Q4 2024 Aspen Technology Inc Earnings Call
Operator: Good day. Thank you for standing by. Welcome to the Aspen Tech Support Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automatic message advising that your hand is raised. Please note that the conference is being recorded. I will now hand the conference over to your speaker host, Brian Denyeau. Please go ahead.
Good day, Thank you for standing by welcome to Aspen Tech's fourth quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session. Just a question during the session you will need to watch.
One one on your telephone you will then hear an automatic message advising yohan it's Ralph.
Please note that on this call.
Participating recorded.
The conference is all about your Speaker House, Brian Daniel Please go ahead.
Brian Denyeau: Thank you, Olivia. Good afternoon, everyone, and thank you for joining us to discuss our financial results for the fourth quarter of fiscal 2024, ending June 30th, 2024. With me on the call today are Antonio Pietri, Aspen Tech's President and CEO, and Dave Baker, Aspen Tech CFO. Please note that we have posted an earnings presentation on the IR website. This includes an explanation regarding the impact of ASC Topic 606 on our financial results. It also includes definitions of annual contract value, or ACV, bookings, and free cash flow, among other metrics.
Brian Daniel: Thank you Olivia good afternoon, everyone and thank you for joining us to discuss our financial results for the fourth quarter of fiscal 2024, ending June 32024.
Speaker Change: With me on the call today are Antonio Pietri, Aspen, Tech's, President and CEO and Dave Baker Aspen Tech CFO.
Speaker Change: Please note we have posted an earnings presentation on the IR website.
Speaker Change: Clifton explanation regarding the impact of ASC topic 606 on our financial results.
Speaker Change: Also includes definitions of annual contract value or ACB.
Speaker Change: <unk> and free cash flow among other metrics, we have set as an investor to refer to this presentation in conjunction with today's call.
Brian Denyeau: We ask that investors refer to this presentation in conjunction with today's call. Starting on slide two, I'd like to take this opportunity to remind you that our remarks today will include four looking-thin... Actual results might differ materially from those contemplated by these four looking-thin... Factors that can cause these results to be different materially are set forth in today's press release and in our annual report on Form 10-K and other subsequent filings made with the SEC.
Speaker Change: On slide two I'd 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.
Speaker Change: Back to the exercise of these results to differ materially are set forth in today's press release.
Speaker Change: Annual report on Form 10-K, and other subsequent filings made with the SEC.
Brian Denyeau: Any forward-looking statements that 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 gap to non-gap measures is included in today's earnings release and investor presentation, both of which are available on our Investor Relations website. With that, let me turn the call over to Antonio. Antonio?
Speaker Change: 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.
Speaker Change: During this presentation, we present, both GAAP and certain non-GAAP financial measures.
Speaker Change: Reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, and Investor presentation, both of which are available on our Investor Relations website.
Speaker Change: Let me turn the call over to Antonio Antonio.
Antonio Pietri: Thanks, Brian, and welcome to everyone joining us today. Aspen Tech delivered a strong fourth quarter to finish fiscal 2024. We achieved this result on the strength of our innovation and focused execution on a solid pipeline of business, despite the persistence of a dynamic microenvironment and cautious customer spending in some of our end markets. We were also pleased to see the benefits of our efficiency and productivity initiatives in the second half of fiscal 2024 come to fruition, delivering a favorable expense outcome for the full fiscal year.
Antonio Pietri: Thanks, Brian and welcome to everyone joining us today.
Antonio Pietri: Aspen Tech delivered a strong fourth quarter to finish fiscal 2024.
Antonio Pietri: We achieved these results on the strength of our innovation and focused execution on our solid pipeline of business. Despite the persistence of a dynamic macro environment and cautious customer spending in some of our end markets.
Antonio Pietri: We were also pleased to see the benefits of our efficiency and productivity initiatives in the second half of fiscal 2024 come to fruition.
Antonio Pietri: The labor delivering favorable expense outcome for the full fiscal year.
Antonio Pietri: Our Q4 performance is a demonstration of what's possible as a result of our efforts over the past two years to integrate the heritage Aspen Tech, DGM, and SSE businesses while also transforming the DGM and SSE businesses. We believe these efforts are now largely completed, which, coupled with our broad portfolio of mission-critical products, positions Aspen Tech well to execute and deliver on an attractive combination of ACV growth and best-in-class profitability going Additionally... We continue to make good progress in our commercial relationship with Emerson, and we expect these efforts to lead to further benefits in fiscal 2025 and beyond.
Antonio Pietri: Our Q4 performance is a demonstration of what's possible as a result of our airports over the past two years to integrate the heritage has been tech D. G M and FSC businesses, while also transforming the D G M and SSD businesses.
Antonio Pietri: We believe these efforts are now largely completed which coupled with our broad portfolio of mission critical products position, Aspen tech well to execute and deliver on an attractive combination of ACB growth and best in class profitability going forward.
Antonio Pietri: Additionally.
Antonio Pietri: We continue to make good progress in our commercial relationship with Emerson and we expect these efforts to lead to further benefits in fiscal 2025 and beyond.
Antonio Pietri: Turning to slide three for our Q4 and fiscal 2024 results, ACV was $968 million in the fourth quarter, representing 9.4% year-over-year growth and 3.5% sequential growth. Free cash flow was $335 million in fiscal 2024, slightly below our guidance, and $153 million in the fourth quarter.
Antonio Pietri: Turning to slide three.
Antonio Pietri: For our Q4 and fiscal 'twenty 'twenty four results.
Speaker Change: <unk> was $968 million in the fourth quarter, representing nine 4% year over year growth and three 5% sequential growth.
Antonio Pietri: Free cash flow was $335 million in fiscal 2024.
Antonio Pietri: Slightly below our guidance and $153 million in the fourth quarter.
Antonio Pietri: I would also like to provide an update on our exit from Russia, announced earlier today. We are exiting Russia following the U.S. government's recent announcement of expanded sanctions in the country, prohibiting, among other actions, the sale, service, maintenance, and support of enterprise management software and design and manufacturing software in the Russian market. As a result of these measures and our exit from the Russian market, we have written off certain assets that are related to our operations in the country.
Antonio Pietri: I would also like to provide an update on our exit from Russia and.
Antonio Pietri: Announced earlier today.
Antonio Pietri: We're exiting Russia following the U S. Government's recent announcement of expanded sanctions in the country prohibiting among other actions the sale service maintenance or support of enterprise management software and design and manufacturing software in the Russian market.
Antonio Pietri: As a result of these measures and our exit from the Russian market. We have written off certain assets that are related to our operations in the country.
Antonio Pietri: From an ACV perspective, we have written off all of our Russia ACVs, for a reduction of approximately $35 million in our total ACV balance as of the end of fiscal 2024. Our new ACV balance is $933 million after adjusting to reflect the impact of this reduction.
Antonio Pietri: From an ACD perspective, we have written off all Russia ACB.
Antonio Pietri: For a reduction of approximately $35 million and our total ACB balance as of the end of fiscal 2024.
Antonio Pietri: Our new ACB balance is $933 million after adjusting to reflect the impact of this reduction.
Antonio Pietri: We have included tables in the appendix of our earnings presentations to help bridge these numbers for investors. Dave will address the other related areas in his remarks. As you will recall, we moved to renewals only in Russia in fiscal 2024.
Antonio Pietri: We have included tables in the appendix of our earnings presentations to help bridge this numbers for investors.
Antonio Pietri: Dave will address the other related areas in his remarks.
Dave Baker: As you will remember we moved to renewals only in Russia in fiscal 2020 for the <unk>.
Antonio Pietri: The contribution from this business in fiscal 2023 made it apparent that it was no longer going to be material, and it was no longer going to be material to our overall growth profile, resulting from the continued expansion of sanctions on the country. When removing all Rocha ACV from our results, our fiscal 2023 growth rate improved 60 basis points from 11.8% to 12.4% year-over-year, while our fiscal 2024 growth rate also improved 60 basis points from 9.4% to 10% year-over-year. Relatedly, attrition in fiscal 2024 was 5.6% when including Russia ACB, compared to 4.7% in the same period when removing Russia ACB.
Dave Baker: <unk> from this business in fiscal 2023 made it apparent that he was no longer going to be a material was no longer going to be material to our overall growth profile, resulting from the continued expansion of sanctions on the country.
Antonio Pietri: When removing all Russia ACB from our results our fiscal 2023 growth rate improved 60 basis points 60 basis points from 11, 8% to 12 four.
Antonio Pietri: <unk> percent year over year, while our fiscal 2024 growth rate also improved 60 basis points from nine 4% to 10% year over year.
Antonio Pietri: Relatedly attrition in fiscal 2024 was five 6% when including Russia, ACB compared to four 7% in the same period, when removing Russia ACB.
Antonio Pietri: Now, returning to our results, I would like to emphasize the following regarding our Q4 and fiscal 2024 outcome. First, as I mentioned at the start, our performance in Q4 demonstrates the benefit of our transformation and integration efforts to bring together heritage Aspen Tech, BGM, and SSC and investments made over the past two years. The outcome achieved was execution-driven, leveraging the platform built.
Antonio Pietri: Now returning to our results I would like to emphasize the following regarding our Q4 and fiscal 2024 outcomes.
Antonio Pietri: As I mentioned at the start.
Antonio Pietri: Our performance in Q4 demonstrates the benefit of our transformation and integration efforts to bring together heritage has pantex D. G M and SFC and investments made over the past two years.
Antonio Pietri: The outcome of Chico's execution, driven leveraging the platform built.
Antonio Pietri: We're also pleased to see the initial benefits from the sales expansion efforts made across the portfolio as we continue to advance and mature our business in this area. Second, our innovation remains highly relevant and mission-critical to customers in asset-intensive industries. Throughout Fiscal 2024, we worked collaboratively with many leading players across our end markets to advance our product offerings and develop new solutions. By working alongside our customers and remaining focused on accelerating their operational excellence, we continue to be a key strategic partner, helping them to meet their efficiency and sustainability goals while navigating a dynamic microenvironment. Third and final, we remain committed to driving increased efficiency and productivity across the organization. With this focus, we have delivered lower expenses in the second half of fiscal 2024 relative to the first half of fiscal 2024.
Antonio Pietri: We were also pleased to see the initial benefits from the sales expansion efforts made across our portfolio as we continue to advance and mature our business in these areas.
Antonio Pietri: Second our innovation remains highly relevant and mission critical to customers in asset intensive industries.
Antonio Pietri: Throughout fiscal 2024, we worked collaboratively with many leading players across our end markets to advance our product offerings and develop new solutions.
Antonio Pietri: By working alongside our customers and remaining focused on accelerating their operational excellence, we continue to be a key strategic partner partner, helping them to meet their efficiency and sustainability goals, while navigating a dynamic macro environment.
Antonio Pietri: Third and finally, we remain committed to driving increased efficiency and productivity across the organization with this focus we have the labor lower expenses in the second half of fiscal 2024 relative to the first half of fiscal 2000 22020 Force looking ahead, we're confident in our ability to maintain expense.
Antonio Pietri: Looking ahead, we're confident in our ability to maintain expenses at current levels. We'll also continue to invest in strategic growth areas, including our DGM business. Turning to slide four, I will now provide an update on our suite's performances in Q4 and fiscal 2024. Please note that all ACB growth figures referenced for SWITS will be based on our 9.4% year-over-year growth rate in fiscal 2024, which does not reflect the impact of the write-off related to the suspension of commercial activities in Russia.
Antonio Pietri: At current levels. We will also continue to invest in our strategic growth areas, including our <unk> business.
Antonio Pietri: Turning to slide four I will now provide an update on our suites performances in Q4 and fiscal 2024.
Antonio Pietri: Please note that all ACB growth figures of reference for suites will be based on our nine 4% year over year growth rate in fiscal 2024.
Antonio Pietri: Which does not reflect the impact of the write off related to the suspension of commercial activities in Russia.
Antonio Pietri: The Digital Grid Management Suite, or DGM, grew by approximately 40% in fiscal 2024 to contribute 2.5 points of growth in line with our expectations. This outcome is a testament to the strength of our DGM suite and products and the early benefits from building out DGM's go-to-market capabilities to date. It also underscores how we remain well-positioned to be a prime beneficiary of the substantial Cape Capex tailwinds to modernize, expand, and cybersecure grids around the world.
Antonio Pietri: The digital grid management suite or <unk> grew by approximately 40% in fiscal 2024 to contribute two five points of growth in line with our expectation.
Antonio Pietri: This outcome is a testament to the strength of our <unk> suite of products and the early benefits from building out the Gms go to market capabilities to date.
Antonio Pietri: It also underscores how we remained well positioned to be a prime beneficiary of their substantial capex.
Antonio Pietri: Capex tailwind to modernize and expand and cyber secure grids around the world.
Antonio Pietri: Power outages such as those recently experienced by the city of Houston due to Hurricane Beryl highlight the need to create a more resilient grid in the face of more frequent and impactful weather events, including the capability to recover faster from them.
Antonio Pietri: Power outages, such as those recently experienced by the city of Houston due to hurricane barrel highlight the need to create a more resilient grid in the face of more frequent and impactful weather events, including the capability to recover faster from them.
Antonio Pietri: These are the use cases that the recently launched Aspen Tech OSI Outreach Management System was developed for and is now being deployed by utilities in North America. We also saw good momentum with utilities outside of North America as part of our Q4 success. In Europe, we signed our largest term software deal ever for the region to upgrade a national grid operator's existing SCADA and EMS solution while displacing a competitor. This utility was in the market for a solution that is modern, adaptable, and most importantly, capable of helping it to ensure reliable real-time operations in the face of rapid renewables growth. In South America, we completed a significant term license deal with a long-standing customer that is also one of the region's largest transmission utilities.
Antonio Pietri: These are the use cases that are recently launched Aspen Tech OSI outage management system was developed for and is now being deployed by utilities in North America.
Antonio Pietri: We also saw good momentum with utilities outside of North America as part of our Q4 success.
Antonio Pietri: In Europe, we signed our largest term software deal ever for the region to upgrade our national grid operators existing escape and EMS solution, while displacing a competitor.
Antonio Pietri: Utility was in the market for a solution that is modern adaptable and most importantly capable of helping them to ensure reliable real time operations in the face of rapid renewables growth.
Antonio Pietri: In South America, we completed a significant term license deal with a longstanding customer that is also one of the region's largest transmission utilities with.
Antonio Pietri: With networks across multiple countries that continue to grow in complexity, this customer highly values our grid management capabilities and trusts our ability to help them navigate an evolving landscape after more than a decade of working together. These are just a few of the successes we saw with DGM in international markets in Q4. As a core driver of this switch growth, we're excited to build upon our successes globally going forward. The Subsurface Science and Engineering Suite, or SSE, contributed one point of growth in fiscal 2024, in line with our expectations.
Antonio Pietri: With networks across multiple countries that continue to grow in complexity. This customer highly values, our grid management capabilities and trust our ability to help them navigate an evolving landscape.
Antonio Pietri: After more than a decade of working together.
Antonio Pietri: These are just a few of the successes we saw with <unk> in international markets in Q4 as a core driver of these suites growth. We're excited to build upon our successes globally going forward.
Antonio Pietri: The subsurface science and engineering suite or SSC contributed one point of growth in fiscal 2024 in line with our expectations.
Antonio Pietri: SSE had a strong Q4, as it benefited from solid execution as well as customers' positive reception of the tokenization of our SSE product. We continue to see solid demand across the upstream market. During the quarter, for example, we further expanded our business with a national oil company in Asia for our advanced petrophysical analysis capabilities in areas such as formation evaluation and reservoir characterization, while also converting them from their perpetual licensing arrangement to term software and token.
Antonio Pietri: <unk> had a strong Q4 as it benefited from solid execution as well as customers positive reception to that organization of our SSD products.
Antonio Pietri: We continue to see solid demand solid demand across the upstream market. During the quarter. For example, we further expanded our business with a national oil company in Asia for our for our advanced Petro physical analysis capabilities in areas, such as the formation evaluation and reservoir characterization.
Antonio Pietri: While also converting them from their perpetual licensing arrangement to term software and tokens.
Antonio Pietri: This customer now has access to the full set of product capabilities in the SSC suite, which we expect will lead to use of other products, resulting in increased usage and spend with Aspen Tech. Turning to slide five, our Heritage Adjustment Tech Suite contributed six points of growth in fiscal 2024, outperforming our expectations for 5.5 points of growth. The engineering suite represented 3.4 points of this total growth. Consistent with SSE, customer interest in our offerings remains solid in the upstream market.
Antonio Pietri: This customer now has access to the full set of product capabilities in the SFC suite, which we expect will lead to use of other products, resulting in increased usage and spend with Aspen Tech.
Speaker Change: Turning to slide five our heritage <unk> suites contributed six points of growth in fiscal 2024, outperforming our expectations for five five points of growth.
Antonio Pietri: The engineering suite represented three four points of the total growth.
Speaker Change: System with SSC customer interest in our offerings remained solid in the upstream market. For example, we continue to expand our relationship with an upstream gas producer in Latin America that is leveraging our engineering suite capabilities to increase production from the gas fields by Debottlenecking and.
Antonio Pietri: For example, we continue to expand our relationship with an upstream gas producer in Latin America that is leveraging our engineering capabilities to increase production from their gas fields by bottlenecking and optimizing their gas processing facility. This equates to hundreds of millions of dollars in capex savings, resulting in one of the most important ongoing value creation use cases in our customer base. EPCs, in particular, are benefiting from growing backlogs driven by CAPEX strength in traditional energy and sustainability.
Speaker Change: I assume they're gas processing facilities.
Antonio Pietri: This equates to hundreds of millions of dollars in Capex savings, resulting in one of the most important ongoing value creation use cases in our customer base.
Antonio Pietri: EPC is in particular are benefiting from growing backlogs driven by capex trends in traditional energy and sustainability.
Antonio Pietri: In Q4, for example, we won a large seven-figure deal with a longstanding EPC customer. By expanding access to the engineering suite, this customer can now further optimize their engineering man-hour costs, streamline their facilities design processes, and provide their customers with even more highly relevant asset design options, thereby improving their overall bidding prospects. We also secured important sustainability-related wins in Q4, even as growth in this area moderated relative to the first half of the year.
Antonio Pietri: In Q4 for example, we won a large seven figure deal with a longstanding EPC customer.
Speaker Change: By expanding access to the engineering suite. This customer can now further optimize our engineering manpower costs streamline their facilities design processes and provide our customers with even more highly relevant asset design options, thereby improving their overall bidding prospects success.
Antonio Pietri: <unk>.
Antonio Pietri: We also signed important sustainability related wins in Q4.
Speaker Change: <unk> growth in this area are moderated relative to the first half of the year.
Antonio Pietri: As an example, we expanded our business with a leading sustainable aviation fuel company that is using our engineering suite to meet its operational performance objectives while scaling up. We're excited about the opportunity to continue partnering with this company going forward as it continues to grow and explore additional Aspen Tech offerings. The Manufacturing and Supply Chain Suite, or MSC, contributed the other 2.6 points of hat growth in fiscal 2024. Customers continue to see our MSC suite capabilities as essential to improving operational and financial performance and achieving their sustainability goals.
Antonio Pietri: As an example, we expanded our business with a leading sustainable aviation fuel company that is using our engineering suite to meet its operational performance objectives, while scaling up.
Antonio Pietri: We're excited about the opportunity to continue partnering with this company going forward as it continues to grow and explore additional Aspen tech offerings.
Antonio Pietri: The manufacturing and supply chain suite or MSC contributed the other two six points of had growth in fiscal 2024.
Antonio Pietri: Customers continue to see our MSC suite capabilities as essential to improving operational and financial performance and achieving their sustainability goals.
Antonio Pietri: As a result, we saw solid uptake across MSC in the second half of fiscal 2024, and especially in Q4, despite this suite experiencing the most pronounced impact from the extended downturn in chemistry. We were excited to have received lots of positive feedback from customers about the event. As we drive further innovation around industrial AI, we believe that it will continue to serve as an important contributor to our growth. Turning to slide seven, I would now like to close with guidance.
Antonio Pietri: As a result, we saw solid uptake across MSC in the second half of fiscal 2024, and especially in Q4. Despite this suite experiencing the most pronounced impact from the extended downturn in chemicals.
Antonio Pietri: In Q4, we won several deals for our new Aspen unified planning and scheduling solution and leading multi unit optimization product G dot.
Antonio Pietri: The ACB for Aspen pit.
Antonio Pietri: As a validation of our strategy collaboration we saw meaningful ACB growth contribution from these market segments in the Q4 quarter, which mitigated attrition experienced from customers in markets, where we no longer focus on.
Antonio Pietri: We're in the early stages of our new strategy and plan for some moderate sales head count investment focused on APM sales in the market segments targeted going forward.
Antonio Pietri: On slide six I would now like to provide an update on our innovation.
Antonio Pietri: As I highlighted on our last call we held a successful optimize user conference in early May.
Antonio Pietri: With a robust turn out optimized 24 was an excellent forum to reconnect with our users align on shared visions of the future and drive further collaboration and co innovation opportunities.
Antonio Pietri: We were excited to have received lots of positive feedback from customers about the event our strategy and the Aspen Tech mission, leading to additional engagement opportunities in the quarter and adding to our existing pipeline of business.
Antonio Pietri: After optimized we continue to engage with customers around industrial AI, which is how we refer to our unique blend of artificial intelligence domain expertise and first principles based innovation.
Antonio Pietri: With a well established track record in the field, we're seeing an acceleration of interest from customers around our ability to deliver tangible value to our approach.
Antonio Pietri: This is based on a total ACB balance of $933 million as of the end of fiscal 2024, which reflects the removal of all Russia's ACB. For free cash flow, we expect approximately $340 million in fiscal 2025. I would note that we expect underlying free cash flow growth in fiscal 2025 to be meaningfully stronger than our guidance indicates due to several one-time factors that Dave will address in a moment. Finally, we aim to deliver flat expenses year over year.
Speaker Change: Both from the GM and approximately one point of growth from SSE.
Antonio Pietri: We also expect attrition to be approximately four 5% in fiscal 2025.
Antonio Pietri: Which improved on our ex Russia attrition rate of four 7% in fiscal 2024.
Antonio Pietri: This guidance reflects the following micro assumptions first we expect end market demand trends to remain largely similar to what we saw in the second half of fiscal 2024.
Antonio Pietri: This includes continuing strength with utilities and energy.
Antonio Pietri: Muted growth in chemicals, and a more moderate sustainability capex environment.
Antonio Pietri: Second we expect the macro environment in fiscal 2025 to remain dynamic.
Antonio Pietri: This includes expectations for the continuation of cautious customer spending in the face of an uncertain economic environment.
Antonio Pietri: For free cash flow, we expect approximately $340 million in fiscal 2025.
Antonio Pietri: I would note that we expect underlying free cash flow growth in fiscal 2025 to be meaningfully stronger than our guidance indicates due to several onetime factors that Dave will address in a moment.
Antonio Pietri: Finally.
Antonio Pietri: As I touched on at the beginning, we established solid traction in this area in the second half of fiscal 2024, and this fiscal 2025 expense plan further emphasizes our commitment to leading a best-in-class profitability business. Today, we announced a workforce reduction of approximately 5% in the first quarter of fiscal 2025, including actions related to our Russia operations. These types of decisions are never easy to make.
David Baker: Thank you, Antonio, and hello, everyone. It is a pleasure to join my first call with Aspen Tech. I'd like to start by thanking Chris Stagno for his excellent work in serving as the interim CFO role and working with the team to deliver a strong finish to our fiscal 2024. I'm excited to join such a talented team and to partner with Antonio, Chris, our finance leaders, and the broader executive team to continue to drive value and focused execution for Aspen.
Dave Baker: I look forward to speaking with many of you in the days ahead.
Dave Baker: Turning to slide eight to review, our Q4 and fiscal 2024 results.
Dave Baker: We grew ACB nine 4% year over year in fiscal 2024.
Dave Baker: And three 5% quarter over quarter in Q4.
David Baker: This outcome was 40 basis points above our guidance for fiscal 2024 as we benefited from strong execution on a solid pipeline of business to close out the year. Total bookings were $416 million in Q4 and $1.16 billion in fiscal 2020, while revenue was $343 million in Q4 and $1.13 billion in fiscal 2020, representing a 50.6% non-GAAP operating margin. For fiscal 2024, we reported non-GAAP operating income of $456 million, representing a non-GAAP operating margin of 40.5%, compared to $138 million, or $2.13 per share, a year ago. Now, turning to our ballot sheet.
Antonio Pietri: This outcome was 40 basis points above our guidance for fiscal 2024, as we benefited from strong execution on our solid pipeline of business to close out the year.
Antonio Pietri: Total bookings were $416 million in Q4, and $1 $6 billion in fiscal 2024.
Antonio Pietri: While revenue was $343 million in Q4, and $1 one $3 billion in fiscal 2020.
Antonio Pietri: Please note that our revenue is recognized under ASC topic, 606, and bookings and revenue are heavily impacted by contract renewal timing.
Antonio Pietri: Also under the ASC topic 606, the impact of additional sanctions on Russia resulted in a modification of all existing contracts with customers in the country.
Antonio Pietri: For a net reduction of $5 5 million in Q4 revenue.
Antonio Pietri: For profitability.
David Baker: We also announce today that our Board of Directors has approved a share repurchase authorization for up to $100 million in fiscal 2020. As for our cash flows, we generated $155 million of free cash flow from operations and $153 million of free cash flow in Q4. For the full year, we generated $340 million of cash flow from operations and $335 million of free cash flow, slightly below our expectations due to higher cash. Turning to slide nine.
Antonio Pietri: Capital allocation priority, while also returning capital to shareholders.
Antonio Pietri: On our cash flows we generated $155 million of.
Antonio Pietri: Cash flow from operations and $153 million of free cash flow in Q4 for.
Antonio Pietri: For the full year, we generated $340 million of cash flow from operations and $335 million of free cash flow slightly below our expectations due to higher cash tax.
Antonio Pietri: Turning to slide nine.
David Baker: I would like to now close with, Consistent with our prior fiscal years, we will continue to provide guidance on an annual basis. As of fiscal 2025, we expect total ACB growth of approximately 9% year-over-year from our base of $933 million as of the end of fiscal 2025. This includes expectations for attrition of approximately 4.5% and market conditions that are largely similar to what we experienced in the second half of fiscal 2024, as Antonio noted.
Speaker Change: I would like to now close with guidance consistent.
Antonio Pietri: Consistent with our with prior fiscal years, we will continue to provide guidance on an annual basis for.
Antonio Pietri: For fiscal 2025, we expect total ACB growth of approximately 9% year over year from our base of $933 million as of the end of fiscal 2020.
Antonio: This includes expectations for attrition of approximately four 5% and market conditions that are largely similar to what we experienced in the second half of fiscal 2024 as Antonio.
David Baker: We expected total bookings of $1.17 billion, revenue of approximately $1.19 billion, gap net income of approximately $52 million, and non-GAAP net income of approximately $478 million. From a cash flow perspective, we expect operating cash flows of approximately $357 million and free cash flow of approximately $340 million. This includes expectations for cash tax payments of $135 million and higher capital expenditures related to office. Turning to slide 10, we have included a chart to help bridge our free cash flow guidance for investors. This includes two important considerations.
Antonio Pietri: We expect that total bookings of one $1 7 billion.
Antonio Pietri: Revenue of approximately $1, one 9 billion.
David Baker: First, we estimate that RUSA's free cash flow represents approximately $25 million in fiscal 2020. Second, we expect to use an additional $10 million in cash related to our Russia exit, as well as $8 million in cash related to our restructuring. Adjusting for these one-time items, we expect to grow underlying free cash flow by 15% in fiscal 2020. For a complete review of our updated fiscal year 2025 guidance, please refer to our earnings presentation slides, now available on our IR website.
David Baker: Turning to slide 11, I will now address our linearity expectations for the year. First, for ACV, we expect the cadence of new ACVs to be similar to what we have seen historically. We also expect our Q1 sequential growth rate to be softer than we have seen in the past due to a higher than normal concentration of attrition in the core. Second, the workforce reduction Antonio referenced earlier will impact our financials in the following way.
David Baker: First, we expect to realize approximately $25 million in annualized cost savings from this act. This is aligned with our goal to keep costs flat while also investing in strategic growth. Second, we expect the restructuring charge to be between $7 to $9 million and for the majority of this charge to occur in the first quarter of fiscal 2020. As for free cash flow, we expect to generate the substantial majority of our free cash flow in the second half of our fiscal year, consistent with our historical results. We also expect Freecast Flow to be near breakeven in the first quarter, which is consistent with our historical results and also due to the timing of one-off items related to our restructuring in Russia-EU.
Antonio Pietri: Two year look forward to fiscal <unk> looking to fiscal 2025, we remain focused on driving further productivity and efficiency across the organization in line with our targets for solid topline ACB growth and profitability improvements. Additionally, with a strong foundation in place for our expanded.
Antonio Pietri: Portfolio, we are confident in our ability to ability to deliver value for customers. While also navigating the current dynamic macro environment.
Antonio Pietri: With that I will turn the call back to Antonio for his closing remarks Antonio.
Antonio: Thanks, Dave.
Antonio: Before we open it up to Q&A I would like to announce that.
Antonio: We will be holding an investor day on Tuesday September 17th near our headquarters in Boston, Massachusetts.
Speaker Change: With two full years since our strategic transaction with Emerson and experience in operating our expanded portfolio. We're excited to come together for a more comprehensive discussion of what we have accomplished as well as how we are positioned for long term growth.
Antonio: For those interested in attending please reach out to our Investor relations team for additional information.
Antonio: We will also webcast the event live for those who are unable to make the trip.
Speaker Change: With that we'll open it up to questions operator.
Operator: Thank you. Ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Operator: Now, the first question comes from the line of Rob Oliver with Baird. The line is open.
Antonio Pietri: addressed all the execution issues that we saw in Q3. And moving forward, it's about executing with excellence. We quickly did an analysis after the end of Q3 to understand where we had some of the challenges. Of course, there was a much deeper review of deals and strategies to close those deals. And the results that we achieved in the quarter are a demonstration of what's possible here.
David Baker: Great. Thanks, Antonio. I appreciate that. And then, Dave, if you'll allow me, just a two-parter for you. One, I know you mentioned the attrition rate would be slightly higher in Q1 when you walked us through the linearity. You know, why is that? And then attrition is coming down for the year, and what gives you the confidence that you can achieve that? And then the second is, you know, just more of an open question on, yeah, you've been in your seat now for a quarter, and we wanted to get a sense from you of kind of where you see. You mentioned in your prepared remarks about value creation, and we'd just love to hear where you are, what gets you most excited Thank you very much.
David Baker: Very helpful. Thanks again, guys.
Antonio: Marks.
Antonio: Certainly we still believe that there is a.
Antonio: And uncertain macro environment.
Marks: Out in the.
Antonio: Or and are in the marketplace.
Antonio: But equally.
Antonio: We are more cautious on.
Antonio: The demand that we would expect to see.
Antonio: Sustainability Capex, we had a strong first half of the year in fiscal 'twenty four we.
We had a slower.
Antonio: Benefit from sustainability Capex in the second half of fiscal 'twenty four.
Antonio: I think we will we our assumption is that we'll continue to see that sort of environment in the second half of fiscal 'twenty four into into fiscal 'twenty five.
Antonio: Therefore, there is sort of a half year.
Antonio: Impact there and considering.
Antonio: <unk>.
Antonio: Some of the reports that we've seen and uncertainty.
Antonio: Around demand I think we're being more cautious around the refining demand we saw very strong demand from refining in the second half of fiscal 'twenty four.
Antonio: We've seen reports of compressed margins in refining but overall.
Antonio: It's just a slightly lower expectation around around refining demand Budd, but overall look.
Budd: Where we sit today, we feel very good about that 9%.
Antonio: We will certainly execute throughout the year too.
Antonio: To exceed that number.
Antonio Pietri: As you went through the year.
Antonio Pietri: Yeah, look, certainly, now that...
Operator: Our next question comes from the line of Dylan Becker with William Blair. Your line is open.
Antonio Pietri: Okay, that's great. That's helpful. Thanks, Antonio. And maybe somewhat for Dave, but maybe Antonio, you've been here for a while, too, calling for this significant kind of operating leverage growth on the back of some flat expenses. You've done this in the past, right? So how should we think about kind of where that leverage is coming from, sales efficiency, synergies, and maybe how to think about the potential balance here between that margin leverage and the ability, as you guys kind of called out, to optionally reinvest or use that as an optionality lever, if you will, in the potential situation where the environment does improve throughout the balance of the year? Thanks.
Jason Celino: Hey, thanks. This is actually Jason.
Antonio Pietri: I was able to make it. Maybe a couple of clarifying questions. So if we look at the growth in Q4 with Russia and without Russia, it looks like Russia is a tailwind, excluding the tailwind. Is that just because Russia just wasn't growing, and it was kind of a drag? Yes. Okay.
Budd: In Q4.
Budd: With Russia and without Russia.
Speaker Change: Looks like Russia is a tailwind.
Speaker Change: <unk>.
Speaker Change: Excluding the tailwind is that just because Russia is wasn't growing and it was kind of a drag.
Antonio Pietri: Yeah, as we said, I mean, in fiscal, and we said in the remarks in fiscal 23, it was clear that Russia wasn't going to be a contributor to growth based on the outcome that we achieved. And the fact is, more or less the same outcome was experienced in fiscal 24. And the benefit to the growth rate is that when you take out the ACV that existed in Russia, then your denominator becomes smaller, and therefore your numerator produces a larger number, which is a faster, and a greater growth rate. That's the benefit of that.
Speaker Change: Yes, as we said.
Speaker Change: In fiscal <unk>, and we said in the remarks in fiscal 'twenty three.
Speaker Change: It was clear the Russia wasn't going to be a contributor to growth.
Speaker Change: Based on the outcome that we achieved.
Speaker Change: And the fact is it more or less the same outcome was experienced in Q in fiscal 'twenty four.
Speaker Change: The benefit to the growth rate is when you when you take out the ACB that existed in Russia than your denominator becomes smaller and therefore your numerator produces a larger a larger number which is a.
Speaker Change: Faster a greater growth rate.
Antonio Pietri: Okay, I got it. Basic math.
Speaker Change: The benefit of that.
Speaker Change: Okay got it.
Speaker Change: Matt.
Matt: The same dose.
Speaker Change: Yes.
Speaker Change: And then the restructuring is that only impacting maybe your employees in Russia or is that restructuring other areas.
Antonio Pietri: Oh no, this is broad-based across the company. The fact is that the Rocha component is small. This is across every function and region.
Antonio Pietri: Yeah. And then the restructuring, is that only impacting maybe your employees in Russia? Or is that restructuring other areas? Just wanted to clarify. Oh, no. This is a broad base.
Speaker Change: Just wanted to clarify.
Speaker Change: No. It is abroad. This is broad based across the company. The fact is the.
Speaker Change: Russia component is small.
Speaker Change: <unk>.
Speaker Change: This is across every function in region.
Speaker Change: Okay alright, thank you.
Speaker Change: <unk>.
Operator: Thank you. And our next question, coming from the line of Nay So Neng with Baron Birkeland, is open.
Speaker Change: Thank you and our next question coming from the line of Nathan <unk> with Darrin Darrin Burke Your line is open.
Nay Naing: Hi, thank you for giving me questions. I've got a couple, if I may.
Nathan: Alright. Thank you for taking my question given your questions.
Speaker Change: A couple if I may firstly, starting with the chemicals that could place.
Nathan <unk>: It would be great to get an update on.
Antonio Pietri: Firstly, starting with the chemicals verticals, please. It'll be great to get an update on the micro dynamics there. We've now hit the anniversary of when you guys started seeing the micro cycle start affecting your numbers, so it'd be great to understand if you feel like the down cycle has now hit a trough there going forward, and how you're able to achieve these competitive wins in this product market.
Speaker Change: At the macro dynamics there.
Speaker Change: Now hits anniversary of when you guys touched most.
Speaker Change: Credit recycled sort of affecting our numbers so it would be great to understand.
Speaker Change: Feels like.
Speaker Change: Down cycles now hit a trough then going forward.
Speaker Change: And then secondly.
Speaker Change: This is now a few quarters that youre able to call our competitive wins in DCM.
Speaker Change: Great to hear from you.
How you were able to achieve these competitive weighed into wins and this product market that would be great. Thank you.
Antonio Pietri: That would be great. Thank you. Okay.
Speaker Change: Okay Alright.
Speaker Change: Alright, but let me first address the first question Luke.
Speaker Change: The chemicals market continues to be.
From an Opex system point continues to be.
Speaker Change: Depressed going through the trough.
Speaker Change: We have seen a couple of positive announcements from chemical companies.
Speaker Change: They are starting to see a pickup in demand.
Speaker Change: But.
Speaker Change: Very preliminary.
Speaker Change: And also and in our opinion those and change the trajectory of what we expect to see in fiscal 25, which is more of the same that we saw in fiscal 'twenty four so our assumption for the fiscal year as we said we will see.
Speaker Change: Little contribution from chemicals, and I just wanted to point out I mean chemicals is about 20, 22% of our total ACB.
Speaker Change: Which means that in a normal year, we would probably see about 20% of our growth coming from chemicals. So so there is a significant component of our growth that is not producing of our business that is not producing and when he starts to pick up we would expect to see that benefit in a meaningful manner to.
Speaker Change: Our overall growth rate.
Speaker Change: When it comes to the AGM.
Antonio Pietri: Look, in a way, the OSI business prior to Emerson and Aspen Tech, even though it was a 30-year-old business, was the new kid on the block in that they developed very contemporaneous technology with great capabilities, modern technology, great cybersecurity, that when it's compared to the technology of the incumbents, it certainly outshines them in terms of capabilities, deployability, configurability, ease of use, and so on and so I have been in many control rooms of our customers in DGM over the last 18, 24 months, and you can see how happy these customers are with the dashboards and the user interfaces and everything that they use around DGM.
Speaker Change: Look in a way.
Speaker Change: The OSI business prior to Amazon in Aspen.
Speaker Change: Though was a 30 year old business was a new kid on the block.
Speaker Change: Good.
Speaker Change: They develop very contemporaneous technology with.
Speaker Change: With great capabilities modern technology group, a great cyber security that we need to compare to the technology of the incumbents.
Speaker Change: It certainly outshines them from a from our capabilities.
Speaker Change: <unk> ability configure ability ease of use and so on and so forth I have been in many control rooms of our customers in the GM over the last 18 24 months.
Speaker Change: You can see how happy these customers are with.
Speaker Change: With the dashboards and the user interfaces and everything that they use.
Antonio Pietri: So, basically, it's just more contemporary technology, more modern, more cyber-secure, and more applications on top of the base SCADA system. In my remarks, I referenced outage management, which is a new application that is becoming incredibly important for utilities in order to be able to pinpoint outages and recover from them faster. There are also capabilities around distributed energy resources, especially the use case around energy battery storage or renewable energy. So, it's a combination of factors, and I just want to point out that when these utilities go out to upgrade their systems, they're either upgrading their system with the incumbent, or they're choosing someone else that, therefore, results in a displacement, and it is in those situations where an OSI is chosen that we are displaced because we're building Thank you so much.
Speaker Change: GM. So basically it's just it's just more contemporaneous technology more modern more cyber secure more applications on top of the base <unk> system I in my remarks side I referenced.
Speaker Change: Outage management, which is a new application that is becoming incredibly important for utilities.
Speaker Change: Order to be able to pinpoint outages and recover recover from them faster Theres also capabilities around distributed energy resources, especially.
Speaker Change: The use case around.
Speaker Change: Butter energy battery storage or renewable energy.
Speaker Change: It's a combination of factors.
Speaker Change: And just want to point out that.
Speaker Change: When these utilities.
Speaker Change: Go out for to upgrade their systems.
Speaker Change: They are either upgrading their system with the incumbent or Theyre choosing someone else that therefore result in a displacement and it is in those situations, where an OSI is chosen that will displace because we're building our business we're building our installed base.
Speaker Change: And that will take.
Speaker Change: Many more years to accomplish but it is the opportunity that we have ahead of us here.
Nay Naing: Thank you so much; that's really helpful. Thank you.
Speaker Change: Thank you so much that's really helpful. Thank you.
Speaker Change: Youre welcome.
Operator: Thank you. And again, to ask a question, please press star 11. And our next question coming from the line of Joshua Tilton with Wolf Research Line is open. Josh.
Speaker Change: Thank you and again to ask a question. Please press star one one.
Speaker Change: And our next question coming from the line of Joshua Tilton with Wolfe Research. Your line is open.
Arsenije Matovic: Hi, this is Arsenije on Josh's behalf. So I just wanted to understand the 4Q booking coming in. I had to think of expectations, what drove that, and then on the flat bookings guidance for 2025 on a reported basis, not adjusting for Russia and 24 bookings and your renewal bookings 100 million higher than 24. Does the guidance about any conservatism and new bookings in addition to reflecting the impact of discontinuing Russian operations? And just like that,
Speaker Change: Josh.
Speaker Change: Hi, This is <unk> on for Josh. So I just wanted to understand the <unk> bookings coming in ahead of expectations, what drove that and then on the bookings guidance for 2025 on a reported basis not adjusting for Russia in 'twenty for bookings and your renewal bookings of 100 million higher than 24 does the guidance.
Speaker Change: It's about any conservatism in new bookings in addition to reflecting the impact of discontinuing rush operations and just a quick follow up.
Antonio Pietri: Yeah, well, let me note out that the guidance for fiscal 25 assumes the discontinuation of Russian operations and the write off of the ACB, which also means we're writing off equivalent amount of bookings associated with that ACB, so you have to adjust for that. I also want to remind you that the profile, our bookings, year to year is not consistent, it's a mountain range, and this year we have coming up, we have the bookings that we have, we have a concentration of bookings in Q1, but the important thing to note is that just because we have a certain amount of bookings doesn't mean necessarily that those bookings generate an equal and proportional amount of growth in ACB, in the bookings there's a combination of attrition, there's a combination of flat renewals, and there's a combination of growth from some of those bookings, and depending on the contracts that are coming up for renewal is, we produce a certain outcome from the bookings that are coming up from renewal, and then we have to go generate incremental growth from the existing contracts that are not coming up for renewal, and the fact is that most of the growth that we experience in any given year is from contracts that are in the middle of the contract as opposed to coming up for renewal. I don't know if that answered your question.
Speaker Change: Yes, but let me no doubt that the guidance for fiscal 25 assumes.
Speaker Change: Discontinuation of Russian operations on the write off of the ECB, which also means we're writing off equivalent.
Speaker Change: Bookings associated with ACB, so you'll have to adjust for that.
Speaker Change: I also want to remind you that.
Speaker Change: Our debt profile, our bookings year to year is not consistent is a mountain range.
Speaker Change: And this year, we have coming up.
Speaker Change: Yeah.
Speaker Change: We have the bookings that we have we have a concentration of bookings in Q1.
Speaker Change: Budd.
Speaker Change: The important thing to note is that just because we have a certain amount of book and doesn't mean necessarily that those bookings generated an equal and proportional amount of growth in ACB.
Speaker Change: In the bookings there is a combination of attrition there is a combination of flat renewals.
Speaker Change: And there is a combination of growth on some of those bookings and depending on the contracts that are coming up for renewal.
Speaker Change: We produce a certain outcome.
Speaker Change: From the bookings that are coming up for renewal and then we have to go generate incremental growth from the existing contracts that are not coming up for renewal and the fact is that most of the growth that we experience in any given year is from contracts that are in the middle of the of the contract.
Speaker Change: As opposed to coming up for renewal.
Speaker Change: Don't know if that answered your question.
Antonio Pietri: That's it on the forward bookings estimate, but just in terms of forward queue bookings, I think it was above expectations unless I misunderstood something. I just wanted to clarify that. Oh, the Q4 outperformance? Let me look at it.
Speaker Change: Ted on the forward bookings estimate, but just in terms of <unk> bookings I think it was above expectations unless I misunderstood something from them.
Patients: Patients want to clarify that drove that outperformance.
Antonio Pietri: Oh, the Q4 outperformance? Well, let me look at it.
Speaker Change: The Q4 outperformance, but let me look.
Antonio Pietri: So this is the thing about giving you all the booking numbers, whether it's in a quarter or for the year. The fact of the matter is that we can also do early renewals of contracts that are in the future, and there was a contract that wasn't supposed to renew until this fiscal year, fiscal year 25, that was accelerated into Q4 as part of a bigger transaction for growth that was signed in the Q4 quarter. So there was a We packaged incremental growth with an early renewal of a large contract, which then generated a larger amount of bookings that were not expected in the initial number that we gave you.
Speaker Change: So this is this is attainable.
Speaker Change: Giving you all.
Speaker Change: And then on the bookings number where there is in a quarter or for the year. The fact of the matter is that we can also do early renewals of contracts that are in the future.
Speaker Change: Yes.
Speaker Change: And.
Speaker Change: There was.
Speaker Change: Contract.
Speaker Change: Wasn't supposed to renew until this fiscal year fiscal year 'twenty five that was accelerated into Q4 as part of.
Speaker Change: A bigger transaction for growth and that was signed in the Q4 quarter. So there was a we package.
Speaker Change: <unk> growth with an early renewal of a large contract which they are generated.
Speaker Change: A larger amount of bookings that were not expected in the initial number that we gave you.
Speaker Change: Got it thank you.
Speaker Change: Yes.
Speaker Change: Thank you.
Operator: And I see there are no further questions in the Q&A queue at this time. I will now turn the call back over to Mr. Antonio Pietri for any closing remarks.
Speaker Change: And I see there are no further questions in the Q&A queue. At this time I will now turn the call back over to Mr. Antonio Pietri for any closing remarks.
Antonio Pietri: Thank you, operator. And thank you to everyone for joining the call today. We will be attending the Piper Sandler Growth Conference in the second week of September. As I mentioned earlier, we will also be holding an investor day on September 17th. Please reach out to our investor relations team for more information on this event. We look forward to catching up with many of you soon. Thank you everyone for joining us, and we will see you on the road. Thanks.
Antonio Pietri: Thank you operator.
Antonio Pietri: Thank you to everyone for joining the call today.
Antonio Pietri: We'll be attending the Piper Sandler growth conference in the second week of September as I mentioned earlier, we will also be holding an investor day on September 17.
Speaker Change: Please reach out to our Investor relations team for more information on these events.
Speaker Change: We look forward to catching up with many of you soon thank you everyone for joining and we will see you on the road. Thanks.
Operator: That does it for our conference for today. Thank you for your participation, and you may now disconnect.
Speaker Change: That does conclude our conference for today. Thank you for your participation and you may now disconnect.
Speaker Change: [music].