Q1 2025 Aspen Technology Inc Earnings Call
Good day and thank you for standing by. Welcome to the Q1 2025 Aspen Technology earnings conference call.
at this time-all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session.
To ask a question, please press star 1, 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again. I would now like to hand a conference over to your speaker today. Brian Denyeau from ICR.
Brian Denyeau: Thank you Josh, good afternoon everyone and thank you for joining us to discuss our financial results for the first quarter of this will 205 ending September 30, 2024. With me on the call today are Antonio Pietri, Ascentex, President and CEO and Dave Baker, Ascentex,
Please note, we have posted earnings presentation on our IR website.
Brian Denyeau: This includes explanation regarding the impact in the ASC topics, 6 or 6 on our financial results.
It also includes definitions of annual contract value or ACV, looking to free cash flow among other metrics. We ask that an advantage or refer to this presentation and conjunction with today's call.
Brian Denyeau: I'm sorry to get you to slide two. I would like to take this opportunity to remind you that our remarks today will include full-armor key statements.
Brian Denyeau: Actual results may differ materially from those contemplated by these four statements.
Brian Denyeau: Dr. McCaw, these results are different from a cheerlear set forth on today's press release. And then our annual report on Form 10K and other subscomponents made with the SEC.
Any portal can you say Mr. We make on this call our basement assumptions as of today. And we undertake no obligation to update these statements as a result of new information or future events.
Brian Denyeau: During this presentation, we will present both Gap and Third and Not Gap Financial Mothers.
Brian Denyeau: Our Reconflation of Gapch and Not Gap Matters is included in today's earnings, fresh release of the Master presentation. Both of which are available on our Master Relations website.
Speaker Change: Let me turn the call over to Antonio. Antonio?
Antonio Pietri: Thank you, Brian. Hello and good evening and everyone. Thank you for joining us today to discuss our first quarter result for fiscal 2025.
Antonio Pietri: I'd like to start out by addressing our anticipated acquisition of open-grade systems, announced after market today.
Brian Denyeau: The acceleration of renewable generation and the push for electrification are driving more assets onto the electric grid, increasing the complexity of utility operations globally.
Brian Denyeau: Around the world, utilities need a single centralized source of truth for electrical network models to provide accurate and complete real-time visibility of great assets.
by incorporating open grid systems technology into our digital grid management or DGM suite. We will be able to offer a comprehensive, fully integrated network model management solution to utilities.
The Stalkina decision demonstrates Aspen text commitment to our power and its political customers as well as our dedication to addressing critical industry challenges.
Brian Denyeau: Having worked closely with the open-grid system steam over the years, were excited to welcome them to Aspentech and look forward to continuing our partnership to capture the growth of opportunity we see in this important industry.
Brian Denyeau: Finally, we expect to close this acquisition before the end of 2024, subject to customary closing conditions and approvals.
Brian Denyeau: Now, I would like to turn to slide three for our quarterly results. And your contract value or ACB was $941 million in Q1, increasing 0.9% quarter-recorder and 9.4% year over year.
Brian Denyeau: This was in line with our expectations and what we communicated last quarter due to the timing of renewals and a disproportionate amount of our expected annual attrition occurring into one.
Overall, we feel good about our execution and the growth we achieved in the quarter, as well as our outlook for the remainder of the year.
Brian Denyeau: Frecacheflow was negative $6 million in Q1. Modestly below our expectations due to the timing of collections.
Brian Denyeau: Dave Wollard-Dresder, specific drivers around free cash flow in his remarks.
Follow in our 4 key takeaways for the first quarter.
Brian Denyeau: First, we achieved this results through a strong execution, collaboration and a continuing focus on enhancing our customers' operational excellence.
Brian Denyeau: While Q1 is historically our lighter squadron from a growth standpoint, we're excited by the opportunities we see in the pipeline for this year and the foundation we have built through our integration and transformation efforts over the past two years.
Brian Denyeau: Second, we're encouraged by the continuous strength we see across most of our end markets, particularly considering the ongoing macro uncertainty. The strength in demand is a testament to the mission criticality of our products and solutions across the asset life cycle.
Brian Denyeau: Third, we continue to help our customers push the boundaries of what is possible by introducing new innovative offerings.
Brian Denyeau: In Q1, we integrate a more industrial AI and sustainability capabilities into our portfolio and launch our new microgrid solution to tap further into the opportunities we're seeing across our end markets.
Brian Denyeau: Fourth and final, we remain confident in our year 2025 guidance. This includes annual ACB growth of approximately 9% and free cash flow generation of approximately 340 million dollars.
Brian Denyeau: Now, turning to slide four for a discussion of our sweet performances in the first quarter.
Brian Denyeau: Starting with our digital grid management suite or DGM, we continue to benefit from robust demand, strong customer relationships and our ongoing mission critical grid innovation.
Speaker Change: We have saved the right in the man for electricity.
Speaker Change: Most recently, were accelerated by data centers and the use of artificial intelligence, combined with an increased in grid complexity from the rapid uptake of renewable energy sources to support high levels of investment in this market for this foreseeable future.
Brian Denyeau: The still winds are driving continued growth in our pipeline in North America and internationally with the latter also driven by our international sales expansion.
Brian Denyeau: and Q1 for example.
Brian Denyeau: We continue our momentum with a leading U.S. utility to implement our newest distributed energy resource management or firms.
Brian Denyeau: fromionality into their system to support their communities, clean energy goals, as well as the utilities and viciousness Bureau agenda.
Brian Denyeau: This deal marked a deepening of our partnership with the customer and we remain excited about the possibility of further expansion of the relationship at this customer evaluates our advanced distribution management or ADMS capabilities among other areas.
Brian Denyeau: to further enhance the great management and operational capabilities going forward.
Brian Denyeau: We also expanded our business with a little utility mirror to support the company's new offshore wind transmission network in the North Sea.
Brian Denyeau: By utilizing our Skater and Energy Management System, OMS Product, this customer will be able to better manage and operate the complexity of this large scale and intermediates renewable energy source.
Brian Denyeau: including the conversion of excess electricity into hydrogen, a storage mechanism, and the recombversion of the hydrogen back into electricity once electricity demands increases.
Brian Denyeau: As a complexity of the European Great continues to grow, we remain world-positioned in the region and excited about the growing traction where experience in there and the expansion of opportunity.
Brian Denyeau: Turning to the sub-surfing science and engineering suite, or SSC, were upstream the man remained solid.
Brian Denyeau: We're seeing growing interest in our SSI capabilities and the flexibility of our token model.
Brian Denyeau: and increasing number of customers that are reassessing their digital tools and evaluating options available to optimize their spend and digital capabilities with new technologies that can improve their subsurface performance and increase the ROI on their investments in this part of their business.
Brian Denyeau: In Q1, for example, with this place a competitor to win a deal with a large South American National Old Company that has already successfully deployed heritage as pentacophorans in other parts of their business.
Brian Denyeau: As one of the region's key energy producers, this customer value are ability to support them in driving better outcomes across drilling, geology and allysses and other areas.
Brian Denyeau: Now.
Brian Denyeau: Turning to slide five, or a heritage aspect exit. In engineering, we continue to see strong demand from both owner operators and EPCs, with both traditional energy and sustainability, sustainability-related projects supporting our growth.
Brian Denyeau: We're seeing this moment and with larger enterprise level accounts, as well as with our high velocity sales or HVS team.
Brian Denyeau: which is focused on new logos and startups. Our HBS team, in particular, at a solid two-one with winds across a range of different sustainability use cases and new logos. Importantly, as this project's come online, we will have multiple expansion opportunities across our other sweets.
Brian Denyeau: We also remain focused on driving growth through solution sales as we outline at our recent investor day.
Brian Denyeau: In Q1, we expanded an existing agreement with one of the world's leading industrial groups focused on energy logistics and infrastructure among other areas who has previously only been utilized in single-point products in our engineering suite.
Brian Denyeau: After a competitive evaluation of the benefits and value of our concurrent engineering life cycle solution, and based on our close partnership, this customer made a decision to adopt our solution to support their growing carbon-toucher utilization and storage or CCUS business.
Brian Denyeau: This customer now has one of the industry's most comprehensive CCUS offerings and we're excited to continue partnering with them in this business going forward.
Brian Denyeau: are manufacturing and supply chains with or MSC, that's also continued to perform well following a strong second half in PS2-2024.
Brian Denyeau: Overall conditions in the downstream markets remain consistent with what we have seen in recent quarters. And customers continue to expand their MSC deployments due to the numerous ways we not generate value across a variety of economic conditions.
Brian Denyeau: The chemical changes the political dealings to work through supply and demanding balances with a focus on driving efficiency to meet margin of the act is an improvement the sustainability of their operations.
Brian Denyeau: Additionally, while all refining profitability has come under pressure, as of late, we continue to see these customers invest in digitalization to increase margins and lower their emissions.
Brian Denyeau: I would like to know a couple of salient points from customer meetings that I attended as I traveled in the court.
Brian Denyeau: First.
Brian Denyeau: Our customers should make focus on optimization and financial performance. As an example, in two recent customer implementations, we have identified more than 28 million dollars and ten million dollars of savings from the deployment of our multi-unit dynamic optimization Gida product.
Brian Denyeau: The first example was with one of the largest petrochemical facilities in the Middle East, which contracted as for a large scale deployment of GDOT to help further optimize their existing operations.
Brian Denyeau: Well, the second example was of a smaller scope for a leading refiner in the United States.
Brian Denyeau: Both engagements were the outcomes of the strong collaboration and demonstrator ability to drive significant value for our customers across the range of assets and regions.
Brian Denyeau: Second, one of our owner operator customers with whom we announced the partnership in the last 18 months is now experiencing clear and impressive outcomes.
Brian Denyeau: Over this period, this customer worked with us to outline enhancements to some of our MSC products to integrate the refining and petrochemical operations in the production of sustainable aviation fuels.
Brian Denyeau: After a quick turnaround of the enhancement.
Brian Denyeau: This customer has levered her technology in their planning and optimization processes to realize operating and financial results that exceeded their expectations. This is a clear example of how we can treat you to the organization's strategy through technology innovation.
Brian Denyeau: Third, we're experiencing increasing interest from upstream owner operators to drive operational efficiencies and reviews CO2 emissions by leveraging the capabilities on products in our MSC suite.
Brian Denyeau: The migration of traditional downstream digitalization capabilities into upstream has been growing steadily in the last two to three years, with the declaration of net zero carbon objectives to decarbonize this sector, with a noticeable increase in interest over the last six months.
Brian Denyeau: Finally, the Asset Performance Management Suite, or APM, performed well in the quarter, benefiting from the combination of our focused go-to-market strategy and our partnership with Emerson.
Brian Denyeau: We won two noteworthy APM deals in the upstream sector in Q1.
Brian Denyeau: expanding on our existing business with customers in our heritage aspen tech business.
Brian Denyeau: These wins were supported by the strength of our Aspen Antel product for asset predictive maintenance, as well as Emerson's strong relationships with the customers and understanding of their equipment reliability pain points.
Brian Denyeau: Now turning to slide six for our product and R&D initiatives.
Brian Denyeau: In Q1, we released our Aspen 1 version 14.5 software update.
Brian Denyeau: which includes several important enhancements across our portfolio in industrial AI and sustainability.
Brian Denyeau: For example, our OptiPlan product now has additional generative AI capabilities that enable customers to optimize and accelerate equipment placement decision-making in their asset design workflows.
Brian Denyeau: This supports a more efficient and automated planning and design process while also helping customers understand the trade-offs between different placement options.
Brian Denyeau: We also continue to strengthen the capabilities in our DGM suite, this time with the announced acquisition of Open Grid Systems. This is a buy versus make decision where we have positively deployed the cash we generate to accelerate innovation.
Brian Denyeau: Our anticipated acquisition of open grid systems will provide us with a high-performance network model management offering with real-time data integration, as well as a unified approach to managing network model data architecture and supporting grid applications.
Brian Denyeau: The solution will improve overall grid performance through better visualization and analysis.
Brian Denyeau: This includes improved navigation and management of an increasingly complex grid model, better planning for grid reliability and renewables integration, and ultimately a single source of truth for utility model data.
Brian Denyeau: The addition of this technology to our utility offerings will allow us to support new regulatory requirements in Europe for this capability.
Brian Denyeau: as well as the increasing interest from North American customers, which is focused on ensuring proper management and governance of grid data and modeling, given the increasing complexity of the grid and renewable energy sources coming online.
Brian Denyeau: Finally, I'm excited to highlight customers' positive reactions to the launch of our microgrid management solution in October. In recent years, the rapid adoption of renewable energy sources has meant that the complexity of asset-related electrical networks or microgrids has been expanded.
Brian Denyeau: Our microgrid solution helps to solve this problem by enabling industrial asset owners to manage their microgrids in concert with their active load management and energy storage needs.
Brian Denyeau: This launch is a strong proof point of the convergence we're seeing for our innovation between industries and the resulting cross-sell opportunities.
Speaker Change: On slide 7, I would like to take a moment to reiterate some of the key messages we communicated to investors at our Investor Day in September.
Brian Denyeau: First, AspenTech is focused on a 14 to 15 billion dollar total addressable market within the industrial software category.
Brian Denyeau: The stamp represents an important cross-section of acid-intensive industries with a strong demand for software innovation to support their operational excellence goals.
Brian Denyeau: We believe that the tailwinds of ongoing digitalization, sustainability, the energy transition, and global electrification will remain powerful long-term demand drivers and that all parts of our business will benefit from some or all these drivers in the coming years.
Brian Denyeau: Second, we maintain leading market share in the energy, EPC, and chemicals markets with a strong momentum in the global utilities market.
Brian Denyeau: We have a time-tested and proven pathway to grow with customers in this market by leveraging the efficiencies of our token suite licensing model and focus on customer success.
Brian Denyeau: Third, we believe this dynamic is positioned as well to deliver healthy growth and margin expansion in the coming years.
Brian Denyeau: Over a multi-year period, we believe our focus on discipline execution and prudent organic investment can support high single-digit to double-digit ACV growth and ACV margin expansion to our target of 45 to 47 percent.
Brian Denyeau: In conclusion,
Brian Denyeau: Q1 was a solid start to the year. With more than two years of operating our expanded portfolio, we have a strong foundation in place to meet our objectives going forward.
Brian Denyeau: Looking ahead, we remain confident in our fiscal year 2025 guidance, which includes expectations for ATB growth of approximately 9% and free cash flow generation of approximately $340 million.
Speaker Change: With that, I will now turn the call over to Dave for a discussion of the financials. Dave, over to you. Thank you, Antonio, and hello everyone.
Dave: Starting on slide 8 to review our Q1 fiscal 2025 results.
Dave: In Q1 of fiscal 2025, we grew ACV 9.4% year-over-year and 0.9% quarter-over-quarter.
Brian Denyeau: This outcome was in line with our expectations due to the timing of renewals and a higher concentration of attrition in the quarter relative to our fiscal year.
Brian Denyeau: Total bookings and revenue were $151 million and $216 million respectively in Q1.
Brian Denyeau: compared to $212 million and $249 million a year ago.
Brian Denyeau: As a reminder, our revenue is recognized under ASC Topic 606, and bookings and revenue are heavily impacted by contract renewal timing.
Brian Denyeau: Bookings and revenue results in Q1 were consistent with our expectations for the quarter in line with the same factors that drove our Q1 ACV outcome.
Brian Denyeau: For profitability, on a non-GAAP basis, we reported operating income of $49 million in Q1, representing a 22.5% non-GAAP operating margin.
Brian Denyeau: Non-GAAP net income was $54 million in the quarter or 85 cents per share.
Brian Denyeau: compared to $75 million or $1.16 per share a year ago.
Brian Denyeau: The year-over-year difference in profitability were primarily driven by lower revenue in the quarter.
Brian Denyeau: Turning to our balance sheet.
Brian Denyeau: We ended the first quarter with approximately $221 million in cash and cash equivalents and no debt. We also had $195 million available under our revolving credit facility.
Brian Denyeau: on Cash Flows.
Brian Denyeau: Cash flow from operations and free cash flow were negative four million dollars and negative six million dollars respectively in Q1, compared to seventeen million dollars and sixteen million dollars a year ago.
Speaker Change: As Antonio mentioned, this result was modestly below our expectations, primarily due to the timing of collections from companies in regions where administrative processes tend to be more cumbersome.
Speaker Change: We have increased our monitoring and collections rigor for companies operating in these geographies and are working in coordination with our sales team to deliver more predictable collections timing going forward.
Speaker Change: More broadly, the difference between cash flows relative to prior year was driven by payments related to our Q1 workforce reduction in Russia exit.
Speaker Change: Take care. Bye bye. Bye bye.
Speaker Change: on Capital Allocation.
Speaker Change: We purchased approximately 93,000 shares in Q1 for $20 million under our $100 million share repurchase authorization announced last quarter.
Brian Denyeau: Regarding the purchase of open grid systems, this tech-in acquisition is in line with our capital allocation priorities as laid out at our recent investor day.
Speaker Change: and we'll add important grid digitalization capabilities to our DGM suite. It will not have a material impact to our financials in fiscal 2025, and we expect it to be accretive to Aspen Tech over time.
Speaker Change: Turning to slide nine, I would like to close with guidance.
Speaker Change: For the full year of fiscal 2025, we are reiterating our outlook across all metrics.
Speaker Change: We continue to expect ACV growth of approximately 9% and free cash flow generation of approximately $340 million in fiscal 2025.
Brian Denyeau: with underlying free cash flow growth of 15% as detailed in our earnings presentation appendix.
Brian Denyeau: Relative to our prior guide, we have increased our GAAP EPS estimate by one cent and our non-GAAP EPS estimate by five cents to reflect the impact of our share repurchase activity in the first quarter on shares outstanding.
Brian Denyeau: For a complete overview of the fiscal year 2025 guidance, please refer to our earnings press release and presentation available on our IR website.
Brian Denyeau: https://www.kenhub.com
Brian Denyeau: On slide 10, we have included some commentary for investors as they think about linearity for the remainder of the year.
Brian Denyeau: First, for ACV, we continue to expect the case of ACV growth to be similar to what we have seen historically.
Brian Denyeau: I would also note that there is a potential for some variability in the current quarter due to several large deal opportunities in our pipeline.
Brian Denyeau: Second, for Freecast Flow, we now expect to generate nearly all of our Freecast Flow in the second half of fiscal 2025.
Brian Denyeau: As a reminder, we typically generate the substantial majority of our cash in the second half of our fiscal year.
Brian Denyeau: We expect this to skew larger this year due to the one-time payments for our Russia exit and restructuring activities.
Brian Denyeau: the majority of which have occurred in Q1, as well as our expectations for the collections that pushed out of Q1 to come in over the remainder of the fiscal year.
Brian Denyeau: Third, for revenue, we expect Q2 revenue to be between $290 million and $300 million.
Brian Denyeau: and Q4 to be our highest revenue quarter.
Brian Denyeau: We also have bookings of $681 million up for renewal in fiscal 2025 with $119 million up for renewal in Q2.
Brian Denyeau: In conclusion, we delivered a solid start to fiscal year 2025 and are on track to meet our full year objectives.
Brian Denyeau: Demand remains strong and we are well positioned to deliver on our growth and profitability objectives through the strength of our innovation, disciplined execution, and exposure to in markets with attractive growth.
Speaker Change: Thank you, and I will hand it back to Antonio for closing remarks.
Antonio Pietri: Thanks Dave.
Antonio Pietri: We deliver a solid result in Q1 through a strong execution and a focus on helping our customers drive operational excellence across the office.
Antonio Pietri: The strength of our ACB growth in today's uncertain macroenvironment further underscores the essential nature of our products and solutions, as well as our role as a trusted partner. Looking ahead, we're energized by the wide range of growth opportunities we see across our end markets.
Antonio Pietri: We're also excited to welcome the Open Grid Systems team to Aspen Tech and to further enhance our grid innovation through this new critical technology.
Antonio Pietri: With that, we'll open it up to questions. Josh?
Josh: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions.
Speaker Change: Our first question comes from Rob Oliver with Baird. You may proceed.
Speaker Change: Thanks for watching!
Speaker Change: Hi, Rob.
Speaker Change: Rob, your line is now open. If you're on mute, please unmute.
Speaker Change: One moment for questions.
Rob Oliver: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Dylan Becker with William Blair. You may proceed. Hi Dylan.
Dylan Becker: Hey, Antonio. Hi, Dave. Maybe starting off, I know the accounting is obviously very lumpy here. It sounds like expectations continue to kind of trend relative to expectations, but we've talked in the past about kind of the alignment of budgetary cycles between kind of calendar and fiscal years. I wonder if you could kind of give us a general sense on
Dylan Becker: how customers are thinking about their software budget in the year end, and maybe how sentiment is trending given the evolution of some of those macro factors. We continue to see play out.
Dylan Becker: I mean Dylan, my commentary will be based on observations and thinking about customers. I always think that, you know, uncertainty plays a big role in
Dylan Becker: in how CEOs think about the future and that includes budgets, especially calendar 25 that is around the corner.
Rob Oliver: Lucia will probably...
Rob Oliver: certainly we have a big election tomorrow that that hopefully
Rob Oliver: You know, we'll know the outcome soon, and that will be another uncertainty.
Rob Oliver: worldwide.
Rob Oliver: From our standpoint,
Rob Oliver: looking at our plans and that we did and put in place for this fiscal year.
Rob Oliver: last June and then we announced it in August to investors.
Rob Oliver: We have assumed that through the first half of calendar 25, the second half of our fiscal year, conditions will remain similar to what we've seen in this first half.
Rob Oliver: chemicals is still in a downturn, a good demand from the refining sector upstream, continuous strong demand from utilities
Rob Oliver: and overall, you know, business conditions that support the guidance that we've given you and that's why we're reiterating that guidance.
Speaker Change: Okay, that's really helpful. Thanks, Antonio. Maybe two, touching on kind of the innovation around the microgrid opportunity, be interested to kind of get a sense, obviously, now that that's generally available, receptivity, given kind of the growing threat environment, and how
Speaker Change: You think about the opportunity, not only what that unlocks within the core DGM offering, but also into newer end markets for DGM, like chemicals, refining, etc. Kind of the proliferation across the suite, if you will.
Speaker Change: Yeah, and in a way, the microgrid solution is a BGM offering, but the fact of the matter is that that solution will go.
Rob Oliver: mostly into non-utility customers.
Rob Oliver: It's already used in the mining sector, in transportation around subways.
Rob Oliver: airports as well. But with the formal launch of that solution, then our health organization will be able to take it
Rob Oliver: wholeheartedly into chemicals and refining, where we see big opportunities.
Rob Oliver: , and , , , , , , , , , , , , ,
Rob Oliver: as I meet with customers, and these customers are talking about electrifying.
Rob Oliver: certain assets that they own and using renewable energy for that purpose. So this is then where a microgrid solution can play a role and create a lot of value.
Rob Oliver: So we're excited about this because it expands the use of our DGM suite into many other industries.
Rob Oliver: Okay, great. Thanks for tuning in. Yeah, thank you.
Speaker Change: Thank you.
Rob Oliver: Thanks for watching!
Speaker Change: Our next question comes from Jason Salino with KeyBank Capital Markets. You may proceed. Jason?
Jason Salino: Thank you. Maybe first one, kind of sticking to the DGM theme, as we think about push versus pull, where you're expanding, understand that the need to upgrade and manage grid infrastructure is enormous.
Jason Salino: So when we think about, like, the microgrid expansion and then the open grid...
Jason Salino: Thank you.
Jason Salino: you know, acquisition.
Speaker Change: How much of this is coming from suggestions from these power and utility companies, like where they want to see you expand?
Speaker Change: versus where Aspen thinks the puck is moving.
Speaker Change: Does that make sense?
Speaker Change: It's an all-hands-on-deck game, and you get ideas from everywhere. Customers are a great source of ideas. I believe we have a team.
Rob Oliver: in Medina, where our DGM business is located.
Rob Oliver: Medina, Minnesota
Rob Oliver: that also has been very good at
Rob Oliver: projecting where new applications, the need for new applications, especially the DERMS application, which is a newly developed one around distributed energy resource management.
Rob Oliver: Also outage management is another application that that team started to develop ahead of its ahead of its time
Rob Oliver: but in this case...
Rob Oliver: The need for network model management capabilities was accelerated.
Rob Oliver: by regulations introduced in Europe by the European authorities around the electrical grid.
Rob Oliver: and therefore it made a lot of sense for us to...
Rob Oliver: expand our relationship with open grid systems. They are subcontractors to us in one or two projects that we're deploying at the moment in Europe.
Rob Oliver: And therefore, it made a lot of sense that in this scenario, where now this is an absolute requirement in Europe, and there's an increasing interest in North America for this, that we would acquire it.
Rob Oliver: So, I think in that case, certainly, and we were having customers out of Europe, especially, really pushing us and driving us to formalize a relationship in this area.
Speaker Change: Okay, perfect. And then maybe one for Dave, you know, the implied second quarter revenue guidance looks like it's accelerating nicely.
Speaker Change: Directionally, you know, what might this mean for 2QACB? I know you mentioned, you know, several large dual opportunities in the pipeline. You know, was that a specific comment for second quarter? Thanks.
Speaker Change: No, the ACB, we expect it to be similar to what our historical trends have been. And really, the revenue is really more an indication of just the timing of renewals. As you know, because of ASC, topic 606.
Speaker Change: becomes very lumpy, and so we're trying to just give a little bit further guidance on a quarterly basis of revenue due to that accounting.
Speaker Change: Okay, perfect. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you and as a reminder to ask a question please press star 1 1 on your telephone
Speaker Change: Our next question comes from Mark Chappell with Loop Capital Markets. You may proceed. Mark.
Mark Chappell: Hey, hey guys. Thanks for taking my question here. Antonio, it was nice to hear of the meaningful APM wins in the quarter, especially under the new strategy. I was wondering if you could just review those deals in a little more detail.
Antonio Pietri: Yeah, I mean look, these are both customers.
Antonio Pietri: that are very good Emerson customers and are also big users of Aspen Tech's HAT solutions in MSC and engineering.
Speaker Change: and I'm going to be back in a few minutes .
Speaker Change: Emerson is in there with their own asset performance management solutions.
Speaker Change: and they see a need for the predictive capabilities that RS exponential brings because they understand the customer's pain points.
Speaker Change: they bring us to the table, they introduce us and introduce our capabilities and and you know there's a lot of familiarity between all three parties, Emerson, Aspen Tech and the customer and therefore it leads to a
Speaker Change: and certainly a refining customer and an upstream customer.
Speaker Change: But very happy about this and I believe that this type of transaction is one that can be repeated in many places between Emerson and Aspen Tech.
Speaker Change: Thank you. Thank you.
Speaker Change: Great, thanks. And then going back to OpenGrid, I was just wondering if you could just run through the new capabilities that the company is bringing that you did not already have.
Speaker Change: And we did have some capabilities in that area, but in a way, open grid systems had a much more mature product with more deployments and greater acceptability in the market by customers.
Speaker Change: It made a lot of sense that in order for us to accelerate to market, we would buy in this case. Look, network model management is about complexity.
Speaker Change: used to be that the grid didn't change very much. It would take a long time for a new transmission line or a new distribution network to develop. But as customers.
Speaker Change: You have dual flow and a lot of that is happening and it's repeating itself hundreds if not thousands of times a day. These operators are having a challenge maintaining their grid models.
Speaker Change: and the relationship in the data for their grid.
Speaker Change: So what this technology does, it allows customers to maintain their grid models in a more automated fashion, allows them to keep up with the changes to their grid models, which eventually is very important as they look to operate the grid and address issues if they were to come up.
Speaker Change: So we're very excited about these and...
Speaker Change: I'm really looking forward to accelerating this technology to the market with our own sales organization.
Speaker Change: Great, thank you.
Speaker Change: It's helpful. Mm-hmm. Thank you, Mark. Thank you.
Speaker Change: Our next question comes from Rob Oliver with Baird. You may proceed.
Speaker Change: Hello.
Rob Oliver: Great. Hey guys, good evening. Can you hear me?
Rob Oliver: Okay, great. Thank you.
Rob Oliver: So, a couple questions. I guess first one is on the grid management business generally speaking. I know you guys have called out a couple things, both at the Analyst Day and previously, I think.
Rob Oliver: you know, one is the focus on Europe and the other is just reminding us that sales cycles in this business are long. I think you said 18 to 24 months, if I remember correctly. So just...
Rob Oliver: I wanted to get an update from you, Antonio, on just as you look at that deal pipeline, whether it's, you know, how it's playing out relative to your expectations. I know, you know, fiscal year 26 is more when Europe would kick in. So how those deals are evolving within the pipe and how the Europe progress is happening and then.
Rob Oliver: Should we expect an open grid, which I know is more of a tech token, given it's domiciled in Europe, will help in Europe at all? And then I had a follow-up for Dave.
Antonio Pietri: Yeah, no, look, we continue to see the demand in Europe, of course, is about...
Rob Oliver: signing up new customers, and therefore those are the long sales cycle deals, to your point about fiscal...
Rob Oliver: So at fiscal 25 and 26 we expect to see business in Europe in 25. Look, we're very happy the way the pipeline is developing for DGM, especially in Europe. But yeah, look, we're also building out our sales team in Asia-Pacific now as well and the Middle East.
Rob Oliver: We can go sell it to our existing customers in Europe, but also then present it to our North American customer base, which is huge and large.
Rob Oliver: And therefore, we do expect that...
Rob Oliver: We will see an uptick of this technology rapidly over the next couple of years.
Rob Oliver: We'll spend time integrating and branding the technology over the next 9 to 12 months, which is normally what it takes us, getting it ready for tokens and the suite.
Rob Oliver: but in the meantime we'll be working on building pipeline and there's already...
Rob Oliver: a significant number of opportunities in the pipeline because again, European customers are requiring this technology and it will only enhance our competitive profile in Europe, but in North America and globally as well.
Speaker Change: Thank you for watching!
Speaker Change: That's helpful. Thanks, Antonio. I appreciate that. And then, Dave, I apologize if this was, I don't think it was asked, but I got knocked off briefly. And so I just wanted to ask about the timing of collections in the geos that you called out some of the
Rob Oliver: challenges there. I just wanted to get a sense for, you know, maybe if you could put a finer point on on what those were. And I know you you've called that and you guys have always been a second half loaded company, but
Rob Oliver: Free Cash Flow is going to be all check and half, and does that...
Rob Oliver: Assume proper collection of these collections from these geos and what, I think you might have also called out some technology or something, what processes you guys have put in place to alleviate or mitigate this risk. Thank you.
Speaker Change: Yeah, sure, Rob. So there.
Rob Oliver: The first half comparables are really,
Rob Oliver: impacted by both the one-time payments that are coming out as well as some of the timing of the collections in Q1.
Rob Oliver: and they were just slower more due to the administrative procedures of the geos that are coming out of, not necessarily the big deals that we've talked about, that's really more related to the booking timing.
Rob Oliver: But we are fully confident through identifying those earlier and partnering with the sales team, which is really what I've
Rob Oliver: instituted with the collections team. It's a pretty new collections team so we're maturing together and learning and we are going to identify those deals, partner with the sales teams earlier and drive that collection length of time down a little bit longer is kind of the plan and we're confident we can do that and hang on to the
Rob Oliver: $340 million dollars, approximately $340 million dollars of free cash flow in a year, Rob.
Rob Oliver: Great. I appreciate that. Thank you. And thanks for all the color and help at the analyst day. Really helpful. Thanks guys.
Rob Oliver: Thank you.
Speaker Change: Thank you and as a reminder to ask a question please press star 1 1 on your telephone
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Our next question comes from Clark Jeffries with Piper Sandler. You may proceed.
Clark Jeffries: Thank you for taking the question. Just another follow-up on Open Grid.
Clark Jeffries: It sounds like today the customer overlap is small, but the opportunity in the future is larger, especially given the regulatory tailwind.
Rob Oliver: I wanted to ask, is this going to sit on top of the Monarch platform as in it will be something that can be applicable to all sort of...
Rob Oliver: utilities index to different modules that you have on that platform. And then second, as a follow up, you know, you had talked about four and a half percent attrition for the full year.
Rob Oliver: Is there any way we can think through how much of that 4% has landed in Q1 versus the balance of the year?
Rob Oliver: Thank you.
Rob Oliver: Yeah.
Speaker Change: Yeah, so look to your first to the first part of your question. The answer is yes. The fact is that
Speaker Change: Certainly, the open-crystalline technology will sit on top of the Monarch solution.
Rob Oliver: and integrating to some of the other applications, ADMS and...
Rob Oliver: and Dermot and so on. So yes, with respect to...
Rob Oliver: The second part of the question was...
Rob Oliver: It's a saturation with respect to uh...
Speaker Change: So attrition, look we said in our call in August that attrition was going to be a little bit of a sort of a dumbbell shape.
Speaker Change: at high attrition in Q1, just because of the timing of the renewals that we had in Q1, and then Q4, and then less attrition in Q2, Q3. We got it due to, or we got it to 4.5 points of attrition for the fiscal year, so you can make some assumptions around that.
Speaker Change: You know we
Rob Oliver: It's a little weird to say this well, but we feel good about how attrition came in in Q1. I think we did a very good work about hat attrition. Unfortunately, there were a couple of deals in SSE, SMS renewal that slipped into Q2.
Rob Oliver: that will be now available in Q2 to be done, and there will be new growth.
Rob Oliver: But overall, the attrition came in line with what we expected, some puts and takes. And you know, the way we define attrition is a very rigorous definition, but we feel very good about how we're managing this at the moment.
Speaker Change: Thanks for watching!
Rob Oliver: Thank you for watching!
Speaker Change: Alright, thank you very much.
Rob Oliver: Thank you.
Speaker Change: Our next question comes from Arsene Matovic with Wolf Research. You may proceed.
Rob Oliver: Hi.
Rob Oliver: Thank you for watching!
Speaker Change: Your line is now open. Wolf Research.
Speaker Change: Hello. Hey, sorry about that. It's Arseny Madovich on for Josh Tilpin. I just wanted to ask about the historical cadence of the growth in ACV.
Rob Oliver: understanding that Q1 this year had more renewal bookings than last Q1 and now Q2 has lower renewal bookings than last 2Q. How should we be thinking about the growth in ACVs for 2Q? Should we think it should be down versus last 2Q? Just to kind of understand the commentary on the historical cadence, especially given kind of the 2H
Rob Oliver: Renewal bookings are much higher versus last year to see how to kind of parse and understand that. Thanks.
Speaker Change: Again, I would expect the ACV to be very similar to our historical.
Rob Oliver: The renewal timings.
Rob Oliver: And attrition can be a little bit tricky as well because, you know, we have good sight as to what the potential attrition opportunities out there. Not all renewals are going to result in attrition. So just because attrition is high doesn't mean our renewals are high as well. So I'd expect our ACV to be very similar to what we have in the past. And I think we have a
Rob Oliver: we're very
Rob Oliver: confident in the growth that we were expecting in a similar pattern. Antonio, you want to add to that? Yeah, let me just maybe add some color to Dave's comment. You know, we need to we need to be careful on how we think about attrition and growth when it comes to renewals.
Rob Oliver: because the fact of the matter is that
Rob Oliver: we don't see the renewal of an agreement as a driver of growth. The fact is that growth happens through the duration of an agreement and when we renew them
Rob Oliver: Attrition only happens at renewal time.
Rob Oliver: because that's when customers, that's the only opportunity that customers have to reduce their spend with Aspen Tech or let an agreement expire and not renew it.
Rob Oliver: So the two are not necessarily related, ACV growth and attrition. Attrition is absolutely related to a renewal event. Growth, for the most part, is not. So I just wanna clarify that, or at least provide that insight.
Speaker Change: Got it. Really helpful. And I just had a brief high-level follow-up. I guess, of the segments, you know, DGM, SSE, all the heritage assets and tech businesses, I guess, is there anything in Q1 that was significantly ahead of your expectations? And just, was everything in line? Or was there anything that really stood out to you?
Speaker Change: No, look, I mean, I frankly, yes, we had the attrition that we had, and we had, you know, sort of guided investors to that number. But what I'm excited about is the demand environment. We
Rob Oliver: We're seeing customers really leaning in on digitalization, both for performance and sustainability.
Rob Oliver: In an environment where CAPEX is more limited, these customers need to make sure that these assets that they have can operate longer, faster, greener, and more reliable, and that's what we do.
Rob Oliver: So, I think the combination of, again, energy transition, digitalization, electrification, global electrification, and sustainability, all of these.
Rob Oliver: It really is a perfect environment for the company.
Speaker Change: Got it. Thank you very much. Thank you.
Rob Oliver: Thank you for watching!
Speaker Change: Thank you. I would now like to turn the call back over to Antonio Pietri for any closing remarks.
Antonio Pietri: All right. Thank you, Josh. And thank you, everyone, for joining the call today.
Speaker Change: We're going to be attending the Wells Fargo TMT Summit and the Nasdaq London Investor Conferences in the first and second weeks of December.
Speaker Change: So please reach out to our investor relations team for more information on those events.
Rob Oliver: We look forward to catching up with many of you soon. So thank you everyone for joining and we will see you on the road. Thanks.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
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