Aspen Technology, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Aspen Technology first quarter 2024 Aspen Technology earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Brian DeNew from ICR. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss our financial results for the first quarter of fiscal 2024 ending September 30th, 2023. With me on the call today are Antonio Pietri, Ascent Tech's President and CEO, and Chantel Brightup, Ascent Tech's CFO. Please note, we have posted an earnings presentation on our OIR website, and we ask that you refer to this presentation in conjunction with today's call. Starting on slide two, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our annual report on Form 10-K and other subsequent filings made with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this presentation, we present both GAAP and certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and investor presentation, both of which are available on our investor relations website. With that, let me turn the call over to Antonio. Antonio?

Thanks, Brian, and thanks to all of you for joining us today. Beginning on slide three, these are the four key takeaways for today's call. First, Q1 was a solid quarter. which once again delivered double-digit ACV growth. We have hit the ground running to start the new fiscal year, shifting our focus from integration and transformation to execution and expansion. Second, demand remains strong in most end markets. More than ever, our products and solutions are mission critical and uniquely positioned to help customers meet their profitability and sustainability objectives. Third, We continue to see promising signs of growth across many different sustainability pathways that are expanding our market opportunity. We are highly encouraged about the potential to help new and existing customers achieve their sustainability objectives through partnership, collaboration, and co-innovation in different use cases. And fourth, we remain confident in our ability to deliver against our guidance targets for the full fiscal year. Our ability to generate double-digit ACV growth and expand free cash flow margins while also making strategic investments for growth is a great example of the scalability of our business model. Looking at our quarterly results in more detail, annual contract value, or ACV, was $898 million, increasing 10.9% year-over-year, and free cash flow was $16 million. As I stated last quarter, our cash flow is generally lowest in Q1 due to the seasonality of cash collections in our business. Turning to slide four, I will now provide an update on the dynamics we're seeing in our end markets, where demand remains strong, excluding chemicals. In upstream and midstream energy, customers are experiencing favorable market conditions and healthy demand growth. with recent acquisition announcements by U.S. oil majors demonstrating their confidence in the industry's long-term prospects. Strong demand, combined with a persistently tight supply environment, has led to higher oil prices and increased upstream CAPEX investments, especially from national oil companies. CAPEX investment is not only targeted at increasing oil supply, but also at sustaining existing production rates as the depletion rate of oil fields is a major area of focus. With the addition of the FCC Suite, we can now offer an even more compelling lifecycle solution to manage and optimize the entire value chain. And we expect demand in this market to remain positive for Aspen Tech going forward. In refining, while margins have fluctuated over the last three months, They remain strong as industry players benefit from a combination of increasing demand for fuels and capacity rationalization in Europe and North America. These same owner-operators remain focused on extending asset lifespans and reducing emissions through CAPEX and OPEX investments, targeting improvements in operational efficiencies where digitalization plays a fundamental role. We remain well positioned to support refiners with their initiatives through our ability to drive higher efficiency and therefore improve sustainability. ENC customers are benefiting from positive CapEx trends in both traditional energy and energy transition projects, driving higher pipeline and industry optimism. As we have mentioned in the past, we believe that sustainability initiatives will ultimately support faster and less cyclical growth than we have seen historically in this end market. We're encouraged by the trends we see with the ENC customers and expect they will continue. The environment for chemicals remains consistent with the first half of this calendar year, as industry players manage operating costs to support margins in response to weaker demand. While this is impacting our growth in the chemicals market, Chemicals customers remain interested in Aspen Tech solutions to help drive efficiencies, reduce emissions, and plastic waste, and accelerate the development of the circular economy. This gives us confidence that we will deliver faster growth from this vertical as market conditions improve. Finally, demand in the power T&D industry remains robust as the industry benefits from an immense and ongoing investment cycle to expand modernize, and strengthen the grid. This is being driven by increasing consumer and industrial demand for electricity, rapid adoption of renewables, and significant government funding. For example, the International Energy Agency's, or IEA's, most recent update to its net zero roadmap for 2050 predicts that $680 billion in global annual grid investment is needed by 2030 to meet the expected increase in electricity demand. The IEA also predicted that nearly 70% of this investment will be used for distribution grids with the aim of expanding, strengthening, and digitalizing networks, all of which were well-prepared to help support through our DGM suite. We're bullish on the long-term growth potential of this market, and it remains a key strategic area for investment going forward. Turning to slide five, I'd like to provide an update on our sales efforts as we kicked off the year. As I highlighted on slide three, we're making investments to increase sales capacity in both new and existing markets. We believe these investments combined with our Emerson commercial relationship will enable us to capitalize on the numerous growth opportunities we see across our business in the years ahead. We begin this process in the fourth quarter of fiscal 2023, and have made significant progress in these efforts since then. We expect to start benefiting from this additional capacity towards the end of fiscal 2024 and realize its full impact in fiscal 2025 and beyond. I'd now like to provide some additional color around software transactions closed in the quarter. Our customers continue to recognize the exceptional value and breadth of our innovation for their business. both to meet their needs today and their long-term development objectives. As a result, we have continued to win new business while also deepening our relationships with existing customers. The first customer reference is a world leader in industrial gases that is in the process of expanding from its traditional role in the production of industrial gases to become a leader in the production of green hydrogen. As part of this journey, this customer is using our software to design next-generation process technology and estimate investment costs for green hydrogen, green ammonia, and renewables. This customer doubled their engineering suite token entitlement as foundational technology for their ambitious growth objectives, with plans to explore further standardization on our offerings going forward. The second customer is a leading refiner that decided to more than double their business with us, citing its condition in the capabilities of our engineering suite and intention to explore additional use cases in alternative fuel development. This latest transaction built on our longstanding relationship with the customer, and we're excited to continue partnering with them going forward. Third, for DGM, We secured a large-scale perpetual license transaction with a U.S. power utility. The utility was in search of a better way to manage its transmission network, and recognizing the strength of our Monarch platform shows us over the incumbent following a competitive process. This customer is interested in additional DGM suite products, and we plan to continue working with them to expand the relationship going forward. The fourth and final reference is from our collaboration with Emerson, where we displaced an incumbent in the pulp and paper business of a leading global manufacturer. Emerson's existing relationship with this customer through its Delta V installed base provided valuable insight into its evaluation process and helped us identify that the value of our adaptive process control technology for more efficient and sustainable plant operations would be a key differentiator. We see room for expansion across this customer's asset base and remain confident in our ability to continue partnering with Emerson in pursuits going forward. Moving to slide six, I would like to provide an update on the sustainability opportunities we're seeing. The global megatrends of the energy transition and net zero targets continue to drive significant investment into the development of existing and novel technologies that can scale to achieve customers' net zero ambitions. As a result, customers' interest in our solution to support this type of sustainability projects is growing. This is manifested through ongoing capex spend, which drives increased interest and use in our engineering suite and represents most of our growth in this market today, as these assets are still in their initial design phase. However, over time, we expect to see a benefit from sustainability-related projects in our manufacturing and supply chain and asset performance management suites as well, since we provide customer value across the entire asset lifecycle from the basic design phase to asset operation and maintenance. The customer reference mentioned a moment ago around green hydrogen is an excellent example of these land and expand opportunities, and we continue to see many other compelling projects in different areas of sustainability. We also won in the quarter several sustainability-related opportunities through our high-velocity sales team. These wins included companies still in their initial startup journeys and later stage companies that have advanced into the testing and development stages of specific sustainability use cases. By leveraging our technology, these companies are developing solutions in areas such as carbon capture, plastics recycling, green hydrogen, renewable fuels, and batteries. We're excited about the potential to help them scale up their digitalization initiatives going forward. Turning to slide seven, I will now provide an update on our innovation initiatives. In Q1, we continue to drive innovation across our portfolio to help customers run their assets safer, greener, longer, and faster, resulting in the planned release of enhancements to our current version 14 software and a new version 14.2 update later this month. These upgrades will include new machine learning and neural net capabilities across many of our products to enhance their hybrid modeling functionality, expansion of our sustainability application library, and product integration for Emerson's Ovation power generation control system, among other areas. We also remain focused on helping our partners reach their sustainability goals through co-innovation in the quarter. For example, we have completed the productization of the technology license from Aramco, Architect 3, to be released at Aspen Strategic Planning for Sustainability Pathways. This product holds significant potential to help our customers make more informed decisions in their carbon management strategies and, over time, It should also incorporate capabilities to help customers better navigate multiple other sustainability pathways. In its initial release, the product will simultaneously consider economics, process design, and operating constraints to help customers optimize their carbon management strategies. Additionally, as announced this afternoon, we're expanding our relationship with OMV Group, a multinational integrated energy company based in Austria. to accelerate the company's energy transition initiatives. As a first step in this partnership, we will focus on the renewable fuels optimization strategy by helping them better leverage their industrial data and develop a simplified integrated supply chain model across OMV's fuels and chemical supply chain. Now, turning to slide eight, I will discuss our outlook for the remainder of fiscal 2024. We remain confident in our ability to deliver ACV growth of at least 11.5% and free cash flow of at least $360 million. Industry demand for greater operational efficiency coupled with higher investment levels to support sustainability goals and energy transition initiatives is driving a strong demand for our innovation. Macro trains remain consistent with our expectations at the beginning of the year, and we're closely monitoring the ongoing conflict in the Middle East for any potential impact on market dynamics, which so far has been minimal. I would also like to give an update on the Aspen Tech team in Israel. Our priority has been the physical and mental safety of our team members there. We remain focused on these, and we will continue to make sure we're doing all that we can to support our affected employees. We also want to extend our heartfelt condolences to all those directly and indirectly impacted by this event in Israel and throughout the region. Lastly, as announced a few weeks ago, Chantelle will be stepping down from her role here as CFO at the end of December. Chantelle has been a great partner to me and a leader for the organization. On behalf of the entire team here at Aspen Tech, I'd like to thank her for her many contributions and wish her all the best in the next chapter of her career. We have full confidence in Chris Stagno, SVP and Chief Accounting Officer, to step into the interim CFO role after Chantel's departure should we need additional time to complete our search for a permanent CFO. With that, I would now like to turn the call over to Chantel for a discussion of our Q1 financial results. Chantel?