Aspen Technology Announces Financial Results for the Third Quarter of Fiscal 2014

Business Wire

BURLINGTON, Mass.--(BUSINESS WIRE)--

Aspen Technology, Inc. (AZPN), a leading provider of software and services to the process industries, today announced financial results for its third quarter of fiscal year 2014, ended March 31, 2014.

“AspenTech delivered a strong third quarter performance that exceeded our guidance across all key metrics. Total license contract value growth year-over-year was over 13% in the third quarter as we continued to see solid customer demand and usage patterns,” said Antonio Pietri, President and Chief Executive Officer of AspenTech.

Pietri added, “Our solid top-line performance and continued expense discipline enabled us to scale our free cash flow generation, which was a quarterly record at over $70 million in the third quarter. We are focused on continuing to use our free cash flow to enhance shareholder value through share buybacks and targeted M&A.”

Third Quarter Fiscal 2014 and Recent Business Highlights

  • The license portion of total contract value was $1.79 billion at the end of the third quarter of fiscal 2014, which increased 13.6% compared to the third quarter of fiscal 2013 and 2.7% sequentially.
  • Total contract value, including the value of bundled maintenance, was $2.1 billion at the end of the third quarter of fiscal 2014, which increased 15.4% compared to the third quarter of fiscal 2013 and 3.0% sequentially.
  • Annual spend, which the company defines as the annualized value of all term license and maintenance revenue contracts at the end of the quarter, was approximately $368 million at the end of the third quarter of fiscal 2014, which increased 14.2% compared to the third quarter of fiscal 2013 and 3.3% sequentially.

Summary of Third Quarter Fiscal Year 2014 Financial Results

AspenTech’s total revenue of $103.6 million increased 30.5% from $79.4 million in the third quarter of the prior fiscal year.

  • Subscription and software revenue was $91.3 million in the third quarter of fiscal 2014, an increase from $70.0 million in the third quarter of fiscal 2013.
  • Services & other revenue was $12.3 million in the third quarter of fiscal 2014, compared to $9.4 million in the third quarter of fiscal 2013.

For the quarter ended March 31, 2014, AspenTech reported income from operations of $31.4 million, compared to income from operations of $16.3 million for the quarter ended March 31, 2013.

Net income was $20.8 million for the quarter ended March 31, 2014, leading to net income per share of $0.22, compared to net income per share of $0.11 in the same period last fiscal year.

Non-GAAP income from operations, which adds back stock-based compensation expense, restructuring charges, amortization of intangibles associated with acquisitions and non-capitalized acquired technology, was $40.0 million for the third quarter of fiscal 2014, compared to non-GAAP income from operations of $20.0 million in the same period last fiscal year. Non-GAAP net income was $26.4 million, or $0.28 per share, for the third quarter of fiscal 2014, compared to non-GAAP net income of $12.9 million, or $0.14 per share, in the same period last fiscal year.

AspenTech had cash and marketable securities of $274.9 million at March 31, 2014, an increase of $39.2 million from the end of the prior quarter after using $30.0 million in cash to repurchase shares of common stock. During the third quarter, the company generated $69.6 million in cash flow from operations. On a non-GAAP basis, cash flow from operations was $73.5 million and free cash flow was $72.5 million after taking into consideration $1.0 million in capital expenditures and capitalized software. Both non-GAAP figures exclude the $3.9 million cash payment associated with the purchase of non-capitalized acquired technology. A reconciliation of GAAP to non-GAAP results is included in the financial tables included in this press release.

Board of Directors Approves $200 Million Share Repurchase Program

AspenTech's Board of Directors approved a share repurchase program for up to $200 million. This program replaces the company’s existing share repurchase program, which had approximately $45 million remaining as of March 31, 2014. The timing and amount of any shares repurchased will be determined by AspenTech based on its evaluation of market conditions and other factors. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when AspenTech might otherwise be precluded from doing so under applicable insider trading laws and regulations. The repurchase program may be suspended or discontinued at any time.

Use of Non-GAAP Financial Measures

This press release contains “non-GAAP financial measures” under the rules of the U.S. Securities and Exchange Commission. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles. This non-GAAP information supplements, and is not intended to represent a measure of performance in accordance with, disclosures required by generally accepted accounting principles, or GAAP. Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. A reconciliation of GAAP to non-GAAP results is included in the financial tables included in this press release.

Management considers both GAAP and non-GAAP financial results in managing AspenTech’s business. As the result of adoption of new licensing models, management believes that a number of AspenTech’s performance indicators based on GAAP, including revenue, gross profit, operating income and net income, should be viewed in conjunction with certain non-GAAP and other business measures in assessing AspenTech’s performance, growth and financial condition. Accordingly, management utilizes a number of non-GAAP and other business metrics, including the non-GAAP metrics set forth in this press release, to track AspenTech’s business performance. None of these non-GAAP metrics should be considered as an alternative to any measure of financial performance calculated in accordance with GAAP.

Conference Call and Webcast

AspenTech will host a conference call and webcast today, April 29, 2014, at 4:30 p.m. (Eastern Time), to discuss the company's financial results for the third quarter fiscal year 2014 as well as the company’s business outlook.

The live dial-in number is (877) 245-0126 or (706) 634-5625, conference ID code 27742389. Interested parties may also listen to a live webcast of the call by logging on to the Investor Relations section of AspenTech’s website, http://www.aspentech.com/corporate/investor.cfm, and clicking on the “webcast” link. A replay of the call will be archived on AspenTech’s website and will also be available via telephone at (855) 859-2056 or (404) 537-3406, conference ID code 27742389, through May 29, 2014.

About AspenTech

AspenTech is a leading supplier of software that optimizes process manufacturing – for energy, chemicals, pharmaceuticals, engineering and construction, and other industries that manufacture and produce products from a chemical process. With integrated aspenONE solutions, process manufacturers can implement best practices for optimizing their engineering, manufacturing and supply chain operations. As a result, AspenTech customers are better able to increase capacity, improve margins, reduce costs and become more energy efficient. To see how the world’s leading process manufacturers rely on AspenTech to achieve their operational excellence goals, visit www.aspentech.com.

Forward-Looking Statements

The third paragraph of this press release contains forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may vary significantly from AspenTech’s expectations based on a number of risks and uncertainties, including, without limitation: AspenTech’s failure to develop new software products, enhance existing products and services, or penetrate new vertical markets; demand for, or usage of, aspenONE software declines for any reason; unfavorable economic and market conditions or a lessening demand in the market for process optimization software; and other risk factors described from time to time in AspenTech’s periodic reports filed with the Securities and Exchange Commission. AspenTech cannot guarantee any future results, levels of activity, performance, or achievements. AspenTech expressly disclaims any current intention to update forward-looking statements after the date of this press release.

© 2014 Aspen Technology, Inc. AspenTech, aspenONE, the Aspen leaf logo, Aspen Plus and Aspen HYSYS are trademarks of Aspen Technology, Inc. All rights reserved. All other trademarks are property of their respective owners.

 
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS *
(Unaudited in thousands, except per share data)
                       
Three Months Ended Nine Months Ended
March 31, March 31,
  2014     2013     2014     2013  
Revenue:
Subscription and software $ 91,309

$

69,994

$

258,916

$

202,794

Services and other   12,278     9,363     31,005     25,329  
Total revenue   103,587     79,357     289,921     228,123  
Cost of revenue:
Subscription and software 5,332 4,998 14,974 15,244
Services and other   9,956     7,651     24,835     22,116  
Total cost of revenue   15,288     12,649     39,809     37,360  
Gross profit   88,299     66,708     250,112     190,763  
Operating expenses:
Selling and marketing 24,267 22,958 71,376 67,852
Research and development 21,791 15,772 52,641 46,577
General and administrative 10,858 11,685 33,747 36,124
Restructuring charges   (19 )   (41 )   (15 )   (7 )
Total operating expenses   56,897     50,374     157,749     150,546  
Income from operations 31,402 16,334 92,363 40,217
Interest income 275 807 969 2,861
Interest expense (6 ) (12 ) (32 ) (385 )
Other income (expense), net   (472 )   (18 )   (1,807 )   (352 )
Income before provision for income taxes 31,199 17,111 91,493 42,341
Provision for income taxes   10,356     6,598     32,388     17,478  
Net income

$

20,843

  $ 10,513   $ 59,105   $ 24,863  
Net income per common share:
Basic $ 0.23 $ 0.11 $ 0.64 $ 0.27
Diluted $ 0.22 $ 0.11 $ 0.63 $ 0.26
Weighted average shares outstanding:
Basic 92,414 93,730 92,891 93,556
Diluted 93,365 95,400 93,951 95,475
 

* Beginning with the first quarter of fiscal 2014, revenue from software maintenance support (SMS) is included within subscription and software revenue in our unaudited consolidated statements of operations. Prior to fiscal 2014, SMS revenue was included within services and other revenue. Additionally, beginning in the first quarter of fiscal 2014, the cost of providing SMS is included within subscription and software cost of revenue. Prior to fiscal 2014, the cost of providing SMS was included within services and other cost of revenue. Corresponding line items in the consolidated statements of operations for the three and nine months ended March 31, 2013 have been reclassified to conform to the current period presentation. Refer to the company’s Form 10-Q for the period ended March 31, 2014 for additional details.

               
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share data)
 
March 31 June 30,
  2014     2013  
 
ASSETS
Current assets:
Cash and cash equivalents $ 181,483 $ 132,432
Short-term marketable securities 75,357 57,015
Accounts receivable, net 31,031 36,988
Current portion of installments receivable, net 2,243 13,769
Unbilled services 1,282 1,965
Prepaid expenses and other current assets 8,477 9,665
Prepaid income taxes 323 288
Current deferred tax assets   18,224     33,229  
Total current assets 318,420 285,351
Long-term marketable securities 18,092 35,353
Non-current installments receivable, net 850 963
Property, equipment and leasehold improvements, net 7,167 7,829
Computer software development costs, net 1,536 1,742
Goodwill 18,869 19,132
Non-current deferred tax assets 13,821 25,250
Other non-current assets   4,275     7,128  
Total assets $ 383,030   $ 382,748  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,116 $ 846
Accrued expenses and other current liabilities 31,605 34,421
Income taxes payable 2,319 1,697
Current deferred revenue 207,303 178,341
Current deferred tax liabilities   156     156  
Total current liabilities 242,499 215,461
Non-current deferred revenue 42,337 53,012
Other non-current liabilities 11,991 12,377
Commitments and contingencies
Series D redeemable convertible preferred stock, $0.10 par value—
Authorized— 3,636 shares as of March 31, 2014 and June 30, 2013
Issued and outstanding— none as of March 31, 2014 and June 30, 2013 - -
Stockholders’ equity:
Common stock, $0.10 par value— Authorized—210,000,000 shares
Issued— 100,862,392 shares at March 31, 2014 and 99,945,545 shares at June 30, 2013
Outstanding— 92,254,182 shares at March 31, 2014 and 93,683,769 shares at June 30, 2013 10,086 9,995
Additional paid-in capital 588,458 575,770
Accumulated deficit (290,712 ) (349,817 )
Accumulated other comprehensive income 8,603 7,263
Treasury stock, at cost—8,608,210 shares of common stock at March 31, 2014 and

6,261,776 shares of common stock at June 30, 2013

  (230,232 )   (141,313 )
Total stockholders’ equity   86,203     101,898  
Total liabilities and stockholders' equity $ 383,030   $ 382,748  
 
               

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)

 
Three Months Ended Nine Months Ended
March 31, March 31,
  2014         2013     2014         2013  
Cash flows from operating activities:
Net income $ 20,843 $ 10,513 $ 59,105 $ 24,863
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,376 1,427 3,855 4,114
Net foreign currency loss (gain) 365 (363 ) 1,444 (667 )
Stock-based compensation 3,564 3,527 11,102 11,295
Deferred income taxes 9,036 5,810 25,827 15,668
Provision for bad debts 358 (131 ) 1,144 31
Excess tax benefits from stock-based compensation (54 ) - (137 ) -
Other non-cash operating activities 462 337 1,358 365
Changes in assets and liabilities:
Accounts receivable (1,428 ) 10,352 5,066 2,395
Unbilled services (504 ) (1,251 ) 667 (645 )
Prepaid expenses, prepaid income taxes, and other assets 2,791 (1,017 ) 4,327 4,888
Installments receivable 3,588 7,264 11,933 32,365
Accounts payable, accrued expenses, and other liabilities 4,457 (2,683 ) (1,111 ) (11,186 )
Deferred revenue   24,779       24,699     17,309     29,138  
Net cash provided by operating activities   69,633       58,484     141,889     112,624  
Cash flows from investing activities:
Purchase of marketable securities (16,550 ) (75,713 ) (35,542 ) (75,713 )
Maturities of marketable securities 20,938 - 33,362 -
Purchase of property, equipment and leasehold improvements (906 ) (451 ) (2,630 ) (3,018 )
Insurance proceeds - - - 2,222
Purchase of technology intangibles (400 ) (375 ) (400 ) (902 )
Capitalized computer software development costs   (97 )   (158 )   (601 )   (593 )

Net cash provided by (used in) investing activities

  2,985     (76,697 )   (5,811 )   (78,004 )
Cash flows from financing activities:
Exercise of stock options 3,045 6,310 7,475 15,430
Repayments of secured borrowings - - - (11,010 )
Repurchases of common stock (30,000 ) (22,399 ) (88,919 ) (59,251 )
Payment of tax withholding obligations related to restricted stock (1,698 ) (1,470 ) (5,935 ) (5,758 )
Excess tax benefits from stock-based compensation   54     -     137     -  
Net cash used in financing activities (28,599 ) (17,559 ) (87,242 ) (60,589 )
Effect of exchange rate changes on cash and cash equivalents   (13 )   (410 )   215     (231 )
Increase (decrease) in cash and cash equivalents 44,006 (36,182 ) 49,051 (26,200 )
Cash and cash equivalents, beginning of period   137,477     175,224     132,432     165,242  
Cash and cash equivalents, end of period $ 181,483   $ 139,042   $ 181,483   $ 139,042  
 

Supplemental disclosure of cash flow information:

 

Income taxes paid, net

$

672

$

880

$

5,717

$

2,692

Interest paid

6

12

32

385

 
 
Reconciliation of GAAP to Non-GAAP Results of Operations and Cash Flows
The following tables reflect a reconciliation of selected Aspen Technology GAAP to Non-GAAP results of operations and cash flows.

(unaudited in thousands, except per share data)

                       
Three Months Ended

March 31,

Nine Months Ended

March 31,

  2014     2013     2014     2013  

Total expenses

GAAP total expenses (a) $ 72,185 $ 63,023

$

197,558

$ 187,906
Less:
Stock-based compensation (b) (3,564 ) (3,527 ) (11,102 ) (11,295 )
Non-capitalized acquired technology (4,856 ) - (4,856 ) -
Restructuring charges 19 41 15 7
Amortization of purchased technology intangibles (224 ) (201 ) (698 ) (503 )
                                 
Non-GAAP total expenses           $ 63,560       $ 59,336        

$

180,917

      $ 176,115  
 

Income from operations

GAAP income from operations $ 31,402 $ 16,334 $ 92,363 $ 40,217
Plus:
Stock-based compensation (b) 3,564 3,527 11,102 11,295
Non-capitalized acquired technology 4,856 - 4,856 -
Restructuring charges (19 ) (41 ) (15 ) (7 )
Amortization of purchased technology intangibles 224 201 698 503
                                 
Non-GAAP income from operations           $ 40,027       $ 20,021        

$

109,004

      $ 52,008  
 

Net income

GAAP net income $ 20,843 $ 10,513 $ 59,105 $ 24,863
Plus:
Stock-based compensation (b) 3,564 3,527 11,102 11,295
Non-capitalized acquired technology 4,856 - 4,856 -
Restructuring charges (19 ) (41 ) (15 ) (7 )
Amortization of purchased technology intangibles 224 201 698 503
Less:
Income tax effect on Non-GAAP items (c) (3,105 ) (1,331 ) (5,991 ) (4,257 )
                                 
Non-GAAP net income           $ 26,363       $ 12,869         $ 69,755       $ 32,397  
 

Diluted income per share

GAAP diluted income per share $ 0.22 $ 0.11 $ 0.63 $ 0.26
Plus:
Stock-based compensation (b) 0.04 0.04 0.12 0.12
Non-capitalized acquired technology 0.05 - 0.05 -
Restructuring charges - - - -
Amortization of purchased technology intangibles - - 0.01 0.01
Less:
Income tax effect on Non-GAAP items (c) (0.03 ) (0.01 ) (0.06 ) (0.04 )
                                 
Non-GAAP diluted income per share           $ 0.28       $ 0.14         $ 0.74       $ 0.35  
 
Shares used in computing Non-GAAP diluted income per share 93,365 95,400 93,951 95,475
 
 
Three Months Ended

March 31,

Nine Months Ended

March 31,

  2014     2013     2014     2013  

Non-GAAP Cash Flows from Operating Activities and Free Cash Flow

GAAP cash flows from operating activities $ 69,633 $ 58,484

$

141,889

$ 112,624
Plus:
Non-capitalized acquired technology (d) 3,856 - 3,856 -
                                 
Non-GAAP Cash Flows from Operating Activities           $ 73,489       $ 58,484        

$

145,745

      $ 112,624  
 
Less:
Purchase of property, equipment and leasehold improvements (906 ) (451 ) (2,630 ) (3,018 )
Capitalized computer software development costs (97 ) (158 ) (601 ) (593 )
Plus:
Insurance proceeds - - - 2,222
                                 
Free Cash Flow           $ 72,486       $ 57,875        

$

142,514

      $ 111,235  
 
(a) GAAP total expenses
Three Months Ended

March 31,

Nine Months Ended

March 31,

  2014     2013     2014     2013  
Total costs of revenue $ 15,288 $ 12,649 $ 39,809 $ 37,360
Total operating expenses   56,897     50,374     157,749     150,546  
GAAP total expenses $ 72,185   $ 63,023  

$

197,558

  $ 187,906  
 
(b) Stock-based compensation expense was as follows:
Three Months Ended

March 31,

Nine Months Ended

March 31,

  2014     2013     2014     2013  
Cost of services and other $ 282 $ 325 $ 910 $ 984
Selling and marketing 832 994 2,653 2,943
Research and development 1,523 770 3,267 2,253
General and administrative   927     1,438     4,272     5,115  
Total stock-based compensation $ 3,564   $ 3,527   $ 11,102   $ 11,295  
 

(c) The income tax effect on Non-GAAP items for the three and nine months ended March 31, 2014 and 2013 is calculated utilizing an estimate of our future effective tax rate.

(d) In the third quarter of fiscal 2014, we acquired certain technology that did not meet the accounting definition of having reached technological feasibility, and therefore, the cost of the acquired technology was expensed and is included in research and development. We have excluded the $3.9 million cash payment associated with the acquired technology (non-capitalized acquired technology) from non-GAAP cash flows from operating activities and free cash flow to be consistent with past treatment of other transactions where the acquired assets were capitalized. Refer to the company’s Form 10-Q for the period ending March 31, 2014 for additional details.

Contact:
Media Contact
AspenTech
David Grip, 1-781-221-5273
david.grip@aspentech.com
or
Investor Contact
ICR
Brian Denyeau, 1-646-277-1251
brian.denyeau@icrinc.com

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