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Aspen (AZPN) Misses on Q2 Earnings, Shares Down on Dull View

Zacks Equity Research

Aspen Technology AZPN reported second-quarter fiscal 2020 non-GAAP earnings of 79 cents per share that missed the Zacks Consensus Estimate by 16.5% and declined 28.3% on a year-over-year basis.

Revenues of $124.7 million missed the Zacks Consensus Estimate by 7.6% and declined 11.2% from the year-ago quarter. The decline can be attributed to lower year-over-year bookings.

Share price was down almost 6%, following a trimmed fiscal 2020 earnings guidance. Non-GAAP earnings are now projected in the range of $3.43-$3.84 per share compared with the prior guided range of $3.47-$3.89.

The mid-point of the trimmed guided range — $3.64 — is below the current Zacks Consensus Estimate of $3.80 per share.

Notably, total bookings for the reported quarter came in at $112.3 million, down 27% year over year, due to decrease in the amount of term license contract renewals compared with the year-ago period.

Nonetheless, ongoing momentum in Asset Performance Management (APM) and Manufacturing & Supply Chain (MSC) suite and strength in Engineering suite benefited the company in the second quarter.

Aspen Technology, Inc. Price, Consensus and EPS Surprise

Aspen Technology, Inc. Price, Consensus and EPS Surprise

Aspen Technology, Inc. price-consensus-eps-surprise-chart | Aspen Technology, Inc. Quote

Quarter in Detail

License revenues (56.3% of revenues) declined 24.8% year over year to $70.2 million as several transactions that the company expected to close in the second quarter were pushed to the second half of fiscal 2020.

Maintenance revenues (36.3%) increased 10.5% year over year to approximately $45.3 million.

Services and other revenues (7.4%) surged 53.3% from the year-ago quarter to $9.2 million.
 
Annual spend improved 3% sequentially and 10% year over year to $564 million.

Management is optimistic about expanding engineering & construction (E&C) and global economy industries (GEIs) customer base. With the company signing significant deals globally, the APM suite and Aspen Mtell offerings continue to gain traction. The company also witnessed pipeline expansion, which was a positive.

For instance, a European Oil & Chemicals company and a long-term user of AspenTech’s engineering and MSC suites selected the company’s supply chain management solution for deployment across its chemical assets and integration with AspenTech’s existing planning solution in its refining business.

Moreover, the introduction of IMO 2020 requirements to reduce sulfur dioxide levels in bunker fuel for transportation ships is a demand catalyst for certain refiners.

Margins

Gross margin contracted 190 basis points (bps) on a year-over-year basis to approximately 87.6%.

Total operating expenses climbed 9.1% from the year-ago quarter to $67.5 million.

Non-GAAP operating income of $50.9 million declined 28.5% from the year-ago quarter. Non-GAAP operating margin contracted 990 bps year over year to 40.8%.

Balance Sheet & Cash Flow

As of Dec 31, 2019 cash and cash equivalents were $80.5 million compared with $57.9 million reported in the previous quarter.

The company generated $46.9 million cash from operations during the quarter compared with $15.3 million in the previous quarter. Free cash flow came in at $48.1 million compared with $14.3 million in the previous quarter.

The company repurchased approximately 418,000 shares for $50 million.

Fiscal 2020 Guidance

Aspen Technology continues to expect revenues between $575 million and $615 million. The mid-point of which — $595 million — is below than the current Zacks Consensus Estimate of $600.1 million.

Non-GAAP operating income is projected in the range of $272-$307 million.

APM suite is projected to contribute 3% to the anticipated annual spend increase of 10-12%, while Engineering and MSC suites are projected to contribute 7% and 9%, respectively.

Free cash flow is now anticipated in the range of $260 million to $270 million compared with the prior guided range of $250 million to $260 million.

Zacks Rank & Stocks to Consider

Aspen currently carries a Zacks Rank #3 (Hold).

Microchip Technology Incorporated MCHP, Perion Network Ltd PERI and Itron Inc. ITRI are some better-ranked stocks in the broader computer and technology sector. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Microchip, Perion and Itron are set to report quarterly results on Feb 4, 12 and 24, respectively.

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