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Aspen Technology (AZPN) Up 1.7% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Aspen Technology (AZPN). Shares have added about 1.7% in that time frame, underperforming 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 catalysts.

Aspen Technology Q1 Earnings & Revenues Beat Estimates

Aspen Technology reported first-quarter fiscal 2023 non-GAAP earnings of $2.20 per share, beating the Zacks Consensus Estimate of $1.23. The company reported non-GAAP earnings of 31 cents per share in the year-ago quarter.

Revenues of $250.8 million surpassed the Zacks Consensus Estimate by 10.3%. The company reported revenues of $77 million in the year-ago quarter. The top-line performance was driven by the acquisition of Emerson’s business units. The integration of Emerson's OSI and GSS businesses with Aspen will aid the company to move toward its token licensing model.

The company also announced that it is migrating its dealer grid management (DGM) product line from a perpetual license to a term contract structure, which is expected to begin in the latter half of the year. This will allow the company to cross-sell DGM products in the heritage AspenTech market.

The company also plans to acquire Micromine to capitalize on the metals and mining market by the second quarter.

Quarter in Detail

License revenues (63.9% of revenues) were up 263% year over year to $160.2 million.

Maintenance revenues (31.3%) rose 220% year over year to $78.4 million.
Services and other revenues (4.8%) rose 47% from the year-ago quarter’s figure to $12.2 million.

As of Sep 30, 2022, the annual spend (which Aspen Technology defines as the annualized value of all term license and maintenance contracts at the end of the quarter) amounted to $682.3 million, up 8.3% year over year and 1.2% quarter over quarter.

Margins

Gross profit increased to $159.7 million from the year-ago quarter’s figure of $33.5 million. As a percentage of total revenues, the figure increased to 63.7% from 43.5% reported in the prior-year quarter.

Total operating expenses increased to $210.8 million from the year-ago quarter’s figure of $47.4 million due to higher selling, marketing and research and development costs.

Non-GAAP operating income totaled $92.5 million compared with $15.3 million reported in the prior-year quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2022, cash and cash equivalents were $382.5 million compared with $449.7 million as of Jun 30, 2022. The company’s total borrowings stood at $270 million as of Sep 30, 2022.

The company generated $5.1 million in cash from operations compared with $0.3 million of cash used from operations in the previous quarter. Non-GAAP free cash flow was $10.7 million in the fiscal first quarter.

Fiscal 2023 View

For fiscal 2023, Aspen expects revenues in the range of $1.14-$1.20 billion. Management projects Annual Contract Value (ACV) growth of 10.5%-13.5% year over year.

Total bookings are projected in the range of $1.07-$1.17 billion.

Non-GAAP net income is anticipated to be $6.76-$6.91 per share.

Management projects non-GAAP operating income in the range of $503-$555 million. Non-GAAP total expenses are projected to be between $637 million and $647 million.

The free cash flow is projected in the range of $347-$362 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -23.13% due to these changes.

VGM Scores

Currently, Aspen Technology has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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 #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Aspen Technology is part of the Zacks Internet - Software industry. Over the past month, Snap (SNAP), a stock from the same industry, has gained 8%. The company reported its results for the quarter ended September 2022 more than a month ago.

Snap reported revenues of $1.13 billion in the last reported quarter, representing a year-over-year change of +5.7%. EPS of $0.08 for the same period compares with $0.17 a year ago.

Snap is expected to post earnings of $0.09 per share for the current quarter, representing a year-over-year change of -59.1%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

Snap has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

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