Q1 2023 Aspen Technology Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Good day, and thank you for standing by welcome to the fiscal first quarter 'twenty twenty-three Aspen Tech call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one.
On your telephone please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Brian <unk> with <unk>.
CR.
You are now able to talk.
Thank you Justin.
Good afternoon, everyone and thank you for joining us to discuss our financial results for the first quarter of fiscal 'twenty to 'twenty three ending September 32022.
On the call today are Antonio Pietri asthma attacks, President and CEO , and Sean O'brien Aspen Tech CFO .
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.
Risks and uncertainties.
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 as well as those contained in our most recently filed Form 10-K with the SEC.
Also please note that the following information relates to our current business conditions and our outlook as of today October 26 2022.
Consistent with our prior practice, we expressly disclaim any obligation to update this information.
Please also note that we have posted a financial update presentation on the investor.
Right.
The structure of today's call will be as follows and turnover discuss business highlights from the first quarter and fiscal year.
Tom will review, our financial results and discuss our guidance for fiscal year 2023.
Is that contract you Antonio Antonio.
Thanks, Brian .
And thanks to all of you for joining us today.
Our first fiscal quarter performance was in line with our expectations.
This was the fourth quarter.
With the completion of the Emerson transaction.
Yeah.
Okay.
Okay.
Okay.
The first set of circumstances.
Yes.
Sure.
Yeah.
Tom.
Oh I'm sorry.
Opportunity available to us.
Yes.
I'm very.
Across the business.
Understood.
Oil side.
Yes.
We entered the fiscal year with a clear focus to execute on our integration plan.
And a half months.
Completed before the close of the transaction on May 16.
During the quarter, we validated many of our expectations for the integration planning phase.
Also learn of additional aboard.
Process improvements and potential scenarios.
We also put new processes and systems in place to support the transformation efforts that will deliver the significant growth up profitability expectations, we have for the business in the coming quarters and years. Some of these include success.
Successfully validated that total licensing model and decided suite or SSC, which was released last week or windows.
The trunk release topline was achieved through the focused effort by our software development and product management teams.
The <unk> suite has quickly been embraced by customers that we have engaged with.
Gotcha.
This is the first step in the transformation of the SSP business and a clear demonstration of the learning and expertise gained from our own transformation as the 2009 to 2014 period.
As we have experienced when heritage.
To use the software licensing model for the engineering and MSC suite customers quickly recognized that by providing the entire portfolio of products in a single suite. It is much easier to drive new products and accelerate adoption.
Licensing model.
We expect the latest version of the App and one SSE suite to be released in the near future as the final components of this organization.
<unk> product portfolio.
Second we began the process of migrating the CGM or risk management product portfolio was term contract structure with the ultimate objective.
The production of the software licensing model.
Suite, which is expected to happen in the second half of this fiscal year.
As a reminder, the <unk>.
<unk> product portfolio has been historically, a perpetual license business. So there is a significant transition for existing customers that needs to occur to get them up to the top of the licensing model.
While we will lead with the suite and focus when engaging new customers.
The introduction of the PGM suite will also enable the cross selling opportunity of CGM products into heritage aesthetic.
Market, where customers are of course due to the licensing model.
Third we have signed and been awarded multiple commercial agreements for the GM product that will be implemented solely by third parties to demonstrate the power of <unk> software licenses and services achieving Superability will result in an earlier inclusion of software licenses.
B.
Today software licenses with the CGM business are recognized on a percentage of completion basis. Europe projects is these are considered bundle. Therefore ATM transactions are currently not included in ACB win.
We aim to achieve our ability within the second half of fiscal year 2023.
We have successfully on boarded and aligned the sales teams from all sides and HFC, including establishing a common sales forecasting methodology.
Finally third towards on accounts under ship Standardizing quarter Commission structure.
Obviously cross sell procedures, ensuring alignment across our sales organization and historic company is critical and we're pleased with how we have done together throughout the first quarter.
Thus, we have established a commercial organization that will support Emerson golar market teams and the verdict of the territories identified for them to resell our products.
<unk> has also established.
Yields with Aspen, <unk> product quarter that will be compensated for selling them overall.
Overall, we could not be more pleased with the progress made in the partnership.
With regards to the synergies expected from the transaction, we expect to deliver synergies import areas grow business transformation costs and commercial agreement.
Each of the <unk> strengths are now broken down into substrates with your team and individual accountability for each.
Overall, we're pleased with the progress made in the first quarter in each substrate to put us on the trajectory to meet or exceed it.
We have made great progress on the cost synergies already captured a significant percentage of that we expect to begin generating synergies.
Three other areas in the second half of this fiscal year with great confidence about our ability to deliver on the synergies and as mentioned before we have also identified other potential areas of opportunity.
I'm very proud of the performance of the team in the first quarter, we successfully laid the foundation to set us in the right trajectory to achieve our fiscal year 2023 and longer term objectives.
Now turning to our first quarter financial results.
Total contract value or eight BP was $809 6 million up seven 7% year over year.
Revenue was $258 million.
GAAP loss per share was 17% and non-GAAP EPS was $2 <unk>.
Free cash flow was $10 $7 million.
Additionally, while sharing the following information to provide you with visibility into the early transformation momentum created with the EDM and SSD product portfolio in the quarter.
The PGM product portfolio generated $16 $9 million in software license orders not accounted for HCV, we sold $5 $5 million of which were term agreements and the rest.
While the term licenses cannot be included in HCP when time due to the bundle that rational nature of the transaction. This outcome demonstrates our ability to introduce term licenses towards our customers.
We're very happy with this outcome right out of the gate considering that it was the first full quarter since the transaction close.
For the SSD product portfolio, we saw the start of the transformation of the commercial relationship with customers some customers with agreements up for renewal access the new terms of condition typical apparent adjustment tax software agreement converted from perpetual to term license agreements and or in some.
This has extended the term of their agreements and.
An example of the change to the commercial relationship with customers is the agreement with an international oil company based in the Asia Pacific region that consolidated our legacy perpetual license agreement and multiple older contracts each with one contract at the time of renewal of one of their existing agreement.
For a three year term with significant growth all due to the unit perceived value in the relationship with Aspen.
Again. This is an early demonstration of the value creation opportunities, we have with these new businesses and the changes, we're making and how we will approach customer relations.
Now.
Moving on to the macro environment.
Overall demand trends were similar to what we have seen in recent quarters, while we remain vigilant about the uncertain economic backdrop fundamentals in each of our core end markets remains strong.
We continue to see strong deal activity across each of our key end markets in each region around the world.
Our customers recognize that the dual challenge of meeting the rising demand for resources globally with the urgent need to meaningfully reduce environmental impact will be the key strategic priority facing their businesses for many years to come.
Failure to meet these objectives will result in an increasingly difficult regulatory environment that may eventually challenge their license to operate from suicide.
Such immediate the dual challenge will require restating, how our customer to design and operate assets, including the reliance on electrical power from renewables.
In turn will drive a significant investment in technology to modernize the electric grid capture and sequester arguably industrial parks.
<unk>, new energy sources, such as hydrogen, which we believe will ultimately benefit Aspen Tech's business in meaningful ways and methods and increasingly a strategic partner to them.
We have also seen in recent months.
Security has become a critically important strategic concern.
These disparate substantial new demand in areas like LNG and more broadly reinforces the fact that many of the traditional sources of energy will remain essential to secure in a state insecure flow of affordable energy for the foreseeable future.
The breadth and depth of Aspen, <unk> product portfolio and our decades of experience in this market also puts us in a unique position to be.
Benefit from these trends.
I would now I would now like to provide some more color on our performance by vertical.
Refining had a solid start to this year.
Demand for refined products remains strong and refiners settled into a more normalized profitability profile in the quarter. Following the record crack spreads earlier this year.
Creasing diesel and jet fuel demand is expected to continue declining over the next 12 months, providing greater support for improved financial.
Our improved financial performance for fiscal.
Refining has long IP has long been a source of strength for us.
We believe this industry segment will continue to be well positioned in the remainder of fiscal year 2020.
They are off to a vertical is now a more meaningful contributor to us in fact, I had a strong quarter as we saw exciting initial demand for our SSD products.
Customer feedback has been fantastic on the value of bringing together Aspen Tech's engineering solutions with Sse's capabilities.
In areas like subsurface modeling and cardboard packaging.
Our product portfolio to support the entire lifecycle of upstream operations is unprecedented and solidifies our leadership in this market.
We believe there is significant upside potential in the coming years in the Austrian market quoting yes, it suite as oil and gas companies increased capex budgets.
Several years of under investment.
The opportunity is probably that arbitron sequestration, or Ccs and geothermal energy become more prevalent.
We also got off to a great start in the power transmission and distribution market <unk>.
Underwriting new momentum with Dts after the two year ownership transition process for the OSI business.
This scale of investment needed is occurring in the coming years to support increased electricity demand.
The complexity is produced by renewable sources of power.
Solar and hydro is large.
We signed a number of important wins in PJM during the quarter, including the first multimillion dollar term license order in that business.
We're very pleased with how the pipeline for this business is building out the breadth of customer conversations we're having utilities recognize that it will need much more sophisticated technology across their operations to manage the growing complexity of power transmission and distribution.
And while it's early we're having exciting conversations with some of our energy and chemical customers are the potential benefits of micro grids to their business. This opportunity will take time to play out and we believe it will be.
Yes.
Chemical had a good quarter and we are very pleased with our customers in this market have embraced the need to increase investments to meet the dual challenge, which for them also includes plastics.
Sure.
In the near term this market, particularly in Europe will need to work through the challenges related to the energy supply disruptions from a cost and demand perspective.
This is a situation that we're monitoring closely and it's probably and.
It's probably the biggest area of uncertainty in our business correct.
However in the past we are often seeing that these types of situations that benefit as the deck.
And even bigger imperative to run a petrochemical plants as efficiently as possible.
Finally, we're pleased with the trends in the E&C vertical as we have discussed in recent calls they need for sustainability is opening up new business opportunities for PMT, which is helping to strengthen and diversify their businesses.
For example in 2021 over 100 Ccs of carbon capture and sequestration facilities were announced.
Additional oil and gas Capex investment and it's also growing meaningfully after several years of under investment during the pandemic.
The net result of all of these is a vertical that is as well positioned as it has been in years to generate consistent growth for us.
The macro environment referenced therefore supported the performance of the heritage aesthetic suite in line with our expectations.
As a reference all of an RV, yet or the three agreements signed in the quarter or four three agreements signed in the quarter.
First one of the largest public utility companies in the United States and a decade long customer of oil side, but muted to the implementation of two large monarch skidded systems for advanced distribution management, or Atms and distributed energy management or <unk>.
And applebee's.
We were selected following a highly competitive process in which they evaluated technology from multiple competitors.
This will expand their deployment of ppm solutions to its distribution and outage management business from it.
Deployment and its transmission business is expanded agreement is an important step forward in the customers' effort to invest in it.
Regulated businesses accelerated target reduction targets, and a streamlined and drive value for customers communities and investors.
Note that we were able to successfully transition of the sales process.
This contract after started as a perpetual license production prior to the completion of the Emerson transaction.
Second as state owned oil company and one of the major oil producing countries in the Eurasia region signed a new five year agreement using Aspen Tech's customer return exclusions for a range of products in the FSC portfolio.
Yes.
As this has been at all of our SSD customer who's.
Expired long ago, and decided to return in part due to the broader.
Portfolio ambition of the Neulasta.
New agreements to supply relationship for further expansion in the use of SSD products.
And third our final an international oil company, a long time I spent the engineering suite customer expanded.
Total spend commitment for the third time since the renewal of the agreement.
And if anyone has now increased its total spend by more than 40% in two years.
And an increase in software access to their gas business for use of the integrated front end engineering design capabilities, including the Aspen uptick plan product. There are many more initiatives being pursued with this customer for further expansion of the use of aesthetic products.
From an innovation perspective, we have finalized the work and very supportive of US spent one which will which will be used for general general availability soon and where our continued investment in sustainability will be further demonstrated with many new application markets.
The dual challenge will also require co innovation and partnered by customers and suppliers of technology.
We now have a dedicated team co innovating with our customers. We're one of the most interesting development is the partnership group, we have established to develop a solution to record report and manage the potential C. O two emissions by leveraging <unk> several of our products. This is a great indication of the increasingly important role.
All that is playing with our customers in the sustainability space.
We will also be hosting open forum, our global conference for the power industry.
Industry or users of the <unk> product portfolio in Las Vegas in early December . This is an exciting opportunity for the new Aspen Tech to establish our vision and direction for this industry.
With this customer group will produce up to the capabilities of the new company.
Finally, we continue to execute on our M&A strategy during the quarter, we acquired dimension a market leader in industrial real time information advantage.
Imation adapts to the needs of its customers by connecting an organization's industrial data from various data sources from client level historic enterprise systems to create a real time industrial infrastructure.
We will combine this capability with us protect its existing portfolio of plant level solutions and AI capabilities to create a unique enterprise wide data and infrastructure.
We will making patient the cornerstone of our Iot industrial data and connectivity business.
In addition, we continued to make progress in integrating integration planning or Micromet.
Having positive conversations.
How to capitalize on the opportunity in the metals and mining market.
We expect the transaction will close late in our second fiscal quarter subject to regulatory approval.
I would like to wrap up with some quick thoughts on business dynamics and our outlook for fiscal year 2023.
We're tracking well against our full year ACB growth target of 10, 5% to 35% including $4.
Four points of contribution from CGM.
As well as against our free cash flow guidance.
As we have indicated previously historically the second half of the fiscal year is much stronger for headsets for Harrods adjustment that we expected growth in synergies from PJM and FERC to begin materializing in earnest in the second half of the fiscal year, considering the sales cycle for the pipeline of these products and the time required.
<unk> can evolve the commercial relationship with quest.
We also want to reiterate that it spending trends and opportunity dynamics in the first half of the fiscal year remains positive, reflecting customers' calendar 2022 projects.
As we approach the second half of the fiscal year to date, we remain optimistic that customer projects for calendar 2023 will be supported.
Anecdotally, we've heard positive feedback from customer oil and gas capex budgets for next year.
Also please recall that budgeting with power in the market typically with regulated so theres a good deal of visibility in that market.
While our customers' businesses have continued to do well, we recognize that they face a number of potential challenges, particularly the chemicals market in the near term as a reminder, our guidance range was intentionally set wider than normal to account for a range of outcomes that also include geopolitical considerations.
We believe that was prudent back in August and we continue to think is the right approach.
Let me wrap up by saying how pleased I am with the progress we've made in the first quarter.
Hard work by everyone at new Afton peg to bring together. These three businesses in such a short time has been a great success, we have set the stage to deliver on the growth and financial objectives, we have guided to discuss 2043.
Yes.
With that let me turn the call over to Chantelle.
Sure.
Thank you Antonio I will now review our financial results for the first quarter of fiscal 2023. As a reminder, these results are being reported under topic.
It has a material impact on both the timing and method of our revenue recognition for our term.
License contract.
License revenue is heavily.
But the Chinese company and more specifically renewal bucket.
A decrease or increase in bookings between fiscal.
Fiscal periods, resulting from a change in the amount of term license contract up for renewal.
Another indicator of the health of our business.
The timing of renewals is not linear between quarters for fiscal years and this nonlinearity will have.
The impact on the timing of our revenue.
As a reminder, we have transitioned from fuel expense ATB annual contract value as our primary growth metric.
We define atvs estimate of the annual value of our portfolio of term license and term and perpetual software maintenance and support for SMS in the green.
ABB provides insight into our annual growth and retention of our recurring revenue base, which is the majority of our overall revenue as well as recurring cash flow.
Annual contract value was $896 million in the first quarter.
23 of seven 7% year over year.
Includes approximately $2 $7 million of contribution from the recently acquired business evolution.
Yeah.
Please also note that we booked a $1 $7 million reduction in ACB Jordan this quarter.
Russia sanction related write offs.
Antonio mentioned, while we work through the transition of the DBM portfolio to term licenses ordered from this business or not.
On one side due to the lack of separability from the Aspen Tech providers.
We expect <unk> to contribute more meaningfully to ACB in the second half of this fiscal year, after which you would never ability.
Annual spend our heritage Jackson today.
The company defines as the annualized value of all term license and maintenance contracts at the end of the quarter for the businesses other than OSI necessity.
Approximately $682 million at the end of the first quarter of fiscal 2023.
Which increased eight 3% compared to the first quarter of fiscal 2022, and one 2% up sequentially.
Includes approximately $1 $6 million of contribution from innovation.
As a reminder, we into.
Tend to provide this disclosure on an annual spend our heritage Ashwin on repurchase.
With 123 to provide investors comparability with our historical disclosures.
Total bookings, which we define as the total value of customer term license at perpetual SMS contracts signed in the current period less the value of term license and perpetual after that contract signs in the current period, but where the initial licenses are not yet delivered under topic 606.
Plus term license.
Contract.
Just curious.
Initial licenses are deemed delivered in the current period.
$224 million of important to 2%.
Over here.
Total revenue was 250 question Bernie.
First quarter as a reminder, as a result of the Emerson transaction. This subsidy already included the ETF businesses became for survival.
As a result, a year ago comparisons you see in our financial statements only includes <unk> in the first quarter of fiscal 2022.
Over year comparisons are not meaningful.
Turning to profitability beginning on a GAAP basis operating.
Expenses for the quarter were $210 $9 million total expenses, including cost of revenue were $302 million operating loss of $61 million and net loss for the quarter was $11 2 million or 17 cents per share. The net loss reflects the noncash expense recognized the mark to.
The gentlemen.
Australian dollar foreign currency derivatives related.
Acquisition. This will continue to fluctuate until the closing of the transaction.
Turning to non-GAAP results, excluding the impact of stock based compensation expense amortization of intangibles associated with acquisitions and acquisition related.
And excluding the impact of the unrealized loss on foreign currency derivatives.
non-GAAP operating income for the first quarter of $92 $6 million, representing a 36, 9% non-GAAP operating margin.
As a reminder, margins will fluctuate period to period due to the timing of customer.
And therefore license revenue recognized during the quarter.
non-GAAP net income was $142 million or $2 20 per share based on 64 5 million shares outstanding.
Turning to the balance sheet and cash flow, we ended the quarter with approximately $2 $5 million of cash cash equivalents and $270 million outstanding under our credit facility. During the quarter, we spent approximately $75 million for the acquisition of the nation.
Antonio highlighted we are excited to bring inflation together with Ocwen and believe it is a great example of the opportunities we have to expand.
Our product portfolio and increase the value delivered to customers via acquisition.
Our financial perspective inflation is expected to be immaterial in fiscal 2023.
<unk> profitability and ACG contribution perspective.
In the first quarter, we generated $5 $1 million of cash from operations of $10 $7 million of free cash flow.
Taking into consideration the net impact of capital expenditures capitalized software and excluding acquisition and integration related payments.
As a reminder, the first quarter is typically our lowest cash flow quarter due primarily to the seasonality of cash collection.
I would now like to close with guidance, we had gotten off to a strong start in fiscal 2023.
Positive underlying demand trends across the business.
Look for fiscal 2023 reflects these trends while also considering a wider range of potential outcomes to reflect the current uncertainty in the economy.
Im pleased with the progress we have made on our integration initiatives during the quarter.
And believe we are well positioned for the long term from a growth and profitability perspective.
<unk>.
Our ability to realize the $110 million of adjusted EBITDA synergies by 2020.
With respect to ABB.
We are maintaining our bookings guidance in the range of $1.07 billion to 1517 $117 billion, which includes $547 million of contracts that are up for renewal in fiscal 2023.
Approximately $111 million of contracts up for renewal in the second quarter.
We expect license revenue in the range of 765, 1%.
$6 million.
And maintenance revenue and service and other revenue of approximately 312 and $55 million respectively.
From an expense perspective, we expect total GAAP expenses of $1 197 to one.
$7 billion.
The increased expense outlook.
Acquisition integration planning and amortization of purchase intangible expenses associated with <unk> acquisition.
Taken together, we expect GAAP operating loss in the range of 50.
Seven 5 million for fiscal 'twenty.
With GAAP net loss in the range of 32, 5% to $22 5 million.
We expect GAAP net loss per share suite.
934%.
From a non-GAAP perspective, we expect operating income of $503 million to $555 million and non-GAAP income per share in the range of $6 76 to $6 91.
From a free cash flow perspective, we continue to expect free cash flow of 10 or 47% range.
Our fiscal 2020 free cash flow guidance assumes cash tax payments in there.
The range of $94 million to $101 million.
Yes.
But absent that gets off to a strong start in fiscal 2023.
Executing on our integration plans and have set this up.
To deliver on our near and long term financial objectives. We.
We believe we are uniquely positioned to create even greater value for our customers and shareholders over the long term and are keenly focused on maximizing the opportunity with that operator I'd like to begin the Q&A.
And thank you as a reminder to ask a question you will need to press star one on your telephone and we please ask that you limit yourself to one question and one follow up again, we ask that you limit yourself to one question and one follow up and one moment for our next question.
Yes.
Hi, Matt.
Hey, Tony Thanks for taking my questions guys I appreciate it.
I wanted to ask I appreciate that you've left to go.
<unk> range is the same.
For your key metrics to account for a range of macro outcomes, but with another quarter of data points and conversations with customers do you feel any differently about the probability of the low end versus the high end there.
Sure.
Well, let me look at it like we said in our prepared remarks.
Good day.
We see.
Solid macro environment out there for our customers as oil prices have remained.
Very good range for these customers.
So you can get sustained district continues through.
Execute on what our.
Capex budgets.
Resulting from investments approved for them by local governments and other other types of entities.
And as we said, it's only chemicals, especially Europe .
Companies, where we're seeing a big validation of its performance around revenue growth and margin, but we've also seen that set up.
Situations before where this customer total decided to invest more on technology.
Five greater efficiencies, we've tried to overcome the margin degradation. So overall today.
We feel like the macro environment.
How should remain and will remain.
Through the remainder of this calendar year.
So far what we've heard anecdotally that budgets will still be solid for calendar year 2023, the refining industry. If anything continues to improve their performance. If you look at the results announced by some of the independent refiner to here in the U S incredible.
So so so overall.
We feel good about the outlook.
Sure.
Okay and then on the.
Lay out in your business or is that something that will take some time to materialize.
Look I think some of that is already playing out through.
At final investment decisions about some of the LNG facilities that are going to be feel too to increase.
LNG production and export out of the U S into.
Two other parts of the world.
One three.
Are there some significant agreements with some of the major international oil companies for sure production agreements to increase their gas production as well that all that all eventually flows through.
Our customers, who started with again see that eventually facilities that are running that.
Have a chance to optimize therapy.
Operations and improve their reliability.
And eventually we also hope to be.
Getting them excited about deploying some of the micro grid technology capabilities from our side. So so overall.
We just see a good environment and one that is driven by multiple factors.
Our benefit in that sector.
Thank you Mike.
And thank you.
And one moment for our next question. Please.
And our next question comes from Rob Oliver from Baird. Your line is now open.
Rob.
Hi, Antonio that's all thank you guys for taking my questions allowed spot so I'm going to put them both out there and then mute.
So Tony.
Just following up on Matt's question.
Just regarding the macro appreciate your commentary it sounds like the only change.
Change or change.
Change.
From your prepared remarks was around chemicals, where there is some uncertainty.
There are new I think you mentioned supply and demand issues and stuff like that could you talk a little bit about how that that is factored into that wide range of outcomes meeting.
Are you seeing strength in other areas that are potentially.
Making up for that.
And driving the HCV and then the second question, which was my follow up was just around your comments relative to strengthen upstream really interesting and I think you alluded to a combo core Aspen SSE deal, if I heard that right and I apologize because the audio wasn't great for me, but.
If so can you talk a little bit about that are those deals happening right now what the pipeline looks for that and what the kind of.
Increase in deal sizing opportunity looks versus what you saw for core Aspen. Thank you.
Yes.
And then.
Clarified as well regarding the first part of your.
Your question Rob.
I mean chemical companies.
In the June quarter record profitability and record revenue.
Now what we're seeing here.
In the September quarter, we sold that are coming down from that record profitability and record revenue to perhaps.
Profitability more in line with that.
Our historical performance, but nonetheless, it's not what it was back in June .
So while we're keeping an eye on these our chemicals business performed well.
In our Q1 fiscal quarter.
We see a.
The change and therefore, we're monitoring to see if we detect any behavior.
Have you changed some from these customers, but so far so good.
That range as you said.
I mean, what other puts and takes well you said it.
We believe that.
The combination of.
Aspen.
<unk> suite.
She is a sub surface.
Science and engineering suite is that you've got great great new offering for our customers.
Customers get excited about the potential to optimize our operations, both combining the subsurface and.
Surface facilities.
This is leading to not only great compensation spud.
A completely different perspective about the new aspects of it from these customers.
The top efficiency, because we want to have with us going forward, which is changing the conversations completely so we are optimistic that.
The SCC business.
Again it gives us.
A degree of optimism.
Great. Thank you guys very much thank.
Thank you.
Thank you.
And one moment for our next question.
Hey, guys good afternoon.
Hi.
Just wanted to ask a question about sort of the Imation acquisition, because I think it's actually very interesting goes to the heart of Europe .
Working closer with Emerson right, because I think I believe Emerson.
Built there.
<unk> platform based on sort of data capabilities based on that rate and you had a competing product and now you are effectively.
And just maybe talk about where you see more opportunities to sort of rationalize their approaches between the two companies in terms of technology. Thank you.
Yes, Phil.
So.
You're exactly right Emerson Emerson was.
In early Investor and you mentioned the IND.
And you mentioned in 2020.
We're starting to see some of the benefits of the of the relationship between Emerson.
Technology Emerson highlighted to us.
What they felt was the strength that we mention on why we should be interested information.
After doing diligence on.
And our own assessment of the capabilities that we mentioned.
We felt that their technology would be a step change in our capabilities.
Now, while we close the transaction what I can tell you though.
And the rationale for why do you think you'd mention we saw important and the fact is that over the last four.
12 18 months.
As we reengage with customers.
Person.
More and more customers are telling us that was now they have all their data in these massive data lakes that are being created by the cloud services companies.
They have a real difficulty making sense of all this data related this data to each other.
And therefore, they're asking for help in that regard and this is exactly what information those imation brings order to data.
Extra allowances data it creates data relationships.
And as such.
Customers are deploying mention we will be able to then.
Slowly.
The latent value that exists in the data by.
You will see that data on a commune applications or are other use cases for example, with us that they expect to consume.
So we're very excited about this is going to become the cornerstone of our.
The.
Business.
And.
Now well now that's been picked answer it in a way Emerson has increased its investment in imation because they own.
55% of Aspen technology.
In the case now in Aspen Tech.
And this is now.
The two companies are going to be basically.
Saturday data Foundation.
For our customers going forward.
Other areas, where there will be opportunities certainly in the control advanced process control area.
Historians and other opportunities, but this is all.
Areas that we have.
To explore with Emerson.
This is will be part of that commercial relationship that Emerson and Thats. The biggest <unk> that also has to be vetted by.
Made it public transactions submitted the material that is appropriately done on an arm's length.
<unk>, so, but we're very excited as this is the first equity perhaps many of these types of relationships between the two companies going forward.
Congratulations and thank you for a great answer thanks a lot.
Thank you.
And thank you for your question.
And our next question comes from Jason Celaeno from Keybanc Capital. Your line is now open.
Adjacency Antonio Antonio.
Hey, Antonio Haynes Chantel and good afternoon.
Maybe my first one I understand that Q1 is typically a lower sequential growth quarter.
And all things like that.
Maybe why did ACB and particularly the heritage annual spend.
Metric.
Kind of flat decelerated, just a just a hair, but anything to call out on that.
Let me let me let me.
Give you an answer.
So please follow up.
Yes.
So Luke.
The tier one of our lowest growth quarter cyclically.
<unk>.
That is that is the case.
We're happy with our performance in Q1.
As <unk> highlighted in his prepared remarks.
We had a transaction in Russia that we had to write off because eventually they didn't meet the requirements under the sanctions.
The structure that exists or framework that exists with some Russian companies.
And that impacted.
Net.
Growth in ACB.
Neither.
But otherwise we would have been.
Fair enough.
Yes.
Yes.
Sure.
Got it.
Okay.
Okay.
Okay.
Yes.
Great great.
And then when we think about acquisitions in.
Imation interesting.
Or should we think about the pace of your acquisitions going forward and then maybe.
How do you intend to fund them.
If you do see them pick up thanks.
Well, let me look at it.
We certainly also going to be.
<unk>.
<unk>.
M&A front.
With regard to how.
How much were taking on.
<unk>.
I consider.
The FERC July and August to have been.
Months of a lot of work.
It required a lot of if you will activation energies to to put in place everything.
We talked about in the prepared remarks.
So that we can execute the rest of this fiscal year and beyond.
And so so I would say we worked through the bulk up not only integration board also sort of the transformation infrastructure that we needed to put in place to be successful going forward with <unk> sorry.
We are patiently waiting for the micro <unk> transaction to close.
Well run businesses is wrong, it's been run by private equity for almost four years.
Hi profitability.
High growth.
So.
Little transformation that has to be done there, it's only about immigration and Imation is a small company.
I also believe.
If you want to be judicious about M&A.
Acquisitions, when they're available.
Yes.
And that visibility will dictate.
Our next move.
Preliminary standpoint.
But.
We're making good progress.
We've built an organization that is focused on on on dividends and integration of acquisitions that is performing incredibly well.
So so.
I believe that.
We have grown and you've also in the company around around diligence and integration of these acquisitions that we did.
Two years ago.
That is a multiple of that.
We'll rely on going forward, Yeah, I think the other thing I would add Jason.
And our company.
Going on with the activity we are doing.
Each of them have their own flavor to it.
The spokesman.
And so I imagine the Emerson.
Yes integration.
Brian has the muscle memory.
Im hoping that we have.
Look at innovation, a horizontal play more of a tuck in so and then Mike. Your line is almost like its own standalone business that study. So I think that the difference in a variety of them also complement that.
T mobile venture that we went under.
I mean, Jason versus all of the thank you for putting strain on the second part.
Thank you and your organization.
Another way to look at it.
Great No that's.
Would be quite helpful. Thank you.
And thank you.
And one moment our next question.
Okay.
And our next question comes from Clarke Jeffries.
Keybanc capital markets I apologize about that your line is now open.
Hello, Hello, Thank you for taking the question.
First question is on.
Tonio.
How optimistic are you about the profitability in the demand environment for the refining industry and maybe specifically LNG.
Lots of headlines around reaching a peak of storage capacity in the EU right now any signs that you're seeing in terms of.
Potential cuts to Opex budgets or do you see the current levels.
Still elevated enough to facilitate those final investment decisions for those export facilities or any other business related to LNG that you asked.
Yes, So let me let me first address LNG start and then I'll talk about refining.
The fact is that when we.
Customers operators, making the final investment decision, we're making an investment decision for 2030 year timeframe.
And the outlook for the use of LNG as a source.
Energy.
So.
<unk>.
<unk> short term fluctuations.
We think we're going to change anything.
The fact is that gas is.
It's been a transition fuel.
Our net zero carbon emission ambitions.
And the demand profile is there to support that rate of investment that's gone into that.
With this asset so.
I don't think any of these changes.
The storage.
Is filled on August .
Europe .
With respect to refining.
No.
Is that refiners are feeling very bullish.
The opportunity to meet over the weekend.
And individuals.
And the training.
A function of.
Independent refining company.
I was actually surprised of how optimistic we start.
The above their margins going forward because.
Okay.
We know that jet fuel demand is starting to come back.
But this is the regional results are incredibly excited about diesel demand coming back and these are two things.
Over the last 12 months.
So these individuals look not only optimistic about today, but even.
Okay.
The next six to 12 months, so so I think.
And it's what we're seeing from refiners.
Good solid continued spend on our technologies.
Alright little bit of technical difficulties, there, but for a follow up question is just on the.
The pace of migration for SSE in PGM, certainly encouraging to see the SSC suite launched in PGM coming into the second half where those timelines ahead of schedule or roughly what you expected when you set out with guidance.
Any incremental confidence you have in the AUC the Roche in those segments for the rest of the year either off of benefits to attrition or kind of the net new funnel here.
Yes.
First.
R&D organizations.
Software industry.
They perform accordingly, so we're ahead of plan on the release.
C suite for Windows.
I hope to achieve the same speed for the Linux version.
The CGM suite.
Because that would help us with our trajectory look transformations are hard and you have to build momentum into transformation because there's a lot of sort of infrastructure do you have to put in place systems processes best practices organizations.
And we've done a lot of that now in the Q1 quarter.
Believe we built momentum.
Continue to build momentum in Q2 and Thats why in the prepared remarks, we stated that we expect a lot of the transformation benefits to start showing up with really sharp.
Sure.
<unk>.
And I look.
From my own assessment I do.
We believe that our year will come together.
Politically in the Q3 Q4 fiscal quarters in the first half of next calendar year.
Perfect. Thank you very much for taking the questions.
Hey, Thank you and one moment for our next question. Please.
And our next question comes from Mark Chapelle from Loop capital. Your line is now open.
Hi, Mike.
Hi, Hi, Antonio Chantal.
Chantal.
Antonio just want to go back to your comments around the chemical and midstream just make sure I understand that correctly or are you actually seeing usage or buying hesitation from these customers or are you just just raising a few red flags given the recent profit warnings from from some of the members of the sector.
Just with the ladder.
We didn't see any any behavior change from chemical customers in Q1, we just wanted to acknowledge Doug we're seeing this dynamic.
They're just they're just coming down from record profitability and revenue in the third quarter to something more normal, but nonetheless, it's a change.
Just want to highlight that two of them.
Helpful. Thank you and then.
Talk a little bit about the APM suite, maybe just give us a little bit of an update in terms of any new pilots or customer wins that are worth mentioning.
Well look.
So we keep our update.
Sure.
Our APM.
The half year. So we'll do that in the January call, but look at we continue to gain traction I do think that the.
The market.
<unk> has set up.
Frozen from from from the pandemic period.
We're seeing.
A lot more engagement with customers.
We're seeing also a bigger deals in the pipeline.
Interest I also think that customers after two or three years.
Trying to figure out what to everything.
We're being told by all these.
Suppliers of technology.
Yes.
Cutting through the noise on focusing on both technologies and capabilities that they think will help us.
And I'd like to think that.
That's been baked into that category.
Great. Thank you.
And thank you.
And one moment our next question.
And our next question comes from <unk> <unk> with Wolfe Research. Your line is now open.
Hi, Thanks for taking the question Hi, Antonio High Shanteau sitting here on for Joe Thanks for taking the question.
So just a few quarters into working with Emerson software assets.
The key impressions and what has maybe surprised you most as far thanks, so much.
But I'll give you my impression that just does that give you hurt look first of all.
One one.
When I first met with a lot of thoughts on bi.
One of my key.
I felt that they have the potential.
Truly become a technology leader in the utilities industry.
And basically the last four five months have only.
Corroborated.
What I saw was the case.
They have great technology their customers love their technology.
They do for them.
And now with the scale up of the new Aspen Tech on our channel to market on a global basis, because they are a very north America focused company.
We'll be able to.
Celebrate their expansion into international markets. So so very excited about that new business.
It's been a.
Have a great pleasant surprises as well.
Unbelievable technology.
Sure.
We're going to be investing in that technology to accelerate some of their innovation.
But more importantly.
The whole perception of efficacy by.
<unk> customer has changed now in their partnership and ownership by Aspen Tech again back to this.
This opportunity too to optimize sub surface above surface facilities, Aspen tech's own capabilities in software and how we can contribute to SSC in sse's expertise in upstream.
Our Aspen <unk> being really the only company in the market that can model the entire supply chain from the rock to the corner gas station is a very unique capability.
I started having meetings with customers immediately after we close the transaction.
And I've been so excited about what I'm hearing from these customers.
Im very optimistic I love, the fact that we own these businesses.
Totally to reposition that.
And help us reposition.
Ability.
Thermal energy electrification with our own capabilities around efficiency and clarity itself, so really strong from strong sustainability position going forward.
The things I would only add to what that Antonio mentioned and I agree with those I would say for the overall.
Clearly energized lending NIM.
Okay.
And we have another so I think that's fantastic I think for the.
Yeah, I think that the team realizing the tremendous opportunities in digital.
That industry.
Transmission distribution industry.
Very encouraging I think for the SSD side, having the team jump in with the token suite that is now available.
Windows and Linux.
But can you take that and run with it.
The first quarter was very impressive.
Great. Thank you so much.
And thank you.
And I am showing no further questions I would now like to turn the call back over to Antonio Pietri.
CEO for closing remarks.
Thank you Justin and thank you. Thanks, everyone for joining what is the first earnings call of the new Aspen Tech, we look forward to engaging with all of you on the road here in the next few weeks or months.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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