Aspen Technology Inc (AZPN) 2008 Q4 法說會逐字稿

Good morning. My name is Lori, and I will be your conference operator. At this time, I would like to welcome everyone to the Aspen Technology fiscal 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

I will now turn the call over to Mark Fusco, Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone. I am Mark Fusco, CEO of AspenTech. I would like to welcome you to our call to discuss our financial results for the fourth quarter and fiscal year 2008 ended June 30, 2008.

Before we begin, I will make the usual Safe Harbor statement that during the course of this call we may make projections or other forward-looking statements about the financial performance of the Company that involve risks and uncertainties. The Company's actual results may differ materially from the projections described in such statements.

Factors that might cause such differences include, but are not limited to, those discussed in today's call and in our most recent Form 10-K on file with the SEC. Also please note that the following information is related to current business conditions and our outlook as of today July 1, 2009. Consistent with our prior practice, we expressly disclaim any obligation to update this information.

The structure of today's call will be as follows. First, I will provide an overview of the fiscal 2008 financial results that we filed with the SEC last evening. We will then open the call for Q&A to address questions. However, given that we just completed our fourth quarter fiscal 2009 hours ago, we hope you understand that we will need to hold questions on the current state of business until we get together for our fourth quarter 2009 bookings call.

A current intention is to share our fourth quarter '09 bookings at the start of our Analyst Day on July 9, which we announced in a separate press release last night.

Now turning to the results. As we previously disclosed, the fourth quarter fiscal 2008 ended June 30, 2008 was a strong finish to a record year for AspenTech. Licensed bookings for Q4 were approximately $70 million. This was consistent with our original expectations and up slightly compared to a very strong Q4 in fiscal 2007. As a reminder, our licensed bookings in the fourth quarter of fiscal 2007 were up approximately 50% on a year-over-year basis.

The solid fourth-quarter fiscal 2008 performance contributed to a full-year fiscal 2008 licensed booking growth of over 15% on a year-over-year basis.

As we pointed out during our second and third quarter fiscal 2008 results conference call, there were certain larger licensed bookings from the fourth quarter of fiscal 2008, as well as during fiscal 2009, in which the associated license revenue is expected to be recognized in future quarters. After completing the review of the fourth quarter fiscal 2008 transactions as part of our fiscal year-end audit, it was determined that three contracts with a net present value totaling approximately $12.5 million should be recognized in future periods.

As such, for the fourth quarter of fiscal 2008, GAAP license revenue was approximately $59.7 million, which compares to the $70 million in license bookings I just referred to and the $67.9 million in license revenue recognized during the fourth quarter of fiscal 2007, which did not have a similar divergence between the timing of when license transactions were booked and when the revenue was recognized.

This led to total revenue of $98.3 million for the fourth quarter of fiscal 2008 which compared to $101.4 million in the fourth quarter of fiscal 2007.

Services revenue was the other contributor to our total revenue, and at $38.6 million, it grew 15% on a year-over-year and 13% sequentially during the fourth quarter of 2008. As a reminder, our services revenue can very on vary on a sequential and year-over-year basis because it has multiple contributors, including maintenance revenue, training revenue and consulting revenue. This is evidenced by the fact that our total services revenue grew 1% on a full-year basis during fiscal 2008.

From a profitability perspective, our gross margin of 78% in the fourth quarter of fiscal 2008 was up slightly from 77% in the fourth quarter of fiscal 2007. Our total GAAP operating expenses of $55.3 million were up slightly from $54 million in '07.

During the fourth quarter of fiscal 2008 and continuing into fiscal 2009, AspenTech has consistently been focused on managing expenses closely and running efficient operations. It is worth calling out that audit and professional fees related to bringing the Company's financials current, which run through our G&A expense line, were $2.4 million in the fourth quarter of fiscal 2008 compared to $2.1 million in the fourth quarter of fiscal 2007. We expect to reduce our audit and professional fees after we bring the Company's financial statements current.

GAAP operating profit was $21.1 million in the fourth quarter of fiscal '08 compared to $24 million in the year-ago period due to the fact that we deferred the recognition of approximately $12.5 million in license bookings to future periods in the fourth quarter of fiscal '08, and as mentioned, we did not have a comparable deferral in the year-ago period. This ultimately led to diluted EPS of $0.22 for the fourth quarter of fiscal '08, $0.03 a share better than the $0.19 a share in the fourth quarter of fiscal '07.

From a full-year perspective, AspenTech's total revenue was $311.6 million, which compared to $341 million in fiscal 2007. The year-over-year decline was due to the fact that approximately $57.5 million in fiscal 2008 license bookings were deferred to future periods. This led to license revenue of $168.4 million, which compared to $199.8 million in fiscal 2007.

However, as discussed at the outset of the call, our license bookings for the full year of fiscal '08 were approximately $235 million, which was up over 15% on a year-over-year basis.

Total GAAP operating expenses of $208 million during fiscal 2008 compared to $192.1 million in fiscal 2007. The increase in operating expenses from fiscal 2007 to fiscal '08 was driven in part by approximately $8 million related to higher audit and related professional fees; approximately $4 million was related to higher restructuring expenses; and approximately $2 million related to lower software capitalization.

GAAP operating income was approximately $18.6 million in fiscal 2008, lower than the $55.4 million reported in fiscal 2007 due to the already-discussed deferred recognition of $57.5 million in license bookings. Diluted EPS was $0.27 a share compared to $0.50 a share in the year-ago period.

I will now finish with some comments on the Company's balance sheet and cash flow for the fiscal 2008 period. The Company's cash balance at the end of fiscal 2008 was approximately $134 million, an increase compared to the approximately $132 million at the end of fiscal '07. Cash flow for our operations was a record $70.8 million during fiscal 2008, offset by cash used in investing activities of $9.8 million and cash used in financing activities of $59.8 million.

As we have discussed in the past, cash used in financing activities primarily relates to the reduction in our secured borrowings account. Beginning in fiscal 2008 and continuing into fiscal 2009, we have not been selling installments receivable for the purpose of raising cash, while we have been using the annual customer collections from the collateralized receivables to pay down the self-funding debt balance. At the same time, we have been growing the Company-owned installments receivable balance related to our multiyear term-based model contracts, which provides the Company with an increasingly subscription-based cash flow model.

Over the course of fiscal 2008, the Company reduced its total secured borrowings account by $58.9 million, ending fiscal 2008 with a secured borrowings balance of approximately $147 million. Over the same period of time, we increased the Company-owned accounts and installments receivable balances by $131.1 million, ending the fiscal year 2008 with a balance of $221.2 million.

In addition, the Company ended fiscal 2008 with a total collateralized receivables balance of over $135 million, providing the Company with total receivables balance of $357 million.

The Company's total deferred revenue balance at June 30, '08 was $106.9 million, an increase of 59% compared to the end of fiscal 2007, with the strong year-over-year increase primarily the result of previously disclosed license bookings during the second and third quarters fiscal 2008 that were not recognized as revenue at the time of sale.

Of note, however, the three large license bookings in fiscal Q4 2008 that were not recognized as revenue were also not recorded on the Company's balance sheet and out of the installments receivable or deferred revenue balances.

In summary, our business performed at a high level throughout fiscal 2008. We delivered a record year from a license bookings and cash from operations perspective, and we began a process of paying down our secured borrowings balance and growing our Company-owned receivables balances. This strategy has continued throughout fiscal 2009 and it has the potential to significantly improve AspenTech's financial profile as we gain increased visibility into a larger subscription cash flow stream.

I would like to finish with two comments related to our financial organization and plans for bringing our financials current. First, we issued a press release last evening announcing that Mark Sullivan had agreed to join AspenTech as our Chief Financial Officer effective today. He has over 20 years experience as a finance executive, including 14 years with Fidelity Investments. Most notably, Mark served as Executive Vice President and Chief Financial Officer for Fidelity Employer Services Company, where he led a 200-person finance team and multi-billion-dollar business focused on providing employee benefits and HR outsourcing services.

He also served as Executive Vice President for the office of the CFO, in addition to other financial leadership roles at Fidelity and a number of other global organizations. We are fortunate to have landed an executive with Mark's background and capabilities, and look forward to adding his leadership to our finance organization.

As it relates to bringing our financial statements current, from a process perspective, our intention is to simultaneously file our fiscal 2009 10-K for the year ended June 30, 2009, along with our first-, second- and third-quarter quarterly reports on Form 10-Q. Our goal is to file these statements during the fall of this year.

With that, we will take some questions, but I will provide another reminder that we will be holding off on questions related to the current state of business until we report our fourth quarter fiscal 2009 selected preliminary financial results at our Analyst Day on July 9, 2009, at which time we will also discuss our aspenONE and corporate strategies heading into fiscal 2010.

We can begin the questions now, operator.

(Operator Instructions). Richard Davis, Needham & Company.

Hey, thanks. First question, kind of a detail question. With regard to the deferred -- the revenues that you deferred, how do you expect that to come into the income statement over the -- is it going to come in a large lump, like some of the past ones have, or is it going to be ratable, or do you have any color on that?

Yes, we have -- Richard, stuff comes out of the deferred in multiple different ways, depending on which service line it comes out of, or which revenue line. On the license side, it will likely come in in I guess what we call lumps, meaning single payment, as the payments are due in the subscription contract, as opposed to maybe how some other companies do it, where you would have nice revenue flow during the year on a smooth basis. So we would expect it to come in when the payments are due.

Got it. And I think it is great you are finally getting through that audit stuff, but I guarantee you the next question that will be asked by investors is what is the status of Advent's stock and those kind of things, because that will be the issue that they will be wrestling with. So what is the status and what is their likely process here?

Right. So Advent, as you remember, 18 months ago -- actually 2.5 years ago or so -- we converted them from preferred to common. They are a common shareholder, just like everybody else. They have four demand registration rights for their shares. As you know, now, we are not current in our financial filings, so we couldn't -- we cannot do any registration statements at the moment.

As we bring our financials current, we will be working with Advent to determine when and how those shares are sold. As people know, several years ago, they sent us a letter asking us to do a secondary offering for them. We never executed on that at the time. That letter is still on file with us, meaning it has not been retracted. So it is the Company's expectation that when we get current, we will ask them the question as to what they want to do and we will go forward as appropriate.

Cool. Okay, thanks.

(Operator Instructions).

Okay. Thank you all for getting on the call here this morning on short notice. We look forward to -- and also, next week, we know a little bit short notice on our Analyst Day. Apologize for that. Looking forward to seeing as many of you, either in person or on the Web during the webcast.

And we appreciate your interest in our Company and we are working hard here to bring our financials current as quickly as we can. Special thanks to my finance organization for the hard work over the past months bringing things forward.

So we'll look forward to seeing everyone next week, when we can give you some color on what happened in the fourth quarter of '09, in the fiscal year of '09 and what the Company is going to look like going forward. Thank you.

Thank you. That does conclude today's Aspen Technology fiscal 2008 earnings conference call. You may now disconnect.