Aspen Technology (AZPN) Up 17.6% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Aspen Technology (AZPN). Shares have added about 17.6% 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.
Aspen Q3 Earnings Top Estimates
Aspen Technology reported third-quarter fiscal 2022 non-GAAP earnings of $1.38 per share, beating the Zacks Consensus Estimate by 1.5%. The company reported non-GAAP earnings of $1.05 per share in the year-ago quarter.
Revenues of $187.8 million missed the Zacks Consensus Estimate by 2.9%. The company reported revenues of $162.7 million in the year-ago quarter.
The company also announced that it was on track to complete the Emerson acquisition and the shareholder meeting was to be on May 16, 2022 for the same.
In October 2021, Aspen Technology and Emerson inked an agreement. Per the terms, Aspen will be integrated with Emerson’s OSI Inc and the Geological Simulation Software business to form a new company.
In the quarter under review, total bookings (reported under topic 606) were $207 million, up 18% year over year.
Quarter in Detail
License revenues (69.3% of revenues) were up 18.1% year over year to $130 million.
Maintenance revenues (26.6%) rose 9% year over year to $50 million.
Services and other revenues (4.1%) rose 14.4% from the year-ago quarter’s figure to $7.7 million.
As of Mar 31, 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 $655 million, up 7.4% year over year and 2.4% quarter over quarter.
Margins
Gross profit increased 18.7% year over year to $174.1 million. As a percentage of total revenues, the figure expanded 260 basis points (bps) on a year-over-year basis to 92.7%.
Total operating expenses increased 20% from the year-ago quarter’s figure to $93.4 million due to higher spending related to buyout and integration planning expenses regarding the pending Emerson acquisition.
Non-GAAP operating income totaled $102.5 million compared with $80.9 million reported in the prior-year quarter. Non-GAAP operating margin was 54.6% compared with the 49.7% operating margin reported in the year-ago quarter.
Balance Sheet & Cash Flow
As of Mar 31, 2022, cash and cash equivalents were $285.2 million compared with $211.4 million as of Dec 31, 2021. The company’s total borrowings, net of debt issuance costs, stood at $279.4 million as of Mar 31, 2022.
The company generated $81.1 million in cash from operations compared with $41.3 million in the previous quarter. Non-GAAP free cash flow was $89.2 million in the fiscal third quarter.
Fiscal 2022 View
For fiscal 2022, Aspen Technology expects revenues in the range of $737-$754 million.
The company expects an annual spend growth rate of 7-8%, while total bookings are projected in the range of $814-$840 million.
Non-GAAP net income is anticipated in the range of $5.33-$5.50 per share compared with the earlier guidance of $5.23-$5.39 per share.
Management now projects non-GAAP operating income in the range of $404-$416 million versus the earlier projected range of $397-$409 million. Non-GAAP total expenses are projected to be between $333 million and $338 million.
Free cash flow is anticipated to be at least $285 million against the earlier guidance of $280-$290 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 11.56% due to these changes.
VGM Scores
At this time, Aspen Technology has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Aspen Technology has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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