Why Is Aspen Technology (AZPN) Up 10.4% Since Last Earnings Report?
It has been about a month since the last earnings report for Aspen Technology (AZPN). Shares have added about 10.4% 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 the most recent earnings report in order to get a better handle on the important drivers.
Aspen Q4 Earnings Surpass Estimates
Aspen reported fourth-quarter fiscal 2024 non-GAAP earnings of $2.37 per share, beating the Zacks Consensus Estimate of $2.08. AZPN reported non-GAAP earnings of $2.13 per share in the year-ago quarter.
The company reported revenues of $342.9 million, surpassing the Zacks Consensus Estimate by 8.7%. The company generated revenues of $320.6 million in the year-ago quarter.
Aspen suspended all commercial activities in Russia following the expanded sanctions announced by the U.S. government in June 2024. As a result, the company has written off approximately $35.5 million in ACV, effective at the end of fiscal 2024.
Quarter in Detail
License’s revenues (67.4% of revenues) were up 3.7% year over year to $231 million.
Maintenance’s revenues (26% of revenues) rose 8% year over year to $89.2 million.
Revenues from Services and other (6.6% of revenues) rose 49.8% from the year-ago quarter’s figure to $22.7 million.
As of June 30, 2024, annual contract value or ACV ( which Aspen Technology defines as the estimate of the annual value of our portfolio of term license and software maintenance and support, or SMS, contracts, the annual value of SMS agreements purchased with perpetual licenses and the annual value of standalone SMS agreements purchased with certain legacy term license agreements, which have become an immaterial part of its business) amounted to $968.4 million, up 9.4% year over year and 3.5% quarter over quarter.
The digital grid management suite (DGM) grew around 40% in fiscal 2024, highlighting the suite's strength and the early advantages of enhancing DGM’s go-to-market capabilities. The company also saw a solid uptake across the Manufacturing & Supply Chain suite (MSC) in the second half of fiscal 2024 and especially in the fourth quarter, despite this suite experiencing the most noticeable impact from the extended downturn in the chemicals sector.
Margins
Gross profit increased to $246.3 million from the year-ago quarter’s figure of $225.1 million. As a percentage of total revenues, the figure reached 71.8% from 70.2% reported in the prior-year quarter.
Total operating expenses amounted to $207.1 million compared with the year-ago quarter’s figure of $219.1 million due to a reduction in research and development costs, general and administrative expenses, along selling and marketing costs.
Non-GAAP operating income totaled $173.4 million compared with $148.9 million reported in the prior-year quarter.
Balance Sheet & Cash Flow
As of June 30, 2024, cash and cash equivalents were $237 million compared with $241.2 million as of June 30, 2023. The downtick was caused primarily by the impact of share repurchase activity
The company generated $154.9 million in cash from operations compared with $113.6 million reported in the year-ago quarter. Non-GAAP free cash flow was $153 million in the fiscal third quarter compared with $111.5 million in the prior-year quarter.
Aspen repurchased 277,913 shares for $56.9 million in the fourth quarter of fiscal 2024. As of June 30, 2024, the company executed its fiscal 2024 share buyback authorization, repurchasing 1,520,993 shares in total in fiscal 2024. Aspen’s board of directors has sanctioned a new share repurchase program, allowing the company to buy back up to $100 million worth of its stock during fiscal 2025.
Fiscal 2025 Guidance
The guidance for fiscal 2025 highlights the impact of cautious customer spending in the face of an uncertain economic and geopolitical environment. However, the company expects continued strength in the utilities and energy sector, but a muted growth in chemicals and a more moderate sustainability CapEx environment.
For fiscal 2025, Aspen expects revenues to be at least $1.19 billion. Non-GAAP net income is now anticipated to be at least $7.47 per share.
Management projects ACV growth to be at least 9% from a year ago and total bookings to be at least $1.17 billion. Non-GAAP operating income is now estimated to be at least $514 million. Non-GAAP total expenses are expected to be nearly $675 million. Free cash flow is projected to be at least $340 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 12.15% due to these changes.
VGM Scores
Currently, Aspen Technology has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% 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.
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.
Performance of an Industry Player
Aspen Technology belongs to the Zacks Internet - Software industry. Another stock from the same industry, Paylocity (PCTY), has gained 5.4% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
Paylocity reported revenues of $357.29 million in the last reported quarter, representing a year-over-year change of +15.8%. EPS of $1.48 for the same period compares with $1.32 a year ago.
For the current quarter, Paylocity is expected to post earnings of $1.38 per share, indicating a change of -1.4% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.2% over the last 30 days.
Paylocity 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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