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Aspen Technology Building Up Portfolio

Posted on Thursday, Aug 23rd 2018

According to a MarketsandMarkets report, the global Enterprise Asset Management (EAM) software market is expected to grow 12% annually over the next few years to become a $6.05 billion industry by 2022 from $3.44 billion in 2017. A leading player in the EAM market is Aspen Technology (Nasdaq: AZPN), which recently hit an all-time high.

Aspen Technology’s Financials

Aspen Technology was founded in 1981 after MIT’s chemical engineering group received a US Department of Energy grant to study technological innovation in the process industries. The company used that funding to develop its first product called Aspen Plus to develop modeling for chemical processes. Soon the company expanded into other software products within the chemical industry to help customers with planning, scheduling, and other asset management capabilities. Its products like aspenONE was developed for companies in the energy, chemicals, pharmaceuticals, and engineering and construction industries. Overall, Aspen’s products enable its customers to improve their competitiveness and financials by increasing throughput and productivity, reducing operating costs, enhancing capital efficiency, and decreasing working capital requirements.

Aspen Technology’s earns revenues primarily through subscription services for its software solutions. It recently reported its fourth quarter revenues which grew 2% over the year to $126 million, in line with the market estimates. Non-GAAP EPS of $0.59 was also better than the market’s forecast of $0.56. The company reported $38 million in net income for the quarter, compared with $54 million a year ago.

By segment, subscription and software revenues grew 4% over the year to $119.5 million and accounted for 95% of total revenues. Services and other revenues fell 21.7% from the year ago to $6.5 million. During the quarter, deferred revenues increased 4.9% over the year to $315.1 million.

It ended the year with revenues growing 3% to $500 million. Earnings have slipped from $162.2 million to $148.7 million. EPS of $2.31 was 0.4% higher than previous year. Non-GAAP operating income came in at $237.0 million compared with $235.8 million a year ago. in fiscal year 2017.

For the current year, Aspen is adopting a new accounting standard and expects revenues of $555-$585 million. The market was looking for revenues of $526.7 million. Non-GAAP operating income and non-GAAP earnings are projected in the range $257-$283 million and $3.06-$3.34 per share, compared with the Street’s forecast of $2.75 per share.

But things were not always this good for Aspen. In 2004, Aspen was involved in a class action suit which accused it of wrongful revenue recognition. Its audit committee confirmed wrongful booking of revenues for software licenses. As a result, it had to restate financials for the previous four years. Things didn’t improve soon. Four years later, it was accused of lack of financial transparency and delisted from the exchange. The company was in deep trouble. Its revenues were shrinking, its management was accused of securities fraud, and the stock fallen to $7 apiece before delisting.

In the following years, though, Aspen has made a big comeback. Its CEO, Mark Fusco, made tough decisions. He restructured the company by announcing massive lay-offs and shutting down nearly a third of the offices. With strong financial discipline and a focus on streamlining operations, it managed to relist in 2010.

Aspen Technology’s Acquisitions and Competition

Over the past few years, Aspen has been strengthening its presence through acquisitions. In 2016, it acquired Mtelligence Corporation, also known as Mtell. Mtell was a San Diego-based player that enables companies to increase asset utilization and avoid unplanned downtime by predicting and analyzing equipment failures. Its services help predict when the failures could occur, understanding why they occur and developing ways to avoid these occurrences. It also acquired Texas-based Fidelis Group, which was another provider of asset reliability software that process industry companies use to predict and optimize asset performance.

Last year, Aspen announced the acquisition of Cipher Industrial Internet of Things (IIoT) cloud-native software and edge connectivity assets. The acquisition will help Aspen Technology enhance its cloud and edge processing technology that captures and aggregates critical data from assets throughout the plant and across the enterprise. Terms of these acquisitions have not been disclosed.

Aspen Technology faces competition from big names such as IBM and Genpact that have lately been focused on expanding their market reach and product offerings through mergers and acquisitions. In June, IBM announced the acquisition of Oniqua Holdings for an undisclosed sum. Oniqua is provider of Internet of Things-based maintenance, repair, and operations inventory optimization solutions. Oniqua is focused on manufacturing, mining, transportation, oil & gas, utilities and other such asset-intensive industries. IBM plans to leverage Oniqua’s assets to strengthen its asset optimization solutions.

The market is pleased with Aspen Technology. Its stock is trading at $110.43 with a market capitalization of $7.8 billion. It has been steadily climbing from the 52-week low of $58.26 that it was trading at a year ago.

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