Q1 2022 Aspen Technology Inc Earnings Call
[music].
Ladies and.
Gentlemen, thank you for standing by and welcome to the Aspen Technology first quarter fiscal 2022 earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press. The Star then the one key on your Touchtone telephone.
Please be advised that today's conference is being recorded if you would call offer assistance. Please press Star then zero.
I would now like to hand, the conference over to your Speaker Sydney, Brian Downey. Please go ahead.
Thank you.
Good afternoon, everyone and thank you for joining us to discuss our financial results for the first quarter of fiscal 2020 two ending September 32021.
On the call today are Antonio Pietri, Aspen, Tech's, President and CEO and Chantelle Writeup CFO of asthma attack.
Before we begin I will make the safe Harbor statement that during the course of this call we may make projections or other forward looking statements about the financial performance of the company and involve risks and uncertainties. The company's actual results may differ materially from such projections or statements.
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.
Also please note that the following information relates to our current business conditions and our outlook as of today October 27th 2021.
System with our prior practice, we expressly disclaim any obligation to update this information.
The structure of today's call will be as follows Antonio will discuss business highlights from the first quarter and our pending agreement with Emerson and then Chantel will review, our financial results and discuss our guidance for fiscal year 2022.
With that let me turn the call over to Antonio Antonio.
Yeah.
Thanks, Brian.
And thanks to all of you for joining us today.
We had a strong start to the year with annual spend coming in above our expectations.
We saw a notable improvement in the spending environment during the quarter as the.
The continuing economic recovery has improved end market conditions for many of our customers.
As we have discussed over the past 12 months, we have seen consistently strong demand indications from our customers about expanding adoption of <unk> solutions to increase.
Operational efficiency and sustainability.
While the market is not yet back to pre COVID-19 levels. We believe the first quarter was an important indicator of that as spending by our customers is improving.
More importantly.
The recent announcement of our transaction with Emerson is a transformational moment for Aspen stake.
I will discuss it in more detail later, but we cannot be more excited at the opportunity for the new Aspen tech to deliver faster and greater value and sustainability innovation and profitability to a broader set of customers.
Looking quickly at our financial results in the first quarter.
Revenue was $136 million.
GAAP EPS was 58 cents and non-GAAP EPS was <unk> 77 cents.
Annual spend was $630 million up one 4% in the quarter.
Five 6% year over year.
And free cash flow was $33 million.
Looking at our first quarter performance in more detail, we saw clear signs of normalization in spending across our owner operator markets. In particular was the extra steps and scrutiny around the transaction approval process have remained in place customer executives.
Our noticeably more comfortable giving the final approvals to transactions.
We believe customers remain mindful of the fluidity with which market conditions can change.
The improved environment is enabling them to focus on the future.
Including how do the lever on their long term strategic objectives.
We're optimistic this will be reflected in the capex and opex budgets for calendar 2022 that customers are now developing.
Looking at the business by vertical.
We saw the most notable improvement amongst our owner operator customers.
But especially with refining customers.
Spending by these customers grew our MSC business by three 2% sequentially and 9% in the last 12 months just shy of its historical double digit growth rate, which is a strong performance, especially when compared to the growth of the MSC business in fiscal year 2021.
At five 8%.
As we mentioned on our last earnings call. We have seen a marked increase in the level of engagement with these customers in recent months about their future investment priorities.
Results in the quarter are an indication that improved conversations we're signaling an improving sentiment from higher refining margins, resulting in increased spending.
Our chemicals business also performed better and continue to improve sequentially contributing to the deceleration of the MSC business.
While overall trends are encouraging there still sectors of the chemical supply chain that are recovering from the lingering economic effects of coffee.
Our confidence chemicals will continue to be an important growth contributor going forward.
<unk> solutions are essential to chemical customers ability to achieve their operational and supply chain efficiencies and sustainability targets.
Our E&C business performed as expected during the quarter conditions.
<unk> remained challenging and we have seen only modest improvements in capex.
And backlog trends.
We expect this will be the part of the business that takes the longest to returned to normal and we anticipate modest levels of growth from these customers for the foreseeable future.
Attrition in the quarter was in line with our expectations, which if you'll recall from our last earnings call was suspect it to be higher in the first quarter given the timing of renewals this fiscal year.
While we're optimistic about the improved spending environment of higher budgets in calendar 2022, we believe it is appropriate for now to maintain our guidance for growth in annual spend in the range of 5% to 7%.
We're also maintaining our guidance for attrition in the year, which as we've previously stated is mainly a reflection of the reduction in capex in the E&C space and elevated levels of renewals in our fiscal year 2022.
Following are some notable wins from the quarter.
First a global energy company in the Middle East.
A long time user of Aspen Tech's engineering, and MSC suite signed an agreement to standardize on the use of Aspen <unk> P. M sale planning solution for refining.
After a rigorous process to evaluate the capabilities and incremental value creation opportunities of <unk> to the <unk>.
Customer committed to standardize on the technology and executed on our global rollout of this technology.
The deployment of PMC always expected to generate tens of millions of dollars of benefits for this customer.
Second.
Our U S.
<unk> multinational food processing and commodities trading company user of our engineering and MSC suite as committed to rollout. Our recently released batch APC capabilities across their bio products manufacturing business.
<unk> products manufacturer amino acids from core through fermentation.
After a rigorous trial of the technology, the customer recognized sufficient value from improving production yields in their bio products manufacturing to commit to their technology.
A new batch APC technology is expected to open up new use cases in batch production processes as opposed to the continuous process is found in refining in bulk chemicals.
We expect our batch APC technology to extend our reach further into specialty chemicals Bayou processes pharma and other industries that use batch processing.
Third and final customer reference.
<unk> Energy company.
And a subsidiary of a global Middle East Energy company expanded the use of the engineering and MSC suite to execute on a comprehensive deployment of production planning and production operations optimization solutions to realize benefits in excess of $50 million per year in their manufacturing complex.
The products involved are planning scheduling dynamic optimization or <unk> dot multi variable process control and the engineering suite.
One of the key themes you've heard from us been taken in recent years as our commitment to a sustainable future.
And you just a few days Aspen take will junk companies from around the world at Cop 26 to discuss and share solutions to address the global climate Challenge next.
Next Thursday November 4th I will be speaking on a cup 26 panel with executives from Microsoft on wood discussing the digitization of the energy sector.
This panel discussion will address how digital technologies are increasingly highlighted as key enablers to grow efficiencies across systems and to accelerate the technology development that is required to address demanding climate goals.
Similarly, as we have mentioned before.
Aspen Tech is an active member of the alliance to end plastic waste supporting innovation to build a more sustainable global plastic value change to value chain to create clarity.
I'm actively involved on the board of the alliance and several Aspen Tech delegates participate in alliance work groups and communities that are focused on regional plastic waste tissues and technology development.
Our contributions to the alliance will continue by providing expertise in advanced recycling, our modeling with our engineering suite and we expect to play an even greater role here as the alliance advances towards achieving its mission of plastic circularity.
I would now like to talk about dependent transaction with Emerson.
We believe this agreement offers compelling value for our customers and shareholders and positions new Aspen Tech as the leading industrial software company.
There are several compelling benefits of this combination.
First.
New Aspen take will have the most comprehensive portfolio of mission critical software products that span the entire capital asset lifecycle.
Aspen Tech's rich heritage and asset optimization will be extended and strength and a strengthened with Emerson grid energy management and advanced distribution management systems technology, and the geological simulation software.
Software portfolios are highly complementary and provide exciting upsell and cross sell opportunities into our respective installed basis.
Second we will significantly diversify Aspen Tech's business and increase our total addressable market.
New Aspen Tech will have an immediate leadership position in the power and utility transmission and distribution vertical and an enhanced portfolio to model the entire oil and gas supply chain and reservoir modeling capabilities for resource extraction and carbon capture and sequestration.
Third this combination will enhance our capabilities to support our customer sustainability initiatives.
We have long had a critical role to play in our customers' efforts to operate assets safer greener faster and longer.
Combined company will now be able to more fully support our broader IRA of sustainability initiatives, including electrification and carbon capture.
On others.
Fourth.
New Aspen Tech will have greater scale, and a compelling financial profile with more than $1 billion in revenue and more than 3000 global customers. We believe <unk> can be a consistent double digit grower with Hyatt recurrent revenue best in class margins and substantial free cash flow. This.
Increased scale and broader footprint will also make new Aspen tech vehicle to pursue additional M&A in the future.
Fifth we will deepen our existing commercial relationship with Emerson, which will provide exciting new go to market opportunities for resale co sell and OEM of the entire suite of Aspen Tech products and solutions into all of the industries, where Emerson is installed including those that Aspen Tech is targeting to.
Date through organic investments.
The commercial relationship will also lead to joined package solutions and the development of next generation software capabilities.
Finally, this transaction provides significant near and long term value for our shareholders Aspen take shareholders will receive a $6 billion in cash and will own 45% of new <unk> visa.
This attractive structure will give our shareholders upfront liquidity and the opportunity to benefit from new Aspen Tech's increased scale expanded growth opportunities and future margin expansion.
A key aspect of this transaction will be converting the OSI and geological simulation software businesses to our token based term license model.
For those of you that were around when I spent take first introduced our new commercial model in fiscal year 2010.
You will recall the significant improvements in growth sales productivity and user adoption that we experience.
We're confident we can deliver similar results at this time as well.
During our executive Advisory Board meeting that we hosted in Houston. Following the announcement of the transaction with Emerson, We received a strong endorsement from those customer executives in attendance there.
They understood the synergies from this a stronger relationship between the two companies the possibilities for joint package solutions, and even stronger ability new Aspen Tech will have to deliver sustainability solutions that can help transform their businesses.
Let me finish by reinforcing how excited we are by the recent developments for Aspen Tech and the future potential for new Aspen Tech.
Our core business is beginning to show signs of improvement and we're executing well on the growth investments, we're making in product development and our go to market capabilities.
When you put that together with the great software businesses that are being contributed to new Aspen Tech and the deeper partnership with Emerson. We believe we have all the pieces in place to generate mid teens growth and reach one $5 billion in annual spend in fiscal year 2020.
<unk>.
My sentiment has only been reinforced.
And the most excited I've ever been about the future of Aspen technology.
Now, let me turn the call over to Chantal.
<unk>.
Thank you Antonio I will now review our financial results for the first quarter fiscal 2022.
Reminder, these results are being reported under topic 606, which has a material impact on both the timing and method of revenue recognition for our term license contracts. Our license revenue is heavily impacted by the timing of bookings and more specifically renewal bookings.
A decrease or increase in bookings between fiscal periods, resulting from a change in the amount of term license contracts up for renewal is not.
As an indicator of the health or growth of our business.
The timing of renewals is not linear between quarters or fiscal years and this nonlinearity will have a significant impact on the timing of our revenue.
As a result, we believe our income statement will provide an inconsistent view into our financial performance, especially when comparing between fiscal periods.
Our view annual spend will continue to be the most important metric in assessing the growth of our business and annual free cash flow. The most important metric for assessing the overall value our business generates.
Annual spend which represents the accumulated value of all the current invoices for our term license agreements at the end of each period.
$130 million at the end of the first quarter. This represented an increase of approximately five 6% on a year over year basis, and one 4% sequentially.
Total bookings, which are defined as the total value of customer term license contracts, where the associated term licenses were deemed delivered in the quarter under topic 606 was.
$128 $2 million, a 30% increase year over year.
Total revenue was $136 million for the first quarter, an 18% increase from the prior year period.
To profitability beginning on a GAAP basis.
Operating expenses for the quarter were $81 $2 million compared to $65 $3 million in the year ago period. This year over year increase in GAAP operating expenses was primarily driven by the ramp up your investments in our go to market organization and product development. In addition to the timing of equity grants and many related expenses.
Yeah.
Total expenses, including cost of revenue were $96 $1 million, which was up from $88 million in the year ago period.
Operating income was.
$39 9 million income for the quarter was 39 $4 million or <unk> 15 per share.
Now turning to non-GAAP results.
Excluding the impact of stock based compensation expense amortization of intangibles associated with acquisitions and acquisition related fees. We reported non-GAAP operating income for the first quarter, a $55 $4 million, representing a 47% non-GAAP operating margin.
Compared to non-GAAP operating income margin at $42 $7 million and 37, 2%, respectively in the year ago period.
A reminder, margins will fluctuate period to period due to the timing of customer renewals and therefore license revenue recognized during the quarter.
Non-GAAP net income was $51 $6 million or <unk> 77 per share based on 67 4 million shares outstanding.
Turning to the balance sheet and cash flow, we ended the quarter with approximately $248 million of cash and cash equivalents and $289 million outstanding under our credit facility.
In the first quarter, we generated $32 $7 million of cash from operations and $33 million of free cash flow after taking into consideration the net impact of capital expenditures capitalized software and acquisition related payments.
From a capital allocation perspective, we successfully completed our $150 million accelerated share repurchase agreement during the quarter buying back one 1 million shares. It is our intention to continue buying back up to $50 million per quarter subject to market conditions until the transaction Emerson.
Which is currently expected to occur by the end of the second quarter of calendar 2022.
I would now like to close.
With respect to annual spend we are maintaining our target of 5% to 7% annual spend growth.
We are also maintaining our bookings guidance range of $766 million, so $819 million.
The new range is also unchanged at 770.
$77 million as a reminder, we expect license revenue in the range of $481 million to $515 million.
And maintenance revenue and service and other revenue.
Approximately 192 and $30 million respectively.
My sense perspective, we now expect total GAAP expenses of $389 million to $394 million taken together, we expect GAAP operating income in the range of $313 million to $343 million for fiscal 2022 with GAAP net income of approximately 285 to 311.
Yes.
We expect GAAP net income per share to be in the range of $4 19 to $4 57.
From one perspective, we continue to expect non-GAAP operating income was $361 million to $391 million.
And now expect non-GAAP income per share in the range of $4.75 to $5.
From a free cash flow perspective, we continue to expect free cash flow of $275 million to $285 million.
Fiscal 2022 free cash flow guidance assumes cash tax payments in the range of $60 million to $66 million.
To wrap up Aspen Tech delivered a strong first quarter performance.
We're seeing positive signs of improvement in our business and we are focused on building upon our success in the first quarter.
We are also incredibly excited at the future value creation opportunities that we believe will be possible you Aspen Tech, which will have a broader product portfolio greater end market diversification and a deeper partnership with Emerson. We are confident that the strategic initiatives. We are executing on it will generate significant value for shareholders and with that I'll.
Greater let's begin the Q&A. Please.
Thank you, ladies and gentlemen to ask a question you will need to press. The Star then the one key on your Touchtone telephone.
A question press the pound key.
Standby, while we compile the Kenny roster.
And our first question coming from the line of Andrew <unk> with Bank of America. Your line is now open.
Hi, guys. Good morning. Good morning, Good afternoon, it's been a long day for me sorry about that.
Hey, how are you guys. So you you highlighted that spend in the quarter was above expectations.
What would make you guys comfortable in terms of what kind of benchmarks or.
You to get.
You to raise guidance as is just seeing it for a couple more quarters are you looking at any specific industry events.
You sound better, but you know I appreciate it's first quarter, but you havent raised guidance. So if you could expand on that thank you.
Yes, Andrew.
Andrew.
Michelle.
The supplement what I say as well.
Luca as I'd like to say, one data point doesn't make a trend, but certainly if you look at the if you look at the macro.
Kpis that we track are they're all up into the right.
Price of oil refining margins chemicals production chemicals margin chemical demand in chemicals margins and event, even the even with EPC as well, while certainly there's been a significant reduction in capex.
It's already been almost a year and we believe that the situation there is stabilizing but but we have to work through the contract. So so we're being cautious as I said, we're maintaining our guidance for now.
And as we see the year progress, we'll we'll make we'll make the appropriate decisions at the time.
And then just a follow up question I know it seems there really are a lot of opportunities to integrate the channel.
With Emerson, how long do you think it will take to start seeing the impact in your numbers from this better integration.
Well look.
As we said when we announced the transaction.
To close.
The transaction in the second calendar quarter of 2022.
And then.
We will start working on executing.
Our integration plans and what's the grid on the on the commercial.
Agreement between the two companies so so certainly hope.
If you think about timing you are looking at our Q4 fiscal 'twenty two for US and take July 1st next year's fiscal 'twenty. Three so we would expect that perhaps we start to see some of those benefits later in fiscal 'twenty. Three then into 'twenty four 'twenty five.
Well good to see that things are improving and congratulations on the deal.
Thank you Andrew Thank you. Thank you.
And our next question coming from the line of Rob Oliver with Baird. Your line is open.
Rob Hey.
Hi Antonio.
Sure Paul Thanks for taking my questions.
My first one is on Antonio your comments around some of the pockets of improvement that you're seeing within your end markets. So I wanted to dig in a little bit deeper on that it sounds based on what you said that you know core on owner operators are seeing the most movement, but there are pockets within cabs I'm just curious.
If you could elaborate a little bit more on some of that in all in and and maybe within cabs. What's some of the puts and takes are there and then just as a corollary.
Certainly.
Commodity prices up into the right at the same time that we're in.
Spirit things from some major global supply chain initiatives should just curious how we balance those factors relative to your core customers and how we think about annual spend for the remainder of the year and then I had a follow up.
Sure.
Milligan.
If you look at.
Refining.
And the opening up of economies around the world.
There's definitely been a material change in an automobile traffic, which has driven higher consumption of fuels refining margins in the last few months have tripled.
And.
And it really does put them.
At the low end of their historical margin range.
Not record margins, but now they are within the historical range, which is which is very good and talking to our refining customers.
They are very optimistic about that.
That's been a mark change from from three months ago, Let's say.
And that's why I think we've seen the performance in refining that we saw in our Q1 quarter.
Okay on the chemical side.
You only have to look at the announcements from chemical companies record record margins and cash flow generation.
Certainly.
There is cautiousness within that customer sector around supply chain issues dampening demand for floor there.
<unk> products.
And that's something to keep an eye on.
And they're still sectors as small sectors, but theres still sectors within the chemicals industry.
That are not doing as well as they were doing before the pandemic.
But on the whole bulk chemicals.
Which is ethylene on polymers has done very well.
In this calendar year.
So if you look at those two I mean.
Global economic growth continue to drive demand and so on I think I think the outlook is positive.
Then EPC is an uneven even with Epc's look at Pcs are going through their own.
The transformation, they're focusing more on.
Sustainability.
Ability areas, such as hydrogen and Biofuels.
And others, which are which I think over time, we'll make that industry a healthier industry.
And Rob I would say that now youre starting to see the debate develop over the last week or two around whether the oil industry is spending enough capex to.
To supply global demand over the next few years and that's a real issue.
That was a concern frankly back in 18 19, you got exact surveyed over the last 12 to 18 months with the Kohl's, Florida reduced investments in oil and gas.
And the real question here will be weather whether the.
The.
This sustained level of Capex spend.
Will will will facilitate a balanced demand and supply.
The scenario going forward. So so so look overall good but.
I think we need to be cautious and there is still a very fluid environment.
Yeah, that's helpful and if I could at least be Bravo.
Yeah, No worries I think so very much.
I agree with Antonio thoughts around operating customers operating in their day to day environment pressure supply chain. The other thing back to the question on annual spend how we see it going forward is we're also waiting for this calendar year slip on sustainability.
Is.
It's a topic with new funding and new importance for our customers. So that's another signal we're waiting to see what our regular kind of metrics that we look at and so that's another thing going into Argentina. We're looking for just to give you some additional things.
Got it that's really helpful for both you guys and I'll just make my follow up a quick one.
Wanted to ask a bunch about that person, but it's probably a broader discussion but just.
No.
Antonio referred to at the attrition numbers, but just want to make sure. We got the exact number because I know it wasn't in the press release. It was the attrition this quarter and what do you expect it to be for the remainder of the year.
Well, we would I what I can what I can share with you Rob is that we're sticking to the guide we had in Q4 of 6% attrition for the year.
Okay.
Okay. That's helpful. Thank you guys very much appreciate it.
You're very welcome.
Our next question coming from the line of Matthew <unk> with.
William Blair Your line is open.
Hi, Matt.
Hey, guys. Thanks for taking my questions.
Wanted to first follow up on the sustainability comments.
Is there any way to to guess how many of your deals today are driven by sustainability initiatives and then.
I can tell your comments was that related to maybe the anticipation of some of your customers carving out budget, specifically related to investing in technologies that help achieve their sustainability initiatives.
Yeah, maybe I can start with the second Antonio.
Work on the first one Taylor.
Absolutely.
Antonio referred to the executive advisory customer meeting that we had in Houston, a few weeks back and you can you can hear customers speak of kind of two budgets that they're working on as they go forward. One is their operating Capex opex and the other is either guy that putting their board or their shareholders.
Or are there.
And more on sustainability and how that really ranges from the company is yet to be seen but we definitely two conversations emerging in the sense of what the customers will be focused funds.
Yeah.
Matt.
In a way for them.
A lot of customers as they've said, they're net zero carbon emission goals.
The.
Overarching initiative and ambition.
<unk> is driving their thought process prioritization of investments inside these companies.
And the expectation through some of our own research.
Surveying customers.
Where corporate sustainability will probably be a top influencer and software spend over the next few years, especially in the areas of analytics.
<unk>.
And benchmarking so so we're pretty optimistic about this.
And what we do every day is about <unk>.
Creating efficiencies that reduce emissions of plastic waste or reduce the consumption of <unk>.
Water and so on so.
These.
Coupled with.
The asset that we're getting from Emerson around global electrification and the ability to model for carbon capture and sequestration.
We'll open with just open up tremendous opportunities for us in technology.
And by the way that.
That reservoir modeling capability, we're also getting from.
And the geological simulation.
Software business.
We'll also be able to take into mining for for modeling.
Rock formations and resources so.
Very exciting stuff.
Got it and then just wanted to ask on <unk>.
And how that performed in the quarter and related maybe.
Update on what you saw on pharma metals and mining as well.
Yes, I mean look so we give you an update on APM every six months in.
We continue to sign APM customers I will say that we were seeing.
Also better progress in Asia, with our APM solutions.
And at the same time look.
We've learned a lot over the last 18 to 24 months.
As the market adjusted.
The solution has been implemented in our customers' environments.
And while they are looking for and how we need to.
Add capabilities to our solutions.
We're also.
Excited about what we're seeing in the market. We're also working to continue to deliver innovation and the solution that we believe will strengthen not only strengthen the suite, but also asked peninsula, specifically, which is I don't know where the question is always focused on so but we will give you an update.
When we report the Q2 results in January.
Okay. Thanks, guys appreciate it.
Thank you.
Thank you.
Our next question coming from the line of Jackson and thorough with Jpmorgan. Your line is open.
Hi, guys. Thanks for taking my questions guys.
So the bookings number.
You net out the booking buffer renewal people have called out.
Gross bookings gross bookings or something.
It was up a bunch of year over year.
And I'm just curious.
Much that had to do with maybe some easy comparisons I remember a year ago, you mentioned that customers in the first quarter just.
Didn't really want to have conversations with you in July and August.
Versus maybe some upside in execution.
For net new demand and net new interest just what drove that growth bookings BP.
Chantal do you want to take that or do you like me to take it.
Well I can start certainly I think that.
Yeah.
I would actually one of the things I think.
We're proud of is the fact that it's a.
And so we are seeing that gross growth to your point Jackson. So I think it's a great place to highlight.
I think that if you look at some of the areas, we see the growth and we talked about the MSC growth and maybe Antonio you want to get some more more color on from a customer viewpoint around market quickly.
Yeah, Yeah no above.
Jonathan.
<unk>.
It's very simple.
We we over performed in Q1.
In August we told you mean investors in general the market that.
We felt we were going to have.
Quarter, there was going to grow where the growth was going to be dampened by by the amount of attrition that.
We saw come in in the quarter as a result of.
Number of a larger number of engineering renewals E&C renewals.
That will happen and there was a larger accumulation of that but we also saw.
Tremendous.
Growth on the MSC side gross growth and that accounts for a lot of that over performance in <unk>.
Bookings as.
As well.
So it's a combination of multiple factors, but certainly the MSC over performance helped in that regard, yeah, and I think I think to that point Jackson.
What we're triangulating is is it the pent up demand and that's flowing through that our customers need to get back to their steady state and some of that some of that pressure is being released this cross growth is how I would articulate it.
Yeah.
And then just a quick follow up on the on the.
Well I guess, it's really chemicals, I mean is there any way to quantify.
What type of headwind.
Chemicals piece is at the moment, so that we can get a sense for.
Yes.
What we would expect that that normalized MLP growth might look like without suite.
Supply chain headwinds.
But I mean look at what.
So at the moment, we're not seeing.
If you talk to chemical customers.
<unk> seen a headwind.
At least anecdotally talking to them.
They will be announcing.
Very strong results for the September quarter.
There is a certain level of concern with regards to.
The supply chain issues, getting worse, and having an impact on demand for their products.
But it's not something that they have seen.
And they are not able to quantify themselves and that is whether it would even show up.
So so look.
I think in the overall.
I am looking focusing a lot more on economic growth across the board.
And how that will continue to drive demand for all types of products.
Regardless of the supply chain so.
Alright, alright, thank you.
Thank you.
And as a reminder, ladies and gentlemen to ask a question. Please press star one.
Our next question coming from the line of Telemundo with Stern Group. Your line is open.
Hey, Thank you for taking my questions.
First one is just in terms of the MSC.
Parts of the business.
Clearly performing well the question for me.
What has changed is the confidence that the main reason here and then.
You guys mentioned kind of pent up demand that's starting to kick in.
You have an idea of how much of that pent up demand is less for the year.
In other words.
Kind of a one quarter.
Some of them that you are seeing right.
Well I mean look out.
Look.
Again, you can only.
In a way that's a hard question to answer okay.
Much pent up demand is left but I can point you to the last time, we trough.
And in 2017.
We throw off that $4 one the following year was $6 four and when when we had two consecutive years of normal budget.
We went from $6 four to 10, 6% growth.
And in my opinion.
A lot of that is initially driven by pent up demand and then it normalizes.
<unk> digit growth.
My point of view.
So I think what we are.
Yeah.
If history is any indication of the future I think what we're saying is is oh.
Back to.
The release of our spending to catch up on technology implementation that will eventually normalize at a higher level.
Once we have two years of consecutive of two consecutive years of good budgets and to me that will be.
Calendar 'twenty two in calendar 'twenty three.
Perfect and then just on the flip side when the E&C, obviously, there are a lot of renewals.
This year, so you're still kind of.
Guiding for this high churn.
But would you expect that to kind of work through and the budgets are also recover based and based on what Youre seeing in the end market right now or is this more like a two year process.
Oil prices remain stable, then we might see more capex.
But it ties into the next year, and we'll probably need to wait for that in order to kind of get the confidence.
Ed.
This is a look at this is a very good question and and the thing about.
Demand and supply in macro trends is that you.
You have to you have to give time time, meaning you have to let time pass to for things to prove themselves out.
And this narrative that the capex spend in the oil and gas industry was at a level that wasn't sustainable for future demand.
Has been a narrative now as that narrative has been other well buy.
Certainly.
Climate change and sustainability that focus on renewables, which is all important.
Unnecessary.
But luca energy transitions happen over a long period of time.
And in this context.
There's a saying that.
<unk>.
That we could be facing a very tight supply demand balance which could accelerate.
All continued to drive oil prices up which.
By the way I don't I don't think is necessarily healthy.
Because he may impact economic activity at some point.
So on a personal basis I'd, rather see oil somewhere between.
Around $70 a barrel Bud Bud.
Having said all that what this good old man is that some companies or countries do see an incentive to start spending are pulling more capex to work.
Because they see an opportunity to supply more to the market on the road.
So we'll see.
But at the same time Luka.
The last recovery from 16 to 17, while we saw was low single digit.
Capex growth to mid single digit really 5%.
And that was four four for our growth to accelerate back to double digit with the contribution from our APM suite today, we have a lot more things in play not only APM, but aio.
Pharma.
Mining, but also the Emerson relationship.
The contribution of these assets the OSI asset on the GSS assets and these commercial relationship with Emerson will be so comprehensive and global.
That will will support.
Celebration of our growth rate. So so look.
All the Kpis are look good.
We have signed.
Trends a transformational transaction.
We will support our growth and diversify our business.
Going forward as well so.
I said look my closest Tim it was.
The most excited about our future than I've ever been in.
It remains so.
Perfect. Thank you so much fair answer.
Yes, I just wanted to before the next.
I want to highlight two Jackson com.
Comment or question around supply chain on chemicals look.
One other things Thats happened as well over the last 18 months with carve it is.
As a reassessment of supply chains around the world not only the.
The onshoring of production on site, but also.
The reconfiguration of the supply chain said really.
Building resiliency into supply chain.
In preparation for future disruptions. So we are seeing.
Much greater interest from chemical companies.
On supply chain management capability supply chain logistics, the concept of the control tower.
And this is certainly opening up a whole.
And an increased area of investments, but by chemical companies around their supply chain, but also other companies by the way in pharmaceuticals.
And including oil and oil companies. So so so I think these hold the whole.
The discussion around supply chain is one that actually will be a tailwind for four for Aspen technology as well.
And our next question comes from the line.
Yes, our next question coming from the line of Jason.
Jason <unk> with Keybanc Your line is open.
Hi, Jason Antonio.
Paul.
Just a couple of questions from me.
So Q1 is seasonally the weakest quarter.
Q1 <unk>.
Sequential increase that we've seen in two years actually maybe can you talk about the linearity of the strength.
How how it might have.
Started when you start seeing it.
Hello.
Any.
That'd be great.
Yes, I mean look at it no doubt.
Q1.
By nature.
Are the sort of.
Lowest growth quarter.
The lowest growth quarter that we normally have.
And well.
We just had a very strong Q1, especially considering the attrition that we experienced the amount of gross growth that was generated this quarter in Q1 was.
Was was.
Outstanding.
Luca.
There was also.
I'll tell you an easy comp versus Q1, FY 'twenty, one as well.
Look our Q2 tend to be a stronger quarters historically than Q1.
And then you get into Q3, and Q4 normally being our strongest quarters, just because as of the end of our fiscal year normally normally our sales cycle.
Nine to 12 months in the sales organization is gearing floor to exceed their quotas and get into accelerators for commission. So so thats Luca.
So that's how I would view it.
Good.
I also want to be cautious here.
And.
But yes, we are.
Happy about Q1, I will take this <unk>, while our son last year, Yeah I think.
Alright go ahead.
Well, what I was really trying to understand is how the quarter improve throughout throughout the quarter.
Yeah, Yeah, Yeah, I think that's it yes, sorry, I was going to just add to Tony's comments.
I think that you are the attrition most of the renewal activity to your point is in the same hockey stick as every other company. So that's the third quarter, but I would say from from you getting pipelines and the conversion through the quarter.
I would say that probably mid to later, we started to really solidify those conversations with our customers.
But we were definitely out of the gate Q4, having the gross growth conversation.
But you know it takes time as thoughtful type approvals that Antonio referred to.
You don't really see that momentum.
Jason until the second and third months.
Perfect No sorry, I misunderstood your question.
Okay.
The one nuance the one nuance about Q1 Q1 quarter September is that July and August are heavy vacation months.
And really is the first few days of September when business activity begins to accelerate so it tends to be a quarter, where that is very concentrated into into four weeks in September and it was it was a great four weeks.
Perfect. That's very helpful. Thank you.
I'm showing no further questions at this time I would now like to turn the call back over to them as Antonio Pietri for any closing remarks.
Alright, well thank.
Thank you everyone for joining today's call and.
We look forward to again participated in an event on hopefully starting to meet some of you in person, which we've started to do with customers and is a very different experience to be meeting customers in person over video.
So hopefully we'll start seeing some of you in person in the future. Thank you everyone.
Thank you.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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