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Aspen Technology (AZPN) Down 1.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the las t earnings report for Aspen Technology (AZPN). Shares have lost about 1.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aspen Technology due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recen t earnings report in order to get a better handle on the important drivers.

Aspen Technology Q2 Results Benefit from Robust Adoption of APM

Aspen Technology delivered second-quarter fiscal 2019 non-GAAP earnings of 92 cents per share, outpacing the Zacks Consensus Estimate by 26 cents. However, the figure declined from the year-ago adjusted figure of $1.88.

Revenues of $140.4 million surged 33.1% from the corresponding adjusted year-ago figure. The Zacks Consensus Estimate was pegged at $120 million. The increase can be attributed to improvement in year-over-year bookings.

Notably, bookings came in at $250.9 million on a year-to-date basis, representing year-over-year growth of 19%.

Moreover, the company's Asset Performance Management ("APM") suite delivered its strongest performance to date. Moreover, ongoing momentum in Manufacturing & Supply Chain ("MSC") suite and strength in Engineering suite of solutions drove year-over-year revenue growth.

Quarter in Detail

License revenues (66.5%) soared 63.9% year over year to $93.4 million, primarily on higher bookings due to the timing of contract renewals. Further, maintenance revenues (29.2%) inched up 0.8% year over year to approximately $41 million.

Meanwhile, Services and other revenues (4.3%) declined 23.1% from the year-ago quarter to approximately $6 million. Management attributes the decline to "the timing of projects".

Notably, Subscription and Software revenues (accounted for 95.7% of total revenues) surged 37.6% on a year-over-year basis to $134.4 million, primarily driven by growth in license revenues.

The company ended the quarter under review with deferred revenues (current plus non-current) of $41.3 million which improved from 27.5 million as of Jun 30, 2018 (as adjusted). This can primarily be attributed to increase in new billings.

Annual spend grew approximately 3% sequentially during the reported quarter to $513.1 million as of Dec 31 from $498.4 million as of Sep 30.

Management is encouraged by increase in E&C customers, primarily from North America, on account of lower attrition of customers due for renewal.

The APM suite continues to gain traction, with the company signing significant deals globally, out of which six new deals are in the six figure range. The company also witnessed pipeline expansion, which is a positive. Notably, global economy industries (GEIs) contribute 10% to APM pipeline.

Furthermore, Aspen Mtell suite is garnering new deal wins which include pharmaceutical customer, multinational mining company, North America-based refiner, Europe-based integrated oil company, among others. Management remains elated on the growing clout of Mtell offering which is reinforcing the company's presence globally.

In fact, a Southeast Asia-based company, IRPC PLC recently selected to Mtell to seamlessly operate integrated petrochemical complex in Thailand. Moreover, Thailand-based SCG, a provider of comprehensive packaging solutions, intends to deploy Aspen Mtell software to reduce unplanned downtime.

Operating Highlights

Gross margin expanded 100 basis points (bps) year over year to 89.5%.

Non-GAAP operating expenses increased 2.2% from the year-ago quarter to $69.2 million.

Non-GAAP operating income of $71.2 million soared 88.3% from the year-ago quarter. Non-GAAP operating margin of 50.7% compared favorably with the year-ago adjusted figure of 35.8%.

Balance Sheet & Cash Flow

Aspen ended the second quarter with $54.4 million in cash and cash equivalents compared with $52 million reported in the previous quarter.

The company repurchased approximately 1.2 million shares for $100 million.

Aspen generated $57.5 million cash from operations during the quarter compared with $5.6 million in the previous quarter.

Free cash flow came in at $57.3 million compared with $5.4 million at the end of the previous quarter.

Guidance

Aspen raised revenue outlook for fiscal 2019 anticipating momentum in bookings and renewal of contracts to sustain.The revenues are now forecast between $545 million and $567 million, compared with the earlier range of $540-$564 million for fiscal 2019.

The company expects to generate significant revenues in second half of the year with the fourth quarter being the biggest quarter in terms of bookings. Management now anticipates bookings to come in the band of $565-$590 million compared with the previous range of $555-$585 million. The revised bookings outlook includes $398 million of contracts for renewal in the fiscal year.

License revenues are projected between $351 million and $368 million, compared with the previous prediction of $345 million and $365 million. Maintenance revenues are projected in the range of $166-$169 million compared with the earlier band of $165-$169 million.

Meanwhile, the company continues to anticipate Service & other revenues to be in the band of $28 million to $30 million.

For fiscal 2019, non-GAAP earnings are projected in the range $3.37-$3.60 per share compared with the earlier band of $3.19-$3.48.

The APM suite is projected to contribute 1.5-2.5% to the anticipated annual spend increase of 8.5-9.5%, wherein Engineering and MSC suites are anticipated to contribute 7-8%.

Free cash flow is now expected in between $223 million and $228 million compared with the initial estimated range of $220 million to $225 million.

For fiscal 2019, the company recently expanded share repurchase program of $200 million to around $300 million. The company anticipates repurchasing $75 million of stock in both third and fourth quarters of fiscal 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.58% due to these changes.

VGM Scores

Currently, Aspen Technology has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Aspen Technology has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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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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