Aspen Technology Announces Financial Results for the Third Quarter of Fiscal 2017

May 2, 2017
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BEDFORD, Mass.--(BUSINESS WIRE)--May 2, 2017-- Aspen Technology, Inc. (NASDAQ: AZPN), the asset optimization software company, today announced financial results for its third quarter of fiscal year 2017, ended March 31, 2017.

Antonio Pietri, President and Chief Executive Officer of AspenTech, said “AspenTech reported third quarter fiscal 2017 financial results that exceeded expectations from a revenue and profitability perspective. The demand from our owner-operator customers offset the impact of continued macroeconomic challenges facing engineering and construction and upstream customers.”

Pietri continued, “Last week we hosted our biennial OPTIMIZE 2017 user conference, which was focused on Asset Optimization. Customers showed strong interest in the direction of our engineering and manufacturing and supply chain products and the significant value those solutions can capture from increased asset efficiency. A highlight of the conference was the positive customer reaction to our new Asset Performance Maintenance (APM) suite, which expands AspenTech’s capabilities into the maintenance of the physical asset by leveraging reliability analysis, machine-based learning, and prescriptive analytics. We are excited by the opportunity for APM and believe it can be an important contributor to growth in the coming years.”

Pietri concluded, “At the same time, we continued to utilize our strong cash flow to generate value for shareholders via our share buyback program, which in the third quarter surpassed $1 billion in cumulative repurchases since the program began in fiscal year 2011.”

Third Quarter Fiscal 2017 Business Highlights

  • Annual spend, which the company defines as the annualized value of all term license and maintenance contracts at the end of the quarter, was approximately $452 million at the end of the third quarter of fiscal 2017, which increased 4.9% compared to the third quarter of fiscal 2016 and 0.3% sequentially.
  • GAAP operating margin was 43.8%, compared to 42.5% in the third quarter of fiscal 2016. Non-GAAP operating margin was 48.1%, compared to 49.7% in the third quarter of fiscal 2016.
  • AspenTech repurchased 1.7 million shares of its common stock for $100.0 million in the third quarter of fiscal 2017.

Summary of Third Quarter Fiscal Year 2017 Financial Results

AspenTech’s total revenue of $119.3 million included:

  • Subscription and software revenue was $111.7 million in the third quarter of fiscal 2017, consistent with $111.7 million in the third quarter of fiscal 2016.
  • Services and other revenue was $7.6 million in the third quarter of fiscal 2017, an increase from $7.5 million in the third quarter of fiscal 2016.

For the quarter ended March 31, 2017, AspenTech reported income from operations of $52.3 million, compared to income from operations of $50.7 million for the quarter ended March 31, 2016.

Net income was $35.8 million for the quarter ended March 31, 2017, leading to net income per share of $0.47, compared to net income per share of $0.40 in the same period last fiscal year.

Non-GAAP income from operations, which adds back the impact of stock-based compensation expense, amortization of intangibles associated with acquisitions, acquisition-related expenses and non-capitalized acquired technology was $57.4 million for the third quarter of fiscal 2017, compared to non-GAAP income from operations of $59.3 million in the same period last fiscal year. Non-GAAP net income was $39.4 million, or $0.52 per share, for the third quarter of fiscal 2017, compared to non-GAAP net income of $40.9 million, or $0.49 per share, in the same period last fiscal year. A reconciliation of GAAP to non-GAAP results is included in the financial tables included in this press release.

AspenTech had cash and marketable securities of $101.7 million and borrowings of $140.0 million at March 31, 2017.

During the third quarter, the company generated $55.6 million in cash flow from operations and $56.2 million in free cash flow.

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, May 2, 2017, at 4:30 p.m. (Eastern Time), to discuss the company's financial results for the third quarter fiscal year 2017 as well as the company’s business outlook.

The live dial-in number is (866) 604-6127 or (443) 961-0460, conference ID code 7805720. 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 7805720, through June 2, 2017.

About AspenTech

AspenTech is a leading software supplier for optimizing asset performance. Our products thrive in complex, industrial environments where it is critical to optimize the asset design, operation and maintenance lifecycle. AspenTech uniquely combines decades of process modeling expertise with big data machine-learning. Our purpose-built software platform automates knowledge work and builds sustainable competitive advantage by delivering high returns over the entire asset lifecycle. As a result, companies in capital-intensive industries can maximize uptime and push the limits of performance, running their assets faster, safer, longer and greener. Visit AspenTech.com to find out more.

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 increase usage and product adoption of aspenONE offerings, and failure to continue to provide innovative, market-leading solutions; demand for, or usage of, aspenONE software declines for any reason, including declines due to adverse changes in the process industries; 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 obligation to update forward-looking statements after the date of this press release.

© 2017 Aspen Technology, Inc. AspenTech, aspenONE and the Aspen leaf logo are registered 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
March 31,

      

Nine Months Ended
March 31,
          2017         2016           2017         2016  
Revenue:                            
Subscription and software       $ 111,717       $ 111,722         $ 338,077       $ 333,707  
Services and other         7,560         7,495           21,184         24,957  
Total revenue         119,277         119,217           359,261         358,664  
Cost of revenue:                            
Subscription and software         5,521         5,266           15,766         15,475  
Services and other         6,746         6,754           19,586         21,405  
Total cost of revenue         12,267         12,020           35,352         36,880  
Gross profit         107,010         107,197           323,909         321,784  
Operating expenses:                            
Selling and marketing         22,269         23,090           66,123         66,704  
Research and development         20,348         17,820           57,577         50,398  
General and administrative         12,120         15,606           37,140         42,273  
Total operating expenses         54,737         56,516           160,840         159,375  
Income from operations         52,273         50,681           163,069         162,409  
Interest income         176         90           665         243  
Interest (expense)         (959 )       (330 )         (2,721 )       (344 )
Other (expense) income, net         (56 )       (2,686 )         1,287         (1,947 )
Income before provision for income taxes         51,434         47,755           162,300         160,361  
Provision for income taxes         15,600         14,584           54,455         53,736  
Net income       $ 35,834       $ 33,171         $ 107,845       $ 106,625  
Net income per common share:                            
Basic       $ 0.47       $ 0.40         $ 1.40       $ 1.28  
Diluted       $ 0.47       $ 0.40         $ 1.39       $ 1.27  
Weighted average shares outstanding:                            
Basic         75,676         83,081           77,221         83,425  
Diluted         76,182         83,373           77,652         83,842  
                             
                 
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share data)
                 
       

March 31,
2017

      

June 30,
2016
ASSETS                
Current assets:                
Cash and cash equivalents       $ 84,552         $ 318,336  
Short-term marketable securities         17,137           3,006  
Accounts receivable, net         35,192           20,476  
Prepaid expenses and other current assets         9,655           13,948  
Prepaid income taxes         516           5,557  
Total current assets         147,052           361,323  
Property, equipment and leasehold improvements, net         14,154           15,825  
Computer software development costs, net         505           720  
Goodwill         50,909           23,438  
Intangible assets, net         21,223           5,000  
Non-current deferred tax assets         8,868           12,236  
Other non-current assets         1,241           1,196  
Total assets       $ 243,952         $ 419,738  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current liabilities:                
Accounts payable       $ 4,643         $ 3,559  
Accrued expenses and other current liabilities         38,342           36,105  
Income taxes payable         3,499           439  
Borrowings under credit agreement         140,000           140,000  
Current deferred revenue         240,791           252,520  
Total current liabilities         427,275           432,623  
Non-current deferred revenue         27,661           29,558  
Other non-current liabilities         38,511           32,591  
Commitments and contingencies (Note 16)                
Series D redeemable convertible preferred stock, $0.10 par value—

Authorized— 3,636 shares as of March 31, 2017 and June 30, 2016

Issued and outstanding— none as of March 31, 2017 and June 30, 2016

         —           —  
Stockholders’ deficit:                
Common stock, $0.10 par value— Authorized—210,000,000 shares

Issued— 102,484,948 shares at March 31, 2017 and 102,031,960 shares at June 30, 2016

Outstanding— 74,661,804 shares at March 31, 2017 and 80,177,950 shares at June 30, 2016

         10,249           10,203  
Additional paid-in capital         679,471           659,287  
Retained earnings (deficit)         102,168           (5,676 )
Accumulated other comprehensive income         116           2,651  
Treasury stock, at cost—27,823,144 shares of common stock at March 31, 2017 and 21,854,010 shares at June 30, 2016         (1,041,499 )         (741,499 )
Total stockholders’ deficit         (249,495 )         (75,034 )
Total liabilities and stockholders’ deficit       $ 243,952         $ 419,738  
                             
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
                 
       

Three Months Ended
March 31,

      

Nine Months Ended
March 31,
          2017         2016           2017         2016  
Cash flows from operating activities:                            
Net income       $ 35,834       $ 33,171         $ 107,845       $ 106,625  
Adjustments to reconcile net income to net cash provided by operating activities:                            
Depreciation and amortization         1,693         1,499           4,993         4,519  
Net foreign currency losses (gains)         281         2,865           (2,020 )       1,421  
Stock-based compensation         4,677         4,378           14,307         12,313  
Deferred income taxes         987         828           1,169         695  
Provision for bad debts         169         (2 )         225         174  
Tax benefits from stock-based compensation         1,312         47           2,344         1,878  
Excess tax benefits from stock-based compensation         (1,312 )       (47 )         (2,344 )       (1,878 )
Other non-cash operating activities         390         (14 )         430         257  
Changes in assets and liabilities, excluding initial effects of acquisitions:                            
Accounts receivable         (17,438 )       (7,207 )         (14,944 )       8,513  
Prepaid expenses, prepaid income taxes, and other assets         (13 )       1,453           3,648         3,446  
Accounts payable, accrued expenses, income taxes payable and other liabilities         1,863         (2,276 )         6,947         (5,583 )
Deferred revenue         27,178         35,028           (13,562 )       (23,485 )
Net cash provided by operating activities         55,621         69,723           109,038         108,895  
Cash flows from investing activities:                            
Purchases of marketable securities         —         —           (683,748 )       —  
Maturities of marketable securities         55,837         20,916           669,216         52,965  
Purchases of property, equipment and leasehold improvements         (777 )       (749 )         (2,151 )       (2,530 )
Acquisition related deposits         —         (255,067 )         —         (255,067 )
Payments for business acquisitions, net of cash acquired         —         —           (36,171 )       —  
Payments for capitalized computer software costs         (26 )       —           (126 )       —  
Net cash provided by (used in) investing activities         55,034         (234,900 )         (52,980 )       (204,632 )
Cash flows from financing activities:                            
Exercises of stock options         3,049         417           7,892         2,862  
Repurchases of common stock         (96,058 )       (46,338 )         (295,642 )       (103,128 )
Payments of tax withholding obligations related to restricted stock         (1,560 )       (1,216 )         (4,346 )       (3,404 )
Excess tax benefits from stock-based compensation         1,312         47           2,344         1,878  
Proceeds from credit agreement         —         140,000           —         140,000  
Payments of credit agreement issuance costs         —         (1,587 )         —         (1,587 )
Net cash (used in) provided by financing activities         (93,257 )       91,323           (289,752 )       36,621  
Effect of exchange rate changes on cash and cash equivalents         128         141           (90 )       (223 )
Increase (decrease) in cash and cash equivalents         17,526         (73,713 )         (233,784 )       (59,339 )
Cash and cash equivalents, beginning of period         67,026         170,623           318,336         156,249  
Cash and cash equivalents, end of period       $ 84,552       $ 96,910         $ 84,552       $ 96,910  
                             
Supplemental disclosure of cash flow information:                            
Income taxes paid, net       $ 16,742       $ 17,115         $ 41,742       $ 51,612  
Interest paid         920         330           2,499         344  
                                     
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
Reconciliation of 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,
            2017           2016             2017           2016  

Total expenses

                                    
GAAP total expenses (a)         $ 67,004         $ 68,536           $ 196,192         $ 196,255  
Less:                                    
Stock-based compensation (b)           (4,677 )         (4,378 )           (14,307 )         (12,313 )
Non-capitalized acquired technology (e)           —           —             (350 )         (250 )
Amortization of intangibles           (405 )         (14 )           (516 )         (147 )
Acquisition related fees           (31 )         (4,187 )           (493 )         (5,213 )
                                     
Non-GAAP total expenses         $ 61,891         $ 59,957           $ 180,526         $ 178,332  
                                     

Income from operations

                                    
GAAP income from operations         $ 52,273         $ 50,681           $ 163,069         $ 162,409  
Plus:                                    
Stock-based compensation (b)           4,677           4,378             14,307           12,313  
Non-capitalized acquired technology (e)           —           —             350           250  
Amortization of intangibles           405           14             516           147  
Acquisition related fees           31           4,187             493           5,213  
                                     
Non-GAAP income from operations         $ 57,386         $ 59,260           $ 178,735         $ 180,332  
                                     

Net income

                                    
GAAP net income         $ 35,834         $ 33,171           $ 107,845         $ 106,625  
Plus:                                    
Stock-based compensation (b)           4,677           4,378             14,307           12,313  
Non-capitalized acquired technology (e)           —           —             350           250  
Amortization of intangibles           405           14             516           147  
Acquisition related fees           31           7,623             493           8,649  
Less:                                    
Income tax effect on Non-GAAP items (c)           (1,554 )         (4,325 )           (5,248 )         (7,689 )
                                     
Non-GAAP net income         $ 39,393         $ 40,861           $ 118,263         $ 120,295  
                                     

Diluted income per share

                                    
GAAP diluted income per share         $ 0.47         $ 0.40           $ 1.39         $ 1.27  
Plus:                                    
Stock-based compensation (b)           0.06           0.05             0.18           0.15  
Non-capitalized acquired technology (e)           —           —             0.00           0.00  
Amortization of intangibles           0.01           0.00             0.01           0.00  
Acquisition related fees           0.00           0.09             0.01           0.10  
Less:                                    
Income tax effect on Non-GAAP items (c)           (0.02 )         (0.05 )           (0.07 )         (0.09 )
                                     
Non-GAAP diluted income per share         $ 0.52         $ 0.49           $ 1.52         $ 1.43  
                                     
Shares used in computing Non-GAAP diluted income per share           76,182           83,373             77,652           83,842  
                             
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
Reconciliation of 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,
          2017         2016           2017         2016  

Free Cash Flow

                            
GAAP cash flow from operating activities       $ 55,621       $ 69,723         $ 109,038       $ 108,895  
                             
Purchase of property, equipment and leasehold improvements         (777 )       (749 )         (2,151 )       (2,530 )
Capitalized computer software development costs         (26 )       —           (126 )       —  
Non-capitalized acquired technology (e)         —         —           846         1,250  
Excess tax benefits from stock-based compensation (d)         1,312         47           2,344         1,878  
Acquisition related fee payments         35         6,068           448         6,068  
Litigation related payments         —         2,080           —         2,080  
Free Cash Flow       $ 56,165       $ 77,169         $ 110,399       $ 117,641  
                             
(a) GAAP total expenses                            
       

Three Months Ended
March 31,

      

Nine Months Ended
March 31,
          2017         2016           2017         2016  
Total costs of revenue       $ 12,267       $ 12,020         $ 35,352       $ 36,880  
Total operating expenses         54,737         56,516           160,840         159,375  
GAAP total expenses       $ 67,004       $ 68,536         $ 196,192       $ 196,255  
                             
(b) Stock-based compensation expense was as follows:                            
       

Three Months Ended
March 31,

      

Nine Months Ended
March 31,
          2017         2016           2017         2016  
Cost of services and other       $ 363       $ 343         $ 1,106       $ 1,049  
Selling and marketing         972         1,797           2,937         3,547  
Research and development         1,618         871           4,177         2,543  
General and administrative         1,724         1,367           6,087         5,174  
Total stock-based compensation       $ 4,677       $ 4,378         $ 14,307       $ 12,313  

(c) The income tax effect on non-GAAP items for the three and nine months ended March 31, 2017 and 2016 is calculated utilizing the Company's estimated federal and state tax rate.

(d) Excess tax benefits are related to stock-based compensation tax deductions in excess of book compensation expense and reduce our income taxes payable. We have included the impact of excess tax benefits in free cash flow to be consistent with the treatment of other tax activity.

(e) In the nine months ended March 31, 2017 and March 31, 2016, we acquired technology that did not meet the accounting requirements for capitalization and therefore the cost of the acquired technology was expensed as research and development. We have excluded the expense of the acquired technology from non-GAAP operating income to be consistent with transactions where the acquired assets were capitalized. In the nine months ended March 31, 2017 and 2016, we have excluded payments of $0.8 million and $1.3 million, respectively, for the non-capitalized acquired technology (including $0.5 million and $1 million, respectively, of final payments related to non-capitalized acquired technology from prior fiscal periods) from free cash flow to be consistent with the treatment of other transactions where the acquired assets were capitalized.

 

Source: Aspen Technology, Inc.

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