New Licensing Plan Forces AspenTech Second Quarter Loss

The short-term hit to revenue is in the company’s best interest, as it continues to fix the mess left by previous leadership. The company also announced a return to NASDAQ listing.

aspentech logoMarch 19, 2010–Process industry software provider Aspen Technology (NASDAQ: AZPN) has reported a net loss in its second fiscal quarter of 2010, ending December 31, 2009. Revenues plunged following the introduction of a new licensing model. The net loss for the quarter was $30.66 million, compared to net income of $22.96 million a year earlier. Second quarter revenue was $42.7 million, down 48% from $82.6 million in 2Q09.

The decline was primarily due to the new ratable revenue recognition model for aspenONE product line licensing. The current management has been rebuilding the company’s records, practices, and reputation since an accounting scandal earlier in the decade. After being pushed to the over-the-counter market when the scandal broke, AspenTech has now regained its spot on NASDAQ, with its original ticker symbol AZPN.

Re-Evaluating Subscription Revenue
Total subscription and software revenues of the company decreased to $10.19 million, down 78% from $47.27 million a year earlier. Subscription revenue includes all revenue associated with the company’s new aspenONE licensing model. Subscription revenue was approximately $1.2 million in the second quarter of fiscal 2010. No subscription revenue was recorded in the year ago period as the company’s new aspenONE licensing model was launched during the first quarter of fiscal 2010. Subscription revenue is recognized over the course of the multi-year agreement, and recognition begins when the first payment is due, which the company says is typically 30 days after the contract is signed.

Software revenue includes all non-subscription-based license revenue, including term-based contracts for point products as well as perpetual licenses. Software revenue was $9.0 million in the second quarter of fiscal 2010, down 80% from $47.3 million in the year ago period. In fiscal year 2010, software revenue related to term contracts is recognized over the contract term, generally as payments become due. In prior fiscal year periods, the company predominantly recognized term license revenue on an upfront basis, and what was previously categorized as license revenue typically equaled license bookings. However, in the second quarter of fiscal year 2009, license revenue was approximately $17 million lower than license bookings as a result of certain license bookings not meeting the criteria for up-front revenue recognition.

Services and other revenues were down slightly to $32.50 million from $35.36 million in 2Q09. This revenue includes professional services, maintenance and other revenue. AspenTech attributes the modest decline to the current economic environment. Services and other revenue was up sequentially compared to $28.7 million in the first quarter of fiscal 2010.

Fusco says despite the initial downturn in revenue from the switch, in the long run the new licensing model will benefit both customers and the company.
The company closed 18 product-related bookings of over $1 million during the second quarter, and 57 product-related bookings between $250,000 and $1 million. Average deal size for product-related bookings over $100,000 was $778,000 in the quarter.

Cash per share on December 31, 2009 was $1.19.

The Final Analysis
Under AspenTech’s old regime, big sales could be recorded as if they were immediately paid in full. This led to inflated expectations that management bent over backwards to fulfill, if only on paper. This new model is much more straightforward and honest. §