AspenTech Earnings: Promising Annual Contract Value and Integration Underway
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.
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