Aspen Technology(AZPN) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated and combined financial statements, including operations, balance sheets, cash flows, and notes on key accounting policies and transactions Consolidated and Combined Statements of Operations For the three months ended September 30, 2022, total revenue reached $250.8 million with a net loss of $11.2 million, significantly impacted by the inclusion of Heritage AspenTech's results Statement of Operations Highlights (Q1 FY23 vs Q1 FY22) | Metric | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $250,819 | $77,015 | | Gross Profit | $159,689 | $33,495 | | (Loss) from Operations | ($51,182) | ($13,884) | | Net (Loss) | ($11,244) | ($11,202) | | Net (Loss) per Share (Basic & Diluted) | ($0.17) | ($0.31) | Consolidated and Combined Balance Sheets As of September 30, 2022, total assets were $14.97 billion, with key components including cash, goodwill, and intangible assets, alongside total liabilities of $1.80 billion and equity of $13.17 billion Balance Sheet Summary (in thousands) | Account | Sep 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $382,458 | $449,725 | | Goodwill | $8,326,336 | $8,266,809 | | Intangible assets, net | $5,021,909 | $5,112,781 | | Total Assets | $14,971,403 | $14,969,922 | | Total Liabilities | $1,800,613 | $1,800,565 | | Total Stockholders' Equity | $13,170,790 | $13,169,357 | Consolidated and Combined Statements of Cash Flows Net cash provided by operating activities for Q1 FY23 was $5.1 million, with significant cash used in investing activities for acquisitions, resulting in a quarter-end cash balance of $382.5 million Cash Flow Summary (Three Months Ended Sep 30, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $5,077 | ($9,186) | | Net cash used in investing activities | ($76,367) | ($3,957) | | Net cash provided by financing activities | $7,756 | $15,195 | | (Decrease) increase in cash | ($67,267) | $2,054 | | Cash and cash equivalents, end of period | $382,458 | $25,713 | Notes to Unaudited Consolidated and Combined Financial Statements These notes detail the accounting for the Emerson transaction, Inmation acquisition, Micromine hedging, debt facilities, and the impact of the Russia-Ukraine conflict, alongside a change to single segment reporting - The transaction with Emerson, closed May 16, 2022, was accounted for as a business combination, with Emerson's Industrial Software Business treated as the acquirer, impacting prior period financial statements[23][25] - On August 29, 2022, Inmation Software GmbH was acquired for $87.4 million in cash, generating $63.6 million in goodwill and $31.5 million in intangible assets[44] - Foreign currency forward contracts for the AU $900 million Micromine acquisition resulted in a $50.3 million recognized loss as of September 30, 2022[68] - The company transitioned to a single operating and reportable segment as of September 30, 2022, with prior period information restated[81] - Operations in Russia generated approximately $10.0 million in net sales and held approximately $24.5 million in total assets as of September 30, 2022[28] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY23 financial performance, highlighting the transformative Emerson transaction, significant revenue growth, increased costs, and liquidity, including new debt facilities for the Micromine acquisition Key Business Metrics Key business metrics include Pro Forma ACV, which grew 7.7% to $809.6 million, TCV at $3.3 billion, and bookings of $224.0 million for the quarter Key Business Metrics Performance | Metric | As of/For the period ended Sep 30, 2022 | As of/For the period ended Sep 30, 2021 | | :--- | :--- | :--- | | Pro Forma ACV | $809.6 million (+7.7% YoY) | $751.9 million | | TCV | $3.3 billion | $3.1 billion | | Bookings | $224.0 million | $156.2 million | Results of Operations Q1 FY23 total revenue increased 225.7% to $250.8 million due to Heritage AspenTech, leading to higher costs, a $51.2 million operating loss, and a $104.8 million pre-tax loss from foreign currency losses - Total revenue increased by $173.8 million, primarily due to $176.4 million in revenue from Heritage AspenTech following the Emerson transaction[115] - Operating expenses significantly increased, with Selling and Marketing up $93.3 million, including $64.2 million in additional intangible asset amortization from the transaction[120] - Other expense increased by $57.3 million, mainly due to $50.3 million in unrealized losses on foreign currency forward contracts for the Micromine acquisition[123] - The income tax benefit increased to $93.5 million (89.3% effective rate) from $4.3 million (27.8% effective rate) due to a higher FDII deduction and tax accounting changes[125] Liquidity and Capital Resources As of September 30, 2022, the company held $382.5 million in cash, secured a $475.0 million bridge facility for the Micromine acquisition, and reported $10.7 million in free cash flow for the quarter - Principal liquidity sources as of September 30, 2022, included $382.5 million in cash and cash equivalents[126] - A $475.0 million senior unsecured bridge facility was secured for the Micromine acquisition, with no outstanding amounts as of September 30, 2022[127] Free Cash Flow (Non-GAAP, in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $5,077 | ($9,186) | | Free cash flow | $10,716 | ($11,739) | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency and interest rates, hedging its AU $900 million Micromine acquisition payment, resulting in $8.3 million in net foreign currency exchange losses for the quarter - Foreign currency forward contracts hedging the AU $900 million Micromine acquisition payment had a negative fair value of $50.3 million as of September 30, 2022[135][136] - Net foreign currency exchange losses for the quarter totaled $8.3 million, compared to $1.5 million in the prior-year period[137] - A hypothetical 10% change in interest rates on outstanding borrowings would not materially impact financial results[139] Controls and Procedures As of September 30, 2022, management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2022[143] - No material changes in internal control over financial reporting occurred during the quarter[144] PART II - OTHER INFORMATION Legal Proceedings The company reported no legal proceedings during the quarter - No legal proceedings were reported[146] Risk Factors This section updates risk factors, specifically addressing foreign operations and the Russia-Ukraine conflict, which impacts Russian net sales of $10.0 million and assets of $24.5 million - Risk factors from Form 10-KT remain current, with a specific revision regarding foreign operations[147] - The Ukraine conflict poses risks to Russian operations, which generated approximately $10.0 million in net sales and held $24.5 million in total assets for the quarter[150] - Potential impacts from the conflict include operational suspension, revenue loss, collection difficulties, and reputational harm[152] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the quarter - No unregistered sales of equity securities or use of proceeds were reported[154] Exhibits This section lists all exhibits filed with the Form 10-Q, including executive agreements, Sarbanes-Oxley Act certifications, and Inline XBRL documents for financial reporting - Certifications from the Principal Executive Officer (31.1) and Principal Financial Officer (31.2) are included per Sarbanes-Oxley Act Section 302[156] - A joint certification from the CEO and CFO (32.1) is included per Sarbanes-Oxley Act Section 906[156]