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Aspen Technologies (AZPN) Q4 Earnings Top, Revenues In Line

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Aspen Technology (AZPN - Free Report) delivered fourth-quarter fiscal 2018 non-GAAP earnings of 59 cents per share surpassing the Zacks Consensus Estimate by 3 cents. The figure also exceeded the higher end of management’s guided range of 53-55 cents per share. However, the figure declined 25.3% from the year-ago quarter figure of 79 cents per share.

Revenues inched up 1.8% from the year-ago quarter to almost $126 million in line with the Zacks Consensus Estimate. However, the reported figure came ahead of the higher end of management’s projected range of $123-$125 million.

Increase in subscription and software revenues supported year-over-year revenue growth. Impressive performance of Asset Performance Management (“APM”) suite and SMB business aided growth. The company witnessed increased demand for Manufacturing & Supply Chain (“MSC”) and engineering suites from owner-operator customers.

Quarter in Detail

Subscription and Software revenues (accounted for 94.9% of total revenues) grew 3.5% to $119.5 million on a year-over-year basis.

Services and other revenues (5.1%) declined 21.7% from the year ago quarter to $6.5 million.

Deferred revenues (current plus non-current) increased 4.9% year over year to $315.1 million.

Annual spend at the end of reported quarter increased 6.4% year over year to approximately $489 million. APM suite contributed 0.8% points to growth in annual spend.

Management remains elated on robust sales execution across Europe, North America and Asia-Pacific. However demand from Electronics and Communication (E&C) vertical across North America remained sluggish.

APM suite continues to gain traction. The Aspen Mtell offering also witnessed a robust quarter. APM pipeline has quadrupled from the year-ago quarter. APM pipeline is 38% of total pipeline.

Fiscal 2018 at a Glance

In fiscal 2018, non-GAAP total revenues increased 3.4% over fiscal 2017 to $499.5 million. The figure was better than management’s guided range of $496-$498 million. Earnings of $2.31 per share inched up 0.4% over fiscal 2017 and were better than management’s guidance of $2.24-$2.27 per share.

Non-GAAP operating income came in at $237.0 million in fiscal 2018 compared with $235.8 million in fiscal year 2017. The figure matched the higher end of management’s projected range of $234-$237 million.

Margin Details

Gross margin contracted 60 basis points (bps) year over year to 89.6%. Operating expenses declined 0.7% to $62.2 million from the year-ago quarter.

Non-GAAP operating margin contracted 90 bps on a year-over-year basis to 45.2%.

Aspen Technology, Inc. Price, Consensus and EPS Surprise

Balance Sheet & Cash Flow

As of Jun 30, 2018, cash and marketable securities were $96.2 million up from $71.1 million at the end of the previous quarter. However, the borrowings were $170.0 million almost flat from the previous quarter.

The company bought back 550,000 shares for $50 million in the reported quarter as part of its stock repurchase plan. The company achieved its target of repurchasing 2.8 million shares worth $200 million of stock through 2018.

Aspen generated $79.1 million cash from operations in the quarter compared with $73.1 million reported in the previous quarter. Free cash flow came in at $79.5 millioncompared with $78.1 million at the end of the previous quarter.

Guidance

AspenTech will adopt ASC 606 from fiscal 2019. Under ASC 606, AspenTech forecasts revenues between $555 million and $585 million, including $398 million worth renewal contracts for fiscal 2019. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $526.7 million.

Non-GAAP operating income and non-GAAP earnings are projected in the range $257-$283 million and $3.06-$3.34 per share, respectively. The Zacks Consensus Estimate for earnings is pegged at $2.75 cents per share.

The company will report revenues in three units from fiscal 2019: Maintenance, License and Service & other revenues.

License revenues are projected between $345 million and $365 million. Maintenance revenues are envisioned in the range of $165-$169 million. Meanwhile, Service & other revenues are expected to be in the band of $28-$30 million.

Free cash flow is expected to come in the range of $220 -$225 million.

APM suite is projected to contribute 1.5-2.5% growth to the anticipated annual spend increase of 7-9%, wherein Engineering and MSC suites are projected to contribute 5.5-7%.

AspenTech intends to repurchase shares worth $200 million through fiscal 2019.

Zacks Rank& Key Picks

AspenTech has a Zacks Rank #3 (Hold).

Mellanox (MLNX - Free Report) , Microsoft (MSFT - Free Report) and Intel (INTC - Free Report) in the broader technology sector, each sporting a Zacks Rank #1 (Strong Buy) are worth considering. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mellanox, Microsoft and Intel have a long-term earnings growth rate of 15%, 12.3% and 8.4%, respectively.

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