Q1 2021 Aspen Technology Inc Earnings Call
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Thank you for standing by welcome I Swim technologies first quarter fiscal 2021, that's nice update call.
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After the secrets Cats. This is Shang said will be a question and answer session.
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I sent technology shifts officer, Mr. Koch pricing thing Keith. Please go ahead Sir.
Thank you good afternoon, everyone and thank you for joining us to discuss our selected financial results for the first quarter fiscal 2021, ending.
Ending September Thirtyth 2020.
Karl Johnsen CFO of Aspentech and with me on the call is Antonio Pietri, President and CEO.
Before we begin I will make the safe Harbor statement. During the course of this call we may make projections or other forward looking statements about the financial performance of the company that involve risks and uncertainties the.
The company's actual results may differ materially from such projections or statements.
Factors that might cause such differences include but are not limited to those discussed in today's call and contained in our most recently filed form 10-Q.
Even in this difficult microenvironment, our customers continue to invest in Aspen Tech solutions to enhance the operations of their assets and enabled them to run safer greener longer and faster.
We know from previous economic downturns that the mission criticality of our products has been made even more evident to customers and we believe that is through today as well.
Our annual spent performance in the quarter reflected anticipated attrition amount for the quarter and in line with a higher level of attrition, we expect in fiscal 21 and.
And gross growth that was largely in line with our performance in the first quarter of fiscal 2019 and 2020.
Customer interest in investing in technology to realize the benefits of digitalization remains high and we had encouraging wind across all three of our core verticals.
Not surprisingly, we did see a number of customers pass over the summer to regroup and recharge. After what has been several extraordinarily a stressful month in their operations.
Customer engagements and the quality of our conversations around transactions has picked up since labor day, and especially into October reminiscent of what we saw in the fourth quarter of fiscal year twin.
Amongst our owner operator customers, we had a solid quarter and chemicals, where we're seeing a slow and steady improvement.
As we mentioned last quarter.
The recovery and the chemicals market is uneven with.
With the various changes in demand patterns due to the current economic environment being a positive catalyst for parts of the industry and the challenge tool.
These customers continue to demonstrate our commitment to their digitalization initiative and a focus on making hi, Roy investments with Us Pentech.
We have generated consistent growth for many years amongst his customers and expect that trend to continue.
And the energy vertical we saw good customer activity and interest.
Pause I referenced earlier was more pronounced among among this customers.
But we are optimistic for the balance of the fiscal year based on improving conversations around deals as just mentioned and a growing pipeline of opportunities.
Similar to what we hear and chemicals energy customers have made clear that the disruption from the pandemic has reinforced and need to operate their assets with greater agility and flexibility in the future.
Aspen Tech has long been a core enabling technology to meet these goals and as I will explain in a moment, we're poised to take our value creation to the next level.
And the agency market as you would expect this customers customers are adjusting their operations to the new levels of Capex spending in there and markets.
Positively we went through a number of renewals in this market during Q1 and there were in line with our expectations.
In one case, we had a larger renewal that was signed for a shorter than typical duration. Even at these customers annual commitment with us Pentech went up.
Is too early to tell if this would become more common with this customers, but this particular renewal will have an impact on the relationship between annual spend with book into an revenue when we report our final first quarter results.
We continue to see and capture emerging opportunities for growth with this customers as they look to diversify their book of business towards operations and maintenance activities and bromfield assets.
And the quarter, we signed a new agreement with an important north American engineering firm that committed to our ask them to their knees and asked financial products in the APM sweet as part of its efforts to grow business in this area.
One thing that has become clear in the last eight months is that import are important global trends, including the focus of our customers on their sustainability efforts have accelerated.
This means that for the industries. We serve there's this additional impetus to accelerate deployment of digital technologies to achieve their sustainability targets.
The move to net zero carbon emissions and reduction in plastic waste is being driven by <unk> such as the Perez climate, a court and society's demand for a cleaner environment.
Traditionally the return on investment from our digital technologies has been measured in efficiency and operational gains that translate into profitability.
Now, we're seeing more customers adopt our solutions to also address sustainability goals and justify the investment on this basis.
The utilization has been in progress for decades in the process and other capital intensive industries and now next generation industrial AI capabilities will become critical to addressing climate change in plastic waste in the environment and.
In fact in a recent survey we conducted with AARC of global chemical in energy companies, 90% of respondents have sustainability initiatives in place and 75% of respondents rated ddos transformation as highly important for achieving sustainability goals.
In APN we.
You need to be pleased with the level of business anti activity on our number of active pilots, which once again hit a record in the first quarter.
We discussed on our last call or seen a number of delayed purchasing decisions with this sweet as customers look to hold the line on expenses in the near term.
Who are confident this is a near term dynamic under the positive activity, we see a multiple verticals with pipeline creation and active pilots will translate to faster growth as the economy normalizes.
To highlight a couple of APM went from the quarter and new North American mining customer committed to deploy Aspen until after a successful offline Tyler with the objective to improve the reliability of equipment in there mining operations. Similarly.
Similarly, we saw one of the largest Russian oil companies expand the use of Anfield to one of the largest refineries in the country. After the successful rollout at their first refinery. This as part of their digitalization of strategy to improve reliability across their operations.
Looking forward, we remain confident in our outlook for the rest of the fiscal year, while cognizant of the difficult microenvironment that our customers are facing.
We had a solid first quarter and and as mentioned the quality of conversations with our customers around quarter transactions is positive in our pipeline of business continues to grow.
Incredibly well received by customers in fact hybrid models hit a record with the most customers participator participating in our innovation club in beta testing phases.
Other exciting innovations in Aspen one version 12 include.
I spent multi case, which allows customers to run thousands of concurrent simulations either on prem or in the cloud to allow faster and more accurate decisions to optimize operational complexity.
<unk> mass throat and exciting new capability of Dmc's, three and Amesville that automate model development by guided newer users on how to build a model or agent.
Aspen EMEA collaborative which connects data from across all assets, including a small sites, where data has historically been stranded and aggregated with our enterprise level historian.
And has been cloud connect.
Which provides flexible and high performance connectivity and security to transfer data from the edge to the cloud.
We also announced they Aspen Iot hub, we just received terrific industry in customer feedback since it's release in August.
We do not have the ability to enable seamless I am flexible data mobility and immigration from sensors to the edge and the cloud, while providing important new visualization capabilities.
AI Ot hub is a core element of our strategy as the industrial AI company.
It is our cloud ready architecture that supports the ability to correlate vastly more data than ever before to support our new generation of high value hybrid applications.
It also provides an environment for data scientists to develop applications leveraging the machine learning algorithms and the data sign studio environment of the hub.
This is increasingly important as customers data science groups.
Luke to contribute to the digital efficient efforts of their organizations.
I spend one version 12, and the Iot hub or only the first step in building out our complete a strategy for Aspen tick as the industrial AI company.
Our future releases will more deeply embedded AI into our solutions that further improve the speed accuracy and quality of models built for assets at Brown on Aspen Tech products.
I spent take is democratizing the application of AI to where it can deliver the most value.
We believe the sub optimizing plant is key to achieving a digital enterprise and with version 12, and the Iot hub, we're creating the foundation for that reality for our customers.
Insured we're on a journey to reinvent how the process and other capital anticipate industries manage their assets and creative significantly greater volume.
To summarize we got off to a solid start in fiscal 21 more importantly, we have delivered a tremendous amount of new groundbreaking innovation to the market in recent months for 40 years Aspen Tech has enabled the process industries to operate in ways not previously thought possible.
We're confident the new innovations in the aot hub up in one version 12, and a broader innovation on hybrid model and a hybrid products for percent the biggest advancement in the process industries in a generation.
In the near term our focus is on supporting our customers and execute into the through the current economic challenges while continue to deliver on our innovation vision.
Are confident Orlando foundation for sustainable double digit growth as the economy normalizes.
Now, let me turn the call over to Carl Carl.
Thanks, Antonio I will provide a quick update on our cash and that balances and the status of our 10-K and 10-Q filings.
We ended the first quarter with $317.5 million of cash cash equivalents and $427.2 million of debt outstanding under our term loan and revolving credit facility.
This is an increase in cash of 29 $7 million from the fourth quarter of fiscal 2020, and reflects two $7 million of cash taxes and $4 million in principle that payments on our term loan.
Cash collections in the quarter were strong overall and benefited from collections that were originally due in the fourth quarter of fiscal 2020.
During the first quarter, we did not repurchase any shares, though we still intend to repurchase $200 million of our stock and physical 2021, depending on market conditions.
I'd like to end with a quick update on the status of completing the filing of our fiscal 2020, 10-K and 10-Q for the first quarter of fiscal 2021 and.
In short nothing has fundamentally changed since September one in terms of the issues. We are working through to complete our process.
As we discussed in our filing inform 12 be 25 on September 1st.
And as updated by our 8-K filing on September 23rd we require additional time to complete our procedures to finalize our fiscal 2020 form 10-K, as a result of additional areas identified and the transition adjustment recorded and prior fiscal year's related to the adoption of AFC topic six O six.
Based on what is known today, we do not expect these areas to be material as.
As a reminder, the issues we are working through are the same as those we previously identified last year. During our initial work completing the adoption of topics six O. Six is part of our fiscal 2019 10-K filings.
The delay in filing our fiscal 2020, 10-K will impact our ability to file our first quarter physical 2021 10-Q on time.
Once we file our 10-K, we will move on to completing our form 10-Q filing, which we anticipate will be done within several weeks. After we finalize are form 10-K.
We are working as quickly as we can to complete this process and get current weather SEC filing obligations.
As we finalize our filings we remain focused on executing on our strategic priority and delivering value for our customers. We believe we are well positioned to deliver on our financial objectives.
With that operator, let's begin to Q&A. Please.
Kind of a delayed and just wondering if while you're seeing dates.
Some deals delayed you're also seeing some of those that were delayed start to hit.
Yeah, I mean look Rob.
You have to take all of that said you said in the context and the context of Q1, which is a set of our slowest growth quarter in general and areas like Europe or Muslim occasion, they even the U.S. These days, it's becoming more and more so we didn't necessarily see.
Spending more money with us pentech at the end of the day.
Strange and operating.
Constraints.
That thrives actually better spend for us but.
Because our technologies are about driving more efficiencies and managing processes to tighter specifications and quality and so on so so.
In another way.
Tighter regulations.
Our our more of a positive driver for us.
Got it and then.
Hi segment, I think last quarter, you talked about increasing your sales capacity. There is that still the plan and have you made any done any hiring there yet.
Yes, no we are and do they have the pharmaceutical industry life Sciences is in that in that group.
So we were standing up a pharmaceuticals sales organization at the moment.
We'll also be looking at.
One or two other industries.
As well to do that.
And but so so yes, we were in the process, we see the opportunities.
And I will be our ROI.
Our organic way to move into other industries, but as we've said in the past.
When we look at our other industries, we also consider M&A in that in that regard so.
So thats that Matt the other thing that I would add to that to your first question.
And.
In my prepared remarks.
I've referred to now the greater focus of our customers some sustainability and in a way.
Sustainability targets net zero carbon emissions, you could think of them as a.
Stricter regulations.
Less plastic waste in the environment that means customers up to find a way to produce and different types of plastic that can be more easily recyclable or or find ways to recover that plastic while those that those may not fall on the regulations. It certainly drives customers to consider.
Sure.
Better operating.
Standards.
Which is part of these.
Theme of of therefore, the need for more of our technology.
Makes sense, thanks, guys for taking my questions appreciate it.
Thank you Matt.
Your next question comes across column window from Bagram Grace. Your line is now open.
Golf.
Hi, Thanks for taking my questions. The first one is just on the ATM and I was just wondering if you could on.
More clarity in terms of the expectation for the year based on how the first quarter has kind of find out you still expecting about a few percentage contribution to growth similar kind of in line to what we experienced were not quite 20.
Yes, yes within that range of.
Annual spend growth.
We reiterated 6% to 9%.
<unk> percent growth in Dod, we assume two points of growth contribution from eight P.M. more steel.
We still believe we can do that.
Got you and then I have a question.
My question was just on the G.
In the past you guys decide that.
Verticals, such as pharma pharma don't really care that much about efficiencies and it's going to have a limited opportunity in order to get to them directly.
Would in time that too.
Tracking on recording of all the information.
Associated with the production of these drugs so.
We were excited about this opportunity.
Where are you limited just to be a couple of metrics or is it is it just simply the amount of work that's going into the 10-K mean, you literally are having trouble counting up and closing the books from the September quarter.
No. It is a little bit of we weren't prohibited from sharing any numbers.
Statutorily, but we know it's a little bit serial in nature. So the team that's finalizing the 10-K, what they're doing is it is really just proving out.
The balance on the contract asset and.
That work is very detailed and it takes a long time to get through will work with the auditors.
Because we didn't want to we didn't want pilots to turn into.
Science exercises, especially to three years ago, when when most customers were just trying to learn about about AI and this technology.
So so we have sort of those gates and we're pretty rigorous in the process, but we also have to know acknowledge the reality of the market and discuss summers on there some of them under severe financial.
Constraints on so.
We have with customers spot as we look at our pipeline part of sort of that growing pipeline of business.
When we.
Sort of reconfirm our guidance for the year.
Spending environment, but.
We are engaged with our customers on our ability to look at our business for the fiscal year also relies on those conversations.
Follow up question a bit more of an open on question, but.
How has this change in the narrative in the energy industry has changed your customer focus and fairly open ended question, but the two areas.
More focus, perhaps or an efficiency more focused on cost and oil and gas industry and.
The second thing maybe.
Any change in attitude towards putting the data on the cloud and maybe accelerating technologist shift thanks.
In a way that the Holy Grail of of the process industries.
A component of the self optimizing plant.
So it's an ambitious endeavor, but one that we believe were uniquely positioned to deliver because of the breadth.
And depth of our technologies and and and really the.
The growth in our capabilities around industry 4.0 technologies over the last four years, it's a very exciting.
Area for us.
And.
As we I said in my prepared remarks.
The hybrid model in innovation plot and beta testing phase.
Okay All records.
By a long shot for those type of clubs in the history of the company.
It might seem plan.
Okay, great Yeah looking forward to the analysts say thank you.
Great. Thank you Jays.
Higgins, ladies and gentlemen, if you had a question at this time the Spice tart send the number one key on your attached John telephone.
Your next question comes from the line of play Kendra drop walls Research. Your line is open.
Yeah. Thanks, I wanted to follow up on the hybrid models, Hi, Hi, Thanks for taking my questions one to follow up on a hybrid models I really appreciate all the details that you just gave and and understand that we're gonna get a lot more detail on the analysts day you did mention that this was one of the bigger developments and in some time. So I'm just wondering if there was a way to frame.
Maybe the incremental value add versus the current offering like if your current offering at X amount of value.
Is there a multiple of that that these hybrid models would encompass and then also how would you how would you maybe go to market with some price. This in the case that this technology might result in fewer people or tokens at your customers facility I'm. Just wondering you know technological advancement versus maybe cannibalization of a number of users.
Let me to predict more accurately.
The outcomes that are expected.
And the value will vary from from area to area, an application to application but.
Look we've all.
We say, we've always been about innovation, but really we've always been about innovation that creates greater and greater value.
We've demonstrated that over the last 510 years and almost 40 years of the company and this is the next phase of of of that journey.
That makes sense, thanks, and one more if I could on the fiscal 21 guidance I understand the.
The annual spend growth is back half weighted and I understand the ATM contribution as you guys laid it out between engineering M. A C automation more pressure on NFC being up just because of the capex pressure versus opex in the end markets, specifically in oil and gas so.
So as you see it which aspects of your guide do you see more risk or the most risk both the upside and the downside is that in a specific suite or is in a in a specific end market I'm. Just wondering what we should be looking out maybe over the next quarter or two to better frame how the back half improvement in annual spend is going to shape up.
No well I, let me look good.
In a way to you know we were.
And this unfortunate set of events over the last eight months in the world the.
You know as far as fiscal years 21.
We were fortunate that and always started to take place in March and it was fully baked in by the time, we rolled into fiscal our fiscal 21 in July. So so we had a we we had a good sense for the dynamics around the different areas of our business.
Within sees with refiners and chemical producers so.
Looked at the as I've said in the past the.
The low end of our range assumes a being at the higher end of the accretion range that we gave and on and less gross growth, meaning customers decide not to spend as much money. They high end of the range means that we'll be at the lower end of the attrition and customers we.
See the same sort of a spending pattern that we saw in our Q4 quarter fiscal year 20.
And then what is that combination well it will depend but but we havent. We have an internal point of view on the add on and I keep it I'd, rather keep it to ourselves, but but no. We said that we need two points of growth contribution from ATM.
And in that that means that.
It's a.
Anywhere between four to seven points of trying to contribution from MSC and engineering and then you have to break that down by by verticals, but and Thats. The one piece, we don't give you guys and because it will vary and it will vary by quarter. So we.
We'd rather get that full year picture and then and then see how E commerce, but.
Well look I.
Just just no on through all set.
Who are working diligently to be able to release, our 10-K, and eventually or 10-Q and get back to a more normal cycle with our findings. Thank you everyone.
Ladies and gentlemen can Pitchings conference call. Thank you for five <unk>.
Yeah.
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