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Aspen Technology Announces Financial Results for the Second Quarter of Fiscal 2018
[January 24, 2018]

Aspen Technology Announces Financial Results for the Second Quarter of Fiscal 2018


Aspen Technology, Inc. (NASDAQ: AZPN), the asset optimization software company, today announced financial results for its second quarter of fiscal year 2018, ended December 31, 2017.

"AspenTech delivered solid second quarter fiscal 2018 financial results that exceeded our expectations from both a revenue and profitability perspective. We saw positive performance from owner-operator customers and growth from our Engineering and Manufacturing/Supply Chain suites," said Antonio Pietri, President and Chief Executive Officer of AspenTech.

Pietri continued, "In addition, our APM business saw continued traction for each solution in the product suite. Our second quarter results have validated our belief that APM is a large opportunity that can greatly increase the value we deliver to our customers over time."

Second Quarter Fiscal 2018 and Recent 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 $469 million at the end of the second quarter of fiscal 2018, which increased 4.2% compared to the second quarter of fiscal 2017 and 1.7% sequentially.
  • GAAP operating margin was 43.6%, compared to 46.7% in the second quarter of fiscal 2017. Non-GAAP operating margin was 49.8%, compared to 50.8% in the second quarter of fiscal 2017.
  • AspenTech repurchased approximately 756,000 shares of its common stock for $50.0 million in the second quarter of fiscal 2018.

Summary of Second Quarter Fiscal Year 2018 Financial Results

AspenTech's total revenue of $124.9 million included:

  • Subscription and software revenue was $117.7 million in the second quarter of fiscal 2018, an increase from $112.9 million in the second quarter of fiscal 2017.
  • Services and other revenue was $7.2 million in the second quarter of fiscal 2018, compared to $7.0 million in the second quarter of fiscal 2017.

For the quarter ended December 31, 2017, AspenTech reported income from operations of $54.5 million, compared to income from operations of $56.1 million for the quarter ended December 31, 2016.

Net income was $38.1 million for the quarter ended December 31, 2017, leading to net income per share of $0.52, compared to net income per share of $0.48 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, litigation judgments, acquisition related fees and non-capitalized acquired technology, was $62.2 million for the second quarter of fiscal 2018, compared to non-GAAP income from operations of $60.9 million in the same period last fiscal year. Non-GAAP net income was $43.0 million, or $0.59 per share, for the second quarter of fiscal 2018, compared to non-GAAP net income of $40.2 million, or $0.52 per share, in the same period last fiscal year. A reconciliation of GAAP to non-GAAP results is presented in the financial tables included in this press release.

AspenTech had cash and marketable securities of $48.7 million and borrowings of $151.0 million at December 31, 2017.

During the second quarter, the company generated $42.4 million in cash flow from operations and $42.2 million in free cash flow. Free cash flow is calculated as net cash provided by operating activities adjusted for the net impact of: purchases of property, equipment and leasehold improvements; capitalized computer software development costs; non-capitalized acquired technology, excess tax benefits from stock-based compensation, and other nonrecurring items, such as acquisition or litigation related payments.

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, January 24, 2018, at 4:30 p.m. (Eastern Time), to discuss the company's financial results for the second quarter fiscal year 2018 as well as the company's business outlook.

The live dial-in number is (866) 604-6127 or (443) 961-0460, conference ID code 6562029. 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 6562029, through February 24, 2018.

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 or grow the aspenONE APM business, and failure to continue to provide innovative, market-leading solutions; the demand for, or usage of, aspenONE software declines for any reason, including declines due to adverse changes in the capital-intensive process industries; unfavorable economic and market conditions or a lessening demand in the market for asset 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.

© 2018 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
December 31, 		Six Months Ended
December 31,
2017     2016 2017     2016
Revenue:
Subscription and software $ 117,658 $ 112,916 $ 233,414 $ 226,360
Services and other 7,244   7,017   14,269   13,623  
Total revenue 124,902   119,933   247,683   239,983  
Cost of revenue:
Subscription and software 5,486 5,176 11,269 10,245
Services and other 6,603   6,403   13,552   12,839  
Total cost of revenue 12,089   11,579   24,821   23,084  
Gross profit 112,813   108,354   222,862   216,899  
Operating expenses:
Selling and marketing 24,380 21,829 47,951 43,854
Research and development 19,790 18,597 39,279 37,229
General and administrative 14,178   11,863   27,854   25,020  
Total operating expenses 58,348   52,289   115,084   106,103  
Income from operations 54,465 56,065 107,778 110,796
Interest income 40 216 181 488
Interest (expense) (1,261 ) (892 ) (2,467 ) (1,762 )
Other (expense) income, net (238 ) 697   (854 ) 1,344  
Income before provision for income taxes 53,006 56,086 104,638 110,866
Provision for income taxes 14,928   19,076   31,805   38,855  
Net income $ 38,078   $ 37,010   $ 72,833   $ 72,011  
Net income per common share:
Basic $ 0.53 $ 0.48 $ 1.00 $ 0.92
Diluted $ 0.52 $ 0.48 $ 0.99 $ 0.92
Weighted average shares outstanding:
Basic 72,342 76,905 72,683 77,977
Diluted 73,036 77,318 73,333 78,356
 

       

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited in thousands, except share data)

 
December 31,
2017 		June 30,
2017
ASSETS
Current assets:
Cash and cash equivalents $ 48,703 $ 101,954
Accounts receivable, net 24,208 27,670
Prepaid expenses and other current assets 10,420 12,061
Prepaid income taxes 5,408   4,501  
Total current assets 88,739 146,186
Property, equipment and leasehold improvements, net 11,483 13,400
Computer software development costs, net 766 667
Goodwill 55,703 51,248
Intangible assets, net 27,737 20,789
Non-current deferred tax assets 10,093 14,352
Other non-current assets 1,275   1,300  
Total assets $ 195,796   $ 247,942  
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 3,996 $ 5,467
Accrued expenses and other current liabilities 42,753 48,149
Income taxes payable 17 1,603
Borrowings under credit agreement 151,000 140,000
Current deferred revenue 232,653   272,024  

Total current liabilities

430,419 467,243
Non-current deferred revenue 26,025 28,335
Other non-current liabilities 13,859 13,148
Commitments and contingencies (Note 15)
Series D redeemable convertible preferred stock, $0.10 par value-
Authorized- 3,636 shares as of December 31, 2017 and June 30, 2017
Issued and outstanding- none as of December 31, 2017 and June 30, 2017 		- -
Stockholders' deficit:
Common stock, $0.10 par value- Authorized-210,000,000 shares
Issued- 102,775,919 shares at December 31, 2017 and 102,567,129 shares at June 30, 2017
Outstanding- 72,034,435 shares at December 31, 2017 and 73,421,153 shares at June 30, 2017 		10,278 10,257
Additional paid-in capital 699,428 687,479
Retained earnings 229,353 156,520
Accumulated other comprehensive income 2,933 1,459
Treasury stock, at cost-30,741,484 shares of common stock at December 31, 2017 and 29,145,976 shares at June 30, 2017 (1,216,499 ) (1,116,499 )
Total stockholders' deficit (274,507 ) (260,784 )
Total liabilities and stockholders' deficit $ 195,796   $ 247,942  
 
       

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited in thousands)

 
Three Months Ended
December 31, 		Six Months Ended
December 31,
2017     2016 2017     2016
Cash flows from operating activities:
Net income $ 38,078 $ 37,010 $ 72,833 $ 72,011
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,605 1,509 3,358 3,300
Net foreign currency (gains) losses 54 (1,554 ) 990 (2,301 )
Stock-based compensation 5,455 4,671 11,869 9,630
Deferred income taxes 4,329 228 4,296 182
Provision for (recovery from) bad debts (48 ) 63 (28 ) 56
Tax benefits from stock-based compensation - 448 - 1,032
Excess tax benefits from stock-based compensation - (448 ) - (1,032 )
Other non-cash operating activities 207 (50 ) 207 40
Changes in assets and liabilities:
Accounts receivable 4,160 3,849 3,656 2,494
Prepaid expenses, prepaid income taxes, and other assets (1,333 ) 1,776 959 3,661
Accounts payable, accrued expenses, income taxes payable and other liabilities (8,556 ) (7,436 ) (1,792 ) 5,084
Deferred revenue (1,549 ) (12,899 ) (41,586 ) (40,740 )
Net cash provided by operating activities 42,402   27,167   54,762   53,417  
Cash flows from investing activities:
Purchases of marketable securities - (490,000 ) - (683,748 )
Maturities of marketable securities - 560,195 - 613,379
Purchases of property, equipment and leasehold improvements (33 ) (476 ) (156 ) (1,374 )
Payments for business acquisitions, net of cash acquired (10,800 ) (30,771 ) (10,800 ) (36,171 )
Payments for capitalized computer software costs (291 ) (49 ) (356 ) (100 )
Net cash used in investing activities (11,124 ) 38,899   (11,312 ) (108,014 )
Cash flows from financing activities:
Exercises of stock options 1,137 1,754 3,548 4,843
Repurchases of common stock (49,928 ) (47,963 ) (105,037 ) (199,584 )
Payments of tax withholding obligations related to restricted stock (1,817 ) (1,489 ) (3,467 ) (2,786 )
Deferred business acquisition payments (2,000 ) - (2,600 )
Excess tax benefits from stock-based compensation - 448 - 1,032
Proceeds from credit agreement 11,000 - 11,000 -
Payments of credit agreement issuance costs -   -   (351 ) -  
Net cash used in financing activities (41,608 ) (47,250 ) (96,907 ) (196,495 )
Effect of exchange rate changes on cash and cash equivalents 50   (167 ) 206   (218 )
Decrease in cash and cash equivalents (10,280 ) 18,649 (53,251 ) (251,310 )
Cash and cash equivalents, beginning of period 58,983   48,377   101,954   318,336  
Cash and cash equivalents, end of period $ 48,703   $ 67,026   $ 48,703   $ 67,026  
 
Supplemental disclosure of cash flow information:
Income taxes paid, net $ 28,499 $ 23,761 $ 29,742 $ 25,000
Interest paid 1,071 729 2,039 1,579
 
       

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
December 31, 		Six Months Ended
December 31,
2017   2016 2017     2016

Total expenses

GAAP total expenses (a) $ 70,437 $ 63,868 $ 139,905 $ 129,187
Less:
Stock-based compensation (b) (5,455 ) (4,671 ) (11,869 ) (9,630 )
Non-capitalized acquired technology (e) - - - (350 )
Amortization of intangibles (526 ) (56 ) (1,052 ) (111 )
Litigation judgment (1,548 ) - (1,548 ) -
Acquisition related fees (198 ) (99 ) (328 ) (461 )
                         
Non-GAAP total expenses     $ 62,710       $ 59,042       $ 125,108       $ 118,635  
 

Income from operations

GAAP income from operations $ 54,465 $ 56,065 $ 107,778 $ 110,796
Plus:
Stock-based compensation (b) 5,455 4,671 11,869 9,630
Non-capitalized acquired technology (e) - - - 350
Amortization of intangibles 526 56 1,052 111
Litigation judgment 1,548 - 1,548 -
Acquisition related fees 198 99 328 461
                         
Non-GAAP income from operations     $ 62,192       $ 60,891       $ 122,575       $ 121,348  
 

Net income

GAAP net income $ 38,078 $ 37,010 $ 72,833 $ 72,011
Plus:
Stock-based compensation (b) 5,455 4,671 11,869 9,630
Non-capitalized acquired technology (e) - - - 350
Amortization of intangibles 526 56 1,052 111
Litigation judgment 1,548 - 1,548 -
Acquisition related fees 198 99 328 461
Less:
Income tax effect on Non-GAAP items (c) (2,782 ) (1,649 ) (5,327 ) (3,665 )
                         
Non-GAAP net income     $ 43,023       $ 40,187       $ 82,303       $ 78,898  
 

Diluted income per share

GAAP diluted income per share $ 0.52 $ 0.48 $ 0.99 $ 0.92
Plus:
Stock-based compensation (b) 0.07 0.06 0.16 0.12
Non-capitalized acquired technology (e) - - - 0.01
Amortization of intangibles 0.01 - 0.01 -
Litigation judgment 0.02 - 0.02 -
Acquisition related fees 0.01 - 0.01 0.01
Less:
Income tax effect on Non-GAAP items (c) (0.04 ) (0.02 ) (0.07 ) (0.05 )
                         
Non-GAAP diluted income per share     $ 0.59       $ 0.52       $ 1.12       $ 1.01  
 
Shares used in computing Non-GAAP diluted income per share 73,036 77,318 73,333 78,356
 
 
Three Months Ended
December 31, 		Six Months Ended
December 31,
2017 2016 2017 2016

Free Cash Flow

GAAP cash flow from operating activities $ 42,402 $ 27,167 $ 54,762 $ 53,417
 
Purchase of property, equipment and leasehold improvements (33 ) (476 ) (156 ) (1,374 )
Capitalized computer software development costs (291 ) (49 ) (356 ) (100 )
Non-capitalized acquired technology (e) - - 75 846
Excess tax benefits from stock-based compensation (d) - 448 - 1,032
Acquisition related fee payments     88       413       88       413  
Free Cash Flow     $ 42,166       $ 27,503       $ 54,413       $ 54,234  
 
(a) GAAP total expenses
Three Months Ended
December 31, 		Six Months Ended
December 31,
2017 2016 2017 2016
Total costs of revenue $ 12,089 $ 11,579 $ 24,821 $ 23,084
Total operating expenses 58,348   52,289   115,084   106,103  
GAAP total expenses $ 70,437   $ 63,868   $ 139,905   $ 129,187  
 
(b) Stock-based compensation expense was as follows:
Three Months Ended
December 31, 		Six Months Ended
December 31,
2017 2016 2017 2016
Cost of services and other $ 324 $ 374 $ 774 $ 743
Selling and marketing 1,006 1,010 1,891 1,965
Research and development 1,891 1,495 3,788 2,558
General and administrative 2,234   1,792   5,416   4,364  
Total stock-based compensation $ 5,455   $ 4,671   $ 11,869   $ 9,630  
 

(c) The income tax effect on non-GAAP items for the three and six months ended December 31, 2017 is calculated utilizing the Company's federal and state tax rate in effect as of the beginning of the fiscal year, of 36 percent. The income tax effect on non-GAAP items for the three and six months ended December 31, 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 the Company's income taxes payable. The Company adopted ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU No. 2016-09") effective July 1, 2017. The Company adopted the cash flow presentation prospectively, and accordingly, excess tax benefits from stock-based compensation of $0.4 million and $1.0 million is presented as an operating activity as a component of net income for the three and six months ended December 31, 2017, respectively, while $0.4 million and $1.0 million of excess tax benefits from stock-based compensation is presented as a financing activity for the three and six months ended December 31, 2016, respectively.

(e) In the six months ended December 31, 2016, the Company 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. The Company has 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 six months ended December 31, 2017 and 2016, the Company has excluded payments of $0.1 million and $0.8 million, respectively, for non-capitalized acquired technology (including $0.1 million and $0.5 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.


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