AspenTech Earnings: Despite a Light Result, We Remain Confident in Long-Term Demand

Wide-moat AspenTech AZPN reported fiscal first-quarter results that were below our revenue and profitability estimates. While results in the quarter were light due to seasonal weakness beyond our expectations, management reiterated its fiscal 2024 targets. The firm also announced it is entering an expansion phase following the integration of its three businesses, aiming to capture demand opportunities as capital expenditure budgets improve. In our view, the firm is well-positioned to capitalize on secular trends and will benefit from capital-intensive industries facing the challenge of meeting increasing resource demand in a durable way. After considering results and guidance, we maintain our $195 per share fair value estimate. With shares down around 2% after hours, we view the stock as slightly undervalued.

First-quarter sales declined 1% year over year to $249 million, below our $271 million estimate. We note the firm typically sees its lowest sales volume in the first fiscal quarter due to renewal timings. Annual contract value, or ACV, which we view as a more meaningful indicator of business health, was up 11% year over year to $898 million. The engineering suite saw the strongest demand, as customers benefit from increased capital expenditure toward traditional energy and energy transition projects. AspenTech also saw increased demand from upstream and midstream energy verticals, where customers enjoy elevated oil prices, allowing for higher capital expenditures. If market conditions continue, we expect an uptick in subsurface engineering deployment over fiscal 2024, leading to increased stickiness for AspenTech solutions within the oil and gas vertical. Results were partially offset by persistent weak chemical demand. While AspenTech expects the poor chemical environment to weigh on near-term results, the firm believes it is well-positioned to capitalize on sustainability and operational efficiency projects when market conditions improve.