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Why Is Aspen Technology (AZPN) Down 1.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Aspen Technology (AZPN). Shares have lost about 1.6% 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 the most recent earnings report in order to get a better handle on the important drivers.

Aspen Q2 Earnings Miss Estimates

Aspen Technology reported second-quarter fiscal 2022 non-GAAP earnings of $1.20 per share, lagging the Zacks Consensus Estimate by 16.1%. The company reported non-GAAP earnings of $2.04 per share in the year-ago quarter.

Revenues of $171.4 million missed the Zacks Consensus Estimate by 8.9%. The company reported revenues of $233.7 million in the year-ago quarter.

The company also announced that it was on track to complete the Emerson acquisition in fourth-quarter fiscal 2022.

In October 2021, Aspen Technology and Emerson inked an agreement. Per the terms, Aspen will be integrated with Emerson’s OSI Inc and the Geological Simulation Software business to form a new company.

In the quarter under review, total bookings (reported under topic 606) were $182 million, down 34% year over year. The downtick was due to strong bookings (including the company’s largest-ever renewal) witnessed in the previous quarter.

Quarter in Detail

License revenues (67.8% of revenues) were down 35.6% year over year to $116.1 million.

Maintenance revenues (28.2%) rose 3.3% year over year to $48.4 million.

Services and other revenues (4%) inched up 1.9% from the year-ago quarter’s figure to $6.9 million.

As of Dec 31, 2021, the annual spend (which Aspen Technology defines as the annualized value of all term license and maintenance contracts at the end of the quarter) amounted to $640 million, up 6% year over year and 1.7% quarter over quarter.

Margins

Gross profit declined 28.7% year over year to $156.5 million. As a percentage of total revenues, the figure contracted 260 basis points (bps) on a year-over-year basis to 91.3%.

Total operating expenses increased 25.6% from the year-ago quarter’s figure to $88 million due to higher spending related to buyout and integration planning expenses related to the pending Emerson acquisition.

Non-GAAP operating income totaled $92.2 million compared with $162.2 million reported in the prior-year quarter. Non-GAAP operating margin was 53.8% compared with 69.4% operating margin reported in the year-ago quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2021, cash and cash equivalents were $211.4 million compared with $248 million as of Sep 30, 2021. The company’s total borrowings, net of debt issuance costs, stood at $285.2 million as of Dec 31, 2021.

The company generated $41.3 million cash from operations compared with $32.7 million in the previous quarter. Non-GAAP free cash flow was $51.9 million in the fiscal second quarter.

The company repurchased 439,000 shares in the fiscal second quarter for $65 million.

Raised Fiscal 2022 View

Driven by strong performance in the first half of the year and improving demand trends in several business areas, Aspen Technology raised the outlook for fiscal 2022.

For fiscal 2022, Aspen Technology expects revenues in the range of $737-$754 million compared with the earlier guidance of $702-$737 million.

The company now expects annual spend growth rate between 7% and 8%, while total bookings are projected in the range of $814-$840 million. Earlier, the company projected annual spend growth rate between 5% and 7% and total bookings were projected in the range of $766-$819 million.

Non-GAAP net income is anticipated in the range of $5.23-$5.39 per share compared with $4.75-$5.13 per share guided earlier.

Management now projects non-GAAP operating income in the range of $397-$409 million. Free cash flow is anticipated between $280 million and $290 million. Earlier, management guided non-GAAP operating income in the range of $361-$391 million. Free cash flow was anticipated between $275 million and $285 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

The consensus estimate has shifted 33.48% due to these changes.

VGM Scores

At this time, Aspen Technology has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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