Q4 2023 Aspen Technology Inc Earnings Call
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Good day, and thank you for standing by and welcome to the Q4 2023, Aspen Technology earnings 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 this session you will need to press star one on your telephone you were then here in the automated message advising you.
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Now like to introduce your host for today's call, Brian <unk> from ICR.
Your line is now open.
Thank you operator, good afternoon, everyone and thank you for joining us to discuss our financial results for the fourth quarter and full year of fiscal 'twenty to 'twenty three I think June 32023.
The call today are Antonio Pietri assets, ex President and CEO , Brian <unk> CFO .
Please note we have developed an expanded earnings presentation for the fourth quarter and our fiscal year 'twenty two 'twenty three.
Presentation, that's posted on our IR website.
I've been an investor presentation in conjunction with today's call.
Starting on slide two before we begin I would like to take this opportunity to remind you that our remarks today will include forward looking statements.
Actual results may differ materially from those contemplated by these forward looking statements.
Factors that cause these results to differ materially are set forth in today's press release and in our annual.
We report on Form 10-K G. Other subsequent filings made with the SEC.
Any forward looking statements we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
During this presentation, we present, both GAAP and certain non-GAAP financial measures.
A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and Investor presentation.
Which are available on our website.
With that let me turn the call over to Antonio Antonio.
Thanks, Brian .
And thanks to all of you for joining us today.
Let me open by thanking our investors for their thoughtful feedback and suggestions regarding our earnings materials.
Which are reflected in the structure of today's prepared remarks, as well as our updated earnings presentation.
Beginning on slide three.
We achieved several important milestones in the quarter and fiscal year. Two helped lay the foundation for Aspen Tech to enter our next growth stage as a leading global industrial software player.
First we delivered a solid fourth quarter to close out a successful year.
Mark by resilient demand, an ACB growth above the midpoint of our guidance range.
We believe these results have successfully laid the groundwork for a promising fiscal 'twenty four and position that's been taken.
Well for future HEB growth and free cash flow margin expansion overtime.
Second.
We made substantial progress integrating and transforming OSI and SSC.
We're pleased with how well these businesses fit into our broader portfolio given how early we are in our journey with this asset.
We're excited about the enhanced value proposition our solutions can now provide customers across energy chemicals, EPC and utilities among other industries.
Third we built it teams processes and systems to capture growth synergies between Emerson in Aspen Tech and establish a cadence between organizations to execute on these opportunities going forward.
And finally, we remain focused on R&D and co innovation with our strategic partners and customers our airports to advanced use cases in support of our customer sustainability strategies, showing incredible promise and have been well received by customers.
Q4 was a strong finish to an important year and shows the benefits of our transformation efforts and learning phase.
Cause twenty-three annual contract value was $884 $9 million, representing double digit growth of 11, 8% year over year.
While fiscal 'twenty three pre cash flow was $292 3 million John .
<unk> will address our free cash flow performance in her remarks.
Turning to slide four.
I'll walk through our suite performance in the quarter and throughout the year. The mass in most of our end markets and geographies was strong our performance. This year against the backdrop of an unpredictable macro environment is an important reminder of the mission criticality of Aspen Tech solutions to our customers' operations and strategic priorities.
I'll touch now on the key high level themes, we're seeing across our suites.
First.
Heritage has been tests performed well contributing seven two points of growth on an ACB basis.
Our engineering suite outperformed this year, driven by an improving business environment or EPC customers after years of restructuring in the industry and a strong energy market.
We also saw material growth contribution from new customers that are benefiting from or investing in sustainability related projects will.
We believe these new customers represent a classic land and expand opportunity for other suites in the future.
MSC performance was in line with our commentary from the third quarter benefiting from refining market strength.
Chemical demand remained subdued in the fourth quarter, particularly for bulk chemical producers as companies continue working through Destocking and the impact from an uncertain economic outlook.
This dynamic is having a more pronounced impact on opex spend for chemicals customers, which drives most of our chemicals business.
Our expectation is this trend was now what will now last at least through the end of the calendar year based on recent market commentary from customers.
Aps performance came in at the lower end of our guidance range for fiscal 'twenty, three and reflected a continuation of the trend we have experienced in recent years.
While APM represents a relatively small portion of our overall business. We continue to believe in its growth potential and remain committed to building out its capabilities to better capitalize on opportunities in certain markets.
On that note I am pleased to announce that we recently closed a tuck in IP acquisition that will provide additional failure mode and effects analysis and new root cause analysis capabilities in sure.
And our <unk> capabilities to our <unk> product.
This will strengthen an existing use cases and help to further expand these traits to other industries, such as power and transmission and distribution.
The SLC and <unk> suite of products were both successful in their first year as part of new Aspen Tech.
Exceeding our exceeding our anticipated points of ACB growth contribution by 60 basis points in total.
FSC had an exceptional fiscal 'twenty three and was the largest area of outperformance for the year.
The offset was driven in large part by the positive impact of initial transformation synergies, including the establishment of minimum contract length inherit adjustment like contract terms and conditions as well as better than expected demand.
Sse's performance this year reinforces the attractiveness of our full lifecycle solution.
Ports, both traditional oil and gas E&P airports or upstream customers as well as an increasing number of sustainability use cases.
PGM sales delivered a solid Q4 performance and we're pleased with the sales activity outside of North America.
Historically <unk> has been focused on the U S and its ability to lever adjustment tax global expertise and capabilities is an important driver of our growth strategy is about 24 and beyond.
Furthermore, the imperative to expand agreed to achieve global electrification and the funds committed globally by governments to this effort will accelerate the demand environment or the <unk> suite.
Turning now to slide five.
In fiscal 'twenty three we built the foundation of new Aspen Tech, while delivering solid financial results in the span of 30 months, we made significant progress, bringing OSI SSE and heritage has been take together.
We successfully integrated these businesses sales marketing finance and product development teams among other areas to create a fully unified organization.
We also completed our acquisition of emission, which combined with our industrial Iot offerings forms what we now refer to as data works.
On the synergy front our results reflect early success in realizing our objectives as part of the Emerson transaction.
We're on track to achieve that $110 million of EBITDA synergies, which includes $40 million in cost synergies in particular, we have made significant progress in laying the foundation for our joint go to market strategies with Emerson.
We're excited about the increasing opportunities we see to jointly expand business in either Aspen tech or Emerson accounts as well as co innovation and all and collaborations.
Amazon brings a unique and complementary skill set to our industrial software focus and we are aligned on execution and priorities going forward.
Importantly.
We also executed the planned transformational work for fiscal 'twenty, three related to OSI and SFC.
Having done all of this and because of it we remain confident in our execution plan and the timeline to achieve the anticipated outcomes from these business transformations.
As an example in the case of OSI, We're building out Osi's third party implementation services provider network to support the secular increase in demand.
And as part of the business model evolution towards a software centric business like Harris adjustment there.
We're also receiving encouraging early receptivity to our AGM term license model from utility customers as we introduced an alternative to perpetual software licenses.
We have completed the work to make the PGM sweet Taco ready to introduce it to the market soon.
As we discussed on slide six.
We continue to see the Mega trends of the energy transition in global electrification as important drivers of our business, particularly related to sustainability projects.
That said I'd like to take a moment now to discuss how we're positioned to capitalize on these sustainability pathway opportunities.
Many of which have been expanded through our transaction with Emerson.
First.
Harris adjustment text capabilities across <unk> across all three suites are uniquely position to drive energy efficiency some profitability in our customer success and asset operations. While also addressing a growing number of energy transition use cases around biofuels production carbon capture and sequestration the hydrogen supply chain.
<unk> electric car batteries engineering design and recycling process design.
Our carbon capture systems and more.
In fiscal 'twenty three.
<unk> already started to see material benefits from sustainability airports in our engineering suite.
In DCM many customers are using our monarch is create a platform to help manage oil and gas distribution systems supply and demand management or solar wind and hydro power electricity.
In a broad array of key resources supply and demand management networks, such as for what.
Chemical and refining customers are also showing heightened interest in micro grid management capabilities, presenting us with the opportunity to cross sell our CGM suite into these markets.
Meanwhile, in SSE, we're seeing interest in geothermal energy production carbon capture and sequestration subsurface hydrogen storage and other sustainability use cases that are happening faster than we originally anticipated in certain parts of the world.
Now.
More than ever Aspen Tech is well positioned to drive existing customer growth win new logos and gained market share through the sustainability related opportunities.
As you can see on slide seven.
We're investing in R&D and co innovation partnerships to build out additional sustainability capabilities in our products to enhance our first mover advantage in this space for the benefit of our customers. As an example, this year, we partner with Amazon and Microsoft to develop a joined the hydrogen value chain solution.
Demo that helps optimize capex operating cost and other infrastructure to expedite the speed to market.
On that note.
Turning to slide eight.
We've outlined several customer wins in Q4 that demonstrate the value we're creating for our customers through these warrants as well as the current and future growth opportunities.
This slide we've highlighted a few examples that are relevant to our discussion here today and would encourage you to read those in more detail.
Wrapping up my discussion of our fiscal 'twenty three results I can tell you that the team here at Aspen Tech is energized and excited about the opportunity and growth potential of our spent to date.
At our recent annual sales meeting I was encouraged to meet with my colleagues from around the world and discuss our next chapter.
It was a materially different conversation now.
The Harris.
That the heritage has been tech OSI and SSE teams have all been a part of a unified organization for 13 months.
Simon about what's possible going forward what was possible.
As we kick off fiscal 'twenty four we entered the year with a strong foundation from which we can build and grow <unk>.
The success, we had in fiscal 'twenty, three putting the teams systems and processes in place necessary to scale. This business means we're now able to increase our focus on execution and achieving our go to market priorities.
Now turning to slide nine.
I want to shift to fiscal 'twenty four on our ACB guidance.
We start this year with a solid operational foundation and growing momentum.
Customers are reacting well to our expanded value proposition and ability to positively impact our bottom line and sustainability efforts. Moreover.
Customers across all industries are grappling with our strategies to achieve a successful energy transition and believe we're positioned extremely well to help them achieve their goals.
Technology stack and long term vision for our solutions are very compelling to customers.
Our outlook is for ACB growth of at least 11, 5% in fiscal 'twenty four.
This includes at least seven five points of growth from heritage has spent that.
Two five points of growth from <unk>, and one five points of growth from SC.
We believe this outlook effectively balances the positive demand trends, we see in most of our end markets and the benefit of improved execution focus with the ongoing uncertainty of the macro environment.
Yeah.
Some of the key assumptions underpinning our guidance include <unk>.
Industry demand trends that are consistent with fiscal 'twenty, three which were positive in all markets except for chemicals.
In the chemicals market, while we remain excited about its long term prospects due to its focus on the utilization efficiency improvement and sustainability initiatives.
Our guidance assumes the market conditions, we experienced in the second half of fiscal 'twenty three will persist throughout all of fiscal 'twenty.
With inherits adjustment tech.
We expect the ongoing.
Strength in the refining market will support another solid year of MSC growth.
The engineering suite is expected to continue benefiting from encouraging capex strengths across the upstream energy market as well as the positive impact from sustainability initiatives.
Finally for APM, we anticipate its ACB growth contribution to be similar to fiscal 'twenty three.
We continue to think APM is an attractive growth opportunity our guidance does not anticipate selling conditions to improve this year.
For the GM, we're confident PGM ACB growth will improve in fiscal 'twenty four due to one our ongoing investment in PGM sales capacity, including our international sales team to increase in demand in the market as funding to upgrade and expand electrical grids continues to grow.
And three the benefit of a full year of AGM customers adopting our term license offering.
Turning to SSC.
We're pleased with its underlying performance in fiscal 'twenty, three and a future growth opportunity for the suite.
<unk> is benefiting from increased investment in traditional upstream capex.
A number of opportunities to support our customers' sustainability efforts in areas, such as carbon capture and sequestration and geothermal energy among others as well as the benefits of Aspen Tech's took any session model.
Having said that it is important to note that a significant portion of Fmc's outperformance in fiscal 'twenty three was due to the positive impact of our transformation synergies that was onetime in nature.
As customers renewed or signed new agreements that align with heritage that's been Texas standard contractual terms and conditions.
SSE contract duration at the time of the Emerson transaction was approximately one year, which means we have renewed almost all of its existing contracts and largely pass through the impact of these transformation initiatives.
There remains an important transformation synergy MB SSC business, which is a conversion of a large base of legacy perpetual SMS ACB two term software ACB.
Which will begin to convert in fiscal 'twenty four by leveraging the SSC token suite.
We expect these to materialize over a multiyear period.
Overall.
It's one five points of expected ACB growth contribution equates to a mid teens SSC ACB growth rate, which compares favorably for expectations for this business when we announced the Emerson transaction.
With that I would now like to turn the call over to Chantelle before I return for closing remarks Chantelle.
Thank you Antonio I will now review our financials for the fourth quarter and for the full year of our fiscal 2023 on slide.
Before I begin I'd like to highlight that our earnings presentation includes explanations regarding the impact of ASC topic 606 on our financial results.
We have also included definitions of annual contract value or ACD and bookings in our earnings presentation now available on our IR website.
Investors are referred to these definitions together with today's call.
And then Tony discussed annual contract value was $884 $9 million at the end of fiscal 'twenty three of 11, 8% year over year and three 5% quarter over quarter. This was at the high end of our outlook for fiscal 'twenty, three reflecting our portfolio expansion solid growth across our product suites.
And resilient demand in most end markets.
Our attrition was five 9% in fiscal 'twenty, three beating our guidance of 7% to 8% mainly due to benefits from transformation efforts in SSD and secondarily focused customer success efforts on EPC customers to mitigate reduction in expense.
Annual spend for heritage Aspen Tech was approximately $739 million at the end of fiscal 'twenty, three increasing eight 5% year over year, and two 7% quarter over quarter. Please.
Please note that we will not be disclosing annual spend for heritage Aspen Tech going forward now that we have finished this fiscal year.
Total bookings were $380 million in the fourth quarter and $1.08 billion in fiscal 2023 above the high end of our guide.
As a reminder, bookings are impacted by the timing of renewals.
Total revenue was $326 million for the fourth quarter and $1 $4 billion for fiscal 2023 within our guidance range.
As a reminder, revenue is in our model is heavily impacted by contract.
And variability under ASC topic 606.
Now turning to profitability.
On a GAAP basis operating income was $6 million, while net income was $27 3 million or 42 cents per share in Q4.
Fiscal 'twenty three operating loss was $193 $1 million and net loss was $178 million or $1 67 per share.
On a non-GAAP basis operating income was $148 9 million in Q4, representing a 46, 4% non-GAAP operating margin.
For fiscal 'twenty, three non-GAAP operating income was $394 8 million representing.
Representing a non-GAAP operating margin of 37, 8%.
Related to my comment on revenue on topic 606, the timing of customer renewals and the resulting impact on license revenue recognition in a given quarter also drive fluctuation in margins between periods.
This came in slightly higher than our guidance due to an increase in bad debt expense driven by one customer.
Net GAAP net non-GAAP net income was $138 2 million in the quarter or $2 13 per share for.
For fiscal 'twenty, three non-GAAP net income was $372 1 million or $5 72 per share.
Turning to the balance sheet.
Fiscal 'twenty, three with approximately $241 million of cash and cash equivalents and no debt.
In addition, we had $193 $1 million available dollars available on our revolving credit facility.
On cash flow, we generated $113 $6 million of cash from operations and $111 $5 million of free cash flow in Q4.
For fiscal 'twenty, three we generated $299 2 million in operating cash flow and $292 $3 million in free cash flow.
Was below our expectations due to lower collections.
As we have discussed in the past heritage Aspen Tech has a disproportionate amount of its receivables due on June 30 of this.
This year, we saw a greater portion of these invoices push out of the quarter as certain customers took longer to pay than they have historically.
We received a significant portion of these payments in July .
Belief this reflects certain customers being more cautious as they managed threat tighter working capital and cost of capital environment.
Tightening our collection processes and improving the rigor of our collections forecast across the entire business is a primary area of focus for us in fiscal 2024.
Before turning to guidance I would like to take a moment to discuss our capital allocation strategy, which we have outlined on slide 11.
I'll begin by providing an update on my mind.
Collaboration with potential micro mines majority owner, we have terminated our agreement to acquire micro mine.
David previously we had been waiting to secure final regulatory approval.
Landing approval needed west from the Russian government.
As its review process continues the timing and requirements necessary to secure the approval became increasingly unclear.
This lack of clarity on the potential for and timing of our successful regulatory review led us to this course of action.
We remain committed to acquisitions, including smaller technology tuck ins or larger more strategic targets as our primary use of capital.
We have built one of the world's leading industrial software businesses and we believe we are in a great position to deepen our product portfolio square, our core verticals through M&A.
In addition, we will opportunistically pursue acquisitions that provide us with leadership positions.
Physicians with the new markets that could further benefit from our deep technical capabilities in first principles approach.
Importantly, we have strengthened our internal M&A capabilities to execute on additional M&A as part of our strategic roadmap.
Would note as well that despite the decision to terminate the micra remind transaction the metals and mining industry remains an attractive market, particularly for our AGM MSC and APM suites.
We remain committed to expanding our footprint in this industry to organic and inorganic investments.
If we do not identify attractive and actionable M&A opportunities, we will pursue share repurchase authorizations, if market and business conditions warrant.
Sample in Q4, we announced a $100 million accelerated share repurchase program that we anticipate completing this quarter and today, we are announcing that our board of directors has approved a $300 million share repurchase authorization for fiscal year 'twenty four.
Once the ASR is complete our intention is to begin executing on this new authorization.
We maintain a robust financial profile with a strong balance sheet and healthy cash flows we consider these to be strategic assets and they allow us to deploy capital in ways that generate value for our customers employees. The communities, we serve and our shareholders.
Turning to slide 12, I would like to now close with guidance.
With prior fiscal years, we will continue to provide guidance on an annual basis.
As Antonio mentioned, we are targeting total ACB growth of at least 11, 5% year over year in fiscal 'twenty. Four this includes our expectations for attrition of approximately 5% with a higher concentration of attrition occurring in Q2 and Q3.
We expect total bookings of at least $1 $4 billion with $580 million up I think $8 million up for renewal in fiscal 'twenty, four and $80 million up for renewal in Q1.
We expect total revenue of at least $1.12 billion GAAP net loss at or better than $7 million and non-GAAP net income of at least $424 million. In addition, we expect GAAP net loss per share at or better than the 11 cents and non-GAAP net income per share of at least six.
51.
This includes the impact of our fiscal 'twenty three share repurchase program.
From a cash flow perspective.
Operating cash flow of at least $378 million.
And free cash flow of at least $360 million.
Please refer to our earnings release and presentation for a complete overview of our fiscal 'twenty guidance.
Our earnings presentation presents other important considerations for investors to think about in terms of modeling our business I would now like to provide some additional color on these points.
In general our business is typically weighted more towards the second half of the fiscal year.
For <unk>, we expect fiscal 2000 and for growth to have a similar cadence to what we delivered in fiscal 'twenty three.
Fiscal 'twenty four 'twenty three in terms of our net new ace to be added during the year Q1 is expected to be the lowest in Q4, the highest in terms of net new ACB added on.
On free cash flow the large majority of our free cash flow typically occurs in the second half of the year.
In fiscal 'twenty, four we expect at least 80% of free cash flow to occur in the second half of the year, which is largely consistent with last year's linearity.
We anticipate free cash flow in the second half to be fairly evenly split between Q3 and Q4.
Please note that Q1 is typically our lowest free cash flow quarter, and we expect that to be true again. This year, our guidance assumes cash tax payments of approximately $125 million.
With respect to revenue as noted earlier timing is more variable due to the impact of 606, however, renewals, which heavily impact license revenue are generally more weighted to the second half of the year with Q1 renewals at the lowest in Q4 renewals at the highest.
Based on current expectations, we anticipate that our revenue linearity will be broadly similar to fiscal 2023.
We will continue to disclose the amount of bookings up for renewal each quarter.
Let me wrap up by saying that we are proud of what we have accomplished in fiscal 2023, I am confident in our team and our ability to capitalize on both existing and emerging growth opportunities going forward.
That I will turn it back to Antonio for his closing remarks Antonio great.
Great.
Thanks Chantelle we'll.
We'll be opening up the call for Q&A momentarily.
But before we do that I want to reiterate the key takeaways from this call and fiscal 'twenty three more.
First we delivered a solid year in fiscal 'twenty, three delivering double digit ACB growth and laying the foundation for the expansion of ACB growth and free cash flow margins in the coming years.
Second we made great progress integrating OSI and FSC with heritage Aspen Tech and made a strong progress on our ambitious transformation roadmaps for both the OSI and SSD businesses.
I'm confident our efforts this year position us for success in fiscal 'twenty four and beyond.
Third sustainability is a sizable and growing tailwind across every area of our business. We are in a great position to capitalize on increased investment from customers in areas like energy transition and electrification for years to come.
As we look ahead, we expect to build on our leadership in sustainability is a key driver of our strategic priorities.
Finally, we enter fiscal 'twenty four with solid momentum, our cutting edge technology stack and long term vision for a solution that is very compelling to our customers.
A big component of my confidence in our ability to deliver on these outcomes is also the incredibly talented team we have at the helm of new Aspen Tech today.
We entered the year with the right people processes and products in place to take full advantage of the opportunity in front of us with that operator, we would now like to begin the Q&A. Please.
Thank you.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again, please standby, while we compile the Q&A roster. We 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 first question.
And our first question comes from Rob Oliver from Baird. Your line is now open.
Hi, Rob.
Hi, Antonio Chantel. Thank you guys for taking my question I appreciate it.
Two.
One.
Just to start can still probably the last time, we're going to be able to ask about it which is the heritage Aspen.
Chuck.
Importantly, under the guide, which I'm going to Miss you.
Antonio I appreciated your color around some of the moving parts within that.
And it looks like it's relatively flattish with this year.
Can you just give us a sense of what linear.
Linearity was in Q4 with your chemicals customers and I don't think has dropped off pretty dramatically. There. So when you say hey.
We're not expecting any change in the market is that sort of that low base you guys saw last quarter help us understand that and maybe some of the other moving parts within that I know you just had a quick follow up.
Well I mean look.
The fourth quarter was a solid quarter for <unk>.
Hot growth.
That supported the eventual outcome.
Got it.
Nonetheless.
As you said the growth or had in fiscal 23 was similar to fiscal 'twenty two around eight 5%.
That is a result of a combination of factors certainly chemicals and now that can be felt completely disappear budget, but probably from a growth standpoint contributed less than half of what it normally does.
There was a little bit of back and forth throughout the year.
In our Russia business and.
We had a quarter, where China, China was fully closed down as well.
Ultimately fiscal.
23 was an incredible year.
A huge amount of work that was accomplished in integration and transformation.
They have a leadership team to take on the integration and transformation of the OSI and SSD businesses.
And I have no doubt that.
A lot of their brand cycles, we're dedicated to that airport as opposed to the normal execution cadence.
We have in the company now that we're past that.
I am convinced that we're going to get back to that.
Execution cadence going forward, which is what encourages me about our guidance for fiscal 'twenty four.
In line with what we accomplish in fiscal 'twenty.
<unk> 23 at least what we did in fiscal 'twenty three.
Okay very helpful. Thank you Antonio appreciate it and then Chuck I'll, just just to quickly touch on some.
Some of the issues.
Around.
The acquired assets at the CND GM that surfaced last quarter.
It sounds like you guys are on capacity.
Fixing those.
I guess, particularly on SSE around contract durations in PJM, Ron Labor related issues can you just help us understand where we are relative to those as we enter FY 'twenty four thank you guys very much.
Thank you Rob I would say, we're exiting FY2023 with confidence that we fully understand the learnings and have incorporated those so we've taken the eggs.
At a 23 incorporate that into our 24 guys learning from SSD learning from DCM and OSI. So Rob we fully taken those learnings and incorporated that and we're confident that we have our hands around those in our 2000 and forgotten.
But I would also add to switch until.
Answer Rob is.
Look we're now entering 'twenty four with the.
<unk> leadership team.
Organization, the systems and the processes in place Thats, what we worked in 'twenty three.
<unk> four is about execution now.
What gives us a lot of confidence.
Thanks, guys.
And thank you.
And one moment our next question.
And our next question comes from Andrew <unk> from Bank of America. Your line is now open.
Yes. Good afternoon can you hear me.
Yes.
Hey, just historically you guys provided your guidance.
Within three percentage points, so the 11, 5%.
Am I correct to assume that that's sort of the low end of the guidance just wanted to make sure.
Versus the midpoint of the guide the way you would historically guide right.
That makes sense, what I'm asking.
Yes, you should assume that the 11, 5% is the floor.
For our performance in fiscal 'twenty through.
Fiscal 'twenty four gotcha.
That sounds good to me.
And then.
One.
Did you just.
We've heard from some of your competitors.
Utilities, just generally as you transition the license structure, they have to figure out how to incorporate it into.
Into their base rate.
Can you just talk about it.
It seems it's not right. It's not just an aspen insurance like other competitors have sort of highlighted that as well can you just talk to us where we are in terms of sort of industry acceptance.
You go as you go away from perpetual license.
Model.
Youtube is regulated utilities customers just give us a lot about more color how much work has been done what's the understanding level in the industry. It.
It sounds like you guys have downtime, but just maybe a little bit more color. Thank you.
Yes.
Andrew I believe one of the comments that we have on our prepared remarks is also pleasantly.
Pleasantly surprised we are about the early receptivity to our term licensing model by utility customers frankly.
We had that same belief that you just communicated.
At the beginning of the fiscal year end and leasing into the OSI team.
As we approach these customers with a term license in the benefits of it on EBIT.
Some preliminary conversations around the token suite.
We've seen we saw.
Seen them to be.
Very accommodating no doubt that they have to find ways to build that cost into the cost rate. They do both of those motions.
All of them do.
It has allowed us to do.
Do some term business or new pipeline.
But also we've been able to convert some pipeline that has been on a perpetual license basis keep term awesome business.
Orient.
The deal negotiations so so yes.
We understood that to be the case, but the fact is that our sales motion is proven to be otherwise in most cases no doubt there are some customers that prefer purpose well, but this is a transition on the progress we've made.
We're pleased with.
Oh, thanks for clarifying and thanks a lot.
And thank you.
And one moment our next question.
And our next question comes from Matthew Pfau from William Blair. Your line is now open.
Hi, Matthew.
No.
Hey, Thanks for taking my questions first I wanted to ask on acquisitions and thanks for an update on the capital allocation strategy, but specifically on acquisitions.
Does the pipeline look like there for larger transactions like the micro mind, one are there attractive ones that are out there and how soon would you be willing or feel that you are ready to pursue another transaction of similar size to micro mine.
Sure.
Yeah, I think that's all I can sorry, Matthew I think from our perspective, we definitely have a pipeline we have an active pipeline that we're always looking at as being part of our capital allocation strategy. There are targets out there that are of interest. Unfortunately, you can't always time.
When you would like to do it versus when they are available.
As I mentioned in my prepared remarks, where we're ready to do.
That activity when it presents itself with develop the internal M&A activities, we have the balance sheet to support it. So I think we're ready when we signed up but we remain disciplined.
As we've always discussed in the sense that we want to make sure. It is accretive for support double digit ACB growth at our best in class profitability.
Well Tyler when its available, but we're ready to still engage them.
Okay, Great and then just.
Wanted to follow up on comments around Russia business is there any.
As I left that is included in the fiscal 'twenty guidance and is there any risk around that part of the business.
Yes look our guidance of 11, five certainly accounts for chemicals accounts for.
Other.
Potential eventualities, but on Russia.
Due to the different challenges, we may face in that market, we decided to go to our renewals only mode. So that means that we're.
We're not going to be selling anything new into into Russia going forward.
We will be focusing on renewing the existing business.
And that's going to be our focus so our guidance already implies.
Implies.
We will not see any growth from from Russia.
And we've also taken a little bit of a conservative approach with respect to potential attrition in Russia, Although we expect to renew that business that is coming to us.
<unk>.
Four.
Being cautious and assume some level of attrition.
Russia as we try to renew some of that business. So so going forward Aspen Tech will only be renewing business, we will not be selling new.
New entitlement as erosion costumers.
Got it thanks, a lot I appreciate it thank.
Thank you and thank you.
And one moment our next question.
And our next question comes from Jason <unk> from Keybanc capital markets. Your line is now open.
Jason.
Great. Thanks, Hey, Tony outpatient Tal Thanks for fitting me in.
Not really really strong guide here with a double digit ACB guidance.
Thank you mentioned on Andrew's prior question that this was kind of a floor I.
I guess, how conservative do you think investors should view that this type of ACB outlook.
Well look.
If we gave you that guidance of $11 5 billion being the floor is because we are confident.
But that number.
If you look at.
The ACB growth in fiscal 'twenty, three and attrition.
11, 11, eight plus $5 nine thats about 77% of gross growth new growth in fiscal 'twenty three that's a very strong.
Outcome from our new growth new business generated in fiscal 'twenty three.
In fiscal 24, if you look at the guidance.
At least 11 five.
Tuition as five approximately five.
$16 five so so what you see in our guidance is the expectation.
Chemicals for the full year not contributed we had half of Europe strong contribution from chemicals since we spoke to them in that.
Chemicals will be subdued in the full year and <unk> 24 in there less Russia growth or no road show growth.
And so that's how we come up to today to the 11 five if you look at our guidance as well.
On the sweep on our first three phases.
If you look at.
Hi.
Deliver about eight point.
5% growth in fiscal 'twenty three.
Barton.
Ultimately close to double digit growth in fiscal 'twenty for <unk>.
Hi drew.
30% in fiscal 'twenty, three we're guiding to almost 40% growth for the <unk> suite.
<unk> said <unk> got 23, 30%, 40% in fiscal 'twenty four and SFC.
Grew by 33% in fiscal 'twenty, three and we're guiding to about $50 40, 15% growth in fiscal 'twenty four and this is this is solid growth across all suites that we're assuming.
We saw in Q4.
Solid contribution to growth from from PGM.
We're conservative in our Q3 outlook for for the AGM, considering that we're still learning around the dynamics of customers Moshus too.
Signed deals, but we're pleasantly surprised in Q4 with that outcome.
So overall look we feel good about the trajectory for had in fiscal 'twenty for the trajectory for the GM the prediction for SSC.
Going to have a greater focus on our execution and now it's about.
Really injecting more momentum into the business as we go forward.
Perfect I really appreciate that really in depth answer Antonio.
And then maybe just a quick follow up <unk> on the free cash flow for the year and for next year.
In the quarter you mentioned some timing differences just on invoicing that makes sense any way to quantify.
<unk> moved from Q4.
Sure.
Q1, yes, no I understand the question for sure Jason I would put it at basically the difference between the actual and the guide.
But I was curious.
In our guidance.
And will that continue.
Wanting to before has done well.
You can say the range to the actual date.
What I would say.
Okay perfect. Thank you.
Thank you Jason.
Thank you.
And one moment our next question.
And our next question comes from Clarke Jeffries from Piper Sandler Your line is now open.
Hello, Thank you for taking the question.
I really appreciate the disclosure on.
<unk> growth contributions, especially by industry Antonio maybe I would clarify something that you.
You briefly mentioned in a prior question, but when we think about HERA Aspen tech getting back to double digits.
Where would be the delta there was it chemicals was half the contribution that you would normally expect.
Any other callouts when we think about.
Industry contribution overall heritage.
Turning to that double digit level.
Yes, no look I think fundamentally.
Our energy industry refining.
It's been a strong contributor certainly.
That will be the case.
Engineering accelerated to almost eight 6% growth in fiscal 'twenty three by the way that's the fastest growth rate of our engineering business since fiscal 2014.
When when when we grew just over 10%. So we're really excited about the tail winds for the engineering business.
From sustainability investments.
I think that will continue in in fiscal 'twenty four we believe that MFC will continue to perform strongly there are some products.
And MSC that the performance we expected as a result of execution focus in fiscal 'twenty three that focus will come back I think that will give us a lift in the same markets of refining.
Have you been upstream that is taken out.
More of those technologies and APM sort of similar contribution so.
But well.
Look I think MSC will be will be about focus and execution in fiscal 'twenty four.
Perfect and then a follow up <unk>.
One thing that stands out to me is the bookings number for next year.
Just wondering if there were any early renewals anything that contributed to bookings this year being above the high end of the guide that you had for last quarter full year bookings any other mechanics that would lead to the bookings number being down year over year for fiscal 'twenty four.
Yeah, I think that on the <unk>.
Some of the prepared remarks, you've heard.
The bookings for this year would be.
The achievement of the term length for Hertz I think as we look at what we did.
<unk> I don't think there's anything mechanical I think it's just the mix of business and timing of the renewals of the key factor. So I would put it on more of the timing of the renewals than anything more specific than that.
Alright, perfect. Thank you very much.
And sorry, just one more thing for everyone. If you look at the presentation.
The slide deck that we posted if you look at our slide 16 that has all the the ACB dollars by suite over the last three years, which will allow you to calculate the growth rate.
For fiscal 'twenty, three and instead of having to remember what I said.
And thank you.
And one moment for our next question.
And our next question comes from Josh Tilton from Wolfe Research. Your line is now open.
Hey, Josh.
Hey, guys. Thanks for taking my questions can you hear me now.
Yes.
The first.
The first question that I wanted to ask you kind of revisiting. The question on that I think was sort of asked about.
But a few questions ago, but given this is the last time, where we're going to I guess talk to or disclose the heritage business.
You're guiding to kind of like a mid single digit growth for next year.
Step back and you just know.
Really look at that business like how should investors view the growth profile of what is core heritage Africa and over the next three years like this remain a mid single digit grower. This is going to accelerate decelerate like how do you guys spoke about the growth profile of.
This business over the next few years.
Well, let me look at first of all.
I need to seven 5% and I guess that would be.
The high end of mid single digits.
But.
For us to get to our.
The growth rate.
We believe this business can operate at.
The business will be a double digit growth business, that's our expectation.
We are revisiting our expectations around the engineering business from being sort of.
High mid single digit business too high high single to double digit I think our MSC business.
Yes.
Soft spot if you will this year.
That will recover.
And.
And we continue to have expectations about the NIM suite. This is why we made that tuck in acquisition that we just announced so so overall our expectation is.
Or has to be a double digit grower now what I would tell you is this is an ACB ACB basis.
In the past as being an annual spend so there's a little bit of a.
A step down because of the higher base in <unk>.
But.
Overall, our expectations have been changed for that suite.
Okay. It makes sense and then maybe just.
Just a quick follow up for me is I think you guys. During the Q&A. So that you look at to the current guidance is sort of a floor.
If we were to look at the heritage business or some of these newer assets from Emerson.
12 months from now you guys beat the guide where would we expect where do you where are you most competent to see the upside come from is it from the heritage business or some of these newer assets.
Yeah.
Let me look at I think chemicals plays a big role in the outcome for hot.
We listen to the commentary.
From chemicals company Ceos.
Expect chemicals to be submitted through the end of this calendar year. There are not saying anything about next year, but we've assume is more of the same to be conservative on our guide.
If things change that could provide some upside.
Look I'm, a big believer in our MSC business, we're fully focused on executing on that business.
Our engineering business has shown strong resilience, but.
<unk>.
I think.
DTA, we are gaining momentum in that business as well.
If I look at sustainability could be the big surprise.
Well here and the peak benefit on sustainability has come into the suite.
Electrification is what drives the PGM and we're building the pipeline there so so.
Sort of giving you an answer for everything but I just think that.
Theres, just a lot of opportunity out there.
It'll be just a matter of execution. So so we'll see what outperformed but 11 five years of law.
Thank you guys so much.
Thank you and thank you.
And if you have a question well if you'd like to ask the question that is star one again, if you'd like to ask a question that is star one one and bear with me for our next question.
And our next question comes from Mark Scheffel from Loop capital markets. Your line is now open.
Hey, Mark.
Hi, Thanks for taking my question.
And Tony this quarter's remarks around strategic emphasis were much more positive than last quarter. When you ran into some project milestone issues and have some longer sales cycles that you spoke of I was wondering if you just review once again some of the changes in that business over the last quarter.
That youre seeing.
I look at it.
I think if we need to talk about the cadence of that.
Full fiscal year.
There was an incredible amount of work going on in Q1, and Q2 to lay the foundation put in place the teams the processes the systems.
Our push into the market.
SSE in PGM.
With term software or term license fee for the software.
Yeah.
As we got into the services business. There are some things that we found there.
And in a way.
Yeah.
A lot of things came to a head in Q3.
We learned a lot.
I don't think Q3 quarter.
I would also argue that those learnings were quickly applied early in Q4.
Its was produce what I think was much cleaner execution in Q4.
There was very little learning that happening in Q4, it was more about applying what we learned from from the previous three quarters.
And then IP in that.
We generated momentum, which is whats propelling us into into fiscal 2024. So I think it's just.
It's just.
How the year low than they.
Activities that were happening in the assumptions. We made is that of all came together in the Q3 quarter, but we quickly pivoted and I'm very proud about the job that the team did.
Coming out of that.
At quarter, two to really refocus.
Our execution and therefore, you have what I think is a tremendous Q4 outcome.
Great. Thank you and then as a.
Follow up.
With respect to micro mine and the termination of that deal.
To be relevant in the metals and mining industry do you believe that.
We need to do another transaction in that sector.
Well look I've always said that.
If we want if we want to sort of grow and be relevant in an industry, we need to have an encore encore.
Asset, meaning by something that gives us a very critical mass.
And therefore the answer the answer is yes, I still believe that in any industry that we decided to go into the golar has to be to buy a noncore and anchor tenant if you will.
Great. Thank you that's all for me.
Thank you.
Thank you and I'm showing no further questions I would now like to turn the call back over to Antonio Pietri CEO for closing remarks.
Yes look I want to thank everyone for joining us on the call today again just to reiterate.
The takeaways look we built the foundation for the next stage of growth for the company and I Hope.
That's clear.
We're entering fiscal 'twenty four with momentum.
We believe that the guidance that we've provided supports that.
We continue to see strong demand around our mission critical solutions.
<unk> and <unk>.
We see emerging opportunities and sustainability, especially for our engineering business. So all of this we believe is creating a very exciting outlook on environment for the new Aspen Tech.
And.
Our job is now to execute in fiscal 'twenty for thank you everyone.
This concludes today's conference call. Thank you for participating and you may now disconnect.
Okay.
[music].