AZPN Aspen Technology Inc New

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

“AspenTech’s third quarter reflected good execution across the company and a solid demand environment, resulting in strong financial results. The quarter was highlighted by strong performance among our owner-operator customers and continued momentum of our APM suite. We are also pleased with growing customer interest in our APM products across a number of geographies and industries,” said Antonio Pietri, President and Chief Executive Officer of AspenTech.

Third 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 $480 million at the end of the third quarter of fiscal 2018, which increased 6.3% compared to the third quarter of fiscal 2017 and 2.3% sequentially.
• GAAP operating margin was 40.6%, compared to 43.8% in the third quarter of fiscal 2017. Non-GAAP operating margin was 45.6%, compared to 48.1% in the third quarter of fiscal 2017.
• AspenTech repurchased approximately 650,000 shares of its common stock for $50.0 million in the third quarter of fiscal 2018.

Summary of Third Quarter Fiscal Year 2018 Financial Results

AspenTech’s total revenue of $125.9 million included:

• Subscription and software revenue was $118.1 million in the third quarter of fiscal 2018, an increase from $111.7 million in the third quarter of fiscal 2017.
• Services and other revenue was $7.7 million in the third quarter of fiscal 2018, compared to $7.6 million in the third quarter of fiscal 2017.

For the quarter ended March 31, 2018, AspenTech reported income from operations of $51.2 million, compared to income from operations of $52.3 million for the quarter ended March 31, 2017.

Net income was $37.8 million for the quarter ended March 31, 2018, leading to net income per share of $0.52, compared to net income per share of $0.47 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 and acquisition related fees, was $57.4 million for the third quarter of fiscal 2018, compared to non-GAAP income from operations of $57.4 million in the same period last fiscal year. Non-GAAP net income was $42.3 million, or $0.58 per share, for the third quarter of fiscal 2018, compared to non-GAAP net income of $39.4 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 $71.1 million and borrowings of $170.0 million at March 31, 2018.

During the third quarter, the company generated $73.1 million in cash flow from operations and $78.1 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, April 25, 2018, at 4:30 p.m. (Eastern Time), to discuss the company's financial results for the third 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 2986139. 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://ir.aspentech.com/, 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 2986139, through May 25, 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 second 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 EndedMarch 31, Nine Months EndedMarch 31, 2018     2017 2018     2017 Revenue: Subscription and software $ 118,126 $ 111,717 $ 351,540 $ 338,077 Services and other 7,745   7,560   22,014   21,184   Total revenue 125,871   119,277   373,554   359,261   Cost of revenue: Subscription and software 5,817 5,521 17,086 15,766 Services and other 6,959   6,746   20,511   19,586   Total cost of revenue 12,776   12,267   37,597   35,352   Gross profit 113,095   107,010   335,957   323,909   Operating expenses:

Selling and marketing

25,924 22,269 73,875 66,123 Research and development 21,584 20,348 60,863 57,577 General and administrative 14,430   12,120   42,284   37,140   Total operating expenses 61,938   54,737   177,022   160,840   Income from operations 51,157 52,273 158,935 163,069 Interest income 23 176 204 665 Interest (expense) (1,485 ) (959 ) (3,952 ) (2,721 ) Other (expense) income, net (104 ) (56 ) (958 ) 1,287   Income before provision for income taxes 49,591 51,434 154,229 162,300 Provision for income taxes 11,756   15,600   43,561   54,455   Net income $ 37,835   $ 35,834   $ 110,668   $ 107,845   Net income per common share: Basic $ 0.53 $ 0.47 $ 1.53 $ 1.40 Diluted $ 0.52 $ 0.47 $ 1.51 $ 1.39 Weighted average shares outstanding: Basic 71,828 75,676 72,402 77,221 Diluted 72,663 76,182 73,136 77,652          

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited in thousands, except share data)

  March 31, 2018 June 30, 2017 ASSETS Current assets: Cash and cash equivalents $ 71,075 $ 101,954 Accounts receivable, net 27,755 27,670 Prepaid expenses and other current assets 9,827 12,061 Prepaid income taxes 2,506   4,501   Total current assets 111,163 146,186 Property, equipment and leasehold improvements, net 10,703 13,400 Computer software development costs, net 664 667 Goodwill 76,016 51,248 Intangible assets, net 36,045 20,789 Non-current deferred tax assets 9,900 14,352 Other non-current assets 1,516   1,300   Total assets $ 246,007   $ 247,942   LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 5,823 $ 5,467 Accrued expenses and other current liabilities 40,319 48,149 Income taxes payable 413 1,603 Borrowings under credit agreement 170,000 140,000 Current deferred revenue 261,222   272,024   Total current liabilities 477,777 467,243 Non-current deferred revenue 27,312 28,335 Other non-current liabilities 19,524 13,148 Commitments and contingencies (Note 15) Series D redeemable convertible preferred stock, $0.10 par value—Authorized— 3,636 shares as of March 31, 2018 and June 30, 2017Issued and outstanding— none as of March 31, 2018 and June 30, 2017 — — Stockholders’ deficit: Common stock, $0.10 par value— Authorized—210,000,000 sharesIssued— 102,936,605 shares at March 31, 2018 and 102,567,129 shares at June 30, 2017Outstanding— 71,545,642 shares at March 31, 2018 and 73,421,153 shares at June 30, 2017 10,294 10,257 Additional paid-in capital 706,554 687,479 Retained earnings 267,188 156,520 Accumulated other comprehensive income 3,857 1,459 Treasury stock, at cost—31,390,963 shares of common stock at March 31, 2018 and 29,145,976 shares at June 30, 2017 (1,266,499 ) (1,116,499 ) Total stockholders’ deficit (278,606 ) (260,784 ) Total liabilities and stockholders’ deficit $ 246,007   $ 247,942            

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited in thousands)

  Three Months EndedMarch 31, Nine Months EndedMarch 31, 2018     2017 2018     2017 Cash flows from operating activities: Net income $ 37,835 $ 35,834 $ 110,668 $ 107,845 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,544 1,693 4,902 4,993 Net foreign currency (gains) losses 96 281 1,086 (2,020 ) Stock-based compensation 5,353 4,677 17,222 14,307 Deferred income taxes 171 987 4,467 1,169 Provision for bad debts 1,401 169 1,373 225 Tax benefits from stock-based compensation — 1,312 — 2,344 Excess tax benefits from stock-based compensation — (1,312 ) — (2,344 ) Other non-cash operating activities 107 390 314 430 Changes in assets and liabilities: Accounts receivable (4,620 ) (17,438 ) (964 ) (14,944 ) Prepaid expenses, prepaid income taxes, and other assets 3,949 (13 ) 4,908 3,648 Accounts payable, accrued expenses, income taxes payable and other liabilities (2,656 ) 1,863 (4,448 ) 6,947 Deferred revenue 29,887   27,178   (11,699 ) (13,562 ) Net cash provided by operating activities 73,067   55,621   127,829   109,038   Cash flows from investing activities: Purchases of marketable securities — — — (683,748 ) Maturities of marketable securities — 55,837 — 669,216 Purchases of property, equipment and leasehold improvements (61 ) (777 ) (217 ) (2,151 ) Payments for business acquisitions, net of cash acquired (22,900 ) — (33,700 ) (36,171 ) Payments for capitalized computer software costs 57   (26 ) (299 ) (126 ) Net cash provided by (used in) investing activities (22,904 ) 55,034   (34,216 ) (52,980 ) Cash flows from financing activities: Exercises of stock options 3,854 3,049 7,402 7,892 Repurchases of common stock (49,328 ) (96,058 ) (154,365 ) (295,642 ) Payments of tax withholding obligations related to restricted stock (1,945 ) (1,560 ) (5,412 ) (4,346 ) Deferred business acquisition payments — — (2,600 ) — Excess tax benefits from stock-based compensation — 1,312 — 2,344 Proceeds from credit agreement 19,000 — 30,000 — Payments of credit agreement issuance costs —   —   (351 ) —   Net cash used in financing activities (28,419 ) (93,257 ) (125,326 ) (289,752 ) Effect of exchange rate changes on cash and cash equivalents 628   128   834   (90 ) Increase (decrease) in cash and cash equivalents 22,372 17,526 (30,879 ) (233,784 ) Cash and cash equivalents, beginning of period 48,703   67,026   101,954   318,336   Cash and cash equivalents, end of period $ 71,075   $ 84,552   $ 71,075   $ 84,552     Supplemental disclosure of cash flow information: Income taxes paid, net $ 8,920 $ 16,742 $ 38,662 $ 41,742 Interest paid 1,417 920 3,456 2,499          

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 EndedMarch 31, Nine Months EndedMarch 31, 2018     2017 2018     2017

Total expenses

GAAP total expenses (a) $ 74,714 $ 67,004 $ 214,619 $ 196,192 Less: Stock-based compensation (b) (5,353 ) (4,677 ) (17,222 ) (14,307 ) Non-capitalized acquired technology (e) — — — (350 ) Amortization of intangibles (526 ) (405 ) (1,578 ) (516 ) Litigation judgment — — (1,548 ) — Acquisition related fees (378 ) (31 ) (706 ) (493 )                           Non-GAAP total expenses     $ 68,457       $ 61,891       $ 193,565       $ 180,526    

Income from operations

GAAP income from operations $ 51,157 $ 52,273 $ 158,935 $ 163,069 Plus: Stock-based compensation (b) 5,353 4,677 17,222 14,307 Non-capitalized acquired technology (e) — — — 350 Amortization of intangibles 526 405 1,578 516 Litigation judgment — — 1,548 — Acquisition related fees 378 31 706 493                           Non-GAAP income from operations     $ 57,414       $ 57,386       $ 179,989       $ 178,735    

Net income

GAAP net income $ 37,835 $ 35,834 $ 110,668 $ 107,845 Plus: Stock-based compensation (b) 5,353 4,677 17,222 14,307 Non-capitalized acquired technology (e) — — — 350 Amortization of intangibles 526 405 1,578 516 Litigation judgment — — 1,548 — Acquisition related fees 378 31 706 493 Less: Income tax effect on Non-GAAP items (c) (1,758 ) (1,554 ) (5,916 ) (5,248 )                           Non-GAAP net income     $ 42,334       $ 39,393       $ 125,806       $ 118,263    

Diluted income per share

GAAP diluted income per share $ 0.52 $ 0.47 $ 1.51 $ 1.39 Plus: Stock-based compensation (b) 0.06 0.06 0.24 0.18 Non-capitalized acquired technology (e) — — — — Amortization of intangibles 0.01 0.01 0.02 0.01 Litigation judgment — — 0.02 — Acquisition related fees 0.01 — 0.01 0.01 Less: Income tax effect on Non-GAAP items (c) (0.02 ) (0.02 ) (0.08 ) (0.07 )                           Non-GAAP diluted income per share     $ 0.58       $ 0.52       $ 1.72       $ 1.52     Shares used in computing Non-GAAP diluted income per share 72,663 76,182 73,136 77,652     Three Months EndedMarch 31, Nine Months EndedMarch 31, 2018 2017 2018 2017

Free Cash Flow

GAAP cash flow from operating activities $ 73,067 $ 55,621 $ 127,829 $ 109,038   Purchase of property, equipment and leasehold improvements (61 ) (777 ) (217 ) (2,151 ) Capitalized computer software development costs 57 (26 ) (299 ) (126 ) Non-capitalized acquired technology (e) — — 75 846 Excess tax benefits from stock-based compensation (d) — 1,312 — 2,344 Acquisition related fee payments 780 35 868 448 Litigation related payments     4,286       —       4,286       —   Free Cash Flow     $ 78,129       $ 56,165       $ 132,542       $ 110,399     (a) GAAP total expenses Three Months EndedMarch 31, Nine Months EndedMarch 31, 2018 2017 2018 2017 Total costs of revenue $ 12,776 $ 12,267 $ 37,597 $ 35,352 Total operating expenses 61,938   54,737   177,022   160,840   GAAP total expenses $ 74,714   $ 67,004   $ 214,619   $ 196,192     (b) Stock-based compensation expense was as follows: Three Months EndedMarch 31, Nine Months EndedMarch 31, 2018 2017 2018 2017 Cost of services and other $ 345 $ 363 $ 1,119 $ 1,106 Selling and marketing 979 972 2,870 2,937 Research and development 1,892 1,618 5,679 4,177 General and administrative 2,137   1,724   7,554   6,087   Total stock-based compensation $ 5,353   $ 4,677   $ 17,222   $ 14,307  

(c) The income tax effect on non-GAAP items for the three and nine months ended March 31, 2018 is calculated utilizing the Company's blended statutory tax rate, of 28 percent. The income tax rate used for the three and nine months ended March 31, 2018 reflects the impact of the Tax Cuts and Jobs Act signed into law on December 22, 2017, with an effective date of January 1, 2018. The income tax effect on non-GAAP items for the three and nine months ended March 31, 2017 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 $1.2 million and $2.1 million is presented as an operating activity as a component of net income for the three and nine months ended March 31, 2018, respectively, while $1.3 million and $2.3 million of excess tax benefits from stock-based compensation is presented as a financing activity for the three and nine months ended March 31, 2017, respectively.

(e) In the nine months ended March 31, 2017, 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 nine months ended March 31, 2018 and 2017, 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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Media ContactAspenTechDavid Grip, +1 781-221-5273david.grip@aspentech.comorInvestor ContactICRBrian Denyeau, +1 646-277-1251brian.denyeau@icrinc.com