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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
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: 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 | o | | Accelerated filer | ☐ |
| Non-accelerated filer | ý | | 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 64,869,475 shares of common stock outstanding as of April 25, 2023.
TABLE OF CONTENTS
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).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
Statements in this Quarterly Report on Form 10-Q that are not strictly historical may be “forward-looking” statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties, and AspenTech undertakes no obligation to update any such statements to reflect later developments. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “strategy,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” “opportunity” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These risks and uncertainties include, without limitation: the failure to realize the anticipated benefits of our transaction with Emerson Electric Co.; risks resulting from our status as a controlled company; AspenTech’s ability to successfully complete on the terms and conditions contemplated, and the financial impact of, the proposed Micromine transaction; the scope, duration and ultimate impacts of the COVID-19 pandemic and the Russia-Ukraine conflict; as well as economic and currency conditions, market demand, including related to the pandemic and adverse changes in the process or other capital-intensive industries such as materially reduced spending budgets due to oil and gas price declines and volatility, pricing, protection of intellectual property, cybersecurity, natural disasters, tariffs, sanctions, competitive and technological factors, inflation; and others, including those described in “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and those described in our Transition Report on Form 10-KT and subsequent reports filed with the Securities and Exchange Commission. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
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 March 31, | | Nine Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenue: | | | | | | | |
License and solutions | $ | 136,292 | | | $ | 50,838 | | | $ | 446,360 | | | $ | 143,544 | |
Maintenance | 77,283 | | | 27,313 | | | 234,277 | | | 78,120 | |
Services and other | 16,303 | | | 6,450 | | | 42,898 | | | 21,727 | |
Total revenue | 229,878 | | | 84,601 | | | 723,535 | | | 243,391 | |
Cost of revenue: | | | | | | | |
License and solutions | 68,980 | | | 35,546 | | | 209,326 | | | 103,155 | |
Maintenance | 9,020 | | | 4,296 | | | 27,804 | | | 12,604 | |
Services and other | 15,799 | | | 3,959 | | | 40,897 | | | 13,139 | |
Total cost of revenue | 93,799 | | | 43,801 | | | 278,027 | | | 128,898 | |
Gross profit | 136,079 | | | 40,800 | | | 445,508 | | | 114,493 | |
Operating expenses: | | | | | | | |
Selling and marketing | 120,035 | | | 18,899 | | | 356,260 | | | 61,894 | |
Research and development | 54,046 | | | 15,462 | | | 153,741 | | | 46,400 | |
General and administrative | 40,471 | | | 9,139 | | | 124,557 | | | 22,792 | |
Restructuring costs | — | | | 43 | | | — | | | 288 | |
Total operating expenses | 214,552 | | | 43,543 | | | 634,558 | | | 131,374 | |
(Loss) from operations | (78,473) | | | (2,743) | | | (189,050) | | | (16,881) | |
Other (expense), net | (13,281) | | | (2,685) | | | (33,270) | | | (5,463) | |
Interest income (expense), net | 9,969 | | | (28) | | | 19,112 | | | (320) | |
(Loss) before provision for income taxes | (81,785) | | | (5,456) | | | (203,208) | | | (22,664) | |
(Benefit) for income taxes | (24,150) | | | (2,176) | | | (68,132) | | | (7,422) | |
Net (loss) | $ | (57,635) | | | $ | (3,280) | | | $ | (135,076) | | | $ | (15,242) | |
Net (loss) per common share: | | | | | | | |
Basic | $ | (0.89) | | | $ | (0.09) | | | $ | (2.09) | | | $ | (0.42) | |
Diluted | $ | (0.89) | | | $ | (0.09) | | | $ | (2.09) | | | $ | (0.42) | |
Weighted average shares outstanding: | | | | | | | |
Basic | 64,796 | | | 36,308 | | | 64,622 | | | 36,308 | |
Diluted | 64,796 | | | 36,308 | | | 64,622 | | | 36,308 | |
See accompanying notes to these unaudited consolidated and combined financial statements.
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited in Thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net (loss) | $ | (57,635) | | | $ | (3,280) | | | $ | (135,076) | | | $ | (15,242) | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | 5,845 | | | (984) | | | 3,690 | | | (1,009) | |
Pension, net of taxes | — | | | (2) | | | — | | | 715 | |
Total other comprehensive income (loss) | 5,845 | | | (986) | | | 3,690 | | | (294) | |
Comprehensive (loss) | $ | (51,790) | | | $ | (4,266) | | | $ | (131,386) | | | $ | (15,536) | |
See accompanying notes to these unaudited consolidated and combined financial statements.
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEETS
(Unaudited in Thousands, Except Share and Per Share Data)
| | | | | | | | | | | | | | | |
| March 31, 2023 | | June 30, 2022 | | | | |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 286,736 | | | $ | 449,725 | | | | | |
Accounts receivable, net | 115,362 | | | 111,027 | | | | | |
Current contract assets, net | 399,388 | | | 428,833 | | | | | |
Prepaid expenses and other current assets | 22,951 | | | 23,461 | | | | | |
Receivables from related parties | 43,998 | | | 16,941 | | | | | |
Prepaid income taxes | 7,603 | | | 17,503 | | | | | |
Total current assets | 876,038 | | | 1,047,490 | | | | | |
Property, equipment and leasehold improvements, net | 18,332 | | | 17,148 | | | | | |
Goodwill | 8,328,210 | | | 8,266,809 | | | | | |
Intangible assets, net | 4,780,644 | | | 5,112,781 | | | | | |
Non-current contract assets, net | 471,397 | | | 428,232 | | | | | |
Contract costs | 11,174 | | | 5,473 | | | | | |
Operating lease right-of-use assets | 69,173 | | | 78,286 | | | | | |
Deferred tax assets | 2,388 | | | 4,937 | | | | | |
Other non-current assets | 9,553 | | | 8,766 | | | | | |
Total assets | $ | 14,566,909 | | | $ | 14,969,922 | | | | | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | 11,531 | | | 21,416 | | | | | |
Accrued expenses and other current liabilities | 95,319 | | | 90,123 | | | | | |
Liability from foreign currency forward contract | 40,454 | | | — | | | | | |
Due to related parties | 16,103 | | | 4,111 | | | | | |
Current operating lease liabilities | 12,683 | | | 7,191 | | | | | |
Income taxes payable | 24,729 | | | 6,768 | | | | | |
Current borrowings | — | | | 28,000 | | | | | |
Current contract liabilities | 154,313 | | | 143,327 | | | | | |
Total current liabilities | 355,132 | | | 300,936 | | | | | |
Non-current contract liabilities | 27,654 | | | 21,081 | | | | | |
Deferred income tax liabilities | 990,461 | | | 1,145,408 | | | | | |
Non-current operating lease liabilities | 57,706 | | | 71,933 | | | | | |
Non-current borrowings, net | — | | | 245,647 | | | | | |
Other non-current liabilities | 16,877 | | | 15,560 | | | | | |
Stockholders’ equity: | | | | | | | |
Common stock, $0.0001 par value Authorized—600,000,000 shares Issued— 64,858,598 shares at March 31, 2023 and 64,425,378 shares at June 30, 2022 Outstanding— 64,858,598 shares at March 31, 2023 and 64,425,378 shares at June 30, 2022 | 6 | | | 6 | | | | | |
Additional paid-in capital | 13,188,678 | | | 13,107,570 | | | | | |
Retained (deficit) earnings | (68,707) | | | 66,369 | | | | | |
Accumulated other comprehensive (loss) | (898) | | | (4,588) | | | | | |
Total stockholders’ equity | 13,119,079 | | | 13,169,357 | | | | | |
Total liabilities and stockholders’ equity | $ | 14,566,909 | | | $ | 14,969,922 | | | | | |
See accompanying notes to these unaudited consolidated and combined financial statements.
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY/
STOCKHOLDERS’ EQUITY
(Unaudited in Thousands, Except Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Accumulated Other Comprehensive (Loss) Income | | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Deficit) | | 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 | | | — | | | 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 income | | | 6,710 | | | — | | | — | | | — | | | — | | | 6,710 | |
Issuance of shares of common stock | | | — | | | 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 Loss | | | — | | | — | | | — | | | — | | | (57,635) | | | (57,635) | |
Other comprehensive income | | | 5,845 | | | — | | | — | | | — | | | — | | | 5,845 | |
Issuance of shares of common stock | | | — | | | 50,579 | | | — | | | 6,031 | | | — | | | 6,031 | |
Issuance of restricted stock units and net share settlement relating to withholding taxes | | | — | | | 40,264 | | | — | | | (5,070) | | | — | | | (5,070) | |
Stock-based compensation | | | — | | | — | | | — | | | 22,843 | | | — | | | 22,843 | |
Balance March 31, 2023 | | | $ | (898) | | | 64,858,598 | | | $ | 6 | | | $ | 13,188,678 | | | $ | (68,707) | | | $ | 13,119,079 | |
| | | | | | | | | | | | | | | | | |
| Net Parent Investment | | Accumulated Other Comprehensive (Loss) Income | | 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 | |
Net Loss | (3,280) | | | — | | | (3,280) | |
Net transfer to Parent Company | (49,585) | | | — | | | (49,585) | |
Other comprehensive (loss) | — | | | (986) | | | (986) | |
Balance March 31, 2022 | $ | 1,741,523 | | | $ | (6,781) | | | $ | 1,734,742 | |
See accompanying notes to these unaudited consolidated and combined financial statements.
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited in Thousands)
| | | | | | | | | | | |
| Nine Months Ended March 31, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Net (loss) | $ | (135,076) | | | $ | (15,242) | |
Adjustments to reconcile net (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 368,266 | | | 77,335 | |
Reduction in the carrying amount of right-of-use assets | 10,463 | | | 4,240 | |
Net foreign currency losses | 3,711 | | | 5,765 | |
Realized gain on settlement of foreign currency forward contracts | (10,821) | | | — | |
Stock-based compensation | 64,020 | | | 1,345 | |
Deferred income taxes | (156,046) | | | (11,848) | |
Provision for uncollectible receivables | 3,944 | | | 852 | |
Other non-cash operating activities | 1,108 | | | 167 | |
Changes in assets and liabilities: | | | |
Accounts receivable | (11,060) | | | (17,637) | |
Contract assets | (10,672) | | | (14,769) | |
Contract costs | (5,357) | | | — | |
Lease liabilities | (10,303) | | | (3,146) | |
Prepaid expenses, prepaid income taxes, and other assets | 27,641 | | | (662) | |
Liability from foreign currency forward contract | 40,454 | | | — | |
Accounts payable, accrued expenses, income taxes payable and other liabilities | (12,038) | | | (7,628) | |
Contract liabilities | 17,416 | | | 1,349 | |
Net cash provided by operating activities | 185,650 | | | 20,121 | |
Cash flows from investing activities: | | | |
Purchases of property, equipment and leasehold improvements | (4,515) | | | (3,831) | |
Proceeds from settlement of foreign currency forward contracts | 10,821 | | | — | |
Payments for business acquisitions, net of cash acquired | (72,498) | | | (1,065) | |
Payments for equity method investments | (676) | | | — | |
Payments for capitalized computer software development costs | (347) | | | — | |
Purchases of other assets | (1,000) | | | (287) | |
Net cash used in investing activities | (68,215) | | | (5,183) | |
Cash flows from financing activities: | | | |
Issuance of shares of common stock | 31,542 | | | — | |
Payment of tax withholding obligations related to restricted stock | (14,406) | | | — | |
Deferred business acquisition payments | (1,363) | | | — | |
Repayments of amounts borrowed under term loan | (276,000) | | | — | |
Net transfers to Parent Company | (5,749) | | | (17,249) | |
Payments of debt issuance costs | (2,375) | | | — | |
Net cash (used in) financing activities | (268,351) | | | (17,249) | |
Effect of exchange rate changes on cash and cash equivalents | (12,073) | | | (986) | |
(Decrease) in cash and cash equivalents | (162,989) | | | (3,297) | |
Cash and cash equivalents, beginning of period | 449,725 | | | 23,659 | |
Cash and cash equivalents, end of period | $ | 286,736 | | | $ | 20,362 | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Income taxes paid, net | $ | 64,840 | | | $ | 49,374 | |
Interest paid | 14,345 | | | 590 | |
Supplemental disclosure of non-cash activities: | | | |
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses | $ | (1,307) | | | $ | (71) | |
Lease liabilities arising from obtaining right-of-use assets | 784 | | | 288 | |
See accompanying notes to these unaudited consolidated and combined financial statements.
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 the 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 March 31, 2023.
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 closing of the acquisition is subject to regulatory approval.
The Company operates globally in 82 countries as of March 31, 2023.
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 nine-month interim period ended March 31, 2022, 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 March 31, 2023, and for the third quarters of fiscal 2023 and 2022, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") and in accordance with generally accepted accounting principles in the United States ("GAAP"). 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
The ongoing conflict in Ukraine could negatively impact the Company's 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 operations in Russia and licenses software and
provides related services to customers in Russia and areas of Ukraine that are not under sanction. The Company had net sales of approximately $7.3 million and $34.0 million for the three- and nine-month period ended March 31, 2023, respectively, and total assets of approximately $41.3 million as of March 31, 2023, related to operations in Russia. 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.
The Company may be required to cease or suspend operations in the region or, should the conflict or the effects of sanctions, export control measures and business 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 nine months ended March 31, 2023, other than those noted below.
(a) Revenue Recognition
Prior to the third quarter of fiscal 2023, OSI Inc. software licenses were primarily sold with professional services and hardware to form an integrated solution for the customer. The professional services and hardware sold with the license significantly customized the underlying functionality and usability of the software. As such, neither the license, hardware, nor professional services were considered distinct within the context of the contract and were therefore considered a single performance obligation. Because the integrated solution had no alternative use to the Company and the Company held an enforceable right to payment, revenue was recognized over time (typically one to two years) using an input measure of progress based on the ratio of actual costs incurred to date to the total estimated cost to complete. For integrated solution contracts executed prior to the third quarter of fiscal 2023, revenue continues to be recognized over time until the implementation is complete.
At the start of the third quarter of fiscal 2023, the Company completed a series of business transformation activities relating to OSI Inc. products and services in conjunction with its ongoing integration activities. As part of a change in the related go-to-market strategy, the Company has invested in tools and processes to simplify and streamline the implementation services to significantly reduce the complexity and interdependency associated with its software. In addition, the Company has identified and trained several third-party implementation service partners to operate autonomously and directly with OSI Inc. customers to implement its products.
Accordingly, effective January 1, 2023 following the completion of these business transformation activities, for all new OSI Inc. contracts, the Company accounts for the OSI Inc. software license, hardware, maintenance, and professional services as separate and distinct performance obligations. Software license revenue is recognized at a point in time when control transfers to the customer, which generally aligns with the first day of the contractual term. Hardware revenue is recognized at the point in time when control transfers to the customer, which generally occurs upon delivery. The recognition of maintenance revenue at OSI Inc. is unchanged. Maintenance revenue continues to be recognized ratably over the maintenance term. Professional services revenue is recognized over time (typically one to two years) using the proportional performance method by comparing the costs incurred to the total estimated project costs.
There were no other changes to the Company’s revenue recognition accounting policy during the three and nine months ended March 31, 2023.
(b) 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.
(c) 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.
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 March 31, 2023 and June 30, 2022:
| | | | | | | | | | | |
| March 31, 2023 | | June 30, 2022 |
| (Dollars in Thousands) |
Contract assets | $ | 870,785 | | | $ | 857,065 | |
Contract liabilities | (181,967) | | | (164,408) | |
| $ | 688,818 | | | $ | 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 nine months ended March 31, 2023 was primarily due to greater revenue recognition as compared to billings. Revenue recognized from the contract liability balance, as of June 30, 2022, was $37.6 million and $114.3 million during the three and nine months ended March 31, 2023, respectively.
The Company did not have any customer that accounted for 10 percent or more of the Company’s revenues for the three and nine months ended March 31, 2023 and 2022, respectively.
Transaction Price Allocated to Remaining Performance Obligations
The following table includes the aggregate amount of the transaction price allocated as of March 31, 2023 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 | $ | 67,774 | | | $ | 144,725 | | | $ | 78,046 | | | $ | 19,579 | | | $ | 5,748 | | | $ | 305 | | | $ | 316,177 | |
Maintenance | 80,308 | | | 262,500 | | | 179,051 | | | 126,822 | | | 92,867 | | | 60,537 | | | 802,085 | |
Services and other | 43,488 | | | 15,853 | | | 4,853 | | | 3,008 | | | 2,267 | | | 3,960 | | | 73,429 | |
Total | $ | 191,570 | | | $ | 423,078 | | | $ | 261,950 | | | $ | 149,409 | | | $ | 100,882 | | | $ | 64,802 | | | $ | 1,191,691 | |
The table below reflects disaggregated revenues by business for the three and nine months ended March 31, 2023 and 2022, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Heritage AspenTech | $ | 155,481 | | | $ | — | | | $ | 499,328 | | | $ | — | |
SSE | 36,854 | | | 37,908 | | | 99,569 | | | 93,077 | |
OSI, Inc. | 37,543 | | | 46,693 | | | 124,638 | | | 150,314 | |
Total | $ | 229,878 | | | $ | 84,601 | | | $ | 723,535 | | | $ | 243,391 | |
4. Acquisitions
Inmation Software GmbH
On August 29, 2022, the Company completed the acquisition of inmation Software GmbH (“Inmation”) for total cash consideration of $87.2 million. The purchase price consisted of $78.9 million of cash paid at closing and an additional $8.3 million 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 $6.4 million resulting in a net cash payment of $72.5 million. The Company recognized goodwill of $63.0 million (none of which is expected to be tax deductible) and identifiable intangible assets of $31.5 million, primarily consisting of developed technology and customer relationships, with a useful life of approximately five years for developed technology and seven years for customer relationships. The fair values 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 March 31, 2023 were $2.9 million and $(0.9) million, respectively. Results included amortization of developed technology and customer relationships of $3.4 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 nine months ended March 31, 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.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (Dollars in Thousands) |
Total revenue | $ | 229,878 | | | $ | 272,354 | | | $ | 723,535 | | | $ | 738,520 | |
Net (loss) | $ | (53,483) | | | $ | (1,776) | | | $ | (121,614) | | | $ | (54,682) | |
5. Intangible Assets
Intangible assets consisted of the following as of March 31, 2023 and June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Developed Technology | | Trademarks | | Customer Relationships and Backlog | | Capitalized Software and Other | | Total |
| (Dollars in Thousands) |
March 31, 2023: | | | | | | | | | |
Gross carrying amount | $ | 1,903,599 | | | $ | 464,400 | | | $ | 3,082,541 | | | $ | 10,313 | | | $ | 5,460,853 | |
Less: Accumulated amortization | (296,950) | | | (12,708) | | | (361,807) | | | (8,744) | | | (680,209) | |
Net carrying amount | $ | 1,606,649 | | | $ | 451,692 | | | $ | 2,720,734 | | | $ | 1,569 | | | $ | 4,780,644 | |
| | | | | | | | | |
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 $121.7 million for the three months ended March 31, 2023, of which $99.5 million related to the Heritage AspenTech Transaction. Total intangible asset amortization expense was $364.2 million for the nine months ended March 31, 2023 of which, $297.4 million related to the Heritage AspenTech Transaction.
6. Goodwill
The changes in the carrying amount of goodwill during the nine months ended March 31, 2023 were as follows:
| | | | | |
| Carrying Value |
| (Dollars in Thousands) |
Balance, June 30, 2022 | $ | 8,266,809 | |
Goodwill from Inmation acquisition | 63,026 | |
Purchase accounting adjustment from Heritage AspenTech acquisition | (1,685) | |
Foreign currency translation | 60 | |
Balance, March 31, 2023 | $ | 8,328,210 | |
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.
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 inputs," 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 March 31, 2023 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) |
March 31, 2023: | | | |
Cash equivalents | $ | 2,949 | | | $ | — | |
Equity method investments | — | | | 2,504 | |
Derivative liabilities | — | | | (40,454) | |
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 any 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.
For the nine months ended March 31, 2023, 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 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.
Credit Agreement
The Company also has a Credit Agreement with JPMorgan that provides for a $200.0 million secured revolving credit facility and a $320.0 million secured term loan facility.
On January 17, 2023, the Company paid off the outstanding balance of its existing JPMorgan term loan facility of $264.0 million, plus accrued interest.
There were no amounts outstanding under the revolving credit facility at either March 31, 2023 or June 30, 2022. Any outstanding balances of the indebtedness under the revolving credit facility mature on December 23, 2024.
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 March 31, 2023, 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 nine months ended March 31, 2023 and 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (Dollars in Thousands) |
Recorded as expenses: | | | | | | | |
Cost of license and solutions | $ | 832 | | | $ | — | | | $ | 2,752 | | | $ | — | |
Cost of maintenance | 427 | | | — | | | 1,462 | | | — | |
Cost of services and other | 599 | | | — | | | 1,457 | | | — | |
Selling and marketing | 3,695 | | | — | | | 10,886 | | | — | |
Research and development | 5,972 | | | — | | | 13,831 | | | — | |
General and administrative | 11,318 | | | 519 | | | 33,632 | | | 1,345 | |
Total stock-based compensation | $ | 22,843 | | | $ | 519 | | | $ | 64,020 | | | $ | 1,345 | |
During the nine month period ended March 31, 2023, the Company granted 187,963 stock options and 191,570 restricted stock units (“RSUs”). The stock options granted had a weighted average exercise price of $207.65 per option and a weighted average fair value of $77.91 per option. The RSUs granted had a weighted average fair value of $207.71 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 nine months ended March 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.
The calculations of basic and diluted net income per share and basic and dilutive weighted average shares outstanding for the three and nine months ended March 31, 2023 and 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
(Dollars and Shares in Thousands, Except per Share Data) | 2023 | | 2022 | | 2023 | | 2022 |
| |
Net (loss) | $ | (57,635) | | | $ | (3,280) | | | $ | (135,076) | | | $ | (15,242) | |
| | | | | | | |
Basic weighted average shares outstanding | 64,796 | | | 36,308 | | | 64,622 | | | 36,308 | |
| | | | | | | |
Dilutive weighted average shares outstanding | 64,796 | | | 36,308 | | | 64,622 | | | 36,308 | |
| | | | | | | |
(Loss) per share | | | | | | | |
Basic | $ | (0.89) | | | $ | (0.09) | | | $ | (2.09) | | | $ | (0.42) | |
Dilutive | $ | (0.89) | | | $ | (0.09) | | | $ | (2.09) | | | $ | (0.42) | |
For the three and nine months ended March 31, 2023 and 2022, 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 March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (Shares in Thousands) |
Employee equity awards | 1,441 | | | — | | | 1,367 | | | — | |
11. Derivatives
In connection with the agreement to purchase Micromine, the Company 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 the purchase price. The Company received cash proceeds of $10.8 million on the settlement of the six-month foreign currency forward contracts and recognized a realized gain of $10.8 million included in other (expense), net on the consolidated and combined statements of operations during the three and nine months ended March 31, 2023.
The Company entered into a new foreign currency forward contract on February 6, 2023 for a one-month period ending on March 6, 2023 to mitigate the impact of foreign currency exchange associated with the forecasted payment of the purchase price. In lieu of settlement, on March 6, 2023, the Company and the counterparty rolled the one-month foreign currency forward contract into a two-month foreign currency forward ending on May 5, 2023. The closing of the acquisition is subject to regulatory approval.
The notional amount of our outstanding derivative instrument totals AU $900 million. As of March 31, 2023, the fair value of our derivative instrument was $40.5 million and was recorded to the liability from foreign currency forward contract caption on the consolidated and combined balance sheets. The Company recognized unrealized losses of $25.1 million and $40.5 million for the three and nine months ended March 31, 2023, respectively, included in other (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 and nine months ended March 31, 2022, the Company computed its tax provision (benefit) using
the AETR approach. However, for the nine months ended March 31, 2023, 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 benefit was $24.2 million and $2.2 million for the three months ended March 31, 2023 and 2022, respectively, resulting in effective tax rates of 29.5% and 39.9%, respectively. Our income tax benefit was higher in the three months ended March 31, 2023 due to the current year’s change in the Company’s approach to computing its tax provision (benefit) for the interim periods to the actual effective tax rate method.
Benefit for income taxes was $68.1 million and $7.4 million for the nine months ended March 31, 2023 and 2022, respectively, resulting in effective tax rates of 33.5% and 32.7%, 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 some aspects of 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 of the Transaction, the Industrial Software Business was charged for costs directly attributable to the SSE business and OSI Inc. 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 of the Transaction, Emerson and the Company entered into a transition service agreement (“TSA”) for the provision of certain transitionary services from Emerson to AspenTech. Pursuant to the TSA, Emerson provides 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 March 31, 2023 and June 30, 2022 include the following: | | | | | | | | | | | |
| March 31, | | June 30, |
| 2023 | | 2022 |
Interest bearing receivables from related parties | $ | 43,591 | | | $ | 16,122 | |
Trade receivables from related parties | 407 | | | 819 | |
Interest bearing payables to related parties | 15,793 | | | 2,028 | |
Trade payables to related parties | 310 | | | 2,083 | |
Allocations and charges from Emerson are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Corporate costs | $ | — | | | $ | 659 | | | $ | — | | | $ | 1,750 | |
Information technology | 677 | | | 249 | | | 2,251 | | | 1,111 | |
Insurance and other benefits | — | | | 200 | | | — | | | 574 | |
Shared services and other | 850 | | | 2,695 | | | 4,745 | | | 8,330 | |
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.
Before the closing of the Transaction, OSI Inc. 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, 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: