It has been about a month since the last earnings report for Aspen Technology (AZPN - Free Report) . Shares have added about 7.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aspen Technology due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers. <p style="text-align: justify;">Aspen Technology 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.<br /><br />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.<br /><br />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.<br /><br /><strong>Quarter in Detail</strong><br /><br />Subscription and Software revenues (accounted for 94.9% of total revenues) grew 3.5% to $119.5 million on a year-over-year basis.<br /><br />Services and other revenues (5.1%) declined 21.7% from the year ago quarter to $6.5 million.<br /><br />Deferred revenues (current plus non-current) increased 4.9% year over year to $315.1 million.<br /><br />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.<br /><br />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.<br /><br />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.<br /><br /><strong>Fiscal 2018 at a Glance</strong><br /><br />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.<br /><br />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.<br /><br /><strong>Margin Details</strong><br /><br />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.<br /><br />Non-GAAP operating margin contracted 90 bps on a year-over-year basis to 45.2%.<br /><br /><strong>Balance Sheet & Cash Flow</strong><br /><br />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.<br /><br />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.<br /><br />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.<br /><br /><strong>Guidance</strong><br /><br />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.<br /><br />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.<br /><br />The company will report revenues in three units from fiscal 2019: Maintenance, License and Service & other revenues.<br /><br />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.<br /><br />Free cash flow is expected to come in the range of $220 -$225 million.<br /><br />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%.<br /><br />AspenTech intends to repurchase shares worth $200 million through fiscal 2019.</p>
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -30.47% due to these changes.
Currently, Aspen Technology has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Aspen Technology has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.