Aspen Technology, Inc.

Please note that this conference is being recorded. I will now hand the conference over to your speaker host, Brandon Yu. Please go ahead.

Thank you, Olivia. Good afternoon, everyone, and thank you for joining us to discuss our financial results for the fourth quarter of fiscal 2024, ending June 30th, 2024. With me on the call today are Antonio Pietri, Aspen Tech's president and CEO, and Dave Baker, Aspen Tech's CFO. Please note, we have posted an earning presentation on our website. This includes an explanation regarding the impact of ASC Topic 606 on our financial results. It also includes definitions of annual contract value, or ACB, bookings, and free cash flow, among other metrics. We ask that an investor refer to this presentation in conjunction with today's call. Starting on slide two, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results might differ materially from those contemplated by these forward-looking statements. Factors that can 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. Our 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 welcome to everyone joining us today. Aspen Tech delivered a strong fourth quarter to finish fiscal 2024. We achieved these results on the strength of our innovation and focused execution on a solid pipeline of business. despite the persistence of a dynamic macro environment and cautious customer spending in some of our end markets. We were also pleased to see the benefits of our efficiency and productivity initiatives in the second half of fiscal 2024 come to fruition, delivering a favorable expense outcome for the full fiscal year. Our Q4 performance is a demonstration of what's possible as a result of our efforts over the past two years to integrate the Heritage Aspen Tech, DGM, and SSE businesses, while also transforming the DGM and SSE businesses. We believe these efforts are now largely completed, which, coupled with our broad portfolio of mission-critical products, position Aspen Tech well to execute and deliver on an attractive combination of ACV growth and best-in-class profitability going forward. Additionally, we continue to make good progress in our commercial relationship with Emerson, and we expect these efforts to lead to further benefits in fiscal 2025 and beyond. Turning to slide three for our Q4 and fiscal 2024 results. ACV was $968 million in the fourth quarter representing 9.4% year-over-year growth and 3.5% sequential growth. Free cash flow was $335 million in fiscal 2024, slightly below our guidance, and $153 million in the fourth quarter. I would also like to provide an update on our exit from Russia announced earlier today. were exiting Russia following the US government's recent announcement of expanded sanctions in the country, prohibiting, among other actions, the sale, service, maintenance, and support of enterprise management software and design and manufacturing software in the Russian market. As a result of these measures and our exit from the Russian market, we have written off certain assets that are related to our operations in the country. From an ACV perspective, We have written off all Russia ACV for a reduction of approximately $35 million in our total ACV balance as of the end of fiscal 2024. Our new ACV balance is $933 million after adjusting to reflect the impact of this reduction. We have included tables in the appendix of our earnings presentations to help bridge these numbers for investors. Dave will address the other related areas in his remarks. As you will remember, we moved to renewals only in Russia in fiscal 2024. The contribution from this business in fiscal 2023 made it apparent that it was no longer going to be material to our overall growth profile resulting from the continued expansion of sanctions on the country. When removing all Russia ACV from our results, our fiscal 2023 growth rate improved 60 basis points from 11.8% to 12.4% year-over-year, while our fiscal 2024 growth rate also improved 60 basis points from 9.4% to 10% year-over-year. Relatedly, Attrition in fiscal 2024 was 5.6% when including Russia ACV, compared to 4.7% in the same period when removing Russia ACV. Now, returning to our results, I would like to emphasize the following regarding our Q4 and fiscal 2024 outcomes. First, as I mentioned at the start, Our performance in Q4 demonstrates the benefit of our transformation and integration efforts to bring together Heritage Aspen Tech, BGM, and SSC, and investments made over the past two years. The outcome achieved was execution-driven, leveraging the platform built. We're also pleased to see the initial benefit from the sales expansion efforts made across the portfolio as we continue to advance and mature our business in these areas. Second. Our innovation remains highly relevant and mission critical to customers in asset-intensive industries. Throughout fiscal 2024, we worked collaboratively with many leading players across our end markets to advance our product offerings and develop new solutions. By working alongside our customers and remaining focused on accelerating their operational excellence, we continue to be a key strategic partner helping them to meet their efficiency and sustainability goals while navigating a dynamic microenvironment. Third and final, we remain committed to driving increased efficiency and productivity across organizations. With this focus, we have delivered lower expenses in the second half of fiscal 2024 relative to the first half of fiscal 2024. Looking ahead, We're confident in our ability to maintain expenses at current levels. We'll also continue to invest in strategic growth areas, including our DGM business. Turning to slide four, I will now provide an update on our SWEETS performances in Q4 and fiscal 2024. Please note that all ACV growth figures referenced for suites will be based on our 9.4% year-over-year growth rate in fiscal 2024, which does not reflect the impact of the write-off related to the suspension of commercial activities in Russia. The Digital Grid Management Suite, or DGM, grew by approximately 40% in fiscal 2024 to contribute 2.5 points of growth in line with our expectation. This outcome is a testament to the strength of our DGM suite and products and the early benefits from building out DGM's go-to-market capabilities to date. It also underscores how we remain well-positioned to be a prime beneficiary of the substantial CAPEX tailwinds to modernize, expand, and cybersecurity grids around the world. Power outages, such as those recently experienced by the city of Houston, due to Hurricane Beryl, highlight the need to create a more resilient grid in the face of more frequent and impactful weather events, including the capability to recover faster from them. These are the use cases that our recently launched Aspen Tech OSI outage management system was developed for and is now being deployed by utilities in North America. We also saw good momentum with utilities outside of North America as part of our Q4 success. In Europe, we signed our largest term software deal ever for the region to upgrade a national grid operator's existing SCADA and EMS solution while displacing a competitor. This utility was in the market for a solution that is modern, adaptable, and most importantly, capable of helping them to ensure reliable real-time operations in the face of rapid renewables growth. In South America, we completed a significant term license deal with a long-standing customer that is also one of the region's largest transmission utilities. With networks across multiple countries that continue to grow in complexity, this customer highly values our grid management capabilities and trusts our ability to help them navigate an evolving landscape after more than a decade of working together. These are just a few of the successes we saw with BGM in international markets in Q4. As a core driver of this suite's growth, we're excited to build upon our successes globally going forward. The Subsurface Science and Engineering Suite, or SSE, contributed one point of growth in fiscal 2024 in line with our expectations. SSE had a strong Q4 as it benefited from solid execution as well as customers' positive reception to the tokenization of our SSE products. We continue to see solid demand across the upstream market. During the quarter, for example, we further expanded our business with a national oil company in Asia for our advanced petrophysical analysis capabilities. in areas such as formation evaluation and reservoir characterization, while also converting them from their perpetual licensing arrangement to term software and tokens. This customer now has access to the full set of product capabilities in the SSE suite, which we expect will lead to use of other products, resulting in increased usage and spend with Aspen Tech. Turning to slide five. Our Heritage Aspen Tech Suites contributed six points of growth in fiscal 2024, outperforming our expectations for 5.5 points of growth. The Engineering Suite represented 3.4 points of this total growth. Consistent with SSE, customer interest in our offerings remains solid in the upstream market. For example, we continue to expand our relationship with an upstream gas producer in Latin America that is leveraging our engineering suite capabilities to increase production from their gas fields by the bottlenecking and optimizing their gas processing facilities. This equates to hundreds of millions of dollars in capex savings, resulting in one of the most important ongoing value creation use cases in our customer base. EPCs in particular are benefiting from growing backlogs driven by CAPEX strength in traditional energy and sustainability. In Q4, for example, we won a large seven-figure deal with a long-standing EPC customer. By expanding access to the engineering suite, this customer can now further optimize their engineering man-hour costs, streamline their facilities design processes, and provide their customers with even more highly relevant asset design options. thereby improving their overall bidding prospect success. We also signed important sustainability-related wins in Q4, even as growth in this area moderated relative to the first half of the year. As an example, we expanded our business with a leading sustainable aviation fuel company that is using our engineering suite to meet its operational performance objectives while scaling up. We're excited about the opportunity to continue partnering with this company going forward as it continues to grow and explore additional Aspen Tech offerings. The Manufacturing and Supply Chain Suite, or MSC, contributed the other 2.6 points of hat growth in fiscal 2024. Customers continue to see our MSC Suite capabilities as essential to improving operational and financial performance and achieving their sustainability goals. As a result, we saw solid uptake across MSC in the second half of fiscal 2024, and especially in Q4, despite this suite experiencing the most pronounced impact from the extended downturn in chemicals. In Q4, we won several deals for our new Aspen Unified Planning and Scheduling Solution and leading multi-unit optimization product, GDOT. For example, we signed a mid-seven-figure deal with a leading refiner in North America based on the strength of our technology, domain expertise, and dedication to co-innovation to support them in increasing operational efficiencies and creating a standardization and real-time visibility across their value change in their next phase of their digitalization journey. We also signed a large deal with a leading refiner in Europe. This represents a continuation of a deeply collaborative relationship with the customer, who is now in the process of transforming their business from traditional refining to biofuels. Our ability to support bio component optimization through Unified was a key driver of our further expansion with this customer. Finally, the Asset Performance Management Suite, or APM, perform as expected, remaining flat year over year. As I mentioned last quarter, we have simplified APM's go-to-market strategy and are increasing our focus on certain market segments where the use cases lead to significant value capture for customers and produce high-quality ACV for Aspen Tech. As a validation of our strategy calibration, we saw meaningful ACV growth contribution from these market segments in the Q4 quarter, which mitigated the attrition experience from customers in markets where we no longer focus on. We're in the early stages of our new strategy and plan for some moderate sales headcount investment focused on APM sales in the market segments targeted going forward. On slide six, I would now like to provide an update on our innovation. As I highlighted on our last call, we held a successful optimized user conference in early May. With a robust turnout, Optimize24 was an excellent forum to reconnect with our users, align on shared visions of the future, and drive further collaboration and co-innovation opportunities. We were excited to have received lots of positive feedback from customers about the event, our strategy, and the Aspen Tech mission. leading to additional engagement opportunities in the quarter and adding to our existing pipeline of business. After optimized, we continue to engage with customers around industrial AI, which is how we refer to our unique blend of artificial intelligence, domain expertise, and first principles-based innovation. With a well-established track record in the field, we're seeing an acceleration of interest from customers around our ability to deliver tangible value to our approach. This includes better modeling and optimization, decision support, predictive maintenance, and more. As we drive further innovation around industrial AI, we believe that it will continue to serve as an important contributor to our growth. Finally, I'm also excited to announce that we plan to release Our new microgrid solution under general availability this quarter as part of our V14.4 update. While this solution is part of the DGM suite, we see a significant opportunity to expand it into downstream chemicals and refining markets, where there's increasing focus on ensuring resilient and reliable power supply as renewable energy is incorporated into their electrical networks. Turning to slide seven, I would now like to close with guidance. We start this year with a solid pipeline of business and a strong foundation from the integration and transformation work over the past two years. With this phase of work now largely completed, our teams will be able to focus on capturing the opportunity in front of us. For fiscal 2025, we're targeting ACV growth of approximately 9%. This is based on a total ACV balance of $933 million as of the end of fiscal 2024, which reflects the removal of all Russia ACV. At the suite level, this includes expectations for approximately 5.5 points of growth from HAT, approximately 2.5 points of growth from DGM, and approximately 1 point of growth from SSE. We also expect attrition to be approximately 4.5% in fiscal 2025, which improves on our ex-Russia attrition rate of 4.7% in fiscal 2024. This guidance reflects the following micro-assumptions. First, we expect end market demand trends to remain largely similar to what we saw in the second half of fiscal 2024. This includes continuing strength with utilities and energy, muted growth in chemicals, and a more moderate sustainability capex environment. Second, we expect the macro environment in fiscal 2025 to remain dynamic. This includes expectations for the continuation of cautious customer spending in the face of an uncertain economic environment. For free cash flow, we expect approximately $340 million in fiscal 2025. I would note that we expect underlying free cash flow growth in fiscal 2025 to be meaningfully stronger than our guidance indicates due to several one-time factors that Dave will address in a moment. Finally, we aim to deliver flat expenses year over year. As I touched on at the beginning, we established solid traction in this area in the second half of fiscal 2024, and this fiscal 2025 expense plan further emphasizes our commitment to leading a best-in-class profitability business. As part of these efforts, we have identified additional opportunities to further streamline the organization and align resources across Aspen Tech. Today, we announced a workforce reduction of approximately 5% in the first quarter of fiscal 2025, including actions related to our Russia exit. We're supporting the departing employees with appropriate severance packages and other services to help them in their transition to new opportunities. These type of decisions are never easy to make. And on behalf of the company, I want to thank all impacted employees for their service and contributions to Aspen Tech over the years. With that, I will turn it over to Dave for a review of our financial results.