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AspenTech Earnings: Promising Annual Contract Value and Integration Underway

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Aspen Technology Inc
(AZPN)

Wide-moat AspenTech AZPN reported fiscal fourth-quarter results which came in slightly below our estimates. The firm continues on its integration journey, and we are pleased to see sequential improvement as the firm applies learnings from prior quarters’ challenges. While the integration remains a work in progress, we believe the firm is on the right path to generate sales and profitability momentum entering fiscal 2024. The firm also canceled its acquisition of Micromine due to political uncertainty in Russia. In our view, the firm is well-poised to capitalize on secular trends and will benefit from capital-intensive industries facing the challenge of meeting increasing resource demand in a sustainable way. After considering results and guidance, we maintain our $195 per share fair value estimate. With shares up materially after hours, we see them as fairly valued and would wait for more progress on milestones for the integration before investing in the stock.

Given the merger with Emerson, revenue results are not comparable with the year-ago period. Fourth-quarter sales increased 39% sequentially to $321 million, slightly under our $326 million estimate. Management does not provide quarterly guidance, so we think the deviation is minor. We view annual contract value, or ACV, as a more meaningful indicator of business performance, which came to $855 million in the quarter, up 12% year over year. Within this, the engineering suite was solid, contributing 4% of ACV growth, driven by an improving business environment and a favorable energy market. Subsurface engineering, or SSE, was also solid, contributing 3% of ACV growth, which the firm attributes to success in the token-based suite. The digital grid management, or DGM, business improved during the quarter. Results in the manufacturing and supply chain suite were buoyed by strength in refining, offset by weakened chemical demand. AspenTech expects the poor chemical environment to weigh on results for the calendar year.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Dan Romanoff

Senior Equity Analyst
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Dan Romanoff, CPA, is a senior equity research analyst on the technology, media, and telecommunications team for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers software.

Before Joining Morningstar in 2019, Romanoff spent 12 years in buy-side equity research covering the technology and telecommunications sectors, most recently at Holland Capital Management. Prior to that, he spent five years in sell-side equity research as an associate analyst at UBS and a senior analyst at Credit Suisse covering various areas within technology, including hardware, software, and semiconductors. Romanoff also has worked as an auditor and in valuation services for major public accounting firms.

Romanoff holds a bachelor’s degree in accountancy and a Master of Business Administration in finance, both from the University of Illinois at Urbana-Champaign. He also holds the Certified Public Accountant and Accredited in Business Valuation designations.

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