SEC Filing | Aspen Technology, Inc.

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azpn-20221231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2022

☐ 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: 333-262106

ASPEN TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)


Delaware						87-3100817
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


20 Crosby Drive
Bedford
Massachusetts						01730
(Address of principal executive offices)						(Zip Code)

(781) 221-6400

(Registrant’s telephone number, including area code)

____________________________________________

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common stock, $0.0001 par value per share

AZPN

NASDAQ Global Select Market

____________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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

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

There were 64,771,272 shares of common stock outstanding as of January 23, 2023.

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TABLE OF CONTENTS


		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	31
Item 4.	Controls and Procedures.	33

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	34
Item 1A.	Risk Factors.	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	35
Item 6.	Exhibits.	36
	SIGNATURES

Aspen Technology, Inc. (“AspenTech”) has many registered trademarks including aspenONE and Aspen Plus. All other trade names, trademarks and service marks appearing in this Form 10-Q are the property of their respective owners.

Our fiscal year ends on June 30th, and references to a specific fiscal year are to the twelve months ended June 30th of such year (for example, “fiscal 2023” refers to the year ending June 30, 2023).

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Consolidated and Combined Financial Statements (unaudited)

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(Unaudited in Thousands, Except per Share Data)


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Revenue:
License and solutions	$	149,843	$	48,491	$	310,068	$	92,706
Maintenance	78,628		26,272		156,994		50,807
Services and other	14,367		7,012		26,595		15,277
Total revenue	242,838		81,775		493,657		158,790
Cost of revenue:
License and solutions	70,833		33,221		140,346		67,609
Maintenance	9,567		4,074		18,784		8,308
Services and other	12,698		4,282		25,098		9,180
Total cost of revenue	93,098		41,577		184,228		85,097
Gross profit	149,740		40,198		309,429		73,693
Operating expenses:
Selling and marketing	117,951		17,995		236,225		42,995
Research and development	49,954		15,383		99,695		30,938
General and administrative	41,230		7,036		84,086		13,653
Restructuring costs	—		38		—		245
Total operating expenses	209,135		40,452		420,006		87,831
(Loss) from operations	(59,395)		(254)		(110,577)		(14,138)
Other income (expense), net	38,643		(1,419)		(19,989)		(2,778)
Interest income (expense), net	4,120		(20)		9,143		(292)
(Loss) before provision for income taxes	(16,632)		(1,693)		(121,423)		(17,208)
Provision (benefit) for income taxes	49,565		(933)		(43,982)		(5,246)
Net (loss)	$	(66,197)	$	(760)	$	(77,441)	$	(11,962)
Net (loss) per common share:
Basic	$	(1.02)	$	(0.02)	$	(1.20)	$	(0.33)
Diluted	$	(1.02)	$	(0.02)	$	(1.20)	$	(0.33)
Weighted average shares outstanding:
Basic	64,621		36,308		64,538		36,308
Diluted	64,621		36,308		64,538		36,308

See accompanying notes to these unaudited consolidated and combined financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited in Thousands)


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Net (loss)	$	(66,197)	$	(760)	$	(77,441)	$	(11,962)
Other comprehensive (loss) income:
Foreign currency translation adjustments	6,710		(110)		(2,155)		(25)
Pension, net of taxes	—		(1)		—		717
Total other comprehensive (loss) income	6,710		(111)		(2,155)		692
Comprehensive (loss)	$	(59,487)	$	(871)	$	(79,596)	$	(11,270)

See accompanying notes to these unaudited consolidated and combined financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED BALANCE SHEETS

(Unaudited in Thousands, Except Share and Per Share Data)


	December 31, 2022		June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	446,088	$	449,725
Accounts receivable, net	140,746		111,027
Current contract assets, net	419,714		428,833
Prepaid expenses and other current assets	23,750		23,461
Receivables from related parties	15,099		16,941
Prepaid income taxes	—		17,503
Total current assets	1,045,397		1,047,490
Property, equipment and leasehold improvements, net	17,138		17,148
Goodwill	8,328,846		8,266,809
Intangible assets, net	4,902,442		5,112,781
Non-current contract assets, net	515,820		428,232
Contract costs	9,042		5,473
Operating lease right-of-use assets	71,426		78,286
Deferred tax assets	2,328		4,937
Other non-current assets	8,214		8,766
Total assets	$	14,900,653	$	14,969,922

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	12,975		21,416
Accrued expenses and other current liabilities	95,407		90,123
Liability from foreign currency forward contract	15,319		—
Due to related parties	32,284		4,111
Current operating lease liabilities	12,627		7,191
Income taxes payable	25,704		6,768
Current borrowings	264,000		28,000
Current contract liabilities	146,887		143,327
Total current liabilities	605,203		300,936
Non-current contract liabilities	29,707		21,081
Deferred income tax liabilities	1,040,094		1,145,408
Non-current operating lease liabilities	60,005		71,933
Non-current borrowings, net	—		245,647
Other non-current liabilities	18,579		15,560

Stockholders’ equity:

Common stock, $0.0001 par value Authorized—600,000,000 shares Issued— 64,767,755 shares at December 31, 2022 and 64,425,378 shares at June 30, 2022 Outstanding— 64,767,755 shares at December 31, 2022 and 64,425,378 shares at June 30, 2022	6		6
Additional paid-in capital	13,164,874		13,107,570
Retained earnings	(11,072)		66,369
Accumulated other comprehensive (loss)	(6,743)		(4,588)
Total stockholders’ equity	13,147,065		13,169,357
Total liabilities and stockholders’ equity	$	14,900,653	$	14,969,922

See accompanying notes to these unaudited consolidated and combined financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY/

STOCKHOLDERS’ EQUITY

(Unaudited in Thousands, Except Share Data)


	Accumulated Other Comprehensive Income (Loss)			Common Stock				Additional Paid-in Capital		Retained Earnings		Total Equity/Stockholders’ Equity
			Number of Shares		Par Value
Balance June 30, 2022	$	(4,588)		64,425,378		$	6	$	13,107,570	$	66,369	$	13,169,357

Net Loss	—			—		—		—		(11,244)		(11,244)
Other comprehensive (loss)	(8,865)			—		—		—		—		(8,865)
Issuance of shares of common stock and net share settlement relating to withholding taxes	—			71,547		—		8,489		—		8,489
Issuance of restricted stock units and net share settlement relating to withholding taxes	—			34,375		—		(4,683)		—		(4,683)
Stock-based compensation	—			—		—		17,736		—		17,736
Balance September 30, 2022	$	(13,453)		64,531,300		$	6	$	13,129,112	$	55,125	$	13,170,790
Net Loss	—			—		—		—		(66,197)		(66,197)
Other comprehensive (loss)	6,710			—		—		—		—		6,710
Issuance of shares of common stock and net share settlement relating to withholding taxes	—			202,506		—		16,977		—		16,977
Issuance of restricted stock units and net share settlement relating to withholding taxes	—			33,949		—		(4,656)		—		(4,656)
Stock-based compensation	—			—		—		23,441		—		23,441
Balance December 31, 2022	$	(6,743)		64,767,755		$	6	$	13,164,874	$	(11,072)	$	13,147,065


	Net Parent Investment		Accumulated Other Comprehensive Income (Loss)		Total Equity/Stockholders’ Equity
Balance June 30, 2021	$	1,772,671	$	(6,487)	$	1,766,184
Net Loss	(11,202)		—		(11,202)
Net transfer from Parent Company	15,561		—		15,561

Other comprehensive income	—		803		803
Balance September 30, 2021	$	1,777,030	$	(5,684)	$	1,771,346
Net Loss	(760)		—		(760)
Net transfer from Parent Company	18,118		—		18,118
Other comprehensive (loss)	—		(111)		(111)
Balance December 31, 2021	$	1,794,388	$	(5,795)	$	1,788,593

See accompanying notes to these unaudited consolidated and combined financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Unaudited in Thousands)


	Six Months Ended December 31,
	2022		2021
Cash flows from operating activities:
Net (loss)	$	(77,441)	$	(11,962)
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	245,102		54,084
Reduction in the carrying amount of right-of-use assets	6,562		3,067
Net foreign currency losses	4,744		3,013
Stock-based compensation	41,177		826
Deferred income taxes	(106,384)		(8,047)
Provision for uncollectible receivables	3,228		43
Other non-cash operating activities	(593)		84
Changes in assets and liabilities:
Accounts receivable	(33,691)		(47,061)
Contract assets	(77,864)		(13,034)
Contract costs	(3,547)		—
Lease liabilities	(6,609)		(1,811)
Prepaid expenses, prepaid income taxes, and other assets	34,177		(1,167)
Liability from foreign currency forward contract	15,319		—
Accounts payable, accrued expenses, income taxes payable and other liabilities	(1,490)		(12,805)
Contract liabilities	11,922		10,786
Net cash provided by (used in) operating activities	54,612		(23,984)
Cash flows from investing activities:
Purchases of property, equipment and leasehold improvements	(2,844)		(3,393)
Payments for business acquisitions, net of cash acquired	(74,947)		(1,065)
Payments for equity method investments	(465)		—
Payments for capitalized computer software development costs	(329)		—
Purchases of other assets	—		(287)
Net cash used in investing activities	(78,585)		(4,745)
Cash flows from financing activities:
Issuance of shares of common stock	25,605		—
Payment of tax withholding obligations related to restricted stock	(11,698)		—
Deferred business acquisition payments	(1,363)		—
Repayments of amounts borrowed under term loan	(12,000)		—
Net transfers from Parent Company	29,872		32,855
Payments of debt issuance costs	(2,375)		—
Net cash provided by financing activities	28,041		32,855
Effect of exchange rate changes on cash and cash equivalents	(7,705)		(134)
(Decrease) increase in cash and cash equivalents	(3,637)		3,992
Cash and cash equivalents, beginning of period	449,725		23,659
Cash and cash equivalents, end of period	$	446,088	$	27,651

Supplemental disclosure of cash flow information:
Income taxes paid, net	$	29,388	$	4,818
Interest paid	9,819		441
Supplemental disclosure of non-cash activities:
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses	$	(735)	$	5
Lease liabilities arising from obtaining right-of-use assets	68		—

See accompanying notes to these unaudited consolidated and combined financial statements.

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ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

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

On October 10, 2021, Emerson Electric Co. (“Emerson” or “Parent Company”) entered into a definitive agreement (the “Transaction Agreement”) with AspenTech Corporation. (“Heritage AspenTech”) to contribute the Emerson Industrial Software Business (the “Industrial Software Business”), along with $6.014 billion in cash, to create AspenTech (the “Transaction”). The Industrial Software Business included Open Systems International, Inc. (“OSI Inc.”) and Geological Simulation Software business (“GSS”), which we have renamed as Subsurface Science & Engineering (“SSE”). The Transaction closed on May 16, 2022 (“Closing Date”). Emerson owns 55% of AspenTech on a fully diluted basis as of December 31, 2022.

On December 23, 2022, the Company entered into a credit agreement with Emerson (the “Emerson Credit Agreement”), which will provide for an aggregate term loan commitment of $630.0 million. Refer to Note 13, “Related-Party Transactions”, to our consolidated and combined financial statements for further discussion of the Emerson Credit Agreement.

On July 27, 2022, the Company entered into a definitive agreement to acquire Mining Software Holdings Pty Ltd (“Micromine”) for AU$900.0 million in cash (approximately $623.0 million based on exchange rates when the acquisition was initially announced). Micromine is a global leader in design and operational management solutions for the metals and mining industry. The Company currently intends to finance the transaction primarily through debt financing under the Emerson Credit Agreement. The acquisition is expected to close as soon as the remaining regulatory approval is obtained.

The Company operates globally in 79 countries as of December 31, 2022.

Basis of Presentation

The accompanying consolidated and combined financial statements include the accounts of Aspen Technology, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The Transaction was accounted for as a business combination in accordance with U.S. GAAP, with the Industrial Software Business treated as the “acquirer” and Heritage AspenTech treated as the “acquired” company for financial reporting purposes. Accordingly, for the three- and six-month interim period ended December 31, 2021, the consolidated and combined financial statements comprise the results of the Industrial Software Business only and do not include the results of Heritage AspenTech.

We have prepared the accompanying consolidated and combined financial statements as of December 31, 2022, and for the second quarter of fiscal 2023 and 2022, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and in accordance with generally accepted accounting principles in the United States (GAAP). These consolidated and combined financial statements should be read in conjunction with the consolidated and combined financial statements and the notes thereto included in our Transition Reports on Form 10-KT for the fiscal year ended June 30, 2022.

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

Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period’s presentation. We have evaluated subsequent events through the date that the financial statements were issued.

Russia and Ukraine

While the Company has no operations in Ukraine, the ongoing conflict there could negatively impact its financial position, results of operations and cash flows. The United States and other governments have imposed sanctions and taken other regulatory actions that adversely affect doing business in Russia and with Russian companies. The Company maintains

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operations in Russia, licenses software and provides related services to customers in Russia and areas of Ukraine that are not under sanction. The Company had net sales of approximately $16.8 million and $26.8 million for the three- and six-month period ended December 31, 2022, respectively, and total assets of approximately $19.3 million as of December 31, 2022, related to operations in Russia. While the conflict has not had a material impact on the Company’s financial results thus far, the Company continues to evaluate the impact of the various sanctions, export control measures and business restrictions imposed by the United States and other governments on its ability to do business in Russia and areas of Ukraine that are not under sanction, maintain contracts with vendors and pay employees in Russia, as well as receive payment from customers in Russia and areas of Ukraine that are not under sanction. The outcome of these assessments will depend on how the conflict evolves and on further actions that may be taken by the United States, Russia, and other governments around the world. As a software company, no material impact to supply chain operations is expected due to the conflict in Ukraine.

If the sanctions and other retaliatory measures and restrictions imposed by the global community change, the Company may be required to cease or suspend operations in the region or, should the conflict or the effects of these sanctions, measures and restrictions worsen, the Company may voluntarily elect to do so. Any disruption to, or suspension of, the Company’s business and operations in Russia would result in the loss of revenues from the business in Russia. In addition, as a result of the risk of collectability of receivables from customers in Russia, the Company may be required to adjust accounting practices relating to revenue recognition in this region, with the result that the Company may not be able to recognize revenue until risk of revenue reversal is not probable.

2. Significant Accounting Policies

Our significant accounting policies are described in Note 2 to the consolidated and combined financial statements included in our Transition Reports on Form 10-KT for the fiscal year ended June 30, 2022. There were no material changes to our significant accounting policies during the three and six months ended December 31, 2022, other than those noted below.

(a) Derivatives and Hedging

We use derivative instruments to manage exposures to foreign currency exchange rate risks. Our primary objective of holding derivatives is to reduce the volatility of cash flows associated with changes in foreign currency exchange rates. Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We do seek to mitigate such risks by limiting our counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties.

The Company accounts for derivative transactions in accordance with ASC Topic 815, “Derivatives and Hedging,” and recognizes derivatives instruments as either assets or liabilities in the consolidated and combined balance sheet and measures those instruments at fair value. The Company’s foreign currency forward contracts as described in Note 11 do not qualify for hedge accounting. Accordingly, the changes in fair value of the derivative transactions are presented in earnings.

(b) Recently Issued Accounting Pronouncements

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

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3. Revenue from Contracts with Customers

Contract Assets and Contract Liabilities

The contract assets are subject to credit risk and are reviewed in accordance with ASC 326. The Company monitors the credit quality of customer contract asset balances on an individual basis, at each reporting date, through credit characteristics, geographic location, and the industry in which they operate. The Company recognizes an impairment on contract assets if, subsequent to contract inception, it becomes probable payment is not collectible. An allowance for expected credit loss reflects losses expected over the remaining term of the contract asset and is determined based upon historical losses, customer-specific factors, and current economic conditions. The Company’s contract assets and contract liabilities were as follows as of December 31, 2022 and June 30, 2022:


	December 31, 2022		June 30, 2022
	(Dollars in Thousands)
Contract assets	$	935,534	$	857,065
Contract liabilities	(176,594)		(164,408)
	$	758,940	$	692,657

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

The majority of the Company’s contract balances are related to arrangements where revenue is recognized at a point in time and payments are made according to contractual billing schedules. The change in the net contract balance during the six months ended December 31, 2022 was primarily due to greater revenue recognition as compared to billings. Revenue recognized from the contract liability balance, as of June 30, 2022, was $37.1 million and $72.6 million during the three and six months ended December 31, 2022, respectively.

The Company did not have any customer that accounted for 10 percent or more of the Company’s revenues for the three and six months ended December 31, 2022 and 2021, respectively.

Transaction Price Allocated to Remaining Performance Obligations

The following table includes the aggregate amount of the transaction price allocated as of December 31, 2022 to the performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:


	Year Ending June 30,
	2023		2024		2025		2026		2027		Thereafter		Total
	(Dollars in Thousands)
License and solutions	$	117,453	$	110,707	$	69,993	$	27,445	$	6,899	$	173	$	332,670
Maintenance	148,892		230,708		156,535		115,242		83,846		49,696		784,919
Services and other	45,306		10,465		3,948		2,874		2,183		3,865		68,641
Total	$	311,651	$	351,880	$	230,476	$	145,561	$	92,928	$	53,734	$	1,186,230

The table below reflects disaggregated revenues by business for the three and six months ended December 31, 2022 and 2021, respectively.


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Heritage AspenTech	$	167,442	$	—	$	343,848	$	—
SSE	29,726		26,072		62,714		55,169
OSI, Inc.	45,670		55,703		87,095		103,621
Total	$	242,838	$	81,775	$	493,657	$	158,790

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4. Acquisitions

Inmation Software GmbH

On August 29, 2022, the Company completed the acquisition of inmation Software GmbH (“Inmation”) for total cash consideration of $87.4 million. The purchase price consisted of $78.9 million of cash paid at closing and an additional $8.5 million to be held back until August 2023 as security for certain representations, warranties, and obligations of the sellers. The holdback is recorded in accrued expenses and other current liabilities in our consolidated and combined balance sheets. The total cash acquired from Inmation was approximately $4.0 million resulting in a net cash payment of $74.9 million. The Company recognized goodwill of $63.6 million (none of which is expected to be tax deductible) and identifiable intangible assets of $31.5 million, primarily developed technology and customer relationships, with a useful life of approximately five years for developed technology and seven years for customer relationships. The fair value of assets acquired and liabilities assumed represent the preliminary fair value estimates, and are subject to subsequent adjustments as the Company obtains additional information during the measurement period and finalizes its fair value estimates.

Inmation’s revenue and net loss included in the Company’s consolidated and combined income statement from the acquisition date to the reporting period ending on December 31, 2022 were $1.2 million and $(1.1) million, respectively. Results included amortization of developed technology and customer relationships of $1.9 million.

Prior to the closing date, Inmation was considered a related party to AspenTech as Emerson, through one of its subsidiaries, held an equity-method investment in Inmation. At the time of close, $17.6 million was paid to Emerson in exchange for all of its shares in Inmation, with another $2.0 million to be paid 12 months after the close.

Heritage AspenTech

On October 10, 2021, Emerson entered into the Transaction with Heritage AspenTech to contribute the Industrial Software Business comprised of OSI and the SSE business, along with $6.014 billion in cash, to create the Company. On the Closing Date, Emerson owned 55% of the outstanding common shares of AspenTech on a fully diluted basis, while the stockholders of Heritage AspenTech owned the remaining 45%. The acquisition-date fair value of the purchase consideration totaled $11.19 billion.

During the first two quarters of fiscal 2023, the Company recorded purchase price allocation adjustments that increased goodwill by $1.7 million. The following table sets forth the purchase price allocation of the Heritage AspenTech acquisition:


	Amount
	(Dollars in Thousands)
Cash and cash equivalents	$	273,728
Accounts receivable	43,163
Current and non-current contract assets	730,548
Intangible assets	4,390,667
Other net assets acquired	66,753
Total asset acquired (excluding Goodwill)	5,504,859
Accounts payable, accrued expenses, and other current liabilities	56,005
Current and non-current deferred revenue	62,319
Current and non-current borrowings under credit agreement	282,000
Deferred income taxes	1,078,463
Other net liabilities assumed	62,279
Total liabilities assumed	1,541,066
Net identifiable assets acquired	3,963,793
Goodwill	7,224,483
Net assets acquired	$	11,188,276

The following pro forma consolidated and combined financial results of operations are presented as if the Heritage AspenTech acquisition occurred on October 1, 2020. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the acquisition occurred as of that time.

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	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
	(Dollars in Thousands)
Total revenue	$	242,838	$	253,132	$	493,657	$	466,167
Net (loss)	$	(61,743)	$	(8,153)	$	(67,950)	$	(51,717)

5. Intangible Assets

Intangible assets consisted of the following as of December 31, 2022 and June 30, 2022:


	Developed Technology		Trademarks		Customer Relationships and Backlog		Capitalized Software and Other		Total
	(Dollars in Thousands)
December 31, 2022:
Gross carrying amount	$	1,903,599	$	464,400	$	3,082,541	$	10,348	$	5,460,888
Less: Accumulated amortization	(248,960)		(11,599)		(289,320)		(8,567)		(558,446)
Net carrying amount	$	1,654,639	$	452,801	$	2,793,221	$	1,781	$	4,902,442

June 30, 2022:
Gross carrying amount	$	1,882,037	$	464,400	$	3,072,738	$	10,149	$	5,429,324
Less: Accumulated amortization	(153,758)		(9,379)		(144,888)		(8,518)		(316,543)
Net carrying amount	$	1,728,279	$	455,021	$	2,927,850	$	1,631	$	5,112,781

The increase in intangible assets from June 30, 2022 was primarily due to the Inmation acquisition. See Note 4, Acquisitions. Total intangible asset amortization expense was $121.2 million for the three months ended December 31, 2022, of which $98.9 million related to the Heritage AspenTech Transaction. Total intangible asset amortization expense was $242.3 million for the six months ended December 31, 2022 of which, $1.9 million related to the Heritage AspenTech Transaction.

6. Goodwill

The changes in the carrying amount of goodwill during the six months ended December 31, 2022 were as follows:


	Carrying Value
	(Dollars in Thousands)
Balance, June 30, 2022	$	8,266,809
Goodwill from Inmation acquisition	63,577
Purchase accounting adjustment from Heritage AspenTech acquisition	(1,685)
Foreign currency translation	145
Balance, December 31, 2022	$	8,328,846

7. Fair Value

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

Cash equivalents are reported at fair value utilizing quoted market prices in identical markets, or “Level 1 Inputs.” The Company’s cash equivalents consist of short-term money market instruments.

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

Our derivative instruments are primarily classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs.

The following table summarizes financial assets and liabilities measured and recorded at fair value on a recurring basis in the accompanying consolidated and combined balance sheets as of December 31, 2022 and June 30, 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1 Inputs)		Significant Other Observable Inputs (Level 2 Inputs)
	(Dollars in Thousands)
December 31, 2022:
Cash equivalents	$	2,955	$	—
Equity method investments	—		2,231
Derivative liabilities	—		(15,319)
June 30, 2022:
Cash equivalents	$	2,998	$	—
Equity method investments	—		1,761

Financial instruments not measured or recorded at fair value in the accompanying consolidated and combined financial statements consist of accounts receivable, accounts payable and accrued liabilities. The estimated fair value of these financial instruments approximates their carrying value. The estimated fair value of the borrowings under the Amended and Restated Credit Agreement (described below in Note 8, “Credit Agreement”) approximates its carrying value due to the floating interest rate.

8. Debt

Bridge Facility

On July 27, 2022, the Company entered into a $475.0 million senior unsecured bridge facility (the “Bridge Facility”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), as Administrative Agent, to finance the Micromine acquisition. The Bridge Facility was entered into under the existing Amended and Restated Credit Agreement dated as of December 23, 2019, with JPMorgan (“Credit Agreement”). The Company may elect that each incremental borrowing under the Bridge Facility bear interest at a rate per annum equal to (a) the Alternate Base Rate (“ABR”), plus the applicable margin or (b) the Adjusted Term Secured Overnight Financing Rate (“SOFR”), plus the applicable margin.

As consideration for JPMorgan’s agreement to act as administrative agent for the Bridge Facility, the Company is required to pay a fee of $50,000 per annum, payable on the closing date of the loan and every anniversary thereof during the term of the loan.

In addition, the Company incurred issuance costs associated with the Bridge Facility. For the six months ended December 31, 2022, the Company paid a total of $2.375 million in fees to JPMorgan to secure the Bridge Facility.

On December 23, 2022, the Company terminated the Bridge Facility, and at the same time entered into a credit agreement with Emerson (the “Emerson Credit Agreement”), which will provide for an aggregate term loan commitment of $630.0 million. Refer to Note 13, “Related-Party Transactions”, to our consolidated and combined financial statements for further discussion of the Emerson Credit Agreement.

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Credit Agreement

The Company also has a Credit Agreement with JP Morgan that provides for a $200.0 million secured revolving credit facility and a $320.0 million secured term loan facility.

As of December 31, 2022, the Company’s current and non-current borrowings, under the term loan facility, were $264.0 million and $0.0 million, respectively. As of June 30, 2022, the Company’s current and non-current borrowings, under the term loan facility, were $28.0 million and $245.6 million, respectively. The interest rate on the term loan facility as of December 31, 2022 was 5.26%. There were no amounts outstanding under the revolving credit facility at either December 31, 2022 or June 30, 2022. Any outstanding balances of the indebtedness under the revolving credit facility mature on December 23, 2024. Refer to Note 15, “Subsequent Events”, to our consolidated and combined financial statements for further discussion of the subsequent payoff of our term loan facility of the Credit Agreement after the reporting date of December 31, 2022.

The Credit Agreement contains customary affirmative and negative covenants, which are also applicable to the Bridge Facility, including restrictions on incurrence of additional debt, liens, fundamental changes, asset sales, restricted payments (including dividends) and transactions with affiliates. There are also financial covenants measured at the end of each fiscal quarter including a maximum leverage ratio of 3.50 to 1.00 and a minimum interest coverage ratio of 2.50 to 1.00. As of December 31, 2022, the Company was in compliance with all the loan covenants.

9. Stock-Based Compensation

The stock-based compensation expense under all equity plans and its classification in the unaudited consolidated and combined statements of operations for the three and six months ended December 31, 2022 and 2021 are as follows:


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
	(Dollars in Thousands)
Recorded as expenses:
Cost of license and solutions	$	1,200	$	—	$	1,919	$	—
Cost of maintenance	474		—		1,035		—
Cost of services and other	428		—		858		—
Selling and marketing	3,826		—		7,191		—
Research and development	4,240		—		7,858		—
General and administrative	13,273		458		22,316		826
Total stock-based compensation	$	23,441	$	458	$	41,177	$	826

During the six month period ended December 31, 2022, the Company granted 167,932 stock options and 164,693 restricted stock units (“RSUs”). The stock options granted had a weighted average exercise price of $207.79 per option and a weighted average fair value of $77.45 per option. The RSUs granted had a weighted average fair value of $207.87 per RSU.

10. Net Income Per Share

Basic income per share is determined by dividing net income by the weighted average common shares outstanding during the period. Diluted income per share is determined by dividing net income by diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect the dilutive effect, if any, of potential common shares. To the extent their effect is dilutive, employee equity awards and other commitments to be settled in common stock are included in the calculation of diluted net income per share based on the treasury stock method.

Prior to the Transaction, the Industrial Software Business did not have any shares of common stock outstanding. Accordingly, net loss per share for the three and six months ended December 31, 2022 has been calculated using weighted average shares outstanding (basic and diluted) based on the number of shares of common stock issued to Emerson on the Closing Date of the Transaction.

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The calculations of basic and diluted net income per share and basic and dilutive weighted average shares outstanding for the three and six months ended December 31, 2022 and 2021 are as follows:


	Three Months Ended December 31,				Six Months Ended December 31,
(Dollars and Shares in Thousands, Except per Share Data)	2022		2021		2022		2021

Net (loss)	$	(66,197)	$	(760)	$	(77,441)	$	(11,962)

Basic weighted average shares outstanding	64,621		36,308		64,538		36,308

Dilutive weighted average shares outstanding	64,621		36,308		64,538		36,308

(Loss) per share
Basic	$	(1.02)	$	(0.02)	$	(1.20)	$	(0.33)
Dilutive	$	(1.02)	$	(0.02)	$	(1.20)	$	(0.33)

For the three and six months ended December 31, 2022 and 2021, certain employee equity awards were anti-dilutive based on the treasury stock method. The following employee equity awards were excluded from the calculation of dilutive weighted average shares outstanding because their effect would be anti-dilutive as of December 31, 2022 and 2021:


	Three Months Ended December 31,		Six Months Ended December 31,
	2022	2021	2022	2021
	(Shares in Thousands)
Employee equity awards	1,574	—	1,479	—

11. Derivatives

In connection with the agreement to purchase Micromine, the Company also entered into foreign currency forward contracts on August 2, 2022 for a six-month period ending on February 6, 2023 to mitigate the impact of foreign currency exchange associated with the forecasted payment of purchase price. The acquisition is expected to close as soon as the remaining regulatory approval is obtained.

The notional amounts of our outstanding derivatives are in total AU $900 million. As of December 31, 2022, the fair values of our derivative instruments were $15.3 million and were recorded to the liability from foreign currency forward contract caption on the consolidated and combined balance sheets. For the three and six months ended December 31, 2022, the Company recognized gains of $34.9 million and losses of $15.3 million, respectively, and recorded as part of the other income (expense), net on the consolidated and combined statements of operations.

12. Benefit for Income Taxes

The Company computes its tax provision (benefit) for interim periods by applying the estimated annual effective tax rate (“AETR”) to year-to-date income from operations and adjusting for discrete items arising in that quarter. However, if the Company is unable to make a reliable estimate of its AETR, then the actual effective tax rate for the year-to-date period may be the best estimate. For the three months and six months ended December 31, 2021, the Company computed its tax provision (benefit) using the AETR approach. However, for the six months ended December 31, 2022, the Company recorded the actual effective tax rate as it was determined that the AETR approach was not the most appropriate estimate to be applied to the year to date pretax (loss) income given small changes in the forecast of pre-tax (loss) income would result in significant changes in the AETR.

Income tax expense was $49.6 million for the three months ended December 31, 2022 and income tax benefit was $0.9 million for the three months ended December 31, 2021, resulting in effective tax rates of (298.0)% and 55.1%, respectively. Our income tax was higher in the three months ended December 31, 2022 due to the current quarters' change in the Company’s approach to computing its tax provision (benefit) for the interim periods to the actual effective tax rate method.

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The change resulted in a tax provision during the three months ended December 31, 2022 that reflects recording a year-to-date benefit compared to that of the three months ended September 30, 2022, which was recorded under the AETR approach.

Benefit for income taxes was $44.0 million and $5.2 million for the six months ended December 31, 2022 and December 31, 2021, respectively, resulting in effective tax rates of 36.2% and 30.5%, respectively. Income tax benefit increased due to the higher Foreign-Derived Intangible Income (“FDII”) deduction recorded in the current period as a result of non-deductible amortization of intangibles, capitalized R&D costs, and a change in the accounting methodology related to historical revenue recognition for tax purposes on multi-year software license agreements. The change resulted in the recognition of taxable income over a four-tax year period with fiscal year 2024 as the last year of the adjustment.

13. Related-Party Transactions

The Company utilizes Emerson’s centralized treasury function which manages the working capital and financing needs of its business operations. This function oversees a cash pooling arrangement which sweeps certain Company cash accounts into pooled Emerson cash accounts on a daily basis. Pooled cash and nontrade balances attributable to Emerson have been presented as receivables from related parties or due to related parties in the consolidated and combined financial statements of the Company.

Before the Closing Date, the Industrial Software Business was charged for costs directly attributable to the SSE business and OSI and was allocated a portion of Emerson’s costs, including general corporate costs, information technology costs, insurance and other benefit costs, and shared service and other costs. All of these costs are reflected in the Company’s consolidated and combined financial statements. Management believes the methodologies and assumptions used to allocate these costs are reasonable.

At the Closing Date, Emerson and the Company entered into the transition service agreement (“TSA”) for the provision of certain transitionary services from Emerson to AspenTech. Pursuant to the TSA, Emerson will provide AspenTech and its subsidiaries with certain services, including information technology, human resources and other specified services, as well as access to certain of Emerson’s existing facilities. TSA related activities have been recorded as cost of goods sold or operating expenses from related parties and resulting balances have been presented as receivable from or due to related parties in the consolidated and combined financial statements presented.

Receivables from related parties and due to related parties reported in the consolidated and combined balance sheets as of December 31, 2022 and June 30, 2022 include the following:


	December 31,		June 30,
	2022		2022
Interest bearing receivables from related parties	$	14,946	$	16,122
Trade receivables from related parties	153		819
Interest bearing payables to related parties	30,883		2,028
Trade payables to related parties	1,401		2,083

Allocations and charges from Emerson are as follows:


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Corporate costs	$	—	$	490	$	—	$	1,091
Information technology	763		427		1,574		862
Insurance and other benefits	—		145		—		374
Shared services and other	1,157		2,848		3,895		5,635

Corporate costs, human resources, and insurance and other benefits are recorded in general and administrative expenses and information technology, facility charges, and shared services and other are allocated to cost of goods sold and operating expenses based on systematic methods.

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Before the Closing Date, OSI and the SSE business engaged in various transactions to sell software and purchase goods in the ordinary course of business with affiliates of Emerson. At the Closing Date, the Company and Emerson entered into a commercial agreement to allow Emerson to distribute software and services from AspenTech (the “Commercial Agreement”). Pursuant to the Commercial Agreement as amended from time to time in accordance with the Stockholders Agreement, AspenTech will grant Emerson the right to distribute, on a non-exclusive basis, certain (i) existing Heritage AspenTech products, (ii) existing Emerson products being transferred to AspenTech pursuant to the Transaction Agreement and (iii) future AspenTech products as mutually agreed upon, in each case, to end-users through Emerson acting as an agent, reseller or original equipment manufacturer. Commercial Agreement related activities have been recorded as revenues and expenses from related parties and resulting trade balances have been presented as trade receivables from related parties in the consolidated and combined financial statements presented. Revenue from Emerson are as follows:


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Revenue from Emerson affiliates	$	4	$	8	$	567	$	1,009

Purchases from Emerson affiliates	85		215		1,786		5,394

Emerson Share Maintenance Rights

Immediately following the Closing Date, Emerson beneficially owned 55% of the fully diluted shares of AspenTech common stock. Under the Shareholders Agreement, Emerson has the right to acquire additional equity securities of AspenTech pursuant to pre-agreed procedures and rights in order to maintain its 55% ownership. No additional shares of common stock, or any other equity securities of AspenTech, were issued to Emerson subsequent to the Closing Date through December 31, 2022.

Business combination with related party

The Inmation acquisition completed on August 29, 2022 was considered a related party transaction. Refer to Note 4, “Acquisitions”, to our consolidated and combined financial statements for further discussion.

Credit agreement with related party

On December 23, 2022, the Company entered into the Emerson Credit Agreement with Emerson, which provides for an aggregate term loan commitment of $630.0 million. Under the terms of the Agreement, the Company will use the proceeds from borrowings under the Agreement to (i) pay in part the cash consideration for funding acquisitions, (ii) consummate certain other loan repayments, (iii) pay the fees and expenses incurred in connection with the Emerson Credit Agreement and (iv) for other working capital and general corporate purposes.

Principal outstanding under the Emerson Credit Agreement bears interest at a rate per annum equal to Term SOFR Rate (as such term is defined in Emerson Credit Agreement) plus an amount ranging from 1.25% to 1.75%.

The term loan to be made under the Agreement is unsecured and matures on the fifth anniversary of the date the term loan is funded. The Company is permitted to prepay the term loan in whole or in part upon provision of notice in accordance with the Emerson Credit Agreement. Upon an event of default (as such term is defined in the Emerson Credit Agreement), the loan may become due and payable in full upon provision of notice in accordance with the Agreement.

In addition, the Emerson Credit Agreement includes a mandatory prepayment provision if at any time Emerson fails to beneficially own more than 40% of our common stock for a period of more than 30 consecutive days and Emerson provides us written notice requiring us to prepay the term loan. In such an event, we would have no less than either 30 days or 180 days from the date of such notice, depending upon the circumstances giving rise to the decrease in Emerson’s ownership interest, to prepay the term loan.

The Emerson Credit Agreement contains affirmative and negative covenants customary for facilities of this type, including restrictions on incurrence of additional debt, liens, fundamental changes, asset sales, restricted payments and transactions with affiliates. The Agreement also contains financial covenants regarding maintenance as of the end of each fiscal quarter of a maximum leverage ratio of 3.50 to 1.00 and a minimum interest coverage ratio of 2.50 to 1.00. As of December 31, 2022, the Company was in compliance with all the loan covenants.

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There was no amount outstanding under the Emerson Credit Agreement at December 31, 2022.

14. Segment Information

Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to assess performance.

Prior to the Transaction, the Industrial Software Business had two operating and reportable segments: OSI Inc. and the GSS business (subsequently renamed Subsurface Science & Engineering Solutions, or “SSE”, after the Closing Date). The Transaction resulted in the creation of a third operating and reportable segment: Heritage AspenTech. During the three months ended September 30, 2022, the Company completed certain integration activities and changes to its organizational structure that triggered a change in the composition of its operating and reportable segments. As a result, beginning with the interim period ended September 30, 2022, the Company is now comprised of a single operating and reportable segment. Accordingly, the Company has restated its operating and reportable segment information for the three and six months ended December 31, 2021. The Company’s chief operating decision maker is its President and Chief Executive Officer.

Geographic Information

Summarized below is information about the Company’s geographic operations:

Revenue by Destination