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Aspen Technology Announces Financial Results for the Third Quarter of Fiscal 2005

05/05/05
Company announces initiatives to simplify corporate structure, improve execution and enhance profitability

CAMBRIDGE, Mass., May 05, 2005 (BUSINESS WIRE) -- Aspen Technology, Inc. (NASDAQ: AZPN), the leading provider of software and services to the process industries, today reported financial results for its third quarter of fiscal 2005, ended March 31, 2005.

Total revenues for the third quarter totaled $64.2 million, with software license revenues of $31.1 million and services revenues totaling $33.1 million. On a Generally Accepted Accounting Principles (GAAP) basis, the Company reported a third quarter net loss applicable to common shareholders of $13.7 million, or $0.32 per diluted share, which includes fees related to the recently completed audit committee investigation. On a non-GAAP basis, excluding these fees, amortization of intangibles, an adjustment to previously recorded restructuring charges, and the preferred stock dividend and discount accretion, the Company reported a fiscal 2005 third quarter net loss of $4.4 million, or $0.05 per share. A $1.1 million tax provision for international locations is included in these results, which increased the GAAP loss per share by $0.03 and the non-GAAP loss per share by $0.01.

"While our third quarter revenues and expenses were in-line with the directional guidance we provided on our March 15 earnings call, we are working hard to ensure that the Company is in position to report improved financial results in the future," said Mark Fusco, President and CEO of AspenTech. "After evaluating AspenTech's operations during my first 90 days as CEO, I have determined that the Company must simplify its structure and processes in order to remove internal obstacles that have prevented it from growing revenues and delivering profitable performance. Although some of these changes will take time to implement, we have finalized a plan to improve our performance, which we expect will enhance results in our next fiscal year."

Highlights of New Plan to Improve Operational Performance

On the Company's March 15 conference call, management discussed its high level priorities designed to help AspenTech improve its profitability and revenues. Today, AspenTech is announcing the details of its new execution plan which is focused on three areas: (1) operational improvement, (2) end-to-end vertical alignment of customer facing functions, and (3) integration of product management and marketing into a single organization that is closer to the customer. Details and benefits to the new plan include the following:

  • Operational Improvement
    • Consolidate disparate facilities and back office personnel in order create a simplified operating infrastructure and improve efficiency, control and information flow
    • Consolidate R&D to fewer locations in order to improve productivity, quality and efficiency of R&D resources

  • Vertical Alignment
    • Align all customer-facing employees - product marketing, product management, professional services, pre-sales, and direct sales - into key vertical market segments
    • Create greater accountability across each functional department and ensure that employees closest to the customer are driving R&D toward the greatest areas of customer demand

  • Integration of Product Management and Marketing into a Single Function
    • Merge product management and marketing into one organization, with a greater emphasis on customer interaction and marketing resources in the field
    • Increase the allocation of resources toward key vertical market initiatives
    • Create increased interaction and better communication with our customers, and increase the resources available to drive our vertical sales strategy

"Our new operational plan is comprehensive, and we believe that successful execution against it will put AspenTech in a much better position to deliver consistent and improving financial results. Many of our customers continue to report solid financial results, and we have the capability to significantly increase our percentage of their software spending as we improve our execution.

He added, "We have a solid sales pipeline and expect to deliver an improvement in software licenses, services, and profitability in the June quarter. Most important, we believe AspenTech has the potential to return to profitability and free cash flow generation in fiscal 2006 by streamlining our focus and improving the day-to-day execution of our business strategy."

Charles Kane, Senior Vice President & CFO of AspenTech said, "During the third quarter we significantly decreased our year-over-year cost structure, and we believe we can reduce our expense run rate by another $3 to $4 million per quarter over the next 12 months. We are committed to running a profitable company, which includes delivering a year-over-year increase in our fiscal 2006 operating margins. We also plan to pay off our 5.25% convertible debentures, which will improve the Company's ongoing financial position over the next few months."

Additions to Management Team

Over the past few months, AspenTech made significant additions to its senior management team. Blair Wheeler joined the Company as Senior Vice President of Marketing, following a distinguished career in sales and marketing across a variety of organizations, including Cisco and Amoco. Hedwig (Hedy) Whitney was named Vice President of Human Resources, after having held senior executive positions in a similar capacity at New England Business Services and Fidelity Investments. Wheeler and Whitney will play instrumental roles in executing the Company's new plan to improve its operational performance.

Significant Transactions

AspenTech signed significant software transactions in the third quarter with Air Liquide, Dow Corning, DuPont, PepsiCo Inc., NOVA Chemicals, and Statoil.

Financial Impact of Restructuring

As a result of the operational changes and restructuring, the Company expects to reduce its quarterly run rate by roughly $3 to $4 million over the course of Fiscal 2006. Management anticipates incurring a fourth quarter restructuring charge of between $4 and $6 million.

Conference Call and Webcast

AspenTech will host a conference call and webcast to discuss its financial results, business outlook, and related corporate and financial matters at 4:45 p.m. Eastern Daylight Time on May 5, 2005. Interested parties may listen to a live webcast of the call by logging on to AspenTech's website: http://www.aspentech.com and clicking on the "webcast" link under the investor relations section of the site. A replay of the call will be archived on AspenTech's website and will also be available via telephone at (800) 642-1687, confirmation code 6079595, for four days, beginning at 8:00 p.m. Eastern Daylight Time on May 5, 2005.

Non-GAAP Results

AspenTech reports pro forma financial results, which exclude certain non-operational, non-cash and other specified charges that management generally does not consider in evaluating the Company's ongoing operations. These results are provided as a complement to results provided in accordance with accounting principles generally accepted in the United States (known as "GAAP"). Management believes this pro forma measure helps indicate underlying trends in the Company's business, and uses this pro forma measure to establish budgets and operational goals that are communicated internally and externally, to manage the Company's business and to evaluate its performance. A reconciliation of non-GAAP financial results, to GAAP financial results, is included in the attached condensed consolidated financial statements.

About AspenTech

Aspen Technology Inc. provides industry-leading software and professional services that help process companies improve the efficiency of their business processes, optimize their operational performance and enhance their financial results. The new generation of integrated aspenONE(TM) solutions gives manufacturers the capabilities they need to model, manage and control their operations, enabling real-time decision making and synchronization of the plant and supply chain. Over 1,500 leading companies already rely on AspenTech's software, including Aventis, Bayer, BASF, BP, ChevronTexaco, Dow Chemical, DuPont, ExxonMobil, Fluor, GlaxoSmithKline, Shell, and Total. For more information, visit www.aspentech.com.

The third paragraph, the section captioned "Highlights of New Plan to Improve Operational Performance", and the sentence under the caption "Financial Impact of Restructuring" of this press release contain 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: AspenTech's plan to improve operational performance may not be implemented effectively; AspenTech has identified material weakness in its internal controls with respect to software license revenue recognition, that, if not remedied effectively, could result in material misstatements; AspenTech's lengthy sales cycle which makes it difficult to predict quarterly operating results; fluctuations in AspenTech's quarterly operating results; AspenTech's dependence on customers in the cyclical chemicals, petrochemicals and petroleum industries; AspenTech's ability to raise additional capital as required; AspenTech's ability to retire its 5.25% convertible debentures; intense competition; AspenTech's need to develop and market products successfully; reliance on relationships with strategic partners; 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 the forward-looking statements after the date of this press release.

ASPEN TECHNOLOGY, INC.
            CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                 (in thousands, except per share data)

                               Three Months Ended  Nine Months Ended
                               March 31, March 31, March 31, March 31,
                                 2005      2004      2005      2004
                               --------- --------- --------- ---------
REVENUES:
     Software licenses          $31,097   $36,636   $93,102  $113,636
     Service and other           33,121    44,939   106,011   130,090
                               --------- --------- --------- ---------
     Total revenues              64,218    81,575   199,113   243,726
                               --------- --------- --------- ---------

COST OF REVENUES:
     Cost of software licenses    4,035     3,854    12,707    11,786
     Cost of service and other   19,215    25,345    63,236    73,973
     Amortization of
      technology related
      intangible assets           1,778     1,806     5,330     5,480
                               --------- --------- --------- ---------
     Total cost of revenues      25,028    31,005    81,273    91,239
                               --------- --------- --------- ---------

     Gross profit                39,190    50,570   117,840   152,487

OPERATING COSTS:
     Selling and marketing       24,299    23,841    70,075    71,449
     Research and development    11,552    14,234    35,309    44,534
     General and administrative
      (includes litigation
      defense and settlement
      costs, audit committee
      review costs, and one-
      time contract termination
      costs of $4,014, $1,450,
      $11,939 and $1,450 for
      the three months ended
      March 31, 2005 and 2004
      and nine months ended
      March 31, 2005 and 2004,
      respectively) (2)          12,746     6,399    35,867    19,878
     Restructuring charges and
      FTC legal costs               (97)        -    21,630     2,000
     Loss (gain) on sales and
      disposals of assets            81      (206)     (276)     (885)
                               --------- --------- --------- ---------
     Total operating costs       48,581    44,268   162,605   136,976
                               --------- --------- --------- ---------

     Income (loss) from
      operations                 (9,391)    6,302   (44,765)   15,511

     Other income (expense),
      net                           (16)      256       (58)     (189)
     Interest income, net           477       419     1,788     1,956
                               --------- --------- --------- ---------

     Income (loss) before
      provision for income
      taxes                      (8,930)    6,977   (43,035)   17,278

     Benefit from (provision
      for) income taxes          (1,133)     (341)     (220)   (2,330)
     Equity in earnings from
      joint ventures                  -         -         -      (100)
                               --------- --------- --------- ---------

       Net income (loss)        (10,063)    6,636   (43,255)   14,848

      Accretion of preferred
       stock discount and
       dividend (1)              (3,630)   (3,400)  (10,747)   (2,900)
                               --------- --------- --------- ---------

     Net income (loss)
      applicable to common
      stockholders             $(13,693)   $3,236  $(54,002)  $11,948
                               ========= ========= ========= =========

EARNINGS PER SHARE:
     Basic net income (loss)
      per common share           $(0.32)    $0.08    $(1.28)    $0.30
                               ========= ========= ========= =========
     Diluted net income (loss)
      per common share           $(0.32)    $0.06    $(1.28)    $0.25
                               ========= ========= ========= =========

     Weighted average shares
      outstanding - Basic        42,639    41,049    42,193    40,326
                               ========= ========= ========= =========
     Weighted average shares
      outstanding - Diluted      42,639    51,907    42,193    48,275
                               ========= ========= ========= =========


PRO FORMA (NON-GAAP) EARNINGS PER SHARE:

    Pro forma (non-GAAP) net income excludes Accretion of preferred
    stock discount and dividend, Amortization of technology related
    intangible assets, Litigation defense and settlement costs, one-
    time contract termination costs, Restructuring charges and FTC
    legal costs, and gain on sale of the AXSYS product line. Pro forma
    (non-GAAP) weighted average shares outstanding assumes the
    conversion of the Series D preferred stock to common stock.

     Net income                 $(4,368)   $9,892   $(4,690)  $23,778
                               ========= ========= ========= =========

     Diluted earnings (loss)
      per share                  $(0.05)    $0.11    $(0.05)    $0.30
                               ========= ========= ========= =========

     Weighted average shares
      outstanding - diluted      87,262    88,244    87,910    78,556
                               ========= ========= ========= =========

(1) Detail of this amount is provided on the reconciliation of net
    income (loss) to pro forma (non-GAAP) net income

(2) These parenthetical references will not be presented in our Form
    10-K.


Supplemental information -

                              Three Months Ended   Nine Months Ended
                              March 31, March 31,  March 31, March 31,
                                2005       2004      2005      2004
                              --------- ---------- --------- ---------
 Reconciliation of total
  expenses to pro forma (non-
  GAAP) total expenses

Total expenses (cost of
 revenues and operating costs) $73,609    $75,273  $243,878  $228,215
      Adjustments to total
       expenses (cost of
       revenues and operating
       costs)
      Amortization of
       technology related
       intangible assets        (1,778)    (1,806)   (5,330)   (5,480)
      Litigation defense and
       settlement costs,
       included in General and
       Administrative costs          -     (1,450)   (3,765)   (1,450)
      Fees associated with the
       audit committee review,
       included in General and
       Administrative costs     (4,014)         -    (7,103)        -
      One-time contract
       termination cost,
       included in General and
       Administrative costs          -          -    (1,071)        -
      Restructuring charges
       and FTC legal costs          97          -   (21,630)   (2,000)
      Gain on sale of AXSYS
       product line, included
       in Loss (gain) on sales
       and disposals of assets       -          -       334         -
                              --------- ---------- --------- ---------

 Pro forma (non-GAAP) total
  expenses (cost of revenues
  and operating costs)         $67,914    $72,017  $205,313  $219,285
                              ========= ========== ========= =========


 Reconciliation of net income
  (loss) to pro forma (non-
  GAAP) net income (loss)

Net income (loss) applicable
 to common stockholders       $(13,693)    $3,236  $(54,002)  $11,948
      Adjustments to net
       income (loss)
       applicable to common
       stockholders
      Net effect of
       adjustments to cost of
       revenues and operating
       costs                     5,695      3,256    38,565     8,930
      Preferred stock discount
       and dividend accretion    3,630      3,400    10,747     9,352
      Gain on conversion of
       Series B redeemable
       preferred stock               -          -         -    (6,452)
                              --------- ---------- --------- ---------

 Pro forma (non-GAAP) net
  income                       $(4,368)    $9,892   $(4,690)  $23,778
                              ========= ========== ========= =========



                        ASPEN TECHNOLOGY, INC.
                 CONSOLIDATED CONDENSED BALANCE SHEETS
                            (in thousands)


                                                   March 31, June 30,
                                                     2005      2004
                                                   --------- ---------
ASSETS
Current assets:
  Cash, cash equivalents and short-term investments $69,127  $107,677
  Accounts receivable, net                           54,199    50,874
  Unbilled services                                  12,262    15,518
  Current portion of long-term installments
   receivable, net                                   24,946    25,244
  Deferred tax asset                                    275        31
  Prepaid expenses and other current assets          12,682    10,084
                                                   --------- ---------

     Total current assets                           173,491   209,428
                                                   --------- ---------

Long-term installments receivable, net               61,294    65,527
Equipment and leasehold improvements, net            15,161    18,664
Computer software development costs, net             17,965    16,863
Intangible assets, net                               28,794    34,307
Purchased intellectual property, net                    871     1,295
Deferred tax asset                                    2,613     2,492
Other assets                                          3,038     3,158
                                                   --------- ---------

  Total assets                                     $303,227  $351,734
                                                   ========= =========


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Current portion of long-term debt                 $58,108   $58,595
  Accounts payable and accrued expenses              63,005    83,115
  Unearned revenue                                   20,613    18,051
  Deferred revenue                                   30,937    33,462
  Deferred tax liability                                441       325
                                                   --------- ---------
    Total current liabilities                       173,104   193,548
                                                   --------- ---------

Long-term debt, less current maturities               1,049     1,952
Deferred revenue, less current portion                3,465     5,363
Deferred tax liability                                4,241     4,220
Other liabilities                                    24,101    11,527
                                                   --------- ---------

Redeemable preferred stock                          117,508   106,761

Total stockholders' equity (deficit)                (20,241)   28,363
                                                   --------- ---------

  Total liabilities and stockholders' equity
   (deficit)                                       $303,227  $351,734
                                                   ========= =========

Aspen Technology, Inc.
Joshua Young, 617-949-1274
joshua.young@aspentech.com