|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
) )
))))) )
)
)
))
)
)
)) )))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dilutive weighted average shares outstanding | | | | | | | | | | | |
| | | | | | | |
| Net loss per share | | | | | | | |
| Basic | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| Dilutive | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| | | | | | | | | |
13.
million of the Company’s common stock. Pursuant to the terms of the ASR Program, the Company made an initial payment to JPMorgan and received an initial delivery of shares of the Company’s common stock, which represented approximately 80% of the total number of shares of the Company’s common stock expected to be purchased under the ASR Program. The ASR Program was settled on August 7, 2023, resulting in an additional delivery of shares of the Company’s common stock. The Company repurchased in total shares of common stock for $ million as part of the ASR Program. The $ million payment made to JPMorgan was recognized as a reduction to stockholders’ equity, consisting of an increase in treasury stock representing the value of the shares received upon settlement, offset by an increase to additional-paid-in-capital for the value of the shares repurchased in excess of the $ million payment.
On August 1, 2023, the Company announced that its Board of Directors approved a share repurchase program (the “Share Repurchase Authorization”) pursuant to which an aggregate $ million of its common stock may be repurchased, by means of open market transactions, block transactions, privately negotiated purchase transactions or any other purchase techniques, including 10b5-1 trading plans. The timing and amount of any shares repurchased under the Share Repurchase Authorization are based on market conditions and other factors. All shares of the Company’s common stock repurchased have been recorded as treasury stock under the cost method. The Company reflects share repurchases in its condensed consolidated financial statements once the transaction is settled.
shares for $ million under the Share Repurchase Authorization. As of December 31, 2023, a total of shares have been repurchased under the Share Repurchase Authorization for $ million, with the total remaining value being $ million.
14. (
million for the three months ended December 31, 2023 and income tax expense was $ million for the three months ended December 31, 2022, resulting in effective tax rates of % and ()%, respectively. Income tax benefit primarily increased due to the prior year’s change in the Company’s approach to computing its tax provision (benefit) for interim periods to an actual effective tax rate method.Benefit for income taxes was $ million and $ million for the six months ended December 31, 2023 and 2022, respectively, resulting in effective tax rates of % and %, respectively. Income tax benefit decreased primarily due to an increase in year-to-date earnings and a reduced Foreign-Derived Intangible Income (“FDII”) deduction recorded in the current period.
15.
billion in cash, to create AspenTech (the “Transaction”). The Industrial Software Business included OSI Inc. and the Geological Simulation Software business (“GSS”), which the Company has renamed as Subsurface Science & Engineering (“SSE”). The Transaction closed on May 16, 2022 (“Closing Date”). Emerson owned approximately % of AspenTech on a fully diluted basis as of December 31, 2023.The Company utilizes some aspects of Emerson’s centralized treasury function to manage 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 and are reflected as receivables from related parties in the condensed consolidated balance sheet. Conversely, any cash funded to the Company from these pooled Emerson cash accounts are reflected as due to related parties in the condensed consolidated balance sheet. The aggregate net activity between the Company and Emerson associated with the cash pooling arrangement is reflected within cash flows from financing activities as net transfers from parent within the condensed consolidated statements of cash flows.
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 condensed consolidated 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 (the “Transition Service Agreement”) for the provision of certain transitionary services from Emerson to the Company. Pursuant to the Transition Service Agreement, Emerson provides the Company with certain services, including information technology, human resources and other specified services, as well as access to certain of Emerson’s existing facilities. Transition Service Agreement 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 condensed consolidated financial statements presented.
In connection with the closing of the Transaction, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) and a tax matters agreement (the “Tax Matters Agreement”) with Emerson. The Registration Rights Agreement grants Emerson certain market registration rights, including demand registration rights and piggyback registration rights, with respect to its registrable securities. The Company has agreed to pay out-of-pocket fees and expenses in connection with such registration, subject to certain exceptions. The Tax Matters Agreement governs the rights and obligations that the Company and Emerson have with respect to taxes of the Company and certain Emerson subsidiaries. In addition, under the terms of the Tax Matters Agreement, the Company agreed to indemnify Emerson and its affiliates against any and all tax-related liabilities incurred by them relating to the Transaction and certain related business reorganizations to the extent such tax-related liabilities are caused by any action taken by the Company.
| | $ | | | | Trade receivables from related parties | | | | | |
| Receivables from related parties | $ | | | | $ | | |
| | | |
| Interest bearing payables to related parties | $ | | | | $ | | |
| Trade payables to related parties | | | | | |
| Due to related parties | $ | | | | $ | | |
| | $ | | | | $ | | | | $ | | | |
| Shared services and other | $ | | | | $ | | | | $ | | | | $ | | |
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 systemic 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 the Company (the “Commercial Agreement”). Pursuant to the Commercial Agreement as amended from time to time in accordance with the Stockholders Agreement (as defined below), AspenTech grants Emerson the right to distribute, on a non-exclusive basis, certain (i) existing Heritage AspenTech products, (ii) existing Emerson products 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 condensed consolidated financial statements presented. Revenue and purchases from Emerson affiliates for the three months ended December 31, 2023 and 2022 are as follows:
| | $ | | | | $ | | | | $ | | | |
| Purchases from Emerson affiliates | $ | | | | $ | | | | $ | | | | $ | | |
Emerson Share Maintenance Rights
Immediately following the closing of the Transaction, Emerson beneficially owned 55% of the fully diluted shares of AspenTech common stock. At the Closing Date, the Company and Emerson entered into a stockholders agreement (the “Stockholders Agreement”), which sets forth, among other matters, the right of Emerson to nominate directors to the Company’s board of directors, the right of Emerson to nominate the chair of the Company’s board of directors, the composition of the committees of the Company’s board of directors, certain consent rights of Emerson to certain material actions taken by the Company and consent rights with respect to modifications or changes to the Company’s business strategy. Under the Stockholders Agreement, Emerson also has the right to acquire additional equity securities of AspenTech pursuant to pre-agreed procedures and rights in order to maintain its % ownership interest. No additional shares of common stock, or any other equity securities of AspenTech, were issued by the Company to Emerson subsequent to the closing of the Transaction through December 31, 2023.
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 condensed consolidated financial statements for further discussion.
million, and on August 18, 2023, the Emerson Credit Agreement was terminated in connection with the termination of the agreement to purchase Micromine. There was no amount outstanding under the Emerson Credit Agreement at the time it was terminated. Refer to Note 10, “Debt”, to our condensed consolidated financial statements for further discussion.Plantweb Optics Analytics
On July 28, 2023, the Company entered into the Plantweb Optics Analytics Assignment and License Agreement with Emerson for the purchase of Emerson’s Plantweb Optics Analytics software and the perpetual and royalty-free licensing of other Emerson intellectual property for $ million in the aggregate.
The Company is currently integrating the purchased software and licensed intellectual property with its existing asset performance management product suite and accordingly has capitalized the full purchase price in accordance with ASC 985-20, “Costs of Software to be Sold, Leased, or Marketed.”
16.
| | $ | | | | $ | | | | $ | | | | Asia, Middle East and Africa | | | | | | | | | | | |
| Europe | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
Americas included revenue in the United States of $ million and $ million for the three months ended December 31, 2023 and 2022, respectively, and $ million and $ million for the six months ended December 31, 2023 and 2022, respectively.
| | $ | | | | Asia, Middle East and Africa | | | | | |
| Europe | | | | | |
| Total | $ | | | | $ | | |
Property, equipment, and leasehold improvements, net located in the United States were $ million and $ million as of December 31, 2023 and June 30, 2023, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Caution Concerning Forward-Looking Statements
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; risks resulting from our status as a controlled company; the scope, duration and ultimate impacts of the Russia-Ukraine war and the Israeli-Hamas 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” of Part II in this Quarterly Report on Form 10-Q and those described in our most recent Annual Report on Form 10-K and subsequent reports filed with the SEC. 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.
Any forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update any forward-looking statements, whether as a result of new information or developments, future events or otherwise, except as required by law. You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes thereto contained in this report. You should also read “Item 1A. Risk Factors” of Part II in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from our expectations.
Our fiscal year ends on June 30, and references in this Quarterly Report on Form 10-Q to a specific fiscal year are to the twelve months ended June 30 of such year (for example, “fiscal 2024” refers to the year ending June 30, 2024).
Business Overview
We are a global leader in industrial software focused on helping customers in asset-intensive industries address the world’s dual challenge of meeting the increasing demand for resources from a rapidly growing population with the expectation of a higher living standard in a profitable and sustainable manner. Our solutions address complex environments where it is critical to optimize across the full asset lifecycle-asset design, operation, and maintenance - enabling customers to run their assets safer, greener, longer and faster. Thousands of companies, ranging from multi-national corporations to start-ups, rely on our software to help them run their assets more profitably, resiliently, and sustainably to meet their operational excellence and sustainability goals.
We help customers solve some of their most critical challenges via our purpose-built software that combines engineering first principles, deep industry domain knowledge, and advanced technologies. We drive significant value creation through our decades of experience in modeling, simulation, and optimization technologies. The operational challenges we help our customers solve include, among others, how to maintain maximum efficiency in process operations, manage electrical grids amid the growth in renewable energy sources, ensure supply chain resiliency, and reduce carbon emissions.
Our software also seeks to help companies develop new processes that can be scaled to support energy transition and a net zero future, such as green hydrogen, biofuels, carbon capture, utilization and storage and circularity of plastics.
Recent Events
On August 1, 2023, the Company announced that its Board of Directors approved the Share Repurchase Authorization pursuant to which an aggregate $300.0 million of its common stock may be repurchased. During the second quarter of fiscal 2024, the Company repurchased 375,041 shares for $72.1 million under the Share Repurchase Authorization. As of December 31, 2024, a total of 954,839 shares have been repurchased under the Share Repurchase Authorization for $186.3 million, with the total remaining value being $113.7 million.
Key Business Metrics
Background
We utilize key business metrics to track and assess the performance of our business. We have identified the following set of appropriate business metrics in the context of our evolving business:
•Annual contract value (“ACV”)
•Total contract value (“TCV”)
•Bookings
We also use the following non-GAAP business metrics in addition to GAAP measures to track our business performance:
•Free cash flow
•Non-GAAP income from operations
We make these measures available to investors and none of these metrics should be considered as an alternative to any measure of financial performance calculated in accordance with GAAP.
Annual Contract Value
ACV is an estimate of the annual value of our portfolio of term license and software maintenance and support (“SMS”) contracts, the annual value of SMS agreements purchased with perpetual licenses, and the annual value of standalone SMS agreements purchased with certain legacy term license agreements, which have become an immaterial part of our business.
Comparing ACV for different dates can provide insight into the growth and retention rates of our recurring software business because ACV represents the estimated annual billings associated with our recurring license and maintenance agreements at any point in time. Management uses the ACV business metric to evaluate the growth and performance of our business as well as for planning and forecasting purposes. We believe that ACV is a useful business metric to investors as it provides insight into the growth component of our software business.
ACV generally increases as a result of new term license and SMS agreements with new or existing customers, renewals or modifications of existing term license agreements that result in higher license fees due to contractually-agreed price escalation or an increase in the number of tokens (units of software usage) or products licensed, or an increase in the value of licenses delivered.
ACV is adversely affected by term license and SMS agreements that are renewed at a lower entitlement level or not renewed, a decrease in the value of licenses delivered, and, to a lesser extent, by customer agreements that become inactive during the agreement’s term because, in our determination, amounts due (or which will become due) under the agreement are not collectible. As ACV is an estimate of annual billings, it will generally not include contracts with a term of less than one year. Because ACV represents all other active term software and SMS agreements, it may include amounts under agreements with customers that are delinquent in paying invoices, that are in bankruptcy proceedings, and agreements that are subject to termination by the customer or where payment is otherwise in doubt.
As of December 31, 2023, customer agreements representing approximately 85% of our ACV (by value) were denominated in U.S. dollars. For agreements denominated in other currencies, we use a fixed historical exchange rate to calculate ACV in U.S. dollars rather than using current exchange rates, so that our calculation of growth in ACV is not affected by fluctuations in foreign currencies.
For term license agreements that contain professional services or other products and services, we have included the portion of those agreements that are reflective of the relative fair value of the term license, rather than the portion of the actual invoice attributed to the term license, as outlined in the agreement within ACV. We believe that this methodology more accurately allocates any discounts or premiums to the different elements of the agreement.
We estimate that ACV grew by approximately 9.6%, from $833.7 million as of December 31, 2022 to $914.1 million as of December 31, 2023.
Total Contract Value
TCV is the aggregate value of all payments received or to be received under all active term license and perpetual SMS agreements, including maintenance and escalation. TCV was $3.8 billion and $3.4 billion as of December 31, 2023 and 2022, respectively.
Bookings
Bookings is the total value of customer term license and perpetual license SMS contracts signed and delivered in the current period, less the value of such contracts signed in the current period where the initial licenses and SMS agreements are not yet deemed delivered, plus the value of term license contracts and perpetual license SMS contracts signed in a previous period for which the initial licenses are deemed delivered in the current period.
Bookings were $233.4 million during the three months ended December 31, 2023, compared to $242.8 million during the three months ended December 31, 2022. Bookings were $445.2 million during the six months ended December 31, 2023, compared to $466.9 million during the six months ended December 31, 2022. The change in bookings is related to the timing of renewals.
Non-GAAP Business Metrics
Free cash flow (non-GAAP) excludes certain non-cash and non-recurring expenses, and is used as a supplement to net cash provided by operating activities presented on a GAAP basis. We believe that free cash flow (non-GAAP) is a useful financial measure because it permits investors to view our performance using tools that our management uses to gauge progress in achieving goals and as an indication of cash flow that may be available to fund future investments and other capital uses, such as to repay borrowings under our credit facilities or to fund acquisitions or share repurchase programs.
The following table provides a reconciliation of net cash provided by operating activities (GAAP) to free cash flow (non-GAAP) for the indicated periods:
| | | | | | | | | | | |
| | Six Months Ended December 31, |
| | 2023 | | 2022 |
| | | |
| (Dollars in Thousands) |
| Net cash provided by operating activities (GAAP) | $ | 46,808 | | | $ | 54,612 | |
| Purchase of property, equipment, and leasehold improvements | (1,437) | | | (2,844) | |
| Payments for capitalized computer software development costs | (131) | | | (329) | |
Free cash flow (non-GAAP) (1) | $ | 45,240 | | | $ | 51,439 | |
__________
(1) For the interim period beginning January 1, 2023, we no longer exclude acquisition and integration planning related payments from our computation of free cash flow. Free cash flow for all prior periods presented has been revised to the current period computation methodology.
Non-GAAP income from operations excludes certain non-cash and non-recurring expenses, and is used as a supplement to income from operations presented on a GAAP basis. We believe that non-GAAP income from operations is a useful financial measure because removing certain non-cash and other items provides additional insight into recurring profitability and cash flow from operations.
The following table provides a reconciliation of GAAP loss from operations to non-GAAP income from operations for the indicated periods:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Six Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
| (Dollars in Thousands) |
| GAAP loss from operations | $ | (49,243) | | | $ | (59,395) | | | $ | (109,455) | | | $ | (110,577) | |
| Plus: | | | | | | | |
| Stock-based compensation | 16,211 | | | 23,441 | | | 32,910 | | | 41,177 | |
Amortization of intangibles (1) | 121,565 | | | 121,161 | | | 243,152 | | | 242,321 | |
| Acquisition and integration planning related fees | 125 | | | 1,411 | | | (130) | | | 6,269 | |
| Non-GAAP income from operations | $ | 88,658 | | | $ | 86,618 | | | $ | 166,477 | | | $ | 179,190 | |
__________
(1) The Company has increased amortization of intangible assets following the close of the Transaction with Emerson. As a result, the Company expects its amortization of intangibles assets to remain at higher levels for the next several years as the related asset balance is amortized over the respective expected useful lives of the intangible assets.
Critical Accounting Estimates and Judgments
Note 2, “Significant Accounting Policies,” to the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 describes the significant accounting policies and methods used in the preparation of the condensed consolidated financial statements appearing in this report. The accounting policies that reflect our critical estimates, judgments and assumptions in the preparation of our condensed consolidated financial statements are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.
Results of Operations
Comparison of the Three Months Ended December 31, 2023 and 2022
The following table sets forth the results of operations, the period-over-period percentage change, and the results of operations as a percentage of total revenue in certain financial data for the three months ended December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Increase / (Decrease) Change | | (% of Revenue) |
| | 2023 | | 2022 | | $ | | % | | 2023 | | 2022 |
| | | | | | | | | | | |
| | (Dollars in Thousands) | | |
| Revenue: | | | | | | | | | | | |
| License and solutions | $ | 152,463 | | | $ | 149,843 | | | $ | 2,620 | | | 1.7 | % | | 59.3 | % | | 61.7 | % |
| Maintenance | 85,056 | | | 78,628 | | | 6,428 | | | 8.2 | | | 33.1 | | | 32.4 | |
| Services and other | 19,644 | | | 14,367 | | | 5,277 | | | 36.7 | | | 7.6 | | | 5.9 | |
| Total revenue | 257,163 | | | 242,838 | | | 14,325 | | | 5.9 | | | 100.0 | | | 100.0 | |
| Cost of revenue: | | | | | | | | | | | |
| License and solutions | 67,326 | | | 70,833 | | | (3,507) | | | (5.0) | | | 26.2 | | | 29.2 | |
| Maintenance | 10,647 | | | 9,567 | | | 1,080 | | | 11.3 | | | 4.1 | | | 3.9 | |
| Services and other | 16,960 | | | 12,698 | | | 4,262 | | | 33.6 | | | 6.6 | | | 5.2 | |
| Total cost of revenue | 94,933 | | | 93,098 | | | 1,835 | | | 2.0 | | | 36.9 | | | 38.3 | |
| Gross profit | 162,230 | | | 149,740 | | | 12,490 | | | 8.3 | | | 63.1 | | | 61.7 | |
| Operating expenses: | | | | | | | | | | | |
| Selling and marketing | 122,240 | | | 117,951 | | | 4,289 | | | 3.6 | | | 47.5 | | | 48.6 | |
| Research and development | 53,145 | | | 49,954 | | | 3,191 | | | 6.4 | | | 20.7 | | | 20.6 | |
| General and administrative | 36,088 | | | 41,230 | | | (5,142) | | | (12.5) | | | 14.0 | | | 17.0 | |
| Total operating expenses | 211,473 | | | 209,135 | | | 2,338 | | | 1.1 | | | 82.2 | | | 86.1 | |
| Loss from operations | (49,243) | | | (59,395) | | | 10,152 | | | (17.1) | | | (19.1) | | | (24.5) | |
| Other (expense) income, net | (199) | | | 38,643 | | | (38,842) | | | (100.5) | | | (0.1) | | | 15.9 | |
| Interest income, net | 12,283 | | | 4,120 | | | 8,163 | | | 198.1 | | | 4.8 | | | 1.7 | |
| Loss before benefit for income taxes | (37,159) | | | (16,632) | | | (20,527) | | | 123.4 | | | (14.4) | | | (6.8) | |
| (Benefit) provision for income taxes | (15,659) | | | 49,565 | | | (65,224) | | | (131.6) | | | (6.1) | | | 20.4 | |
| Net loss | $ | (21,500) | | | $ | (66,197) | | | $ | 44,697 | | | (67.5) | % | | (8.4) | % | | (27.3) | % |
Revenue
Total revenue increased by $14.3 million, or 5.9%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, due to an increase of $6.4 million in maintenance revenue, an increase of $5.3 million in services and other revenue and an increase of $2.6 million in license and solutions revenue.
License and Solutions Revenue
License and solutions revenue increased by $2.6 million, or 1.7%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily attributable to new term license orders in the second quarter of fiscal 2024.
Maintenance Revenue
Maintenance revenue increased by $6.4 million, or 8.2%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to growth of our base of arrangements.
Services and Other Revenue
Services and other revenue increased by $5.3 million, or 36.7%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to the timing and volume of professional services engagements, and increased activities from certain customer contracts where the related professional services revenue is recognized as a distinct performance obligation effective beginning in the third quarter of fiscal 2023.
Cost of Revenue
Total cost of revenue increased by $1.8 million, or 2.0%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to increased compensation costs and headcount.
Cost of License and Solutions Revenue
Cost of license and solutions revenue decreased $3.5 million, or 5.0%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to the business transformation activities in which we began recognizing distinct performance obligations for certain customer contracts effective beginning in the third quarter of fiscal 2023. Gross profit margin on license and solutions revenue increased to 55.8% from 52.7% for the three months ended December 31, 2023 2022, respectively, due to higher license and solutions revenue.
Cost of Maintenance Revenue
Cost of maintenance revenue increased by $1.1 million, or 11.3%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to higher compensation costs related to salaries, benefits, and stock-based compensation. Gross profit margin on maintenance revenue remained consistent at 87.5% for the three months ended December 31, 2023 as compared to 87.8% for the same period in the prior fiscal year.
Cost of Services and Other Revenue
Cost of services and other revenue increased by $4.3 million, or 33.6%, for the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to higher compensation costs related to salaries, benefits, and bonuses and the increased activities from customer contracts where the related professional services revenue is recognized as a distinct performance obligation. Gross margin on services and other revenue increased to 13.7% from 11.6% for the three months ended December 31, 2023 and 2022, respectively, due to an increase in services and other revenue.
Gross Profit
Overall gross profit increased by $12.5 million, or 8.3%, for the three months ended December 31, 2023, as compared to the same period in the prior fiscal year. Gross profit margin increased to 63.1% for the three months ended December 31, 2023, from 61.7% for the same period in the prior fiscal year. The increase was mainly driven by an increase in licensing and services and other revenue compared to the same period in the prior fiscal year.
Operating Expenses
Selling and Marketing Expense
Selling and marketing expense increased by $4.3 million, or 3.6%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to higher compensation costs of $4.4 million related to salaries and benefits as we continue to expand our sales capacity in new and existing markets, partially offset by a decrease in stock-based compensation.
Research and Development Expense
Research and development expense increased by $3.2 million, or 6.4%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to higher compensation costs of $4.2 million, related to salaries and benefits, partially offset by a decrease in stock-based compensation.
General and Administrative Expense
General and administrative expense decreased by $5.1 million, or 12.5%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to lower compensation costs of $5.2 million related to lower stock-based compensation in the current period, partially offset by an increase in salaries and benefits.
Non-Operating (Expense) Income
Other (Expense) Income, Net
Other (expense) income, net decreased by $38.8 million, or 100.5%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to a $34.9 million unrealized gain on foreign currency forward contracts in the prior year that were terminated in June 2023, as well as decreases in unrealized and realized foreign currency exchange gains.
Interest Income, Net
Interest income, net increased by $8.2 million, or 198.1%, during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to an increase in interest income earned on cash and cash equivalent balances of $2.4 million, an increase in interest income earned on long-term revenue contracts of $2.1 million, and a decrease in interest expense of $4.6 million due to the repayment of our term loan facility under the Amended and Restated Credit Agreement in the third quarter of fiscal 2023.
Benefit (Provision) for Income Taxes
The Company computes its tax provision (benefit) for interim periods by applying the estimated 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 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. For the three months ended December 31, 2023, the Company again recorded the actual effective tax rate as it was determined that the AETR approach was not the most appropriate estimate.
Benefit for income taxes was $15.7 million for the three months ended December 31, 2023 and income tax expense was $49.6 million for the three months ended December 31, 2022, resulting in effective tax rates of 42.1% and (298.0)%, respectively. Income tax benefit primarily increased due to the prior year’s change in the Company’s approach to computing its tax provision (benefit) for interim periods to an actual effective tax rate method.
Comparison of the Six Months Ended December 31, 2023 and 2022
The following table sets forth the results of operations, the period-over-period percentage change, and the results of operations as a percentage of total revenue in certain financial data for the six months ended December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
December 31, | | Increase / (Decrease) Change | | (% of Revenue) |
| | 2023 | | 2022 | | $ | | % | | 2023 | | 2022 |
| | | | | | | | | | | |
| | (Dollars in Thousands) | | |
| Revenue: | | | | | | | | | | | |
| License and solutions | $ | 301,111 | | | $ | 310,068 | | | $ | (8,957) | | | (2.9) | % | | 59.5 | % | | 62.8 | % |
| Maintenance | 170,024 | | | 156,994 | | | 13,030 | | | 8.3 | | | 33.6 | | | 31.8 | |
| Services and other | 35,336 | | | 26,595 | | | 8,741 | | | 32.9 | | | 7.0 | | | 5.4 | |
| Total revenue | 506,471 | | | 493,657 | | | 12,814 | | | 2.6 | | | 100.0 | | | 100.0 | |
| Cost of revenue: | | | | | | | | | | | |
| License and solutions | 138,903 | | | 140,346 | | | (1,443) | | | (1.0) | | | 27.4 | | | 28.4 | |
| Maintenance | 20,848 | | | 18,784 | | | 2,064 | | | 11.0 | | | 4.1 | | | 3.8 | |
| Services and other | 33,242 | | | 25,098 | | | 8,144 | | | 32.4 | | | 6.6 | | | 5.1 | |
| Total cost of revenue | 192,993 | | | 184,228 | | | 8,765 | | | 4.8 | | | 38.1 | | | 37.3 | |
| Gross profit | 313,478 | | | 309,429 | | | 4,049 | | | 1.3 | | | 61.9 | | | 62.7 | |
| Operating expenses: | | | | | | | | | | | |
| Selling and marketing | 244,618 | | | 236,225 | | | 8,393 | | | 3.6 | | | 48.3 | | | 47.9 | |
| Research and development | 106,821 | | | 99,695 | | | 7,126 | | | 7.1 | | | 21.1 | | | 20.2 | |
| General and administrative | 71,494 | | | 84,086 | | | (12,592) | | | (15.0) | | | 14.1 | | | 17.0 | |
| Total operating expenses | 422,933 | | | 420,006 | | | 2,927 | | | 0.7 | | | 83.5 | | | 85.1 | |
| Loss from operations | (109,455) | | | (110,577) | | | 1,122 | | | (1.0) | | | (21.6) | | | (22.4) | |
| Other expense, net | (6,029) | | | (19,989) | | | 13,960 | | | (69.8) | | | (1.2) | | | (4.0) | |
| Interest income, net | 26,333 | | | 9,143 | | | 17,190 | | | 188.0 | | | 5.2 | | | 1.9 | |
| Loss before benefit for income taxes | (89,151) | | | (121,423) | | | 32,272 | | | (26.6) | | | (17.6) | | | (24.6) | |
| Benefit for income taxes | (33,126) | | | (43,982) | | | 10,856 | | | (24.7) | | | (6.5) | | | (8.9) | |
| Net loss | $ | (56,025) | | | $ | (77,441) | | | $ | 21,416 | | | (27.7) | % | | (11.1) | % | | (15.7) | % |
Revenue
Total revenue increased by $12.8 million, or 2.6%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to an increase of $13.0 million in maintenance revenue and an increase of $8.7 million in services and other revenue, resulting from an increase in bookings related to the timing of contract renewals. This increase was partially offset by a decrease in license and solutions revenue of $9.0 million.
License and Solutions Revenue
License and solutions revenue decreased by $9.0 million, or 2.9%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily attributable to the timing of renewals and new contracts signed in the same period in the prior fiscal year.
Maintenance Revenue
Maintenance revenue increased by $13.0 million, or 8.3%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to growth of our base of arrangements.
Services and Other Revenue
Services and other revenue increased by $8.7 million, or 32.9%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to the timing and volume of professional services engagements and increased activities from certain customer contracts where the related professional services revenue is recognized as a distinct performance obligation effective beginning in the third quarter of fiscal 2023.
Cost of Revenue
Total cost of revenue increased by $8.8 million, or 4.8%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to increased compensation costs and headcount, as well as timing of software implementation projects.
Cost of License and Solutions Revenue
Cost of license and solutions revenue decreased by $1.4 million, or 1.0%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to the business transformation activities in which we began recognizing distinct performance obligations for certain customer contracts effective beginning in the third quarter of fiscal 2023. Gross profit margin on license and solutions revenue decreased to 53.9% from 54.7% for the six months ended December 31, 2023 and 2022, respectively, primarily due to lower license and solutions revenue.
Cost of Maintenance Revenue
Cost of maintenance revenue increased by $2.1 million, or 11.0%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to higher compensation costs related to salaries, benefits, and stock-based compensation. Gross profit margin on maintenance revenue decreased to 87.7% from 88.0% for the six months ended December 31, 2023 and 2022, respectively.
Cost of Services and Other Revenue
Cost of services and other revenue increased by $8.1 million, or 32.4%, for the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to higher compensation costs related to salaries and benefits and the increased activities from customer contracts where the related professional services revenue is recognized as a distinct performance obligation. Gross margin on services and other revenue increased to 5.9% from 5.6% for the six months ended December 31, 2023 and 2022, respectively, due to an increase in services and other revenue.
Gross Profit
Overall gross profit increased by $4.0 million, or 1.3%, for the six months ended December 31, 2023, as compared to the same period in the prior fiscal year. Gross profit margin decreased to 61.9% from 62.7% for the six months ended December 31, 2023 and 2022, respectively. The decrease in gross profit margin was mainly driven by a decrease in license revenue compared to the same period in the prior fiscal year, due to a decrease in bookings driven by the timing of renewals, while compensation costs increased primarily due to headcount.
Operating Expenses
Selling and Marketing Expense
Selling and marketing expense increased by $8.4 million, or 3.6%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to higher compensation costs of $8.9 million related to salaries and benefits as we continue to expand our sales capacity in new and existing markets, partially offset by a decrease in stock-based compensation.
Research and Development Expense
Research and development expense increased by $7.1 million, or 7.1%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to higher compensation costs of $7.1 million related to salaries and benefits.
General and Administrative Expense
General and administrative expense decreased by $12.6 million, or 15.0%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to lower compensation costs of $6.7 million related to stock-based compensation, and a decrease in acquisition and integration expenses of $6.0 million related to the Transaction with Emerson.
Non-Operating (Expense) Income
Other Expense, Net
Other expense, net decreased by $14.0 million, or 69.8%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to $15.3 million of unrealized loss on foreign currency forward contracts in the prior year that were terminated in June 2023, as well as increases in unrealized and realized foreign currency exchange losses.
Interest Income, Net
Interest income, net increased by $17.2 million, or 188.0%, during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to an increase in interest income earned on cash and cash equivalent balances of $4.7 million, an increase in interest income earned on long-term revenue contracts of $4.6 million, and a decrease in interest expense of $8.7 million due to the repayment of our term loan facility under the Amended and Restated Credit Agreement in the third quarter of fiscal 2023.
Benefit for Income Taxes
The Company computes its tax provision (benefit) for interim periods by applying the estimated 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 ended September 30, 2022, the Company computed its tax provision (benefit) using the AETR approach. However, starting with 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. For the six months ended December 31, 2023, the Company again recorded the actual effective tax rate as it was determined that the AETR approach was not the most appropriate estimate.
Benefit for income taxes was $33.1 million and $44.0 million for the six months ended December 31, 2023 and 2022, respectively, resulting in effective tax rates of 37.2% and 36.2%, respectively. Income tax benefit decreased primarily due to an increase in year-to-date earnings and a reduced Foreign-Derived Intangible Income (“FDII”) deduction recorded in the current period.
Liquidity and Capital Resources
Resources
As of December 31, 2023 and June 30, 2023, our principal sources of liquidity consisted of $130.8 million and $241.2 million, in cash and cash equivalents, respectively.
We believe our existing cash on hand and cash flows generated by operations are sufficient for at least the next 12 months to meet our operating requirements, including those related to salaries and wages, working capital, capital expenditures, and other liquidity requirements associated with operations. We may need to raise additional funds if we decide to make one or more acquisitions of businesses, technologies or products. If additional funding for such purposes is required beyond existing resources and our Amended and Restated Credit Agreement described below, we may not be able to affect a receivable, equity or debt financing on terms acceptable to us or at all.
Amended and Restated Credit Agreement
The Amended and Restated Credit Agreement provides for a $200.0 million secured revolving credit facility, of which the Company had $197.4 million available for borrowing as of December 31, 2023. For a more detailed description of the Amended and Restated Credit Agreement, see Note 10, “Debt” to our condensed consolidated financial statements.
Cash Flows
Operating Cash Flows
Net cash provided by operating activities decreased by $7.8 million during the six month period ended December 31, 2023, as compared to the same period in prior fiscal year, primarily driven by a decrease of $36.3 million in cash due to unfavorable changes in working capital, primarily due to the timing of contract cycle renewals and billings, partially offset by an increase of $28.5 million in cash provided due to higher income before non-cash charges.
Investing Cash Flows
Net cash used in investing activities decreased by $55.7 million during the six month period ended December 31, 2023, as compared to the same period in prior fiscal year, primarily driven by a decrease of $66.7 million in cash used for business acquisitions and $1.4 million in cash used for capital expenditures, partially offset by an increase of $12.5 million in cash used for the asset acquisition of Plantweb Optics Analytics software.
Financing Cash Flows
Net cash used in financing activities increased by $151.5 million during the six month period ended December 31, 2023, as compared to the same period in prior fiscal year, primarily driven by an increase of $186.3 million in cash used for common stock repurchases, partially offset by an increase of $38.9 million in cash provided from our cash pooling arrangements with related parties.
Free Cash Flows
Free cash flow (non-GAAP) decreased $6.2 million during the six month period ended December 31, 2023, as compared to the same period in prior fiscal year, primarily driven by the decrease in net cash provided by operating activities (GAAP), partially offset by a decrease in capital expenditures.
The following table provides a reconciliation of net cash provided by operating activities (GAAP) to free cash flow (non-GAAP) for the indicated periods:
| | | | | | | | | | | |
| | Six Months Ended December 31, |
| | 2023 | | 2022 |
| | | |
| (Dollars in Thousands) |
| Net cash provided by operating activities (GAAP) | $ | 46,808 | | | $ | 54,612 | |
| Purchase of property, equipment, and leasehold improvements | (1,437) | | | (2,844) | |
| Payments for capitalized computer software development costs | (131) | | | (329) | |
Free cash flow (non-GAAP) (1) | $ | 45,240 | | | $ | 51,439 | |
__________
(1) For the interim period beginning January 1, 2023, we no longer exclude acquisition and integration planning related payments from our computation of free cash flow. Free cash flow for all prior periods presented has been revised to the current period computation methodology.
Contractual Obligations
Letters of Credit
Standby letters of credit in the aggregate amounts of $31.5 million and $39.0 million secured our performance on professional services contracts, certain facility leases and potential liabilities as of December 31, 2023 and June 30, 2023, respectively. The letters of credit expire at various dates through fiscal 2031.
Effects of Inflation
We do not believe that inflation has had a material impact on our business or operating results during the periods presented. However, inflation may in the future have an impact on our ability to execute on our acquisition strategy. Inflationary costs could adversely affect our business, financial condition and results of operations. In addition, increased inflation has had, and may continue to have, an effect on interest rates. Increased interest rates may adversely affect our borrowing rate and our ability to obtain, or the terms under which we can obtain, any potential additional funding.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Risk
During the three months ended December 31, 2023 and 2022, 12.1% and 8.3% of our total revenue was denominated in a currency other than the U.S. dollar, respectively. During the six months ended December 31, 2023 and 2022, 9.9% and 10.0% of our total revenue was denominated in a currency other than the U.S. dollar, respectively. In addition, certain of our operating costs incurred outside the United States are denominated in currencies other than the U.S. dollar. We conduct business on a worldwide basis and as a result, a portion of our revenue, earnings, net assets, and net investments in foreign affiliates is exposed to changes in foreign currency exchange rates. We measure our net exposure for cash balance positions and for cash inflows and outflows in order to evaluate the need to mitigate our foreign exchange risk. We may enter into foreign currency forward contracts to minimize the impact related to unfavorable exchange rate movements related to our cash positions and cash flows, although we have not done so during the three months ended December 31, 2023 and 2022. Currently, our largest exposures to foreign exchange rates exist primarily with the Euro, Pound Sterling, Japanese Yen, Canadian Dollar, Indonesian Rupiah, and Norwegian Krone.
We recorded net foreign currency exchange losses of $0.3 million and $3.6 million, respectively, during the three months ended December 31, 2023 and 2022, and $6.2 million and $4.7 million, respectively, during the six months ended December 31, 2023 and 2022, related to the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units. Our analysis of operating results transacted in various foreign currencies indicated that a hypothetical 10% change in the foreign currency exchange rates could have increased or decreased our results of operations by approximately $3.0 million and $3.1 million for the three months ended December 31, 2023 and 2022, respectively, and by approximately $4.8 million and $5.6 million for the six months ended December 31, 2023 and 2022, respectively.
Interest Rate Risk
We place our investments in money market instruments. Our analysis of our investment portfolio and interest rates as of December 31, 2023 indicated that a hypothetical 100 basis point increase or decrease in interest rates would not have a material impact on the fair value of our investment portfolio determined in accordance with an income-based approach utilizing portfolio future cash flows discounted at the appropriate rates.
Investment Risk
We own an interest in a limited partnership investment fund. The primary objective of this partnership is investing in equity and equity-related securities (including convertible debt) of venture growth-stage businesses. We account for the investment in accordance with Topic 323, Investments - Equity Method and Joint Ventures. Our total commitment under this partnership is $5.0 million CAD, or $3.7 million USD. Under the conditions of the equity method investment, unfavorable future changes in market conditions could lead to a potential loss up to the full value of our $5.0 million CAD, or $3.7 million USD commitment. As of December 31, 2023, the fair value of this investment was $3.2 million CAD, or $2.4 million USD, representing our payment towards the total commitment, and is recorded in non-current assets in our condensed consolidated balance sheets.
Item 4. Controls and Procedures.
a) Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and interim chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2023, our chief executive officer and interim chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.
b) Changes in Internal Controls Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the three months ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We will continue to review and document our disclosure controls and procedures, including our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
The risks described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, could materially and adversely affect our business, financial condition and results of operations. These risk factors do not identify all risks that we face—our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. The Risk Factors section of our 2023 Annual Report on Form 10-K remains current in all material respects, with the exception of the risk factors described below.
In addition, the ongoing conflict in Ukraine could adversely impact our business, financial position, cash flows and results of operations in Russia and Ukraine which may in turn spread and impact our overall business, financial position, cash flows and results of operations.
We maintain limited operations in Russia and license software and provide related services to customers in Russia and areas of Ukraine that are not under sanction. We had revenue of approximately $44.6 million and $9.9 million for fiscal 2023 and 2022, respectively, and $5.8 million and $16.8 million for the three months ended December 31, 2023 and 2022, respectively, and $13.0 million and $26.8 million for the six months ended December 31, 2023 and 2022, respectively. We also had total assets of approximately $35.2 million and $39.7 million as of December 31, 2023 and June 30, 2023, respectively, related to operations in Russia.
As a result of the conflict between Russia and Ukraine, the United States, the European Union, the United Kingdom and other governments, among others, have developed coordinated sanctions and export-control measure packages. These packages include, comprehensive financial sanctions against major Russian banks (including SWIFT cut off); designations of individuals and entities involved in Russian military activities; additional designations of Russian individuals including but not limited to those with significant business interests and government connections; and enhanced export controls and trade sanctions targeting Russia’s imports of a wide range of goods as a whole, including tighter controls on exports and reexports of items previously subject to only a low level of control, stricter licensing policy with respect to issuing export licenses, and/or increased use of “end-use” controls to block or impose licensing requirements on exports.
We may be required to cease or suspend operations in Russia or, should the conflict or the effects of sanctions, export control measures and business restrictions worsen, we may voluntarily elect to do so. We no longer provide engineering services to customers in Russia, which may impact our ability to renew existing contracts and provide support to those customers. In addition, we have limited our operations in Russia to contract renewals only with existing customers. While we continue to evaluate the impact of the various sanctions and restrictions imposed by the United States, other governments, and financial institutions on our ability to do business in Russia and areas of Ukraine that are not under sanction, maintain contracts with vendors and pay employees in Russia, and receive payment from customers in Russia and areas of Ukraine that are not under sanction, there is no assurance that we will be able to do so in the future. Any disruption to, or suspension of, our business and operations in Russia would result in the loss of revenue from the business in Russia and would negatively impact our growth. We also may suffer reputational harm as a result of our continued operations in Russia, which may adversely impact our sales and other businesses in other countries.
We assess our operations for potential asset impairment in accordance with our accounting practices, and are periodically evaluating the impact of the various sanctions and restrictions imposed by the United States and other governments on our ability to conduct business in Russia. The outcome of these assessments, which may include a write-off of our remaining assets that are related to the operations in Russia, and their potential impact on our ability to continue to conduct business to the same extent as currently conducted will depend on how the conflict evolves and on further actions that may be taken by the United States, Russia, other governments, and others.
Furthermore, the ongoing military conflict and sanctions on Russia have resulted in adverse macroeconomic effects which have in the past and may in the future have an adverse effect on our business. For example, the war between Russia and Ukraine has already resulted in significant volatility in financial markets and depreciation of the Russian ruble and the Ukrainian hryvnia against the U.S. dollar, as well as an increase in energy and commodity prices globally and restrictions on our ability to withdraw and move funds from Russian bank accounts. The conflict may also result in additional consequences including, but not limited to, supply shortages, further increases in prices of commodities, reduced consumer purchasing power, significant disruptions in logistics infrastructure, telecommunications services and risks relating to the availability of
information technology systems and infrastructure. Other potential consequences include, but are not limited to, growth in the number of popular uprisings in the region, increased political discontent, especially in the regions most affected by the conflict or economic sanctions, increase in cyberterrorism activities and attacks, displacement of persons to regions close to the areas of conflict and an increase in the number of refugees fleeing across Europe, among other unforeseen social and humanitarian effects.
Continued conflict between Russia and Ukraine and any escalation of that conflict, could have a material adverse impact on our business, financial condition, cash flows and results of operations and could cause the market value of our securities to decline.
An escalation of the Israeli-Hamas conflict may have a material adverse impact on the Company’s business and operations in the region.
We have operations and customers in the Middle East. A further escalation of the current Israeli-Hamas conflict could result in additional armed conflict, terrorist activities, and political or macroeconomic instability in the Middle East region. This, in turn, could cause our customers in the region to reduce their capital expenditures, resulting in a reduction of our sales to such customers. A decline in our sales to our customers in the affected region and any further impact of such conflict or instability on our operations could have a material adverse impact on our business and operations in the region, results of operations or financial condition.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.
Purchases of Equity Securities by the Issuer
On May 5, 2023, we entered into the ASR Program with JPMorgan to repurchase an aggregate of $100.0 million of our common stock. For more details on the ASR Program, refer to Note 13, “Stock Repurchases” to our condensed consolidated financial statements. During fiscal 2023, we repurchased 487,626 shares of our common stock for $100.0 million pursuant to the ASR Program, and on August 7, 2023 the ASR Program settled, resulting in an additional delivery of 107,045 shares of our common stock to us.
On August 1, 2023, we announced that our board of directors approved the Share Repurchase Authorization, pursuant to which an aggregate $300.0 million of our common stock may be repurchased. During the second quarter of fiscal 2024, the Company repurchased 375,041 shares for $72.1 million under the Share Repurchase Authorization. As of December 31, 2024, a total of 954,839 shares have been repurchased under the Share Repurchase Authorization for $186.3 million, with the total remaining value being $113.7 million. For more details on the Share Repurchase Authorization, refer to Note 13, “Stock Repurchases” to our condensed consolidated financial statements.
The following is a summary of stock repurchases for each month during the second quarter of fiscal 2024:
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs (1) |
| | | | | | | |
| (Dollars in Thousands, Except Shares and per Share Data) |
| October 1, 2023 to October 31, 2023 | 158,479 | | | $ | 197.67 | | | 158,479 | | | $ | 154,449 | |
| November 1, 2023 to November 30, 2023 | 122,110 | | | 177.63 | | | 122,110 | | | $ | 132,759 | |
| December 1, 2023 to December 31, 2023 | 94,452 | | | 202.10 | | | 94,452 | | | $ | 113,671 | |
| Total | 375,041 | | | $ | 192.26 | | | 375,041 | | | |
__________
(1) On August 1, 2023, the Company announced that its Board of Directors approved the Share Repurchase Authorization, pursuant to which an aggregate $300.0 million of its common stock may be repurchased.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
During the three months ended December 31, 2023, none of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement.
Item 6. Exhibits.
| | | | | | | | |
|
|
| Exhibit Number | | Description |
| | |
| 31.1 | | |
| | |
| 31.2 | | |
| | |
| 32.1 | | |
| | |
| 101.INS | | Inline Instance Document |
| | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| | |
| ^ | | Management contract or compensatory plan or arrangement |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | Aspen Technology, Inc. |
| | |
| Date: February 6, 2024 | By: | /s/ ANTONIO J. PIETRI |
| | | Antonio J. Pietri |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | | | | | | |
| Date: February 6, 2024 | By: | /s/ CHRISTOPHER STAGNO |
| | | Christopher Stagno |
| | | Senior Vice President, Interim Chief Financial Officer |
| | | (Principal Financial Officer) |
Similar companies
See also Infosys Ltd
See also COGNIZANT TECHNOLOGY SOLUTIONS CORP -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
See also WIPRO LTD
See also Zscaler, Inc. -
Annual report 2023 (10-K 2023-07-31)
Annual report 2023 (10-Q 2023-04-30)
See also EPAM Systems, Inc. -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
Open main menu