Aspen Technology, Inc. : Aspen Technology Announces Financial Results for the Second Quarter of Fiscal 2014

Aspen Technology, Inc. (NASDAQ: AZPN), a leading provider of software and services to the process industries, today announced financial results for its second quarter of fiscal year 2014, ended December 31, 2013.

"AspenTech continued to perform at a high level in the second quarter, with financial results that exceeded our guidance on all key metrics. Customer demand and usage patterns continue to be solid and helped drive year-over-year growth of over 13% in total license contract value," said Antonio Pietri, President and Chief Executive Officer of AspenTech. "At the same time we remain disciplined from an operational perspective, as evidenced by the $70 million of free cash flow generated on a year-to-date basis. We are focused on building on our strong first half results and are optimistic about the company's outlook for the remainder of the fiscal year."

Second Quarter Fiscal 2014 and Recent Business Highlights

• The license portion of total contract value was $1.75 billion at the end of the second quarter of fiscal 2014, which increased 13.3% compared to the second quarter of fiscal 2013 and 3.0% sequentially.
• Total contract value, including the value of bundled maintenance, was $2.05 billion at the end of the second quarter of fiscal 2014, which increased 15.2% compared to the second quarter of fiscal 2013 and 3.3% sequentially.
• Annual spend, which the company defines as the annualized value of all term license and maintenance revenue contracts at the end of the quarter, was approximately $356 million at the end of the second quarter of fiscal 2014, which increased 11.3% compared to the second quarter of fiscal 2013 and 2.9% sequentially.

Summary of Second Quarter Fiscal Year 2014 Financial Results

AspenTech's total revenue of $98.8 million increased 27.8% from $77.3 million in the second quarter of the prior fiscal year.

• Subscription and software revenue was $88.9 million in the second quarter of fiscal 2014, an increase from $69.0 million in the second quarter of fiscal 2013.
• Services & other revenue was $9.8 million in the second quarter of fiscal 2014, compared to $8.3 million in the second quarter of fiscal 2013.

For the quarter ended December 31, 2013, AspenTech reported income from operations of $36.1 million, compared to income from operations of $14.9 million for the quarter ended December 31, 2012.

Net income was $23.3 million for the quarter ended December 31, 2013, leading to net income per share of $0.25, compared to net income per share of $0.10 in the same period last fiscal year.

Non-GAAP income from operations, which adds back stock-based compensation expense, restructuring charges and amortization of intangibles associated with acquisitions, was $39.5 million for the second quarter of fiscal 2014, compared to non-GAAP income from operations of $18.6 million in the same period last fiscal year. Non-GAAP net income was $25.4 million, or $0.27 per share, for the second quarter of fiscal 2014, compared to non-GAAP net income of $12.3 million, or $0.13 per share, in the same period last fiscal year. A reconciliation of GAAP to non-GAAP results is included in the financial tables included in this press release.

AspenTech had cash and marketable securities of $235.7 million at December 31, 2013, an increase of $14.2 million from the end of the prior quarter after using $30.0 million in cash to repurchase shares of common stock. During the second quarter, the company generated $46.3 million in cash flow from operations and $45.2 million in free cash flow after taking into consideration $1.1 million in capital expenditures and capitalized software.

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, January 30, 2014, at 4:30 p.m. (Eastern Time), to discuss the company's financial results for the second quarter fiscal year 2014 as well as the company's business outlook.

The live dial-in number is [phone] or [phone], conference ID code 35794133. 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://www.aspentech.com/corporate/investor.cfm, 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 [phone] or [phone], conference ID code 35794133, through March 2, 2014.

About AspenTech

AspenTech is a leading supplier of software that optimizes process manufacturing - for energy, chemicals, engineering and construction, and other industries that manufacture and produce products from a chemical process. With integrated aspenONE solutions, process manufacturers can implement best practices for optimizing their engineering, manufacturing and supply chain operations. As a result, AspenTech customers are better able to increase capacity, improve margins, reduce costs and become more energy efficient. To see how the world's leading process manufacturers rely on AspenTech to achieve their operational excellence goals, visit www.aspentech.com

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 develop new software products, enhance existing products and services, or penetrate new vertical markets; demand for, or usage of, aspenONE software declines for any reason; unfavorable economic and market conditions or a lessening demand in the market for 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 current intention to update forward-looking statements after the date of this press release.

© 2014 Aspen Technology, Inc. AspenTech, aspenONE, the Aspen leaf logo, Aspen Plus and Aspen HYSYS are 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 Ended											Six Months Ended
				December 31,											December 31,
				2013					2012						2013					2012
Revenue:
Subscription and software				$	88,924				$	69,037					$	167,607				$	132,800
Services and other					9,845					8,272						18,727					15,966
Total revenue					98,769					77,309						186,334					148,766
Cost of revenue:
Subscription and software					5,022					5,118						9,642					10,246
Services and other					7,421					7,255						14,879					14,465
Total cost of revenue					12,443					12,373						24,521					24,711
Gross profit					86,326					64,936						161,813					124,055
Operating expenses:
Selling and marketing					24,178					23,303						47,109					44,894
Research and development					15,016					15,039						30,850					30,805
General and administrative					11,013					11,671						22,889					24,439
Restructuring charges					7					(6	)					4					34
Total operating expenses					50,214					50,007						100,852					100,172
Income from operations					36,112					14,929						60,961					23,883
Interest income					307					955						694					2,054
Interest expense					(8	)				(116	)					(26	)				(373	)
Other income (expense), net					(531	)				(57	)					(1,335	)				(334	)
Income before provision for income taxes					35,880					15,711						60,294					25,230
Provision for income taxes					12,617					5,774						22,032					10,880
Net income				$	23,263				$	9,937					$	38,262				$	14,350
Net income per common share:
Basic				$	0.25				$	0.11					$	0.41				$	0.15
Diluted				$	0.25				$	0.10					$	0.41				$	0.15
Weighted average shares outstanding:
Basic					92,839					93,512						93,124					93,470
Diluted					93,816					95,463						94,137					95,541

* Beginning with the first quarter of fiscal 2014, revenue from software maintenance support (SMS) is included within subscription and software revenue in our unaudited consolidated statements of operations. Prior to fiscal 2014, SMS revenue was included within services and other revenue. Additionally, beginning in the first quarter of fiscal 2014, the cost of providing SMS is included within subscription and software cost of revenue. Prior to fiscal 2014, the cost of providing SMS was included within services and other cost of revenue. Corresponding line items in the consolidated statements of operations for the three and six months ended December 31, 2012 have been reclassified to conform to the current period presentation. Refer to the company's Form 10-Q for the period ended December 31, 2013 for additional details.

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share data)
			December 31,						June 30,
			2013						2013
ASSETS
Current assets:
Cash and cash equivalents			$	137,477					$	132,432
Short-term marketable securities				81,173						57,015
Accounts receivable, net				30,043						36,988
Current portion of installments receivable, net				5,617						13,769
Unbilled services				782						1,965
Prepaid expenses and other current assets				9,422						9,665
Prepaid income taxes				273						288
Current deferred tax assets				26,422						33,229
Total current assets				291,209						285,351
Long-term marketable securities				17,057						35,353
Non-current installments receivable, net				992						963
Property, equipment and leasehold improvements, net				7,123						7,829
Computer software development costs, net				1,733						1,742
Goodwill				19,199						19,132
Non-current deferred tax assets				15,130						25,250
Other non-current assets				6,468						7,128
Total assets			$	358,911					$	382,748
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable			$	1,133					$	846
Accrued expenses and other current liabilities				29,042						34,421
Income taxes payable				1,767						1,697
Current deferred revenue				181,072						178,341
Current deferred tax liabilities				156						156
Total current liabilities				213,170						215,461
Non-current deferred revenue				43,695						53,012
Other non-current liabilities				11,571						12,377
Commitments and contingencies
Series D redeemable convertible preferred stock, $0.10 par value--
Authorized-- 3,636 shares as of December 31, 2013 and June 30, 2013
Issued and outstanding-- none as of December 31, 2013 and June 30, 2013				-						-
Stockholders' equity:
Common stock, $0.10 par value-- Authorized--210,000,000 shares
Issued-- 100,549,498 shares at December 31, 2013 and 99,945,545 shares at June 30, 2013
Outstanding-- 92,617,481 shares at December 31, 2013 and 93,683,769 shares at June 30, 2013				10,055						9,995
Additional paid-in capital				583,523						575,770
Accumulated deficit				(311,555	)					(349,817	)
Accumulated other comprehensive income				8,684						7,263
Treasury stock, at cost--7,932,017 shares of common stock at December 31, 2013 and 6,261,776 shares of common stock at June 30, 2013				(200,232	)					(141,313	)
Total stockholders' equity				90,475						101,898
Total liabilities and stockholders' equity			$	358,911					$	382,748

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
		Three Months Ended								Six Months Ended
		December 31,								December 31,
			2013				2012				2013				2012
Cash flows from operating activities:
Net income		$	23,263			$	9,937			$	38,262			$	14,350
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,277				1,370				2,479				2,687
Net foreign currency loss (gain)			515				(183	)			1,079				(304	)
Stock-based compensation			3,151				3,453				7,538				7,768
Deferred income taxes			8,173				5,636				16,791				9,858
Provision for bad debts			766				65				786				162
Excess tax benefits from stock-based compensation			(42	)			-				(83	)			-
Other non-cash operating activities			823				25				896				28
Changes in assets and liabilities:
Accounts receivable			5,342				(16,852	)			6,494				(7,957	)
Unbilled services			977				568				1,171				606
Prepaid expenses, prepaid income taxes, and other assets			666				1,462				1,536				5,905
Installment receivables			5,316				14,071				8,345				25,101
Accounts payable, accrued expenses, and other liabilities			3,909				4,750				(5,568	)			(8,503	)
Deferred revenue			(7,793	)			11,377				(7,470	)			4,439
Net cash provided by operating activities			46,343				35,679				72,256				54,140
Cash flows from investing activities:
Purchase of marketable securities			(11,018	)			-				(18,992	)			-
Maturities of marketable securities			7,886				-				12,424				-
Purchase of property, equipment and leasehold improvements			(809	)			(767	)			(1,724	)			(2,567	)
Insurance proceeds			-				-				-				2,222
Purchase of technology intangibles			-				-				-				(527	)
Capitalized computer software development costs			(285	)			(435	)			(504	)			(435	)
Net cash used in investing activities			(4,226	)			(1,202	)			(8,796	)			(1,307	)
Cash flows from financing activities:
Exercise of stock options			1,497				5,072				4,430				9,120
Repayments of secured borrowings			-				(5,616	)			-				(11,010	)
Repurchases of common stock			(30,000	)			(19,689	)			(58,919	)			(36,852	)
Payment of tax withholding obligations related to restricted stock			(1,788	)			(2,312	)			(4,237	)			(4,288	)
Excess tax benefits from stock-based compensation			42				-				83				-
Net cash used in financing activities			(30,249	)			(22,545	)			(58,643	)			(43,030	)
Effect of exchange rate changes on cash and cash equivalents			5				(71	)			228				179
Increase in cash and cash equivalents			11,873				11,861				5,045				9,982
Cash and cash equivalents, beginning of period			125,604				163,363				132,432				165,242
Cash and cash equivalents, end of period		$	137,477			$	175,224			$	137,477			$	175,224
Supplemental disclosure of cash flow information:
Income tax paid, net		$	3,715			$	778			$	5,045			$	1,812
Interest paid			8				116				26				373

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
GAAP Results Reconciled to Non-GAAP Results
The following table reflects selected Aspen Technology GAAP results reconciled to Non-GAAP results. (unaudited in thousands, except per share data)
				Three Months Ended December 31,											Six Months Ended December 31,
				2013					2012						2013					2012
Total expenses
GAAP total expenses (a)				$	62,657				$	62,380					$	125,373				$	124,883
Less:
Stock-based compensation (b)					(3,151	)				(3,453	)					(7,538	)				(7,768	)
Restructuring charges					(7	)				6						(4	)				(34	)
Amortization of purchased technology intangibles					(224	)				(199	)					(473	)				(302	)
Non-GAAP total expenses				$	59,275				$	58,734					$	117,358				$	116,779
Income from operations
GAAP income from operations				$	36,112				$	14,929					$	60,961				$	23,883
Plus:
Stock-based compensation (b)					3,151					3,453						7,538					7,768
Restructuring charges					7					(6	)					4					34
Amortization of purchased technology intangibles					224					199						473					302
Non-GAAP income from operations				$	39,494				$	18,575					$	68,976				$	31,987
Net income
GAAP net income				$	23,263				$	9,937					$	38,262				$	14,350
Plus:
Stock-based compensation (b)					3,151					3,453						7,538					7,768
Restructuring charges					7					(6	)					4					34
Amortization of purchased technology intangibles					224					199						473					302
Less:
Income tax effect on Non-GAAP items (c)					(1,218	)				(1,316	)					(2,885	)				(2,926	)
Non-GAAP net income				$	25,427				$	12,267					$	43,392				$	19,528
Diluted income per share
GAAP diluted income per share				$	0.25				$	0.10					$	0.41				$	0.15
Plus:
Stock-based compensation (b)					0.03					0.04						0.08					0.08
Restructuring charges					-					-						-					-
Amortization of purchased technology intangibles					-					-						0.01					-
Less:
Income tax effect on Non-GAAP items (c)					(0.01	)				(0.01	)					(0.03	)				(0.03	)
Non-GAAP diluted income per share				$	0.27				$	0.13					$	0.46				$	0.20
Shares used in computing Non-GAAP diluted income per share					93,816					95,463						94,137					95,541
(a) GAAP total expenses
				Three Months Ended December 31,											Six Months Ended December 31,
				2013					2012						2013					2012
Total costs of revenue				$	12,443				$	12,373					$	24,521				$	24,711
Total operating expenses					50,214					50,007						100,852					100,172
GAAP total expenses				$	62,657				$	62,380					$	125,373				$	124,883
(b) Stock-based compensation expense was as follows:
				Three Months Ended December 31,											Six Months Ended December 31,
				2013					2012						2013					2012
Cost of services and other				$	327				$	316					$	628				$	659
Selling and marketing					710					972						1,821					1,949
Research and development					889					742						1,745					1,483
General and administrative					1,225					1,423						3,344					3,677
Total stock-based compensation				$	3,151				$	3,453					$	7,538				$	7,768

(c) The income tax effect on Non-GAAP items for the three and six months ended December 31, 2013 and 2012 is calculated utilizing an estimate of our future effective tax rate.

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