12.2 63,231 10.6 11.8 15.5 
Total operating expenses290,824 41.0 279,751 46.7 257,727 43.2 4.0 8.5 
Income from operations358,401 50.5 257,359 43.0 281,139 47.1 39.3 (8.5)
Interest income36,791 5.2 32,658 5.5 28,457 4.8 12.7 14.8 
Interest (expense)(7,245)(1.0)(11,862)(2.0)(8,733)(1.5)(38.9)35.8 
Other income (expense), net(3,200)(0.5)1,202 0.2 664 0.1 (366.2)81.0 
Income before income taxes384,747 54.2 279,357 46.7 301,527 50.5 37.7 (7.4)
Provision for income taxes64,944 9.2 49,686 8.3 40,165 6.7 30.7 23.7 
Net income$319,803 45.0 %$229,671 38.4 %$261,362 43.8 %39.2 %(12.1)%
Revenue
Fiscal 2021 Compared to Fiscal 2020
Total revenue increased by $110.7 million during fiscal 2021 as compared to the prior fiscal year. The increase of $110.7 million was due to an increase in license revenue of $109.3 million and an increase in maintenance revenue of $7.0 million partially offset by a decrease in services and other revenue of $(5.7) million, as compared to the prior fiscal year.
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 $(16.4) million as compared to the prior fiscal year.
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License Revenue
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
License revenue$497,479 $388,180 $404,581 $109,299 28.2 %$(16,401)(4.1)%
As a percent of total revenue70.1 %64.8 %67.8 %
We expect license revenue to increase or decrease as a result of: (i) dollar value of bookings in the period; and (ii) timing of renewals.
Fiscal 2021 Compared to Fiscal 2020
The increase in license revenue of $109.3 million during fiscal 2021 as compared to the prior fiscal year was primarily attributable to an increase in bookings related to the timing of renewals.
Fiscal 2020 Compared to Fiscal 2019
The decrease in license revenue of $(16.4) million during fiscal 2020 as compared to the prior fiscal year was primarily attributable to a decrease in bookings and the timing of renewals.
Maintenance Revenue
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Maintenance revenue$185,164 $178,139 $163,567 $7,025 3.9 %$14,572 8.9 %
As a percent of total revenue26.1 %29.8 %27.4 %
We expect maintenance revenue to increase as a result of: (i) having a larger base of arrangements recognized on a ratable basis; (ii) increased customer usage of our software; (iii) adding new customers; and (iv) escalating annual payments.
Fiscal 2021 Compared to Fiscal 2020
The increase in maintenance revenue of $7.0 million during fiscal 2021 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 2020 Compared to Fiscal 2019
The increase in maintenance revenue of $14.6 million during fiscal 2020 as compared to the prior fiscal year was primarily due to growth of our base of arrangements, which include maintenance, being recognized on a ratable basis.
Services and Other Revenue
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Services and other revenue$26,733 $32,398 $28,534 $(5,665)(17.5)%$3,864 13.5 %
As a percent of total revenue3.8 %5.4 %4.8 %

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.
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Fiscal 2021 Compared to Fiscal 2020
Services and other revenue decreased by $(5.7) million during fiscal 2021 as compared to the prior fiscal year primarily due to a decrease in bookings, delay in timing of professional service engagements, and an increase in discounts provided for the professional services engagements to help generate license growth.
Fiscal 2020 Compared to Fiscal 2019
Services and other revenue increased by $3.9 million during fiscal 2020 as compared to the prior fiscal year primarily due to the timing of professional services engagements.
Cost of Revenue
Cost of License Revenue
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Cost of license revenue$9,276 $7,241 $7,060 $2,035 28.1 %$181 2.6 %
As a percent of license revenue1.9 %1.9 %1.7 %
Fiscal 2021 Compared to Fiscal 2020
Cost of license revenue increased by $2.0 million during fiscal 2021 as compared to the prior fiscal year. The increase in cost of license revenue during fiscal 2021 was primarily due to increased amortization of intangible assets attributable to acquisitions in the current year. License gross profit margin was 98.1% in fiscal 2021 and was relatively consistent with that of fiscal 2020.
Fiscal 2020 Compared to Fiscal 2019
Cost of license revenue increased by $0.2 million during fiscal 2020 as compared to the prior fiscal year. The increase in cost of license revenue during fiscal 2020 was primarily due to increased amortization of intangible assets from acquisitions. License gross profit margin was 98.1% in fiscal 2020 and was consistent with that of fiscal 2019.
Cost of Maintenance Revenue
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Cost of maintenance revenue$18,287 $19,248 $19,208 $(961)(5.0)%$40 0.2 %
As a percent of maintenance revenue9.9 %10.8 %11.7 %
Fiscal 2021 Compared to Fiscal 2020
Cost of maintenance revenue was relatively consistent during fiscal 2021 as compared to the prior fiscal year. Maintenance gross profit margin was 90.1% in fiscal 2021 and was relatively consistent with that of fiscal 2020.
Fiscal 2020 Compared to Fiscal 2019
Cost of maintenance revenue was relatively consistent during fiscal 2020 as compared to the prior fiscal year. Maintenance gross profit margin was 89.2% in fiscal 2020 and was relatively consistent with that of fiscal 2019.
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Cost of Services and Other Revenue
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Cost of services and other revenue$32,588 $35,118 $31,548 $(2,530)(7.2)%$3,570 11.3 %
As a percent of services and other revenue121.9 %108.4 %110.6 %

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 2021 Compared to Fiscal 2020
Cost of services and other revenue decreased by $(2.5) million during fiscal 2021 as compared to the prior fiscal year. The decrease in cost of services and other revenue during fiscal 2021 was primarily due to a decrease in subcontractor costs. Services and other gross profit margin was (21.9)% in fiscal 2021, compared to (8.4)% in fiscal 2020. The decrease in gross profit margin is attributable to an increase in discounts provided for the professional service engagements in fiscal 2021.
Fiscal 2020 Compared to Fiscal 2019
Cost of services and other revenue increased by $3.6 million during fiscal 2020 as compared to the prior fiscal year. The increase in cost of services and other revenue during fiscal 2020 was primarily due to higher cost of delivering professional services to support the corresponding increase in revenue during the period. Services and other gross profit margin was (10.8)% in fiscal 2020, compared to (16.2)% in fiscal 2019.
Gross Profit
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Gross profit$649,225 $537,110 $538,866 $112,115 20.9 %$(1,756)(0.3)%
As a percent of total revenue91.5 %89.7 %90.3 %
For further discussion of subscription and software gross profit and services and other gross profit, please refer to the “Cost of License Revenue," "Cost of Maintenance Revenue," and “Cost of Services and Other Revenue” sections above.
Fiscal 2021 Compared to Fiscal 2020
Gross profit increased by $112.1 million during fiscal 2021 as compared to the prior fiscal year. Gross profit margin increased to 91.5% in fiscal 2021 compared to 89.7% in fiscal 2020 due to the growth in license revenue compared to the related costs.
Fiscal 2020 Compared to Fiscal 2019
Gross profit decreased by $(1.8) million during fiscal 2020 as compared to the prior fiscal year and gross profit margin remained relatively consistent at 89.7% in fiscal 2020 compared to that of fiscal 2019.
Operating Expenses
Selling and Marketing Expense
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Selling and marketing expense$114,959 $114,486 $111,374 $473 0.4 %$3,112 2.8 %
As a percent of total revenue16.2 %19.1 %18.7 %
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Fiscal 2021 Compared to Fiscal 2020
The year-over-year increase of $0.5 million in selling and marketing expense in fiscal 2021 as compared to the prior fiscal year was due to higher compensation costs of $3.2 million primarily related to an increase in headcount, and an increase in marketing programs of $3.0 million including our biennial customer conference being held this fiscal year. The increase in selling and marketing expense is offset by lower travel-related costs of $5.2 million in fiscal 2021.
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 $0.8 million due to our biennial customer conference held in fiscal 2019.
Research and Development Expense
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Research and development expense$94,229 $92,230 $83,122 $1,999 2.2 %$9,108 11.0 %
As a percent of total revenue13.3 %15.4 %13.9 %
Fiscal 2021 Compared to Fiscal 2020
The year-over-year increase of $2.0 million in research and development expense in fiscal 2021 as compared to the prior fiscal year was primarily due to higher compensation costs of $1.9 million related to an increase in headcount.
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 $1.7 million.
General and Administrative Expense
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
General and administrative expense$81,636 $73,035 $63,231 $8,601 11.8 %$9,804 15.5 %
As a percent of total revenue11.5 %12.2 %10.6 %
Fiscal 2021 Compared to Fiscal 2020
The year-over-year increase of $8.6 million in general and administrative expense during fiscal 2021 as compared to the prior fiscal year was primarily due to higher bad debt expense of $4.5 million, acquisition related fees of $4.4 million, and higher stock-based compensation of $1.8 million, partially offset by a decrease in legal costs of $3.4 million.
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 $0.7 million.
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Non-Operating Income (Expense)
Interest Income
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Interest income$36,791 $32,658 $28,457 $4,133 12.7 %$4,201 14.8 %
As a percent of total revenue5.2 %5.5 %4.8 %
Fiscal 2021 Compared to Fiscal 2020
The year-over-year increase of $4.1 million in interest income during fiscal 2021 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 2020 Compared to Fiscal 2019
The year-over-year increase of $4.2 million in interest income during fiscal 2020 as compared to the prior fiscal year was a result of: (i) increased customer usage of our software; (ii) adding new customers; and (iii) escalating annual payments.
Interest Expense
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Interest expense$(7,245)$(11,862)$(8,733)$4,617 (38.9)%$(3,129)35.8 %
As a percent of total revenue(1.0)%(2.0)%(1.5)%
Fiscal 2021 Compared to Fiscal 2020
The year-over-year decrease of $4.6 million in interest expense during fiscal 2021 as compared to the prior fiscal year was primarily due to less interest associated with the revolving line of credit under our Amended and Restated Credit Agreement due to the repayment of the outstanding balance during fiscal 2021 and a lower interest rate associated with the term loan.
Fiscal 2020 Compared to Fiscal 2019
The year-over-year increase of $3.1 million in interest expense during fiscal 2020 as compared to the prior fiscal year was primarily due to interest expenses related to an increase in borrowings under our Amended and Restated Credit Agreement.
Other Income (Expense), Net
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
(Dollars in Thousands)
Other income (expense), net$(3,200)$1,202 $664 $(4,402)(366.2)%$538 81.0 %
As a percent of total revenue(0.5)%0.2 %0.1 %
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 entities
Fiscal 2021 Compared to Fiscal 2020
Other income, net was comprised of $3.4 million of net foreign currency exchange losses during fiscal 2021 compared to a $(0.9) million net foreign currency gains for fiscal 2020.
Fiscal 2020 Compared to Fiscal 2019
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Other income, net was comprised of $1.2 million and $0.7 million of net foreign currency exchange gains during fiscal 2020 and 2019, respectively.
Provision for Income Taxes
Year Ended June 30,2021 Compared to 20202020 Compared to 2019
202120202019$%$%
As AdjustedAs Adjusted
(Dollars in Thousands)
Provision for income taxes$64,944 $49,686 $40,165 $15,258 30.7 %$9,521 23.7 %
Effective tax rate16.9 %17.8 %13.3 %
Fiscal 2021 Compared to Fiscal 2020
The effective tax rate for the periods presented is primarily the result of income earned in the U.S. taxed at U.S. federal and state statutory income tax rates, income earned in foreign tax jurisdictions taxed at the applicable rates, as well as the impact of permanent differences between book and tax income.
Our effective tax rate was 16.9% and 17.8% during fiscal 2021 and 2020, respectively.
We recognized income tax expense of $64.9 million during fiscal 2021compared to $49.7 million during fiscal 2020. Fiscal 2021 was impacted primarily by the higher pre-tax book income, offset by the Foreign-Derived Intangible Income (“FDII”) deduction, tax credits, and the recognition of excess tax benefits related to stock-based compensation. Assuming certain requirements are met, the FDII deduction is a benefit for US companies that sell their products or services to customers for use outside the US. Fiscal 2020 was unfavorably impacted by the recognition of $6.4 million tax expense due to an accounting method change election when we filed our fiscal 2019 federal tax return as a result of a change in tax regulations during this fiscal year. Fiscal 2020 was favorably impacted by the FDII deduction and tax credits.
As of June 30, 2021, we maintained a valuation allowance in the U.S. primarily for certain deferred tax assets related to the investment in a joint venture and on state research and development (R&D) credits. We also maintain a valuation allowance on certain foreign subsidiary tax attributes, primarily net operating loss carryforwards because it is more likely than not that a benefit will not be realized. As of June 30, 2021 and 2020, our total valuation allowance was $9.9 million and $6.2 million, respectively.
We made cash tax payments totaling $61.4 million during fiscal 2021. We paid $58.4 million for U.S. federal and state income taxes and $3.0 million for foreign tax liabilities
Fiscal 2020 Compared to Fiscal 2019
The effective tax rate for the periods presented is primarily the result of income earned in the U.S. taxed at U.S. federal and state statutory income tax rates, income earned in foreign tax jurisdictions taxed at the applicable rates, as well as the impact of permanent differences between book and tax income.
Our effective tax rate was 17.8% and 13.3% during fiscal 2020 and 2019, respectively.
We recognized income tax expense of $49.7 million during fiscal 2020 compared to $40.2 million during fiscal 2019. Fiscal 2020 was unfavorably impacted by the recognition of $6.4 million tax expense due to an accounting method change election when we filed our fiscal 2019 federal tax return as a result of a change in tax regulations during this fiscal year. Fiscal 2020 was favorably impacted by the FDII deduction and tax credits. Assuming certain requirements are met, the FDII deduction is a benefit for US companies that sell their products or services to customers for use outside the US. Fiscal 2019 was also favorably impacted by the FDII deduction and the recognition of excess tax benefits related to stock-based compensation.
As of June 30, 2020, we maintain a valuation allowance in the U.S. primarily for certain deferred tax assets related to the investment in a joint venture and on state research and development (R&D) credits. We also maintain a valuation allowance on certain foreign subsidiary tax attributes, primarily net operating loss carryforwards because it is more likely than not that a benefit will not be realized. As of June 30, 2020 and 2019, our total valuation allowance was $6.2 million and $4.9 millions, respectively.    
We made cash tax payments totaling $39.5 million during fiscal 2020. We paid $37.1 million for U.S. federal and state income taxes and $2.4 million for foreign tax liabilities.
Liquidity and Capital Resources
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Resources
In recent years, we have financed our operations with cash generated from operating activities. As of June 30, 2021 and 2020, our principal sources of liquidity consisted of $379.9 million and $287.8 million in cash and cash equivalents, respectively.
We believe our existing cash and cash equivalents, together with our cash flows from operating activities, will be sufficient to meet our anticipated cash needs for at least the next twelve months. We may need to raise additional funds if we decide to make one or more acquisitions of businesses, technologies or products. If additional funding for such purposes is required beyond existing resources and our Amended and Restated Credit Agreement described below, we may not be able to effect a receivable, equity or debt financing on terms acceptable to us or at all.

Credit Agreement
 
In December 2019, we entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, joint lead arranger and joint bookrunner, Silicon Valley Bank, as joint lead arranger, joint bookrunner and syndication agent, and the lenders and co-documentation agents named therein (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement, which amends and restates the prior Credit Agreement we entered into as of February 26, 2016 with the same lenders (the “Prior Credit Agreement”), provides for a $200.0 million secured revolving credit facility and a $320.0 million secured term loan facility. The indebtedness under the revolving credit facility matures on December 23, 2024. Prior to the maturity of the revolving credit facility under the Amended and Restated Credit Agreement, any amounts borrowed under the facility may be repaid and, subject to the terms and conditions of the Amended and Restated Credit Agreement, borrowed again in whole or in part without penalty.
During fiscal year 2021, we paid off the outstanding balance of our revolving credit facility of $119.2 million. As of June 30, 2021, our current borrowings of $20.0 million consist of the term loan facility. Our non-current borrowings of $273.2 million consist of $276.0 million of our term loan facility, net of $2.8 million in debt issuance costs. We had current borrowings of $135.2 million and non-current borrowings of $292.4 million as of June 30, 2020.
For a more detailed description of the Amended and Restated Credit Agreement, refer to Note 12, "Credit Agreement," to our Consolidated Financial Statements.

Cash Equivalents and Cash Flows
Our cash equivalents of $1.0 million as of June 30, 2021 and 2020, respectively, consisted of money market funds. The objective of our investment policy is to manage our cash and investments to preserve principal and maintain liquidity.
The following table summarizes our cash flow activities for the periods indicated:
Year Ended June 30,
202120202019
(Dollars in Thousands)
Cash flow provided by (used in):
Operating activities$276,134 $243,258 $238,313 
Investing activities(19,781)(76,203)(7,665)
Financing activities(165,134)49,435 (254,527)
Effect of exchange rates on cash and cash equivalents838 (620)(360)
Increase (decrease) in cash and cash equivalents$92,057 $215,870 $(24,239)
Operating Activities
Our primary source of cash is from the annual installments associated with our software license arrangements and related software support services, and to a lesser extent from professional services and training. We believe that cash inflows from our term license business will grow as we benefit from the continued growth of our portfolio of term license contracts.
Fiscal 2021
Cash from operating activities provided $276.1 million during fiscal 2021. This amount resulted from net income of $319.8 million, adjusted for non-cash items of $79.1 million, and net uses of cash of $(122.8) million related to changes in working capital.
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Non-cash items within net income consisted primarily of stock-based compensation expense of $33.6 million, depreciation and amortization expense of $10.3 million, provision for bad debts of $9.7 million, reduction in the carrying amount of right-of-use assets of $8.9 million, deferred income taxes of $12.3 million, and net foreign currency losses of $3.4 million.
Cash used by working capital of $(122.8) million in fiscal 2021 was primarily attributable to an increase in contract assets of $113.7 million, increases in prepaid expenses, prepaid income taxes, and other assets of $12.8 million, decreases in lease liabilities of $10.2 million, increases in accounts receivable of $2.1 million, and increases in contract costs of $0.4 million, partially offset by cash provided by increases in deferred revenue of $16.6 million.
Fiscal 2020
Cash from operating activities provided $243.3 million during fiscal 2020. This amount resulted from net income of $229.7 million, adjusted for non-cash items of $83.2 million, and net uses of cash of $(69.6) million related to changes in working capital.
Non-cash items within net income consisted primarily of stock-based compensation expense of $31.5 million, deferred income taxes of $28.1 million, depreciation and amortization expense of $9.6 million, reduction in the carrying amount of right-of-use assets of $9.1 million, provision for bad debts of $5.3 million, and net foreign currency gains of $(0.9) million.
Cash used by working capital of $(69.6) million was primarily attributable to cash used by increases in contract assets of $28.1 million, decreases in accounts payable, accrued expenses and other current liabilities of $23.4 million, increases in accounts receivable of $12.9 million, decreases in lease liabilities of $9.5 million, increases in prepaid expenses, prepaid income taxes, and other assets of $5.3 million, and increases in contract costs of $3.6 million, partially offset by cash provided by increases in deferred revenue of $13.0 million.
Fiscal 2019
Cash from operating activities provided $238.3 million during fiscal 2019. This amount resulted from net income of $261.4 million, adjusted for non-cash items of $8.4 million, and net sources of cash of $(31.5) million related to changes in working capital.
Non-cash items within net income consisted primarily of stock-based compensation expense of $27.6 million, depreciation and amortization expense of $8.1 million, deferred income taxes of $(27.1) million, provision for bad debts of $0.6 million, and net foreign currency gains of $(1.3) million.
Cash used by working capital of $(31.5) million was primarily attributable to cash used by increases in contract assets of $57.7 million, increases in accounts receivable of $6.6 million, increases in contract costs of $4.5 million, and increases in prepaid expenses, prepaid income taxes, and other assets of $2.4 million, partially offset by cash provided by increases in accounts payable, accrued expenses and other current liabilities of $21.9 million, and increases in deferred revenue of $17.8 million. The increase in accounts payable, accrued expenses and other current liabilities is primarily due to an increase in income taxes payable as of June 30, 2019 from the tax liability associated with adopting Topic 606. There was a correlating decrease in deferred income taxes during fiscal 2019.
Investing Activities
Fiscal 2021
During fiscal 2021, we used $19.8 million of cash from investing activities. We used $16.3 million for business acquisitions, $1.2 million for capital expenditures, $1.1 million for equity method investments, and $1.1 million for capitalized computer software development costs.
Fiscal 2020
During fiscal 2020, we used $76.2 million of cash from investing activities. We used $74.5 million for business acquisitions, $1.3 million for capital expenditures, $0.3 million for equity method investments, and $0.1 million for capitalized computer software development costs.
Fiscal 2019
During fiscal 2019, we used $7.7 million of cash from investing activities. We used $6.1 million for business acquisitions,$1.1 million for capitalized computer software development costs, and $0.4 million for capital expenditures.
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Financing Activities
Fiscal 2021
During fiscal 2021, we used $165.1 million of cash from financing activities. Uses of cash in the period included the repayment of the outstanding revolving line of credit of $119.2 million, $45.6 million for repurchases of our common stock, $16.0 million for repayments of the term loan, $9.2 million for withholding taxes on vested and settled restricted stock units, and $1.2 million for deferred business acquisition payments, partially offset by proceeds of $26.1 million from the exercise of employee stock options.
Fiscal 2020
During fiscal 2020, $49.4 million of net cash was provided by financing activities. Sources of cash in the period included proceeds of $449.2 million from the Amended and Restated Credit Agreement, $125.0 million from the Prior Credit Agreement, and proceeds of $9.0 million from the exercise of employee stock options, partially offset by uses of cash of $152.4 million for repurchases of our common stock, $10.2 million for withholding taxes on vested and settled restricted stock units, $345.0 million for repayments of the revolving line of credit from the Prior Credit Agreement, $10.0 million for repayments of the revolving line of credit and $8.0 million for repayments of the term loan from the Amended and Restated Credit Agreement, and $4.6 million for deferred business acquisition payments, and $3.5 million for debit issuance costs.
Fiscal 2019
During fiscal 2019, we used $254.5 million of cash for financing activities. We used $299.2 million for repurchases of our common stock, $1.7 million for deferred business acquisition payments, and $14.5 million for withholding taxes on vested and settled restricted stock units. Sources of cash in the period included proceeds of $50.0 million from the Prior Credit Agreement and proceeds of $10.9 million from the exercise of employee stock options.
Contractual Obligations and Requirements
Our contractual obligations, which consisted of borrowings, interest, and fees under our Amended and Restated Credit Agreement, operating lease commitments for our headquarters and other facilities, royalty obligations, equity method investments, deferred acquisition payments, and standby letters of credit and other obligations, were as follows as of June 30, 2021:
Payments due by Period
TotalLess than 1 Year1 to 3 Years3 to 5 YearsMore than 5 Years
Contractual Cash Obligations:
Credit agreement (1)
$314,094 $25,091 $73,173 $215,830 $— 
Operating leases (2)
62,363 10,718 20,297 11,287 20,061 
Royalty obligations4,299 2,292 1,498 202 307 
Equity method investments4,093 4,093 — — — 
Deferred acquisition payments4,062 2,862 1,200 — — 
Other purchase obligations18,824 16,598 2,226 — — 
Total contractual cash obligations$407,735 $61,654 $98,394 $227,319 $20,368 
Other Commercial Commitments:
Standby letters of credit$2,323 $779 $— $1,544 $— 
Total commercial commitments$410,058 $62,433 $98,394 $228,863 $20,368 
____________________________________________
(1)The $314.1 million of contractual obligations related to our Amended and Restated Credit Agreement includes $296.0 million in outstanding borrowings under our term loan facility, and $18.1 million of interest expense and commitment fees as of June 30, 2021.
(2)The $62.4 million of contractual obligations includes rent and fixed fees for all of our operating leases, including those not recognized on the balance sheet.
We are not currently a party to any other material purchase contracts related to future capital expenditures, and we do not expect our future investment in capital expenditures to be materially different from recent levels.
The standby letters of credit were issued by Silicon Valley Bank in the United States and secure our performance on professional services contracts and certain facility leases.
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The above table does not reflect a liability for uncertain tax positions of $2.1 million as of June 30, 2021. We estimate that none of this amount will be paid within the next year and we are currently unable to reasonably estimate the timing of payments for the remainder of the liability.
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Estimates and Judgments
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the assumptions and estimates associated with revenue recognition policies have the greatest potential impact on our consolidated financial statements.
For further information on our significant accounting policies, refer to Note 2, "Significant Accounting Policies," and Note 3, "Revenue from Contracts with Customers," to our Consolidated Financial Statements.
Revenue Recognition
In accordance with 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. Each product suite leverages our AIoT products as the foundation of industrial data. Our APM product suite is licensed by customer sites, user seats or cloud connections. The engineering and manufacturing and supply chain product suites are licensed by tokens, which are interchangeable measures of usage based on the various units of measure such as users, servers, applications, manipulated variables, etc. Customers may use tokens flexibly to access any product or combination of products in the licensed suite.

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

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

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

Maintenance

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

Services and Other Revenue

Professional Services Revenue

Professional services are provided to customers on a 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 licenses, which are always sold with maintenance, 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
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account for them as a single arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.

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

Other policies and judgments

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

Contract modifications

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

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 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 sales and marketing expenses in our Condensed Consolidated Statement of Operations.
Recent Accounting Pronouncements
Refer to Note 2 (o) "New Accounting Pronouncements Adopted in Fiscal 2021" and Note 2 (p) "Recently Issued Accounting Pronouncements," to our Consolidated Financial Statements for information about recent accounting pronouncements.
Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.
In the ordinary course of conducting business, we are exposed to certain risks associated with potential changes in market conditions. These market risks include changes in currency exchange rates and interest rates which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, if considered appropriate, we may enter into derivative financial instruments such as forward currency exchange contracts.
Foreign Currency Risk
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During fiscal 2021 and 2020, 12.6% and 6.6% of our total revenue, respectively, was denominated in a currency other than the U.S. dollar. In addition, certain of our operating costs incurred outside the United States are denominated in currencies other than the U.S. dollar. We conduct business on a worldwide basis and as a result, a portion of our revenue, earnings, net assets, and net investments in foreign affiliates is exposed to changes in foreign currency exchange rates. We measure our net exposure for cash balance positions and for cash inflows and outflows in order to evaluate the need to mitigate our foreign exchange risk. We may enter into foreign currency forward contracts to minimize the impact related to unfavorable exchange rate movements, although we have not done so during fiscal 2021 and fiscal 2020. Our largest exposures to foreign currency exchange rates exist primarily with the Euro, Pound Sterling, Canadian Dollar, Japanese Yen, and Russian Ruble.
During fiscal 2021 and fiscal 2020, we recorded net foreign currency losses of $3.4 million and gains of $(0.9) million, respectively, related to the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units. Our analysis of operating results transacted in various foreign currencies indicated that a hypothetical 10% change in the foreign currency exchange rates could have increased or decreased the consolidated results of operations by approximately $8.1 million and $4.8 million for fiscal 2021 and 2020, respectively.
Interest Rate Risk
We place our investments in money market instruments. Our analysis of our investments and interest rates at June 30, 2021 and 2020 indicated that a hypothetical 100 basis point increase or decrease in interest rates would not have a material impact on the fair value of our investments determined in accordance with an income-based approach utilizing portfolio future cash flows discounted at the appropriate rates.
As of June 30, 2021, our current borrowings of $20.0 million consist of the term loan facility under the Amended and Restated Credit Agreement. Our non-current borrowings of $273.2 million consist of $276.0 million under our term loan facility, net of $2.8 million in debt issuance costs. A hypothetical 10% increase or decrease in interest rates paid on outstanding borrowings under the Amended and Restated Credit Agreement would not have a material impact on our financial position, results of operations or cash flows.
Investment Risk
During fiscal 2020, we entered into a limited partnership investment fund agreement. The primary objective of this partnership is investing in equity and equity-related securities (including convertible debt) of venture growth- stage businesses. We account for the investment in accordance with Topic 323, Investments - Equity Method and Joint Ventures. Our total commitment under this partnership is 5.0 million CAD ($3.5 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 ($3.5 million) commitment. As of June 30, 2021, the fair value of this investment is 1.8 million CAD ($1.3 million), representing our payments towards the total commitment during fiscal 2021, and is recorded in non-current assets in our consolidated balance sheet.
Item 8.    Financial Statements and Supplementary Data.
The following consolidated financial statements specified by this Item, together with the reports thereon of KPMG LLP, are presented following Item 15 of this Form 10-K:
Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended June 30, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income for the years ended June 30, 2021, 2020 and 2019
Consolidated Balance Sheets as of June 30, 2021 and 2020
Consolidated Statements of Stockholders' Equity for the years ended June 30, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended June 30, 2021, 2020 and 2019
Notes to Consolidated Financial Statements

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
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procedures. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily applies its judgment in evaluating and implementing possible controls and procedures. The effectiveness of our disclosure controls and procedures is also necessarily limited by the staff and other resources available to us and the geographic diversity of our operations. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2021, our disclosure controls and procedures were effective.

Management’s Annual Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
 
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that the control system’s objectives will be met.

Management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management has concluded that our internal control over financial reporting was effective as of June 30, 2021.

Our independent registered public accounting firm has audited our consolidated financial statements and the effectiveness of our internal control over financial reporting as of June 30, 2021. This report appears below.

Remediation Efforts of Previously Disclosed Material Weakness

As previously disclosed in our Annual Report on Form 10-K for the fiscal years ended June 30, 2019 and June 30, 2020, we identified a material weakness in our internal control over financial reporting. In fiscal 2019, we did not effectively design process level control activities over the accuracy of the retrospective restatement of revenue and related contract balances recorded upon the adoption of Topic 606, which also impacted the related deferred tax assets and liabilities on the consolidated balance sheet. The control deficiencies identified resulted from an ineffective risk assessment and the lack of timely creation of relevant reporting tools and complete and accurate information used to support the functioning of internal control. These deficiencies created a reasonable possibility that a material misstatement would not have been prevented or detected on a timely basis and accordingly management concluded that the deficiencies represented a material weakness in our internal control over financial reporting. Additional deficiencies related to the fiscal 2019 material weakness were identified in fiscal 2020. Consequently, there were control failures in the areas of revenue and contract asset balances, which also impacted the related deferred tax liabilities.

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In response to the material weakness, with the oversight of the Audit Committee of the Board of Directors, we implemented a remediation plan. The remediation plan included enhancing our risk assessment process over the design and implementation of internal controls over new and emerging financial reporting matters and updating our risk assessment of revenue and associated contract balances controls, resulting in the identification and design of enhanced review controls over the accounting for revenue contracts under Topic 606, including the use of additional reporting tools and additional reconciliation controls.

All remediation efforts have been completed by management and applicable controls have operated for a sufficient period of time. Management concluded, through testing, that these controls are operating effectively. As a result, management concluded that the prior year’s material weakness in our internal control over financial reporting had been remediated as of June 30, 2021.

Changes in Internal Control Over Financial Reporting

Except for the remediation efforts of the previously identified material weakness discussed above, there were no changes in our internal control over financial reporting during the year ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We will continue to review and document our disclosure controls and procedures, including our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Aspen Technology, Inc.:
Opinion on Internal Control Over Financial Reporting

We have audited Aspen Technology, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of June 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2021, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated August 18, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Boston, Massachusetts

August 18, 2021

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PART III
Item 10.    Directors, Executive Officers and Corporate Governance.
Certain information required under this Item 10 will appear under the sections entitled “Executive Officers of the Registrant,” “Election of Directors,” “Information Regarding our Board of Directors and Corporate Governance,” “Code of Business Conduct and Ethics,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our 2021 annual meeting of stockholders, and is incorporated herein by reference.
Item 11.    Executive Compensation.
Certain information required under this Item 11 will appear under the sections entitled “Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation” and “Employment and Change in Control Agreements” in our definitive proxy statement for our 2021 annual meeting of stockholders, and is incorporated herein by reference.
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain information required under this Item 12 will appear under the sections entitled “Stock Owned by Directors, Executive Officers and Greater-than 5% Stockholders” and “Securities Authorized for Issuance Under Equity Compensation Plans” in our definitive proxy statement for our2021 annual meeting of stockholders, and is incorporated herein by reference.
Item 13.    Certain Relationships and Related Transactions, and Director Independence.
Certain information required under this Item 13 will appear under the sections entitled “Information Regarding the Board of Directors and Corporate Governance” and “Related Party Transactions” in our definitive proxy statement for our 2021 annual meeting of stockholders, and is incorporated herein by reference.
Item 14.    Principal Accounting Fees and Services.
Certain information required under this Item 14 will appear under the section entitled “Independent Registered Public Accountants” in our definitive proxy statement for our 2021 annual meeting of stockholders, and is incorporated herein by reference.
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PART IV
Item 15.    Exhibits and Financial Statement Schedules.
(a)(1)  Financial Statements
DescriptionPage
(a)(2)  Financial Statement Schedules
Schedule II-Valuation and Qualifying Accounts for the years ended June 30, 2021, 2020 and 2019 appears immediately following the financial statements.  All other schedules are omitted because they are not required or the required information is shown in the consolidated financial statements or notes thereto.
(a)(3)  Exhibits
The exhibits listed in the accompanying exhibit index are filed or incorporated by reference as part of this Form 10-K.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Aspen Technology, Inc.:
Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Aspen Technology, Inc. and subsidiaries (the Company) as of June 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2021, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated August 18, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2(o) to the consolidated financial statements, the Company has changed its method of accounting for leases as of July 1, 2019 due to the adoption of Accounting Standards Codification, or ASC, Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Determination of Standalone Selling Prices for Term License and Maintenance Performance Obligations

As discussed in Note 3 to the consolidated financial statements, the Company recognized term license revenue and maintenance revenue of $497.5 million and $185.2 million, respectively, for the year ended June 30, 2021. The Company allocates the transaction price to each distinct performance obligation on a relative standalone selling price basis. For term license and maintenance performance obligations, directly observable data is generally not available, which requires the Company to make significant assumptions regarding the relative fair value of the related performance obligations.
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We identified the determination of standalone selling prices for term license and maintenance performance obligations as a critical audit matter. There is a high degree of subjective auditor judgment involved in performing procedures on the Company’s assumptions, since there is no direct observable data available.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s revenue process, including the control over the development of standalone selling prices. We evaluated the information used by the Company to determine standalone selling prices by comparing it to external sources, such as available information regarding industry pricing practices, and internal data, including the Company’s pricing practices.

/s/ KPMG LLP

We have served as the Company's auditor since 2008.

Boston, Massachusetts

August 18, 2021



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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
202120202019
(Dollars in Thousands, Except per Share Data)
Revenue:
License$497,479 $388,180 $404,581 
Maintenance185,164 178,139 163,567 
Services and other26,733 32,398 28,534 
Total revenue709,376 598,717