ASPEN TECHNOLOGY INC /DE/ Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Form 10-Q)

Caution Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements that involve
substantial risks and uncertainties. All statements other than statements of
historical facts contained in this Quarterly Report, including statements
regarding our strategy, future operations, future financial position, future
revenue, projected costs, prospects, prospective products, size of market,
plans, objectives of management, expected market growth and the anticipated
effects of the coronavirus (COVID-19) pandemic (and any COVID-19 variants, the
"COVID-19 pandemic") on our business, operating results and financial condition
are forward-looking statements.

In addition, this Quarterly Report contains forward-looking statements regarding
the pending Transactions with Emerson, including: statements regarding the
expected timing and structure of the Transactions; the ability of the parties to
complete the Transactions considering the various closing conditions; the
expected benefits of the Transactions, such as improved operations, enhanced
revenues and cash flow, synergies, growth potential, market profile, business
plans, expanded portfolio and financial strength; the competitive ability and
position of New AspenTech following completion of the Transactions; legal,
economic and regulatory conditions; and any assumptions underlying any of the
foregoing.

Forward-looking statements concern future circumstances and results and other
statements that are not historical facts and are sometimes identified by the
words "may," "will," "should," "potential," "intend," "expect," "endeavor,"
"seek," "anticipate," "estimate," "overestimate," "underestimate," "believe,"
"plan," "could," "would," "project," "predict," "continue," "target" or other
similar words or expressions or negatives of these words, but not all
forward-looking statements include such identifying words. Forward-looking
statements are based upon current plans, estimates and expectations that are
subject to risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated or
anticipated by such forward-looking statements. We can give no assurance that
such plans, estimates or expectations will be achieved and therefore, actual
results may differ materially from any plans, estimates or expectations in such
forward-looking statements.

Important factors that could cause actual results to differ materially from such
plans, estimates or expectations include, among others: (1) that one or more
closing conditions to the Transactions, including certain regulatory approvals,
may not be satisfied or waived, on a timely basis or otherwise, including that a
governmental entity may prohibit, delay or refuse to grant approval for the
consummation of the Transactions, may require conditions, limitations or
restrictions in connection with such approvals or that the required approval by
our stockholders may not be obtained; (2) the risk that the Transactions may not
be completed in the time frame expected by us or Emerson, or at all; (3)
unexpected costs, charges or expenses resulting from the Transactions; (4)
uncertainty of the expected financial performance of New AspenTech following
completion of the Transactions; (5) failure to realize the anticipated benefits
of the Transactions, including as a result of delay in completing the
Transactions or integrating the industrial software business of Emerson with our
business; (6) the ability of New AspenTech to implement its business strategy;
(7) difficulties and delays in achieving revenue and cost synergies of New
AspenTech; (8) inability to retain and hire key personnel; (9) the occurrence of
any event that could give rise to termination of the Transactions; (10)
potential litigation in connection with the Transactions or other settlements or
investigations that may affect the timing or occurrence of the Transactions or
result in significant costs of defense, indemnification and liability; (11)
evolving legal, regulatory and tax regimes; (12) changes in economic, financial,
political and regulatory conditions, in the United States and elsewhere, and
other factors that contribute to uncertainty and volatility, natural and
man-made disasters, civil unrest, pandemics (e.g., the COVID-19 pandemic),
geopolitical uncertainty, and conditions that may result from legislative,
regulatory, trade and policy changes associated with the current or subsequent
U.S. administration; (13) our ability and the ability of Emerson and New
AspenTech to successfully recover from a disaster or other business continuity
problem due to a hurricane, flood, earthquake, terrorist attack, war, pandemic,
security breach, cyber-attack, power loss, telecommunications failure or other
natural or man-made event, including the ability to function remotely during
long-term disruptions such as the COVID-19 pandemic; (14) the impact of public
health crises, such as pandemics (including the COVID-19 pandemic) and epidemics
and any related company or governmental policies and actions to protect the
health and safety of individuals or governmental policies or actions to maintain
the functioning of national or global economies and markets, including any
quarantine, " shelter in place," " stay at home," workforce reduction, social
distancing, shut down or similar actions and policies; (15) actions by third
parties, including government agencies; (16) potential adverse reactions or
changes to business relationships resulting from the announcement or completion
of the Transactions; (17) the risk that disruptions from the Transactions will
harm Emerson's and our business, including current plans and operations; (18)
certain restrictions during the pendency of the Transactions that may impact
Emerson's or our ability to pursue certain business opportunities or strategic
transactions; (19) our, Emerson's and New AspenTech's ability to meet
expectations regarding the accounting and tax treatments of the Transactions;
and (20) other risk factors as detailed from time to time in Emerson's and our
reports filed with the SEC, including Emerson's and our annual report on Form
10-K, periodic quarterly reports on Form 10-Q, periodic current reports on
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Form 8-K and other documents filed with the SEC. While the list of factors
presented here is considered representative, no such list should be considered
to be a complete statement of all potential risks and uncertainties. Unlisted
factors may present significant additional obstacles to the realization of
forward-looking statements.

Any forward-looking statements speak only as of the date of this Quarterly
Report. We undertake no obligation to update any forward-looking statements,
whether as a result of new information or development, future events or
otherwise, except as required by law. You should read the following discussion
in conjunction with our unaudited consolidated financial statements and related
notes thereto contained in this report. You should also 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 30th, and references in this quarterly report to a specific fiscal year are the twelve months ended June 30th of that year (for example, “fiscal year 2022” refers to the year ending June 30th, 2022).

Company Overview

We are a global leader in asset optimization software that optimizes asset
design, operations and maintenance in complex, industrial environments to enable
organizations to meet their business goals for sustainability and profitability.
We combine decades of process modeling and operations expertise with big data,
artificial intelligence, and advanced analytics. Our purpose-built software
helps organizations meet their sustainability goals to reduce emissions and
drive innovation which enables competitiveness and profitability of our
customers. Our software enhances capital efficiency and decreases working
capital requirements over the entire asset lifecycle driving a higher level of
operational excellence. In addition, we help our customers increase throughput,
drive resource efficiencies, increase production levels, reduce unplanned
downtime, manage emissions to reach their net-zero footprint goals, and improve
overall safety.

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

We have developed our applications to design and optimize processes across three
principal business areas: engineering, manufacturing and supply chain, and asset
performance management, or APM. Each business area leverages our Artificial
Intelligence of Things, or AIoT, products as the foundation of applying
Industrial AI at scale. We are the recognized market and technology leader in
providing process optimization and asset performance management software for
each of these business areas.

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

•Innovative products that help our customers achieve their sustainability and profitability goals;

•Long-term client relationships;

•Large installed base of users of our software; and

•Long-term license agreements.

We have approximately 2,500 customers globally. Our customers consist of
companies engaged in the process industries including energy, chemicals,
engineering and construction, as well as pharmaceuticals, food and beverage,
transportation, power, metals and mining, pulp and paper, and consumer packaged
goods.

Business Segments

We have two operating and reportable segments, which are consistent with our
reporting units: (i) subscription and software; and (ii) services and other. The
subscription and software segment is engaged in the licensing of process
optimization and asset performance management software solutions and associated
support services, and includes our license and maintenance revenue. The services
and other segment includes professional services and training, and includes our
services and other revenue.
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Contents

Recent Events

Due to the COVID-19 pandemic, beginning in March 2020, there was a sudden
decrease in demand for oil, compounded by the excess supply arising from
producers' failure to agree on production cuts, which resulted in a drop in oil
prices. Our business was negatively impacted by these factors. Specifically, we
saw a slowdown in closing customer contracts, a higher than pre-COVID customer
attrition rate due to non-renewals and renewals at lower entitlement level and,
to a lesser extent, a slowdown in customer payments. During the three months
ended December 31, 2021, there has been a normalization of transaction closing
cycles and customer payment timing. While market conditions are improving,
including the demand for oil, we are continuing to assess the impact of these
items on global markets and the various industries of our customers. The extent
of the impact on our operational and financial performance going forward will
depend on capital expenditure and operational expenditure budgetary cycles that
are inherent in our customers' procurement strategies, which are informed by oil
prices and environmental factors such as COVID-19, all of which are uncertain
and cannot be predicted. We are continuing to monitor the potential impacts
related to the current disruption of COVID-19 and uncertainty in the global
markets on the various industries of our customers. These factors could
potentially impact the signing of new agreements, as well as the recoverability
of assets, including accounts receivable and contract costs.

Settlement agreement with Emerson Electric Co.

On October 11, 2021, we announced that we had entered into the Transaction
Agreement with Emerson, pursuant to which Emerson will combine its Open Systems
International, Inc. and Geological Simulation Software businesses, with us to
form New AspenTech. Upon closing of the Transactions, which is subject to the
satisfaction of certain customary conditions, including the approval of our
stockholders, each issued and outstanding share of our common stock (subject to
certain exceptions) will be converted into the right to receive 0.42 shares of
New AspenTech common stock and a per share cash consideration amount, calculated
by dividing $6,014,000,000 by the number of outstanding shares of our common
stock as of the closing of the Transactions on a fully diluted basis.

Immediately following the closing of the Transactions, Emerson and its
affiliates will collectively own 55% of the outstanding New AspenTech common
stock (on a fully diluted basis) and our stockholders will own the remaining
outstanding New AspenTech common stock. Following the closing, New AspenTech and
its subsidiaries will operate under the name "Aspen Technology, Inc."

The Transaction Agreement was negotiated and signed subsequent to a process that
our Board of Directors originally undertook beginning in late 2020 to explore
options to increase our value to our shareholders. As part of that process, we
retained financial advisors, including JPMorgan Chase & Co., which assisted in
facilitating contact with third parties, including Emerson, to assess the level
of interest on the part of such third parties in a potential strategic corporate
transaction involving us. Potential transactions included a range of structures,
from a minority stake to finance targeted acquisitions, to a majority stake and
up to a potential whole company acquisition. After discussions with such third
parties, it became apparent that there were no such transactions that were of
interest among the parties or that we wished to pursue, and in May 2021 our
Board of Directors determined to close the process. Subsequently, an arrangement
was proposed by Emerson that our Board of Directors found to be an attractive
pathway to increasing shareholder value and creating a global leader in our
industry; accordingly, our Board of Directors advanced those discussions, which
ultimately resulted in the Transaction Agreement with Emerson.

The registration statement on Form S-4 filed by Emerson Sub on January 11, 2022
Transactions contains additional details on this process.

For further details on the transaction with Emerson, please see our current report on Form 8-K filed with the SECOND to October 12, 2021 and Note 18 – Transaction with Emerson Electric Co. to our consolidated financial statements included in this quarterly report on Form 10-Q, together with the registration statement on Form S-4 filed by Emerson Sub referenced above.

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Key Components of Operations

Income

We generate revenue primarily from the following sources:

License Revenue. We sell our software products to end users, primarily under
fixed-term licenses, through a subscription offering which we refer to as our
aspenONE licensing model. The aspenONE licensing model includes software
maintenance and support, known as our Premier Plus SMS offering, for the entire
term. Our aspenONE products are organized into three suites: 1) engineering; 2)
manufacturing and supply chain; and 3) asset performance management. Each
product suite leverages our AIoT products as a foundation for applying
Industrial AI at scale. Our APM product suite is licensed by customer sites,
user seats or cloud connections. The engineering and manufacturing and supply
chain product suites are licensed by tokens, which are interchangeable measures
of usage based on the various units of measure such as users, servers,
applications, manipulated variables, etc. Customers may use tokens flexibly to
access one or more products in the suite in any combination. This licensing
system enables customers to use products as needed, and to experiment with
different products to best solve whatever critical business challenges the
customer faces, and to license additional tokens as business needs evolve.

We also license our software through one-time product arrangements with our included Premier Plus SMS offer for the duration of the contract.

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

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

Revenue cost

License cost. Our cost of license revenue includes (i) royalties, (ii) amortization of capitalized software and intangible assets, and (iii) distribution costs.

Maintenance cost. Our maintenance cost revenue is primarily comprised of personnel costs related to the provision of SMS Premier Plus associated with our aspenONE one-time product and license agreements.

Cost of services and others. Our cost of services and other income primarily consists of personnel and external consultant costs associated with providing professional services and training to our clients.

Functionnary costs

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 mainly consist of personnel expenses related to the creation of new software products, improvements and technical modifications of existing products.

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

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Other Income and Expenses

Interest Income. Interest income is recorded for financing components under
Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with
Customers (Topic 606) or Topic 606. When a contract includes a significant
financing component, we generally receive the majority of the customer
consideration after the recognition of a substantial portion of the arrangement
fee as license revenue. As a result, we decrease the amount of revenue
recognized and increase interest income by a corresponding amount.

Interest charges. Interest expense relates primarily to outstanding borrowings under our Amended and Restated Credit Agreement.

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

Provision for Income Taxes. Provision for income taxes is comprised of domestic
and foreign taxes. We record interest and penalties related to income tax
matters as a component of income tax expense. Our effective income tax rate may
fluctuate between fiscal years and from quarter to quarter due to items arising
from discrete events, such as tax benefits from the disposition of employee
equity awards, settlements of tax audits and assessments and tax law changes.
Our effective income tax rate is also impacted by, and may fluctuate in any
given period because of, the composition of income in foreign jurisdictions
where tax rates differ.

 Key Business Metrics

Background

We use key business metrics to track and evaluate our business performance. We have identified the following set of appropriate business measures in the context of the evolution of our business:

•Annual spend

•Total contract value

•Bookings

We also use the following non-GAAP business measures in addition to GAAP measures to track our business performance:

•Free movement of capital

• Non-GAAP operating profit

We make these measures available to investors and none of these measures should be considered as an alternative to any measures of financial performance calculated in accordance with GAAP.

Annual expenses

Annual spend is an estimate of the annualized value of our portfolio of term
license agreements, as of a specific date. Annual spend is calculated by summing
the most recent annual invoice value of each of our active term license
agreements. Annual spend also includes the annualized value of standalone SMS
agreements purchased with certain legacy term license agreements, which have
become an immaterial part of our business.

Comparing annual spend for different dates can provide insight into the growth
and retention rates of our business, because annual spend represents the
estimated annualized billings associated with our active term license
agreements. Management utilizes the annual spend business metric to evaluate the
growth and performance of our business as well as for planning and forecasting.
In addition, our corporate and executive bonus programs are based in part on our
success in meeting targets for growth in annual spend that are approved by our
Board of Directors. We believe that annual spend is a useful business metric to
investors as it provides insight into the growth component of our term licenses
and to how management evaluates and forecasts the results of the business.

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Annual spend increases as a result of new term license agreements with new or
existing customers, renewals or modifications of existing term license
agreements that result in higher license fees due to contractually-agreed price
escalation or an increase in the number of tokens (units of software usage) or
products licensed, and escalation of annual payments in our active term license
agreements.

Annual spend is adversely affected by term license and standalone SMS agreements
that are renewed at a lower entitlement level or not renewed and, to a lesser
extent, by customer agreements that become inactive during the agreement's term
because, in our determination, amounts due (or which will become due) under the
agreement are not collectible. Because the annual spend calculation includes all
of our active term license agreements, the reported balance may include
agreements with customers that are delinquent in paying invoices, that are in
bankruptcy proceedings, or where payment is otherwise in doubt.

As of December 31, 2021, approximately 87% of our term license agreements (by
value) are denominated in U.S. dollars. For agreements denominated in other
currencies, we use a fixed historical exchange rate to calculate annual spend in
dollars rather than using current exchange rates, so that our calculation of
growth in annual spend is not affected by fluctuations in foreign currencies.

Beginning in fiscal 2019 and for all future periods, for term license agreements
that contain professional services or other products and services, we have
included in the annual spend calculation the portion of the invoice allocable to
the term license under Topic 606 rather than the portion of the invoice
attributed to the license in the agreement. We believe that methodology more
accurately allocates any discounts or premiums to the different elements of the
agreement. We have not applied this methodology retroactively for agreements
entered into in prior fiscal years.

We estimate that annual expenses increased by approximately 1.7% in the second quarter of fiscal 2022, from $629.7 million at September 30, 2021 at $640.2 million at December 31, 2021 and approximately 3.0% in the first half of fiscal 2022, from $621.3 million at June 30, 2021.

Total contract value

Total Contract Value ("TCV") is the aggregate value of all payments received or
to be received under all active term license agreements, including maintenance
and escalation. TCV was $2.9 billion as of June 30, 2021. TCV is an annual
metric and will be included in our Annual Report on Form 10-K for the fiscal
year ending June 30, 2022.

Bookings

Bookings is the total value of customer term license contracts signed in the
current period, less the value of such contracts signed in the current period
where the initial licenses are not yet deemed delivered, plus term license
contracts signed in a previous period for which the initial licenses are deemed
delivered in the current period.

Bookings decreased from $274.4 million during the three months ended
December 31, 2020 to $184.3 million during the three months ended December 31,
2021. Bookings decreased from $373.2 million during the six months ended
December 31, 2020 to $312.5 million during the six months ended December 31,
2021. The change in bookings is due to the timing of renewals.

Free movement of capital

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

Free cash flow is calculated as net cash provided by operating activities
adjusted for the net impact of (a) purchases of property, equipment and
leasehold improvements, (b) payments for capitalized computer software costs,
and (c) other nonrecurring items, such as acquisition and integration planning
related payments. Acquisition and integration planning related payments are
costs we paid to effect a business combination. Those costs include finders
fees; advisory, legal, accounting and due diligence, valuation, and other
professional or consulting fees; and costs of registering and issuing equity
securities.

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

                                                                              Six Months Ended
                                                                                December 31,
                                                                         2021                     2020
                                                                           (Dollars in Thousands)
Net cash provided by operating activities (GAAP)                 $      73,944               $     74,290
Purchase of property, equipment, and leasehold improvements               (659)                      (522)
Payments for capitalized computer software development costs              (330)                      (895)

Acquisition and integration planning related payments                   12,000                        907

Free cash flow (non-GAAP)                                        $      84,955               $     73,780



Total free cash flow on a non-GAAP basis increased by $11.2 million during the
six months ended December 31, 2021 as compared to the same period of the prior
fiscal year primarily due to changes in working capital. See additional
commentary in the "Liquidity and Capital Resources" section below.

Non-GAAP operating profit

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

The following table presents our income from operations, as adjusted for
stock-based compensation expense, amortization of intangible assets, and other
items, such as the impact of acquisition and integration planning related fees,
for the indicated periods:
                                     Three Months Ended                   Increase / (Decrease)                   Six Months Ended                    Increase / (Decrease)
                                        December 31,                             Change                             December 31,                             Change
                                   2021               2020                 $                  %                2021               2020                 $                  %
                                                                                            (Dollars in Thousands)

GAAP operating profit $68,489 $149,453 ($80,964)

           (54.2) %       $ 108,367          $ 183,623          $   (75,256)           (41.0) %

More:

Stock-based compensation           7,866              9,096               (1,230)           (13.5) %          17,956             15,364                2,592             16.9  %

Amortization of intangibles        2,033              1,865                  168              9.0  %           4,077              3,610                  467             12.9  %

Acquisition and integration
planning related fees             13,787              1,821               11,966            657.1  %          17,143              2,384               14,759            619.1  %
Non-GAAP income from
operations                     $  92,175          $ 162,235          $   (70,060)           (43.2) %       $ 147,543          $ 204,981          $   (57,438)           (28.0) %



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,
2021 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 critical 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, 2021, and include the subsection captioned "Revenue
Recognition."

See Note 3, “Revenue from customer contracts,” to our unaudited consolidated financial statements in Part 1, Item 1 of this Form 10-Q for more information on our accounting policies related to revenue recognition.

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Results of Operations

Comparison of three and six month periods ended December 31, 2021 and 2020

The following table shows the results of operations and the period-over-period percentage change of certain financial data for the three and six months ended December 31, 2021 and 2020:

                                                                            Increase /                                                    Increase /
                                         Three Months Ended                 (Decrease)                  Six Months Ended                  (Decrease)
                                            December 31,                      Change                      December 31,                      Change
                                       2021               2020                   %                   2021               2020                   %
                                                                                  (Dollars in Thousands)
Revenue:
License                            $ 116,111          $ 180,170                   (35.6) %       $ 197,215          $ 242,029                   (18.5) %
Maintenance                           48,385             46,818                     3.3  %          96,598             93,676                     3.1  %
Services and other                     6,860              6,730                     1.9  %          13,563             12,984                     4.5  %
Total revenue                        171,356            233,718                   (26.7) %         307,376            348,689                   (11.8) %
Cost of revenue:
License                                2,340              2,238                     4.6  %           4,802              4,374                     9.8  %
Maintenance                            4,352              4,128                     5.4  %           8,914              8,892                     0.2  %
Services and other                     8,204              7,949                     3.2  %          16,063             16,515                    (2.7) %
Total cost of revenue                 14,896             14,315                     4.1  %          29,779             29,781                       -  %
Gross profit                         156,460            219,403                   (28.7) %         277,597            318,908                   (13.0) %
Operating expenses:
Selling and marketing                 30,630             26,575                    15.3  %          60,111             51,747                    16.2  %
Research and development              25,414             22,172                    14.6  %          52,271             44,702                    16.9  %
General and administrative            31,927             21,203                    50.6  %          56,848             38,836                    46.4  %
Total operating expenses              87,971             69,950                    25.8  %         169,230            135,285                    25.1  %
Income from operations                68,489            149,453                   (54.2) %         108,367            183,623                   (41.0) %
Interest income                        8,695              9,304                    (6.5) %          17,359             17,973                    (3.4) %
Interest (expense)                    (1,518)            (2,049)                  (25.9) %          (3,054)            (4,144)                  (26.3) %
Other (expense), net                  (1,757)              (333)                  427.6  %          (2,629)            (1,802)                   45.9  %
Income before income taxes            73,909            156,375                   (52.7) %         120,043            195,650                   (38.6) %
Provision for income taxes            12,045             27,223                   (55.8) %          18,780             33,787                   (44.4) %
Net income                         $  61,864          $ 129,152                   (52.1) %       $ 101,263          $ 161,863                   (37.4) %




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The following table sets forth the results of operations as a percentage of
total revenue for certain financial data for the three and six months ended
December 31, 2021 and 2020:
                                    Three Months Ended                  Six Months Ended
                                       December 31,                       December 31,
                                    2021              2020             2021             2020
                                                       (% of Revenue)
Revenue:
License                                  67.8  %      77.1  %              64.2  %      69.4  %
Maintenance                              28.2         20.0                 31.4         26.9
Services and other                        4.0          2.9                  4.4          3.7
Total revenue                           100.0        100.0                100.0        100.0
Cost of revenue:
License                                   1.4          1.0                  1.6          1.3
Maintenance                               2.5          1.8                  2.9          2.6
Services and other                        4.8          3.4                  5.2          4.7
Total cost of revenue                     8.7          6.1                  9.7          8.5
Gross profit                             91.3         93.9                 90.3         91.5
Operating expenses:
Selling and marketing                    17.9         11.4                 19.6         14.8
Research and development                 14.8          9.5                 17.0         12.8
General and administrative               18.6          9.1                 18.5         11.1
Total operating expenses                 51.3         29.9                 55.1         38.8
Income from operations                   40.0         63.9                 35.3         52.7
Interest income                           5.1          4.0                  5.6          5.2
Interest (expense)                       (0.9)        (0.9)                (1.0)        (1.2)
Other (expense), net                     (1.0)        (0.1)                (0.9)        (0.5)
Income before income taxes               43.1         66.9                 39.1         56.1
Provision for income taxes                7.0         11.6                  6.1          9.7
Net income                               36.1  %      55.3  %              32.9  %      46.4  %



Revenue

Total revenue decreased by $62.4 million during the three months ended
December 31, 2021 as compared to the corresponding period of the prior fiscal
year. The decrease of $62.4 million during the three months ended December 31,
2021 was comprised of a decrease in license revenue of $64.1 million, offset in
part by an increase in maintenance revenue of $1.6 million and an increase in
services and other revenue of $0.1 million, as compared to the corresponding
period of the prior fiscal year.

Total revenue decreased by $41.3 million during the six months ended
December 31, 2021 as compared to the corresponding period of the prior fiscal
year. The decrease of $41.3 million during the six months ended December 31,
2021 was comprised of a decrease in license revenue of $44.8 million, offset in
part by an increase in maintenance revenue of $2.9 million and an increase in
services and other revenue of $0.6 million, as compared to the corresponding
period of the prior fiscal year.

License Revenue

                             Three Months Ended                   Increase / (Decrease)                    Six Months Ended                    Increase / (Decrease)
                                December 31,                              Change                             December 31,                              Change
                           2021               2020                 $                   %                2021               2020                 $                   %
                                                                                     (Dollars in Thousands)
License revenue        $ 116,111          $ 180,170          $   (64,059)            (35.6) %       $ 197,215          $ 242,029          $   (44,814)            (18.5) %
As a percent of total
revenue                     67.8  %            77.1  %                                                   64.2  %            69.4  %


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The period-over-period decreases of $64.1 million and $44.8 million in license
revenue during the three and six months ended December 31, 2021, respectively,
were primarily attributable to decreases in bookings driven by the timing of
renewals.

Maintenance Revenue

                                  Three Months Ended                  Increase / (Decrease)                  Six Months Ended                   Increase / (Decrease)
                                     December 31,                            Change                            December 31,                            Change
                                2021              2020                 $                  %               2021              2020                 $                  %
                                                                                        (Dollars in Thousands)
Maintenance revenue          $ 48,385          $ 46,818          $     1,567              3.3  %       $ 96,598          $ 93,676          $     2,922              3.1  %
As a percent of total
revenue                          28.2  %           20.0  %                                                 31.4  %           26.9  %



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

The period-over-period increases of $1.6 million and $2.9 million in maintenance
revenue during the three and six months ended December 31, 2021, respectively,
were primarily due to growth of our base of arrangements, which include
maintenance, being recognized on a ratable basis.

Services and Other Revenue

                               Three Months Ended                  Increase / (Decrease)                  Six Months Ended                   Increase / (Decrease)
                                  December 31,                            Change                            December 31,                            Change
                              2021              2020                $                  %               2021              2020                 $                  %
                                                                                     (Dollars in Thousands)
Services and other
revenue                   $   6,860          $ 6,730          $       130              1.9  %       $ 13,563          $ 12,984          $       579              4.5  %
As a percent of total
revenue                         4.0  %           2.9  %                                                  4.4  %            3.7  %



We recognize professional services revenue for our time-and-materials ("T&M")
contracts based upon hours worked and contractually agreed-upon hourly rates.
Revenue from fixed-price engagements is recognized using the proportional
performance method based on the ratio of costs incurred to the total estimated
project costs.

Services and other revenue increased $0.1 million and $0.6 million during the
three and six months ended December 31, 2021, respectively, as compared to the
corresponding period of the prior fiscal year primarily due to the timing and
volume of professional services engagements.

Cost of Revenue

Cost of License Revenue

                               Three Months Ended                 Increase / (Decrease)                 Six Months Ended                 Increase / (Decrease)
                                  December 31,                            Change                          December 31,                           Change
                              2021              2020                $                  %              2021             2020                $                  %
                                                                                   (Dollars in Thousands)
Cost of license revenue   $   2,340          $ 2,238          $       102   

4.6% $4,802 $4,374 $428

     9.8  %
As a percent of license
revenue                         2.0  %           1.2  %                                                2.4  %           1.8  %



Cost of license revenue increased $0.1 million and $0.4 million for the three
and six months ended December 31, 2021, respectively, as compared to the
corresponding period of the prior fiscal year, primarily due to increased
amortization of intangible assets from acquisitions. License gross profit margin
remained consistent at 98.0% and 98.8% for the three months ended December 31,
2021 and 2020, respectively, and 97.6% and 98.2% for the six months ended
December 31, 2021 and 2020, respectively due to low cost of license revenue.

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Cost of Maintenance Revenue

                                      Three Months Ended                 Increase / (Decrease)                 Six Months Ended                   Increase / (Decrease)
                                         December 31,                            Change                          December 31,                             Change
                                     2021              2020                $                  %              2021             2020                  $                    %
                                                                                            (Dollars in Thousands)
Cost of maintenance revenue      $   4,352          $ 4,128          $       224             5.4  %       $ 8,914          $ 8,892          $        22                 0.2  %
As a percent of maintenance
revenue                                9.0  %           8.8  %                                                9.2  %           9.5  %



Cost of maintenance revenue remained consistent for the three months ended
December 31, 2021 and 2020, respectively. Cost of maintenance revenue remained
consistent at $8.9 million for the six months ended December 31, 2021 and 2020,
respectively. Maintenance gross profit margin remained consistent for the three
months ended December 31, 2021 and 2020, respectively, and for the six months
ended December 31, 2021 and 2020, respectively.

Cost of services and other income

                                   Three Months Ended                 Increase / (Decrease)                  Six Months Ended                   Increase / (Decrease)
                                      December 31,                            Change                           December 31,                            Change
                                  2021              2020                $                  %              2021              2020                 $                  %
                                                                                         (Dollars in Thousands)
Cost of services and other
revenue                       $   8,204          $ 7,949          $       255             3.2  %       $ 16,063          $ 16,515          $      (452)            (2.7) %
As a percent of services and
other revenue                     119.6  %         118.1  %                                               118.4  %          127.2  %



The timing of revenue and expense recognition on professional service
arrangements can impact the comparability of cost and gross profit margin of
professional services revenue from year to year. For example, revenue from
fixed-price engagements is recognized using the proportional performance method
based on the ratio of costs incurred to the total estimated project costs.

Cost of services and other revenue increased $0.3 million and decreased $0.5
million for the three and six months ended December 31, 2021, respectively, as
compared to the corresponding period of the prior fiscal year. Gross profit
margin on services and other revenue was (19.6)% and (18.1)% for the three
months ended December 31, 2021 and 2020, respectively, and (18.4)% and (27.2)%
for the six months ended December 31, 2021 and 2020, respectively. The improved
gross profit margin on services and other for the six months ended December 31,
2021, as compared to the same period of the prior fiscal year, was a function of
an increase in services and other revenues attributable to increased training
services and a decrease in cost of services and other expenses.

Gross Profit
                              Three Months Ended                   Increase / (Decrease)                    Six Months Ended                    Increase / (Decrease)
                                 December 31,                              Change                             December 31,                              Change
                            2021               2020                 $                   %                2021               2020                 $                   %
                                                                                      (Dollars in Thousands)
Gross profit            $ 156,460          $ 219,403          $   (62,943)  

(28.7)% $277,597 $318,908 ($41,311)

           (13.0) %
As a percent of revenue      91.3  %            93.9  %                                                   90.3  %            91.5  %



For further discussion of subscription and software gross profit and services
and other gross profit, please refer to the "Cost of License Revenue," "Cost of
Maintenance Revenue," and "Cost of Services and Other Revenue" sections above.

Gross profit decreased by $62.9 million and $41.3 million for the three and six
months ended December 31, 2021, respectively, as compared to the corresponding
period of the prior fiscal year. Gross profit margin decreased to 91.3% from
93.9% for the three months ended December 31, 2021 and 2020, respectively, and
decreased to 90.3% from 91.5% for the six months ended December 31, 2021 and
2020, respectively. The decreases were primarily attributable to a decrease in
license revenue due to a decrease in bookings driven by the timing of renewals
during the three and six months ended December 31, 2021, as compared to the same
periods last year, while costs remained consistent.

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Operating Expenses

Sales and marketing expenses

                                 Three Months Ended                  Increase / (Decrease)                   Six Months Ended                   Increase / (Decrease)
                                    December 31,                             Change                            December 31,                             Change
                               2021              2020                 $                   %               2021              2020                 $                   %
                                                                                        (Dollars in Thousands)
Selling and marketing
expense                     $ 30,630          $ 26,575          $     4,055              15.3  %       $ 60,111          $ 51,747          $     8,364              16.2  %
As a percent of total
revenue                         17.9  %           11.4  %                                                  19.6  %           14.8  %



The period-over-period increase of $4.1 million in selling and marketing expense
during the three months ended December 31, 2021 was attributable to greater
acquisition and integration planning related expenses of $1.3 million, higher
compensation costs of $0.8 million related to benefits and salaries as a result
of increased headcount, and larger marketing expenses of $0.5 million.

The period-over-period increase of $8.4 million in selling and marketing expense
during the six month ended December 31, 2021 was attributable to higher
compensation costs of $3.1 million related to benefits and salaries, greater
acquisition and integration planning related expenses of $1.3 million, greater
commission expense of $1.0 million, increased stock-based compensation expense
of $0.9 million, and greater marketing event expense of $0.5 million.

Research and development costs

                                     Three Months Ended                  Increase / (Decrease)                  Six Months Ended                   Increase / (Decrease)
                                        December 31,                            Change                            December 31,                            Change
                                   2021              2020                 $                  %               2021              2020                 $                  %
                                                                                           (Dollars in Thousands)
Research and development
expense                         $ 25,414          $ 22,172          $     3,242             14.6  %       $ 52,271          $ 44,702          $     7,569             16.9  %
As a percent of total revenue       14.8  %            9.5  %                                                 17.0  %           12.8  %



The period-over-period increase of $3.2 million in research and development
expense during the three months ended December 31, 2021 was primarily
attributable to higher compensation costs of $2.3 million related to salaries
and benefits as a result of increased headcount, greater overhead allocation
costs of $1.0 million due to increased headcount, offset in part by a reduction
on stock-based compensation expense of $0.7 million.

The period-over-period increase of $7.6 million in research and development
expense during the six months ended December 31, 2021 was primarily attributable
to higher compensation costs of $4.7 million related to salaries and benefits as
a result of increased headcount, greater overhead allocation of $1.6 million due
to increased headcount, higher capitalized labor of $0.7 million, and greater
cloud storage expense of $0.3 million.

General and administrative costs

                                      Three Months Ended                  Increase / (Decrease)                  Six Months Ended                   Increase / (Decrease)
                                         December 31,                            Change                            December 31,                            Change
                                    2021              2020                 $                  %               2021              2020                 $                  %
                                                                                            (Dollars in Thousands)
General and administrative
expense                          $ 31,927          $ 21,203          $   10,724              50.6  %       $ 56,848          $ 38,836          $   18,012              46.4  %
As a percent of total revenue        18.6  %            9.1  %                                                 18.5  %           11.1  %


The period-to-period increase of $10.7 million in general and administrative expenses during the three months ended December 31, 2021 is attributable to expenses related to the planning of acquisitions and the integration of $10.5 million.

The period over period increase of $18.0 million in general and administrative
expense during the six months ended December 31, 2021 was attributable to
acquisition and integration planning related expenses of $13.2 million, higher
stock-
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based costs expenses of $2.6 million, higher hardware, software, and maintenance
expenses of $1.4 million driven by application licenses and subscription fees,
and greater payroll taxes of $1.4 million associated with a one-time large cliff
vesting of equity awards.

Non-operating income (expenses)

Interest Income

                               Three Months Ended                  Increase / (Decrease)                   Six Months Ended                   Increase / (Decrease)
                                  December 31,                             Change                            December 31,                             Change
                              2021              2020                $                   %               2021              2020                 $                   %
                                                                                      (Dollars in Thousands)
Interest income           $   8,695          $ 9,304          $      (609)             (6.5) %       $ 17,359          $ 17,973          $      (614)             (3.4) %
As a percent of total
revenue                         5.1  %           4.0  %                                                   5.6  %            5.2  %



Interest income remained consistent for the three and six months ended
December 31, 2021.

Interest (Expense)

                                 Three Months Ended                     (Increase) / Decrease                      Six Months Ended                    (Increase) / Decrease
                                    December 31,                                Change                               December 31,                             Change
                               2021              2020                    $                      %               2021              2020                  $                   %
                                                                                            (Dollars in Thousands)

Interest (expenses) $(1,518) ($2,049) $531

                  (25.9) %       $ (3,054)         $ (4,144)         $      1,090             (26.3) %
As a percent of total
revenue                         (0.9) %           (0.9) %                                                        (1.0) %           (1.2) %



The period-over-period decreases of $0.5 million and $1.1 million in interest
(expense) during the three and six months ended December 31, 2021, were
primarily due to a lower outstanding borrowing balance as a result of paying off
our revolving credit facility in December 2020.

Other (Expense), Net

                                 Three Months Ended                   (Increase) / Decrease                    Six Months Ended                    (Increase) / Decrease
                                    December 31,                              Change                             December 31,                             Change
                                2021              2020                 $                    %               2021              2020                  $                   %
                                                                                          (Dollars in Thousands)
Other (expense), net        $   (1,757)         $ (333)         $      (1,424)            427.6  %       $ (2,629)         $ (1,802)         $       (827)             45.9  %
As a percent of total
revenue                           (1.0) %         (0.1) %                                                    (0.9) %           (0.5) %


Net other (expense) primarily includes unrealized and realized foreign exchange gains and losses generated by the settlement and revaluation of transactions denominated in currencies other than the functional currency of our entities.

During the three months ended December 31, 2021 and 2020, other (expense), net
was primarily comprised of $(1.6) million and $(0.6) million of foreign currency
exchange (losses), respectively.

During the six months ended December 31, 2021 and 2020 other (expense), net was
primarily comprised of $(2.3) million and $(2.1) million of foreign currency
exchange (losses), respectively.

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Provision for Income Taxes

                                Three Months Ended                  Increase / (Decrease)                   Six Months Ended                   Increase / (Decrease)
                                   December 31,                             Change                            December 31,                             Change
                              2021              2020                 $                   %               2021              2020                 $                   %
                                                                                       (Dollars in Thousands)

Provision for income taxes $12,045 $27,223 ($15,178)

           (55.8) %       $ 18,780          $ 33,787          $   (15,007)            (44.4) %
Effective tax rate             16.3  %           17.4  %                                                  15.6  %           17.3  %



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,
primarily the Foreign Derived Intangible Income ("FDII") deduction. Assuming
certain requirements are met, the FDII deduction is a benefit for U.S. companies
that sell their products or services to customers outside the U.S.

Our effective tax rate was 16.3% and 17.4% during the three months ended
December 31, 2021 and 2020, respectively, and 15.6% and 17.3% during the six
months ended December 31, 2021 and 2020, respectively. Our effective tax rate
was lower in the three and six months ended December 31, 2021 due to the higher
FDII deduction taken this year compared to last year due to the timing of
revenue recognition for tax purposes on multi-year software license agreements
as the result of the change in income tax regulations.

We recognized income tax expense of $12.0 million and $27.2 million during the
three months ended December 31, 2021 and 2020, respectively, and $18.8 million
and $33.8 million during the six months ended December 31, 2021 and 2020,
respectively. Our income tax expense was driven primarily by pre-tax
profitability in our domestic and foreign operations and the impact of permanent
items and discrete tax items. The permanent items are predominantly the FDII
deduction, stock-based compensation expense and tax credits for research
expenditures.

Cash and capital resources

Resources

In recent years, we have funded our operations with cash generated from operating activities. From December 31, 2021, our main capital resources consisted of $211.4 million in cash and cash equivalents.

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

Credit Agreement

In December 2019, we entered into an Amended and Restated Credit Agreement with
JPMorgan Chase Bank, N.A., as administrative agent, joint lead arranger and
joint bookrunner, Silicon Valley Bank, as joint lead arranger, joint bookrunner
and syndication agent, and the lenders and co-documentation agents named
therein, which we refer to as the Amended and Restated Credit Agreement. The
Amended and Restated Credit Agreement, which amends and restates the Credit
Agreement we entered into as of February 26, 2016 with the same lenders (the
"Prior Credit Agreement"), provides for a $200.0 million secured revolving
credit facility and a $320.0 million secured term loan facility. The
indebtedness under the revolving credit facility matures on December 23, 2024.
Prior to the maturity of the Amended and Restated Credit Agreement, any amounts
borrowed under the revolving credit facility may be repaid and, subject to the
terms and conditions of the Amended and Restated Credit Agreement, borrowed
again in whole or in part without penalty.

On December 14, 2021, we and JPMorgan Chase Bank, N.A., as administrative agent,
entered into the Waiver and Second Amendment to the Amended and Restated Credit
Agreement dated as of December 23, 2019. The Waiver and Amendment amends the
Amended and Restated Credit Agreement to (i) permanently waive the specified
event of default resulting from the consummation of the Transactions under the
Transaction Agreement with Emerson, Emerson Sub, New AspenTech, and Merger
Subsidiary; (ii) permanently waive a possible change of fiscal year event of
default in the future if we change the end of
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our fiscal year; (iii) establish a benchmark replacement for each affected
currency due to the 2021 LIBOR cessation; (iv) make New AspenTech a loan party
and guarantor of the Amended and Restated Credit Agreement, if and when the
Transactions are consummated. The waivers and New AspenTech accession would
become effective upon the consummation of the Transactions. The benchmark
amendments became effective as of the effective date of the Waiver and
Amendment.

As of December 31, 2021, our current borrowings of $24.0 million consisted of
the term loan facility. Our non-current borrowings of $261.2 million consisted
of $264.0 million of our term loan facility, net of $2.8 million in debt
issuance costs. As of June 30, 2021, our current borrowings of $20.0 million
consisted of the term loan facility. As of June 30, 2021, our non-current
borrowings of $273.2 million consisted of $276.0 million of our term facility,
net of $2.8 million in debt issuance costs.

For a more detailed description of the Amended and Restated Credit Agreement, see Note 11, “Credit Agreement,” to our unaudited consolidated financial statements in Part 1, Item 1 of this Form 10-Q.

Cash equivalents and cash flow

Our cash equivalents remained consistent at $1.0 million as of December 31, 2021
and June 30, 2021, consisted of money market funds. The objective of our
investment policy is to manage our cash and investments to preserve principal
and maintain liquidity.

The following table summarizes our cash flow activities for the periods
indicated:
                                                                            Six Months Ended
                                                                              December 31,
                                                                       2021                  2020

                                                                         (Dollars in Thousands)
Cash flow provided by (used in):
Operating activities                                             $      73,944          $     74,290
Investing activities                                                    (1,573)              (17,526)
Financing activities                                                  (239,654)             (128,175)

Effect of changes in exchange rates on cash, cash equivalents and restricted cash

                                                         (1,171)                1,104

(Decrease) in cash, cash equivalents and restricted cash ($168,454) ($70,307)

Operational 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.

Cash from operating activities provided $73.9 million during the six months
ended December 31, 2021. This amount resulted from net income of $101.3 million,
adjusted for non-cash items of $(20.3) million and net uses of cash of $(7.0)
million related to changes in working capital.

Non-cash items during the six months ended December 31, 2021 consisted primarily
of a reduction in deferred income taxes of $53.4 million, partially offset by
stock-based compensation expense of $18.0 million, depreciation and amortization
expense of $5.5 million, a reduction in the carrying amount of right-of-use
assets of $5.1 million, net foreign currency losses of $2.3 million, and a
provision for receivables of $1.5 million. A $53.4 million decrease in deferred
income taxes was mainly because of the adjustment resulting from tax accounting
method changes related to revenue recognition associated with our multi-year
software licenses as a result of the change in income tax regulations.

Cash used by working capital of $7.0 million during the six months ended
December 31, 2021 was primarily attributable to an increase in cash used in
contract assets of $59.1 million and a decrease in lease liabilities of $5.2
million, partially offset by an increase in deferred revenue of $9.1 million, an
increase in accounts payable, accrued expenses and other current liabilities of
$39.3 million, an increase in accounts receivable of $15.3 million, and an
increase in prepaid expenses, taxes and other assets of $12.4 million. A $39.3
million increase in accounts payable, accrued expenses and other current
liabilities was mainly comprised of a $39.0 million increase in income taxes
payable.
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Investing activities

During the six months ended December 31, 2021, we used $1.6 million of cash for
investing activities. We used $0.7 million for capital expenditures, $0.6
million for equity method investments, and $0.3 million for capitalized computer
software costs.

Financing Activities

During the six months ended December 31, 2021, we used $239.7 million of cash
for financing activities. This amount resulted from $234.0 million of cash used
for the repurchase of common stock, $10.3 million of cash used for withholding
taxes on vested and settled restricted stock units, and $8.0 million of cash
used for maturities of amounts borrowed under our term loan facility, offset in
part by $14.3 million for cash provided by the exercise of employee stock
options.

Contractual obligations

Stand-by letters of credit for $2.1 million and $2.3 million guaranteed our performance on professional services contracts, certain facilities leases and potential liabilities from December 31, 2021 and June 30, 2021, respectively. The letters of credit expire at various dates through fiscal year 2025.

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