Aspen Technology Announces Financial Results for the Third Quarter of

Aspen Technology Announces Financial Results for the Third Quarter of Fiscal 2005

    Business Editors/High-Tech Editors

    CAMBRIDGE, Mass.--(BUSINESS WIRE)--May 5, 2005--

Company announces initiatives to simplify corporate structure, improve execution and enhance profitability
    Aspen Technology, Inc. (NASDAQ: AZPN), the leading provider of software and services to the process industries, today reported financial results for its third quarter of fiscal 2005, ended March 31, 2005.
    Total revenues for the third quarter totaled $64.2 million, with software license revenues of $31.1 million and services revenues totaling $33.1 million. On a Generally Accepted Accounting Principles (GAAP) basis, the Company reported a third quarter net loss applicable to common shareholders of $13.7 million, or $0.32 per diluted share, which includes fees related to the recently completed audit committee investigation. On a non-GAAP basis, excluding these fees, amortization of intangibles, an adjustment to previously recorded restructuring charges, and the preferred stock dividend and discount accretion, the Company reported a fiscal 2005 third quarter net loss of $4.4 million, or $0.05 per share. A $1.1 million tax provision for international locations is included in these results, which increased the GAAP loss per share by $0.03 and the non-GAAP loss per share by $0.01.
    "While our third quarter revenues and expenses were in-line with the directional guidance we provided on our March 15 earnings call, we are working hard to ensure that the Company is in position to report improved financial results in the future," said Mark Fusco, President and CEO of AspenTech. "After evaluating AspenTech's operations during my first 90 days as CEO, I have determined that the Company must simplify its structure and processes in order to remove internal obstacles that have prevented it from growing revenues and delivering profitable performance. Although some of these changes will take time to implement, we have finalized a plan to improve our performance, which we expect will enhance results in our next fiscal year."

    Highlights of New Plan to Improve Operational Performance

    On the Company's March 15 conference call, management discussed its high level priorities designed to help AspenTech improve its profitability and revenues. Today, AspenTech is announcing the details of its new execution plan which is focused on three areas: (1) operational improvement, (2) end-to-end vertical alignment of customer facing functions, and (3) integration of product management and marketing into a single organization that is closer to the customer. Details and benefits to the new plan include the following:

-- Operational Improvement -- Consolidate disparate facilities and back office personnel in order create a simplified operating infrastructure and improve efficiency, control and information flow -- Consolidate R&D to fewer locations in order to improve productivity, quality and efficiency of R&D resources

-- Vertical Alignment -- Align all customer-facing employees - product marketing, product management, professional services, pre-sales, and direct sales - into key vertical market segments -- Create greater accountability across each functional department and ensure that employees closest to the customer are driving R&D toward the greatest areas of customer demand

-- Integration of Product Management and Marketing into a Single Function -- Merge product management and marketing into one organization, with a greater emphasis on customer interaction and marketing resources in the field -- Increase the allocation of resources toward key vertical market initiatives -- Create increased interaction and better communication with our customers, and increase the resources available to drive our vertical sales strategy
    "Our new operational plan is comprehensive, and we believe that successful execution against it will put AspenTech in a much better position to deliver consistent and improving financial results. Many of our customers continue to report solid financial results, and we have the capability to significantly increase our percentage of their software spending as we improve our execution.
    He added, "We have a solid sales pipeline and expect to deliver an improvement in software licenses, services, and profitability in the June quarter. Most important, we believe AspenTech has the potential to return to profitability and free cash flow generation in fiscal 2006 by streamlining our focus and improving the day-to-day execution of our business strategy."
    Charles Kane, Senior Vice President & CFO of AspenTech said, "During the third quarter we significantly decreased our year-over-year cost structure, and we believe we can reduce our expense run rate by another $3 to $4 million per quarter over the next 12 months. We are committed to running a profitable company, which includes delivering a year-over-year increase in our fiscal 2006 operating margins. We also plan to pay off our 5.25% convertible debentures, which will improve the Company's ongoing financial position over the next few months."

    Additions to Management Team

    Over the past few months, AspenTech made significant additions to its senior management team. Blair Wheeler joined the Company as Senior Vice President of Marketing, following a distinguished career in sales and marketing across a variety of organizations, including Cisco and Amoco. Hedwig (Hedy) Whitney was named Vice President of Human Resources, after having held senior executive positions in a similar capacity at New England Business Services and Fidelity Investments. Wheeler and Whitney will play instrumental roles in executing the Company's new plan to improve its operational performance.

    Significant Transactions

    AspenTech signed significant software transactions in the third quarter with Air Liquide, Dow Corning, DuPont, PepsiCo Inc., NOVA Chemicals, and Statoil.

    Financial Impact of Restructuring

    As a result of the operational changes and restructuring, the Company expects to reduce its quarterly run rate by roughly $3 to $4 million over the course of Fiscal 2006. Management anticipates incurring a fourth quarter restructuring charge of between $4 and $6 million.

    Conference Call and Webcast

    AspenTech will host a conference call and webcast to discuss its financial results, business outlook, and related corporate and financial matters at 4:45 p.m. Eastern Daylight Time on May 5, 2005. Interested parties may listen to a live webcast of the call by logging on to AspenTech's website: http://www.aspentech.com and clicking on the "webcast" link under the investor relations section of the site. A replay of the call will be archived on AspenTech's website and will also be available via telephone at (800) 642-1687, confirmation code 6079595, for four days, beginning at 8:00 p.m. Eastern Daylight Time on May 5, 2005.

    Non-GAAP Results

    AspenTech reports pro forma financial results, which exclude certain non-operational, non-cash and other specified charges that management generally does not consider in evaluating the Company's ongoing operations. These results are provided as a complement to results provided in accordance with accounting principles generally accepted in the United States (known as "GAAP"). Management believes this pro forma measure helps indicate underlying trends in the Company's business, and uses this pro forma measure to establish budgets and operational goals that are communicated internally and externally, to manage the Company's business and to evaluate its performance. A reconciliation of non-GAAP financial results, to GAAP financial results, is included in the attached condensed consolidated financial statements.

    About AspenTech

    Aspen Technology Inc. provides industry-leading software and professional services that help process companies improve the efficiency of their business processes, optimize their operational performance and enhance their financial results. The new generation of integrated aspenONE(TM) solutions gives manufacturers the capabilities they need to model, manage and control their operations, enabling real-time decision making and synchronization of the plant and supply chain. Over 1,500 leading companies already rely on AspenTech's software, including Aventis, Bayer, BASF, BP, ChevronTexaco, Dow Chemical, DuPont, ExxonMobil, Fluor, GlaxoSmithKline, Shell, and Total. For more information, visit www.aspentech.com.

    The third paragraph, the section captioned "Highlights of New Plan to Improve Operational Performance", and the sentence under the caption "Financial Impact of Restructuring" of this press release contain forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may vary significantly from AspenTech's expectations based on a number of risks and uncertainties, including: AspenTech's plan to improve operational performance may not be implemented effectively; AspenTech has identified material weakness in its internal controls with respect to software license revenue recognition, that, if not remedied effectively, could result in material misstatements; AspenTech's lengthy sales cycle which makes it difficult to predict quarterly operating results; fluctuations in AspenTech's quarterly operating results; AspenTech's dependence on customers in the cyclical chemicals, petrochemicals and petroleum industries; AspenTech's ability to raise additional capital as required; AspenTech's ability to retire its 5.25% convertible debentures; intense competition; AspenTech's need to develop and market products successfully; reliance on relationships with strategic partners; and other risk factors described from time to time in AspenTech's periodic reports filed with the Securities and Exchange Commission. AspenTech cannot guarantee any future results, levels of activity, performance, or achievements. AspenTech expressly disclaims any current intention to update the forward-looking statements after the date of this press release.

ASPEN TECHNOLOGY, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share data)

Three Months Ended Nine Months Ended March 31, March 31, March 31, March 31, 2005 2004 2005 2004 --------- --------- --------- --------- REVENUES: Software licenses $31,097 $36,636 $93,102 $113,636 Service and other 33,121 44,939 106,011 130,090 --------- --------- --------- --------- Total revenues 64,218 81,575 199,113 243,726 --------- --------- --------- ---------

COST OF REVENUES: Cost of software licenses 4,035 3,854 12,707 11,786 Cost of service and other 19,215 25,345 63,236 73,973 Amortization of technology related intangible assets 1,778 1,806 5,330 5,480 --------- --------- --------- --------- Total cost of revenues 25,028 31,005 81,273 91,239 --------- --------- --------- ---------

Gross profit 39,190 50,570 117,840 152,487

OPERATING COSTS: Selling and marketing 24,299 23,841 70,075 71,449 Research and development 11,552 14,234 35,309 44,534 General and administrative (includes litigation defense and settlement costs, audit committee review costs, and one- time contract termination costs of $4,014, $1,450, $11,939 and $1,450 for the three months ended March 31, 2005 and 2004 and nine months ended March 31, 2005 and 2004, respectively) (2) 12,746 6,399 35,867 19,878 Restructuring charges and FTC legal costs (97) - 21,630 2,000 Loss (gain) on sales and disposals of assets 81 (206) (276) (885) --------- --------- --------- --------- Total operating costs 48,581 44,268 162,605 136,976 --------- --------- --------- ---------

Income (loss) from operations (9,391) 6,302 (44,765) 15,511

Other income (expense), net (16) 256 (58) (189) Interest income, net 477 419 1,788 1,956 --------- --------- --------- ---------

Income (loss) before provision for income taxes (8,930) 6,977 (43,035) 17,278

Benefit from (provision for) income taxes (1,133) (341) (220) (2,330) Equity in earnings from joint ventures - - - (100) --------- --------- --------- ---------

Net income (loss) (10,063) 6,636 (43,255) 14,848

Accretion of preferred stock discount and dividend (1) (3,630) (3,400) (10,747) (2,900) --------- --------- --------- ---------

Net income (loss) applicable to common stockholders $(13,693) $3,236 $(54,002) $11,948 ========= ========= ========= =========

EARNINGS PER SHARE: Basic net income (loss) per common share $(0.32) $0.08 $(1.28) $0.30 ========= ========= ========= ========= Diluted net income (loss) per common share $(0.32) $0.06 $(1.28) $0.25 ========= ========= ========= =========

Weighted average shares outstanding - Basic 42,639 41,049 42,193 40,326 ========= ========= ========= ========= Weighted average shares outstanding - Diluted 42,639 51,907 42,193 48,275 ========= ========= ========= =========

PRO FORMA (NON-GAAP) EARNINGS PER SHARE:

Pro forma (non-GAAP) net income excludes Accretion of preferred stock discount and dividend, Amortization of technology related intangible assets, Litigation defense and settlement costs, one- time contract termination costs, Restructuring charges and FTC legal costs, and gain on sale of the AXSYS product line. Pro forma (non-GAAP) weighted average shares outstanding assumes the conversion of the Series D preferred stock to common stock.

Net income $(4,368) $9,892 $(4,690) $23,778 ========= ========= ========= =========

Diluted earnings (loss) per share $(0.05) $0.11 $(0.05) $0.30 ========= ========= ========= =========

Weighted average shares outstanding - diluted 87,262 88,244 87,910 78,556 ========= ========= ========= =========

(1) Detail of this amount is provided on the reconciliation of net income (loss) to pro forma (non-GAAP) net income

(2) These parenthetical references will not be presented in our Form 10-K.

Supplemental information -

Three Months Ended Nine Months Ended March 31, March 31, March 31, March 31, 2005 2004 2005 2004 --------- ---------- --------- --------- Reconciliation of total expenses to pro forma (non- GAAP) total expenses

Total expenses (cost of revenues and operating costs) $73,609 $75,273 $243,878 $228,215 Adjustments to total expenses (cost of revenues and operating costs) Amortization of technology related intangible assets (1,778) (1,806) (5,330) (5,480) Litigation defense and settlement costs, included in General and Administrative costs - (1,450) (3,765) (1,450) Fees associated with the audit committee review, included in General and Administrative costs (4,014) - (7,103) - One-time contract termination cost, included in General and Administrative costs - - (1,071) - Restructuring charges and FTC legal costs 97 - (21,630) (2,000) Gain on sale of AXSYS product line, included in Loss (gain) on sales and disposals of assets - - 334 - --------- ---------- --------- ---------

Pro forma (non-GAAP) total expenses (cost of revenues and operating costs) $67,914 $72,017 $205,313 $219,285 ========= ========== ========= =========

Reconciliation of net income (loss) to pro forma (non- GAAP) net income (loss)

Net income (loss) applicable to common stockholders $(13,693) $3,236 $(54,002) $11,948 Adjustments to net income (loss) applicable to common stockholders Net effect of adjustments to cost of revenues and operating costs 5,695 3,256 38,565 8,930 Preferred stock discount and dividend accretion 3,630 3,400 10,747 9,352 Gain on conversion of Series B redeemable preferred stock - - - (6,452) --------- ---------- --------- ---------

Pro forma (non-GAAP) net income $(4,368) $9,892 $(4,690) $23,778 ========= ========== ========= =========

ASPEN TECHNOLOGY, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)

March 31, June 30, 2005 2004 --------- --------- ASSETS Current assets: Cash, cash equivalents and short-term investments $69,127 $107,677 Accounts receivable, net 54,199 50,874 Unbilled services 12,262 15,518 Current portion of long-term installments receivable, net 24,946 25,244 Deferred tax asset 275 31 Prepaid expenses and other current assets 12,682 10,084 --------- ---------

Total current assets 173,491 209,428 --------- ---------

Long-term installments receivable, net 61,294 65,527 Equipment and leasehold improvements, net 15,161 18,664 Computer software development costs, net 17,965 16,863 Intangible assets, net 28,794 34,307 Purchased intellectual property, net 871 1,295 Deferred tax asset 2,613 2,492 Other assets 3,038 3,158 --------- ---------

Total assets $303,227 $351,734 ========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt $58,108 $58,595 Accounts payable and accrued expenses 63,005 83,115 Unearned revenue 20,613 18,051 Deferred revenue 30,937 33,462 Deferred tax liability 441 325 --------- --------- Total current liabilities 173,104 193,548 --------- ---------

Long-term debt, less current maturities 1,049 1,952 Deferred revenue, less current portion 3,465 5,363 Deferred tax liability 4,241 4,220 Other liabilities 24,101 11,527 --------- ---------

Redeemable preferred stock 117,508 106,761

Total stockholders' equity (deficit) (20,241) 28,363 --------- ---------

Total liabilities and stockholders' equity (deficit) $303,227 $351,734 ========= =========

--30--MP/bo*

CONTACT: Aspen Technology, Inc. Joshua Young, 617-949-1274 joshua.young@aspentech.com

KEYWORD: MASSACHUSETTS INDUSTRY KEYWORD: SOFTWARE EARNINGS CONFERENCE CALLS SOURCE: Aspen Technology, Inc.

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