UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, ~~2017~~2018

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

For the transition period from to

Commission file number: 001-34630

ASPEN TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)



Delaware		04-2739697
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



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

(781) 221-6400

(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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	ý	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o
		Emerging growth company o

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

Table of Contents

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

As of April ~~25, 2017,~~18, 2018, there were ~~74,495,970~~71,423,639 shares of the registrant’s common stock (par value $0.10 per share) outstanding.

Table of Contents

TABLE OF CONTENTS

aspenONE is one of our registered trademarks. All other trade names, trademarks and service marks appearing in this Form 10-Q are the property of their respective owners.

Our fiscal year ends on June 30^th, and references to a specific fiscal year are to the twelve months ended June 30^th of such year (for example, “fiscal ~~2017”~~2018” refers to the year ending June 30, ~~2017)~~2018).

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Consolidated Financial Statements (unaudited)

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended March 31,						Nine Months Ended March 31,
	2017			2016			2017			2016			2018			2017			2018			2017
	(Dollars in Thousands, Except per Share Data)												(Dollars in Thousands, Except per Share Data)
Revenue:
Subscription and software	$	111,717		$	111,722		$	338,077		$	333,707		$	118,126		$	111,717		$	351,540		$	338,077
Services and other	7,560			7,495			21,184			24,957			7,745			7,560			22,014			21,184
Total revenue	119,277			119,217			359,261			358,664			125,871			119,277			373,554			359,261
Cost of revenue:
Subscription and software	5,521			5,266			15,766			15,475			5,817			5,521			17,086			15,766
Services and other	6,746			6,754			19,586			21,405			6,959			6,746			20,511			19,586
Total cost of revenue	12,267			12,020			35,352			36,880			12,776			12,267			37,597			35,352
Gross profit	107,010			107,197			323,909			321,784			113,095			107,010			335,957			323,909
Operating expenses:
Selling and marketing	22,269			23,090			66,123			66,704			25,924			22,269			73,875			66,123
Research and development	20,348			17,820			57,577			50,398			21,584			20,348			60,863			57,577
General and administrative	12,120			15,606			37,140			42,273			14,430			12,120			42,284			37,140
Total operating expenses	54,737			56,516			160,840			159,375			61,938			54,737			177,022			160,840
Income from operations	52,273			50,681			163,069			162,409			51,157			52,273			158,935			163,069
Interest income	176			90			665			243			23			176			204			665
Interest (expense)	(959		)	(330		)	(2,721		)	(344		)	(1,485		)	(959		)	(3,952		)	(2,721		)
Other (expense) income, net	(56		)	(2,686		)	1,287			(1,947		)	(104		)	(56		)	(958		)	1,287
Income before provision for income taxes	51,434			47,755			162,300			160,361			49,591			51,434			154,229			162,300
Provision for income taxes	15,600			14,584			54,455			53,736			11,756			15,600			43,561			54,455
Net income	$	35,834		$	33,171		$	107,845		$	106,625		$	37,835		$	35,834		$	110,668		$	107,845
Net income per common share:
Basic	$	0.47		$	0.40		$	1.40		$	1.28		$	0.53		$	0.47		$	1.53		$	1.40
Diluted	$	0.47		$	0.40		$	1.39		$	1.27		$	0.52		$	0.47		$	1.51		$	1.39
Weighted average shares outstanding:
Basic	75,676			83,081			77,221			83,425			71,828			75,676			72,402			77,221
Diluted	76,182			83,373			77,652			83,842			72,663			76,182			73,136			77,652

See accompanying Notes to these unaudited consolidated financial statements.

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,					Nine Months Ended March 31,						Three Months Ended March 31,				Nine Months Ended March 31,
	2017		2016			2017			2016			2018		2017		2018		2017
	(Dollars in Thousands)											(Dollars in Thousands)
Net income	$	35,834	$	33,171		$	107,845		$	106,625		$	37,835	$	35,834	$	110,668	$	107,845
Other comprehensive gain (loss:)
Net unrealized gains (losses) on available for sale securities, net of tax effects of $(8) and $1 for the three and nine months ended March 31, 2017, and $(7) and $(11) for the three and nine months ended March 31, 2016	16		13			(1		)	21
Other comprehensive income (loss):
Net unrealized losses on available for sale securities, net of tax effects of ($8) and $1 for the three and nine months ended March 31, 2017												—		16		—		(1		)
Foreign currency translation adjustments	86		(31		)	(2,534		)	(2,192		)	924		86		2,398		(2,534		)
Total other comprehensive gain (loss)	102		(18		)	(2,535		)	(2,171		)
Total other comprehensive income (loss)												924		102		2,398		(2,535		)
Comprehensive income	$	35,936	$	33,153		$	105,310		$	104,454		$	38,759	$	35,936	$	113,066	$	105,310

See accompanying Notes to these unaudited consolidated financial statements.

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2017			June 30, 2016			March 31, 2018			June 30, 2017
	(Dollars in Thousands, Except Share Data)						(Dollars in Thousands, Except Share Data)
ASSETS
Current assets:
Cash and cash equivalents	$	84,552		$	318,336		$	71,075		$	101,954
Short-term marketable securities	17,137			3,006
Accounts receivable, net	35,192			20,476			27,755			27,670
Prepaid expenses and other current assets	9,655			13,948			9,827			12,061
Prepaid income taxes	516			5,557			2,506			4,501
Total current assets	147,052			361,323			111,163			146,186
Property, equipment and leasehold improvements, net	14,154			15,825			10,703			13,400
Computer software development costs, net	505			720			664			667
Goodwill	50,909			23,438			76,016			51,248
Intangible assets, net	21,223			5,000			36,045			20,789
Non-current deferred tax assets	8,868			12,236			9,900			14,352
Other non-current assets	1,241			1,196			1,516			1,300
Total assets	$	243,952		$	419,738		$	246,007		$	247,942

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	4,643		$	3,559		$	5,823		$	5,467
Accrued expenses and other current liabilities	38,342			36,105			40,319			48,149
Income taxes payable	3,499			439			413			1,603
Borrowings under credit agreement	140,000			140,000			170,000			140,000
Current deferred revenue	240,791			252,520			261,222			272,024
Total current liabilities	427,275			432,623			477,777			467,243
Non-current deferred revenue	27,661			29,558			27,312			28,335
Other non-current liabilities	38,511			32,591			19,524			13,148
Commitments and contingencies (Note 16)
Series D redeemable convertible preferred stock, $0.10 par value— Authorized— 3,636 shares as of March 31, 2017 and June 30, 2016 Issued and outstanding— none as of March 31, 2017 and June 30, 2016	—			—
Commitments and contingencies (Note 15)
Series D redeemable convertible preferred stock, $0.10 par value— Authorized— 3,636 shares as of March 31, 2018 and June 30, 2017 Issued and outstanding— none as of March 31, 2018 and June 30, 2017							—			—
Stockholders’ deficit:
Common stock, $0.10 par value— Authorized—210,000,000 shares Issued— 102,484,948 shares at March 31, 2017 and 102,031,960 shares at June 30, 2016 Outstanding— 74,661,804 shares at March 31, 2017 and 80,177,950 shares at June 30, 2016	10,249			10,203
Common stock, $0.10 par value— Authorized—210,000,000 shares Issued— 102,936,605 shares at March 31, 2018 and 102,567,129 shares at June 30, 2017 Outstanding— 71,545,642 shares at March 31, 2018 and 73,421,153 shares at June 30, 2017							10,294			10,257
Additional paid-in capital	679,471			659,287			706,554			687,479
Retained earnings (deficit)	102,168			(5,676		)
Retained earnings							267,188			156,520
Accumulated other comprehensive income	116			2,651			3,857			1,459
Treasury stock, at cost—27,823,144 shares of common stock at March 31, 2017 and 21,854,010 shares at June 30, 2016	(1,041,499		)	(741,499		)
Treasury stock, at cost—31,390,963 shares of common stock at March 31, 2018 and 29,145,976 shares at June 30, 2017							(1,266,499		)	(1,116,499		)
Total stockholders’ deficit	(249,495		)	(75,034		)	(278,606		)	(260,784		)
Total liabilities and stockholders’ deficit	$	243,952		$	419,738		$	246,007		$	247,942

See accompanying Notes to these unaudited consolidated financial statements.

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended March 31,						Nine Months Ended March 31,
	2017			2016			2018			2017
	(Dollars in Thousands)						(Dollars in Thousands)
Cash flows from operating activities:
Net income	$	107,845		$	106,625		$	110,668		$	107,845
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,993			4,519			4,902			4,993
Net foreign currency (gains) losses	(2,020		)	1,421			1,086			(2,020		)
Stock-based compensation	14,307			12,313			17,222			14,307
Deferred income taxes	1,169			695			4,467			1,169
Provision for bad debts	225			174			1,373			225
Tax benefits from stock-based compensation	2,344			1,878			—			2,344
Excess tax benefits from stock-based compensation	(2,344		)	(1,878		)	—			(2,344		)
Other non-cash operating activities	430			257			314			430
Changes in assets and liabilities, excluding initial effects of acquisitions:
Changes in assets and liabilities:
Accounts receivable	(14,944		)	8,513			(964		)	(14,944		)
Prepaid expenses, prepaid income taxes, and other assets	3,648			3,446			4,908			3,648
Accounts payable, accrued expenses, income taxes payable and other liabilities	6,947			(5,583		)	(4,448		)	6,947
Deferred revenue	(13,562		)	(23,485		)	(11,699		)	(13,562		)
Net cash provided by operating activities	109,038			108,895			127,829			109,038
Cash flows from investing activities:
Purchases of marketable securities	(683,748		)	—			—			(683,748		)
Maturities of marketable securities	669,216			52,965			—			669,216
Purchases of property, equipment and leasehold improvements	(2,151		)	(2,530		)	(217		)	(2,151		)
Acquisition related deposits	—			(255,067		)
Payments for business acquisitions, net of cash acquired	(36,171		)	—			(33,700		)	(36,171		)
Payments for capitalized computer software costs	(126		)	—			(299		)	(126		)
Net cash used in investing activities	(52,980		)	(204,632		)	(34,216		)	(52,980		)
Cash flows from financing activities:
Exercises of stock options	7,892			2,862			7,402			7,892
Repurchases of common stock	(295,642		)	(103,128		)	(154,365		)	(295,642		)
Payments of tax withholding obligations related to restricted stock	(4,346		)	(3,404		)	(5,412		)	(4,346		)
Deferred business acquisition payments							(2,600		)	—
Excess tax benefits from stock-based compensation	2,344			1,878			—			2,344
Proceeds from credit agreement	—			140,000			30,000			—
Payments of credit agreement issuance costs	—			(1,587		)	(351		)	—
Net cash (used in) provided by financing activities	(289,752		)	36,621
Net cash used in financing activities							(125,326		)	(289,752		)
Effect of exchange rate changes on cash and cash equivalents	(90		)	(223		)	834			(90		)
Decrease in cash and cash equivalents	(233,784		)	(59,339		)	(30,879		)	(233,784		)
Cash and cash equivalents, beginning of period	318,336			156,249			101,954			318,336
Cash and cash equivalents, end of period	$	84,552		$	96,910		$	71,075		$	84,552
Supplemental disclosure of cash flow information:
Income taxes paid, net	$	41,742		$	51,612		$	38,662		$	41,742
Interest paid	2,499			344			3,456			2,499
Supplemental disclosure of non-cash investing and financing activities:
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses	$	111		$	(874	)	$	(31	)	$	111
Change in common stock repurchases included in accrued expenses	4,358			1,938
Change in repurchases of common stock included in accounts payable and accrued expenses							(4,365		)	4,358

See accompanying Notes to these unaudited consolidated financial statements.

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Interim Unaudited Consolidated Financial Statements

The accompanying interim unaudited consolidated financial statements of Aspen Technology, Inc. and its subsidiaries have been prepared on the same basis as our annual consolidated financial statements. We have omitted certain information and footnote disclosures normally included in our annual consolidated financial statements. Such interim unaudited consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (GAAP), as defined in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 270, Interim Reporting, for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. It is suggested that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements for the year ended June 30, ~~2016,~~2017, which are contained in our Annual Report on Form 10-K, as previously filed with the U.S. Securities and Exchange Commission (SEC). In the opinion of management, all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations, and cash flows at the dates and for the periods presented have been included and all intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended March 31, ~~2017~~2018 are not necessarily indicative of the results to be expected for the subsequent quarter or for the full fiscal year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Unless the context requires otherwise, references to we, our and us refer to Aspen Technology, Inc. and its subsidiaries.

2. Significant Accounting Policies

(a) Principles of Consolidation

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

(b) Significant Accounting Policies

Our significant accounting policies are described in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2016.~~2017. We adopted Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU No. 2016-09”) effective July 1, 2017. Refer to Note 2 (g), “Recently Issued Accounting Pronouncements,” for further information regarding the adoption of ASU No. 2016-09. There were no other material changes to our significant accounting policies during the three and nine months ended March 31, ~~2017.~~2018.

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

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

Four basic criteria must be satisfied before software license revenue can be recognized: persuasive evidence of an arrangement between us and an end user; delivery of our product has occurred; the fee for the product is fixed or determinable; and collection of the fee is probable.

Persuasive evidence of an arrangement—We use a signed contract as evidence of an arrangement for software licenses and SMS. For professional services we use a signed contract and a work proposal to evidence an arrangement. In cases where both a signed contract and a purchase order are required by the customer, we consider both taken together as evidence of the arrangement.

Delivery of our product—Software and the corresponding access keys are generally delivered to customers via electronic delivery or via physical medium with standard shipping terms of Free Carrier, our warehouse (i.e., FCA, AspenTech). Our software license agreements do not contain conditions for acceptance.

Fee is fixed or determinable—We assess whether a fee is fixed or determinable at the outset of the arrangement. Significant judgment is involved in making this assessment.

As a standard business practice, we offer fixed-term license arrangements, which are generally payable on an annual basis.

We cannot assert that the fees under our aspenONE licensing model and point product arrangements with Premier Plus SMS are fixed or determinable because of the rights provided to customers, economics of the arrangements, and because we do not have an established history of our arrangements going to term end date without providing concessions to customers. As a result, the amount of revenue recognized for these arrangements is limited by the amount of customer payments that become due.

Collection of fee is probable—We assess the probability of collecting from each customer at the outset of the arrangement based on a number of factors, including the customer's payment history, its current creditworthiness, economic conditions in the customer's industry and geographic location, and general economic conditions. If in our judgment collection of a fee is not probable, revenue is recognized as cash is collected, provided all other conditions for revenue recognition have been met.

Vendor-Specific Objective Evidence of Fair Value (VSOE)

We have established VSOE for professional services and certain training offerings, but not for our software products or our SMS offerings. We assess VSOE for SMS, professional services, and training, based on an analysis of standalone sales of the offerings using the bell-shaped curve approach. We do not have a history of selling our Premier Plus SMS offering to customers on a standalone basis, and as a result are unable to establish VSOE for this deliverable.

Subscription and Software Revenue

Subscription and software revenue consists primarily of product and related revenue from our (i) aspenONE licensing model; (ii) point product arrangements with our Premier Plus SMS offering included for the contract term; and (iii) perpetual arrangements.

When a customer elects to license our products under our aspenONE licensing model, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any new unspecified future software products and updates that may be introduced into the licensed aspenONE software suite. Due to our obligation to provide unspecified future software products and updates and because we do not have VSOE for our Premier Plus SMS offering, we are required to recognize revenue ratably over the term of the arrangement, once the other revenue recognition criteria noted above have been met.

Our point product arrangements with Premier Plus SMS include SMS for the term of the arrangement. Since we do not have VSOE for our Premier Plus SMS offering, the SMS element of our point product arrangements is not separable. As a result, revenue associated with point product arrangements with Premier Plus SMS included for the contract term is recognized ratably over the term of the arrangement, once the other revenue recognition criteria have been met.

Services and Other Revenue

Professional Services Revenue

Professional services are provided to customers on a time-and-materials (T&M) or fixed-price basis. We recognize professional services fees for our T&M contracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using the proportional performance method based on the ratio of costs incurred to the total estimated project costs. Project costs are typically expensed as incurred. The use of the proportional performance method is dependent upon our ability to reliably estimate the costs to complete a project. We use historical experience as a basis for future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. Out-of-pocket expenses which are reimbursed by customers are recorded as revenue.

In certain circumstances, professional services revenue may be recognized over a longer time period than the period over which the services are performed. If the costs to complete a project are not estimable or the completion is uncertain, the revenue and related costs are recognized upon completion of the services. In circumstances in which professional services are sold as a single arrangement with, or in contemplation of, a new aspenONE license or point product arrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the period the services are performed, or (ii) the license term. When we provide professional services considered essential to the functionality of the software, we recognize the combined revenue from the sale of the software and related services using the completed contract or percentage-of-completion method.

We have occasionally been required to commit unanticipated additional resources to complete projects, which resulted in losses on those contracts. Provisions for estimated losses on contracts are made during the period in which such losses become probable and can be reasonably estimated.

Training Revenue

We provide training services to our customers, including on-site, Internet-based, public and customized training. Revenue is recognized in the period in which the services are performed. In circumstances in which training services are sold as a single arrangement with, or in contemplation of, a new aspenONE license or point product arrangement with Premier Plus SMS, revenue is deferred and recognized on a ratable basis over the longer of (i) the period the services are performed or (ii) the license term.

Deferred Revenue

Deferred revenue includes amounts billed or collected in advance of revenue recognition, including arrangements under the aspenONE licensing model, point product arrangements with Premier Plus SMS, professional services, and training. Deferred revenue is recorded as each invoice becomes due.

Other Licensing Matters

Our standard licensing agreements include a product warranty provision. We have not experienced significant claims related to software warranties beyond the scope of SMS support, which we are already obligated to provide, and consequently, we have not established reserves for warranty obligations.

Our agreements with our customers generally require us to indemnify the customer against claims that our software infringes third-party patent, copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects, including our right to replace an infringing product. As of March 31, ~~2017~~2018 and June 30, ~~2016,~~2017, we had not experienced any material losses related to these indemnification obligations and no claims with respect thereto were outstanding. We do not expect significant claims related to these indemnification obligations, and consequently, have not established any related reserves.

(d) Loss Contingencies

We accrue estimated liabilities for loss contingencies arising from claims, assessments, litigation and other sources when it is probable that a liability has been incurred and the amount of the claim, assessment or damages can be reasonably estimated. We believe that we have sufficient accruals to cover any obligations resulting from claims, assessments or litigation that have met these criteria. Please refer to Note 1615 for discussion of these matters and related liability accruals.

(e) Foreign Currency Transactions

Foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our subsidiaries are recognized in our results of operations as incurred as a component of other income (expense), net. Net foreign currency (losses) gains were $(0.1) million and $(1.0) million during the three and nine months ended March 31, 2018, respectively, and $(0.1) million and $1.3 million during the three and nine months ended March 31, 2017, ~~and $(2.7) million and $(2.0) million during the three and nine months ended and March 31, 2016,~~ respectively.

(f) Research and Development Expense

We charge research and development expenditures to expense as the costs are incurred. Research and development expenses consist primarily of personnel expenses related to the creation of new products, enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technological feasibility.

We acquired technology for $0.4 million ~~and $0.3 million~~ during the nine months ended March 31, ~~2017 and March 31, 2016, respectively. We acquired no technology during the three months ended March 31, 2017 and March 31, 2016, respectively.~~2017. At the time we acquired the technology, the projects to develop commercially available products did not meet the accounting definition of having reached technological feasibility and therefore the cost of the acquired technology was expensed as a research and development expense.

(g) Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ~~Accounting Standards Update (ASU)~~ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires entities to recognize revenue when they transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Under the new guidance, an entity is required to evaluate revenue recognition through a five-step process. In applying the principles of ASU 2014-09, it is possible more judgment and estimates may be required within the revenue recognition process than is required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. As currently issued and amended, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, though early adoption is permitted for annual reporting periods beginning after December 15, 2016.

We will adopt ASU No. 2014-09 during the first quarter of fiscal 2019. Based on our preliminary assessment, the adoption of ASU No. 2014-09 will impact the timing of athe license portion of the revenue recognized from our term contracts. Under the new standard, for arrangements that include term-based software licenses bundled with maintenance and support, we will be required to recognize as revenue a portion of the arrangement fee upon delivery of the software license. We currently expect to recognize as revenue a portion of the arrangement fee related to maintenance and support, professional services, and training over time as the services are provided. Additionally, under the new standard, we expect to capitalize certain direct and incremental commission costs to obtain a contract and amortize such costs over the expected period of benefit, rather than expensing them as incurred in the period that the commissions are earned. We are continuing to evaluate all the ~~impact~~potential impacts of ASU No. 2014-09 on our consolidated financial statements and disclosures, and are implementing accounting system and internal control changes related to the adoption.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the amendment, lessees will be required to recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2016-02 on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendment identifies several areas for simplification applicable to entities that issue share-based payment awards to their employees, including income tax consequences, the option to recognize gross stock compensation expense with actual forfeitures recognized when they occur, and certain classifications on the statements of cash flows. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. ~~Early~~We adopted ASU No. 2016-09 effective July 1, 2017.

As a result of adopting the new standard, excess tax benefits from stock-based compensation are now reflected in the consolidated statements of operations as a component of the provision for income taxes, whereas they were previously a component of stockholders’ deficit. The adoption ~~is permitted. We are currently evaluating the impact~~ of ASU No. 2016-09 resulted in a decrease in our provision for income taxes of $1.2 million and $2.1 million for the three and nine months ended March 31, 2018, respectively. This represents a decrease

in our effective tax rate of approximately two and one percentage points for the three and nine months ended March 31, 2018, respectively, due to the recognition of excess tax benefits for options exercised and the vesting of equity awards. There was no change as a result of how we account for forfeitures for financial statement reporting purposes. We adopted the cash flow presentation prospectively, and accordingly, excess tax benefits from stock-based compensation of $2.1 million is presented as a cash inflow from operating activity included within the change in income tax payable for the nine months ended March 31, 2018, while $2.3 million of excess tax benefits from equity-based compensation is presented as a financing activity for the nine months ended March 31, 2017. We prospectively excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share under the treasury stock method, which did not have a material impact on our ~~consolidated financial statements.~~diluted earnings per share for the three and nine months ended March 31, 2018.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The amendment changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2016-13 on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The amendment updates the guidance as to how certain cash receipts and cash payments should be presented and classified, and is intended to reduce the existing diversity in practice. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2016-15 on our consolidated financial statements.

In ~~October 2016, the FASB issued ASU No. 2016-16,~~ ~~Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory(Topic 740). The amendment changes accounting for the income tax consequences of intra-entity transfers of assets~~

other than inventory by requiring an entity to recognize the income tax consequences when a transfer occurs, instead of when an asset is sold to an outside party. The amendment should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2016-18 on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business. The amendment changes the definition of a business to assist entities in evaluating when a set of transferred assets and activities constitutes a business. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We ~~are currently evaluating~~do not anticipate the ~~impact~~adoption of ASU No. 2017-01 will have a material effect on ~~our~~the consolidated financial ~~statements.~~statements or related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other Topics (Topic 350) - Simplifying the Test for Goodwill Impairment. The amendment eliminates Step 2 of the goodwill impairment test and requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, ~~2019.~~2017. Early adoption is permitted. We ~~are currently evaluating the impact of~~early adopted ASU No. 2017-04 during the three months ended December 31, 2017, prior to our annual testing of goodwill impairment. There was no impact on our consolidated financial ~~statements.~~statements and related disclosures as a result of adopting ASU No. 2017-04.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendment provides guidance on accounting for the impact of the Tax Cuts and Jobs Act (the “Tax Act”) and allows entities to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Tax Act has several significant changes that impact all taxpayers, including a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986. We are currently estimating that we will not be subject to the transition tax associated with our accumulated, undistributed foreign earnings. We will continue to evaluate this area and expect to finalize our conclusions by the end of fiscal 2018.

3. ~~Marketable Securities~~

~~The following table summarizes the fair value, the amortized cost and unrealized holding gains (losses) on our marketable securities as of March 31, 2017 and June 30, 2016:~~

Fair Value Cost
Unrealized
Gains

Unrealized
Losses
(Dollars in Thousands)
March 31, 2017:

U.S. corporate bonds $ 17,137
$ 17,139
$ —
$ (2 )
Total short-term marketable securities $ 17,137
$ 17,139
$ —
$ (2 )

June 30, 2016:

U.S. corporate bonds $ 3,006
$ 3,006
$ —
$ —
Total short-term marketable securities $ 3,006
$ 3,006
$ —
$ —

Our marketable securities were classified as available-for-sale and reported at fair value on the unaudited consolidated balance sheets. Net unrealized gains (losses) were reported as a separate component of accumulated other comprehensive income, net of tax. Realized gains (losses) on investments were recognized in earnings as incurred. Our investments consisted primarily of investment grade fixed income corporate debt securities with maturity dates ranging from April 2017 through May 2017 as of March 31, 2017 and August 2016 as of June 30, 2016.

4. Fair Value

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

Cash equivalents of ~~$62.3~~$4.9 million and ~~$286.2~~$79.7 million as of March 31, ~~2017~~2018 and June 30, ~~2016,~~2017, respectively, were reported at fair value utilizing quoted market prices in identical markets, or “Level 1 inputs.” Our cash equivalents consist of short-term, highly liquid investments with remaining maturities of three months or less when purchased.

Marketable securities of $17.1 million and $3.0 million as of March 31, 2017 and June 30, 2016, respectively, were reported at fair value calculated in accordance with the market approach, utilizing market consensus pricing models with quoted prices that were directly or indirectly observable, or “Level 2 inputs.”

Financial instruments not measured or recorded at fair value in the accompanying unaudited consolidated financial statements consist of accounts receivable, ~~installments receivable,~~ accounts payable and accrued liabilities. The estimated fair value of these financial

instruments approximates their carrying value. The estimated fair value of the borrowings under the Credit Agreement (described below in Note ~~11,~~10, Credit Agreement) approximates its carrying value due to the floating interest rate.

5.4. Accounts Receivable

Our accounts receivable, net of the related allowance for doubtful accounts, were as follows as of March 31, ~~2017~~2018 and June 30, ~~2016:~~2017:


	Gross		Allowance			Net		Gross		Allowance		Net
	(Dollars in Thousands)							(Dollars in Thousands)
March 31, 2017:
March 31, 2018:
Accounts receivable	$	36,428	$	(1,236	)	$	35,192	$	30,413	$	2,658	$	27,755
	$	36,428	$	(1,236	)	$	35,192

June 30, 2016:
June 30, 2017:
Accounts receivable	$	22,080	$	(1,604	)	$	20,476	$	28,955	$	1,285	$	27,670
	$	22,080	$	(1,604	)	$	20,476

As of March 31, ~~2017,~~2018, we had ~~one~~two customer receivable ~~balance~~balances that individually represented approximately ~~11%~~17% and 14%, respectively, of our ~~total receivables.~~net accounts receivable. These customer receivable balances were both collected subsequent to March 31, 2018.

6.5. Property and Equipment

Property, equipment and leasehold improvements in the accompanying unaudited consolidated balance sheets consisted of the following:


	March 31, 2017			June 30, 2016			March 31, 2018			June 30, 2017
	(Dollars in Thousands)						(Dollars in Thousands)
Property, equipment and leasehold improvements, at cost:
Computer equipment	$	9,689		$	10,387		$	8,439		$	8,262
Purchased software	23,930			23,705			24,184			24,091
Furniture & fixtures	6,874			6,712			6,898			6,805
Leasehold improvements	12,033			12,523			12,205			12,025
Property, equipment and leasehold improvements, at cost							51,726			51,183
Accumulated depreciation	(38,372		)	(37,502		)	(41,023		)	(37,783		)
Property, equipment and leasehold improvements, net	$	14,154		$	15,825		$	10,703		$	13,400

~~During the nine months ended March 31, 2017, we wrote off fully depreciated property, equipment and leasehold improvements that were no longer in use with a total gross book value of $2.2 million.~~

7.6. Acquisitions

Technology

In March 2018, we acquired certain assets, principally technology, for a total cash consideration of $5.0 million. The purchase price consisted of $4.5 million of cash paid at closing and an additional $0.5 million to be held back until March 2019 as security for certain representations, warranties, and obligations of the seller. The acquisition met the definition of a business combination as it contained inputs and processes that are capable of being operated as a business. We allocated, on a preliminary basis, $1.0 million of the purchase price to developed technology and $4.0 million to goodwill. The fair value of the developed technology of $1.0 million was determined using the replacement cost approach. The developed technology is being amortized on a straight-line basis over its estimated useful life of three years. The acquisition is treated as an asset purchase for tax purposes and, accordingly, the goodwill resulting from the acquisition is expected to be deductible.

Apex Optimisation

On February 5, 2018, we completed the acquisition of all the outstanding shares of Apex Optimisation and affiliates (“Apex”), a provider of software which aligns Advanced Process Control with Planning and Scheduling to unify production optimization, for a total cash consideration of $23.0 million. The purchase price consisted of $18.4 million of cash paid at closing and an additional $4.6 million to be held back until February 2020 as security for certain representations, warranties, and obligations of the sellers. The holdback is recorded in other non-current liabilities in our consolidated balance sheet.

A preliminary allocation of the purchase price is as follows. The valuation of the net assets acquired and the deferred tax liabilities are considered preliminary as of March 31, 2018:



	Amount
	(Dollars in Thousands)
Assets acquired, net	$	62
Identifiable intangible assets:
Technology-related	4,400
Customer relationships	3,500
Goodwill	16,579
Deferred tax liabilities	(1,541		)
Total assets acquired, net	$	23,000

We used the relief from royalty and income approaches to derive the fair value of the technology-related and customer relationship intangible assets, respectively. The weighted-average discount rate (or rate of return) used to determine the value of the Apex intangible assets was 28% and the effective tax rate used was 21%. The technology-related and customer relationship intangible assets are each being amortized on a straight-line basis over their estimated useful lives of seven years.

The goodwill, which is not deductible for tax purposes, reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling Apex products and services to our existing customers. The results of operations of Apex have been included prospectively in our results of operations since the date of acquisition.

RtTech Software, Inc.

In December 2017, we acquired certain net assets, principally technology, from RtTech Software, Inc. (“RtTech”) for a total cash consideration of $12.0 million. The purchase price consisted of $10.8 million of cash paid at closing and an additional $1.2 million to be held back until December 2018 as security for certain representations, warranties, and obligations of the sellers. The acquisition met the definition of a business combination as it contained inputs and processes that are capable of being operated as a business. We allocated $8.0 million of the purchase price to developed technology and $4.0 million to goodwill. The fair value of the developed technology of $8.0 million was determined using the replacement cost approach. The developed technology is being amortized on a straight-line basis over its estimated useful life of seven years. The acquisition is treated as an asset purchase for tax purposes and accordingly, the goodwill resulting from the acquisition is expected to be deductible.

Mtelligence Corporation

On October 26, 2016, we completed the acquisition of all the outstanding shares of Mtelligence Corporation (“Mtell”), a provider of predictive and prescriptive maintenance software and related services used to optimize asset performance, for total cash consideration of $37.4 million. The purchase price consisted of $31.9 million of cash paid at closing and an additional $5.5 million to be held back until April 2018 as security for certain representations, warranties, and obligations of the sellers. The holdback was recorded at its fair value as of the acquisition date of $5.3 million, and is recorded in other ~~non-current~~current liabilities in our consolidated balance sheet.

~~A preliminary~~An allocation of the purchase price is as ~~follows. The valuation of the net assets acquired and the deferred tax liabilities are considered preliminary as of March 31, 2017.~~follows:



	Amount
	(Dollars in Thousands)
Tangible assets acquired, net	$	779
Identifiable intangible assets:
Developed technology	11,385
Customer relationships	679
Non-compete agreements	553
Goodwill	25,888
Deferred tax liabilities, net	(2,099		)
Total assets acquired	$	37,185

We used the income approach to determine the values of the identifiable intangible assets. The weighted-average discount rate (or rate of return) used to determine the value of the Mtell intangible assets was 19% and the effective tax rate used was 34%. The values of the developed technology, customer relationships and non-compete agreements are being amortized on a straight-line basis, except technology, which is being amortized on a proportional use basis, over their estimated useful lives of 12 years, 6 years and 3 years, respectively.

The goodwill, which is not deductible for tax purposes, reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling Mtell products and services to our existing customers. The results of operations of Mtell have been included prospectively in our results of operations since the date of acquisition.

~~Technology and Trademarks~~

In August 2016, we acquired certain technology and trademarks for total cash consideration of $6.0 million. The purchase price consisted of $5.4 million of cash paid at closing and up to an additional $0.6 million to be paid in August 2017. The acquisition met the definition of a business combination as it contained inputs and processes that are capable of being operated as a business. The preliminary allocation of the purchase price as of September 30, 2016 allocated $4.0 million to developed technology and $2.0 million to goodwill. The fair value of the developed technology of $4.0 million was determined using the replacement cost approach. The developed technology is being amortized on a straight-line basis over its estimated useful life of 6 years. The acquisition is treated as an asset purchase for tax purposes and accordingly, the goodwill resulting from the acquisition is expected to be deductible.

In April 2017, we acquired certain technology for total cash consideration of $1.9 million. The purchase price consisted of $1.4 million of cash paid at closing and up to an additional $0.5 million to be paid in April 2018.

~~Fidelis Group, LLC~~

In June 2016, we completed the acquisition of all the outstanding shares of Fidelis Group, LLC ("Fidelis"), a provider of asset reliability software used to predict and optimize asset performance. The purchase price consisted of $8.0 million of cash paid at closing and up to an additional $2.0 million to be paid in December 2017.

~~An allocation of the purchase price is as follows, including adjustments identified subsequent to the acquisition date.~~

Amount
(Dollars in Thousands)
Tangible assets acquired, net $ 49
Identifiable intangible assets:
Developed technology 1,272
Customer relationships 753
In-process research and development 3,097

Goodwill 6,722
Deferred tax liabilities, net (1,893 )
Total assets acquired $ 10,000

8.7. Intangible Assets

We include in our amortizable intangible assets those intangible assets acquired in our business and asset acquisitions. We amortize acquired intangible assets with finite lives over their estimated economic lives, generally using the straight-line method. Each period, we evaluate the estimated remaining useful lives of acquired intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. Acquired intangibles are removed from the accounts when fully amortized and no longer in use.

Intangible assets consisted of the following as of March 31, ~~2017~~2018 and June 30, ~~2016:~~2017:


	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(Dollars in Thousands)							(Dollars in Thousands)
March 31, 2017:
March 31, 2018:
Technology and patents	$	19,253	$	(2,917	)	$	16,336	$	35,807	$	(4,631	)	$	31,176
In process research & development	3,097		—			3,097
Customer relationships	1,432		(118		)	1,314		4,902		(325		)	4,577
Non-compete agreements	553		(77		)	476		553		(261		)	292
Total	$	24,335	$	(3,112	)	$	21,223	$	41,262	$	(5,217	)	$	36,045
June 30, 2016:
June 30, 2017:
Technology and patents	$	3,696	$	(2,596	)	$	1,100	$	22,350	$	(3,254	)	$	19,096
In process research & development	3,200		—			3,200
Customer relationships	700		—			700		1,432		(169		)	1,263
Non-compete agreements								553		(123		)	430
Total	$	7,596	$	(2,596	)	$	5,000	$	24,335	$	(3,546	)	$	20,789

Total amortization expense related to intangible assets is included in operating expenses and amounted to approximately $0.5 million and $1.6 million for the three and nine months ended March 31, 2018, respectively, and approximately $0.4 million and $0.5 million for the three and nine months ended March 31, 2017, ~~and $0.1 million for the three and nine months ended~~respectively.

Future amortization expense as of March 31, ~~2016, respectively. Amortization expense~~2018 is expected to be ~~approximately $1.0 million in fiscal 2017, $2.1 million in fiscal 2018, $2.1 million in fiscal 2019, $2.1 million in fiscal 2020, $2.2 million in fiscal 2021, and $12.2 million thereafter.~~as follows:



Year Ended June 30,	Amortization Expense
	(Dollars in Thousands)
2018	$	1,079
2019	4,658
2020	4,729
2021	4,719
2022	4,713
Thereafter	16,147
Total	$	36,045

8. Goodwill

The changes in the carrying amount of goodwill for our subscription and software reporting ~~unit~~segment during the nine months ended March 31, ~~2017~~2018 was as follows:

Gross Carrying Amount Accumulated Impairment Losses Effect of Currency Translation Net Carrying Amount
(Dollars in Thousands)
June 30, 2016: $ 89,007
$ (65,569 ) $ —
$ 23,438
Goodwill from Mtell acquisition 28,160
—
—
28,160
Goodwill from technology acquisition 2,000
—
—
2,000
Subsequent Fidelis goodwill adjustment (62 ) —
—
(62 )
Subsequent Mtell goodwill adjustment (2,272 ) —
—
(2,272 )
Foreign currency translation and other —
—
(355 ) (355 )
March 31, 2017: $ 116,833
$ (65,569 ) $ (355 ) $ 50,909



	Gross Carrying Amount		Accumulated Impairment Losses			Effect of Currency Translation		Net Carrying Amount
	(Dollars in Thousands)
June 30, 2017:	$	116,817	$	(65,569	)	$	—	$	51,248
Goodwill from acquisitions	24,441		—			—		24,441
Foreign currency translation	—		—			327		327
March 31, 2018:	$	141,258	$	(65,569	)	$	327	$	76,016

During the three months ended March 31, 2017, we recorded a goodwill adjustment of approximately $2.3 million to increase the value of the deferred tax assets acquired through our acquisition of Mtell. No triggering events indicating goodwill impairment occurred during the nine months ended March 31, ~~2017.~~

2018.

~~10.~~9. Accrued Expenses and Other Liabilities

Accrued expenses and other current liabilities in the accompanying unaudited consolidated balance sheets consisted of the following:


	March 31, 2017		June 30, 2016		March 31, 2018		June 30, 2017
	(Dollars in Thousands)				(Dollars in Thousands)
Payroll and payroll-related					$	17,318	$	20,864
Royalties and outside commissions	$	2,760	$	2,640	3,409		2,733
Payroll and payroll-related	14,284		17,809
Professional fees	2,140		1,696		2,162		2,216
Deferred acquisition payments	2,675		584		7,749		8,548
Other	16,483		13,376		9,681		13,788
Total accrued expenses and other current liabilities	$	38,342	$	36,105	$	40,319	$	48,149

Other non-current liabilities in the accompanying unaudited consolidated balance sheets consisted of the following:


	March 31, 2017		June 30, 2016		March 31, 2018		June 30, 2017
	(Dollars in Thousands)				(Dollars in Thousands)
Deferred rent	$	6,758	$	6,361	$	6,770	$	6,916
Uncertain tax positions	21,760		23,535		4,302		3,921
Deferred acquisition payments	5,316		2,000		4,562		—
Other	4,677		695		3,890		2,311
Total other non-current liabilities	$	38,511	$	32,591	$	19,524	$	13,148

~~11.~~10. Credit Agreement

On February 26, 2016, we entered into a $250.0 million Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, Silicon Valley Bank, as syndication agent, and the lenders and other parties named therein (the “Lenders”). On August 9, 2017, we entered into an Amendment to increase the Credit Agreement to $350.0 million. The indebtedness evidenced by the Credit Agreement matures on February 26, 2021. Prior to the maturity of the Credit Agreement, any amounts borrowed may be repaid and, subject to the terms and conditions of the Credit Agreement, borrowed again in whole or in part without penalty. ~~As of March 31, 2017~~We had $170.0 million and ~~June 30, 2016, we had~~ $140.0 million in outstanding borrowings under the Credit ~~Agreement. Debt issuance costs related to the Credit~~ Agreement ~~were recorded in prepaid expenses~~as of March 31, 2018 and ~~other current assets in our consolidated balance sheet, and are amortized over the life of the agreement term.~~June 30, 2017, respectively.

Borrowings under the Credit Agreement bear interest at a rate equal to either, at our option, the sum of (a) the highest of (1) the rate of interest publicly announced by JPMorgan Chase Bank, N.A. as its prime rate in effect, (2) the Federal Funds Effective Rate plus 0.5%, and (3) the one-month Adjusted LIBO Rate plus 1.0%, plus (b) a margin initially of 0.5% for the first full fiscal quarter ending after the date of the Credit Agreement and thereafter based on our Leverage Ratio; or the Adjusted LIBO Rate plus a margin initially of 1.5% for the first full fiscal quarter ending after the date of the Credit Agreement and thereafter based on our Leverage Ratio. We must also pay, on a quarterly basis, an unused commitment fee at a rate of between 0.2% and 0.3% per annum, based on our Leverage Ratio. The interest ~~rate~~rates as of March 31, ~~2017 was 2.49%.~~2018 were 3.38% on $159.0 million of our outstanding borrowings, and 3.22% on the remaining $11.0 million of our outstanding borrowings.

All borrowings under the Credit Agreement are secured by liens on substantially all of our assets. The Credit Agreement contains affirmative and negative covenants customary for facilities of this type, including restrictions on: incurrence of additional debt; liens; fundamental changes; asset sales; restricted payments; and transactions with affiliates. The Credit Agreement contains financial covenants regarding maintenance as of the end of each fiscal quarter, commencing with the quarter ending June 30, 2016, of a maximum Leverage Ratio of 3.0 to 1.0 and a minimum Interest Coverage Ratio of 3.0 to 1.0. As of March 31, ~~2017~~2018 we were in compliance with these covenants.

~~12.~~11. Stock-Based Compensation

The weighted average estimated fair value of option awards granted was $19.21 and $17.04 during the three and nine months ended March 31, 2018, respectively, and $13.70 and $12.96 during the three and nine months ended March 31, 2017, ~~and $10.47 and $13.19 during the three and nine months ended March 31, 2016,~~ respectively.

We utilized the Black-Scholes option valuation model with the following weighted average assumptions:


	Nine Months Ended March 31,				Nine Months Ended March 31,
	2017		2016		2018		2017
Risk-free interest rate	1.1	%	1.4	%	1.7	%	1.1	%
Expected dividend yield	0.0	%	0.0	%	0.0	%	0.0	%
Expected life (in years)	4.6		4.7		4.6		4.6
Expected volatility factor	31.4	%	34.1	%	28.0	%	31.4	%

The stock-based compensation expense under all equity plans and its classification in the unaudited consolidated statements of operations for the three and nine months ended March 31, ~~2017~~2018 and ~~2016~~2017 are as follows:


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended March 31,				Nine Months Ended March 31,
	2017		2016		2017		2016		2018		2017		2018		2017
	(Dollars in Thousands)								(Dollars in Thousands)
Recorded as expenses:
Cost of services and other	$	363	$	343	$	1,106	$	1,049	$	345	$	363	$	1,119	$	1,106
Selling and marketing	972		1,797		2,937		3,547		979		972		2,870		2,937
Research and development	1,618		871		4,177		2,543		1,892		1,618		5,679		4,177
General and administrative	1,724		1,367		6,087		5,174		2,137		1,724		7,554		6,087
Total stock-based compensation	$	4,677	$	4,378	$	14,307	$	12,313	$	5,353	$	4,677	$	17,222	$	14,307

A summary of stock option and RSU activity under all equity plans for the ~~three and~~ nine months ended March 31, ~~2017~~2018 is as follows:


	Stock Options							Restricted Stock Units				Stock Options							Restricted Stock Units
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in 000’s)		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in 000’s)		Shares		Weighted Average Grant Date Fair Value
Outstanding at June 30, 2016	1,314,142		$	32.47	7.23	$	12,340	493,332		$	41.06
Outstanding at June 30, 2017												1,353,558		$	37.98	7.30	$	23,535	615,998		$	45.62
Granted	459,785		45.54					511,777		45.98		418,462		64.17					346,558		64.18
Settled (RSUs)	—							(239,909	)	41.67		—							(232,797	)	49.61
Exercised	(295,059	)	26.99					—				(216,306	)	34.07					—
Cancelled / Forfeited	(46,024	)	39.58					(39,191	)	42.40		(37,350	)	50.43					(30,596	)	54.18
Outstanding at March 31, 2017	1,432,844		$	37.57	7.59	$	30,597	726,009		$	44.25
Vested and exercisable at March 31, 2017	777,059		$	32.29	6.53	$	20,695	—
Vested and expected to vest as of March 31, 2017	1,369,672		$	37.25	7.53	$	29,686	655,472		$	44.16
Outstanding at March 31, 2018												1,518,364		$	45.45	7.45	$	50,777	699,163		$	53.12
Vested and exercisable at March 31, 2018												844,139		$	38.17	6.40	$	34,376	—
Vested and expected to vest as of March 31, 2018												1,451,983		$	44.98	7.39	$	49,238	628,586		$	53.08

The weighted average grant-date fair value of RSUs granted was $75.41 and $64.18 during the three and nine months ended March 31, 2018, respectively, and $54.95 and $45.98 during the three and nine months ended March 31, 2017, ~~and $31.97 and $41.91 during the three and nine months ended March 31, 2016,~~ respectively. The total fair value of shares vested from RSU grants was $5.7 million and $16.0 million during the three and nine months ended March 31, 2018, respectively, and $4.5 million and $12.8 million during the three and nine months ended March 31, 2017, ~~and $3.6 million and $9.8 million during the three and nine months ended March 31, 2016,~~ respectively.

At March 31, ~~2017,~~2018, the total future unrecognized compensation cost related to stock options was ~~$7.5~~$9.1 million and is expected to be recorded over a weighted average period of 2.7 years. At March 31, ~~2017,~~2018, the total future unrecognized compensation cost related to RSUs was ~~$28.2~~$30.7 million and is expected to be recorded over a weighted average period of 2.7 years.

The total intrinsic value of options exercised was $4.9 million and $7.9 million during the three and nine months ended March 31, 2018, respectively, and $2.9 million and $6.9 million during the three and nine months ended March 31, 2017, ~~and $0.3~~respectively. We received cash proceeds from option exercises of $3.9 million and ~~$2.6~~$7.4 million during the three and nine months ended March 31, ~~2016, respectively. We received cash proceeds from option exercises of~~2018, respectively, and $3.1 million and $7.9 million ~~and $2.9 million~~ during the three and nine months ended March 31, 2017, ~~and 2016,~~ respectively. We withheld withholding taxes on vested RSUs of ~~$4.4~~$2.0 million and ~~$3.4~~$5.5 million during the three and nine months ended March 31, 2018, respectively, and $1.6 million and $4.4 million during the three and nine months ended March 31, 2017, ~~and 2016,~~ respectively.

At March 31, ~~2017,~~2018, common stock reserved for future issuance or settlement under equity compensation plans was ~~10.8~~10.4 million shares.

~~13.~~12. Stockholders’ Deficit

Stock Repurchases

On January 22, 2015, our Board of Directors approved a share repurchase program (the "Share Repurchase Program") for up to $450.0 million worth of our common stock. On April 26, 2016 and June 8, 2017, the Board of Directors approved a $400.0 million and $200.0 million increase into the ~~share repurchase plan.~~Share Repurchase Program, respectively. The timing and amount of any shares repurchased are based on market conditions and other factors. All shares of our common stock repurchased have been recorded as treasury stock under the cost method.

On August 29, 2016, as part of our common stock repurchase program, we entered into an accelerated share repurchase program (the "ASR Program") with a third-party financial institution. Pursuant to the terms of the ASR Program, we made an upfront payment of $100.0 million in exchange for an initial delivery of approximately 1.76 million shares of our common stock, representing 80% of the total shares ultimately expected to be delivered over the program's term. The initial shares received, which had an aggregate cost of $80.0 million based on the August 29, 2016 closing share price, were recorded as an increase to treasury stock. As of September 30, 2016, $20.0 million, representing the difference between the upfront $100.0 million payment and the $80.0 million cost of the initial share delivery, was recorded as a reduction to additional paid-in capital in our consolidated balance sheet.

Upon the final settlement of the ASR Program during the three months ended December 31, 2016, we received an additional delivery of 0.35 million shares of our common stock. The total number of shares received under the ASR Program during the six months ended December 31, 2016 was 2.1 million shares, which was determined based on the volume-weighted average price per share of our common stock over the term of the ASR Program, less an agreed-upon discount.

During the three and nine months ended March 31, ~~2017,~~2018, we repurchased 649,479 and 2,244,987 shares, respectively, of our common stock in the open market ~~1,736,330 and 3,862,425 shares of our common stock~~ for ~~$100.0~~$50.0 million and ~~$200.0~~$150.0 million, respectively. ~~Additionally, during the nine months ended March 31, 2017, we repurchased 2,106,709 shares of our common stock for $100.0 million as part of the ASR Program.~~

As of March 31, ~~2017,~~2018, the total remaining value under the ~~share repurchase program approved on January 22, 2015 and amended on April 26, 2016~~Share Repurchase Program was approximately ~~$221.3~~$196.3 million.

Accumulated Other Comprehensive Income

As of March 31, 2018, accumulated other comprehensive income was comprised of foreign currency translation adjustments of $3.9 million. As of June 30, 2017, accumulated other comprehensive income was comprised of foreign currency translation adjustments of ~~$0.1~~$1.5 million and net unrealized ~~losses on available for sale securities of less than $0.1 million.~~

~~As of June 30, 2016, accumulated other comprehensive income was comprised of foreign currency translation adjustments of $2.7 million and net unrealized losses~~gains on available for sale securities of less than $0.1 million.

~~14.~~13. 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.

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, ~~2017~~2018 and ~~2016~~2017 are as follows:


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended March 31,				Nine Months Ended March 31,
	2017		2016		2017		2016		2018		2017		2018		2017
	(Dollars and Shares in Thousands, Except per Share Data)								(Dollars and Shares in Thousands, Except per Share Data)
Net income	$	35,834	$	33,171	$	107,845	$	106,625	$	37,835	$	35,834	$	110,668	$	107,845

Weighted average shares outstanding	75,676		83,081		77,221		83,425		71,828		75,676		72,402		77,221

Dilutive impact from:
Share-based payment awards	506		292		431		417		835		506		734		431
Dilutive weighted average shares outstanding	76,182		83,373		77,652		83,842		72,663		76,182		73,136		77,652

Income per share
Basic	$	0.47	$	0.40	$	1.40	$	1.28	$	0.53	$	0.47	$	1.53	$	1.40
Dilutive	$	0.47	$	0.40	$	1.39	$	1.27	$	0.52	$	0.47	$	1.51	$	1.39

For the three and nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, certain employee equity awards were anti-dilutive based on the treasury stock method. Additionally, during the nine months ended March 31, 2017, options to purchase 5,173 shares of our common stock were not included in the computation of dilutive weighted average shares outstanding, because their exercise prices ranged from $52.14 per share to $54.95 per share and were greater than the average market price of our common stock during the period then ended. These options were outstanding as of March 31, 2017 and expire at various dates through February 6, 2027.

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, ~~2017~~2018 and ~~2016:~~2017:

Three Months Ended
March 31, Nine Months Ended
March 31,
2017 2016 2017 2016
(Shares in Thousands)
Employee equity awards 43
1,250
722
1,092



	Three Months Ended March 31,		Nine Months Ended March 31,
	2018	2017	2018	2017
	(Shares in Thousands)
Employee equity awards	240	43	445	722

Included in the table above are options to purchase 3,892 and 29,818 shares of our common stock during the three and nine months ended March 31, 2018, respectively, which were not included in the computation of dilutive weighted average shares outstanding, because their exercise prices ranged from $75.74 per share to $78.77 per share and were greater than the average market price of our common stock during the periods then ended. These options were outstanding as of March 31, 2018 and expire at various dates through February 25, 2028.

~~15.~~14. Income Taxes

The effective tax rate for the periods presented was primarily the result of income earned in the U.S., taxed at U.S. federal and state statutory income tax rates, income earned in foreign tax jurisdictions taxed at the applicable rates, as well as the impact of permanent differences between book and tax income.

On December 22, 2017, the President of the United States signed into law Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), following its passage by the United States Congress. The Tax Act made significant changes to U.S. federal income tax laws, including reduction of the corporate tax rate from 35.0% to 21.0%, limitation of the tax deduction for interest expense to 30.0% of adjusted taxable income (except for certain small businesses), limitation of the deduction for net operating losses to 80.0% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions.

As a result of the Tax Act, we have revised our estimated annual effective rate to reflect a change in the federal statutory rate from 35.0% to 21.0%. The rate change is administratively effective as of January 1, 2018. As a result, the blended statutory tax rate for our fiscal year is 28.1%.

Our effective tax rate was 23.7% and 28.2% for the three and nine months ended March 31, 2018, respectively, and 30.4% and 33.5% for the three and nine months ended March 31, 2017, ~~was 30.4% and 33.5%, respectively, as compared to 30.5% and 33.5% for the corresponding periods of the prior fiscal year.~~respectively. Our effective tax rate ~~changed slightly~~decreased for the three and nine months ended March 31, ~~2017~~2018 compared to the same periods in ~~2016~~2017 due to a reduction in the federal corporate tax rate from 35.0% to the blended rate of 28.1%, partially offset by a discrete ~~items.~~tax expense of $4.3 million due to the revaluation of the net deferred tax assets as of the enactment date of the Tax Act on December 22, 2017 due to the reduction in the tax rate. During the three and nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, our income tax expense was driven primarily by pre-tax profitability in our domestic and foreign operations and the impact of permanent items. The permanent items are predominantly athe U.S. domestic production activity deduction and tax credits for research ~~expenditures, slightly offset~~expenditures.

The Tax Act has several significant changes that impact all taxpayers, including a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986. We are currently estimating that we will not be subject to the transition tax associated with our accumulated, undistributed foreign earnings. We will continue to evaluate this area and expect to finalize our conclusions by ~~non-deductible~~the end of fiscal 2018.

We adopted ASU No. 2016-09 effective July 1, 2017. As a result of adopting the new standard, excess tax benefits from stock-based compensation ~~expense.~~

~~We use~~are now reflected in the “with and without” ordering approach to calculate our tax provision when necessary. This methodology requires us to utilize all other tax attributes before recognizing excess tax benefits. Excess tax benefits are generated when the deductible valueconsolidated statements of ~~stock-based compensation for income tax purposes exceeds the value recognized for financial statement purposes. Excess tax benefits are not included~~operations as a component of ~~deferred tax assets. When realized, excess tax benefits reduce~~the provision for income taxes, ~~payable and increase additional paid~~whereas they were previously a component of stockholders’ deficit. The adoption of ASU No. 2016-09 resulted in ~~capital. In~~a decrease in our ~~unaudited consolidated statements~~provision for income taxes of ~~cash flows, the excess tax benefits of $2.3~~$1.2 million and ~~$1.9~~$2.1 million ~~were reported as sources of cash flows from financing activities with offsetting reductions to cash flows from operating activities during~~for the three and nine months ended March 31, ~~2017~~2018, respectively. This represents a decrease in our effective tax rate of approximately two and ~~2016, respectively.~~one percentage points for the three and nine months ended March 31, 2018, respectively, due to the recognition of excess tax benefits for options exercised and the vesting of equity awards.

Deferred income taxes are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the statutory tax rates and laws expected to apply to taxable income in the years in which the temporary differences are expected to reverse. Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the timing of the temporary differences becoming deductible. Management considers, among other available information, scheduled reversals of deferred tax liabilities, projected future taxable income, limitations of availability of net operating loss carryforwards, and other matters in making this assessment.

We do not provide deferred taxes on unremitted earnings of our foreign subsidiaries ~~since~~as we intend to indefinitely reinvest those ~~earnings either currently or sometime in~~earnings. We are also estimating that the ~~foreseeable future. Unrecognized provisions for taxes~~transition tax on any undistributed earnings that existed as of ~~foreign subsidiaries, which are considered indefinitely reinvested, are not material to our consolidated financial position or results of operations.~~December 22, 2017 will be zero.

~~16.~~15. Commitments and Contingencies

Operating Leases

We lease certain facilities under non-cancellable operating leases with terms in excess of one year. Rental expense on leased facilities under operating leases was approximately $2.1 million and $6.1 million during the three and nine months ended March 31, 2018, respectively, and $2.1 million and $6.3 million during the three and nine months ended March 31, 2017, ~~and $2.0 million and $6.1 million during the three and nine months ended March 31, 2016,~~ respectively.

Standby letters of credit for ~~$2.8~~$3.0 million ~~as of March 31, 2017~~and $2.9 million secure our performance on professional services contracts, certain facility leases and potential ~~liabilities. This is a decrease from $3.5 million~~liabilities as of March 31, 2018 and June 30, ~~2016.~~2017, respectively. The letters of credit expire at various dates through fiscal ~~2018.~~2025.

Legal Matters

In the ordinary course of business, we are, from time to time, involved in lawsuits, claims, investigations, proceedings and threats of litigation. These matters include an April 2004 claim by a customer that certain of our software products and implementation services failed to meet the customer's expectations. In March 2014, a judgment was issued by the trial court against us in the amount of approximately 1.9 million Euro (“€”) plus interest and a portion of legal fees. We subsequently filed an appeal of that judgment. In March 2016, the appellate court determined that we are liable for damages in the amount of approximately €1.7 million plus interest, with the possibility of additional damages to be determined in further proceedings by the appellate court. AsIn December 2017, the appellate court issued a final judgment against us in the amount of approximately €3.5 million, including interest, plus approximately €0.1 million in costs and legal fees. During the three months ended March 31, ~~2017, there has been no change to the appellate court’s determination.~~2018, we made a payment of approximately €3.5 million.

While the outcome of the proceedings and claims ~~referenced~~such as those described above cannot be predicted with certainty, there were no such matters, as of March 31, ~~2017~~2018 that, in the opinion of management, are reasonably possible to have a material adverse effect on our financial position, results of operations or cash flows. Liabilities, if applicable, related to the aforementioned matters discussed in this Note have been included in our accrued liabilities at March 31, ~~2017,~~2018, and are not material to our financial position for the period then ended. As of March 31, ~~2017,~~2018, we do not believe that there is a reasonable possibility of a material loss exceeding the amounts already accrued for the proceedings or matters discussed above. However, the results of litigation ~~(including the above-referenced appeal)~~ and claims cannot be predicted with certainty; unfavorable resolutions are possible and could materially affect our results of operations, cash flows or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of attorneys' fees and costs, diversion of management resources and other factors.

~~17.~~16. Segment Information

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

The subscription and software segment is engaged in the licensing of process optimization and asset performance management software solutions and associated support services. The services segment includes professional services and training. We do not track assets or capital expenditures by operating segments. Consequently, it is not practical to present assets, capital expenditures, depreciation or amortization by operating segments.

The following table presents a summary of our reportable segments’ profits:


	Subscription and Software			Services			Total			Subscription and Software			Services			Total
	(Dollars in Thousands)									(Dollars in Thousands)
Three Months Ended March 31, 2018
Segment revenue										$	118,126		$	7,745		$	125,871
Segment expenses (1)										(53,325		)	(6,959		)	(60,284		)
Segment profit										$	64,801		$	786		$	65,587
Three Months Ended March 31, 2017
Segment revenue	$	111,717		$	7,560		$	119,277		$	111,717		$	7,560		$	119,277
Segment expenses (1)	(48,138		)	(6,746		)	(54,884		)	(48,138		)	(6,746		)	(54,884		)
Segment profit	$	63,579		$	814		$	64,393		$	63,579		$	814		$	64,393
Three Months Ended March 31, 2016
Segment revenue	$	111,722		$	7,495		$	119,217
Segment expenses (1)	(46,176		)	(6,754		)	(52,930		)
Segment profit	$	65,546		$	741		$	66,287

Nine Months Ended March 31, 2017
Segment revenue	$	338,077		$	21,184		$	359,261
Segment expenses (1)	(139,466		)	(19,586		)	(159,052		)
Segment profit	$	198,611		$	1,598		$	200,209

Nine Months Ended March 31, 2016
Segment revenue	$	333,707		$	24,957		$	358,664
Segment expenses (1)	(132,577		)	(21,405		)	(153,982		)
Segment profit	$	201,130		$	3,552		$	204,682



	Subscription and Software			Services			Total
	(Dollars in Thousands)
Nine Months Ended March 31, 2018
Segment revenue	$	351,540		$	22,014		$	373,554
Segment expenses (1)	(151,824		)	(20,511		)	(172,335		)
Segment profit	$	199,716		$	1,503		$	201,219
Nine Months Ended March 31, 2017
Segment revenue	$	338,077		$	21,184		$	359,261
Segment expenses (1)	(139,466		)	(19,586		)	(159,052		)
Segment profit	$	198,611		$	1,598		$	200,209

(1) Our reportable segments’ operating expenses include expenses directly attributable to the segments. Segment expenses include selling and marketing, research and development, stock-based compensation and certain corporate expenses incurred in support of the segments. Segment expenses do not include allocations of general and administrative; interest income, net; and other income, net.

Reconciliation to Income before Income Taxes

The following table presents a reconciliation of total segment profit to income before income taxes for the three and nine months ended March 31, ~~2017~~2018 and ~~2016:~~2017:


	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended March 31,						Nine Months Ended March 31,
	2017			2016			2017			2016			2018			2017			2018			2017
	(Dollars in Thousands)												(Dollars in Thousands)

Total segment profit for reportable segments	$	64,393		$	66,287		$	200,209		$	204,682		$	65,587		$	64,393		$	201,219		$	200,209
General and administrative	(12,120		)	(15,606		)	(37,140		)	(42,273		)
General and administrative expense													(14,430		)	(12,120		)	(42,284		)	(37,140		)
Other (expense) income, net	(56		)	(2,686		)	1,287			(1,947		)	(104		)	(56		)	(958		)	1,287
Interest (expense) income, net	(783		)	(240		)	(2,056		)	(101		)
Interest (expense), net													(1,462		)	(783		)	(3,748		)	(2,056		)
Income before income taxes	$	51,434		$	47,755		$	162,300		$	160,361		$	49,591		$	51,434		$	154,229		$	162,300

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion in conjunction with our unaudited consolidated financial statements and related and notes thereto contained in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should read “Item 1A. Risk Factors” of Part II 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^th, and references in this Quarterly Report to a specific fiscal year are to the twelve months ended June 30^th of such year (for example, “fiscal ~~2017”~~2018” refers to the year ending on June 30, ~~2017)~~2018).

Recent Event

Business Overview

~~AspenTech is~~We are a leading global supplier of ~~software~~asset optimization solutions that optimize asset design, ~~operation~~operations and maintenance ~~lifecycles~~ in complex industrial environments. ~~AspenTech combines~~We combine decades of process modeling and operations expertise with big data ~~machine-learning.~~machine-learning and analytics. Our purpose-built software ~~platform automates knowledge work, and customers use our~~ solutions to improve ~~their~~the competitiveness and profitability of our customers by increasing throughput, energy efficiency, and ~~productivity,~~production, reducing unplanned downtime, enhancing capital efficiency, and decreasing working capital requirements over the entire asset ~~lifecycle.~~lifecycle to support operational excellence.

Our software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domain expertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 35 years. We have developed our applications to design and optimize processes across three principal business areas: engineering, manufacturing and supply chain, and asset performance management. We are a recognized market and technology leader in providing process optimization and asset performance management software solutions for each of these business areas.

We have established sustainable competitive advantages based on the following strengths:

•Innovative products that can enhance our customers' profitability and productivity;

•Long-term customer relationships;

•Large installed base of users of our software; and

•Long-term license contracts.

We have approximately 2,100 customers globally. Our customers consist of companies ~~engaged~~ in the process and other capital-intensive industries such as energy, chemicals, engineering and construction, as well as pharmaceuticals, transportation, power, metals and mining, pulp and paper, ~~pharmaceuticals,~~and consumer packaged ~~goods, and biofuels.~~goods.

Business Segments

We have two operating and reportable segments: i) subscription and software and ii) services. The subscription and software segment is engaged in the licensing of ~~process~~asset optimization ~~and asset performance management~~ software solutions and associated support services. The services segment includes professional services and training.

Key Components of Operations

Revenue

We generate revenue primarily from the following sources:

Subscription and Software Revenue. We sell our software products to end users primarily under fixed-term licenses. We license our software products primarily through a subscription offering which we refer to as our aspenONE licensing model, which includes software maintenance and support, known as our Premier Plus SMS offering, for the entire term. Our aspenONE products are organized into three suites: 1) engineering; 2) manufacturing and supply ~~chain, or MSC;~~chain; and 3) asset performance ~~management, or APM.~~management. The aspenONE licensing model provides customers with access to all of the products within the aspenONE suite(s) they license. Customers can change or alternate the use of multiple products in a licensed suite through the use of exchangeable units of measurement, called tokens, licensed in quantities determined by the customer. This licensing system enables customers to use products as needed and to experiment with different products to best solve whatever critical business challenges they face. Customers can increase their usage of our software by purchasing additional tokens as business needs evolve.

We provide customers technical support, access to software fixes and updates and the right to any new unspecified future software products and updates that may be introduced into the licensed aspenONE software suite. Our technical support services are provided from our customer support centers throughout the world, as well as via email and through our support website.

We also license our software through point product arrangements with our Premier Plus SMS offering included for the contract term, as well as perpetual license arrangements.

Services and Other Revenue. We provide training and professional services to our customers. Our professional services are focused on implementing our technology in order to improve customers' plant performance and gain better operational data. Customers who use our professional services typically engage us to provide those services over periods of up to 24 months. We charge customers for professional services on a time-and-materials or fixed-price basis. We provide training services to our customers, including on-site, Internet-based and customized training.

Our services and other revenue consists of revenue related to professional services and training. The amount and timing of this revenue depend on a number of factors, including:

whether the professional services arrangement was sold as a single arrangement with, or in contemplation of, a new aspenONE licensing arrangement;

the number, value and rate per hour of service transactions booked during the current and preceding periods;

the number and availability of service resources actively engaged on billable projects;

the timing of milestone acceptance for engagements contractually requiring customer sign-off;

the timing of collection of cash payments when collectability is uncertain; and

the size of the installed base of license contracts.

Cost of Revenue

Cost of Subscription and Software. Our cost of subscription and software revenue consists of (i) royalties, (ii) amortization of capitalized software and intangibles, (iii) distribution fees, and (iv) costs of providing Premier Plus SMS bundled with our aspenONE licensing and point product arrangements.

Cost of Services and Other. Our cost of services and other revenue consists primarily of personnel-related and external consultant costs associated with providing customers professional services and training.

Operating Expenses

Selling and Marketing Expenses. Selling expenses consist primarily of the personnel and travel expenses related to the effort expended to license our products and services to current and potential customers, as well as for overall management of customer relationships. Marketing expenses include expenses needed to promote our company and our products and to conduct market research to help us better understand our customers and their business needs.

Research and Development Expenses. Research and development expenses consist primarily of personnel expenses related to the creation of new software products, enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technological feasibility.

General and Administrative Expenses. General and administrative expenses include the costs of corporate and support functions, such as executive leadership and administration groups, finance, legal, human resources and corporate communications, and other costs, such as outside professional and consultant fees and provision for bad debts.

Other Income and Expenses

Interest Income. Interest income is recorded for the accretion of interest on the investment in marketable securities and short-term money market instruments.

Interest Expense.During the three and nine months ended March 31, 2018 and 2017, interest expense iswas primarily related to ~~our~~the Credit ~~Agreement. During the three and nine months ended March 31,~~Agreement we entered into with various lenders on February 26, 2016, ~~interest expense was comprised of miscellaneous interest charges.~~as amended August 9, 2017 (the “Credit Agreement”).

Other Income (Expense), Net. Other income (expense), net is comprised primarily of foreign currency exchange gains (losses) generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units.

Provision for Income Taxes. Provision for income taxes is comprised of domestic and foreign taxes. ~~Benefits from income taxes are comprised of any deferred benefit for tax deductions and credits that we expect to utilize in the future.~~ We record interest and penalties related to income tax matters as a component of income tax expense. ~~We expect~~Our effective income tax rate may fluctuate between fiscal years and from quarter to quarter due to items arising from discrete events, such as tax benefits from the ~~amount~~disposition of employee equity awards, settlements of tax audits and assessments and tax law changes. Our effective income tax rate is also impacted by, and may fluctuate in any given period because of, the composition of income in foreign jurisdictions where tax ~~expense to vary each reporting period depending upon fluctuations in our taxable income by jurisdiction.~~rates differ.

Key Business Metrics

We utilize certain key non-GAAP and other business measures to track and assess the performance of our business and we make these measures available to investors. We have refined the set of appropriate business metrics in the context of our evolving business and use the following non-GAAP business metrics in addition to GAAP measures to track our business performance:

Annual spend;

Free cash flow; and

Non-GAAP operating income.

None of these metrics should be considered as an alternative to any measure of financial performance calculated in accordance with GAAP.

Annual Spend

Annual spend is an estimate of the annualized value of our portfolio of term license arrangements, as of a specific date. Management believes that this financial measure is a useful metric to investors as it provides insight into the growth component of license bookings during a fiscal period. Annual spend is calculated by summing the most recent annual invoice value of each of our active term license contracts. Annual spend also includes the annualized value of standalone SMS agreements purchased in conjunction with term license agreements. Comparing annual spend for different dates can provide insight into the growth and retention rates of our business, and since annual spend represents the estimated annualized billings associated with our active term license agreements, it provides insight into the future value of subscription and software revenue.

Annual spend increases as a result of:

New term license agreements with new or existing customers;

Renewals or modifications of existing term license agreements that result in higher license fees due to price escalation or an increase in the number of tokens (units of software usage) or products licensed; and

Escalation of annual payments in our active term license contracts.

Annual spend is adversely affected by term license and standalone SMS agreements that are renewed at a lower entitlement level or not ~~renewed.~~renewed and, to a lesser extent, by customer contracts that are terminated during the contract term due to the customer ceasing operations.

We estimate that annual spend grew by approximately ~~0.3%~~2.3% during the third quarter of fiscal ~~2017,~~2018, from ~~$450.1~~$469.0 million at December 31, ~~2016~~2017 to ~~$451.5~~$479.9 million at March 31, ~~2017,~~2018, and by approximately ~~2.3%~~4.4% during the first nine months of fiscal ~~2017,~~2018, from ~~$441.4~~$459.6 million at June 30, ~~2016.~~2017.

Free Cash Flow

We use a non-GAAP measure of free cash flow to analyze cash flows generated from our operations. Management believes that this financial measure is useful to investors because it permits investors to view our performance using the same tools that management uses to gauge progress in achieving our goals. We believe this measure is also useful to investors because it is an indication of cash flow that may be available to fund investments in future growth initiatives or to repay borrowings under the ~~credit agreement,~~Credit Agreement, and it is a basis for comparing our performance with that of our competitors. The presentation of free cash flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity.

Free cash flow is calculated as net cash provided by operating activities adjusted for the net impact ~~of (a)~~of: purchases of property, equipment and leasehold ~~improvements, (b)~~improvements; capitalized computer software development ~~costs, (c)~~costs; excess tax benefits from stock-based ~~compensation, (d)~~compensation; non-capitalized acquired ~~technology,~~technology; and ~~(e)~~ other nonrecurring items, such as acquisition related and litigation related payments.

The following table provides a reconciliation of net cash flows provided by operating activities to free cash flow for the indicated periods:


	Nine Months Ended March 31,						Nine Months Ended March 31,
	2017			2016			2018			2017
	(Dollars in Thousands)						(Dollars in Thousands)
Net cash provided by operating activities	$	109,038		$	108,895		$	127,829		$	109,038
Purchases of property, equipment, and leasehold improvements	(2,151		)	(2,530		)	(217		)	(2,151		)
Capitalized computer software development costs	(126		)	—			(299		)	(126		)
Non-capitalized acquired technology							75			846
Excess tax benefits from stock-based compensation	2,344			1,878			—			2,344
Non-capitalized acquired technology	846			1,250
Acquisition related fee payments							868			448
Litigation related payments	—			2,080			4,286			—
Acquisition related fee payments	448			6,068
Free cash flows (non-GAAP)	$	110,399		$	117,641		$	132,542		$	110,399

Total free cash flow on a non-GAAP basis ~~decreased~~increased by ~~$7.2~~$22.1 million during the nine months ended March 31, ~~2017~~2018 as compared to the same period of the prior fiscal year primarily due to changes in working capital.

~~Excess tax benefits are~~In the nine months ended March 31, 2018 and 2017, we have excluded payments of $0.1 million and $0.8 million, respectively, for non-capitalized acquired technology (including $0.1 million and $0.5 million, respectively, of final payments related to ~~stock-based compensation tax deductions in excess of book compensation expense and reduce our income taxes payable. We have included the impact of excess tax benefits in~~non-capitalized acquired technology from prior fiscal periods) from free cash flow to be consistent with the treatment of other ~~tax activity.~~transactions where the acquired assets were capitalized.

In the nine months ended March 31, ~~2017 and March 31, 2016,~~2018, we ~~acquired technology that did not meet the accounting requirements for capitalization and therefore the cost of the acquired technology was expensed as research and development. We~~ have excluded ~~the payment for the acquired technology from free cash flow~~litigation related payments associated with a legal matter. See Note 15, Commitments and Contingencies, to ~~be consistent with transactions where the acquired technology assets were capitalized.~~our Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q.

Non-GAAP Operating Income

Non-GAAP operating income ~~from operations~~ excludes certain non-cash and non-recurring expenses, and is used as a supplement to operating income presented on a GAAP basis. We believe that non-GAAP operating income is a useful financial measure because ~~excluding non-recurring~~removing certain non-cash and ~~certain non-cash~~other items provides additional insight into recurring profitability and cash flow from operations.

The following table presents our ~~operating~~net income, as adjusted for stock-based compensation expense, non-capitalized acquired technology and amortization of acquired intangibles, and other items, such as the impact of litigation judgments and acquisition related ~~expenses,~~fees, for the indicated periods:


	Three Months Ended March 31,				2017 Compared to 2016					Nine Months Ended March 31,				2017 Compared to 2016					Three Months Ended March 31,				Increase / (Decrease) Change					Nine Months Ended March 31,				Increase / (Decrease) Change
	2017		2016		$			%		2017		2016		$			%		2018		2017		$			%		2018		2017		$			%
	(Dollars in Thousands)																		(Dollars in Thousands)
GAAP income from operations	$	52,273	$	50,681	$	1,592		3.1	%	$	163,069	$	162,409	$	660		0.4	%	$	51,157	$	52,273	$	(1,116	)	(2.1	)%	$	158,935	$	163,069	$	(4,134	)	(2.5	)%
Plus:
Stock-based compensation	4,677		4,378		299			6.8	%	14,307		12,313		1,994			16.2	%	5,353		4,677		676			14.5	%	17,222		14,307		2,915			20.4	%
Non-capitalized acquired technology	—		—		—			—	%	350		250		100			40.0	%	—		—		—			—	%	—		350		(350		)	(100.0	)%
Amortization of intangibles	405		14		391			2,792.9	%	516		147		369			251.0	%	526		405		121			29.9	%	1,578		516		1,062			205.8	%
Litigation judgment																			—		—		—			—	%	1,548		—		1,548			100.0	%
Acquisition related fees	31		4,187		(4,156		)	(99.3	)%	493		5,213		(4,720		)	(90.5	)%	378		31		347			1,119.4	%	706		493		213			43.2	%
Non-GAAP income from operations	$	57,386	$	59,260	$	(1,874	)	(3.2	)%	$	178,735	$	180,332	$	(1,597	)	(0.9	)%	$	57,414	$	57,386	$	28		—	%	$	179,989	$	178,735	$	1,254		0.7	%

InDuring the nine months ended March 31, 2017, ~~and March 31, 2016,~~ we acquired technology that did not meet the accounting requirements for capitalization and therefore the cost of the acquired technology was expensed as research and development. We have excluded the expense of the acquired technology from non-GAAP operating income to be consistent with transactions where the acquired assets were capitalized.

During the nine months ended March 31, 2018, we incurred an expense associated with a litigation judgment in the amount of $1.5 million. We have excluded the expense of the litigation judgment from non-GAAP operating income to reflect the non-recurring nature of the expense.

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, ~~2016~~2017 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements appearing in this report. The accounting policies that reflect our more significant estimates, judgments and assumptions in the preparation of our 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, ~~2016,~~2017, and include the following:

revenue recognition;

accounting for income taxes; and

loss contingencies.

There were no significant changes to our critical accounting policies and estimates during the three and nine months ended March 31, ~~2017.~~2018.

Results of Operations

Comparison of the Three and Nine Months Ended March 31, ~~2017~~2018

The following table sets forth the results of operations and the period-over-period percentage change in certain financial data for the three and nine months ended March 31, ~~2017:~~2018:


	Three Months Ended March 31,						Increase / (Decrease) Change		Nine Months Ended March 31,						Increase / (Decrease) Change		Three Months Ended March 31,						Increase / (Decrease) Change		Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			%		2017			2016			%		2018			2017			%		2018			2017			%
	(Dollars in Thousands)																(Dollars in Thousands)
Revenue:
Subscription and software	$	111,717		$	111,722		—	%	$	338,077		$	333,707		1.3	%	$	118,126		$	111,717		5.7	%	$	351,540		$	338,077		4.0	%
Services and other	7,560			7,495			0.9	%	21,184			24,957			(15.1	)%	7,745			7,560			2.4	%	22,014			21,184			3.9	%
Total revenue	119,277			119,217			0.1	%	359,261			358,664			0.2	%	125,871			119,277			5.5	%	373,554			359,261			4.0	%
Cost of revenue:
Subscription and software	5,521			5,266			4.8	%	15,766			15,475			1.9	%	5,817			5,521			5.4	%	17,086			15,766			8.4	%
Services and other	6,746			6,754			(0.1	)%	19,586			21,405			(8.5	)%	6,959			6,746			3.2	%	20,511			19,586			4.7	%
Total cost of revenue	12,267			12,020			2.1	%	35,352			36,880			(4.1	)%	12,776			12,267			4.1	%	37,597			35,352			6.4	%
Gross profit	107,010			107,197			(0.2	)%	323,909			321,784			0.7	%	113,095			107,010			5.7	%	335,957			323,909			3.7	%
Operating expenses:
Selling and marketing	22,269			23,090			(3.6	)%	66,123			66,704			(0.9	)%	25,924			22,269			16.4	%	73,875			66,123			11.7	%
Research and development	20,348			17,820			14.2	%	57,577			50,398			14.2	%	21,584			20,348			6.1	%	60,863			57,577			5.7	%
General and administrative	12,120			15,606			(22.3	)%	37,140			42,273			(12.1	)%	14,430			12,120			19.1	%	42,284			37,140			13.9	%
Total operating expenses, net	54,737			56,516			(3.1	)%	160,840			159,375			0.9	%	61,938			54,737			13.2	%	177,022			160,840			10.1	%
Income from operations	52,273			50,681			3.1	%	163,069			162,409			0.4	%	51,157			52,273			(2.1	)%	158,935			163,069			(2.5	)%
Interest income	176			90			95.6	%	665			243			173.7	%	23			176			(86.9	)%	204			665			(69.3	)%
Interest (expense)	(959		)	(330		)	190.6	%	(2,721		)	(344		)	691.0	%	(1,485		)	(959		)	54.8	%	(3,952		)	(2,721		)	45.2	%
Other (expense) income, net	(56		)	(2,686		)	97.9	%	1,287			(1,947		)	166.1	%	(104		)	(56		)	85.7	%	(958		)	1,287			(174.4	)%
Income before provision for income taxes	51,434			47,755			7.7	%	162,300			160,361			1.2	%	49,591			51,434			(3.6	)%	154,229			162,300			(5.0	)%
Provision for income taxes	15,600			14,584			7.0	%	54,455			53,736			1.3	%	11,756			15,600			(24.6	)%	43,561			54,455			(20.0	)%
Net income	$	35,834		$	33,171		8.0	%	$	107,845		$	106,625		1.1	%	$	37,835		$	35,834		5.6	%	$	110,668		$	107,845		2.6	%

The following table sets forth the results of operations as a percentage of ~~net~~total revenue for certain financial data for the three and nine months ended March 31, ~~2017:~~2018:


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended March 31,				Nine Months Ended March 31,
	2017		2016		2017		2016		2018		2017		2018		2017
	(% of Revenue)								(% of Revenue)
Revenue:
Subscription and software	93.7	%	93.7	%	94.1	%	93.0	%	93.8	%	93.7	%	94.1	%	94.1	%
Services and other	6.3		6.3		5.9		7.0		6.2		6.3		5.9		5.9
Total revenue	100.0		100.0		100.0		100.0		100.0		100.0		100.0		100.0
Cost of revenue:
Subscription and software	4.6		4.4		4.4		4.3		4.6		4.6		4.6		4.4
Services and other	5.7		5.7		5.5		6.0		5.5		5.7		5.5		5.5
Total cost of revenue	10.3		10.1		9.8		10.3		10.2		10.3		10.1		9.8
Gross profit	89.7		89.9		90.2		89.7		89.8		89.7		89.9		90.2
Operating expenses:
Selling and marketing	18.7		19.4		18.4		18.6		20.6		18.7		19.8		18.4
Research and development	17.1		14.9		16.0		14.1		17.1		17.1		16.3		16.0
General and administrative	10.2		13.1		10.3		11.8		11.5		10.2		11.3		10.3
Total operating expenses, net	45.9		47.4		44.8		44.4		49.2		45.9		47.4		44.8
Income from operations	43.8		42.5		45.4		45.3		40.6		43.8		42.5		45.4
Interest income	0.1		0.1		0.2		0.1		—		0.1		0.1		0.2
Interest (expense)	(0.8	)	(0.3	)	(0.8	)	(0.1	)	(1.2	)	(0.8	)	(1.1	)	(0.8	)
Other (expense) income, net	—		(2.3	)	0.4		(0.5	)	(0.1	)	—		(0.3	)	0.4
Income before provision for income taxes	43.1		40.1		45.2		44.7		39.4		43.1		41.3		45.2
Provision for income taxes	13.1		12.2		15.2		15.0		9.3		13.1		11.7		15.2
Net income	30.0	%	27.8	%	30.0	%	29.7	%	30.1	%	30.0	%	29.6	%	30.0	%

Revenue

Total revenue increased by ~~$0.1~~$6.6 million and ~~$0.6~~$14.3 million during the three and nine months ended March 31, ~~2017,~~2018, respectively, as compared to the corresponding periods of the prior fiscal year. The increase of ~~$0.1~~$6.6 million ~~for~~during the three months ended March 31, ~~2017~~2018 was comprised of an increase in subscription and software revenue of $6.4 million and an increase in services and other revenue of ~~$0.1~~$0.2 million, as compared to the corresponding period of the prior fiscal year. The increase of ~~$0.6~~$14.3 million ~~for~~during the nine months ended March 31, ~~2017~~2018 was comprised of an increase in subscription and software revenue of ~~$4.4~~$13.5 million ~~partially offset by a decrease~~and an increase in services and other revenue of ~~$3.8~~$0.8 million, as compared to the corresponding ~~periods~~period of the prior fiscal year.

During the three and nine months ended March 31, 2016, we recognized revenue of $3.2 million and $6.1 million related to the completion of customer arrangements recognized under completed contract accounting. No such events occurred during the three and nine months ended March 31, 2017. Excluding the revenue recognized for these arrangements, total revenue would have increased by $3.3 million and $6.7 million during the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of the prior fiscal year.

Subscription and Software Revenue


	Three Months Ended March 31,						Period-to-Period Change					Nine Months Ended March 31,						Period-to-Period Change				Three Months Ended March 31,						Increase / (Decrease) Change				Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			$			%		2017			2016			$		%		2018			2017			$		%		2018			2017			$		%
	(Dollars in Thousands)																					(Dollars in Thousands)
Subscription and software revenue	$	111,717		$	111,722		$	(5	)	—	%	$	338,077		$	333,707		$	4,370	1.3	%	$	118,126		$	111,717		$	6,409	5.7	%	$	351,540		$	338,077		$	13,463	4.0	%
As a percent of revenue	93.7		%	93.7		%						94.1		%	93.0		%
As a percent of total revenue																						93.8		%	93.7		%					94.1		%	94.1		%

~~Subscription~~The period-over-period increase of $6.4 million and ~~software revenue was consistent during the three months ended March 31, 2017 as compared to the corresponding period of the prior fiscal year, and increased by $4.4~~$13.5 million ~~during the nine months ended March 31, 2017 as compared to the corresponding period of the prior fiscal year. During the three and nine months ended March 31, 2016, we recognized~~in subscription and software revenue of $3.1 million and $5.1 million related to the completion of customer arrangements recognized under completed contract accounting, as noted above. No such events occurred during the nine months ended March 31, 2017. Excluding the revenue recognized for these arrangements, subscription and software revenue would have increased by $3.1 million and $9.5 million during the three and nine months ended March 31, ~~2017,~~2018, respectively, ~~as compared to the corresponding periods of the prior fiscal year.~~

~~The increase in subscription and software revenue during the nine months ended March 31, 2017 as compared to the corresponding period of the prior fiscal year~~ was primarily ~~the result of~~attributable to the growth of our base of license arrangements being recognized on a ratable basis.

We expect subscription and software revenue to continue to increase as a result of: (i) having a larger base of license arrangements recognized on a ratable basis; (ii) increased customer usage of our software; (iii) adding new customers; and (iv) escalating annual payments.

Services and Other Revenue


	Three Months Ended March 31,						Period-to-Period Change				Nine Months Ended March 31,						Period-to-Period Change					Three Months Ended March 31,						Increase / (Decrease) Change				Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			$		%		2017			2016			$			%		2018			2017			$		%		2018			2017			$		%
	(Dollars in Thousands)																					(Dollars in Thousands)
Services and other revenue	$	7,560		$	7,495		$	65	0.9	%	$	21,184		$	24,957		$	(3,773	)	(15.1	)%	$	7,745		$	7,560		$	185	2.4	%	$	22,014		$	21,184		$	830	3.9	%
As a percent of revenue	6.3		%	6.3		%					5.9		%	7.0		%
As a percent of total revenue																						6.2		%	6.3		%					5.9		%	5.9		%

~~Services~~The period-over-period increase of $0.2 million in services and other revenue ~~increased by $0.1 million~~ during the three months ended March 31, ~~2017 as compared~~2018 was primarily attributable to ~~the corresponding period~~higher training revenue of ~~the prior fiscal year,~~$0.3 million and ~~decreased by $3.8 million during the nine months ended March 31, 2017 as compared to the corresponding period of the prior fiscal year.~~

~~Services and other~~lower professional services revenue ~~for the three and nine months ended March 31, 2016 included recognition~~ of $0.1 ~~million and $1.0 million~~million.

The period-over-period increase of revenue related to customer contracts recognized under completed contract accounting, as noted above. No such events occurred during the nine months ended March 31, 2017. Excluding the revenue recognized for these arrangements, services and other revenue would have increased by $0.2$0.8 million ~~and would have decreased by $2.8 million during the three and nine months ended March 31, 2017, respectively, as compared to the corresponding periods of the prior fiscal year. The decrease~~ in services and other revenue during the nine months ended March 31, ~~2017 as compared to the corresponding period of the prior fiscal year~~2018 was primarily attributable to ~~the timing~~higher professional services revenue of $0.4 million and ~~lower levels~~higher training revenue of ~~activity of professional service arrangements.~~$0.4 million.

Under the aspenONE licensing model, revenue from committed professional service arrangements that are sold as a single arrangement with, or in contemplation of, a new aspenONE licensing transaction is deferred and recognized on a ratable basis over the longer of (a) the period the services are performed or (b) the term of the related software arrangement. As our typical contract term approximates five years, professional services revenue on these types of arrangements will usually be recognized over a longer period than the period over which the services are performed.

~~Gross Profit~~

~~Gross profit remained consistent at $107.0 million and $107.2 million during the three months ended March 31, 2017 and 2016, respectively.~~

~~Gross profit increased from $321.8 million million during the nine months ended March 31, 2016 to $323.9 million during the corresponding period~~Cost of ~~the current fiscal year. The period-over-period increase in gross profit was primarily attributable to the growth of our subscription and software revenue of $4.4 million.~~

Gross profit margin decreased from 89.9% during the three months ended March 31, 2016 to 89.7% during the corresponding period of the current fiscal year. Gross profit margin increased from 89.7% during the nine months ended March 31, 2016 to 90.2% during the corresponding period of the current fiscal year. For further discussion of subscription and

~~software gross profit and services and other gross profit, please refer to the “Cost of Subscription and Software Revenue” and “Cost of Services and Other Revenue” sections below.~~

~~Expenses~~Revenue

Cost of Subscription and Software Revenue


	Three Months Ended March 31,						Period-to-Period Change				Nine Months Ended March 31,						Period-to-Period Change				Three Months Ended March 31,						Increase / (Decrease) Change				Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			$		%		2017			2016			$		%		2018			2017			$		%		2018			2017			$		%
	(Dollars in Thousands)																				(Dollars in Thousands)
Cost of subscription and software revenue	$	5,521		$	5,266		$	255	4.8	%	$	15,766		$	15,475		$	291	1.9	%	$	5,817		$	5,521		$	296	5.4	%	$	17,086		$	15,766		$	1,320	8.4	%
As a percent of revenue	4.6		%	4.4		%					4.4		%	4.3		%
As a percent of subscription and software revenue																					4.9		%	4.9		%					4.9		%	4.7		%

Cost of subscription and software revenue ~~was consistent~~increased $0.3 million and $1.3 million for the three and nine months ended March 31, ~~2017~~2018, respectively, as compared to the corresponding periods of the prior fiscal ~~year.~~year primarily due to increased amortization expense related to acquired technology intangible assets.

Subscription and software gross profit margin was consistent at 95.1% ~~and 95.3% during~~for the three months ended March 31, ~~2017~~2018 and ~~2016, respectively.~~2017. Subscription and software gross profit margin ~~was consistent at 95.3% and 95.4% during~~of 95.1% for the nine months ended March 31, ~~2017 and 2016, respectively.~~2018 decreased from 95.3% for the corresponding period of the prior fiscal year, primarily due to increased amortization expense related to acquired technology intangible assets.

Cost of Services and Other Revenue

Three Months Ended
March 31,
Period-to-Period
Change
Nine Months Ended
March 31,
Period-to-Period
Change
2017 2016 $ % 2017 2016 $ %
(Dollars in Thousands)
Cost of services and other revenue $ 6,746
$ 6,754
$ (8 ) (0.1 )% $ 19,586
$ 21,405
$ (1,819 ) (8.5 )%
As a percent of revenue 5.7 % 5.7 %

5.5 % 6.0 %

Cost of services and other revenue was consistent for the three months ended March 31, 2017 as compared to the corresponding period of the prior fiscal year. The period-over-period decrease in cost of services and other revenue of $1.8 million during the nine months ended March 31, 2017 was primarily attributable to the timing of professional service arrangements and cost of revenue for projects accounted for under the completed contract method.

Cost of services and other revenue during the nine months ended March 31, 2016 included the recognition of $0.6 million of costs related to customer contracts recognized under completed contract accounting, as noted above. No such events occurred during the nine months ended March 31, 2017.



	Three Months Ended March 31,						Increase / (Decrease) Change				Nine Months Ended March 31,						Increase / (Decrease) Change
	2018			2017			$		%		2018			2017			$		%
	(Dollars in Thousands)
Cost of services and other revenue	$	6,959		$	6,746		$	213	3.2	%	$	20,511		$	19,586		$	925	4.7	%
As a percent of services and other revenue	89.9		%	89.2		%					93.2		%	92.5		%

The timing of revenue and expense recognition on professional service arrangements can impact the comparability of cost and gross profit margin of professional services revenue from year to year.

Cost of services and other revenue increased $0.2 million and $0.9 million for the three and nine months ended March 31, 2018, respectively, as compared to the corresponding period of the prior fiscal year.

Gross profit margin on services and other revenue of ~~10.8%~~10.1% for the three months ended March 31, ~~2017 increased~~2018 decreased from ~~the 9.9%~~10.8% for the corresponding period of the prior fiscal year, primarily due to higher ~~revenue~~compensation costs of ~~$0.1~~$0.4 million, partially offset by lower subcontractor costs of $0.2 million.

Gross profit margin on services and other revenue of ~~7.5%~~6.8% for the nine months ended March 31, ~~2017~~2018 decreased from ~~the 14.2%~~7.5% for the corresponding period of the prior fiscal year, primarily due to ~~lower revenue~~higher compensation costs of ~~$3.8~~$0.5 million and higher subcontractor costs of $0.4 million.

Gross Profit

Gross profit increased $6.1 million and $12.0 million for the three and nine months ended March 31, 2018, respectively, as compared to the corresponding period of the prior fiscal year.

Gross profit margin of 89.8% during the three months ended March 31, 2018 was consistent with the corresponding period of the prior fiscal year, while it decreased from 90.2% during the nine months ended March 31, 2017 to 89.9% during the corresponding period of the current fiscal year. For further discussion of subscription and software gross profit and services and other gross profit, please refer to the “Cost of Subscription and Software Revenue” and “Cost of Services and Other Revenue” sections above.

Operating Expenses

Selling and Marketing Expense


	Three Months Ended March 31,						Period-to-Period Change					Nine Months Ended March 31,						Period-to-Period Change					Three Months Ended March 31,						Increase / (Decrease) Change				Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			$			%		2017			2016			$			%		2018			2017			$		%		2018			2017			$		%
	(Dollars in Thousands)																						(Dollars in Thousands)
Selling and marketing expense	$	22,269		$	23,090		$	(821	)	(3.6	)%	$	66,123		$	66,704		$	(581	)	(0.9	)%	$	25,924		$	22,269		$	3,655	16.4	%	$	73,875		$	66,123		$	7,752	11.7	%
As a percent of revenue	18.7		%	19.4		%						18.4		%	18.6		%
As a percent of total revenue																							20.6		%	18.7		%					19.8		%	18.4		%

The period-over-period ~~decrease~~increase of ~~$0.8~~$3.7 million in selling and marketing expense during the three months ended March 31, ~~2017~~2018 was primarily attributable to ~~lower sales conference~~higher compensation costs of $1.3 million related ~~costs~~to an increase in headcount, higher commissions of $1.2 million, higher travel and ~~lower stock-based compensation~~sales training costs of ~~$0.8 million, partially offset by higher commissions of $0.8~~$0.6 million, and higher ~~professional services fees~~marketing costs of ~~$0.4~~$0.5 million.

The period-over-period ~~decrease~~increase of ~~$0.6~~$7.8 million in selling and marketing expense during the nine months ended March 31, ~~2017~~2018 was primarily attributable to ~~lower sales conference related~~higher compensation costs of ~~$1.5~~$3.3 million ~~due~~related to ~~the holding of one sales conference~~an increase in ~~the current fiscal year compared to two sales conferences in the prior fiscal year, partially offset by~~headcount, higher

commissions of ~~$0.9~~$2.4 million, higher travel and sales training costs of $1.0 million, higher marketing costs of $0.6 million, and higher professional services fees of $0.5 million.

Research and Development Expense


	Three Months Ended March 31,						Period-to-Period Change				Nine Months Ended March 31,						Period-to-Period Change				Three Months Ended March 31,						Increase / (Decrease) Change				Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			$		%		2017			2016			$		%		2018			2017			$		%		2018			2017			$		%
	(Dollars in Thousands)																				(Dollars in Thousands)
Research and development expense	$	20,348		$	17,820		$	2,528	14.2	%	$	57,577		$	50,398		$	7,179	14.2	%	$	21,584		$	20,348		$	1,236	6.1	%	$	60,863		$	57,577		$	3,286	5.7	%
As a percent of revenue	17.1		%	14.9		%					16.0		%	14.1		%
As a percent of total revenue																					17.1		%	17.1		%					16.3		%	16.0		%

The period-over-period increase of ~~$2.5~~$1.2 million in research and development expense during the three months ended March 31, ~~2017~~2018 was primarily attributable to higher compensation costs of $0.9 million related to an increase in headcount and higher stock-based compensation ~~of $0.7 million, higher overhead allocations of $0.5 million, and higher professional services fees~~ of $0.3 million.

The period-over-period increase of ~~$7.2~~$3.3 million in research and development expense during the nine months ended March 31, ~~2017~~2018 was primarily attributable to higher compensation costs of ~~$2.7~~$2.6 million related to an increase in headcount ~~higher overhead allocations of $1.9 million,~~and higher stock-based compensation of ~~$1.6~~$1.5 million, partially offset by lower costs of acquired technology of $0.4 million and ~~higher~~lower professional services fees of ~~$0.7~~$0.3 million.

In the nine months ended March 31, 2017, ~~and March 31, 2016,~~ we acquired technology for $0.4 ~~million and $0.3 million, respectively.~~million. At the time we acquired the technology, the projects to develop commercially available products did not meet the accounting definition of having reached technological feasibility and therefore the cost of the acquired technology was expensed as a research and development expense.

General and Administrative Expense


	Three Months Ended March 31,						Period-to-Period Change					Nine Months Ended March 31,						Period-to-Period Change					Three Months Ended March 31,						Increase / (Decrease) Change				Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			$			%		2017			2016			$			%		2018			2017			$		%		2018			2017			$		%
	(Dollars in Thousands)																						(Dollars in Thousands)
General and administrative expense	$	12,120		$	15,606		$	(3,486	)	(22.3	)%	$	37,140		$	42,273		$	(5,133	)	(12.1	)%	$	14,430		$	12,120		$	2,310	19.1	%	$	42,284		$	37,140		$	5,144	13.9	%
As a percent of revenue	10.2		%	13.1		%						10.3		%	11.8		%
As a percent of total revenue																							11.5		%	10.2		%					11.3		%	10.3		%

The period-over-period ~~decrease~~increase of ~~$3.5~~$2.3 million in general and administrative expense during the three months ended March 31, ~~2017~~2018 was primarily attributable to ~~lower acquisition~~a $1.4 million increase in our allowance for doubtful accounts and higher compensation costs of ~~$4.1~~$0.7 million ~~and lower overhead allocations of $0.7~~related to an increase in headcount.

~~million, partially offset by higher professional services fees of $0.9 million and higher stock-based compensation of $0.4 million.~~

The period-over-period ~~decrease~~increase of $5.1 million in general and administrative expense during the nine months ended March 31, ~~2017~~2018 was primarily attributable to ~~lower acquisition~~higher compensation costs of ~~$4.7~~$1.4 million related to an increase in headcount, higher stock-based compensation of $1.5 million, an increase in expense associated with a litigation judgment in the amount of $1.5 million, and ~~lower overhead allocations of $2.9~~a $1.4 million increase in our allowance for doubtful accounts, partially offset by ~~higher professional services fees~~lower amortization expense of ~~$1.4 million, which were primarily related to our assessment and implementation of ASU No. 2014-09~~ ~~Revenue from Contracts with Customers, as well as higher hardware, software, and telecommunications costs of $1.3~~$0.8 million.

Non-Operating Income (Expense)

Interest Income


	Three Months Ended March 31,						Period-to-Period Change				Nine Months Ended March 31,						Period-to-Period Change				Three Months Ended March 31,						Increase / (Decrease) Change					Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			$		%		2017			2016			$		%		2018			2017			$			%		2018			2017			$			%
	(Dollars in Thousands)																				(Dollars in Thousands)
Interest income	$	176		$	90		$	86	95.6	%	$	665		$	243		$	422	173.7	%	$	23		$	176		$	(153	)	(86.9	)%	$	204		$	665		$	(461	)	(69.3	)%
As a percent of revenue	0.1		%	0.1		%					0.2		%	0.1		%
As a percent of total revenue																					—		%	0.1		%						0.1		%	0.2		%

The period-over-period ~~increase~~decrease of ~~$0.1~~$0.2 million and ~~$0.4~~$0.5 million in interest income during the three and nine months ended March 31, ~~2017,~~2018, respectively, was attributable to a ~~higher~~lower level of interest income from investments.

Interest Expense


	Three Months Ended March 31,						Period-to-Period Change					Nine Months Ended March 31,						Period-to-Period Change					Three Months Ended March 31,						Increase / (Decrease) Change					Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			$			%		2017			2016			$			%		2018			2017			$			%		2018			2017			$			%
	(Dollars in Thousands)																						(Dollars in Thousands)
Interest expense	$	(959	)	$	(330	)	$	(629	)	190.6	%	$	(2,721	)	$	(344	)	$	(2,377	)	691.0	%	$	(1,485	)	$	(959	)	$	(526	)	54.8	%	$	(3,952	)	$	(2,721	)	$	(1,231	)	45.2	%
As a percent of revenue	(0.8		)%	(0.3		)%						(0.8		)%	(0.1		)%
As a percent of total revenue																							(1.2		)%	(0.8		)%						(1.1		)%	(0.8		)%

The period-over-period increase of ~~$0.6~~$0.5 million and ~~$2.4~~$1.2 million in interest expense during the three and nine months ended March 31, ~~2017,~~2018, respectively, was attributable to a $30.0 million increase in our outstanding borrowings and an increase in applicable interest ~~expense~~rates compared to the prior fiscal year related to our outstanding borrowings, which we entered into in February 2016, as described in the "Liquidity and Capital Resources" section below.

Other (Expense) Income, net


	Three Months Ended March 31,						Period-to-Period Change				Nine Months Ended March 31,						Period-to-Period Change				Three Months Ended March 31,						Increase / (Decrease) Change						Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			$		%		2017			2016			$		%		2018			2017			$			%			2018			2017			$			%
	(Dollars in Thousands)																				(Dollars in Thousands)
Other (expense) income, net	$	(56	)	$	(2,686	)	$	2,630	97.9	%	$	1,287		$	(1,947	)	$	3,234	166.1	%	$	(104	)	$	(56	)	$	(48	)	85.7	%		$	(958	)	$	1,287		$	(2,245	)	(174.4	)%
As a percent of revenue	—		%	(2.3		)%					0.4		%	(0.5		)%
As a percent of total revenue																					(0.1		)%	—		%						��	(0.3		)%	0.4		%

During the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, other (expense) income, net was comprised of $(0.1) million and ~~$(2.7)~~$(0.1) million of currency losses, respectively.

During the nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, other (expense) income, net was comprised of $(1.0) million and $1.3 million of currency (losses) gains, ~~and $(2.0) million of currency losses,~~ respectively.

Provision for Income Taxes


	Three Months Ended March 31,						Period-to-Period Change				Nine Months Ended March 31,						Period-to-Period Change				Three Months Ended March 31,						Increase / (Decrease) Change					Nine Months Ended March 31,						Increase / (Decrease) Change
	2017			2016			$		%		2017			2016			$		%		2018			2017			$			%		2018			2017			$			%
	(Dollars in Thousands)																				(Dollars in Thousands)
Provision for income taxes	$	15,600		$	14,584		$	1,016	7.0	%	$	54,455		$	53,736		$	719	1.3	%	$	11,756		$	15,600		$	(3,844	)	(24.6	)%	$	43,561		$	54,455		$	(10,894	)	(20.0	)%
Effective tax rate	30.4		%	30.5		%					33.5		%	33.5		%			0		23.7		%	30.4		%						28.2		%	33.5		%				-0.053

As a result of the Tax Act, we have revised our estimated annual effective rate to reflect a change in the federal statutory rate from 35.0% to 21.0%. The rate change is administratively effective at the beginning of our fiscal year, using a blended rate for the annual period. As a result, the blended statutory tax rate for our fiscal year is 28.1%.

The effective tax rate for the periods presented is primarily the result of income earned in the U.S. taxed at U.S. federal and state statutory income tax rates, income earned in foreign tax jurisdictions taxed at the applicable rates, as well as the impact of permanent differences between book and tax income.

Our effective tax rate ~~remained consistent at 30.4%~~decreased to 23.7% and 28.2% for the three ~~months ended March 31, 2017 compared to the corresponding period of the prior fiscal year.~~

~~Our effective tax rate remained consistent at 33.5% for the~~and nine months ended March 31, ~~2017~~2018, respectively, compared to 30.4% and 33.5% for the corresponding ~~period~~periods of the prior fiscal ~~year.~~year due to the reduced federal corporate tax rate, partially offset by a discrete tax expense of $4.3 million due to the revaluation of the net deferred tax assets as of the enactment date of the Tax Act on December 22, 2017 due to the reduction in the tax rate. The adoption of ASU No. 2016-09 resulted in a decrease in our provision for income taxes of $1.2 million and $2.1 million for the three and nine months ended March 31, 2018, respectively. This represents a decrease in our effective tax rate of approximately two and one percentage points for the three and nine months ended March 31, 2018, respectively, due to the recognition of excess tax benefits for options exercised and the vesting of equity awards.

Liquidity and Capital Resources

Resources

In recent years, we have financed our operations with cash generated from operating activities. As of March 31, ~~2017,~~2018, our principal capital resources consisted of ~~$84.6~~$71.1 million in cash and cash ~~equivalents and $17.1 million of marketable securities.~~equivalents.

We believe our existing cash and cash equivalents, ~~and marketable securities,~~ together with our cash flows from operating activities, will be sufficient to meet our anticipated cash needs for at least the next twelve months. We may need to raise additional funds if we decide to make one or more acquisitions of businesses, technologies or products. If additional funding for such purpose is required beyond existing resources and our Credit Agreement described below, we may not be able to effect a receivable, equity or debt financing on terms acceptable to us or at all.

Credit Agreement

On February 26, 2016, we entered into athe $250.0 million Credit Agreement ~~(the “Credit Agreement”)~~ with various lenders. On August 9, 2017, we entered into an amendment to increase the Credit Agreement to $350.0 million. The Credit Agreement matures on February 26, 2021. Prior to the maturity of the Credit Agreement, any amounts borrowed may be repaid and, subject to the terms and conditions of the Credit Agreement, borrowed again whole or in part without penalty. As of March 31, ~~2017,~~2018, we had ~~$140.0~~$170.0 million in outstanding borrowings under the Credit Agreement.

For a more detailed description of the Credit Agreement, see Note ~~11,~~10, Credit Agreement, to our Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q.

Cash Equivalents and Cash Flows

Our cash equivalents of ~~$62.3~~$4.9 million consisted ~~primarily~~ of money market funds as of March 31, 2017. Our investments in marketable securities of $17.1 million as of March 31, 2017 consisted primarily of investment grade fixed income corporate debt securities with maturities ranging from less than 1 month to 2 months. The fair value of our portfolio is affected by interest rate movements, credit and liquidity risks.2018. The objective of our investment policy is to manage our cash and investments to preserve principal and maintain liquidity, while earning a return on our investment portfolio by investing available funds. We diversify our investment portfolio by investing in multiple types of investment-grade securities and attempt to mitigate a risk of loss by using a third-party investment manager.liquidity.

The following table summarizes our cash flow activities for the periods indicated:


	Nine Months Ended March 31,						Nine Months Ended March 31,
	2017			2016			2018			2017
	(Dollars in Thousands)						(Dollars in Thousands)
Cash flow provided by (used in):
Operating activities	$	109,038		$	108,895		$	127,829		$	109,038
Investing activities	(52,980		)	(204,632		)	(34,216		)	(52,980		)
Financing activities	(289,752		)	36,621			(125,326		)	(289,752		)
Effect of exchange rates on cash balances	(90		)	(223		)	834			(90		)
Decrease in cash and cash equivalents	$	(233,784	)	$	(59,339	)	$	(30,879	)	$	(233,784	)

Operating Activities

Our primary source of cash is from the annual installments associated with our software license arrangements and related software support services, and to a lesser extent from professional services and training. We believe that cash inflows from our term license business will grow as we benefit from the continued growth of our portfolio of term license contracts.

~~During fiscal 2015, we utilized our tax credits and net operating losses to offset U.S. corporate income taxes payable. We became a U.S. corporate tax payer in fiscal year 2016.~~

Cash from operating activities provided ~~$109.0~~$127.8 million during the nine months ended March 31, ~~2017.~~2018. This amount resulted from net income of ~~$107.8~~$110.7 million, adjusted for non-cash items of ~~$19.1~~$29.4 million and net uses of cash of ~~$17.9~~$12.2 million related to changes in working capital.

Non-cash items during the nine months ended March 31, ~~2017~~2018 consisted primarily of stock-based compensation expense of ~~$14.3~~$17.2 million, depreciation and amortization expense of ~~$5.0~~$4.9 million, and deferred income taxes of ~~$1.2 million and other net items of $0.7 million, partially offset by net foreign currency gains of $2.0~~$4.5 million.

Cash used by working capital of ~~$17.9~~$12.2 million during the nine months ended March 31, ~~2017~~2018 was primarily attributable to cash outflows related to decreases in deferred revenue of ~~$13.6~~$11.7 million (cash flows related to deferred revenue vary due to the timing of invoicing, in particular the anniversary dates of annual installments associated with multi-year software license arrangements) and ~~increases in accounts receivable of $14.9 million, partially offset by increases in~~ accounts payable, accrued expenses and other current liabilities of ~~$6.9~~$4.4 million, ~~and~~as well as increases in accounts receivable of $1.0 million, partially offset by cash provided by decreases in prepaid expenses, prepaid income taxes, and other assets of ~~$3.6~~$4.9 million.

Investing Activities

During the nine months ended March 31, ~~2017,~~2018, we used ~~$53.0~~$34.2 million of cash for investing activities. We used ~~$683.7~~$33.7 million for ~~purchases~~business acquisitions, including $18.4 million in connection with the February 5, 2018 acquisition of ~~marketable securities, $36.2 million for net acquisition related payments, $2.2 million for capital expenditures and $0.1~~all the outstanding shares of Apex, $0.3 million for capitalized computer software development costs, ~~partially offset by sources of cash of $669.2~~and $0.2 million ~~resulting from the maturities of marketable securities.~~for capital expenditures.

Financing Activities

During the nine months ended March 31, ~~2017,~~2018, we used ~~$289.8~~$125.3 million of cash for financing activities. We used ~~$295.6~~$154.4 million for repurchases of our common stock, ~~and $4.3~~$5.4 million for withholding taxes on vested and settled restricted stock units, $2.6 million for deferred business acquisition payments, and $0.4 million for issuance costs in connection with the Credit Agreement, partially offset by proceeds of ~~$7.9~~$30.0 million from the Credit Agreement and $7.4 million from the exercise of employee stock ~~options and $2.3 million in excess tax benefits from stock-based compensation.~~options.

Contractual Obligations

Standby letters of credit for ~~$2.8~~$3.0 million ~~as of March 31, 2017 secured~~and $2.9 million secure our performance on professional services contracts, certain facility leases and potential ~~liabilities. This was a decrease from $3.5 million~~liabilities as of March 31, 2018 and June 30, ~~2016.~~2017, respectively. The letters of credit expire at various dates through fiscal ~~2018.~~2025.

~~Recently Issued Accounting Pronouncements~~

~~Refer to Note 2 (g), “Recently Issued Accounting Pronouncements,” in the Notes to the Unaudited Consolidated Financial Statements for information about recent accounting pronouncements.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

In the ordinary course of conducting business, we are exposed to certain risks associated with potential changes in market conditions. These market risks include changes in currency exchange rates and interest rates which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, if considered appropriate, we may enter into derivative financial instruments such as forward currency exchange contracts.

Foreign Currency Risk

During the three months ended March 31, 2018 and 2017, 9.8% and ~~2016,~~ 9.7% ~~and 10.4%~~ of our total revenue was denominated in a currency other than the U.S. dollar, respectively. During the nine months ended March 31, 2018 and 2017, 9.6% and ~~2016,~~ 9.9% ~~and 11.9%~~ 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, although we have not done so during the three and nine months ended March 31, ~~2017~~2018 and ~~2016.~~2017. Our largest exposures to foreign currency exchange rates exist primarily with the Euro, Pound Sterling, Canadian Dollar, and Japanese Yen.

During the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, we recorded $(0.1) million and ~~$(2.7)~~$(0.1) million of net foreign currency exchange losses related to the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units. Our analysis of operating results transacted in various foreign currencies indicated that a hypothetical 10% change in the foreign currency exchange rates could have increased or decreased the consolidated results of operations by approximately ~~$4.6~~$1.2 million and ~~$1.3~~$1.1 million for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively.

During the nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, we recorded ~~$1.3~~$(1.0) million and ~~$(2.0)~~$1.3 million of net foreign currency exchange (losses) gains ~~(losses)~~ related to the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units. Our analysis of operating results transacted in various foreign currencies indicated that a hypothetical 10% change in the foreign currency exchange rates could have increased or decreased the consolidated results of operations by approximately ~~$2.4~~$3.5 million and ~~$3.7~~$3.3 million for the nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively.

Interest Rate Risk

We place our investments in money market instruments and high quality, investment grade, fixed-income corporate debt securities that meet high credit quality standards, as specified in our investment guidelines.

We mitigate the risks by diversifying our investment portfolio, limiting the amount of investments in debt securities of any single issuer and using a third-party investment manager. ~~Our debt~~We held no investments in marketable securities ~~are short- to intermediate- term investments with maturities ranging from less than 1 month to 2 months~~ as of March 31, ~~2017~~2018 and ~~from less than 2 months to 5 months as of March 31, 2016, respectively.~~June 30, 2017. We do not use derivative financial instruments in our investment portfolio.

Our analysis of our investment portfolio and interest rates at March 31, ~~2017 and 2016~~2018 indicated that a hypothetical 100 basis point increase or decrease in interest rates would ~~result in~~not have a ~~decrease or increase of less than $0.1 million in~~material impact on the fair value of our investment portfolio ~~at March 31, 2017 and 2016, respectively,~~ determined in accordance with an income-based approach utilizing portfolio future cash flows discounted at the appropriate rates.

We ~~maintain a revolving Credit Agreement that allows us to borrow up to $250.0 million. At March 31, 2017, we~~ had ~~$140.0~~$170.0 million in outstanding borrowings under our Credit ~~Agreement.~~Agreement as of March 31, 2018. A hypothetical 10% increase or decrease in interest rates paid on outstanding borrowings under the Credit Agreement would not have a material impact on our financial position, results of operations or cash flows.

Item 4. Controls and Procedures.

a) Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, ~~2017.~~2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under 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 the Company’s management, including its 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 March 31, ~~2017,~~2018, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

b) Changes in Internal Controls Over Financial Reporting

During the three and nine months ended March 31, ~~2017,~~2018, no changes were identified in our internal controls over financial reporting that materially affected, or were reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Refer to Note ~~16,~~15, “Commitments and Contingencies,” in the Notes to the Unaudited Consolidated Financial Statements for information regarding certain legal proceedings, the contents of which are herein incorporated by reference.

Item 1A. Risk Factors.

The risks described in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended June 30, ~~2016,~~2017, 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 ~~2016~~2017 Annual Report on Form 10-K remains current in all material respects, with the exception of the revised risk factors below.

Fluctuations in foreign currency exchange rates could result in declines in our reported revenue and operating results.

During the three and nine months ended March 31, 2018 and 2017, 9.8% and ~~2016,~~ 9.7% ~~and 10.4%~~ of our total revenue was denominated in a currency other than the U.S. dollar, respectively. During the nine months ended March 31, 2018 and 2017, 9.6% and ~~2016,~~ 9.9% ~~and 11.9%~~ of our total revenue was denominated in a currency other than the U.S. dollar, respectively. In addition, certain of our operating expenses incurred outside the United States are denominated in currencies other than the U.S. dollar. Our reported revenue and operating results are subject to fluctuations in foreign exchange rates. Foreign currency risk arises primarily from the net difference between non-U.S. dollar receipts from customers outside the United States and non-U.S. dollar operating expenses for subsidiaries in foreign countries. Currently, our largest exposures to foreign exchange rates exist primarily with the Euro, Pound Sterling, Canadian dollar and Japanese Yen against the U.S. dollar. During the three and nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, we did not enter into, and were not a party to any, derivative financial instruments, such as forward currency exchange contracts, intended to manage the volatility of these market risks. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our revenue and operating results. Any hedging policies we may implement in the future may not be successful, and the cost of those hedging techniques may have a significant negative impact on our operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information about purchases by us during the three months ended March 31, ~~2017~~2018 of shares of our common stock:

Period
Total Number
of Shares
Purchased (2)

Average Price
Paid per Share
(3)

Total Number of
Shares Purchased as
Part of Publicly
Announced Program
(1)

Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Program (4)

January 1 to 31, 2017 271,951
$ 54.98
271,951

February 1 to 28, 2017 477,138
$ 57.03
477,138

March 1 to 31, 2017 987,241
$ 58.59
987,241

Total 1,736,330
$ 57.59
1,736,330
$ 221,292,689



Period	Total Number of Shares Purchased (2)	Average Price Paid per Share (3)		Total Number of Shares Purchased as Part of Publicly Announced Program (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (4)

January 1 to 31, 2018	96,527	$	70.55	96,527
February 1 to 28, 2018	246,684	$	75.77	246,684
March 1 to 31, 2018	306,268	$	80.00	306,268
Total	649,479	$	76.98	649,479	$	196,292,875

(1) �� On January 22, 2015, our Board of Directors approved a share repurchase program (the "Share Repurchase Program") for up to ~~$450~~$450.0 million worth of our common stock. On April 26, 2016 and June 8, 2017, the Board of Directors approved a ~~$400~~$400.0 million and $200.0 million increase into the ~~share repurchase plan.~~Share Repurchase Program, respectively.

(2) As of March 31, ~~2017,~~2018, the total number of shares of common stock repurchased under all programs approved by the Board of Directors was 27,823,144, including purchases under the ASR Program. For a more detailed description of the ASR Program, see Note 13, Stockholders' Deficit, to our Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q.31,390,963.

(3) The total average price paid per share is calculated as the total amount paid for the repurchase of our common stock during the period divided by the total number of shares repurchased.

(4) As of March 31, ~~2017,~~2018, the total remaining value under the ~~share repurchase program approved on January 22, 2015 and amended on April 26, 2016~~Share Repurchase Program was approximately ~~$221.3~~$196.3 million.

~~Item 5. Other Information.~~

~~On May 2, 2017, we announced that, effective May 2, 2017, William T. Griffin, Executive Vice President, Field Operations, has left the Company to pursue other opportunities.~~

Item 6. Exhibits.



			Incorporated by Reference

Exhibit Number	Description	Filed with this Form 10-Q	Form	Filing Date with SEC	Exhibit Number

~~31.1~~10.1	~~Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14~~ Stock Purchase Agreement dated February 5, 2018 by and ~~15d-14, as adopted pursuant to Section 302~~among AspenTech Holding Corporation, Apex Optimisation, and each of the ~~Sarbanes-Oxley Act~~stockholders and key sellers of ~~2002~~Apex Optimisation	X

31.1	Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X

32.1	Certification of President and Chief Executive Officer and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X

101.INS	Instance Document	X

101.SCH	XBRL Taxonomy Extension Schema Document	X

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	X

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	X

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	X

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	X

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: ~~May 2, 2017~~April 25, 2018	By:	/s/ ANTONIO J. PIETRI
		Antonio J. Pietri
		President and Chief Executive Officer
		(Principal Executive Officer)



Date: ~~May 2, 2017~~April 25, 2018	By:	/s/ KARL E. JOHNSEN
		Karl E. Johnsen
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

~~EXHIBIT INDEX~~



			~~Incorporated by Reference~~

~~Exhibit~~ ~~Number~~	~~Description~~	~~Filed with~~ ~~this Form~~ ~~10-Q~~	~~Form~~	~~Filing Date with~~ ~~SEC~~	~~Exhibit~~ ~~Number~~

~~31.1~~	~~Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~	X

~~31.2~~	~~Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~	X

~~32.1~~	Certification of President and Chief Executive Officer and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X

~~101.INS~~	~~Instance Document~~	X

~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~	X	��

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~	X

~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~	X

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~	X

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~	X

4442



		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	38
Item 4.	Controls and Procedures.	39

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	40
Item 1A.	Risk Factors.	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	40
Item 5.	~~Other Information.~~	41
~~Item~~ 6.	Exhibits.	4241
	SIGNATURES



	Fair Value		Cost		Unrealized Gains		Unrealized Losses
	(Dollars in Thousands)
March 31, 2017:
U.S. corporate bonds	$	17,137	$	17,139	$	—	$	(2	)
Total short-term marketable securities	$	17,137	$	17,139	$	—	$	(2	)

June 30, 2016:
U.S. corporate bonds	$	3,006	$	3,006	$	—	$	—
Total short-term marketable securities	$	3,006	$	3,006	$	—	$	—