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Aspen Technologies (AZPN) Beats on Q1 Earnings and Revenues

Aspen TechnologyAZPN delivered first-quarter fiscal 2019 non-GAAP earnings of 64 cents per share, surpassing the Zacks Consensus Estimate by 9 cents. Moreover, the figure increased 20.8% from the year-ago quarter.

Revenues declined 7% from the year-ago quarter to $114.2 million but beat the consensus estimate of $113 million. The year-over-year decrease in revenues was due to lower total bookings resulting from a decline in term license contracts.

Notably, the company's Engineering suite delivered one of its strongest performance in approximately three years. Moreover, Aspen also witnessed increased demand from E&C customers and Latin America customers.

Quarter Highlights

Subscription and Software revenues (accounted for 93.5% of total revenues) declined 10.4% on a year-over-year basis to $106.8 million. Services and other revenues (6.5%) increased 0.6% from the year-ago quarter to $7.4 million.

Deferred revenues (current plus non-current) increased 41% sequentially to $38.8 million, which was primarily due to an increase in new billings

Annual spend grew approximately 1.9% during the first quarter of fiscal 2019, from $489.3 million on Jun 30 to $498.4 million as of Sep 30.

License revenues witnessed a decrease of 19.2% year over year to $15.1 million, primarily on lower bookings due to the timing of contract renewals. Further, maintenance revenues increased 6.9% year over year to $43 million due to increase in subscription arrangements recognized on a ratable basis

Management is encouraged by signs of improvement in Latin America and Asia-Pacific regions. Moreover, the company witnessed an increase in E&C customers due to lower attrition of customers due for renewal.

The APM suite continues to gain traction, with the company signing significant deals globally. The company also witnessed pipeline expansion, which is a positive. Notably, continued strength of owner-operators provides a stable base of growth for AspenTech and MSC suite

In addition, global economy industries (GEIs) performed well, including Aspen Mtell deals with a large pharmaceutical customer and a cardboard packaging company in Asia Pacific.

In the quarter, Energy, Engineering & Construction and Chemicals represented 90% of the business where Energy was the largest contributor, followed by Chemicals and E&Cs.

Gross margin contracted 150 basis points (bps) year over year to 88.4%. Operating expenses declined 0.7% from the year-ago quarter to $62.2 million.

Non-GAAP operating margin contracted 440 bps on a year-over-year basis to 41.1%.

Aspen Technology, Inc. Price, Consensus and EPS Surprise

Aspen Technology, Inc. Price, Consensus and EPS Surprise | Aspen Technology, Inc. Quote

Balance Sheet & Cash Flow

Aspen ended the first quarter with $52 million in cash and marketable securities compared with $96.2 million at the end of the fourth quarter. The reduction in cash was due to seasonality in cash flow and the company's stock buyback program wherein it repurchased approximately 473,000 shares of stock for $50 million.

Aspen generated $5.6 million cash from operations in the quarter compared with $79.1 million in the previous quarter and free cash flow of $5.4 million compared with $79.5 million at the end of the previous quarter. This significant decline in cash flow was due to the seasonality of business, along with $1 million of disbursements in the quarter related to the adoption of Topic 606.

Guidance

The company will provide guidance on an annual basis per the adoption of Topic 606.

AspenTech forecasts revenues between $540 million and $564 million for fiscal 2019. Non-GAAP operating income and non-GAAP earnings are projected in the range of $257 million to $283 million and $3.19 to $3.48 per share, respectively.

License revenues are projected between $345 million and $365 million. Maintenance revenues are projected in the range of $165 million to $169 million. Meanwhile, Service & other revenues are expected to be in the band of $28 million to $30 million.

The APM suite is projected to contribute 1.5-2.5% to the anticipated annual spend increase of 7-9%, wherein Engineering and MSC suites are projected to contribute 5.5-7%

The company witnessed lowest bookings in the first quarter. It expects to generate significant revenues in second half of the year with the fourth quarter being the biggest quarter in terms of bookings.

Free cash flow is expected to come in the range of $220 million to $225 million, which includes cash tax payment of approximately $40 million to $45 million.

Zacks Rank& Key Picks

AspenTech currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector include MeetMe, Inc. MEET , Microsoft Corporation MSFT and Nikon Corp. NINOY , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

MeetMe, Microsoft and Nikon have a long-term expected earnings growth rate of 20%, 12.4% and 22.2%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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