New CEO Puts Aspen Technology On Fast Growth Track

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Aspen Technology ( AZPN ) CEO Antonio Pietri has had plenty of cause to celebrate since taking the helm in October.

The business management software firm's earnings have risen by triple digits the past three quarters on double-digit revenue gains, continuing the robust growth paceAspen Technology established even before Pietri took over. That winning streak is one Pietri hopes to maintain.

"My responsibility now is about focusing on being a growth company," Pietri told IBD. "That means changing the way we operate internally and the way we are organized, and developing strategies that support the changes in the business we had already started."

Aspen makes software designed to optimize the design and operation of process manufacturing plants and the management of their supply chains. Customers include oil and gas, chemical, engineering and construction firms.

Bullish Outlook

Pietri is an 18-year veteran of the company. Prior to taking the reigns from his predecessor, Mark Fusco, Pietri was executive vice president of worldwide field operations for six years.

Aspen closed out its first fiscal year under Pietri's helm in June. The company will report its fiscal Q4 and full-year results after the close on Wednesday.

Analysts polled by Thomson Reuters expect Aspen to log EPS of 21 cents for the fourth quarter. That's up from 14 cents the prior year. Revenue is seen rising 16% to $96.6 million.

Canaccord Genuity analyst Richard Davis says the June quarter "is almost always pretty solid" for Aspen.

"It's their year-end quarter, and their sales people try to make their year-end sales," Davis said.

Aspen should benefit from favorable trends in its end markets, he says. "The energy industry has been pretty healthy for four or five years, the chemical industry is doing well and the oil and gas industry is doing well."

Benchmark analyst Mark Schappel says the main driver of Aspen's growth is its "solid" sales execution, which has helped the company rebound from a tough three-year stretch when it lost money each year from fiscal 2010-12.

"Three or four years ago this was a turnaround story. Not today," Schappel said. "What's been happening is the company is taking incremental market share, in my view, because their competitors are very disorganized."

In a report, Canaccord Genuity's Davis said that after a quarter-century of "intensive" software development, Aspen "has built the deepest, and in our opinion, best process industry supply chain suite in the world."

"This means that otherwise well-run firms likeSAP ( SAP ) andOracle ( ORCL ), hardware and construction firms that dabble in software likeHoneywell ( HON ), and other companies simply cannot effectively stall Aspen's market share gain," Davis added.

In July 2009, Aspen transitioned to a new commercial model called aspenONE, a subscription-based licensing model where payments are made over the life of the contract, such as quarterly, on a ratable basis.

The old model was primarily "perpetual, with the payments made upfront at the beginning of the contract and the customers bought specific products," Aspen spokesman David Grip said via email.

With the new model, customers get access to all the software. They can use "tokens" to use or try different products in the aspenONE Engineering and Manufacturing & Supply Chain suites.

Another benefit of the new model, Grip says, is it gives customers the flexibility to use only the software they need when and where they need it.

One impact of the new model is that it changed the way Aspen recognizes revenue. This caused a decline in revenue in fiscal 2010 and also contributed to the company's red ink beginning that year.

Aspen, which returned to profitability in fiscal 2013, is in a "different place" now, Pietri says. "I'm focusing on how we're going to drive growth going forward."

Meanwhile, Pietri has mapped out a growth strategy that includes a few components aimed at driving higher usage and product adoption.

One of those components is to further penetrate the company's user base. Over the past 33 years, Aspen has created a very large installed base of about 1,750 customers. About 80% of Aspen's business comes from the top 350 customers.

Pietri aims to drive more product usage and adoption for all 1,750 customers -- and especially the top 350.

Among the ways he plans to do so is by investing in high-growth markets such as Russia, China and the Middle East and Latin America, where Aspen has seen rising demand and better-than-average sales growth.

Because some of its top customers are located in these markets, the company is investing in plants, staffing and infrastructure to meet growing demand there, Grip says.

Rules Of Engagement

Pietri also plans to drive more usage and adoption by implementing a digital marketing strategy that lets Aspen have more contact with the estimated hundreds of thousands of users across its customer base.

The strategy involves reaching these users via tools such as email, webinars and social media communities so the company can engage with them on a regular basis.

"The more we can educate those users about the value that can be derived from using our software, the more likely they will be to use more of the products and functionality that we have in the aspenONE software suites," Grip said.

In addition, he says, the more users know about all of Aspen's products, the more likely it is they will consume more tokens.

Another component of Aspen's growth strategy involves pursuing acquisitions. The company has done four very small tuck-in acquisitions in the past two years.

Though small, those deals were "very meaningful" because they either added a new technology that the company was missing or they strengthened existing capabilities, Pietri says, adding that the purchases were the kind that he aimed to make in the future.

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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