The process of refining oil, natural gas, petrochemicals and
other fuels is a complex one that involves dozens of steps and
variables, and can lead to disaster if you don't do it the right
To streamline the process and reduce the risk of error,
refineries depend on software programs that let them do
everything from simulating the refining process to designing the
One company that provides this kind of software,Aspen
), has seen a big turnaround in its financial fortunes thanks to
efforts to streamline its own process of doing business.
Aspen makes business management software for oil, gas, energy
and chemical companies. Its Aspen One suite is used in
engineering, manufacturing and supply chain processes. The
software lets clients model and design facilities, monitor and
optimize performances, estimate costs and analyze data.
Pivoting For Pricing
Refineries can also use the technology to determine what kinds
of fuels they should produce to take advantage of price
"If aviation fuel is selling high, you might try to produce
more jet fuel than octane fuel," said Mark Schappel, an analyst
at Benchmark. "Their software can tell you that you should get
this much octane out, this much kerosene out, this much petroleum
jelly out. It allows you to simulate what happens in a plant
offline. You can do it on the computer first, which helps
Because Aspen's technology is so specialized, much of its
competition comes from smaller, privately held software
Aspen also vies with much larger automated control companies
such asHoneywell International (
),Rockwell Automation (
) and Invensys, though Schappel says the software at these
companies "is not considered best in class."
Aspen's technology is considered among the best in the
business, analysts say. But that hasn't always been enough to
offset problems in other areas of the business.
In 2008, Aspen shifted from an upfront license model to a
subscription model as a way of smoothing out its revenue stream
and giving it more visibility on future business.
While that change was being implemented, however, the company
struggled on the bottom line. It lost money for three straight
years, from fiscal 2010 to fiscal 2012.
The earnings picture has been much brighter in recent
quarters. Aspen returned to profitability in fiscal 2013, which
ended in June. It has now produced five straight quarters of
"For several years, restructuring occupied the company,"
Schappel said. "With that mostly out of the way, they can now act
like a real software company and focus on R&D. They are also
talking to the sales force instead of sitting in front of
attorneys or accountants."
The renewed focus was evident during the company's fiscal
first quarter of 2014, which ended in September. Q1 earnings more
than doubled from a year earlier to 19 cents a share, topping
consensus estimates for 15 cents. The bottom line got a big boost
from a much better-than-expected operating margin.
Revenue for the quarter gained 23% to $87.6 million, topping
views for $85 million. It was the 12th straight quarter of
double-digit revenue growth.
Aspen's total license contract value, or TLCV, climbed 13.2%
year-over-year during the quarter. That was slightly ahead of the
12.5% estimate issued by JPMorgan analyst Sterling Auty.
"In this fifth year of the six-year Aspen One transition, the
vast majority of customers have converted to usage-based models,
which offer more product with the ability to grow usage," Auty
noted in a report.
Aspen is the 10th-largest company by market capitalization in
IBD's Computer Software-Enterprise industry group that's
dominated bySAP (
) andSalesforce.com (CRM). The group itself is ranked No. 19 of
197 that IBD tracks.
Analysts expect Aspen to grow full-year earnings 53% this
fiscal year and 26% in fiscal 2015. The company's stock price set
a nearly 13-year high of 39.02 on Oct. 30.
Aspen's revenue is fairly evenly split among the U.S., Europe
and the rest of the world. Like any company whose fortunes are
tied to the oil/gas industry, Aspen must deal with the ups and
downs of commodity prices. The prices of both crude oil and
natural gas have fallen in recent months from multiyear highs
earlier in the year.
In a conference call with analysts following Aspen's
first-quarter results, CEO Antonio Pietri said the global macro
environment "remains volatile," but added that Aspen has "not
seen a material change" in customer buying behavior in recent
"We continue to benefit from the combination of our
market-leading position, long-term contracts that are typically
five to six years in length and the mission-critical nature of
our applications," Pietri said.
He conceded that "no company is immune" from a sustained
deterioration of the macro environment. However, Aspen continues
to see positive demand from customers.
"Our primary end markets remain relatively healthy on a
worldwide basis, and we're in the early stages of benefiting from
the innovation that we have introduced in recent years," Pietri
It was Pietri's first conference call as CEO after replacing
Mark Fusco, who retired. Pietri previously ran Aspen's field
operations, which included sales and services.