Aspen Technology (AZPN) Up 8.8% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Aspen Technology (AZPN). Shares have added about 8.8% 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 Technology Misses Q3 Earnings Estimates, Lowers View

Aspen Technology reported third-quarter fiscal 2020 non-GAAP earnings of 74 cents per share that missed the Zacks Consensus Estimate by 10.8% and declined 22.9% on a year-over-year basis.

Revenues of $132 million declined 10.8% from the year-ago quarter’s figure. The decline was caused by lower year-over-year bookings.

Total bookings for the reported quarter came in at $126.7 million, down 20.8% year over year. The company has attributed the decline to unfavorable timing of renewals compared with year-ago quarter.

Moreover, due to uncertainties prevailing in the market due to COVID-19, the company witnessed a decline in demand and slowdown in customer payments in the last few weeks of the fiscal third quarter.

Quarter in Detail

License revenues (59.5% of revenues) declined 20.2% year over year to $78.6 million due to decline in bookings related to unfavorable timing of renewals.

Maintenance revenues (34.2%) increased 7.9% year over year to approximately $45.2 million. The company attributed the upside to growth of its base of arrangements, which include maintenance, being recognized on a ratable basis.

Services and other revenues (6.3%) improved 7.9% from the year-ago quarter’s figure to $8.2 million due to growing volume of professional service engagements.

Annual spend increased 9.3% year over year to $575 million.

Margins

Gross margin contracted 220 basis points (bps) on a year-over-year basis to approximately 88.1%.

Total operating expenses climbed 11.7% from the year-ago quarter’s figure to $70.1 million due to increase in research & development and general & administrative expenses.

Non-GAAP operating income of $55.3 million declined 29.3% from the year-ago quarter’s figure. Non-GAAP operating margin was 41.9% compared with 52.9% in the year-ago quarter.

Cash Flow

The company generated $81.4 million cash from operations during the quarter compared with $46.9 million in the previous quarter. Free cash flow came in at $81.2 million compared with $48.1 million in the previous quarter.

Fiscal 2020 Guidance

Due to COVID-19 induced uncertainties, the company has lowered its guidance for fiscal 2020.

Aspen Technology expects revenues in the range of $550-$582 million compared with the previous range of $575-$615 million.

Non-GAAP net income is anticipated in the range of $3.16-$3.48 per share compared with previous guidance of $3.43-$3.84

Non-GAAP operating income is projected in the range of $249-$277 million compared with the previous guidance of $272-$307 million.

Free cash flow is now anticipated in the range of $230-$260 million compared with the prior range of $260-$270 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted 11.47% due to these changes.

VGM Scores

Currently, Aspen Technology has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Aspen Technology has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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