Event
Summary
Aspen Technology's financial results for the first quarter ending September
30, 2000 fell short of last quarter's results but typify the vendor's
cyclical business. License revenue decreased 31% to $32.6 million from
the previous quarter of $47.3 million. A slight increase in service revenue
softened the drop in total revenues, but these nonetheless declined 17%
to $69.5 million from $83.4 million in the last quarter. Net earnings
sank from a positive $4.6 million in 4Q00 to a negative $3.7 million this
quarter.
Figure
1.
These
are gloomy results, but a brighter and more accurate assessment of Aspen's
performance emerges from comparing this quarter's results with those of
the same period a year ago. This approach eliminates the effect of such
cyclical factors in Aspen's business as perennially slower sales during
the summer from non-U.S. sources and the timing of software license renewals.
Thus, total revenues for the first quarter of fiscal 2001 increased 30%
to $69.5 million, from $53.4 million reported in the same period in fiscal
2000. Software license revenues for the quarter grew 52% to $32.6 million,
while services revenues rose 16% to $36.9 million. Excluding the one-time
in-process research and development charge, the company reported a net
loss of $0.2 million or $0.01 per share, compared with a net loss of $3.1
million or $0.11 per share in the first quarter of fiscal 2000. Excluding
both the in-process research and development charge and the expense impact
relating to PetroVantage, the company's wholly owned digital marketplace,
net income would have been $0.5 million or $0.02 per share.
This
picture explains the enthusiasm of Chairman and CEO Larry Evans as he
discussed a surge in new client wins fueled by Aspen's supply chain solutions.
"Our supply chain solutions were a primary driver of our growth in the
first quarter, as we won a number of important deals in our target markets.
In addition, we saw a strong contribution from our Aspen Engineering Suite,"
said Evans. "We are also continuing to gain momentum in the process industries
as the only e-business software vendor with an end-to-end solution that
integrates all facets of a corporation and its extended enterprise, from
the digital marketplace to the plant floor."
Market
Impact
In short, it is too soon to expect tangible results from Aspen's B2B marketplace
initiatives. All companies that transition from traditional license revenue
models to recurring revenue models experience a plateau or decline in
growth as the number of new licenses drops off and transaction volume
builds. In addition, Aspen is a relative newcomer to the digital marketplace
industry and launched its first offering, PetroVantage, a marketplace
for petroleum refiners and retail partners based partly on technology
acquired from PetrolSoft, in September. Just last week the company announced
Aspen Marketplace Solution, a combination of products and services that
connects enterprises to public and private marketplaces.
Despite
Marketplace Solution's embryonic nature, Aspen's strong position in the
process industries and large customer base almost guarantees its eventual
success as a broker of B2B marketplaces for its core verticals, chemicals,
petroleum refining, pharmaceuticals, and petrochemicals. Pricing models
for exchanges built on these solutions have not been made public, though
these will likely create recurring revenue through transaction- and subscription-based
fees and greatly diminish the seasonal variability characterizing Aspen
today.
The
success of Aspen in the B2B exchange market is also made more probable
by changes in its competitive landscape. Aspen's broad product slate makes
it vulnerable to competition along many fronts, but its market visibility
has been improved by consolidation among its rivals. Simulation Sciences
Inc. (SSI) was taken over by Invensys plc, the same software clearinghouse
that bought troubled ERP vendor Baan last summer. Formerly a significant
threat to Aspen, SSI's impact in the market has wavered since the Invensys
acquisition and Invensys itself is now rumored to be on the auction block.
Honeywell, which competed with Aspen in process control software, announced
recently that it would be acquired by GE. The uncertain future of vendors
like Honeywell and SSI/Invensys has had an indelible effect on user confidence,
leaving Aspen virtually uncontested in the process industries.
User
Recommendations
Aspen Technology should occupy a prominent role in enterprise software
selections for process manufacturers, especially those who produce chemicals,
pharmaceuticals, and refined oil products. For supply chain management,
Aspen is the only vendor that can offer deep functionality for the process
industries with the added capability to deliver process simulation and
control functionality and integrate them. The main caveat is that most
of Aspen's SCM applications are essentially toolkits in which desired
features can be developed, not packaged solutions that can merely be configured.
Thus, experienced resources are a must for implementations. That being
said, Aspen is attempting to reformulate some of its more popular functionality
as packaged modules and templates to speed implementations. Users should
also bear in mind that Aspen's digital marketplaces such as PetroVantage
and e-Catalysts.com have strong potential but are largely experimental
at this stage.