Aspen Technology Announces Financial Results for the Third Quarter of Fiscal 2016

April 28, 2016
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BEDFORD, Mass.--(BUSINESS WIRE)--Apr. 28, 2016-- Aspen Technology, Inc. (NASDAQ: AZPN), a leading provider of software and services to the process industries, today announced financial results for its third quarter of fiscal year 2016, ended March 31, 2016.

Antonio Pietri, President and Chief Executive Officer of AspenTech, said, “AspenTech delivered third quarter results that exceeded expectations on both the top and bottom line, highlighted by a 50% non-GAAP operating margin. Although certain market and geographic segments continue to be challenging, overall we believe we remain well positioned to deliver a year of positive growth in the current environment.”

Pietri added, “Today we are also announcing that AspenTech’s Board of Directors has approved a $400 million dollar expansion to our share repurchase program, which we intend to use in its entirety during fiscal 2017. This announcement demonstrates the strength and predictability of our cash flow and balance sheet, and underscores our commitment to deploy our substantial financial resources to produce value for our shareholders.”

Third Quarter Fiscal 2016 and Recent Business Highlights

  • Annual spend, which the company defines as the annualized value of all term license and maintenance revenue contracts at the end of the quarter, was approximately $431 million at the end of the third quarter of fiscal 2016, which increased 4.6% compared to the third quarter of fiscal 2015 and was flat sequentially.
  • GAAP operating margin was 42.5%, compared to 37.5% in the third quarter of fiscal 2015. Non-GAAP operating margin was 49.7%, compared to 43.7% in the third quarter of fiscal 2015.
  • We repurchased approximately 1.4 million shares of our common stock for $50.0 million in the third quarter of fiscal 2016.

Summary of Third Quarter Fiscal Year 2016 Financial Results

AspenTech’s total revenue of $119.2 million increased 7.1% from $111.3 million in the third quarter of the prior fiscal year.

  • Subscription and software revenue was $111.7 million in the third quarter of fiscal 2016, an increase from $102.5 million in the third quarter of fiscal 2015.
  • Services and other revenue was $7.5 million in the third quarter of fiscal 2016, compared to $8.8 million in the third quarter of fiscal 2015.

For the quarter ended March 31, 2016, AspenTech reported income from operations of $50.7 million, compared to income from operations of $41.7 million for the quarter ended March 31, 2015.

Net income was $33.2 million for the quarter ended March 31, 2016, leading to net income per share of $0.40, compared to net income per share of $0.32 in the same period last fiscal year.

Non-GAAP income from operations, which adds back stock-based compensation expense, amortization of intangibles associated with acquisitions, acquisition-related costs and non-capitalized acquired technology, was $59.3 million for the third quarter of fiscal 2016, compared to non-GAAP income from operations of $48.7 million in the same period last fiscal year. Non-GAAP net income was $40.9 million, or $0.49 per share, for the third quarter of fiscal 2016, compared to non-GAAP net income of $32.6 million, or $0.37 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 a cash and marketable securities balance of $105.9 million at March 31, 2016, a decrease of $94.6 million from the end of the prior quarter.

During the third quarter, the company generated $69.7 million in cash flow from operations and $77.2 million in free cash flow.

Board of Directors Approves $400 Million Expansion of Share Repurchase Program

AspenTech's Board of Directors has approved a $400 million expansion to our existing share repurchase program. This expansion is in addition to the $196 million that remained on the plan as of March 31, 2016. Based on current market conditions and business outlook, it is the Company’s current intent to repurchase $400 million worth of stock during fiscal 2017. The timing and amount of any shares repurchased will be determined by AspenTech based on its evaluation of market conditions and other factors. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when AspenTech might otherwise be precluded from doing so under applicable insider trading laws and regulations. The repurchase program may be suspended or discontinued at any time.

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, April 28, 2016, at 4:30 p.m. (Eastern Time), to discuss the company's financial results for the third quarter fiscal year 2016 as well as the company’s business outlook.

The live dial-in number is (866) 604-6127 or (706) 634-5625, conference ID code 90329492. 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 90329492, through May 27, 2016.

About AspenTech

AspenTech is a leading supplier of software that optimizes process manufacturing – for energy, chemicals, engineering and construction, and other industries that manufacture and produce products from a chemical process. With integrated aspenONE solutions, process manufacturers can implement best practices for optimizing their engineering, manufacturing and supply chain operations. As a result, AspenTech customers are better able to increase capacity, improve margins, reduce costs and become more energy efficient. To see how the world’s leading process manufacturers rely on AspenTech to achieve their operational excellence goals, visit www.aspentech.com.

Forward-Looking Statements

The second and third paragraphs (as well as the first paragraph under “Board of Directors Approves $400 Million Expansion of Share Repurchase Program”) 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, 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; 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.

© 2016 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     Nine Months Ended
      March 31,     March 31,
        2016         2015         2016       2015  
Revenue:                        
Subscription and software     $ 111,722       $ 102,543       $ 333,707       $ 300,002  
Services and other       7,495         8,756         24,957         26,213  
Total revenue       119,217         111,299         358,664         326,215  
Cost of revenue:                        
Subscription and software       5,266         5,404         15,475         15,813  
Services and other       6,754         6,905         21,405         21,142  
Total cost of revenue       12,020         12,309         36,880         36,955  
Gross profit       107,197         98,990         321,784         289,260  
Operating expenses:                        
Selling and marketing       23,090         23,160         66,704         67,599  
Research and development       17,820         20,323         50,398         52,548  
General and administrative       15,606         13,776         42,273         36,227  
Total operating expenses, net       56,516         57,259         159,375         156,374  
Income from operations       50,681         41,731         162,409         132,886  
Interest income       90         122         243         389  
Interest expense       (330 )       (1 )       (344 )       (8 )
Other income (expense), net       (2,686 )       414         (1,947 )       354  
Income before provision for income taxes       47,755         42,266         160,361         133,621  
Provision for income taxes       14,584         14,096         53,736         46,020  
Net income     $ 33,171       $ 28,170       $ 106,625       $ 87,601  
Net income per common share:                        
Basic     $ 0.40       $ 0.32       $ 1.28       $ 0.98  
Diluted     $ 0.40       $ 0.32       $ 1.27       $ 0.97  
Weighted average shares outstanding:                        
Basic       83,081         87,355         83,425         89,509  
Diluted       83,373         87,853         83,842         90,121  
                                         
     
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share data)
             
      March 31,     June 30,
        2016       2015  
             
ASSETS
Current assets:            
Cash and cash equivalents     $ 96,910       $ 156,249  
Short-term marketable securities       9,025         59,197  
Accounts receivable, net       21,749         30,721  

Prepaid expenses and other current assets

       8,991         10,752  
Acquisition bid related deposits       251,670         -  
Prepaid income taxes       525         542  
Current deferred tax assets       6,117         6,169  
Total current assets       394,987         263,630  
Long-term marketable securities       -         3,047  
Property, equipment and leasehold improvements, net       15,938         18,039  
Computer software development costs, net       539         1,026  
Goodwill       16,781         17,360  
Non-current deferred tax assets       9,731         10,444  
Other non-current assets       1,455         1,815  
Total assets     $ 439,431       $ 315,361  
             
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:            
Accounts payable     $ 3,877       $ 5,240  
Accrued expenses and other current liabilities       34,627         38,483  
Income taxes payable       3,509         1,775  
Borrowings under credit agreement       140,000         -  
Current deferred revenue       234,285         250,968  
Total current liabilities       416,298         296,466  
Non-current deferred revenue       30,537         37,919  
Other non-current liabilities       28,051         29,522  
             
Series D redeemable convertible preferred stock, $0.10 par value—            
Authorized— 3,636 shares as of March 31, 2016 and June 30, 2015            
Issued and outstanding— none as of March 31, 2016 and June 30, 2015       -         -  
Stockholders’ deficit:            

Common stock, $0.10 par value— Authorized—210,000,000 shares
Issued— 101,920,507 shares at March 31, 2016 and 101,607,520 shares at June 30, 2015
Outstanding— 82,030,943 shares at March 31, 2016 and 84,504,202 shares at June 30, 2015

            
           
      10,192         10,161  
Additional paid-in capital       655,555         641,883  
Accumulated deficit       (39,002 )       (145,627 )
Accumulated other comprehensive income       4,299         6,470  

Treasury stock, at cost—19,889,564 shares of common stock at March 31, 2016
and 17,103,318 shares at June 30, 2015

      

(666,499

)

      

(561,433

)
Total stockholders’ deficit       (35,455 )       (48,546 )
Total liabilities and stockholders' deficit     $ 439,431       $ 315,361  
                     
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited in thousands)  
                       

 
        Three Months Ended   Nine Months Ended  

 
        March 31,   March 31,    
          2016       2015       2016       2015    

 
  Cash flows from operating activities:                      
  Net income     $ 33,171     $ 28,170     $ 106,625     $ 87,601    

 

 

  
  Adjustments to reconcile net income to net cash provided by operating activities:              
  Depreciation and amortization       1,499       1,758       4,519       4,616      

 

  
  Net foreign currency losses (gains)       2,865       (1,336 )     1,421       (2,715 )    

 

 
  Stock-based compensation       4,378       3,456       12,313       11,122      

 

  
  Deferred income taxes       828       (456 )     695       21,317      

 

 
  Provision for (recovery from) bad debts       (2 )     (809 )     174       (471 )    

 

  
  Tax benefits from stock-based compensation       47       14,159       1,878       21,843      

 

  
  Excess tax benefits from stock-based compensation       (47 )     (14,159 )     (1,878 )     (21,843 )    

 

 
  Other non-cash operating activities       (14 )     619       257       1,401      

 

  
  Changes in assets and liabilities:       -                  
  Accounts receivable       (7,207 )     (7,622 )     8,513       10,897      

 

  
  Prepaid expenses, prepaid income taxes, and other assets       1,453       1,185       3,446       6,069      

 

  
  Accounts payable, accrued expenses, income taxes payable and other liabilities       (2,276 )     4,055       (5,583 )     (1,198 )    

 

 
  Deferred revenue       35,028       35,622       (23,485 )     (222 )    

 

 
  Net cash provided by operating activities       69,723       64,642       108,895       138,417      

 

  
  Cash flows from investing activities:                      
  Purchases of marketable securities       -       (11,017 )     -       (50,065 )    

 

  
  Maturities of marketable securities       20,916       27,911       52,965       66,923      

 

  
  Purchases of property, equipment and leasehold improvements       (749 )     (1,586 )     (2,530 )     (5,914 )    

 

 
  Acquisition related deposits       (255,067 )     -       (255,067 )     -      

 

  
  Payments for capitalized computer software costs       -       (178 )     -       (315 )    

 

  
  Net cash (used in) provided by investing activities       (234,900 )     15,130       (204,632 )     10,629      

 

  
  Cash flows from financing activities:                      
  Exercises of stock options       417       531       2,862       2,046      

 

  
  Repurchases of common stock       (46,338 )     (106,973 )     (103,128 )     (222,878 )    

 

 
  Payments of tax withholding obligations related to restricted stock       (1,216 )     (1,300 )     (3,404 )     (3,874 )    

 

 
  Excess tax benefits from stock-based compensation       47       14,159       1,878       21,843      

 

  
  Proceeds from credit agreement       140,000       -       140,000       -      

 

  
  Payments of credit agreement issuance costs       (1,587 )     -       (1,587 )     -      

 

  
  Net cash provided by (used in) financing activities       91,323       (93,583 )     36,621       (202,863 )    

 

 
  Effect of exchange rate changes on cash and cash equivalents       141       (670 )     (223 )     (1,747 )    

 

 
  Decrease in cash and cash equivalents       (73,713 )     (14,481 )     (59,339 )     (55,564 )    

 

  
  Cash and cash equivalents, beginning of period       170,623       158,443       156,249       199,526      

 

  
  Cash and cash equivalents, end of period     $ 96,910     $ 143,962     $ 96,910     $ 143,962    

 

 

  
                         
  Supplemental disclosure of cash flow information:                      
  Income taxes paid, net     $ 17,115     $ 312     $ 51,612     $ 2,933      

 

  
                                             
 
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Results of Operations and Free Cash Flow
The following tables reflect a reconciliation of selected Aspen Technology GAAP to Non-GAAP results of operations and cash flow.

(unaudited in thousands, except per share data)
                           
      Three Months Ended

March 31,

     Nine Months Ended

March 31,
      2016     2015       2016     2015

Total expenses

                          
GAAP total expenses (a)     $ 68,536       $ 69,568         $ 196,255       $ 193,329  
Less:                          
Stock-based compensation (b)       (4,378 )       (3,456 )         (12,313 )       (11,122 )
Non-capitalized acquired technology (e)       -         (3,277 )         (250 )       (3,277 )
Amortization of purchased technology intangibles       (14 )       (187 )         (147 )       (635 )
KBC acquisition bid costs (f)       (4,187 )       -           (5,213 )       -  
                           
Non-GAAP total expenses     $ 59,957       $ 62,648         $ 178,332       $ 178,295  
                           

Income from operations

                          
GAAP income from operations     $ 50,681       $ 41,731         $ 162,409       $ 132,886  
Plus:                          
Stock-based compensation (b)       4,378         3,456           12,313         11,122  
Non-capitalized acquired technology (e)       -         3,277           250         3,277  
Amortization of purchased technology intangibles       14         187           147         635  
KBC acquisition bid costs (f)       4,187         -           5,213         -  
                           
Non-GAAP income from operations     $ 59,260       $ 48,651         $ 180,332       $ 147,920  
                           

Net income

                          
GAAP net income     $ 33,171       $ 28,170         $ 106,625         87,601  
Plus:                          
Stock-based compensation (b)       4,378         3,456           12,313         11,122  
Non-capitalized acquired technology (e)       -         3,277           250         3,277  
Amortization of purchased technology intangibles       14         187           147         635  
KBC acquisition bid costs (f)       7,623         -           8,649         -  
Less:                          
Income tax effect on Non-GAAP items (c)       (4,325 )       (2,491 )         (7,689 )       (5,412 )
                           
Non-GAAP net income     $ 40,861       $ 32,599         $ 120,295       $ 97,223  
                           

Diluted income per share

                          
GAAP diluted income per share     $ 0.40       $ 0.32         $ 1.27       $ 0.97  
Plus:                          
Stock-based compensation (b)       0.05         0.04           0.15         0.12  
Non-capitalized acquired technology (e)       -         0.04           -         0.04  
Amortization of purchased technology intangibles       -         -           -         0.01  
KBC acquisition bid costs (f)       0.09         -           0.10         -  
Less:                          
Income tax effect on Non-GAAP items (c)       (0.05 )       (0.03 )         (0.09 )       (0.06 )
                           
Non-GAAP diluted income per share     $ 0.49       $ 0.37         $ 1.43       $ 1.08  
                           
Shares used in computing Non-GAAP diluted income per share       83,373         87,853           83,842         90,121  
                                           
             
      Three Months Ended

March 31,

     Nine Months Ended

March 31,
      2016     2015       2016     2015

Free Cash Flow

                            
GAAP cash flow from operating activities     $ 69,723       $ 64,642           $ 108,895       $ 138,417  
                             
Purchase of property, equipment and leasehold improvements       (749 )       (1,586 )           (2,530 )       (5,914 )
Capitalized computer software development costs       -         (178 )           -         (315 )
Non-capitalized acquired technology (e)       -         2,621             1,250         2,621  
Litigation related payments       2,080         -             2,080         -  
KBC acquisition bid costs (f)       6,068         -             6,068         -  
Excess tax benefits from stock-based compensation (d)       47         14,159             1,878         21,843  
                             
                             
Free Cash Flow     $ 77,169       $ 79,658           $ 117,641       $ 156,652  
                             
(a) GAAP total expenses                            
      Three Months Ended

March 31,

     Nine Months Ended

March 31,
        2016         2015             2016         2015  
Total costs of revenue     $ 12,020       $ 12,309           $ 36,880       $ 36,955  
Total operating expenses       56,516         57,259             159,375         156,374  
GAAP total expenses     $ 68,536       $ 69,568           $ 196,255       $ 193,329  
                             
(b) Stock-based compensation expense was as follows:                            
      Three Months Ended

March 31,

     Nine Months Ended

March 31,
        2016         2015             2016         2015  
Cost of services and other     $ 343       $ 336           $ 1,049       $ 1,014  
Selling and marketing       1,797         778             3,547         2,282  
Research and development       871         959             2,543         2,923  
General and administrative       1,367         1,383             5,174         4,903  
Total stock-based compensation     $ 4,378       $ 3,456           $ 12,313       $ 11,122  
                             

(c) The income tax effect on non-GAAP items for the three months ended March 31, 2016 and 2015 is calculated utilizing the Company's estimated federal and state tax rate of 36%.

(d) Excess tax benefits from stock-based compensation are included in free cash flow to be consistent with the treatment of other tax benefits. Refer to the Company's Form 10-Q for the period ended March 31, 2016 for additional details.

(e) During the nine months ended March 31, 2016, we acquired certain technology for $0.3 million as a part of projects initiated during the period to develop commercially available products. At the time of these purchases, the projects did not meet the accounting definition of having reached technological feasibility, and, as such, the costs of the acquired technology were expensed during the nine months ended March 31, 2016. During the nine months ended March 31, 2016, we excluded the payments of $1.3 million for the non-capitalized acquired technology (including a $1 million final payment related to non-capitalized acquired technology from fiscal year 2014) from free cash flow to be consistent with the treatment of other transactions where acquired assets are capitalized. There were no such activities for the three months ended March 31, 2016.

(f) During the three and nine months ended March 31, 2016, we incurred $4.2 million and $5.2 million, respectively, of operating expenses related to the bid to acquire KBC Advanced Technologies plc. During the three months ended March 31, 2016, we also incurred $3.4 million of foreign exchange losses and fees that were recognized as a component of other income (expense), net, related to the acquisition bid escrow account. Refer to the Company's Form 10-Q for the period ended March 31, 2016 for additional details.

 

Source: Aspen Technology, Inc.

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