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Aspen Technology (AZPN) Down 4% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Aspen Technology (AZPN). Shares have lost about 4% 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 recent earnings report in order to get a better handle on the important catalysts.

Aspen Technology Q3 Earnings & Revenues Surpass Estimates

Aspen Technology delivered third-quarter fiscal 2019 non-GAAP earnings of 96 cents per share, outpacing the Zacks Consensus Estimate of 84 cents and surged on a year-over-year basis.

Revenues of $147.98 million were up 16% from the adjusted year-ago quarter. The Zacks Consensus Estimate was pegged at $137 million. The increase can be attributed to improvement in year-over-year bookings.

Notably, bookings came in at $410.8 million on a year-to-date basis, representing year-over-year growth of 23%. Total booking for the reported quarter came in at $160 million, up 29% year over year, primarily driven by higher term license contracts for renewals.

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 (66.6%) surged 25% year over year to $98.5 million, primarily on higher bookings due to the timing of contract renewals. Further, maintenance revenues (28.3%) inched up 2% year over year to approximately $41.9 million.

Meanwhile, Services and other revenues (5.1%) declined 2% from the year-ago quarter to approximately $7.6 million. Management attributes the decline to “the timing of projects.”

Annual spend grew approximately 2.6% sequentially and 9.7% year over year during the reported quarter to $526 million.

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.

Furthermore, Aspen Mtell suite is winning new deals which include a pharmaceutical customer, a multinational mining company, a North America-based refiner, a Europe-based integrated oil company, among others. Management remains elated on the growing clout of Mtell offering which is strengthening 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 30 bps year over year to 90.3%.

Non-GAAP operating expenses increased 2.7% from the year-ago quarter to $69.7 million.

Non-GAAP operating income of $78.3 million surged 30.7% from the year-ago quarter. Non-GAAP operating margin of 52.9% compared with the year-ago adjusted figure of 46.9%.

Balance Sheet & Cash Flow

Aspen ended the third quarter with $65.6 million in cash and cash equivalents compared with $54.4 million reported in the previous quarter.

Aspen generated $90 million cash from operations during the quarter compared with $57.5 million in the previous quarter. Free cash flow came in at $89.1 million.

The company repurchased approximately 8 million shares for $75 million.

Guidance

Aspen raised revenue outlook for fiscal 2019 anticipating momentum in bookings and renewal of contracts to sustain. The revenues are now forecast between $549 million and $569 million, compared with the earlier range of $545 million and $567 million for fiscal 2019.

The company anticipates generating significant revenues in second half of the year with the fourth quarter being the biggest quarter in terms of bookings. Management now expects bookings to come in the band of $5765-$600 million compared with the previous range of $565-$590 million. The revised bookings outlook includes $398 million of contracts for renewal in the fiscal year.

License revenues are projected between $356 million and $372 million, compared with the previous prediction of $351 million and $368 million. Maintenance revenues are projected in the range of $166-$169 million unchanged from the previous guidance.

Meanwhile, the company now anticipates Service & other revenues to be in the band of $27 million to $28 million (previously $28 million to $30 million).

For fiscal 2019, non-GAAP earnings are projected in the band of $3.42-$3.62 per share compared with the previous range of $3.37-$3.50 per share. The company now expects non-GAAP operating income to be in the range of $272 million to $289 million compared with $258 million to $287 million guided previously.

The company now expects APM suite to contribute 1.75-2.5 points as compared with the earlier range of 1.5-2.5 points. Annual spend increase is now expected to be 9.5-10% (previously 8.5-9.5%).

The company continues to expect free cash flow in the range of $223 million and $228 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -6.19% 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

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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