Shares of industrial software company Aspen Technology(NASDAQ: AZPN) rose by 14.9% in the week through Friday morning, according to data compiled by S&P Global Market Intelligence. The move comes after a reassuring fourth-quarter 2024 earnings report earlier in the week.
Aspen Technology steadies the ship
After disappointing investors by lowering its full-year 2024 annual contract value (ACV) growth guidance in May, Aspen Technology delivered a solid set of fourth-quarter results, gave good guidance for its financial 2025, and took action to improve its cost structure. All helped to send the stock sharply higher this week.
ACV is the best metric to gauge Aspen's performance as it factors in contract value growth and retention. It also leads cash flow as the recurring revenue drops down into cash. In May, management cut its expectation for full-year ACV growth to 9% from 11.5% previously. Fast-forward to the recent results and the final figure came in at a solid 9.4% growth.
Furthermore, management guided toward 9% ACV growth in its financial 2025. Moreover, due to ongoing initiatives to improve efficiencies and reduce expenses, management announced it would cut the workforce by 5% in the first quarter of 2025, at the cost of $7 million to $9 million, with the majority falling in the first quarter of 2025.
Image source: Getty Images.
What's next for Aspen Technology
While CEO Antonio Pietri spoke of "cautious customer spending in some of our end markets," Aspen's core end markets of utilities and energy are good right now. There's no shortage of interest in digital grid management solutions, and relatively high energy prices encourage capital investment. That said, its chemicals end market (about 22% of total ACV) remains challenging.
All told, Aspen Technology's earnings were good overall and may have established a bottom for the company's growth trajectory this year.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
