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Aspen Technology, Inc. (AZPN)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 FY2024 revenue was $278.1M (+21% YoY) and non-GAAP EPS was $1.70, with non-GAAP operating margin at 41.8% versus 29% a year ago; ACV reached $936.1M (+9.5% YoY, +2.4% QoQ) .
  • Management lowered FY2024 guidance across ACV growth (≥9.0% vs prior ≥11.5%), revenue (≥$1.10B vs ≥$1.12B), non-GAAP operating income (≥$425M vs ≥$445M), and FCF (≥$340M vs ≥$360M), citing cautious customer spending and maturing sales execution .
  • DGM maintained strong demand and is expected to contribute ~2.5 points to FY2024 ACV growth; Heritage AspenTech suites saw deal pushouts late in the quarter; APM underperformed and strategy will be sharpened for lower attrition .
  • Catalyst: Broad guidance reset and commentary on budget vs spending intent likely drive estimate cuts and sentiment shifts; CFO transition announced (David Baker appointed effective June 3, 2024) .

What Went Well and What Went Wrong

  • What Went Well

    • Non-GAAP operating leverage improved materially: non-GAAP operating income $116.3M (margin 41.8%), driven by mix shift to license/solutions and efficiency actions .
    • DGM momentum: term license wins, wallet share expansion, and pipeline strength across U.S. and international markets; expected ~2.5 points of FY2024 growth contribution. CEO: “Demand for our grid innovation remains strong... unprecedented investment cycle to update and modernize the grid” .
    • Cash generation: CFO from operations $138.1M and FCF $137.0M in Q3, both up vs prior year .

  • What Went Wrong

    • Guidance cut: ACV growth, revenue, bookings, non-GAAP operating income, and FCF all revised lower for FY2024 due to cautious customer spending and sales execution challenges .
    • Heritage AspenTech softness: engineering, MSC, and APM deals pushed out late in March; chemicals downturn remains a headwind; APM expected not to contribute to ACV growth in FY2024 .
    • Sales organization maturation: onboarding and institutionalizing best practices flagged as near-term execution priority to restore predictability .

Financial Results

Income Statement and Profitability (Quarterly)

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$249.308 $257.163 $278.106
GAAP Net Income (Loss) ($USD Millions)$(34.525) $(21.500) $1.556
GAAP Diluted EPS ($USD)$(0.54) $(0.34) $0.02
Non-GAAP Net Income ($USD Millions)$74.885 $87.765 $108.735
Non-GAAP Diluted EPS ($USD)$1.16 $1.37 $1.70
Gross Profit ($USD Millions)$151.248 $162.230 $185.164
Gross Margin (%)60.6% 63.1% 66.6%
Non-GAAP Operating Income ($USD Millions)$77.820 $88.658 $116.307
Non-GAAP Operating Margin (%)31.2% 34.5% 41.8%

Notes: Non-GAAP excludes amortization of intangible assets ($121.7M in Q3), stock-based compensation ($12.9M), and certain fees, net of tax effects .

Revenue Composition (Quarterly)

Revenue Category ($USD Millions)Q1 2024Q2 2024Q3 2024
License and Solutions$148.648 $152.463 $169.467
Maintenance$84.968 $85.056 $86.256
Services and Other$15.692 $19.644 $22.383
Total Revenue$249.308 $257.163 $278.106

KPIs and Cash

KPIQ1 2024Q2 2024Q3 2024
ACV ($USD Millions)$897.6 (+10.9% YoY, +1.4% QoQ) $914.1 (+9.6% YoY, +1.8% QoQ) $936.1 (+9.5% YoY, +2.4% QoQ)
Cash from Operations ($USD Millions)$17.0 $29.8 $138.1
Free Cash Flow ($USD Millions)$16.0 $29.2 $137.0
Cash and Cash Equivalents ($USD Millions)$120.540 $130.753 $177.592

Q3 YoY and vs Estimates

MetricQ3 2023Q3 2024YoY ChangeConsensus (S&P Global)Surprise
Revenue ($USD Millions)$229.878 $278.106 +21.0% N/A (unavailable via S&P Global)N/A
GAAP Diluted EPS ($USD)$(0.89) $0.02 +$0.91 N/A (unavailable via S&P Global)N/A
Non-GAAP Diluted EPS ($USD)$1.06 $1.70 +$0.64 N/A (unavailable via S&P Global)N/A
Non-GAAP Operating Margin (%)29.0% 41.8% +12.8pp N/A (unavailable via S&P Global)N/A

S&P Global consensus estimates were unavailable due to missing CIQ mapping for AZPN in the tool.

Guidance Changes

MetricPeriodPrevious Guidance (as of Q2 FY2024)Current Guidance (as of Q3 FY2024)Change
ACV Growth (%)FY2024≥11.5% ≥9.0% Lowered
Total Revenue ($USD)FY2024≥$1.12B ≥$1.10B Lowered
Total Bookings ($USD)FY2024≥$1.04B ≥$1.03B Lowered
GAAP Total Expense ($USD)FY2024≈$1.22B ≈$1.22B Maintained
Non-GAAP Total Expense ($USD)FY2024≈$675M ≈$675M Maintained
GAAP Operating Loss ($USD)FY2024≤$(100)M ≤$(121)M Lowered (worse)
Non-GAAP Operating Income ($USD)FY2024≥$445M ≥$425M Lowered
GAAP Net (Loss) ($USD)FY2024≤$(7)M ≤$(29)M Lowered (worse)
Non-GAAP Net Income ($USD)FY2024≥$424M ≥$403M Lowered
GAAP Diluted EPS ($USD)FY2024≥$(0.11) ≥$(0.45) Lowered (worse)
Non-GAAP Diluted EPS ($USD)FY2024≥$6.59 ≥$6.29 Lowered
GAAP Operating Cash Flow ($USD)FY2024≥$378M ≥$349M Lowered
Free Cash Flow ($USD)FY2024≥$360M ≥$340M Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI/Product InnovationOngoing innovation; reaffirmed execution focus (Q1/Q2) V14.3 releasing; deeper industrial AI; Aspen Virtual Advisor for planning; Aspen Workflow; Sustainability Pathways with generative AI Improving
Sales Execution/OnboardingTransition in CFO/organizational foundation; solid demand (Q1/Q2) Maturing sales force; rigorous onboarding and best practices; deploying experienced personnel on key deals Mixed (near-term headwinds)
Macro/Budget vs Spend IntentConfidence in FY outlook/Q2 reaffirmed; resilient demand Budgets intact but spending intent delayed; pushouts concentrated in last 2 weeks of March Worsening near term
DGM (Grid Software)Unique positioning for electrification investment cycle (Q1/Q2) Strong pipeline; term wins; ~2.5 points FY growth; extended procurement cycles; European/APAC/Middle East expansion Improving
Chemicals/Refining End MarketsNoted industry dynamics Chemicals downturn persists; cautious refining buying; interest in DMC3/GDOT/Unified planning Mixed
APM StrategyMission-critical solutions; general focus APM below expectations; sharpen go-to-market to reduce attrition; leadership in select segments Reset/Focus
Bookings/ACV Renewal TimingReaffirmed FY targets; noted renewal timing impacts Q3 bookings $301M; $195M up for renewal in Q4; timing drives revenue/margins Neutral structurally

Management Commentary

  • CEO (Antonio Pietri): “Our third quarter performance and updated outlook... reflects the more cautious customer buying behavior... AspenTech remains well positioned to support customers... in global decarbonization, electrification, and the transition to a new energy system” .
  • CEO on budgets vs spend: “Budgets are in place, but the intent to spend got pushed out... prevalent across most regions and end markets” .
  • CFO (Christopher Stagno): “Non-GAAP operating income of $116M... margin 41.8%... improvement mainly driven by higher mix of license and solutions revenue and efficiency focus” .
  • CEO on DGM: “Demand... remains strong... unprecedented investment cycle to update and modernize the grid... DGM to contribute approximately 2.5 points of growth for FY2024” .
  • CEO on APM: “We will sharpen our focus... pursue high-quality business that doesn’t generate attrition later on... becoming the leader with Mtell in some segments” .

Q&A Highlights

  • Heritage AspenTech softness and timing: Deals slipped mainly in last two weeks of March; broad-based across regions and suites; budgets intact but spending intent delayed .
  • Q4 guidance conservatism: Guidance reflects specific customer engagements and confirmed intent-to-spend; CEO conducted top-to-bottom pipeline reviews with sales leaders .
  • DGM pipeline and growth: ~40% FY growth for suite implied by ~2.5 points contribution; procurement cycles vary 12–24 months for replacements and 6–12 months for upgrades; expansion underway in Europe/APAC/Middle East .
  • Sales execution: Accelerated onboarding, deployment of experienced sellers on critical deals, alignment ahead of FY2025 kickoff .
  • Attrition and APM: Attrition ~5% in line with plan; APM renewal attrition linked to discretionary OpEx, prompting focused strategy to target segments with quantifiable ROI and lower attrition .

Estimates Context

  • Wall Street consensus from S&P Global for Q3 FY2024 revenue and EPS was unavailable in the tool due to missing CIQ mapping for AZPN.
  • Directionally, guidance cuts across ACV, revenue, non-GAAP operating income, and FCF imply consensus estimates for FY2024 should be revised lower; near-term caution on Heritage suite and APM likely weighs on topline/ACV growth expectations .

Key Takeaways for Investors

  • Q3 delivered strong non-GAAP profitability and cash generation, but deal timing pushouts in Heritage suites forced a broad FY2024 guidance reset — monitor ACV additions and conversion of late-stage pipeline in Q4 .
  • DGM remains the structural growth pillar (grid modernization tailwinds), with geographic expansion and long-cycle procurements supporting durable growth visibility .
  • Execution plan underway to stabilize sales predictability; evidence of improved close rates and experienced overlays is critical into June quarter .
  • Chemicals end-market weakness and APM renewal risk suggest conservative near-term expectations for Heritage growth; watch for traction in Unified planning, DMC3, GDOT upgrades .
  • Non-GAAP margins benefited from mix and efficiencies; management flagged multiyear productivity journey — supportive of medium-term FCF and margin expansion if revenue growth normalizes .
  • Estimate resets likely near term; upside swing factors include closing deferred deals, OPTIMIZE-driven engagement, and V14.3 AI features accelerating adoption .
  • Governance/leadership: CFO appointment (David Baker) adds seasoned Emerson FP&A/automation leadership to drive finance transformation and execution rigor .