Q4 2019 Earnings Call

At this time all participants are in a listen only mode. Later, we will conduct a question answer session and instructions will follow at that time.

If anyone should require assistance during the conference. Please press Star then zero on your touched on telephone as a reminder, this conference call is being recorded I would now like to introduce your host for today's conference Mr., Karl Johnsen, Chief Financial Officer, Mr. Johnson you may begin.

Thank you.

Good afternoon, everyone and thank you for joining us to review, our fourth quarter and full year fiscal 2019 result.

For the period ended June Thirtyth 2019.

Paul Johnson CFO of Aspen technology, and with me on the call today is in turn if you had to president and CEO .

Before we begin I will make the safe Harbor statement. During the course of this call we may make projections or other forward looking statements about the financial performance of the company that involve risks and uncertainties. The company's actual results may differ materially from such projections or statements.

Factors that might cause such differences include but are not limited to those discussed in today's call ending and contained in our most recently filed Form 10-Q .

Please note that we are completing our final topic six or six documentation as part of our fiscal year 2019 Form 10-K filing, which we expect to file on time later this month.

Also please note that the following information is related to our current business conditions and our outlook as of today August seven 2019.

Consistent with our prior practice, we expressly disclaim any obligation to update this information.

The structure of today's call will be as follows Antonio will discuss business highlights from the fourth quarter and full year, and then I'll review, our financial results and provide guidance for fiscal year.

2020.

With that let me turn the call over to Antonio Antonio.

And thanks to everyone for joining us today.

The fourth quarter was a strong finish to a great year for Aspentech.

Returning to double digit annual spend growth has been our goal and it's an important milestone for the company that reflects broad based strength across end markets product suite and yogurt.

I'm grateful for the support of our customers I'm proud of the hard work by everyone on the Aspentech team during the last three to four years and in this past year, specifically to produce these results in fiscal year 2019.

I'm confident we're well positioned to drive further improvements in the years ahead.

I would like to begin my remarks by looking at our financial highlights for the quarter and the year.

Including the annual metrics, we sure at the end of every year.

For the fourth quarter revenue was $195.8 million.

Got you P.S. was $1.49 cents and non-GAAP EPS was $1.59 cents.

Annual spend was $541 million up 2.8% in the quarter and 10.6% year over year.

Free cash flow was $84.9 million and we've returned $75 million to shareholders by repurchasing approximately six 648000 shares.

For the full year.

Total revenue was $598.3 million.

Got bps was $3.71 and non-GAAP EPS was $4 on nine cents.

Free cash flow was $236.8 million, which was above the high end of our guidance range.

And we returned $300 million to shareholders by repurchasing 3.1 million shares.

I would now like to provide you with some additional details about our performance for the full year 2019.

From a product perspective, the engineering business delivered improved performance for the second straight year by growing I know spend 6% for the year generating 35% of our overall annual spend growth.

Our manufacturing and supply chain or a missy business continues to perform at a high level once again delivering annual spend growth of 13%.

Representing 45% of our total annual spend growth.

I said performance management or ATM.

Generated total annual spend growth of over 250%.

Or 20% of our total annual spend growth for the year.

Contributing 2.1 points about annual spend growth.

Hey, pmts ability to become a material contributor to our overall growth within two years of each launch speaks to the success of these products suite.

At the end they'll be here are you still be soap business was split, 60% engineering and 37% MSC, where they P. M at 3% on an annual spend basis.

Our three core verticals of energy chemicals, and engineering, and construction or Yancey contributed 51%, 28% and 12% of our growth and I know spend during the year respectively.

One of the trends were also pleased by is our performance in the global economy industries, or GE ice, which contributed 6% of our annual spend growth for the year and the pharmaceutical industry that grows to 3%.

We believe the early success, we are experiencing in did you guys with the ATM suite is a positive indication of the broader opportunity for aspentech either asset maintenance market.

At the end of fiscal year 19.

The energy vertical represented 41% of our business.

Chemicals, 27%.

Yes, he is 26% and GE are used including pharma 6%.

For the full year, our attrition rate was 4.7%.

We continue to expect improvement in attrition in fiscal years 20, and we expect to return to our historical attrition rate of approximately 3% overtime.

Our fiscal year 19 annual spend gross growth rate of 15.3% is an indication of the strong underlying growth in the business.

Our upcoming guidance for fiscal year, two any assumed an attrition rate of 3.5% to 4.5%.

Turning to our fourth quarter performance in more detail.

We benefited from the same macro trends, we have seen in recent quarters.

Together with the growing contribution from the ATM suite, we generated double digit year over year annual spend growth for the first time in 15 quarters.

This is a testament to the value our products provide to customers across each aspect of an assets lifecycle.

Hey, P.N. had a strong quarter to finish a great year.

As mentioned earlier eight P.M. generated 2.1 points of growth contribution.

Which is just over 2.5 times the contribution in fiscal year 18.

The fourth quarter performance was highlighted by our largest ever drawing be quarter and second largest inter quarter.

So I mean, our first agreements in China, Russia, and Latin America, and our first multi site mining and oil oil upstream agreements.

Improving the reliability of an acid minimizing downtime that percent the largest incremental opportunity to increase return on assets for most customers.

We have made significant progress in demonstrating to customers that we can deliver substantial additional value through our unique combination of data management capabilities analytics capabilities ease of use and deep domain expertise.

Our success in the market and the growing number of reference deployments are driving an increasingly strategic conversations with customers about the wider Bali, but APN can delever across their enterprise.

This is translating into expanding.

ATM transaction sizes that in many cases are materially increasing customer spend with aspentech.

We have seen increases in annual spend plenty 40, and even 80% from customers who are deploying APN.

This is an important indication of the strategic value of they PM suite for customers.

We're pleased with the performance in ATM in two years, we have created an entirely new product suite.

Validated the market opportunity established the differentiation of our solution and built a direct and in direct go to market organization focused on ATM.

As a result, we now have 76 ATM customers in 24 countries with nearly $40 million in annual spend.

A new growth driver in our core verticals and expanded market opportunity with the GE eyes, and a meaningfully enhanced value proposition for customers.

We believe this market is still in its early stages has not just crossed the chasm to pool market adoption.

We remain focused on maximizing the opportunity ahead of us.

We had a strong quarter with the Unsi customers, whose businesses continued to show signs of improvement.

The steady mid single digit growth in Capex over the past three years, an increasing capex spend on liquefied natural gas or LNG projects is leading to both increasing backlogs and I'm more confident outlook overall.

One of the most encouraging signs in this vertical is the growing number of final investment decisions being taken by owner operators for new projects, which should lead to increased and softer usage as a result of increasing backlogs.

As we get closer to the end of this renewal cycle that reflected a 40% decline in global Capex budgets.

We believe that we're well positioned for solid demand for our engineering suite from the Unsi customer supported by steady improvement in the business environment.

For owner operator customers the macro environment continued to be healthy overall infused because your fiscal year 19.

The importance of digitalization to Relicense sustained operational excellence is a key theme for these customers.

That's been taken sink is increasingly being recognized as a strategic partner that can successfully the lever on these initiatives.

Refining had a strong fourth quarter with not notable strength for our advanced process control planning and scheduling and predictive machine failure solutions.

Similarly chemicals had a strong performance in the quarter and the fiscal year. The chemicals industry is increasing focus on industry 4.0 technologies to drive operational excellence is driving a stronger adoption of our M. A C. A NAPM solutions.

We also saw that first aspin g. those transactions in the quarter and the strong interest for the product in its first full quarter in the market.

As a reminder, I spend do though is the next generation of process optimization technology that extends across multiple process units ultimately, reducing the performance gap between planning and execution.

I spent GE, though it is a highly differentiated technology that has the potential to generate meaningful benefits for refiners and bulk chemical customers.

Finding new and innovative ways to extend that's been to its market reach and enhance the value we provide.

Customers is a key priority.

During the quarter, we announced a tighter collaboration with hexagon ppm Division.

A leading global provider of engineering software for the detailed design construction and operation of plant ships and offshore facilities.

This collaboration alliance Aspentechs conceptual and basic engineering software with the hexagon P.P.M. detailed engineering suite.

The brink customers I fully datacenter workloads across the asset lifecycle and enable them to better manage the financial risks of complex projects, which is a major challenge today.

An interesting new relationship developed over the last year with Aon.

The global insurance group, which is promoting the use of Aspen and fill in aspects of daily to its customers to reviews on planned downtime and associated events as an incentive to lower their insurance rates.

This is the latest example of how ATM is expanding our partner ecosystem to accelerate capturing the opportunity created.

I would now like to share five examples of contracts, we closed in the quarter.

First our global mining company has expanded use of Aspen entered to six additional sites after deploying to infill on a pilot site.

The initial pilot accurately predict failures in crushers scrubbers, and conveyor belt, achieving the respective return on investment within 45 days of deploying the Aspen and Phil agents.

This contract was a competitive displacement one S or an eight vendor bakeoff three of which cannot complete the pilot.

Second our U.S. headquarter petroleum refining marketing and transportation companies sign one of the first aspirin Gi thought agreements for deployment on a middle distillate application at one of its refineries.

Suspected benefits from the U.S. So that's been G. those are $5 million to $10 million annually from optimizing each of the process variables targeted.

In addition, G. thought enabled the company to prepare for compliance with the more stringent IMO 2020 environmental regulation.

Specifically, starting next year I am all 22, any colds for an 85% reduction in sulfur emissions from ocean going vessels.

This is a good example of how the advanced technology within a within Aspentech solutions can help customers to achieve compliance with increasingly stringent environmental regulations.

[noise] third we signed an agreement for Aspen, Mtell with a leading eastern European integrated international oil and gas company.

This company has been an aspentech customer for more than 20 years and is a user of our Aspen, one engineering and MSC suites across all its refiners and petrochemical sites.

An initial aspen ample proof of Scott proof of concept successfully predicted failures on major compressors any news or the main petrochemical plant.

The proof of concept project involves three competitors, including two major global enterprise software companies and lasted just four weeks.

The new agreement increased a customer's annual spend with aspentech by 35% with the current scope, including just one refinery and one petrochemical asset.

For a Japanese refining company, a long time I spend pick user of the MSC products signed a new agreement to implement Aspen petroleum scheduler or it appears and PMD sale in support of the company's digitalization initiative for increased operational excellence.

Previously the company used an excel based in house scheduling tool and wanted to significantly reduce the gap between the refinery plan enacted production.

By using Aspentechs refinery planning and scheduling products in the refinery and Aspentechs plant scheduling product in the lubricants plant the company to minimize this gap push it to digitalization initiative forward.

The transaction involved a collaborative partnership with a global consulting and systems integrator to be had one of our main competitors in this space.

Fifth and final one of the examples the agreements signed with a national Lloyds refining company in the Middle East represented the biggest went to date for Aspen fidelis reliability or fr in that region.

The customer wanted to better understand the system wide risks and financial impact Obama planned downtime inox off spec production due to the poor asset availability and reliability.

It is suspected that if our will reduce capex for new projects by 5% an increase production by 3%.

Hey, it far will also be used for value chain optimization across that refinery.

We continue to make investments to enhance our product capabilities and increase the value that we can provide to our customers. We've recently made two technology acquisitions sub leasing a new book.

Which substantially accelerate our product roadmap for enterprise virtualization and deployment of applications at enterprise scale.

Setting the stage for future long term growth drivers.

As we have stated in the past we believe yeah.

A machine learning will be key technologies in the next generation of applications for capital intensive industries.

To be truly effective however, they must combine they must be combined with models based on first principles of chemical engineering physics that provide relevant and necessary context to data.

We expect that with a formal integration of the technology architecture and functionality from these two acquisitions in our future offerings, we will better support the adoption of these solutions at the enterprise level.

New Bill has developed a technology infrastructure for cloud deployment capabilities that enable targeted.

And I hope the applications to be assembled and deployed at enterprise scale.

It runs us assess service based on a containerized microservices infrastructure.

We believe new boss celebrates our R&D efforts by three to five years.

So these two provides a SAS enterprise to be sorely station on work flow solution that enables the creation of application to the right. The insights required by businesses at an enterprise level.

So diesel collects data from across different systems and applications. So that customers. The right insights from for real time decision support through advance we certainly session on work flow across the enterprise.

So these two also a celebrates our R&D efforts in this area by two to three years.

We're confident that these acquisitions will help to further differentiate aspentechs product offerings in the marketplace.

Our scalable business model and strong balance sheet provides us with the flexibility to make this investment in the business, while continuing to generate high levels of profitability.

The $237 million of free cash flow generated in fiscal year, 2019 represented 12% year over year growth or 15% on a per share basis.

We believe the flexibility that our strong financial position gives us to pursue acquisitions inverse invest organically in the business and return capital to shareholders via buybacks and is an important component of our strategy.

As we look ahead to fiscal 2020, we feel good about the state of the business were performing at a high level and anticipate a continuation of the positive demand trends, we have seen over the past two years, although the increase in three friction and its impact on global chemicals demand is something that we remain mindful of.

As I stated in previous calls we believe that we're experiencing a secular technology investment cycle in the process and other capital intensive industries, and we are uniquely positioned to benefit from it.

In fiscal year 2020, we planned incremental investments in product development sales and marketing an ATM.

That will allow us to maximize these long term opportunity.

We're targeting annual spend growth of 10% to 12% in fiscal year, two any to any underlying this guidance is an expectation that our core engineering and MSC suite, we're growing the 7% to 9% range, an ATM will contribute approximately three points of growth.

We anticipate further improvement in the performance of our engineering business and continued strength in the Missy business.

We expect greater control greater growth contribution from APN, given our current market momentum increased customer recognition of the value proposition and an expanding pipeline of opportunities.

We believe the longer term trends just listed for our product suites will support consistent double digit growth and provide opportunities for improved growth over time.

We see several positive drivers across our business our provides us confidence about our future growth prospects.

First let's mention that process and other capital intensive industries remain in the early stages of technology adoption to support their digitalization initiatives.

Utilization remains a key strategic priority across industries for improved operational and financial performance.

Second we expect ATM adoption to become more mainstream over time to the value the value creation drivers in this would represent a significant incremental opportunity for many customers.

Sure.

Aspirin Gi dot represents a major advancement and process optimization technology and provides customers increased value opportunities that have never been available.

We're very pleased with the early success of this product and believe there is a significant opportunity with refiners bulk chemicals customers.

Fourth.

So abuses enterprise, we solicitation on work flow solution will be an exciting way to extend the value proposition from our three product suites.

We believe the multitude of use cases to derive insights from all the data and information in the installed base of our products makes this new capability it potentially exciting opportunity.

Finally, new boasts the ability to scale, our future AI power solutions to the enterprise.

It will help drive greater adoption and enable larger customer deployments, we have had historically.

This brought our rate of growth opportunities in conjunction with the strong underlying demand for our existing engineering and energy solutions in a stable macro environment.

Provide the opportunity for aspentech to achieve its long term growth objectives.

Before I turn it over to Carl.

I want to make I want to make an announcement regarding the transition in our executive management team very wise, our chief operating officer will be transitioning from Aspen take at the end of this calendar year.

When Gary Joint Aspentech, he was with the understanding that he and his family would relocate from Tampa to the Boston area, which they did.

However over the course of the year. It became apparent that these family wasn't able to adapt to the Boston area and prefer to return to the Tampa Bay area.

As a result, we have agreed on a transition plan under which Gary will leave aspentech and allow him to rejoin his family at the end of the calendar year.

Gary has been a force for positive change at the company has made significant contributions to our growth over the past year.

I would like to think Gary for his significant contributions and leadership and wish him. The best we intend to conduct the search process for a new COO in the coming months.

To wrap up we're pleased with the performance of the business in the fourth quarter and fiscal 2019.

Our expanded product portfolio is decelerating annual spend growth and increasing the strategic value of aspentech to our customers.

In fiscal year 2020, we intend to drive further improvement in the business and make investments to support future growth opportunities.

This is an exciting time for the company and our customers and we're focused on is in an uninsured we fully capitalize on this opportunity.

With that let me turn the call over to Carl Carl.

Thanks, Antonio I will now review our financial results for the fourth quarter fiscal 2019.

As a reminder, these results are being reported under topic 606, which has a material impact on both the timing and method of revenue recognition for our term license contracts.

Our license revenue is heavily impacted by the timing of bookings and more specifically renewal bookings.

A decrease or increase in bookings between fiscal fiscal periods, resulting from a change in the amount of term license contracts up for renewal is not an indicator of the health our growth of our business.

The timing of renewals is not linear between quarters or fiscal years.

And this nonlinear clarity will have a significant impact on the timing of our revenue.

As a result, we believe our income statement will provide an inconsistent view into our financial performance, especially when comparing between fiscal period.

In our view annual spend will continue to be the most important metric in assessing the growth of our business and the annual free cash flow. The most important metric for assessing the overall value our business generates.

Annual spend which represents the accumulated valuable the current invoices of our term license agreements at the end of each period was approximately $541 million at the end of the fourth quarter.

This represented an increase of approximately 10.6% on a year over year basis, and 2.8% sequentially.

As we discussed in our Q4 fiscal year 2018 earnings call.

On an annual basis, we will be providing a new metric total contract value or TCV.

We define G total contract value as the aggregate value of all payments received or to be received under all active term license agreements, including maintenance and escalation.

We believe TV provides investors with insight into the total amount of revenue under contract at a given period.

The TCV metric demonstrates both the scale and the growth of our overall business in the context of revenue fluctuations between periods as a result of the timing of renewal bookings.

As of June Thirtyth 2019, the total contract value was $2.57 billion.

Total bookings, which we define as the total value of customer term license contracts signed in the current period last the value of term license contracts signed in the current period, where the initial licenses are not yet team delivered another topic six or six plus term license contracts signed in a previous period for which the initial licenses are deemed delivered in the current period was $241 million.

43% increase year over year.

The year over year increase in bookings reflect a significant increase in the amount of term license contracts up for renewal as compared to the year ago period.

Total bookings in fiscal year, 2019 were $651.8 million, a 30% increase year over year.

Bookings for the year were above our initial expectations and reflect our overperformance annual spend growth.

Total revenue was $195.8 million for the fourth quarter and 23% increase from the prior year period.

The year over year increase in revenue was a result of the increase in total bookings discussed above.

Turning to profitability beginning on a GAAP basis.

Gross profit was $180.3 million in the quarter with a gross margin of 92.1%, which compares to $146 million and the gross margin of 91.8% in the prior year period.

Operating expenses for the quarter was $69.1 million, which was up from $66.3 million in the year ago period.

Total expenses include cost of revenue were $84.5 million, which was up from $79.3 million in the year ago period, and $77.2 million last quarter.

Operating income was $111.2 million compared to $79.8 million in the year ago period.

Net income for the quarter was one O $103.9 million or $1.49 cents per share compared to net income of $76.6 million or one dollar and six cents per share in the fourth quarter fiscal 2018.

Turning to non-GAAP results.

Excluding the impact of stock based compensation expense amortization of intangibles associated with acquisitions and acquisition related fees, we reported non-GAAP operating income of $119.9 million, representing a 61.3% non-GAAP operating margin.

Appeared to non-GAAP operating income and margin of $86.1 million and 54.1% respectively in the year ago period.

The margin performance reflects the positive impact of incremental revenue recognized during the quarter.

We believe focused on annual free cash flow is the percentage of annual spend is the most appropriate way to assess the efficiency of our performance in the period.

non-GAAP net income was $110.7 million or $1.59 cents per share based on 69.6 million shares outstanding.

This compares to non-GAAP net income of $81.2 million or $1.12 cents per share in the fourth quarter of fiscal 2018 based on 72.3 million shares outstanding.

Turning to cash flow the company ended the quarter with $79.9 million in cash and marketable securities compared to $65.6 million at the end of last quarter.

We ended the quarter with $220 million of debt drawn down from our current credit facility.

I was going to be ended the quarter, we funded our acquisition of Nuvo by drawing down $80 million on a credit facility.

From a cash flow perspective, we generated $85.2 million of cash from operation.

$84.9 million of free cash flow after taking into consideration the net impact of capital expenditures capitalized software litigation and acquisition related payments.

For the year for the year free cash flow was $236.8 million, which exceeded the high end of our guidance.

A reconciliation of GAAP to non-GAAP results is provided in the tables within our press release, which is also available on our website.

I would now like to close with guidance.

Remember that we will now only be providing guidance on an annual basis and providing directional commentary on the timing of annual spend in bookings during the year.

We expect bookings in the range of $600 million to $650 million.

Which includes $317 million of contracts that are up for renewal in fiscal two.

Fiscal 2020.

From a linear narrative perspective, we currently anticipate 40 to 45 cents in fiscal year 2020 booking coming in the first half of the year with the remainder in the second half.

With respect to annual spend growth as Antonio mentioned, we're now forecasting 10% to 12% annual spend growth was 7% to 9% coming from our engineering and MSC suite and approximately 3% coming from eight P.M.

Similar to fiscal year 2019, we anticipate growth in annual spend will be weighted to the second half of the fiscal year.

We expect revenue in the range of $575 million to $615 million expect license revenue in the range of $377 million to $410 million maintenance revenue in the range of $170 million to $175 million and service and other revenue in the range of $28 million to $30 million.

From an expense perspective, we expect Capex total GAAP expenses of $369 million to $374 million.

Taken together, we expect GAAP operating income in the range of $260 million to $241 million for fiscal year 2020, with GAAP net income of approximately 188 $217 million.

We expect net income per share to be in the range of $2.70 to $3 an 11 cents.

As Antonio mentioned in fiscal 2020, we will be making incremental investments in the business in both product development and sales and marketing to best position the company for sustainable and profitable long term growth.

Our expense outlook also reflects some incremental expense related to the new boat and so be through acquisitions, which increased our head count by approximately 80 people.

From a non-GAAP perspective, we expect non-GAAP operating income of $272 million to $307 million and non-GAAP income per share in the range of $3.44 to $3.85.

From a free cash flow perspective, we're expecting to generate $250 million to $260 million, our fiscal 2020 free cash flow guidance assumes cash tax payments of approximately $55 million to $60 million.

Similar to my commentary regarding expenses for our 2020 free cash flow outlook reflects the impact from the incremental investments we are making in our business in the business.

From a timing perspective, we anticipate free cash flow to flow to follow similar seasonal pattern in fiscal Twond 2019.

When parents will be in the first quarter, which will now have a tax payment related to top it takes a sex and as a result free cash flow will be approximately breakeven for the quarter.

In summary, we affirmed at a high level in the fourth quarter and for the full year 2019.

The investments we have made in our product portfolio and go to market organization are paying off.

We believe we are well positioned to continue delivering an attractive combination of growth and profitability that can generate sustained value for the shareholders over time.

With that I would now like to began the QNX operator.

Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one can you touched on telephone. If your question has been answered or you wish him move yourself from the queue. Please press the pound key.

Prevent any background noise, we ask that you. Please place your line on mute. Once your question has been stated.

Our first question comes from Oliver with Baird. You May proceed with your question.

Hi, Rob Great.

Hi, Antonio he Karl Thanks for taking my question Antonio You mentioned.

And I think I got this the 20%, 40% and in some cases, 80%.

Additional spend with some of your customers that are taking up a P. M. Can you just walk through that dynamic a little bit first of all is that.

Is that incremental spend all ATM or is the suggestion that in the process of implementing a piano. They're also spending more on the core Aspen one suite.

And can you maybe dive in a little bit on how those how those customers are are are breaking out that span and then I had one quick follow up thanks.

Yes, I know when we refer to that 20, 40% that incremental spend in the APPM area as compared to the existing spend.

With engineering on the Missy products.

So so they can spend it quickly becomes a material.

Material amount of the total spend from these customers.

Hi, I have two more get maybe more on this tomorrow, but I also just wanted to ask.

As you guys.

You know you are clearly getting momentum in ATM.

Both within your core and outside.

How would the pricing conversations evolving I know that.

You guys have done a lot of work to try to.

Match, the price would the value and just wanted to get a sense when we look at.

That 3%.

No the pm.

Annual spend contribution for next year, how to think about that relative to you know how you got to pricing the product. Thanks a lot.

Yeah, I know demand.

I think where we are.

As time has progressed, we have become more confident about our pricing for ATM in the market.

We now have 76 customers, but up $14 million annual spend run rate. So we've learned a lot in the last two years.

The one thing that that's been happening now in the last six to nine months is we're now a beating and in some cases, winning enterprise style deals so volume and now becomes a driver for customers and then the length of the contracts as these customers move from an initial one or two year contract to a five six year. So so we're now getting into into the realm of.

Pricing at an enterprise level for deployment of hundreds or thousands of assets and that's what we're also developing expertise now above but we're much more confident when we're pricing on a site bases and by industry.

Thank you guys.

Great. Thank you.

Thank you and our next question comes from Matt Pfau with William Blair. You May proceed with your question.

Hi, Matt.

Hey, guys. Thanks for taking my questions.

Wanted to first ask on LNG Antonio how important is this.

To your business currently and then when you think about your growth drivers for next year is LNG.

A material component of growth for next year.

But let me look I think I think LNG, what I've, what I've told investors I've met with investors over the last three months since well since our April earnings call is that the projected capex spend for LNG over the next five years is about $200 billion.

With the a lot of.

The majority of it.

Up happening upfront in the first three years.

As these plans are being designed and built so of course is is is becoming a material.

Contributor to.

Two backlog for Ah some of these.

Engineering companies and not every engineering company has the capability to build these LNG facilities. The expertise is located in certain countries and with certain companies, but but it is certainly providing.

An interim a new source of Capex spend that wasn't there a year or two ago and as time passes and and the industry continues to increase Capex spend a mid single digit then then as we come out of all do the LNG face of spend I think we'll have a much healthier.

Macro environment for Orient seized with with greater Capex coming out of.

Upstream refining and chemicals so.

Got it and just wanted to ask one more in terms of.

China, maybe you can give us how big of a portion of your business that is and do you expect any.

Of the additional tariffs.

And things that are going on does it have any impact there.

Yes look I took that I think.

China, China's ladies and.

5% of our overall annual spend.

I believe it's in the sort of 4% range Oh, China do you have to.

Separated into sort of two areas national oil companies or a state owned enterprises, which certainly.

Get the guidance from from the government and then you have the private sector that it has sunk a significant investments in huge facilities.

And they're now looking more and more to optimize those facilities as a result of this slowdown in their economy and everything that we hear about so so we are seeing a healthy business from the private sector in China.

Certainly national National Oil company assisted our enterprises are much more reserved about their spending above but overall.

You know the the contribution of China as I've gone through to our annual spend growth on a yearly basis.

It's not that significant to our total results.

Every year.

But we hope to grow it as as we continue to target that private chemicals sector and other sectors on and we'll see what happens with the ongoing discussions between the two countries.

Great. That's it for me guys. Thanks, a lot.

Thank you.

Thank you and our next question comes from Steve Koenig with Wedbush You May proceed with your question.

Hi, Steve.

Hi terrific.

Hey, Thanks Antonio.

Yeah, I'm curious to know you said a little bit.

About.

Nuvo in your remarks, and you have the press release, but maybe can you tell me more about.

Kind of what's prompting you to go.

To make investment in kind of first principles engineering and physics.

And how does that combined with your with your existing ATM products would you be looking to combine that with ansell and maybe a little more color on what you use cases down the road you see that helping you with.

Yeah, Yeah, so Steve.

They optimize conference when when we first introduced the strategy around a high powered applications.

We also talked about the fact that if you want to have a high power applications you also need to.

Pulled up pulled that learning machine learning in the context of.

The the predictive capabilities. So first principal models.

Our engineering and MSC suites are based on first principles models.

When we add.

Either deep learning machine learning cognitive capabilities.

The expectation is that the predictive capabilities will be I will be in the context of models that are guiding the AI two tours.

Reasonable solutions and the thing is that as as you embed AI in these products are going to start consuming more data and as you start thinking about larger deployment of these applications, where there is a future AI power engineering or our missy products or eight PM with machine learning and we're now.

And APN, we're starting to see it.

Deployment sizes, where the amount of data on the number of equipment in the world.

We're we're applying a mtell is such that then Dan will need scale to be able to process. All the data you're seeing high performance computing, which is available in the cloud.

The opportunity then to visualize although say depends on all that information at an enterprise scale. So that's on one side, we're entering a new phase with APN, where the deals are getting bigger the deployments are getting bigger a lot more data being consumed so where we have the need to scale and new book gives us that once we start releasing applications that are that have artificial intelligence embedded in those.

Our engineered on legacy applications, we're also going to require the scale and the cloud deployment capabilities of a new book to to deploy them at enterprise scale and that's why we acquire new Bill.

So these two we'll see it nicely on top of mutual and then and then take all that information all that data at all dose, we sold and visualize I mean in the context of Uh Huh.

Insights that are derived from all that and be able to do it our enterprise scale as well. So we see this is really a as as as getting ready for the next phase of growth and and implementation of the solutions where we're.

The volumes of data, a and they did and they need to visualize all this information at enterprise scale called for a different architecture in our products.

Okay.

Thank you that's helpful. I'll leave that question there if I could do one quick follow up.

For Carl the new TCV metric.

And I may have missed the remark you made on it but.

It is.

Tell me again.

Kind of how that how you see that helping us and isn't that going to bounce around a little bit with major renewals as well enough of large contract comes to an end and then starts up again.

No it will bounce around because again, if you think about it is Steve. It's the total revenue will recognize from that contract right. So are you looking at total revenue total cash is going to come in from that contract. So if you're at the end of the beginning of a contract cycle at the balance would be the same.

And as every news it would replace itself and then it would grow because you would assume that it would.

Have escalation from that point and again remember that includes escalating because it has all the payments so won't bounce around it's really a good metric as we talked about last year to help you understand kind of what the total revenue is under management or total contract value under management and you can kind of get by the fluxes and the revenue due to the rent the renewals in the bookings Okay. I got it so it's not like an RFP out numbers more like an HCV times. The average duration of your contracts is that kind of run rate of your contract side.

It's not in the run rate if the actual revenue will be recognized in the contracts. So total cash coming in from these contracts got it okay. Great. Thanks, Thanks very much Carl.

Yep.

Thank you Steve.

Thank you. Our next question comes from Shankar So from Mani on.

Thanks of America you May proceed with your question.

Hi, Sean Thanks, Paula Hi, Hi, guys. How are you guys.

All right.

Thanks for letting me ask question. So I have a question on the ATM.

I know you guys are spending on the marketing side final build out the sales capacity.

Sorry about that in a little bit more detail. They use those dollars then do you see that kind of from first and then.

And maybe talk about when to the kind of mix. Thanks.

Mass adoption to happen in the ATM fleet now I think a lot of the early adoption is happening, but maybe just a little bit of color on the.

The timeframe and you can expect a mass it often.

Well I mean look the typically as we've seen the growth in a P.M., we've gotten more comfortable with the potential of the business and we started planning to to increase our investment in that area already.

Three four months ago.

So that we could kick off the recruiting processes and hit the ground running an endpoint 20. So so you'll start seeing the impact from some of that investment already in Q1, and then Q2 Uh huh.

We continue to monitor the business because we want to make sure that is well resourced as as as we're engaging more and more with customers.

As far as the inflection point or crossing the chasm I think we'll know when it happens when we're there.

Okay.

So.

Maybe just to switch to the.

The G. Dod business.

Obviously, that's a really.

It could be a big game changer for you but.

If you take a phone the AI.

Investments, you're making acquisitions domain.

When do you see that in today's the T. dog and and how do you see that playing out over the long run as you have just begun AI pieces into the feed off.

Yes.

And so it is not necessarily one of the products that we're targeting initially, Florida, Florida I, although we see the use cases.

We were looking at a number of products and we've talked about a hybrid model in APC planning and scheduling and so on our focus with GE dollar used to take it to market as quickly as possible one because he will benefit us both to there's there's a strong interest from customers to deploy Doug on a typical refinery you're talking about incremental benefits of $30 million to $50 million.

It was released.

In in early April and quickly in the quarter.

As I said, we signed a few transactions and we have up by pipeline of business that is developing it is certainly one of the new products that we believe will help sustain our performance in MSC.

Going forward.

We have we have a plan to start releasing.

Hey, I powered.

Products and applications I won't talk about the release data or when for competitive reasons, but once we do that we would expect that our customers will see the the significant value from from these hybrid.

Applications that combine a first principles of chemical engineering with a.

Machine learning deep learning and so on.

In order to.

To drive greater value from their from from their assets.

But but we've been working on this we're confident we will have they use cases, we've got the prototypes on and you do see it at some point from us.

Perfect. Thank you guys that's all.

Thank you Chuck.

Thank you and our next question comes from calendar was a fair number of capital you May proceed with your question.

Hi, guys, Hi, Hey, Thanks for taking my questions. The first question is just in terms of the strong performance for the end of the year.

Can you just make a bit of comments youve definitely performed better ones or bookings revenue and the EPS metrics and how much of that is potentially kind of linearity.

Getting fulfilled early on.

Before the assets of course is that maybe would have come in quite 20 or is it just pure improvement towards the annual spend.

Hi, guys I'm, sorry, you broke up in here a little bit. So your question was how much of the over performance in bookings was the result of the over performance in annual spend.

Yeah versus potentially some early deal renewals, so something that may be a reach but you would have thought that would come next year.

Yes, so the bookings came in right about where we thought we didnt have if we didn't have any early renewals command because remember that warning to repeat reflected in bookings until the expiration of the original owner so that wouldn't have it would only be the growth portion of that we'd be able to take into bookings and revenue. This year. What this is our first year undertakes no sex and we had some assumptions on you know remember bookings is a function of the annual spend renewed and grow but what the actual term and escalation will be in those because it's the full value of the contract and there were some assumptions that we had that played out a little differently.

Than we thought and the ultimate Overperform ton annual spend even though it's a small percentage translates into a bigger overperformance in booking so it's really a combination of where those deals end up coming out with relation to the terms.

And then the annual spend over performance.

Perfect. That's really helpful. And then just if we look at ATM business. You guys said you spoke about 76, if I go to write logos right now so you've added a few more from optimize.

How many.

I'm off to direct number, but just kind of if if we look at the 76, how many of those are still kind of proof of concept at least early stage.

Auction versus something that you think okay, we've kind of well penetrated that account.

No I.

Look I mean, we talked about an enterprise deal in.

In our Q3 results.

Now we've talked about.

Mining company going multi site. The fact is that the majority of the deployments are still a single side or two sites.

And we have a significant amount of customers for whom we're doing a proof of concept or pilots. So yeah. No. We're in the early very early days of.

Multi side or enterprise deployments.

Perfect. Thank you so much.

Yeah. Thank you.

Thank you and our next question comes from Sterling Auty with JP Morgan You May proceed with your question.

I started hey, guys.

It's actually it's Jackson ader on for Sterling Tonight.

Jackson most of the question.

First question from our side.

So the plan that investments in the ATM suite I know it may be early but are you, having or seeing any any problems attracting talent for ATM sales are filling your hiring goals given that it's such a tight labor market.

No not really I mean look.

Like I said to him I am I am one of my answers, we we planned our new investments for APN, starting three or four months ago, We got we.

We approached them and we've been recruiting and we've made great progress in and and the recruiting.

In that area, we were recruited and remember our recruitment is not only the United States, we target recruiting.

And.

Some places in Latin America Elder industries oil and Asia Europe . Because this is a global business is is it 76 customers in 24 countries and acquisition of new goal brings to us.

A significant number of.

Uh huh.

A talent with AI capabilities and machine learning capabilities. So so so we.

We are not seeing any challenges on on recruiting we just have to plan ahead on executing to it so.

Okay.

And then actually just another follow up on on the hiring so.

Can you just remind us like what would be the expected ramp time for a sales per se and maybe in your in your core suite and then how does that compare to what your expectations are for for ramp time for an ATM salesforce.

Yes look I think.

You have to correct or is it by suite, but but on average.

Our well around the sales organization I'd say six months six to nine months to ramp time engineering.

Because of the sales cycles can be three to six months you could see faster ramp time in engineering and our engineering suite.

Hey PM way, we are seeing a similar ramp of around six months before before.

They they start producing but it has to do a lot with the cell cycle, then and whether they're inheriting accounts, where there's already a pipeline and so on and so forth.

Sure well make sense all right. Thanks for the color.

Alright, Thank you Jack.

Thank you and our next question comes from Jason Selena with Keybanc Capital You May proceed with your question.

Hi, Jason Hey, guys.

Hi, guys. Thanks for fitting me in.

One question on the CPM guidance for next year.

If you look at the midpoint of your core suite <unk> guidance is kind of you know.

8% that's in line with what you did this year.

I mean, I guess, what what what it takes to get to that business to double digit again.

And I think time and you know we have an MSC business a as we said that was drawn at 13%.

Engineered business is up 6% and the bulk of the attrition today is going against that engineering business. When we talk about gross growth rate of 15.3% in fiscal year 19.

And on the attrition being 4.7% the bulk of that accretion is in engineering. So so over the next 12 to 18 months, we'd get back some of that accretion, which should move our engineering business into that sort of 8% to 9% growth range and then as as the macro environment or you can see is it continues to improve I think I think you potentially see a business that they can't get into into double digit at some point.

But certainly I can.

We can easily see our way to a 8% to 9% growth for that business MSC sustaining that growth rate on a P.M. grind year to year.

Okay, Great and then one quick one for Karl I noticed the tax rate was lower in the corner or anything specific on what drove that.

Yeah. So it was a couple of pieces that.

Came in at the end of the year that that kind of came in a little bit.

More for our benefit than we had anticipated first was the mix of our customers come as the mix of the revenue.

As you remember, there's a deduction for the foreign derived income for domestic IP, which makes it is a pretty significant deduction for us.

And we had more foreign income than we thought and.

Q4 end of Q3 timetable then.

And the originally planned to that in a couple of basis points to it and then lastly, we have.

The rising stock price is a it gives a benefit to us from tax in the excess tax benefit related to our stock comp. So when you book. It originally you booked into book value and leave it but then the spread between what the value creation between that initial and what you end up actually exercising it that is deductible for the company. So we had.

Pretty pretty.

Pretty large increase in the stock over the year and that came in a little bit heavier than we have planned originally.

Great. Thanks, that's all I know you guys smile.

Thank you Jay yes, looking forward to it.

Thank you and our next question comes from Mark Chappelle with benchmark you May proceed with your question.

Hi, Mark.

Hi, guys. Thanks for taking my question just one question here and Tony in your prepared remarks, you mentioned Youre a kilometer of collaborative partnership with hexagon, particularly with the ppm engineering suite.

I was just wondering if you could just go into a little more detail on how you see your solutions you know working with PPMD.

Yes, yes so.

Oh look.

The one thing to note this is about bringing together our conceptual.

Frontend engineering, our basic engineering with the hexagon so diesel engineering.

Top abilities. So when you bring the two companies or the solutions together.

Basically you have a you have to cover the full asset design livestock lifecycle from conceptualization through detailed design hexagon is also involved in the construction of these assets and eventually they have a three the cup abilities were where they have a.

A digital twin of an asset once it's in operations. So so hectic when an aspect that we'll be able to deliver the costamare is an end to end.

Set up abilities across a full asset lifecycle, and we will integrate our.

Our.

Our basic engineering software with their detailed engineering software will integrate our capital cost estimation capabilities with their project controls have ability so that customers have better visibility around project management and controls from end to end. A we are also developing use cases, where we integrate some of our manufacturing and supply chain solutions into their at Threex. The Cup ability. So so you can now be looking at a at a three d. representation of an asset on have real time operational information and the information that our products generated and the one thing about these two companies is that where number one across every one of their faces in the engineering design lifecycle Aspentech is number one the conceptualization on basic engineering.

Hexagon the hexagon could be in the vision is number one in detailed design number one in construction. So now would you do you have do you have to companies with a huge installed base in the market number one in each of the categories that will have integrated capabilities and our customers are loving it.

We have we've since we announced the partnership ordering has partnership because the fact is that the two companies have worked together.

For the past 20 years on and off a we've had a very material number of engagements with owner operators on the NCS.

Two tools to understand the business processes on the workflows that they want us to digitized for them. So we were very excited about this and certainly we both believe that enhances our competitive stand in the marketplace.

Great. Thank you that's helpful look forward to seeing.

All right well I want to thank everyone for listening to the call today, and we are hosting our Investor Day 2019 tomorrow here in our bed for headquarters and we look forward to seeing those of you that are coming through our offices.

Or if you're going to be on the phone look forward to a to the presentations that we would make it. Thank you.

Thank you ladies and gentlemen, thank you for participating in today's conference. This does conclude todays program and you may all disconnect everyone have a wonderful day.

Thank you.